Yes, it's the worst time to buy a house. We're at the peak of the bubble, and things are about to start heading down hill. I anticipate that people who bought within the last 6 months will probably end up under water within a year or two.
So we may have high inflation even if housing prices don't participate. Given the changes in rates, it seems unlikely house prices will continue the way they have.
And it will likely depend on the region which option will apply. For extremely supply constrained regions with high prices (like Vancouver), I don't expect a decrease. But my guess is as good as everyone elses.
There might be older unmaintained house in desirable hood that went higher in Feb-March but unable to fetch that price again today but good product is good product and will demand premium in this region where land is a scarcity.
The cost per square foot of the average American home has remained exactly the same, adjusted for inflation, since 1974.
In major metros, it's artificial supply constraints that have kept prices going up, and those aren't about to ease. In SF for instance, over certain periods, the city added only 10% of the houses needed to keep up with job growth. Even a massive shock to the industry wouldn't have much real effect.
I strongly suspect there won't be much to write home about on the housing front this time.
Folks seem to think 'expensive' means 'bubble' - but houses have always cost what folks can afford to pay, otherwise, you know, they'd be less expensive.
[1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
from cnbc
the growth of real estate prices vs wage growth. wage growth has been flat since the '70s.
The BLS data shows that wages have kept pace with inflation.
The Census Bureau data shows that the price per square foot of the average American home has remained the same since the 1970s.
The spread is that the average new American home now has twice the square footage per person. [1] Of course in major metros, supply constraints keep prices high (and the gap between supply and demand is so large it would take something truly catastrophic to close the gap - SF barely had a 2008, for instance). Outside metros, houses have gotten enormous. In both places, families are smaller.
I'm just saying, I don't see a housing bubble looking at price alone.
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...
And this number was calculated before rates went even higher last week.
Source: https://www.calculatedriskblog.com/2022/06/30-year-mortgage-...
Mortgage rates may be up compared to 6 months ago, but they're back where they were in 2018 when I bought my condo. People were screaming 'housing bubble' back then too. Even that is misleading because...
Keep in mind that with an 8% inflation rate, a 5.85% interest rate on a 30-year fixed is a -2.15% real interest rate. Once you take into account mortgage interest tax deductions, the real interest rate is -4.5%.
This is dramatically lower than last time we saw 5.85% interest rates (2018) when we had a 1-2% inflation rate. That's a real interest rate of +3.85%. Once you take into account mortgage interest tax deductions, the real interest rate was +1.5%.
You are leaving out (as so many do): Taxes, Insurance and Maintenance. For example, where I live, those add up to a minimum of 3%. On top of all that, you need to factor in your personal stability - what's the risk that your career or partnership could intervene in your plans and force you to sell < 7-10 years out? If that happens, you are eating closing costs and potentially being forced to sell at a bottom out moment in house prices due to interest rate instability.
The market doesn’t differentiate between institutional and retail buyers when a house goes up for sale. However all those property taxes and HOA fees are tax deductible for institutional buyers.
I don’t think that’s good of course - and I’m not advocating people run out and buy a house either - I’m just saying, there’s a ton of factors that make “housing market collapse imminent” more of a pipe dream than a sure thing.
How much did housing go down in SF during COVID? Charts say zero, and that’s during the biggest exodus of people actually living there in recent memory.
2018 purchase prices were much lower than now, so your argument about rates isn’t convincing me. It’s the combination of obscene prices and moderate rates that is the issue. Obscene prices only made a bit of sense when rates were pushing under 3%.
I’m a homeowner, so it’s not in my interest to see prices fall, but I also don’t see why anybody would buy my house today given how high the payment would be. I would not be able to rent it out for anywhere near that number. So the situation appears very unstable to me.
I don’t expect 8% inflation to persist for 30 years. Do you? You’re right that if we average 8% inflation over the next 30 years, folks should buy the biggest house they can get approved for as long as rates are below 8%. But that’s taking a pretty big risk. Inflation has never run that hot for that long in the U.S. before. The Fed targets 2% inflation and has spent most of the last 14 years falling short of their target.
But we are in a new financial regime now, and nobody really knows what’s going to happen for sure.
I wouldn’t confuse a particularly poorly managed city for a broader trend. The same is certainly not happening a few towns over in South San Francisco where Stripe is now located, or in Cupertino, or in Menlo Park. Or at Tesla. Or every financial business in New York. Anecdotally every early stage startup I know is starting in person.
Couple years from now, work from home will once again be the exception.
forced selling can also increase supply.