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Comment by harmmonica | Hacker News Reader

A drop in housing prices might be the only silver lining if an actual recession hits (whether the official statistics will actually admit to a recession is debatable of course).

That said, even if housing prices drop materially and eventually bottom it will provide little opportunity for "normal" folks to buy in if they're jobless. Will be interesting to see if Fed interest rate cuts translate to mortgage rate cuts, and whether those rate cuts lessen any price drops.

I've said this before on here, but the historical price-to-income for housing has been something like 4x. Today it's 7x (that is as insane as it sounds). A long way to revert to the mean unless you really think "this time is different."

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Housing prices dropping aren’t so good for those who own homes. It is also likely there will be a feeding frenzy of investors snatching up homes. I had a hard time buying a few years ago, because investors kept out-bidding me with all-cash offers. I had to raise my price target to move outside of their impulse buy range, which I was not too happy about.

> Housing prices dropping aren’t so good for those who own homes.

As housing prices are tied to the property tax it is a good thing for people who are not planning to sell anytime soon. Remember a home is a place you live, not an investment. People who treat homes as investments cause a lot of problems for people who just want to live somewhere that isn't propping up some middleman landlord.

The dynamic here is that investors accept 3% return for housing because there are no good alternatives.

The expected return is considerably higher now, this should mean that houses should be traded at PR at around 20 again (as opposed to upwards of 30 when there was no better investments to be made).

Investors will likely not be an issue as long as we don't go into zirp again.

> Housing prices dropping aren’t so good for those who own homes.

Isn't it only bad news for people who are selling their homes?

Sometimes people need to move for family or work reasons that are beyond their control. Being underwater on a home in a situation like that isn’t fun. I knew people who ran into that in 2008.

You can use your real estate as collateral if you own it. To buy nice cars, fancy vacations, etc etc. And you want the real estate value to increase as much as possible. Even if that means destroying your nation forever.

... people take out loans to buy cars and go on vacation, using their house as collateral?

Yes, the economy of the entire industrialized world runs on this.

People borrow money against their house to buy a car or a boat because rates are much better. The bank tells them to borrow a few ten thousands extra while they are at it, since the rate is so good. Why don't you take a vacation or get that new thing you wanted to buy?

From where do you think everybody has so much money to spend, while you are working full time and have nothing? It's not only credit cards...

I would personally advise against that, but HELCs are a popular financial vehicle in order to do exactly that.

So lower prices mean higher prices?

How do you know they’re investors?

In one case, it was a realtor that bought the home. She was just leaving the house when I went to look at it. Reading between the lines from what my realtor told me, I think she bought it and leased it back to the former owners so they didn’t have to move.

What I am worried about is won't building new homes slow down to a crawl or stop completely if the r word is confirmed?

I think with the amount of corporations and existing homeowners buying homes that the demand is strong enough to keep prices high no matter what happens. There are billions of dollars set aside to gobble up homes in the event of a price drop. In my area, 20 percent of homes are owned by investors and realtors delist homes that don’t sell as opposed to drop price.

> In my area, 20 percent of homes are owned by investors and realtors delist homes that don’t sell as opposed to drop price.

This has been so weird to see over the last couple dips.

In the ‘08 crash, banks were sitting on houses that were developing mold issues because they had been sitting vacant so long. These houses were getting more damaged and less desirable by the day, and before long would require hundreds of thousands of dollars to fix (up from the low-tens already evident) but they still preferred to sit on them. They weren’t listed, or were listed but at too-high prices and they were just ignoring offers, not even responding.

Then you look at “depressed” housing prices that are still way over historic norms, so you’d think builders would keep going… but no, they totally halt all work, no new houses until prices are heading up again.

Something’s super messed-up about the housing market in ways that it wasn’t in the last millennium. Recessions don’t even fix it, they just make everything pause.

Already happening around me as the price of construction has been going up, while the value of homes is flat. Empty lots zoned and permitted for apartment and condo complexes lay empty.

On the other hand, it'll get cheaper to build new houses as material and labour costs should fall. Might be hard to get finance though.

Labor costs are unlikely to fall. The cost of living has been on an upward trend that shows no sign of stopping. The federal government waging a campaign of terror against the demographic that most house builders employ is certainly not helping either.

Desirable metros seem to have very sticky prices. San Francisco, where I lived for 15 years, turned into a grotesque caricature of what it once was, but prices barely budged (and for most of that transition, they surged wildly). Sure, it's no longer the single most expensive rental market in the country, but it's still one of the highest despite quality of life degrading massively and even a big decline in population.

People say this a lot, but it makes no sense to me. A recession comes with lower incomes and wealth for everyone, so affordability doesn't change for the average person. It only increases it for those who had a short position in their asset allocation, but that's just investment outperformance which you can have even without a recession.

You're generally right except it's not true for everyone. Every recession that hits a lot of folks just keep their jobs and their salaries. Maybe their stock portfolios (for the few who have those outside of 401k's) take a hit. But the key is that if there's a real estate downturn, almost every single home (house, condo and even land) takes a hit and so you end up with a situation where all the inventory drops in price, but not all the eligible buyers "drop in price" (i.e., not all eligible buyers suffer a downturn and so, net, you actually get more people into homes).

The key of course is that the downturn isn't so massive (hello 2008!), where the blood flows so freely that the layoffs/foreclosures/etc. overwhelm the eligible buyer pool in absolute numbers. That can for sure happen, but is atypical historically.

You've just listed a set of specific circumstances under which some number of people might find housing more affordable, but that's a lot more like "investment outperformance" driven affordability than "broad based housing price decrease" affordability. That can happen even without a recession. A small number of people could've found Bay Area houses more affordable in the last decade if they were HODLing some 10x stock.

FWIW I think I just listed a set of circumstances that happen every time there is a drop in housing prices historically, at least going back to the 90's savings and loan crisis. I'll tell you when people found Bay Area houses more affordable? 2009-2012. And during that time the unemployment rate was at roughly 10 or 12% (had to look it up just now but knew it was around there). Housing prices during that same time? Dropped as low as 40-50% in some parts of the Bay (best case they were down 20%+). 10x stock needed? No. A job? Yes. You can repeat the exercise for the start of Covid, but the timeline for the drop in prices, and the % drop, was muted in comparison to the housing crisis. Same for S&L crisis. Dotcom bust too, though, again, housing prices didn't crater like the housing crisis.

It's 7x these days largely due to the 0% interest rate environment we had for so long.

I wonder what it is in "monthly cost as a fraction of monthly income".

Be very careful what you wish for. That's not much of a silver lining.

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