Could This U.S. Housing Market Crash Be Worse Than 2008?(seekingalpha.com)
seekingalpha.com
Could This U.S. Housing Market Crash Be Worse Than 2008?
https://seekingalpha.com/article/4553122-housing-market-crash-be-worse-than-2008
10 comments
Actually the glut is in several types of hands. Developers, homeowners who will turn into sellers in 1-2 years, and flippers. The flippers particularly hold more housing stock than they did in 05-08 by wide margin (per this source). He also tied in buyers of new construction having signed onto prices during the low interest rate regime and now facing high rates. With much fewer population growth than seen after the 08 correction the demand fundamentals look much more troubling at least in that respect.
This does make me wonder how many ARM mortgages are outstanding and likely to become insolvent in the new interest rate regime.
Edit- Not finding something exactly related but here’s a chart of “troubling” mortgages “30-Year Fixed Rate Conforming Mortgage Index: Loan-to-Value Greater Than 80, FICO Score Between 680 and 699”: https://fred.stlouisfed.org/series/OBMMIC30YFLVGT80FB680A699
Was looking for how many outstanding ARM mortgages will mature in the next several quarters.
Edit-looks like it’s been trending to 10% of the market recently. https://themortgagereports.com/93472/adjustable-rate-mortgag...
This does make me wonder how many ARM mortgages are outstanding and likely to become insolvent in the new interest rate regime.
Edit- Not finding something exactly related but here’s a chart of “troubling” mortgages “30-Year Fixed Rate Conforming Mortgage Index: Loan-to-Value Greater Than 80, FICO Score Between 680 and 699”: https://fred.stlouisfed.org/series/OBMMIC30YFLVGT80FB680A699
Was looking for how many outstanding ARM mortgages will mature in the next several quarters.
Edit-looks like it’s been trending to 10% of the market recently. https://themortgagereports.com/93472/adjustable-rate-mortgag...
> flippers particularly hold more housing stock than they did in 05-08 by wide margin (per this source)
The article says flipping is at an all-time high. That implied inventory held, but it doesn’t directly make that claim.
The article says flipping is at an all-time high. That implied inventory held, but it doesn’t directly make that claim.
His graph shows it.
Linked source https://fortune.com/2022/10/10/home-flippers-are-in-trouble-...
Linked source https://fortune.com/2022/10/10/home-flippers-are-in-trouble-...
> Developers are more likely than individual owners to be able to wait out a downturn -- they're more likely to be well-capitalized
Source? I thought developers tended to be leveraged.
Source? I thought developers tended to be leveraged.
Not only more leveraged, but with significantly more dangerous debt terms (construction loans that need to be refinanced after 12 - 18 months and, in the multi family space, interest-only ARMs — remember those? - are common.)
So the outcome will be half-finished houses, or rushed with cheap materials?
After 2008, I read a story about the first (and only) person to buy a home in a half-built neighborhood. He was fully moved in before the crash. There were abandoned construction sites and empty home there when the developer went bankrupt. He mowed the yards all around him to keep the wildlife away from his home. He was in despair, understanding he could not sell him home to anyone. I assume someone acquired the neighborhood a few years later and completed the project, but it must have been 5 years before any developer started resuming construction at a minimum.
That's a possible outcome, and was a common sight back in '08.
Another outcome is the banks take back the properties en masse (happened in the early '80s during the last inflation scare, and also in '08) and slowly sell off the properties to investors in REO[0] auctions.
0 - REO or "real estate owned" is what banks call properties they've foreclosed on and taken ownership of. They generally want to get these properties off their books as quickly as possible and in the past have been willing to sell them at or below their cost basis.
Another outcome is the banks take back the properties en masse (happened in the early '80s during the last inflation scare, and also in '08) and slowly sell off the properties to investors in REO[0] auctions.
0 - REO or "real estate owned" is what banks call properties they've foreclosed on and taken ownership of. They generally want to get these properties off their books as quickly as possible and in the past have been willing to sell them at or below their cost basis.
There are market elements to the US housing market, but there are also huge central planning elements. It is hard to make predictions in this environment. Further interventions may become politically palatable at any time.
Who's to say what may happen? Interventions become more probable as public perceptions of a decline increase. It isn't enough to look at the stats. Second order effects such as intervention and public sentiment have to be considered. The political economy may be more relevant than underlying market fundamentals.
Who's to say what may happen? Interventions become more probable as public perceptions of a decline increase. It isn't enough to look at the stats. Second order effects such as intervention and public sentiment have to be considered. The political economy may be more relevant than underlying market fundamentals.
There's a coming supply glut? In the markets I'm familiar with there isn't any significant construction of houses. The few houses I see being built are high end and out of the price range of most people. Quality houses around me are still finding buyers in a couple of days.
The article addresses this.
There are currently more new homes under construction in the US than at any other time in history.
There are currently more new homes under construction in the US than at any other time in history.
Where though? Echoing the parent poster, where I live (metro Chicago) there is very little room to build and it’s more teardown/$1M+ rebuilds happening. I can see more building happening in the boonies/far burbs but you end up moving too far from the city. NYC is in the exact same spot.
If you’re outside Columbus, OH or Little Rock, this might be a good sign but for those who prefer urban or urban+suburban living, I can’t see much relief happening any time soon.
Even so, at current interest rates, much fewer people can buy houses now than at the beginning of the year.
where I am there is a lot of overbuilding at the low mid and high level
As a millennial who aspires to home ownership in the next year or two, thanks to the suffocating rental market: this article gives me hope. I'm not interested in paying obscene amounts of money for currently overvalued housing just to line the pockets of boomers trying to cash in on... owning a house at the right time.
A crash would finally get me to jump into the market. I suspect there are a lot of other millennials like myself who feel priced out of housing in general, so I think this is a necessary crash if we want my generation to avoid renting for our entire lives.
On the subject of rent, some interesting tidbits in this article about price-fixing in the rental market over the past few years. Maybe we'll see the federal government clamp down on that nonsense finally.
One especially interesting quote from the article:
> Tarrant County, in the Dallas-Fort Worth metro area, saw 52% of all home sales go to investors in 2021!
For anyone renting or considering buying in a US city over the last 2-3 years, this won't come as much of a surprise. But it's crazy to think that this is just institutional investors taking up half the market. It doesn't even account for short term rentals, second homes, etc., which definitely distort market demand as well.
I really wish the USA would come down hard on these investors, especially when homelessness is on an obvious rise. But let's be honest, when the market crashes they'll just get a ton of tax write-offs and beg for government assistance on top of that. I hope we don't fall for it this time.
A crash would finally get me to jump into the market. I suspect there are a lot of other millennials like myself who feel priced out of housing in general, so I think this is a necessary crash if we want my generation to avoid renting for our entire lives.
On the subject of rent, some interesting tidbits in this article about price-fixing in the rental market over the past few years. Maybe we'll see the federal government clamp down on that nonsense finally.
One especially interesting quote from the article:
> Tarrant County, in the Dallas-Fort Worth metro area, saw 52% of all home sales go to investors in 2021!
For anyone renting or considering buying in a US city over the last 2-3 years, this won't come as much of a surprise. But it's crazy to think that this is just institutional investors taking up half the market. It doesn't even account for short term rentals, second homes, etc., which definitely distort market demand as well.
I really wish the USA would come down hard on these investors, especially when homelessness is on an obvious rise. But let's be honest, when the market crashes they'll just get a ton of tax write-offs and beg for government assistance on top of that. I hope we don't fall for it this time.
A pessimistic view is that if housing prices do crash, even more of the houses will get snapped up by institutional investors. Unfortunately, this seems likely to me.
Millennials just have to snap them up before investors do.
And will investors have enough money and appetite for risk in a heavily crashed market? My intuition is that they'd be too spooked and would want to preserve capital rather than deploying it.
And will investors have enough money and appetite for risk in a heavily crashed market? My intuition is that they'd be too spooked and would want to preserve capital rather than deploying it.
Except that institutional investors can be counter-cyclical.
They know that the capital will be there and that housing prices will go back up. So they can buy houses when the economy is bad and Millennials can't.
We should bad institutional investors from owning homes.
They know that the capital will be there and that housing prices will go back up. So they can buy houses when the economy is bad and Millennials can't.
We should bad institutional investors from owning homes.
What we really need is a huge tax writeoff for primary homes. Own a second home? Owe massive taxes on it. Company owns thousands of homes? Massive taxes on every single one of them.
There's a massive homelessness problem in the USA right now. Lots of people are struggling to buy their first homes. I suspect it would take a long time (and involve lots of loopholes) to completely ban investor-owned properties... but I would support that as well.
There's a massive homelessness problem in the USA right now. Lots of people are struggling to buy their first homes. I suspect it would take a long time (and involve lots of loopholes) to completely ban investor-owned properties... but I would support that as well.
Housing demand isn't going anywhere, and a faltering housing market means less new house construction which will keep rent high.
Investors can make all cash offers, get houses for cheap and rent them out, and if they control enough of the rental market they can push heavily inflated prices to juice their profit margin. What else are they going to do with their money? Securities and bonds are trash.
Mortgages are brutal right now and going to get worse, so Millenials who can't make all cash offers are still going to be fucked.
Investors can make all cash offers, get houses for cheap and rent them out, and if they control enough of the rental market they can push heavily inflated prices to juice their profit margin. What else are they going to do with their money? Securities and bonds are trash.
Mortgages are brutal right now and going to get worse, so Millenials who can't make all cash offers are still going to be fucked.
Treasury bonds pay 4.5% right now, so you would at least need to make 6% on your housing investment.
There aren’t a lot of properties that you can buy that would yield 6% (of purchase price) rent a year.
There aren’t a lot of properties that you can buy that would yield 6% (of purchase price) rent a year.
It doesn't need to yield 6% from rent, it needs to yeild 6% from rent + (home appreciation - maintenance), which is pretty easy if home prices are depressed due to temporarily high interest rates and a glut of new construction, since appreciation will kick in hard as soon as interest rates cool off and new construction scales back.
That’s assuming that we will ever see 0-2% interest rates again. Where we are right now is right in line with historic norms and they will probably hit a lot higher.
People are already getting squeezed in other areas I don’t see how they are going to be able to push rents much higher
People are already getting squeezed in other areas I don’t see how they are going to be able to push rents much higher
Easy. Push rents higher slowly, and when occupancy rates start to go down enough that expected future rent increases will result in a profit loss you stop.
>Millennials just have to snap them up before investors do.
Um, have we forgot 2008 already with banks pulling dark inventory shenanigan's?
Also you're assuming mellennials have any savings and it's not been destroyed by inflation and rent increases over the past few years.
Um, have we forgot 2008 already with banks pulling dark inventory shenanigan's?
Also you're assuming mellennials have any savings and it's not been destroyed by inflation and rent increases over the past few years.
I’m in that highly-unlucky older millennial to almost gen-X cohort that got royally screwed by the Great Recession. So yeah really wish policies would favor us little people for once.
“””
Summary
The number of privately-owned housing units under construction in the US is at an all-time high of more than 1.7 million as price declines accelerate.
Who's going to buy all of these houses with mortgage rates of 7.3%? At current prices - people really can't, indicating the need for some serious price reductions. Housing demand is tanking while supply is about to soar. Real-time home prices are now falling at a faster rate than the 2008 housing crash.
This could be one of the biggest housing crashes in history. The Fed waited too long to hike rates during the boom and now needs home prices lower, so the cavalry won't be there to rescue with rate cuts this time. “””
Lots of great data presented here too.
The number of privately-owned housing units under construction in the US is at an all-time high of more than 1.7 million as price declines accelerate.
Who's going to buy all of these houses with mortgage rates of 7.3%? At current prices - people really can't, indicating the need for some serious price reductions. Housing demand is tanking while supply is about to soar. Real-time home prices are now falling at a faster rate than the 2008 housing crash.
This could be one of the biggest housing crashes in history. The Fed waited too long to hike rates during the boom and now needs home prices lower, so the cavalry won't be there to rescue with rate cuts this time. “””
Lots of great data presented here too.
Are these houses mostly built to be sold on completion, or occupied by their current owners?
> Are these houses mostly built to be sold on completion, or occupied by their current owners?
In the US, only a minority of houses are build from the ground up by a specific person (custom houses).
Most houses are built like this: property developers buy a large plot of land, divide it into plots, and build a group of houses. From the moment they divide the land into plots, they pre-sell the houses. The earlier you buy in, the lower your price is.
Because of that, it's tricky to answer your question:
* Some of the houses may not be sold yet * Some of the houses may be under contract, but the buyer can back out by losing their down payment (especially in cases where they can't get financing - you can put a home under contract without the full financing secured) * Some of the houses may be fully sold, with the financing paperwork already secured
In the US, only a minority of houses are build from the ground up by a specific person (custom houses).
Most houses are built like this: property developers buy a large plot of land, divide it into plots, and build a group of houses. From the moment they divide the land into plots, they pre-sell the houses. The earlier you buy in, the lower your price is.
Because of that, it's tricky to answer your question:
* Some of the houses may not be sold yet * Some of the houses may be under contract, but the buyer can back out by losing their down payment (especially in cases where they can't get financing - you can put a home under contract without the full financing secured) * Some of the houses may be fully sold, with the financing paperwork already secured
This way of building is also the root of urban sprawl, and all the infrastructure problems associated with it.
Right, but that sprawl is apparently what people want.
It is not typical in the US to raise a family in an apartment in a high density neighborhood.
There are exceptions, but typically only younger or lower income people live in apartments in the US. Pretty much everyone else aspires to have a house with a yard.
It is not typical in the US to raise a family in an apartment in a high density neighborhood.
There are exceptions, but typically only younger or lower income people live in apartments in the US. Pretty much everyone else aspires to have a house with a yard.
On the margin, people prefer to live in the city than in the far suburbs. You can see this from the large price premium on houses in the city.
There are all sorts of legal impediments to infill development. Some people want one thing. Yes, plenty of people want suburban living. But there are enough exceptions that demand for city living is greater than supply more so than for suburban living.
There are all sorts of legal impediments to infill development. Some people want one thing. Yes, plenty of people want suburban living. But there are enough exceptions that demand for city living is greater than supply more so than for suburban living.
We have high crime and violence, and we try to insulate our families from that, as well as from druggies shitting on the sidewalks.
Better apartment architecture could go a ways towards ameliorating this, I suspect. But I’ve definitely not seen any.
> Right, but that sprawl is apparently what people want.
To be honest, I'm not sure this is exclusively the case. Older neighborhoods with more density and mixed use are so in demand they will sell for 2-10x as much as suburban counterparts. It's just that they are illegal and can't be built.
There seems to be an insane demand for mixed use and medium density housing that is close to services, jobs and transportation. Imagine, never having to commute again. Living next to a walking path that is quiet and well maintained where you can take your kids for a walk. Even better, a 5 minute walk away is a grocery store and an ice cream shop that your kids can walk to safely without ever crossing a dangerous road.
There is a demand, just no supply!
To be honest, I'm not sure this is exclusively the case. Older neighborhoods with more density and mixed use are so in demand they will sell for 2-10x as much as suburban counterparts. It's just that they are illegal and can't be built.
There seems to be an insane demand for mixed use and medium density housing that is close to services, jobs and transportation. Imagine, never having to commute again. Living next to a walking path that is quiet and well maintained where you can take your kids for a walk. Even better, a 5 minute walk away is a grocery store and an ice cream shop that your kids can walk to safely without ever crossing a dangerous road.
There is a demand, just no supply!
“This is all we sell, take it or leave it.” is not a confirmation of what the buyer wants.
Supply side reviewing past sale’s history and deciding to sell some twist on a past thing that sold creates an “take it or leave it, because we decided this was most likely to sell” market dictated by supply sides review of the past.
Supply side reviewing past sale’s history and deciding to sell some twist on a past thing that sold creates an “take it or leave it, because we decided this was most likely to sell” market dictated by supply sides review of the past.
yes this is sprawl, its evil and unsustainable
I love these finance articles. It’s like asking “could this recession be as bad as the 1930s?”
Like sure the stock market may fall that much but will a reduction in output cause THAT much hardship? Likely not. But if you don’t write a tantalizing title no one will open your article and make you money.
Could the house prices fall as much as 2008? Sure. Will the economy stare down the abyss to the end of modern civilization like it did in 2008? Much more unlikely.
Like sure the stock market may fall that much but will a reduction in output cause THAT much hardship? Likely not. But if you don’t write a tantalizing title no one will open your article and make you money.
Could the house prices fall as much as 2008? Sure. Will the economy stare down the abyss to the end of modern civilization like it did in 2008? Much more unlikely.
I despite clickbait as much as the next HN commenter, but I thought this article rather substantive. From rent statistics to observations on unemployment to investor housing purchases to speculation on the high-price high-interest rate market behavior, I learned quite a bit.
> Will the economy stare down the abyss to the end of modern civilization like it did in 2008?
That seems a bit melodramatic to me. Did we "stare down the abyss to the end of modern civilization" during the worst, early, unvaccinated days of COVID-19, amidst George Floyd-inspired protests? Did anyone think 2008 was some kind of "end of days" scenario for civilization, instead of just desserts being served up to unwise overleveraged homeowners and investors? I feel like it was always limited to the economic domain, but I was pretty young at the time, so maybe I missed the worst of it.
The housing and rental markets are absolutely insane at the moment, in a way they've never been before in our country. My old boomer relatives made a killing over the last few years in house price gains. My young friends and family in their 20s are struggling to pay rent, much less afford (and find) their first home. I think it's interesting to look into why the markets are so insane, and if the bubble could burst soon.
> Will the economy stare down the abyss to the end of modern civilization like it did in 2008?
That seems a bit melodramatic to me. Did we "stare down the abyss to the end of modern civilization" during the worst, early, unvaccinated days of COVID-19, amidst George Floyd-inspired protests? Did anyone think 2008 was some kind of "end of days" scenario for civilization, instead of just desserts being served up to unwise overleveraged homeowners and investors? I feel like it was always limited to the economic domain, but I was pretty young at the time, so maybe I missed the worst of it.
The housing and rental markets are absolutely insane at the moment, in a way they've never been before in our country. My old boomer relatives made a killing over the last few years in house price gains. My young friends and family in their 20s are struggling to pay rent, much less afford (and find) their first home. I think it's interesting to look into why the markets are so insane, and if the bubble could burst soon.
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Lol the lack of finance education on this forum is a daily source of mirth for me. We were absolutely staring down a hyperinflation apocalypse in 2008. There were hundreds and hundreds of self congratulatory articles written about how the people at the top saved us. Please, for a moment, use google and read something.
An economic breakdown is not the same thing as an "end of civilization" event. As much as the finance bros want you to believe that the world can't exist without debt and bonds and all of the modern machinations built on top of those things, a breakdown in those systems merely means that those systems stop working.
Obviously the finance system is completely entangled with modern supply chains and a million other things that more directly effect our daily lives. But lets not pretend that life as we know it would cease to be if a couple of banks had failed in 2008. I've read plenty on the subject and it's very clear to me that 2008's "financial crisis" represents an almost complete failure of government duty to the common man in favor of a few very rich individuals made even richer by the bailout.
Please, for a moment, try to engage politely with others on the forum. Just because someone believes differently from you doesn't mean they aren't well read. Sometimes we've just read different things than you. If you engage politely, you might be able to convince me that your worldview makes more sense! But if you act like a jerk and break the civil communication rules in place on this forum, there's not a snowball's chance in hell that I'll come around to your way of thinking.
Obviously the finance system is completely entangled with modern supply chains and a million other things that more directly effect our daily lives. But lets not pretend that life as we know it would cease to be if a couple of banks had failed in 2008. I've read plenty on the subject and it's very clear to me that 2008's "financial crisis" represents an almost complete failure of government duty to the common man in favor of a few very rich individuals made even richer by the bailout.
Please, for a moment, try to engage politely with others on the forum. Just because someone believes differently from you doesn't mean they aren't well read. Sometimes we've just read different things than you. If you engage politely, you might be able to convince me that your worldview makes more sense! But if you act like a jerk and break the civil communication rules in place on this forum, there's not a snowball's chance in hell that I'll come around to your way of thinking.
1) I’m not trying to convince you. That is a fool’s errand in my online experience. I’m far more likely to come across adamant people than I am to come across sensible ones, so there’s no point trying to convince anyone.
2) if you think the end of money isn’t an apocalypse, then I don’t know what to tell you. Like sure, we may have done a debt jubilee, picked up the pieces and marched on, but chances were more that things would collapse utterly.
Yes, the world cannot exist without modern finance just as it cannot exist without civil engineering or farming. It can technically run without computers although it’ll be a shell of a shell of what we have today. But money is beyond all meaning of the word “essential”. It is a mark of civilization. All civilizations that moved beyond barter came to the same way of thinking - representative tokens i.e. money.
Don’t buy into modern leftist propaganda. Wall Street is corrupt but that doesn’t mean capitalism is bad and money shouldn’t exist.
3) 2008 was much, MUCH more existential than “a few banks failed” and you have not read enough if your takeaway from your reading was “the govt was wrong to bail them out”. The govt was right to bail out the institution. The corruption that pervades Wall Street is removed by a layer at which the govt failed and allowed failed CEOs and political operators to make overnight fortunes by announcing taxpayer funded support.
The alternative of not bailing them out was the total collapse of the US financial system - the biggest, most elaborate and deeply connected system on the face of the planet facilitating your every requirement from clean drinking water to toilet paper to the smartphone or whatever you’re reading this on. If it’d collapsed, no amount of scenario building could come close to the destruction that would’ve been wrought upon the planet.
You think this is hyperbole. It is not. Even people outside the US agree on that assessment. Your reading has been very selective and surface level because it is not your daily job. You likely read propagandists and other types of pundits who are not experts in the field.
2) if you think the end of money isn’t an apocalypse, then I don’t know what to tell you. Like sure, we may have done a debt jubilee, picked up the pieces and marched on, but chances were more that things would collapse utterly.
Yes, the world cannot exist without modern finance just as it cannot exist without civil engineering or farming. It can technically run without computers although it’ll be a shell of a shell of what we have today. But money is beyond all meaning of the word “essential”. It is a mark of civilization. All civilizations that moved beyond barter came to the same way of thinking - representative tokens i.e. money.
Don’t buy into modern leftist propaganda. Wall Street is corrupt but that doesn’t mean capitalism is bad and money shouldn’t exist.
3) 2008 was much, MUCH more existential than “a few banks failed” and you have not read enough if your takeaway from your reading was “the govt was wrong to bail them out”. The govt was right to bail out the institution. The corruption that pervades Wall Street is removed by a layer at which the govt failed and allowed failed CEOs and political operators to make overnight fortunes by announcing taxpayer funded support.
The alternative of not bailing them out was the total collapse of the US financial system - the biggest, most elaborate and deeply connected system on the face of the planet facilitating your every requirement from clean drinking water to toilet paper to the smartphone or whatever you’re reading this on. If it’d collapsed, no amount of scenario building could come close to the destruction that would’ve been wrought upon the planet.
You think this is hyperbole. It is not. Even people outside the US agree on that assessment. Your reading has been very selective and surface level because it is not your daily job. You likely read propagandists and other types of pundits who are not experts in the field.
The guys in charge of selling bank bailouts wrote a bunch of articles saying that bank bailouts saved the world. Why would I need to google an article to understand why they'd do that?
Because you clearly have no idea what you’re saying beyond the surface idea of “S0c1alizing L0s53s bAd”. Depth of knowledge is always and everywhere a good thing. Strive for it.
Source: trust me bro
I’m on the opposite end of this with the same source. Not assuming that since we lived through ‘08 that we’ve “seen it all”.
I’m on the opposite end of this with the same source. Not assuming that since we lived through ‘08 that we’ve “seen it all”.
I’m in the field. I likely know more about it than you ever will. So yes, trust me bro. Or don’t. It’s a free country.
I’m in the field as well. I own/manage multiple commercial properties. It’s in my post history.
Your comments are low quality and do not give me the impression that you’re experienced in RE.
Your comments are low quality and do not give me the impression that you’re experienced in RE.
That’s because I’m not in real estate. I’m in finance - which is what my comment is about. Notice how I have no opinion of housing prices, only their effect on the system. In simple terms, I understand loans, debt and derivatives. Not actual real estate.
I can see the entire covid bubble blowing off just as fast as it blew up. Not a lot of people bought during covid but they will probably be screwed. For everyone else they just made less money than they would have liked to.
On a long enough timeline rent/interest rate = house price (simplified) so many prices have a long way to go
On a long enough timeline rent/interest rate = house price (simplified) so many prices have a long way to go
On a long enough timeline the natural value of land tends towards infinity.
If a corporate entity can take out a 1,000 year loan it can make a profit buying a single home for one billion dollars.
This is why the economic models created to understand supply and demand for manufacturing pins in a factory eventually unravel when discussing land.
If a corporate entity can take out a 1,000 year loan it can make a profit buying a single home for one billion dollars.
This is why the economic models created to understand supply and demand for manufacturing pins in a factory eventually unravel when discussing land.
Can only hope
Could it? Yes, a thing is possible.
Will it? Almost certainly not.
How do we know? We don't, but that just means no one knows. It doesn't mean you should fling yourself towards one extreme opinion because it claims certainty.
Will it? Almost certainly not.
How do we know? We don't, but that just means no one knows. It doesn't mean you should fling yourself towards one extreme opinion because it claims certainty.
There is only one winner in the last 40 years of policy induced price volatility. The finance industry.
Human beings need to live in houses. Housing is one of the oldest and most basic of commodities. What do you do as an individual renting in 2020, 2007, 2004, or 2012? The answer is you reduce your housing exposure by buying.
Human beings need to live in houses. Housing is one of the oldest and most basic of commodities. What do you do as an individual renting in 2020, 2007, 2004, or 2012? The answer is you reduce your housing exposure by buying.
> The answer is you reduce your housing exposure by buying.
My exposure to housing is certainly much higher if I buy than if I don't (and invest that money in e.g. stocks).
What do you mean by exposure here?
My exposure to housing is certainly much higher if I buy than if I don't (and invest that money in e.g. stocks).
What do you mean by exposure here?
Housing has been on a long term uptrend. In 2010 I rented in my neighborhood for 700/month. A comparable property would rent for 4K/month now. This is outside of the city center in the northeast.
As I am naturally short housing, locking in a specific price point has massive benefits. If I had bought then, inflation alone would have reduced my long term monthly liability. As it stands I waited until 2018, locking in a 3k/month rate for housing. If housing corrects back to 2000 levels, I will sell my place for whatever I get - walk away from the mortgage and purchase a home in cash.
The thing that makes housing a strange asset class is that individuals are naturally short. Hence you carry a variable long-term liability on housing costs from day 1. Purchasing limits that liability.
As I am naturally short housing, locking in a specific price point has massive benefits. If I had bought then, inflation alone would have reduced my long term monthly liability. As it stands I waited until 2018, locking in a 3k/month rate for housing. If housing corrects back to 2000 levels, I will sell my place for whatever I get - walk away from the mortgage and purchase a home in cash.
The thing that makes housing a strange asset class is that individuals are naturally short. Hence you carry a variable long-term liability on housing costs from day 1. Purchasing limits that liability.
Don’t forget tax liability. By living in a house you own you get to keep the money you would have paid for rent and you get to avoid paying for that rent in post tax money.
It’s kind of a complicated thing to wrap your mind around but owning the things you use (car, house etc) pulls those transactions out of the taxable economy thereby becoming a tax advantaged incentive.
It’s kind of a complicated thing to wrap your mind around but owning the things you use (car, house etc) pulls those transactions out of the taxable economy thereby becoming a tax advantaged incentive.
In 2008, there were many many more homeowners who were hopelessly overcommitted, for whom foreclosure was inevitable. In some cities, the majority of the housing stock was held using mortgages that couldn't be repaid.
This time around, homeowners are in much better shape -- nearly all mortgages outstanding are fully-amortized and fixed-rate, for example.
Most of the supply glut is in the hands of developers, and most are still under construction. Developers are more likely than individual owners to be able to wait out a downturn -- they're more likely to be well-capitalized than a homeowner chasing the peak in 2007 was for sure.
And if developers fold, their unfinished units may not get finished, and might not come to market (for a long while, at least).
But, unlike 2008, the feds don't really want to prop up the market, so "amend, extend, and pretend" isn't likely to be around to slow the supply.
All in all, a tough prediction, but I tend to think that this downturn will be milder except in a few key overhot markets (especially TX)