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Comment by yalogin | Hacker News Reader

If I understand it correctly the article is simply saying there will be a bust because of raising interest rates. Is that it? The article argues that a sharp reversal and bust will happen but doesn’t provide any rationale for why it would happen. No technical reason given other than that houses are not affordable.

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Yes, that's enough reason. Higher interest rates makes house affordability even worse. Given that interest rates aren't likely to come down something else has to give and that's price. Also, once people see prices falling they get scared and are less likely to buy so the prices fall further. Add to that the likely job loss and you have the makings for a housing bust. How deep? No one knows.

Interesting enough, this is what the FED is looking for when they increase interest rates to reduce inflation. They can't control supply but they can reduce demand with higher interest rates.

owners will be less likely to sell if they cant make a profit either, further reducing supply

Plenty of owners will sell a depreciating asset, especially non-resident owners.

Or just rent it out, which is honestly the easier option if you do proper vetting of renters

Well if rental and sale prices track, as they often do, this is also not a great strategy.

Rents have increased 15% in 1 year, and landlords are still trying to recoup covid losses. I doubt we will see rents decrease

As have home prices

also who wants to sell when they got a 30 year loan at a historically low rate

There will still be turnover. The elderly won't stop dying just because of their low fixed rate mortgage, for instance.

You also have to factor in that the fed will try to push unemployment above 5% to rein in inflation.

Overall, expect a slower economy over the next year or two, and along with it, slowing price increases and, in some cases, price reversals.

If we repeat the 70s, expect this to cycle, with periods of inflation followed by periods of tightening.

Further, houses are just way too damn expensive relative to disposable incomes from a historical perspective. Personally I don't expect a crash, but I do expect a softening in most markets followed by stagnation.

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