I work in tech and own a mortgage business on the side. I talk to people almost daily who are waiting for housing to crash. It’s a mistake. It won’t happen. People just don’t realize that housing doesn’t behave like stocks, bonds, or commodities and that there is a constant upward pressure on home prices. 1) When you buy a home you cannot sell it for anything less than 110% of the purchase value unless you are deeply distressed. For example, if you buy a home for 500k today and you want to sell it for 500k tomorrow, you will be in the hole $50k. Why? You need 10% for all the selling costs. You have to pay 3% to a seller agent, 3% to a buyer agent, 2% for county recording, transfer taxes, and another 2% for (moving, inspections, staging, deferred maintenance, potential concessions etc.) Don’t want to pay? You’ll get a substandard offer and be even further in the hole. Unless you have 50k lying around, you can’t close. And if you did, why not just make the monthly payments? 2) Job loss does not equal immediate default. People are pointing to layoffs as a catalyst for housing decline but if you lost your job you will still be able to make payments for a long time and it’s a better decision than distress selling. You will get severance, you will get unemployment, a mortgage company will work with you and give you forbearance they don’t want to foreclose, they want to get paid. Worst case you would rent out the property and move in to a cheaper home / with family to avoid losing the property. Even if you sat on your ass and did nothing it takes 120 days to start foreclosure proceedings and up to 1-2 years to complete. You are so much better off staying and making partial payments than distress selling. Where else are you going to live? An apartment won’t rent to you without income. 3) This is not 2008. People have a ton of equity in their homes. Yeah that headline says that housing has fallen by 10%. Ok, but housing went up by 20% every year from 2019 - 2021, and was on an upward trend for 10 years before. This is not 2008 where people have negative equity in their homes and will walk away. People want to keep their homes. 4) The volume of transactions matter. If gold is $2,000 an ounce and I sold you a 1oz bar at $500, does that change the market price of gold? No. Why? Because there is no way I could supply enough gold at that price to meaningfully impact the market price. Are we seeing some people panic sell and builders who have unfinished homes struggling to move inventory? Yes. But there just isn’t enough volume happening at these lower prices. You’re looking at a smaller sample size. Overall home sales are down because people aren’t selling. Inventory is limited. Just because Zillow or Redfin shows you that my neighbor sold at a 10% reduction from the peak, doesn’t mean I will sell you my house at that price. Most people are locked into sub 3% mortgage rates. 5) Housing has a floor. No one needs a stock, a bond, gold, bitcoin or an NFT. These can all go to 0. Everyone needs a place to live. A home will always have a rental value associated with it and income potential. At the very least the land value even if you burn the home to the ground. There are investor specific loan products out there (DSCR, Non-QM, Portfolio Loans) where banks and private investors will lend with only the projected rental income from the home. The rates will be significantly higher, but if it cash flows for the investor, they’ll do the deal in their sleep. If 500k home could generate $3k a month in rental income, the lowest the value could fall to is 300k. An investor can cash flow 100% of the purchase price even if rates go to 9% at this price. In an inflationary environment it is always better to hold assets & commodities than cash. Investors will be there to support the market. Housing cannot and will not go to 0. 6) There is still a significant shortage of new homes on the market, and the current rate market is slowing down investment in new construction. When rates drop. (I said when, not if) this problem will continue to put upward pressure on prices. So when does housing crash? Only when some sort of shock causes major employers leave an area and it becomes mismanaged, and infested with drugs, crime, gang violence to the point where there is no suitable tax base, you can’t raise enough funds to overcome operating costs, and no one wants to bring in future investment (Detroit). These events are localized and do not reflect a trend in the broader market. TC: MSFT: 200k (past cliff) RE Company: 100k avg
Sounds like taken from the passage of Old Man and Real Estate
First buy at peak and then rant so much lol. One year back who could have thought Fed can take rates from 0 to 5% in less than a year, FANG will do layoffs, even multiple rounds. Today's Microsoft's announcement on salary hike and bonus. Anything is possible, prepare for everything!
Correct. Msft has 18 billion profits and still no hikes
Better keep up the confidence of buyers and pump. Else ops side hustle 100k average may go down significantly.
Yes, daddy needs a 4th rental property
Err you conveniently forgot all that massive QE has flown in to assets and have made it inflated. If fed delivers what it promised of no rate cuts before 2% inflation, asset prices will trend lower, we just don’t know what floor gonna be.
The basic premise is wrong that ppl r expecting housing to crash to b affordable. As long as it comes to pre pandemic level $/sq ft rate or rates drop significantly the current housing market is not sustainable. Income more than 80% of San Diego home income can afford only 54% housing??? Something has to give... Sellers have tasted low rates and high inflated prices and that inertia is not letting market move meaningfully... If demand dries up and supply is limited rentals will keep going up and affordable!/multifamily projects will fill in the gap...
Market reacts with a delay. Wait for it. It’s going to be like water, nothing till 33 degrees but 32 and it’s ice
True go buy commercial real estate
There is a shortage of housing due to the NIMBY crowd, but with inflation just shy of 5% (for April), bank on more interest rate hikes killing the housing market... Depending on where you are, the tech sector caused a lot of migration, the loss of those jobs will soften the market... Folks not just going back from the states from where they came from but also countries.. Remember that an H1B visa holder only has a very short time to find another job, and it's worse for folks on L1s... This means less demand.. for the same supply == lower prices.
Agreed. The vast majority of 20 somethings aren't buying this logic, but its more true than false. Years of rock bottom fixed rate mortgages will keep supply low and the nature of shelter makes panic sales/foreclosure the option of last resort.
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