Why do expert say: Buckle in for a brutal free-fall in home prices - Housing Bubble

[Anonymous]

From Lance Lambert, Fortune’s housing reporter:

[Anonymous]

Anonymous wrote:Funny in 2021 everyone was selling only to cash buyers. So then why do mortgage rates matter?

Older folks might recall pre 2001 when rates high and HGTV generation not in full bloom people started small.

I started in a one bedroom coop with no parking and lived there 8 years, then when wife pregnant first kid bought a 1,500 sf split level fixer upper in a second tier neighborhood, then 18 years later bought my large trade up home on a first tier neighborhood.

Growing up on my old town most of rich homes were being bought by 45-60 year older olds with very large downpayment.

There is no god given right that 30 year old couples deserved 1.7 million dollar homes in Bethesda due to 3 percent mortgages. They can work their way up.

And guess what my two oldest basically grew up in my small 1,500 sf house in the more blue collar area and they have fond memories of backyard parties, play dates, Girl Scouts, trick or treating. Nearly all the wives were SAHM and no one could afford private school or sleep away camp or private tutors or second homes. All summer was fun. Kinda like 1950s. I recall after preschool all the moms would sometimes spur of moment extent 1/2 day preschool and do last minute play dates. Why not everyone home.

Not having the big trade up house at 30-40 only bruises the parents ego not the kids. My little kids still recall being in the back of the used Ford Taurus Station Wagon to get 99 cent McDonalds ice cream as the fun times.

Not stuffy old boring Bethesda, Chevy Chase or Potomac as fun times.

I am looking forward to kids having more normal childhoods

Your kid's childhood neighborhood sounds amazing and you seem to have done the right thing for them. But it must have been an affluent area for there to be so many who could support families on one income. Stay home parent is a luxury.

[Anonymous]

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Anonymous wrote:Prices are going to continue to fall because of interest rates. It’s a mathematical certainty.

No one knows exactly how far they will fall, but the prices will fall.

You really want to look to economists regarding this, not realtors. A lot of people think realtors have strong, economic backgrounds, or that they are experts in predicting markets. They are not.

I wouldn't trust economists either. (Of course no one should trust real estate agents on this.) But so far prices are not "falling" in the sense that sales prices are markedly lower than last year. They just seem to be going up less and taking longer to sell, and maybe with the usual contingencies in place on the contracts. Maybe things will change next year. I hope so. But given the overall strength of the economy in this area and the lack of supply, I don't see a big decline absent a severe recession.

Prices are going to go down because housing is an overvalued asset and the affordability is a huge issue that the Fed is determined to address. If prices don't come down through other pressures, the Fed will continue to increase rates until the bubble bursts. The Fed is trying to control inflation by devaluing overvalued assets, and housing is the most inflated sector of the economy. The Fed is determined to force a housing correction as a mechanism to control inflation in other sectors of the economy. It hasn't hit the tipping point yet, but it will.

No way. The Fed was trying to calm down the market and stop the rapid price increases. That has stopped.

Powell even referred to the bubble in past tense.

It has stopped for now. I'm afraid if they lower rates (which no one has said they are doing) - that the frenzy will ramp up again. There are a ton of buyers on the side lines.

Could be the opposite, it may keep the buyers on teh sidelines for longer waiting for the rates to go even lower if they are shown as little as a possibility of this being a reversal of direction. Just like initial hikes in rates fueled the frenzy of those on the sidelines rushing in before rates got even higher. You have to maintain the direction and keep rates stable for long enough time for prices to come down and stabilize and for buyer/seller activity to be normalized.

We finally entered this equilibrium where rates are high enough for prices to go down and homes to stay on the market longer if overpriced and to deter frenzy of buyers. If we cause housing prices to plummet too much (like be cut in half, like some people wish for and speculate) then it will ripple through the economy causing a lot more issues that it would solve. It would effectively make people a lot poorer overnight and underwater, because most middle class people have most of their NW in their homes or modest RE investments. This will curb all sort of spending significantly enough to fuel mass unemployment in many industries. Even if this reduces inflation, it obviously would cause a lot more unrest and unfavorable wealth re-distribution.

It can't be good for homes to be overvalued, but it also cant' be good for prices to plummet across the board.

[Anonymous]

I think people will be reluctant to move from a primary home due to probably having an already low interest rate. So inventory will be low. The people most likely to get burned are speculators who bought for Airbnb and can’t get enough renters to make payments. Areas like Florida and coastal areas and Los Vegas.

[Anonymous]

[Anonymous]

Anonymous wrote:I think people will be reluctant to move from a primary home due to probably having an already low interest rate. So inventory will be low. The people most likely to get burned are speculators who bought for Airbnb and can’t get enough renters to make payments. Areas like Florida and coastal areas and Los Vegas.

Yup, bought in 2018 and refinanced to a lower rate shortly after. There's no way we're selling this house.

[Anonymous]

In my area (we own homes in NoVA and in Florida) prices are starting to come down. But, inventory is low. Builders cannot keep up with demand and few people are selling. At our Florida home, we have had several people knock on our door to ask if we plan to sell. So weird! We bought both homes when prices and interest rates were really low. We’ll likely never sell either property.

[Anonymous]

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Anonymous wrote:I’m old enough to have learned that predicting markets is a fool’s errand, so all I have is scenarios in my head and the probabilities that I guesstimate for them. That being said, have caution about DCUM predictions as I’ve seen this site’s echo chamber tendencies. Back during bidding wars, the mantra on here was that prices are going up and folks will be priced out forever. Now the mantra is prices will crash in epic fashion. I think this site is an excellent barometer of current market psychology, but not necessarily a place that has a track record of predictive strength.

But we don't have to guess. Powell has been clear that he's raising the rates and even said that there's a housing bubble that he's trying to correct.

Will you provide a link? I can’t find anything with Powell calling it a “housing bubble.” I can find references to housing inflation, but not a bubble. My assumption is that people aren’t understanding the difference between a market slowing and calming down and a market crashing.

Here you go. https://fortune.com/2022/12/01/housing-market-in-housing-bubble-says-fed-chair-powell/

Question isn’t slow down vs crash. Housing prices have been falling since June. The question is whether the bubble will burst or slowly deflate. How low will they go and how quickly will they get there.

Have housing prices been falling, or just increasing less quickly? And falling compared to the last month, or year over year? My understanding is that around here, housing prices are not falling in absolute terms. I wish they would, but at least where I am looking, they don't seem to be.

Home values in most areas have dropped lower than they were at the peak (Spring 2022). However, they're currently still higher than they were in 2019. But they're falling. How far will they go - who knows. It won't be the same percentage across the countries. It will be very localized. Places that boomed during the pandemic have already been falling a bit, and will likely fall quite a bit more. But even if some areas fall the way back to 2019 prices, it wouldn't be catastrophic.

Is there data supporting this? I just haven't seen it. Maybe that's because around here, or in the areas where I am looking, it's not the case. And I googled it but nothing compelling and trustworthy came up in the results.

Some bubbles are bubblier than others.

[Anonymous]

The people trapped in their homes with low interest rate mortgages will require an unemployment event to start the housing price avalanche. Prices could remain stable in housing with a corresponding loaf of bread costing 50 dollars. It’s a currency collapse.

[Anonymous]

Anonymous wrote:The people trapped in their homes with low interest rate mortgages will require an unemployment event to start the housing price avalanche. Prices could remain stable in housing with a corresponding loaf of bread costing 50 dollars. It’s a currency collapse.

It would take quite the high new income offer to leave a low payment house, sell it and rebuy the same elsewhere with a high monthly payment.

I don’t think people will move for a new job unless it is very lower cost of living there. Employers will have to make roles remote, or find a wealthy new employee…

[Anonymous]

Anonymous wrote:

Anonymous wrote:The people trapped in their homes with low interest rate mortgages will require an unemployment event to start the housing price avalanche. Prices could remain stable in housing with a corresponding loaf of bread costing 50 dollars. It’s a currency collapse.

It would take quite the high new income offer to leave a low payment house, sell it and rebuy the same elsewhere with a high monthly payment.

I don’t think people will move for a new job unless it is very lower cost of living there. Employers will have to make roles remote, or find a wealthy new employee…

Employers hire young people mostly. And they are renters.

[Anonymous]

Anonymous wrote:

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Anonymous wrote:The people trapped in their homes with low interest rate mortgages will require an unemployment event to start the housing price avalanche. Prices could remain stable in housing with a corresponding loaf of bread costing 50 dollars. It’s a currency collapse.

It would take quite the high new income offer to leave a low payment house, sell it and rebuy the same elsewhere with a high monthly payment.

I don’t think people will move for a new job unless it is very lower cost of living there. Employers will have to make roles remote, or find a wealthy new employee…

Employers hire young people mostly. And they are renters.

Huh?

[Anonymous]

Anonymous wrote:

Or, basically, what all the reasonable people have been posting for the past year

- No crash
- Price plateau or mild/soft correction
- Return of contingencies to contracts
- Those that bought at peak will still likely not be underwater assuming they had a DP of greater than 5%

Really, not that bad when you think about it

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Or, basically, what all the reasonable people have been posting for the past year

- No crash
- Price plateau or mild/soft correction
- Return of contingencies to contracts
- Those that bought at peak will still likely not be underwater assuming they had a DP of greater than 5%

Really, not that bad when you think about it

FWIW being “underwater” doesn’t really mean anything if you’re planning to stay in your house for a long time. As long as you can afford the mortgage it doesn’t really matter.

Higher interest rates have definitely kept some buyers out of the market and that has reduced demand, but they’ve also kept many potential sellers on the sideline, which has reduced supply. So I think it’s kind of a wash.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Or, basically, what all the reasonable people have been posting for the past year

- No crash
- Price plateau or mild/soft correction
- Return of contingencies to contracts
- Those that bought at peak will still likely not be underwater assuming they had a DP of greater than 5%

Really, not that bad when you think about it

Yeah. Simply put, DC didn't run up like the others (Boise!),and doesn't have far to fall. Inventory still balances out against mortgage rates.