Housing market

[CycloneSpinning]

Amateur Hour around here.

You take the money you’d pay cash with and buy 5+ more properties to rent.

This feels like a really bad time to get into real estate. I couldn’t in good conscience recommend someone with a 3% interest rate on their mortgage pay it off (though I wouldn’t call someone stupid for doing it - it’s not likely the best financial move, but peace of mind can be priceless).

But we are almost certainly both in a housing bubble and entering into a recession. The home values are likely going to decrease…or at the very least level off. Vacation rentals are likely to wane somewhat, and the government just proved they aren’t above requiring home owners to allow renters off the hook for paying rent. (They did this because of Covid. Why wouldn’t they do it again during a recession?) Banks aren’t going to let the homeowner off the hook for a mortgage payment; though, and if you’re highly leveraged with less rent coming in? Yikes…talk about stressful. The stock market seems like the better value play right now. Even if the market drops another 10%, I feel a lot better about the market over the next 3-5 years than I do about real estate.

 

[CysRage]

This feels like a really bad time to get into real estate. I couldn’t in good conscience recommend someone with a 3% interest rate on their mortgage pay it off (though I wouldn’t call someone stupid for doing it - it’s not likely the best financial move, but peace of mind can be priceless).

But we are almost certainly both in a housing bubble and entering into a recession. The home values are likely going to decrease…or at the very least level off. Vacation rentals are likely to wane somewhat, and the government just proved they aren’t above requiring home owners to allow renters off the hook for paying rent. (They did this because of Covid. Why wouldn’t they do it again during a recession?) Banks aren’t going to let the homeowner off the hook for a mortgage payment; though, and if you’re highly leveraged with less rent coming in? Yikes…talk about stressful. The stock market seems like the better value play right now. Even if the market drops another 10%, I feel a lot better about the market over the next 3-5 years than I do about real estate.

Very good post. Though we did very well selling our house last year (3.5% interest, moved for a new job), I knew buying again would suck. The thing going for us is we had a ton of equity into our old house and we sold for a 33% increase than what we bought so we have cash at the ready to lessen the blow should rates continue to climb. We just don’t want to buy for there to be a crash after wards. There is too much strange stuff going on for me to be confident to buy now. High prices, high rates, high inflation, smoke on talks of recession. As you said, it just seems like at the very least prices will flatten with the way this economy is going then we can assess if that’s the time too buy.

 

[cyfan92]

We can thank Modern Monetary Theory for all of this...

Those who gave us MMT will be be looked upon as overtly reckless and irresponsible when the text books are published.

 

[keepngoal]

I know that some of you can't help yourselves .... but political posts belong in the cave. You know this, yet you think you're clever.

 

[atlantacyclone]

Yeah I have a mortgage again, it is 2%, with inflation the way it is, I am making money keeping that loan. Except I hate it. I am not sure how long I will be able to deal with it before selling investments to pay for it. Brain says never do that though.

If the rate is locked it’s free money in this environment. Just don’t put the cash at risk…

 

[KnappShack]

This feels like a really bad time to get into real estate. I couldn’t in good conscience recommend someone with a 3% interest rate on their mortgage pay it off (though I wouldn’t call someone stupid for doing it - it’s not likely the best financial move, but peace of mind can be priceless).

But we are almost certainly both in a housing bubble and entering into a recession. The home values are likely going to decrease…or at the very least level off. Vacation rentals are likely to wane somewhat, and the government just proved they aren’t above requiring home owners to allow renters off the hook for paying rent. (They did this because of Covid. Why wouldn’t they do it again during a recession?) Banks aren’t going to let the homeowner off the hook for a mortgage payment; though, and if you’re highly leveraged with less rent coming in? Yikes…talk about stressful. The stock market seems like the better value play right now. Even if the market drops another 10%, I feel a lot better about the market over the next 3-5 years than I do about real estate.

We have folks over 55 saying they plan to age in place at something like 70% in a survey I saw. We have Millennials still wanting to enter the market.

I'm not sure we are in a bubble or that values will dramatically fall unless rates start to erode the urge to form households and buy a home in that generation. Supply is still tight.

Do we think the Feds will not extend a forbearance program like we saw during COVID? Politically it would be rough for any administration to not roll those programs out.

The run and gun housing market of the COVID days will end, but I'm not sold this means a full on housing bubble or the destruction of housing equity

...but I could be wrong.

 

[Gunnerclone]

We have folks over 55 saying they plan to age in place at something like 70% in a survey I saw. We have Millennials still wanting to enter the market.

I'm not sure we are in a bubble or that values will dramatically fall unless rates start to erode the urge to form households and buy a home in that generation. Supply is still tight.

Do we think the Feds will not extend a forbearance program like we saw during COVID? Politically it would be rough for any administration to not roll those programs out.

The run and gun housing market of the COVID days will end, but I'm not sold this means a full on housing bubble or the destruction of housing equity

...but I could be wrong.

Feel like there is a difference between a housing bubble and an interest rate bubble; which once average 30 year rates hit 7.5% I will consider it popped. Not based on anything scientific, I just remember my parents being so happy when they refinanced our house down to 7.5% back in the 90’s. Bought a pop up camper, a new GMC Safari, and went to the black hills for two weeks. It was an awesome trip.

 

[mynameisjonas]

Feel like there is a difference between a housing bubble and an interest rate bubble; which once average 30 year rates hit 7.5% I will consider it popped. Not based on anything scientific, I just remember my parents being so happy when they refinanced our house down to 7.5% back in the 90’s. Bought a pop up camper, a new GMC Safari, and went to the black hills for two weeks. It was an awesome trip.

Paying 7.5% on a house in the 90‘s valued at around $100,000 was manageable, but yeah, if we get back to 7.5% when that same $100,000 house is now $300,000…..ouch.

 

[KnappShack]

Paying 7.5% on a house in the 90‘s valued at around $100,000 was manageable, but yeah, if we get back to 7.5% when that same $100,000 house is now $300,000…..ouch.

A person making $40k in 1992 would have the equivalent income of around $83k today.

The debt to income on $100k at 7% is around 20% with the 1992 numbers

Using the current income at $300k is around 29%. Not an insignificant change, but they'd qualify

Parents were around a 20% rate in the good ol'days

 

[83cy]

Redfin article states: "Sellers are losing control of the housing market as homes are increasingly having price reductions and taking longer to sell. There may be opportunities for home buyers as prices continue to stabilize"

I'm seeing some price reductions here in Minneapolis and in SW Florida. Still a sellers market but cooling a little for sure.

 

[simply1]

Not a prediction of a crash, but slowing.

Prepare Yourself: 'The U.S. Housing Market Is at the Beginning Stages of the Most Significant Contraction in Activity Since 2006'

The housing sector is in the midst of the biggest slowdown in over a decade, one economist says. But don’t expect prices to fall yet either.

www.realtor.com

 

[JRE1975]

Just asking a question, but how much will the demand side change if there is a significant reduction in student loan debt that improves younger people's loan qualification position?

The area I live in SW Florida is still crazy. More houses on the market, but the number of buyers looking is still strong.

 

[SCNCY]

Just asking a question, but how much will the demand side change if there is a significant reduction in student loan debt that improves younger people's loan qualification position?

The area I live in SW Florida is still crazy. More houses on the market, but the number of buyers looking is still strong.

I’d assume it’ll be dependent on where you live. Places like SW Florida, and other southern states will probably have strong housing markets as Boomers retire and look for warmer climates. My parents moved from Illinois to Texas for retirement as an example.

But younger people may be turned off by the “higher” interest rates because they’ve been accustomed to rates being below 4%. Additionally, if more companies embrace remote work, it’ll allow some in the younger crowd to maybe move to more affordable locations. So having the extra cash from less student loans will probably be a benefit to those who are in an area to take advantage of it, while others may not.

 

[CycloneDaddy]

Yeah I have a mortgage again, it is 2%, with inflation the way it is, I am making money keeping that loan. Except I hate it. I am not sure how long I will be able to deal with it before selling investments to pay for it. Brain says never do that though.

Unless a CD is paying over 5% my house will be paid off within the next 5 years. Its my only debt and I want it gone.

 

[cycloneworld]

Not a prediction of a crash, but slowing.

Prepare Yourself: 'The U.S. Housing Market Is at the Beginning Stages of the Most Significant Contraction in Activity Since 2006'

The housing sector is in the midst of the biggest slowdown in over a decade, one economist says. But don’t expect prices to fall yet either.

www.realtor.com

Of course things have to cool off. 1-2 DOM and prices well above asking cannot stay around forever. We also have some homeowners putting their houses on the market at crazy high prices and if they get it they will move. If not, they won’t be sad.

Back in the day, houses sat on the market for 1-3 months and it was perfectly normal. Going back to that certainly won’t be a “crash”…maybe a bubble deflation.

 

[FallOf81]

Why this time won't be different is just laughable. Housing falls, stock market falls, layoffs happen... then we start all over again We finally have a market again.

 

[CysRage]

Why this time won't be different is just laughable. Housing falls, stock market falls, layoffs happen... then we start all over again We finally have a market again.

Agreed. So called "real estate experts" keep saying that people are in a better financial position than 2008 yet according to Marketwatch, 63% of Americans live paycheck to paycheck. Even 33% of Americans making $250k or more are living paycheck to paycheck (insane). All it takes is for us to enter a recession, companies to start laying off, people can't pay their mortgage, and foreclosures begin to happen. Not saying this is 100% happening but people who think there is a 0% chance of a crash are oblivious or don't want to believe.

 

[alarson]

Agreed. So called "real estate experts" keep saying that people are in a better financial position than 2008 yet according to Marketwatch, 63% of Americans live paycheck to paycheck. Even 33% of Americans making $250k or more are living paycheck to paycheck (insane). All it takes is for us to enter a recession, companies to start laying off, people can't pay their mortgage, and foreclosures begin to happen. Not saying this is 100% happening but people who think there is a 0% chance of a crash are oblivious or don't want to believe.

That's still better than in 2008 if for no other reason than the quality of loans out there is a lot better. Some of the products that were rampant back then like interest only or negative amortization were primed for failure, and then there were much less stringent requirements on lending criteria at some lenders, so while you can't prevent sudden income loss from being an issue, a lot more people were a lot closer to the edge back then because they probably would not have been approved in the first place under more stringent qualification rules.

 

[cygrads]

Agreed. So called "real estate experts" keep saying that people are in a better financial position than 2008 yet according to Marketwatch, 63% of Americans live paycheck to paycheck. Even 33% of Americans making $250k or more are living paycheck to paycheck (insane). All it takes is for us to enter a recession, companies to start laying off, people can't pay their mortgage, and foreclosures begin to happen. Not saying this is 100% happening but people who think there is a 0% chance of a crash are oblivious or don't want to believe.

I have read the same info. The tech industry has already started layoffs in anticipation of a recession. It amazes me when I hear market experts still saying we could avoid a recession when CEOs and others in business pretty much guarantee the recession is coming and its just a matter of how long and bad it will be.

 

[CycloneSpinning]

That's still better than in 2008 if for no other reason than the quality of loans out there is a lot better. Some of the products that were rampant back then like interest only or negative amortization were primed for failure, and then there were much less stringent requirements on lending criteria at some lenders, so while you can't prevent sudden income loss from being an issue, a lot more people were a lot closer to the edge back then because they probably would not have been approved in the first place under more stringent qualification rules.

I would say as long as you are reasonably liquid, so you can comfortably cover your mortgages with reduced income for several months, you should be fine. Anyone not in that position…I would recommend they sell properties until they got there. I recall hearing a lady (I believe from Minnesota) who owned property in Anna Maria, FL freaking out in the first months of Covid because she couldn’t have vacation renters, and it was going to bankrupt her. That person is/was over-leveraged.

And I wouldn’t say this is like 2008, where the average home buyer was getting bad loans that put them in danger of foreclosure. It’s the investors I’m more concerned about. You almost feel like you hear it everywhere you go - real estate is easy money. It’s the easy path to wealth. You’ve got podcasts teaching people how to string themselves out, buying property after property with minimal down payments. It’s all a numbers game. As long as they can rent the homes out X% of the time, they’re golden. I strongly feel it’s about to hit the fan for those people.