Wall Street thinks US homes are overvalued by as much as 30+%

[Anonymous]

How about they make it illegal for these funds to own single family homes!

[Anonymous]

Anonymous wrote:People need to stop thinking of their houses like their personal piggy banks. My house was purchased for 700k in 2015 and now is 1.1m. I don’t think it’s worth that much even though I know it would sell for more than that (we did nicer renovations than they realize).

Home ownership should be prized for stability for kids and being cheaper than renting.

Isn't that essentially what it is, just stability? Because essentially if many of us were to sell now, we'd have to move to a radically different area to actually cash out on the piggy bank. This is why most people are staying put now with high interest rates and prices. A move and financial benefit can only be considered at retirement time. I personally think it's fine and good for MC/UMC older people to have that extra money potential at that time when income becomes fixed...

[Anonymous]

The problem with forecasting a crash is that it's cheap to own a house right now for most homeowners. Between people with no mortgage and people with sub 5% mortgages (especially sub 3% mortgages), only a small number of current owners are struggling to afford their house. That's why there's no rush to list unaffordable houses/triggering foreclosures, but there's also no rush to list houses by people with cheap mortgages feeling the gilded cage effect and depressing the demand to move up, which also depresses the inventory. And it's why rates may be high but prices are still high.

In many cities and countries, the average person cannot own a house. But house prices remain high and are in no danger of crashing. It's because the demand is met by the people who can afford to own. Two different populations. We see the same in NYC or DC or California.

Realistically, the only way out of this situation is to either flood the market with new housing (impossible in many places) or slow and gradual adjustment from rising incomes overtaking housing appreciation. The latter is much more likely but will take a long time. As long as a decade.

[Anonymous]

Any reason people refuse to read the article posted by OP?

The article is about publicly traded companies in the business of renting homes that trade at a 30% discount to the value of the homes they own.

Like any real estate company, they borrowed at lower rates and now have to refinance at higher rates. They also have to lease out the homes and they have vacancies which impacts the stock.

I guarantee if these companies decided they were just going to sell all their home, the stock prices would jump because they would sell near the market value.

[Anonymous]

Anonymous wrote:People need to stop thinking of their houses like their personal piggy banks. My house was purchased for 700k in 2015 and now is 1.1m. I don’t think it’s worth that much even though I know it would sell for more than that (we did nicer renovations than they realize).

Home ownership should be prized for stability for kids and being cheaper than renting.

I bought my house for 750K in 2005 and it’s worth 1M now. It would need to be 1.2M to have kept up with inflation. I suppose my house could still be overvalued, but it’s relatively more affordable than it was 20 years ago.

[Anonymous]

Anonymous wrote:The problem with forecasting a crash is that it's cheap to own a house right now for most homeowners. Between people with no mortgage and people with sub 5% mortgages (especially sub 3% mortgages), only a small number of current owners are struggling to afford their house. That's why there's no rush to list unaffordable houses/triggering foreclosures, but there's also no rush to list houses by people with cheap mortgages feeling the gilded cage effect and depressing the demand to move up, which also depresses the inventory. And it's why rates may be high but prices are still high.

In many cities and countries, the average person cannot own a house. But house prices remain high and are in no danger of crashing. It's because the demand is met by the people who can afford to own. Two different populations. We see the same in NYC or DC or California.

Realistically, the only way out of this situation is to either flood the market with new housing (impossible in many places) or slow and gradual adjustment from rising incomes overtaking housing appreciation. The latter is much more likely but will take a long time. As long as a decade.

Who will build the homes ?

[Anonymous]

Anonymous wrote:

Anonymous wrote:The problem with forecasting a crash is that it's cheap to own a house right now for most homeowners. Between people with no mortgage and people with sub 5% mortgages (especially sub 3% mortgages), only a small number of current owners are struggling to afford their house. That's why there's no rush to list unaffordable houses/triggering foreclosures, but there's also no rush to list houses by people with cheap mortgages feeling the gilded cage effect and depressing the demand to move up, which also depresses the inventory. And it's why rates may be high but prices are still high.

In many cities and countries, the average person cannot own a house. But house prices remain high and are in no danger of crashing. It's because the demand is met by the people who can afford to own. Two different populations. We see the same in NYC or DC or California.

Realistically, the only way out of this situation is to either flood the market with new housing (impossible in many places) or slow and gradual adjustment from rising incomes overtaking housing appreciation. The latter is much more likely but will take a long time. As long as a decade.

Who will build the homes ?

Building the homes isn't the issue. It's find the land and changing zoning to build more higher density housing in cities and suburbs that's the problem.

[Anonymous]

Anonymous wrote:The problem with forecasting a crash is that it's cheap to own a house right now for most homeowners. Between people with no mortgage and people with sub 5% mortgages (especially sub 3% mortgages), only a small number of current owners are struggling to afford their house. That's why there's no rush to list unaffordable houses/triggering foreclosures, but there's also no rush to list houses by people with cheap mortgages feeling the gilded cage effect and depressing the demand to move up, which also depresses the inventory. And it's why rates may be high but prices are still high.

In many cities and countries, the average person cannot own a house. But house prices remain high and are in no danger of crashing. It's because the demand is met by the people who can afford to own. Two different populations. We see the same in NYC or DC or California.

Realistically, the only way out of this situation is to either flood the market with new housing (impossible in many places) or slow and gradual adjustment from rising incomes overtaking housing appreciation. The latter is much more likely but will take a long time. As long as a decade.

The other problem with forecasting a crash is that the economic conditions of the housing market aren't unstable/speculative, which is what caused the last crash.

2008 was, to an extent, a collapse of the commercial banking system which had taken on too much risk. We bought our first house in 2002 with 3% down. USAA, which is a VERY conservative lender, was our mortgage holder. For our second home, bought in 2015 with 20% down, excellent credit, etc. they wouldn't even compete for the loan. It's unlikely we will see a 2008 style crash in the foreseeable future. The financial industry isn't going to take that risk and if they do start to, the collective head burying in the sand that happened in '07-'08 isn't going to occur again.

What is likely to happen over time, like PP said, is a slowing in the rate of value gains. The old rule before 2008 was you could expect 1%-3% appreciation on your home value per year.

[Anonymous]

It's not overvalued or not affordable. Some people think that way because many are priced out of where they wanted to live before. They just have to go further out until they are not priced out. Housing market has always been like this.

[Anonymous]

Anonymous wrote:

Anonymous wrote:It is true that homes are grossly overvalued in much of the US and Canada. Income doesn't support these prices, particularly with higher interest rates. Average income and average home prices are completely out of whack by historical standards. But how it unravels is anyone's guess. Home prices continued to go ever up in 2007, and then collapsed in 2008. The difference this time is that the banks are in good shape. So I'm not sure how we get to a more balanced real estate market this time. But invariably, home prices and income will revert to an equilibrium. But how and when is unclear.

I think it depends on what you mean by balanced. Gradual slowing of price increases and some decreases seems very probable. A crash does not. SFHs in desirable areas aren't going to lose much value. One reason is that we haven't built enough homes to keep up with demand since the crash. And now that we have higher interest rates the building that has been happening will start to slow.

You are right. But the reason is not that we haven't built enough homes. There is no more land to build more houses in DC and its close-in neighborhoods. Enough houses are being built in the exurb but people want to live close to DC. The supply of houses in DC can never increase to keep up with the demand. That's why prices in DC will never drop.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:It is true that homes are grossly overvalued in much of the US and Canada. Income doesn't support these prices, particularly with higher interest rates. Average income and average home prices are completely out of whack by historical standards. But how it unravels is anyone's guess. Home prices continued to go ever up in 2007, and then collapsed in 2008. The difference this time is that the banks are in good shape. So I'm not sure how we get to a more balanced real estate market this time. But invariably, home prices and income will revert to an equilibrium. But how and when is unclear.

I think it depends on what you mean by balanced. Gradual slowing of price increases and some decreases seems very probable. A crash does not. SFHs in desirable areas aren't going to lose much value. One reason is that we haven't built enough homes to keep up with demand since the crash. And now that we have higher interest rates the building that has been happening will start to slow.

You are right. But the reason is not that we haven't built enough homes. There is no more land to build more houses in DC and its close-in neighborhoods. Enough houses are being built in the exurb but people want to live close to DC. The supply of houses in DC can never increase to keep up with the demand. That's why prices in DC will never drop.

Exactly. And look at California. Why their real estate is so expensive is because they have run out of land to build on. You have to go deep into the hinterlands to find cheaper land on a large scale to build the subdivisions of old. Most of the open lands you see outside SF or LA are in conservations and off limits.

Zoning restrictions in existing suburbs also make it difficult to build more affordable housing as it would require demolishing SFH on a large scale to build multifamily or attached housing and that is a political battle no municipality is going to take on.

[Anonymous]

Anonymous wrote:The problem with forecasting a crash is that it's cheap to own a house right now for most homeowners. Between people with no mortgage and people with sub 5% mortgages (especially sub 3% mortgages), only a small number of current owners are struggling to afford their house. That's why there's no rush to list unaffordable houses/triggering foreclosures, but there's also no rush to list houses by people with cheap mortgages feeling the gilded cage effect and depressing the demand to move up, which also depresses the inventory. And it's why rates may be high but prices are still high.

In many cities and countries, the average person cannot own a house. But house prices remain high and are in no danger of crashing. It's because the demand is met by the people who can afford to own. Two different populations. We see the same in NYC or DC or California.

Realistically, the only way out of this situation is to either flood the market with new housing (impossible in many places) or slow and gradual adjustment from rising incomes overtaking housing appreciation. The latter is much more likely but will take a long time. As long as a decade.

A lot of the gilded cage people chose to improve the existing homes to "move up," instead of moving to move up.

[Anonymous]

Bought my home in McLean in 2008 for 1.2M. Just sold it last week for 2.5M.

[Anonymous]

I agree.

[Anonymous]

Anonymous wrote:But it’s true! A crash is inevitable because the next generation just can’t afford houses.

There’s no way my house is worth a million dollars. I behave accordingly.

I hate to break it to you the next generation being unable to afford a house will not magically crash the market. It just means the next generation is worse off than the one before it.