Can someone explain this hope for a “crash”?
By - LMoE
It’s the people who have been saving for a down payment that feel like prices have gone way up and may never be able to buy something since the prices are increasing faster than they can save.
I hope they’re not taking extra long to save 20% to avoid PMI if they’re otherwise ready to buy. A fixed rate mortgage effectively becomes cheaper when there’s inflation. That inflation also pumps up home values and could make getting rid of PMI easier.
Something I hadn't even considered until I put my first offer in recently is the need for significant additional cash on offers over asking, which is pretty much a necessity to win a bid in this market.
I can easily cover a 5% down payment on our targeted price, but coming up with the cash for 1) an over asking offer when the house appraises at asking and 2) any potential appraisal windfalls makes things a lot trickier
My scenario was budget of up to \~410K with \~50K in savings (planned for 5% down payment). We found a home we loved at 385K and originally put a bid 10K over asking which was already pushing it. We were told it needed to be higher and cover appraisal gaps in order for a chance to win so we went **20K** over asking with an appraisal gap cap at 380K, so we would have owed up to 25K in cash in addition to the 5% down payment of \~19K and closing costs. (We lost, which is probably for the best)
> That inflation also pumps up home values and could make getting rid of PMI easier.
In the short term inflation could actually decrease the value of your home if the fed raises interest rates (which will impact mortgage rates) to combat it. People tend to buy homes based on budgeting for the monthly payment they can afford. With 30 year mortgage rates at 2.5% a $1m house with 20% down costs $3161/month for P+I. If you increase mortgage rates to 3.5% the price of the home has to come down to about $875k for the same monthly payment. If you increase rates to 4.5% the price on the home has to come down to about $775k. This may or may not be offset slightly by property tax changes depending on how your town values homes and adjusts them.
Mortgage rates averaged 4.5% just three years ago. If we get back there in another 3 years, even if you had sky-high 4% inflation that was matched by wage increases in the meantime, your $1 million house discounted to $775k due to mortgage rates will be worth about $872k after inflation, still short of the $1 million you paid for it.
If you can hold on to a home for a long time then inflation will be your friend. If you're buying a 5 year starter home it might not be.
The people in a great situation are people who bought when prices were lower and refinanced at current rates.
Certain HCOL areas had 4.5% + in 2018/19 and it didn’t slow property values one iota.
For more sane markets, higher interest rates might cause downward pressure on home values, to get to parity on the P+I affordability.
Interest rates will not slow down demand in hot markets where building inventory hasn’t kept up. It would have to hit 7% or more on the mortgage in those places. My state is a good example. We’ve been under built since it became a state (TX, the frontier), enter the savings and loan crisis of the 80’s... lots of local builders lost their ass...then the Great Recession hit and while we still had plenty of people moving to the state the big box builders stopped building because they were losing their asses in other states like Arizona, Nevada,and Florida. But the demand never really dropped down here, so we kept rolling through it at a balanced market. Up until 2016 we still had 6500 vacant subdivided lots in my county. Those lots were subdivided pre savings and loan crisis and the mom and pop builders started buying them up at a frenzied pace. They had a great run for 4 years. Now we are all just waiting for the ranchers to sell a parcel and get the permit to subdivide. Then there’s the expense of creating a subdivision that doesn’t have to rely on a city for utilities. You’re now looking at lots that have to be at least one acre to accommodate an on-site septic and those lots will cost a buyer a 100k plus just for the land. The alternative if is for builders to secure a chunk of land they can put two story houses on a .17 acre lot but be on city utilities. That takes environmental studies and a lengthy process with whatever municipality that will handle a new sub. Throw in lumber costs right now... we are so fucked on inventory.
>If you increase mortgage rates to 3.5% the price of the home has to come down to about $875k for the same monthly payment.
>your $1 million house discounted to $775k due to mortgage rates will be worth about $872k after inflation, still short of the $1 million you paid for it.
When mortgage rates go up it means there are fewer people in the market for your house, it doesn't mean the value literally goes down. When we had 4.5% interest rates three years ago the same inventory problems we're seeing now still existed, they were just less intense. There are really huge macro issues with the market right now, like millennials aging into home ownership age and income and not having enough housing available, price of goods for things like lumber, supply chain disruptions, labor shortages. If you have a couple million people looking for homes that can't find them, minimizing the number of people in the pool is still going to leave more people looking than finding. Mortgage rates are just one factor that goes into the price of a home.
we ended up spending about $2500 in PMI over the course of 3 years in which our house value jumped at least $40,000 (likely more I feel like our refi appraisal came in low but wasn't worth fighting).
Appraisals tend to be more conservative. In a market where home prices are raising rapidly, they usually come in under market, especially when doing a refi.
This is exactly what like every young person I used to work with was doing, who is still without a house like 4 years later.
I got a 2.8% down first time buyer house like 10 years ago, sold it recently as it had increased in value about 20% (and I was renting it out until now to pay the mortgage).
I got the same idiotic advice about PMI with every house I bought, and I got my 4th one 6 months ago.
The cost of PMI is smaller than the inflationary price increases in every case, and every person I talked to is like, "I'm saving $100k for a down payment"... lol good luck renting forever.
Agree 100% I’ll never understand Reddit’s infatuation with avoiding PMI it’s really not that bad lol
It's just advice from their parents who were buying houses at like 17% interest rates during Jimmy Carters stagflation era and were trying to avoid a third of their payment going to PMI
Up until like 2002 or so it was good advice.
Any advice that's based on generalizations instead of just doing the math is bad advice, IMO
True, though in general back then it was easier to save up that 20% because house prices were lower thanks to higher interest rates. And you'd also save more by avoiding an 8%+ interest payment on that 20%.
Could you even get a loan without 20% down back then? It was my impression that putting a lot less down is a relatively recent (like since 2000) invention.
By 1971, PMI was available for homeowners with just 5 percent downpayment to put down on a home. --https://themortgagereports.com/87/the_origin_of_t
No it's always been a thing. Fannie Mae was created in the Depression and FHA loans have been around since the 40s. I don't really know the finance but I think the system still mostly works like it always has. From my experience shopping for mortgages a few years ago, we only found one 3.5% loan that was a bank product. We didn't look at the variable rate or balloon mortgages or anthing like that. I would guess those are probably 80s and more recent.
Same! It’s heavily spewed on subs like r/personal finance. I also think it gives people a feeling of self-superiority compared to others who have PMI. Pretty loserish viewpoint if you ask me
Especially when interest rates are this low. There’s a good chance interest rate + PMI right now is better than whatever the interest rate will be by the time you can save up 20%
I just put 5% down on a condo out in San Francisco, and it is shocking how many people didn't even know you could put 5% down, or gave me a "well, you have to pay PMI!" kind of discussion.
Like, PMI is $100 a month to put 5% down, and if the price of homes increases by 20% over the next 2 years PMI falls off early (in SF, it very much can do this too). I'd much rather pay an extra $100 a month for 2 years and hold on to $30K more in cash to upgrade and fix the place than sit in the sidelines and be priced out.
Yeah exactly, even WITHOUT increases the PMI is cheaper than the opportunity cost of other investments for that cash.
Obviously this depends on the actual amounts and values and markets, but some basic math should be enough to figure out what's worthwhile.
For me I need to remodel my place and do some much needed upgrades. The electric panel is out of date and I want to add a washer/dryer hookup. I wouldn't be able to put 20% down and have the funds to fix it up so I put 5% down. Also, I bought at the bottom so it was about $200K less than what I budgeted. Even at 5% down with the increase in PMI, the monthly payments are lower than what I expected.
Its a steal.
Depends very much on the note. Depending on cost of property it can be more than $100/mo - for me it was more like $150/mo on a $232k home I bought in 2016 - and on FHA loans you have PMI for the life of the loan regardless of how much you pay in or the home appreciates, you have to refi to get rid of PMI. I just refinanced to get rid of PMI and lock in a lower rate.
It varies depending on your income, DTI ratio, and credit score. Moving from 10% down to 5% down increased my PMI by about $50 a month. If I bought a 1MM property at 5% down the PMI would be much higher.
I am literally doing that right now. My calculations said pmi would be about 500 per month, but it seems like it's actually going to be a lot lower. I don't know the exact figures yet. Once I did it on a 500k property and it was 250/mo. People probably think this is crazy but I would rather put my money in the market and wait for inflation/appreciation to knock the PMI off for me. The market has already gone up so much in the time that I've been in contract that I could probably refi it out next year after a few improvements.
I got in at just the right time. Funny enough, my realtor had to pull my teeth to get me to put in an offer on this place. It is nice and spacious (800sqft, which for an SF starter home is huge) and has dedicated parking. No in unit washer/dryer, and I need a modern electric panel to get that but plan to add it in.
The remodel is stressful, but this space is slowly coming together. Can't wait to open up the fireplace the previous owner removed because they are monsters!
And that even assumes you had the extra $30K - by allowing PMI to be an option you were able to buy before you even had that other $30K.
Yeah but to keep the math simple, let's say you are buying $100k house. You can rent $80k or $95k from the bank to make it easier (i.e. "finance/mortgage").
To save the extra 15% you'd have to "make payments" into a savings account in a short duration. So you'd have to "make payments equaling $15k" in a year or two vs borrowing it and paying it off over a 30 year time frame.
I think it's very likely paying off a $15k debt over 30 years is going to be a lower monthly obligation than paying into a savings account to save that much in a reasonable time.
The reason you rent money is because it's a lower monthly cost than trying to quickly save up that amount to buy a house debt- free.
Yes, over the long term you end up paying way more because of the interest, but because you are doing it over your entire life the payments are more affordable each month than saving.
I'm not sure how you're able to save up that much more cash but can't make a higher mortgage payment (that would still be lower than saving the money directly), especially if you're paying rent during the savings period too.
Yeah if you're not expecting the same or greater future income, then it makes sense to save first.
Dude I wish I hadn't listened to all the old school people, I could have gotten a house years ago. In 2016 I could have gotten a little SFH in the East Bay for like 300k, I had enough to do 5% down and pay the mortgage but it never even crossed my mind since I've always been told 20% down. I had the money I needed for 5% down but bought a new motorcycle instead, dumb.
Exactly - PMI isn’t *that* big of a deal, that one should sit on the sidelines saving cash for years to avoid it.
Yeah, I just decided to go for it 2 years ago instead of saving for a down payment.
They may be listening to their parents or other older relatives.
when home prices and mortgages were less, PMI was a relatively larger amount.
As you point out with lower interest rates and higher home costs PMI is a smaller factor now.
I personally would never pay PMI again but that also because I can afford 20%
Source: GenX who’s first mortgage PMI was a relatively large period of my payment.
My mother in law gave us a hard time about buying right now and kept telling us to “wait for the crash”. I feel like many people are traumatized by 2008 still and think that is a normal occurrence. Meanwhile I am seeing inflation all around me so waiting while my cash looses buying power seems like a terrible idea. At least I can benefit from low interest rates right now.
^ Also my PMI is $100/month in exchange for not providing an extra 60K in cash. It's basically 3% on my 3%. That's fine for the only loan I have and I can always pay the other 60K off to remove the PMI or let it just happen.
So true! PMI isn't too expensive when you factor in how low interest rates are. Our house is around $475k and the PMI is only $109/mo. Having a 2.75% interest rate really evens it out. Not to mention, our house isn't even finished being built yet and we already have almost a 20% loan to value ratio. Our last house rose to 20% loan to value in less than 3 years.
sure but good luck getting an accepted offer with less than 20% down, at least in nj. we're competing with all cash buyers and its insane.
I just got one accepted in Jersey. 400,000 dollar house. Only put 13 percent down.
I did have 10 other offers rejected bc someone offered cash... 10 times... in a row.
I literally had no choice in the matter of waiting. Everyone is offering cash and waiving inspections.
I’ll never understand why people fixate on avoiding PMI so much. It’s not that bad, and I’d rather have savings for renovations, unexpected repairs, or peace of mind. But oh well, let them sit on the sidelines I guess lol
r/daveramsey is a bit depressing when they're talking about the current housing market for exactly that reason
If you always want to be poor then you should listen to that guy
I just sold my 2010 Civic with 215k miles for $4,500. I was SHOOK. I thought it was worth like $1,500 lol
My wife and I just bought 2 used cars this past week. She got a loaded AWD 2017 CRV with 27K miles for $23K (new goes for around 32K), and I got a loaded 2018 loaded Audi A4 for $28.5K (new goes for 55K) and less than 25K. On the flip side, the dealership gave me $21K for my 2014 ram 1500 that had 105K miles that I bought for 25K back in 2016 with 25K miles.
4WD trucks are in crazy high demand right now, but luxury sedans aren't. I was surprised the small crossovers were priced as low as they were. But if you took a single step up to the larger ones or SUV's the prices went crazy fast. You can still get decent deals on used cars if you know how to look for them.
EDIT: These definitely don't qualify as beaters, but I guess my point is that you can still find really solid used cars for a good chunk off of the new price. I think the key is to value miles over model year, and to try to avoid what is really "hot" right now. In the case of the A4, they are still virtually the exact same car in 2021 as the were in 2017, so I am not missing anything. In the case of the CRV they still have all the same options but they changed the body styling a bit, but she got every option she wanted.
For with this market it make sense to buy new, if your going to overpay, at least overpay for something that wont need any repairs and hold onto your money and finance with such low rates.
I just bought a new Civic. First new car ever. 2018&2019 Civics with 30k miles were listed at 25k. A brand new civic cost me 25k. I was like k well none of this makes sense i'm buying new
Same thing with Tacomas right now. They have always held their value really well, but a 3-year-old with 45K miles on it is basically the same price as a new one at the moment.
If you can find a new one right now, I'm not sure why you'd buy used.
His advice to people with student loan debt infuriates me. He gets call after call of people who are facing overwhelming student loan debt and he *never* asks if their debt is private or federal, never explains consolidation and repayment plan options. Just treats it like any other debt. To the point that I don't think he even knows about repayment plan options.
Its so annoying. And makes me question what else he is acting like an authority on but doesn't understand has changed in the last 30 years.
> is a bit depressing when they're talking about the current housing market for exactly that reason
It's pretty rich this dude tapped into religion and now worth $200M+.
Guy is a fool. He's also bitter AF, gives terrible advice (often out or rage).
I hateeeeeeeee the fact that he tells people not to file bankruptcy when they're in mountains of debt when he himself filed bankruptcy and benefited from the bankruptcy code.
Oh, I agree. There’s some good stuff for getting out of debt, but beyond that, it’s garbage.
What Mike said
Debt and tax avoidance are two probably the two biggest financial tools that separate the wealthy from the non-wealthy.
Wow, that's the first time I've been to that sub, and it is ... wild.
Bingo... This right here.
There are two groups:
\- first is what you described. Someone who missed the boat and cannot afford to buy a hose.
\- Another is now someone who knows they can't afford to buy one but still managed to buy expecting the prices will continue to rise.
However, real estate doesn't always go up. It dips and may take decades to recover.
That depends a lot on the area. In high dollar areas, prices are up like 100K or more. In other areas we are only seeing a slight jump.
Where I live, the low end seems to be affect more than the high end. 60-80 k homes are now minimum 130, essentially doubling. While 3-400k homes went up at most 150. Still a big increase but much lower percentages.
Where are there 60 to 80k homes?
You used to be able to find them in my neighborhood here in AZ. Now they are selling for 300+.
Rust belt probably. Tear downs start at $3k, livable rentals for $20k, decent starter homes for $35k-$40k, nice places for $60k-$80k, luxury for $150k-$200k
You can even find them 10 minutes from downtown ATL... They are just run down and you need bars on your windows. You also get the soothing nighttime serenade of "gun shot or fireworks". Go 10 minutes away from that and you are paying 1M for a 1950's bungalow.
Lol nonsense, I get this response any time I say there's a bubble and I've been building a larger and larger RE portfolio since the depths of the Recession.
The vast majority of people calling this a bubble are merely observing the reality of the situation given our much deeper experience with these things. I make a lot of money if prices rise, I make a lot of values collapse.
This is a bubble just like stocks in the 1990s and housing in the aughts. Those are the only two times in my life I could taste the euphoria of the market in the air. Everyone thinks they are going to get rich in a few months investing in houses, crypto, memestonks, etc. It never ends well.
> taste the euphoria of the market in the air
This is the hard-to-quantify thing that rings true. You can feel an unsustainable financial optimism. Whether prices come down or inflation goes up, this mini-mania will end soon.
The last crash took down the entire economy with it. Generally it works the other way around. Or sometimes they're unrelated at all.
The more likely scenario is that interest rates go up and new construction catches up, but that will only slowly decrease prices over a couple of years, and the higher interest rates will mean that they aren't much more affordable anyways
You hit the nail on the head. People who are ~30-40 are old enough to have some adult memories of 2008, but not old enough to realize that it's not a normal pull back or correction since they weren't adults for previous ones.
2008 is called the great recession for a reason. It was a major, generational global financial crisis.
Other recessions pull backs in the late and early 90s were about 4% for the broad housing market, and that's assuming you time it perfectly
There are some people that think there will also be a huge wave of foreclosures once banks start foreclosures regularly again. I'm doubtful that will happen to any meaningful degree that will lower house prices. It probably will be back to 2019 levels. At best it might help increase the number of homes being offered for sale so there is less of a bidding war mentality and give flippers something to focus on instead of beating out first time home buyers with all cash offers.
I think that the “wave of foreclosures” will also possibly only have the hoped for price decrease in condos, townhouses and starter homes.
Most people in the larger more desirable locations/homes will often have enough equity in the home that they have options to refinancing or get out of it before going to foreclosure.
I remember in 03 thinking the market had to burst soon, when it finally did in 08 prices came down, it more like ‘05 levels in my area. I still would have been better off buying in ‘03.
If home prices come down due to interest rates going up, you’re still looking at being able to afford what you could now. Unless you have the money to not need financing.
I don’t think we’ll ever see home prices come down drastically.
With the surge in home prices this summer even the lower priced homes may have equity to motivate them to sell prior to a foreclosure. The key word here is motivated to sell. There are probably a modest amount of people sitting in their house (living rent free) not paying the mortgage just waiting for the the foreclosure ban to be lifted and get the final court order before they have to move out for good.
I don't think there will be price decreases in these lower priced homes if they are properly marketed for sale. I would think the additional supply will just be a little more favorable for a buyer by sitting on the market a little longer and not experience the bidding war.
Another difference is lenders aren't allowing the cash out, 100 LTV loans on investor properties like they did in 2007. Very few lenders are allowing stated income on investor properties, but that has to be still supported by appraisal income. I don't know of anyone doing stated income on owner occupied home loans.
I'm amazed how crazy the bidding is now without the extra potential loan leverage that existed in 2007.
Back to 2019 prices and availability would be excellent. Not sure that's gonna happen, but I'd be happy personally.
Too much NIMBYism and red tape. The only areas that new construction will catch up is going to be those that are declining (job loss/out of favor industries/companies leaving/etc)
The gap may get smaller in stable areas, but anywhere with growing jobs and populations are extremely unlikely to reach an equilibrium, even temporarily.
Houston is one of the fastest growing cities in the US and they’ve reached equilibrium. Same with Tokyo
At current 3% rate for 30y mortgage, to keep mortgage payment the same, a 1% rate increase corresponds to about 11.4% decrease of property price. A 2% rate increase corresponds to about 20.9% decrease in property price. This does not account for the lower property tax bill and extra tax deduction from more interest payment.
While it's hard to predict how much an increase of interest rate will decrease the home price, I would happily pay higher interest rate on lower home price, since you can put down a smaller down payment and can always refinance to a lower rate later during the next recession.
Can't do this if you bought at lower interest rate and higher price.
Fixed rate, low interest rate on a large principal, versus waiting and hoping the fucking casino we call an economy swings your way.
Yup. That's why I bought when I could. It was 50-50 on the market getting worse, not better. I'd have rather not taken the chance, when I was in a position to close the deal and did it with a great interest rate and a purchase price below $200,000.
The fact that every house is getting like ~10+ offers makes me feel like a 1% increase in rates won't have that big of an impact.
The last crash wasn’t really a housing market crash as much as it was a mortgage lending system crash.
People just want cheaper housing without the economic downturn. It's not an unreasonable thing to want, even if it's unlikely. It'd be great if prices went down because of a bunch of new construction, but that's obviously not about to happen.
I just want home prices to go back to what they were last summer. I would even be happy if prices went back to what they were 3 months ago. I feel like every 6 months we don’t find a home, another 100k goes down the drain...
I don't think a crash is going to be the godsend all these hesitant buyers are hoping for. When there's a a market shift like this, there's gotta be several big economic factors happening.
In 2008, it was bad loans going bad and now everyone's gotta sell their homes but also a lot of people lost their jobs. It was "easy" to buy, but who *could* or *would* buy? I think loans became hard to get too when all the banks withdrew. That's why there was a surplus of cheap houses and a dearth of buyers. If there was gonna be a crash incoming, there'd be a lot more going on in the bigger picture making people not want to buy. And you may be in that position where it's no longer a good decision to buy.
Now, the economic conditions make it good to buy a home. Low rates, working from home, lots of cash saved up, inflation incoming. The difficulty right now is fighting against all the other buyers. People wanting a crash to happen just want it to be easy on the buyer, but think on the flip side during a crash it will become hell for sellers.
To me "I want to buy a house but can't" is better than "I NEED to sell my house but can't." I'm on the side that thinks the current conditions will keep the market up and aren't signaling for any crash. It should stabilize at these inflated prices. If you wait, yeah there may be more inventory, but also higher rates, higher prices, and all the similarly waiting buyers will enter with you too lol. It will take a while to get back to normal.
I just woke up and typed this out really fast before logging in to work, I'm sure I didn't cover every aspect of the economy in a four paragraph brain dump. All in all, just buy a house you don't mind living in for a decade and you won't care about the market.
I think people are just frustrated homes cost so much now. Most people just want a roof over their heads for their family.
Like where I bought a home, prices have shot up like crazy. And this used to be a neighborhood that trended more working class or retired. But I guess because the surrounding areas are even worse people get pushed out
I bought my house in early 2018, for $300k. it appraised for $410k last month...
Many of the homes around me where going for around 100-150k before summer 2020. And closer to 2013 they were going for closer to 60k
Now they are mostly around 200k, and for smaller homes too. Its crazy.
What happened over the last decade (prior to the pandemic) in my low cost of living area:
1. Builders stopped building starter homes. (<1300 sqft) At that time they were going for < 100k.
2. 1500-1700 sqft homes went from 130k to 180k.
3. Builders slowed the rate of houses being built in the area, to increase housing prices and to put more workers in the Higher COL areas.
Then in the last 18 months the following happened:
1. Builders started building starter homes again, and those are being sold for 200k+
2. 1500-1700 sqft homes are up 70-100k now going for 250-300k.
3. Builders are slowing down their builds, and delaying new neighborhood build outs.
My household is high risk, so we didn't look buy during covid. And now, it's incredibly frustrating to go from being able to afford a nice big house, to a smaller much less desirable house.
And then there is the thought that if we do buy now and the market turns, we will be stuck with the house for 10-15 years waiting for the prices to come back up.
What homeowners forget is that "your" property value increase is "our" rent increase. That's part of why renters want a crash.
The cycle gets even more toxic because higher rents = less savings = harder to make a down payment/closing costs in an ever-rising market. Repeat the cycle for long enough and you end up with a semi-feudalism, where society ends up almost permanently divided between those who own the land and the tenants who have to surrender half their income to the landowner class to survive.
From what I witnessed, the only ones who benefit from a housing crash are tenured professors.
> the only ones who benefit from a housing crash are tenured professors.
lol, [my state used the crash to defund higher education 50%, pushing the costs back out to students and their parents.](https://www.azmirror.com/blog/arizona-higher-ed-deepest-cuts-biggest-tuition-increases-since-2008/) Among other budgetary priorities a state may have, it's pretty easy to cut higher ed. Arizona lost a ton of property tax revenue in the Great Recession.
My [alma mater's faculty and staff got furloughed during the Great Recession](https://news.arizona.edu/story/furloughs-start-tomorrow), albeit a small one compared to the COVID-19 furlough they got.
Yep, the late 2000s recession completely shuttered the post-WWII era of higher education characterized by good funding, growth, and excellent job security. It has never been the same since and likely will never be anywhere close to it.
don't forget government workers
And private equity lol
Really this should be the top of the list
Federal government. State and local governments were devastated by the last crash.
Very much depends on the locality
Federal workers have gone +10.4% (ignoring compound -- maybe more like 11%) over the last 10 years -- normally it's more like 25-30%.
So basically federal workers in last 10 years are -15% where they should be. Hardly winning.
Healthcare too, my fiancé is a nurse so we bought based on her salary alone, figured one of our incomes is just the "fun" money that goes into making upgrades to the house.
Looking it up IT is also a big one for being recession proof, which is what I'm in, so that's reassuring.
Lol IT recession proof. Just hope it doesn’t get outsourced.
Healthcare was not a super great place to be in 2008-2010. I'm an RN now but during the time I was a new LPN, took me 6 months of serious applying and interviewing to find a part time job in an ECF. Now once your in with experience, your golden, but even during that time it was not an automatic job once you graduated. But now, post Covid, we are facing a crazy bedside nursing shortage so you can get multiple job offers within one day hardly interviewing.
That's around when she'd have entered, maybe closer to 2012 or so, I'm actually kind of surprised because that wasn't really the case for her, if anything LPNs were in more demand because a lot of these facilities were trying to cut costs by having more LPNs to each RN.
Thankfully in a pretty good spot right now though with an RN and a decade of experience.
I am not hoping for a crash, but I am hoping for a correction back down 5-10%. Basically for things to sell at what list prices are now, and not to have to offer 5-10% over with cash for appraisal gaps and waiving buyer protections like inspections. This extreme imbalance nationwide has NEVER been a normal way to buy a home in almost the entire history of the housing market.
I am also witnessing things like the apartment complex near us raising rents $300 a month across the board. People calling management crying, saying “but my wages haven’t gone up”, meanwhile there is another line of people, priced out of homes, with enough income to take over those vacancy apartments. Honestly it feels like an entire shift of downward mobility for the middle and lower middle class, and no, I don’t like it, and yes, I would like to see people who own 5 homes and leave half of them vacant have their “investments” crash down a little so a family can afford them.
Home prices are up ~30% over last year where I am and rent prices are up about 20%. It's crazy. You think if demand for one area went up it would be from a decrease in the other.
If house prices go up, rental-owners just see that as a reason to ask for more, because their house is now worth more.
> I am not hoping for a crash, but I am hoping for a correction back down 5-10%. Basically for things to sell at what list prices are now, and not to have to offer 5-10% over with cash for appraisal gaps and waiving buyer protections like inspections. This extreme imbalance nationwide has NEVER been a normal way to buy a home in almost the entire history of the housing market.
This is so difficult to pin down though. 5-10% over doesn't mean anything unless the list price is compared to closing prices of recently sold houses. If they are listing 20% under those prices to generate a bidding war, that muddies interpretation.
I don't see any correction happening in the foreseeable future. The underpinning reasons for this increase aren't going anywhere for a while. I do think there will be a leveling out of the trajectory though... but houses aren't going to decrease in value. There is still a national housing shortage for several years due to the still rippling impacts of 2008.
I don’t hope for a crash. I just hope for the opportunity to buy a house for what it’s actually worth without 100 other people aggressively trying to buy it too.
I don’t think people are hoping for a total crash, but definitely want the housing market to stabilize.
We have to remember that people are unable to afford or find a home in this market.
In my area median home price is $463k and median household income is $63k. Crash or not, current home prices are untenable for my area, so I don't know how much longer this can continue.
That doesn’t seem too bad? I’m in LA and the median household income is about the same, but median home prices are $800k. I’ll take your situation lol
Median household in my city is $59,600 and people are losing their minds over the median home price hitting $341,000. But I think it's a matter of speed. I bought this house 2 years ago and in that time it's risen 41% in value.
Are you sure the people buying those homes are actually working locally? WFH is a thing now..
There are plenty of people who can afford these homes right now or else we wouldn’t be in this current market.
I think that for the most part the people who are really complaining about the market (myself included) probably just need to admit that it’s not houses that are too expensive, it’s houses in the area I want to live that are too expensive.
We looked at a house in our current area last October for $365k. We weren’t crazy about the layout, so we skipped it.
The same house came back on the market last week. The flooring has been updated and walls have been painted. Everything else is the same as when we looked at it, and the listing only boasts new flooring and paint, no other updates.
I think you are drastically underestimating how much of this huge surge in prices is driven by companies and private investors. Which is negative short term due to the aforementioned surge it causes, as well as long term amplifying the already existing supply shortage
Are people buying these houses at elevated prices or are they just sitting on the market for months at a time?
Someone is buying these houses. Price is irrelevant. If someone can afford to buy a house for X dollars, but you cannot, then you can no longer afford that neighborhood.
They could have afforded them a year ago though. And the increase is unusual. If you were planning to purchase a home right now the expectations of what you can afford have significantly changed.
This is quite true. We bought in April 2019 and our budget was top end $400,000 for our suburb. Out of curiosity, I opened up Zillow to do some comparisons.
There are two houses in that $400,000 and under price range that meet our basic Bedroom/Bathroom criteria and are 33% smaller in square footage.
If I up the price ceiling to $500,000, that number shoots all the way up to eight houses, of which one is within a hundred square feet in size and two are larger. The rest are smaller than our house.
Taking it up to $600,000 increases inventory up to thirteen houses. One of those new houses is smaller, has fewer bathrooms than our current house, and only has the benefit of a nicer yard. A nice yard is great but it's not $200,000 great.
This is the correct response
A year ago a $700,000-$800,000 in Orange County was High $500s
My wife and I could’ve easily afforded that
This isn’t necessarily true. 1. There are lots of historically lcol areas that have seen prices almost double in just a year. 2. I have lived in a desirable area that historically leans hcol but nothing compared to the Bay Area. We saved and saved and just when we thought we could get in the market the pandemic sent the median home price up over 40%.
I'm in this boat. I'm not looking to buy but I still think the housing market needs to stabilize. Our current situation just screams of uncertainty and I don't think it's healthy or safe for a lot of people. Ultimately it's driving a lot of impulsive and emotional home purchases, which is usually not good.
The other thing I see lot is people who developed ideas of what a house is "worth" in the years following the 2008 crash. Basically houses were on sale for 8-ish years and people got used to those prices. So when the sale is over, they're shocked.
Of course some markets are crazier than others and prices have far outpaced the pre- crash trend line.
I’m not sure that’s true.
I can tell you where I live house prices have drastically changed in the last year. And the bidding situation has changed, you don’t have any power as a buyer anymore.
I love how people only point out markets that went up way to fast and never recovered.
My area. 276k 2007 high. 196k average 2011 low. Average in May 505k. Can't really bitch about the peak to peak here.
I’m struggling to see your point. Are you saying that using the data points you provided home prices are pretty normal? Or. . ?
I'm saying that even in my market if you buy the absolute high unless you're going to sell it in 2-4 years It doesn't matter.
Also in 2007 when prices were at all time highs mortgage rates were at 6%. With good credit right now you can snag 2.625%. It's totally different. I'm also stating specifically and outright when you account for 14 years of inflation and interest rates it really hasn't went up much. And that's in an area that had insane growth. Granted if you bought here two years ago the average was 380k. (Hell 18 months ago).
I wish I never bought in Texas that's for sure. My house 242 to 425k from 2011 to now. If I had bought where I live now in 2011 I would have got this place for $225k (more expensive area) and it's worth 625 now. I paid 480
In 2 sentences you are telling 2 different stories.
> My house 242 to 425k from 2011 to now. If I had bought where I live now in 2011 I would have got this place for $225k (more expensive area) and it's worth 625 now. I paid 480
Has this mythical house gone from 242 to 425, or from 225 to 625. And what house was 480?
Has the cost in housing kept up with increases in income tho? this is such a one-thought approach to thinking about the cost of housing
I'm not a fan of this advice. It certainly matters what you pay, even if you have long term plans to stay. Things pop up and force you to potentially move/sell. Job loss, health issues, transfers, and economic downturn that you didn't see or should not affect you but it does.
In 08, it wasn't so simple as "oh just stay there long term" things will bounce back. A lot of people lost riding that housing wave.
Agree. Have seen countless threads/comments arguing about whether it's a "bubble" or not. I don't know, I'm not an economist. All I can tell you is that historically it's not normal or sustainable for prices to increase this rapidly. (Edit: or for people to need to offer all cash, appraisal gap coverage, no contingencies in so many markets!) There are a lot of different causes for it, up to and including mega-businesses buying up residential real estate as an investment tool.
I can only hope for a more gentle correction for everyone's sake!
People around here have been calling it a bubble for at least three last 3 years.
I think pullback from demand is what most people are hoping for.
There were a lot of temporary and unique circumstances impacting the housing market *last year* when the prices initially jumped, when covid started:
1) seller’s delisted their homes because they did not want the contamination of walkthroughs, completely gutting supply. Less new listings were being added as well due to all the shutdowns and safety concerns.
2) local economies usually price housing based on what the local economy can afford, but because of sudden and widespread work-from-home policies suddenly people from California and other high-paying areas were able to bring their california money to lower cost states, thereby inflating nationally.
3) shutdowns and work from home initiatives also made people stir crazy - especially renters and people who live in apartments/condos or don’t have yards or enough space for a home office - and created an additional surge of buyers
4) interest rates reached a historic low. People who couldn’t afford a house before suddenly could, and people were able to afford more expensive housing than before, not only increasing demand but also increasing housing prices because even though interest costs went down, the monthly payment buyers can afford stayed stable, therefore people used the interest savings to pay a higher principal on the house, thereby driving base prices up.
5) government ban on foreclosures: investors typically look for good deals, and foreclosures were the biggest source of housing supply for someone with cash to throw around. They essentially act as a diversion for investors, but because of the pause on foreclosures, home buyers and investors were forced to compete more extensively with eachother, driving cash at play up and pricing up.
Last summer I absolutely believed there would be a market crash once foreclosures returned, given the temporary, extreme and abnormal nature of all of these factors which drove prices up. HOWEVER, at the end of the year the federal government printed over $3 trillion new dollars to fund the stimulus relief efforts. This added 22% of all money in circulation, and when money is printed it devalues each individual bill, causing inflation. The inflating housing prices will stabilize, but because of the dollar devaluation they will never go back down to 2019 prices. And you will also notice prices inflating everywhere else too: gas, food, goods & services.
The people OP described, they want to see a huge housing crash, foreclosures, homeowners losing their houses. They just hope they themselves don't lose their jobs and can buy houses at a significant discount.
This is just wishful thinking, illogical and selfish.
I don't want that. I just want more houses to come on the market since covid is under control rn. And for people to stop offering all cash and waiving inspections.
Well, we aren't wishing ill on anyone... We just want the kind of crash where everyone keeps their jobs, maybe even gets a raise... The economy stays strong... But then real estate prices plummet and everyone can buy... And then the prices go back up suddenly so we all gain lots of equity... And a Toblerone.
Lol I’ll have whatever you’re smoking. A crash would be almost guaranteed to affect you in some way
No you don't understand. Under my plan the crash won't affect ANYONE. Prices go down, we all keep our jobs, everyone gets a raise, we all buy real estate, then prices go back up and we all gain equity. AND we get a Toblerone.
I think because it happened recently (2008) recency bias would have people assume the odds of it happening again are higher than the real chance. But it is not impossible.
My in laws sold their house late 2019 to move closer to us and their other children. The house they sold was going to be their retirement home but some life stuff came up and they decided it would be better to sell and rent until they could find the perfect home.
Then covid hit and now they can't find anything that suits them. It's not that they don't have money, they are probably the most wealthy family I know personally, they just refuse to buy at a price that only a year ago would be substantially less. They also don't care about interest rates as they planned to buy in cash. My FIL is close to retirement and my MIL has been a stay at home mom for her entire life so there is little fear of job loss either.
So in their minds a crash is the only thing they desire.
It's been weird for me buying a house this last year as to them we were being manipulated by the system and were pressured to buy from realtors and bankers. I do see some logic in that argument, but we also have vastly different situations. We are a young couple with dreams of starting a family, living in a low cost of living area with good paying jobs. Low interest rates were very hard for us to ignore. But when you are near retirement with a massive (but finite) nest egg and you see properties you are interested almost doubling in price over the last year your perception can be much different.
The problem with thinking that way (your parents price anchoring) is that in a bull market, their money buys them less and less the longer time passes on. I was hearing the same things in 2017 and 2018, where a house that was 350k was 300k a year ago, and 250k a year before that. Now that same house is closer to 500k...
Price anchoring thinking "my money should be able to buy that same house in 2017 dollars" can be a dangerous game of unrealized losses. Same thing with stocks. To me, SP500 over 3k is crazy, but look where we are.
Exactly. Now they do have very specific wants in a property, mainly lots of land, and they are considering building which is it's own kind of crazy right now. But I do fear what will happen if the crash they are wishing for never comes.
A lot of people are sitting on a lot of money and want a buying opportunity. Problem is money is worth less and a lot of others are sitting on a lot of money waiting for any decline.
You are exactly right. There is a ton of capital sitting around just looking for any kind of yield. So people with not as much cash and waiting for an opportunity are getting stuck and pushed out just hoping for a something to change.
Sucks. My goal since 2015 was 100k saved for a house which would have gotten me a decent place in my area. Hit 100k in 2020.... now I need 150k for the same mobility. I must plow on.
can you just not put as much down for a downpayment? it seems like PMI would have been less expensive than inflation
Not with my income - equity is a big part of my underwriting
People who have been waiting for the crash are called renters.
*Next recession will be caused by student loans, not housing…*
All of this. And there are securities in the student loan market just like housing in 2008. Which means, I guess, that there are similar 'side bets' and insurance vehicles too.
Make a product people can't afford. Convince them they need said product. Bundle them and resell the insurmountable debt. Profit.
In some areas houses that were once 250k are now 350k and climbing - this over a 2 year time or less in some instances. That is kind of a crash, but moving in the opposite direction. It's a smash. It hurts people in another way. Instead of people losing their houses and being set back in life, other people simply can never have them, and are set back in life. No one yearns for another 2008, I think. I graduated college right before the crash (loans and all) and now, a few years shy of age 40, I've finally scraped up enough to buy a house, just when the rules totally changed. I'd settle for that 350k house to drop down to 300k. Bad for people who panic purchased this year, still good for people who already owned their houses and saw a 50k climb in a relatively short time. I'd like to not compete with people who are waving inspections, putting down all cash offers, or who have the luxury of buying up investment properties while the getting is good. At least to this degree! If this trend continues, the government will eventually have to step in and make it easier for people to buy a house. But then we might wind up with 2008 problems again. Call it a crash, call it a correction, call it a stabilization... but if nothing happens, the path we are on is dangerous.
As a frustrated saver hoping to buy in a year, I definitely don't want a "crash" of any kind, but just a "stall" so that people like me can catch up. Crashing and having people desperately need to leave their homes -- thus giving me inventory to choose from, or not allowing others to buy -- does not seem like a solution.
Stalling is very likely and lord knows we need it. Like 2 years with nationally.
Thank you! We're all expected to pity people like the boomers who have had the opportunity to live in nice homes for decades-- God forbid they make slightly less of a profit selling their homes if the market corrects! What about all the people who will never be able to own a home in their lifetime if the market continues in this direction?
It’s idiots who think a housing market crash will be like free houses for everyone. They don’t know that if the housing market crashes many other industries will be affected. A lot of people will lose their livelihoods.
I secretly hope for a massive change in the way real estate is sold. Wayyyyyyy too many cooks in the kitchen imo
Curious as to what changes you’d like to see.
Id like to see agents/brokers no longer lobbying for 6% across the board. In no other country do they get such a cut.
Millions of Americans work a year of their lives just to break even on Realtor costs. Its an absolute suck on society across the board.
I 100% agree and it's coming. We're starting to see the 1% realtors from redfin and zillow. I believe as more and more younger people start looking at housing they're going to reject the outdated realtor fees and practices.
The issue is Politics, unfortunately. The Realtors Association is on of THE biggest lobbying groups in America. They buy politicians all day every day.
Competition may be able to drag them down a hair, but they have been fighting tooth and nail for decades and putting money behind it.
The stakes are high. Along with getting married and choosing a career, buying or selling a home is one of the biggest decisions most people make. In America, especially, the sums are vast. In total the country’s residential property is worth $34trn—as much as the value of all its publicly listed firms—and last year people traded properties worth $1.5trn. Yet compared with other industries and other countries, buying and selling property in America is cumbersome—and extraordinarily expensive. In an industry crying out for technological disruption, the only revolutionary change over the past decade has been the rise of celebrity estate agents who star in reality tv shows including “Million Dollar Listing” and “Flip or Flop”.
The scale of the commissions extracted by the real-estate industry in America is jaw-dropping. Fees run at 5-6% of the value of a property, three times the average level in other developed countries (see article). In total they amounted to $75bn last year, or 0.4% of gdp. Other marketplaces—for shares, groceries, advertising and romance—have been transformed by technology. But in property the old ways persist. America still has 2m realtors.
Although online platforms such as Zillow and Redfin have made some inroads, allowing buyers to do much of the searching themselves, fees have not budged. An inefficient property market has knock-on effects on the economy. In the 1950s, 20% of households moved each year; today only 9% do. The slowdown in labour mobility has many causes, but in a country where most people own homes, high fees do not help.
At the heart of the problem is a knot of obsolete practices that seem to favour insiders rather than the buyers and sellers of property. Unlike the practice in most countries, the seller usually pays fees to both their own agent and the buyer’s. Agents acting on behalf of buyers thus have an incentive to steer their clients away from properties with low fees—one study has found that such homes are 5% less likely to sell, the opposite of what you would expect in a healthy market. Most transactions are listed on 800-odd common industry databases, known as multiple listing services (mls). The government worries that their rules and tacit codes of behaviour might muffle competition, by prompting agents to search for homes based on how high fees are, or by restricting the distribution, sale or licensing of data. (The National Association of Realtors, a lobbying group, argues that the industry is competitive and mlss benefit consumers.)
What to do? America’s trust-busters last looked into the industry in depth in 2008, when they tried to ensure mlss were open to internet-based firms. Now, after a decade in which fees have not fallen materially, they are investigating again. The Department of Justice has subpoenaed some of the private firms that help run mlss to establish whether agents operating on them are puffing up fees or steering clients towards properties with higher fees, and whether access to mls data is being unfairly restricted. Two big class-action lawsuits are under way against the industry.
Boosting competition is a complex problem, but the antitrust policemen are right to intervene. They should seek to enforce two principles. First, that agents are genuinely free to compete by lowering commissions—or by abandoning the practice of requiring sellers to pay two sets of fees. Second, that any firm which wants to gain access to industry data can do so freely at reasonable prices. The best tests of whether regulators succeed are whether commissions fall towards levels in the rest of the rich world and the market share of new entrants rises.
Plenty of entrepreneurs are keen to get involved. Some $6bn of venture capital flowed into “prop tech” firms in 2019. Opendoor and Zillow have algorithms that crunch data to determine the value of a home, and allow them to make “instant offers” to sellers that are all cash and can be paid within days. Other firms have developed tools to lift agents’ productivity, such as automatic home-tour booking systems. Competition can make America’s property market work better. If regulators lower the barriers to entry, they will be knocking on an open door.
For the fees realtors get, they should really have more training and skin in the game. For example, specific legal training and fiduciary requirement, ability to give basic legal guidance, and be open to lawsuits if they are negligent in their duties.
All of those things are true... but I'd happily just pay a more reasonable 3% total for their services.
It would be nice to have more options. Realtor basic for 1%, Realtor Plus for 3%, Realtor Platinum for 6%....etc etc
Agents add absolutely zero value. Technology has made them obsolete and I think we’ll see that profession die in the coming years. They will be like telephone operators.
I can’t believe anyone even uses a listing agent anymore when there are so many flat-fee brokers who will do the same thing for a $500 fee.
I feel like a change would be so difficult at this point. I don't have anything specific I just look at it compared to other large purchases and it just seems insane. I'm still waiting to close and it's been over two months. The length of closing time seems to mainly just be the complexity of all of these different moving pieces having to wait on others to get their stuff done. I can walk down the street and buy a sports car for more than my house is worth and speak to one salesman who will give me the keys that day. It would really be nice if real estate agents were also lawyers and inspectors LOL. I speak to three different people for my mortgage loan alone.
The real answer is the people who keep hoping for a crash have no idea how crashes manifest and work. Their idea of buying in a crash is overly-optimistic at best.
Housing exists because people want to live in a specific area. People want to live in a specific area when jobs and services are available in said area. People continue migrating to a specific area as the economy is booming. There are very few areas where the housing market is not directly tied to a different strong economic sector / performance.
So here's what I'm getting at. These people who are "hoping for a crash" are unable to realize the fact that the strong housing market is tied to their ability to easily find employment. One doesn't go away without the other.
What is going to happen if things "crash", is a lot of these idiots hoping for a housing market crash are going to not have jobs, and be unable to get approved for a mortgage anyways. They will start a new occupy-Wall Street type campaign, bitch about whoever is president, and ask how we could let the housing market crash.
People who can weather it will hold their real estate, pay lower property taxes, and be better on the other end.
I've lived in the USA for over 40 years and every time we had a real estate crash it's been due to higher rates and/or followed by much tighter lending standards
don't think that just because prices will drop banks will just give you a mortgage. I closed 6 weeks ago on my 5th or 6th mortgage in my life and this last one has been the most stressful mortgage process I've ever had even though my credit was good and my wife and I make lots of money and well over the income standards
A downturn of 20% would only affect buyers in the last 18 months. Pre covid pricing would be great. Doesn't mean jobs would go away
People don’t want a crash. They want this low rate, supply shortage, no foreclosure shit sandwich to end so that buying a house is actually possible without having 100k cash and competing with 40 other people.
People have been calling for a crash in my market since the early 2000s.
People who say a crash is coming and wait.
People who bought.
Who's winning now?
Obvs people who bought.
08 housing crash was a once in a lifetime thing.
If we ever see another recession, housing won't be the MAIN factor, but it will be affected.
Just like current recession caused by COVID19, HOUSING HAS INCREASED.
Keep in mind, 08 was caused by housing and mortgages.
Keep investing. Keep building. Abundance vs fear mindset
Angry and frustrated people who are sick of being in a seller’s market are driving this narrative.
The current market dynamics likely do not point towards a crash however. The sheer number of motivated buyers vs the lack of sellers means demand will stay elevated until something changes.
The last crash in 08 was due to sub prime borrowing, and the crash before that was primarily due to the savings and loan crisis in the 80s making borrowing difficult.
Now we have regulatory reform on lending which has increased the quality of loans vs 08, and the Fed learned from the rate increases in the 80s which drove the savings and loan crisis.
The only real risk I see is a broad recession. As supply hitting the market as people look to cash in equity will be offset by those same people needing another house, so seller becomes buyer and demand is not impacted.
While a recession is certainly possible we are currently in a period of post COVID reopening bliss. So until we see a major impact from inflation we likely still have room to grow. (I won’t pretend to be able to predict when or how bad that inflation correction will be.) However there are many deep pockets ready to fuel economic prosperity as people have a year of saving and huge stock / crypto gains to spend if they so choose.
I don’t see a crash in the near future personally.
There won’t be a housing crash in our lifetime. Asset corporations are now buying houses at as much as double asking price to create a permanent renting market from now on for most people. Look up what black rock is doing, they are the world’s biggest asset management corporation, they are using most of their profit surplus and government subsidies to buy residential properties in entire areas so they can rent them out forever or tear down later to rebuild residential units.
You are very correct. I listened to a podcast last night which stated 6% of all new construction to 2020 were rental subdivisions (mostly if not all SFH), and this was expected to double by 2024. The administration is for and not against this.
Yes, and corporations like black rock that use government subsidies (tax dollars) are backed by the fed. It’s almost like it seems that the fed will be our future landlords, which, kinda, sorta is communism
Somewhere, an independent thought alarm is now going off.
People waiting on the crash doesn't make sense. It's competitive sure it sucks I despise the way realtors create bidding wars and how the whole process is handled.
Currently borrowing $100k @ 3% for 30 years is $421.60 not including taxes and insurance over the life of the loan $51,776. If the housing market crashes and now you only borrow $80K @ 4% total interest $57,494(20% drop would be massively low chance it would be that big of a drop). Your payment is $381.93 Great you paid about $6k more in interest and saved $14k over the life of the loan. While you waited for the crash will taxes go up? Did you lose equity with inflation because your money is now worth less? How many more months did you waste on rent waiting for a crash? Did you receive a pay cut in the crash and now you don't qualify?
Don't get sucked into the FOMO or other emotional decisions when it comes to real estate. Realize housing bubbles pop but the chance of a real estate crash is low in my opinion. Huge demand for houses, lots of projects put on hold while lumber prices subsides. Also a lot of other people are waiting for a cool down or crashes. Don't take my word for it go research crashes 2008 was a once in a lifetime event.
Edit: If you can find a fixer or multi family there's usually less competition in most markets.
>So is there a crash coming where housing is cheap AND everyone still has a job AND interests rates are low?
I don't know what type of magical economic world this is, but it would be lovely.
No kidding. If all those things happened then housing prices would go UP, because demand would skyrocket.
If there's a downturn you wanna survive the initial crash with your savings and job and then buy in a year or two once prices hit bottom. Most people aren't still in a position to buy then though and the cycle starts over again.
Some men aren't looking for anything logical, like money. They can't be bought, bullied, reasoned, or negotiated with. Some men just want to watch the world burn.
The last one was (apparently) an anomaly in that it was the housing crash that actually caused the economic crash, or at least got the dominos rolling. There was a lot of chatter back in 07 about how housing market cycles were historically disconnected from broader economic cycles and that we shouldn’t be worried. We all know how that turned out, but there’s no telling how that will go in the future now.
Agreed that anyone hoping for a crash is generally not seeing forest for trees, cutting nose to spite face, etc.
Literally no comparison to 2007. Everything is different besides prices being expensive.
I’m not making any comparison to 07. Just offering my recollection of things to help explain why some people might be hoping for a crash.
2 parts wishful thinking, 1 part denial.
Given the existing conditions I don’t see how a crash is even possible.
Everyone that tells me a crash is coming (in person) hasn’t bought a house in 30 years. Their reasoning: because that’s how it goes.
I'm hoping for -10% and then stabilize to +2-4%/year.
I don't think either will happen, I'm closing on a new build this month.
The crash of 2008 was a housing surplus fed by liar loans. People were signing on homes on loans they couldn't afford and didn't intend to live in.
What we have now is a housing shortage. Too many people and not enough homes. Added to the supply chain disruption of the Covid-19 shutdown, there aren't enough materials to build homes fast enough to put the surplus of people in them.
[The job market is great right now because the unemployment rate is headed in the right direction.](https://www.bls.gov/news.release/pdf/empsit.pdf)
I'd just be happy if there was more inventory and houses stayed on the market a little longer.
No, all three things cannot happen in the same economy. Real estate prices are dependent on interest rates and job market.
Why is the real estate price been going up? Because of low interest rates and the Fed is buying mortgage backed securities to keep lenders continue lending out to consumers. Why does the Fed do that? Because they've learned from 2008 Financial Crisis. They stepped in during the onset of COVID and pretty much declared free money till economy is back to normal.
Is this increase in real estate prices sustainable? No, it is not. Due to inflation, the Fed has to increase interest rates and stopped buying mortgage back securities. Lenders will lend less too. Once interest rates are up, people take money out of real assets and stock market to buying bonds and savings account. Dollars become more expensive. You can afford a less payment with higher interest rates.
There are two groups of people: one who missed the boat and predicting the housing will crash. the other who got onto this boat late and believe the prices will continue to appreciate.
I'm certainly hoping prices go down. Prices where I live went up 20% from April 2020 to April 2021. Whether or not it will crash, I don't think anyone really knows. I do believe that there is a lot of weird stuff going on with the real estate market, stock market, and assets in general, especially with the Fed's involvement. Like I said, I hope prices correct but I'm not hoping for a 2008 crash because a lot of people lost everything. I definitely understand the desire for a crash though for some. When prices are low, that is an opportunity, just simple capitalism.
Can someone explain this hope for a “crash?”
Sure. People want to be able to afford housing more easily. It isn’t well thought out.
As for the actual body of your post — the Great Recession had more to do with the structure of and actions within our banking system (including investment banking) than anything else. The housing market collapse (which bottomed in late 2011/early 2012 and stabilized around May of 2012, years after the recession began) was a symptom of a much bigger issue — massively unmitigated risk by the country’s largest banks.
Interest rates will, with a high degree of certainty, not be this low at the time the housing market chooses to trend downward. Part of the spur in home-buying is easy access to credit, which is due to low interest rates. The cost of borrowing to buy a home is at an all time low, with rates in the mid 2 and low 3 percents. When interest rates rise (and they WILL rise), the demand for homes will decease as the credit available to buy homes will also decrease. Either the market can stabilize, or it can decline.
One important mechanism in economics is that the Federal Funds Rate (or the Fed’s baseline interest rate, which lenders use as a benchmark) is also tied to unemployment. There is a lengthy and unreliable path to compare a change in the FFR to a change in unemployment, but we do generally know that higher interest rates correlate with higher corporate (and household) savings, and when businesses save more money they also employ less workers. Low interest = higher employment. High interest = lower employment. This is a really complex relationship affected by many factors, but this inverse relationship generally holds true.
The thing is, interest rates alone are unlikely to drive unemployment up by a substantial amount, and would be unlikely to cause a moderate to severe recession. In part due to the slow rate at which our current administration intends to raise the FFR, and in part due to the complex nature of interest rates and the macroeconomy.
So, as always in economics — it is an extremely difficult question to answer with any certainty.
tl;dr yes housing prices can trend down without a significant recession because the economy is complex and housing prices were not the primary driver of the last recession in and of themselves. :)
quick edit: sorry for writing an essay in the comments. economics is one of the things i know well. a different economist can look at the same data and facts and draw a different conclusion, it is a fun subject for that alone
People should realize that this housing market isn’t at all like what happened in 09, in fact it’s the complete opposite.
Big money fueling the market, banks only lending to the most qualified buyers.
Suits are now at or above 25% ownership of residential homes, up from 5% normally.
New construction is at least 8 years behind catching up to inventory needs. Prices of materials and delayed shipping is making this worse.
Rates are low and likely won’t get too much higher.
Government is preventing foreclosures
There’s not any one single reason why this market is the way it is, it’s a combination of everything I listed and more that I’m not thinking about right now.
I have buyers going all cash and waiving contingencies, 100k over ask and still lost bids.
Good luck to buyers out there for at least the next two years imo, this is the new normal.
I want to buy a multiplex.
I live in Southern California.
Does that explain it?
I always make the wrong decision
So I calculate what’s the worst that could happen
Either I over pay for a house, or I wait for a crash and hope the prices drop. But if I’m wrong on the latter, then I don’t end up with a house, and that’s worse than overpaying in my situation
We’ve passed the point in which monthly payments are lower because of low interest rates. Monthly payments are now higher despite the lower rates. So lower rates are completely “priced in” and would not prevent a crash.
In the last crash 90% of people remained employed. So even then the vast vast majority were employed (with jobs that paid more than people get paid today inflation-adjusted).
Do you really need to be a genius to understand that the cause of one crash would not be the cause of every crash ever to happen again in history? I don’t understand how such a low effort idiotic idea is so common here. Like 4-5x a week, so almost daily, there are threads about how lending standards are different so there cannot possibly be a crash since the last crash was due to lax lending standards Liz
We just had a worldwide pandemic in which economic output disintegrated.
Entire industries such as hospitality are on their knees and desperately trying to stay afloat.
Lots of business, homes and renters have taken advantage of moratoriums on payments for a long time. These are forgiveness programs - delays. Eventually, these shortfalls have to be made up. Either the lenders will start pushing for higher payments/interest rates, or people will start to get evicted.
Lots of businesses have been left with real estate that is largely worthless because people no longer occupy it. This is a balance sheet item that either needs to be used, or sold/rezoned.
There are so many market factors that we haven't seen play out yet.
Economic crashes take a long time to develop. It's unlikely we'll see the effects on the pandemic in the short term, it may even take a couple of years to develop.
My expectation is that within the next 5 years, we'll see a fairly significant crash, and then like always, a recovery to levels higher than they are now. Of course nobody has any idea though, and it's all conjecture.