Moody's says Home prices will fall 20% soon

[Anonymous]

Anonymous wrote:I believe it. Prices aren’t sustainable with 6% interest rates.

Agree that prices were inflated by unusually low mortgage interest rates.

Since 1971, the average 30 year mortgage interest rate is 7.76%.

[Anonymous]

Anonymous wrote:From WTOP this morning: DC-area home sales fall more than 25%:

https://wtop.com/business-finance/2022/09/dc-area-home-sales-fall-more-than-25/

We are not immune from a real estate downturn in this area.

Declining sales volumes is a sign of people adapting to higher interest rates, but it's only a sign of forthcoming price declines if inventory is also increasing. Right now, existing home inventory is pretty stable year over year, which is to say that it's still unusually low by historical standards. People who are able just hold off on listing their homes or moving until interest rates improve.

In contrast, new home inventory has increased rapidly, which is already leading to some price declines in new homes and is likely to spill over into existing home markets where new homes are close substitutes (sprawling Sun Belt cities and exurbs with lots of new construction). But a broad national decline is not very likely because new home construction is only a small fraction of the market in most places. Also, new housing starts have already adjusted downward to account for the reduction in demand, so the softening effect of a bunch of inventory will be fairly short-lived.

What we're looking at now is a lot like (a smaller version of) what happened in 1981-1982 when Volcker spiked interest rates to curb stagflation. Sales volumes declined dramatically as affordability plunged and people didn't want to buy or sell their homes. Nominal home prices dipped for a couple of months, but they recovered almost immediately, since the large drop in demand was matched by a large reduction in supply from people not moving. On the other hand, real prices fell substantially, because inflation eroded away the relative value of homes.

A 0-5% decline such as Moody's predicts is definitely plausible, though I find it a little bit pessimistic and it's below most other forecasts which still foresee small increases in nominal prices over the next year. Spot declines of 20% are plausible as well. But a 20% decline in prices nationwide is very unlikely at this point, and a 20% decline in prices for markets like DC or its close suburbs that are almost entirely existing homes or rentals is also very unlikely.

[Anonymous]

Anonymous wrote:

Anonymous wrote:People have been waiting for almost 15 years for that big downturn.

not really. the past 2 years prices have gone up 40%. I think the ones waiting for a downturn are in the past 2 years.

Prices have not gone ip 40%, at least in the DC metro.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Twenty percent? In this area?

Regardless of “real value” I don’t think investors who can pay cash, homebuyers who don’t need large mortgages, or even regular old 20% down homebuyers would wait until prices around the DMV dropped 20 percent before purchasing real estate. I think that if prices dropped 10%, tops, they will assume it’s being sold at a discount if you’re thinking long-term.

Affordability for anyone taking out a mortgage has sunk - with monthly payments basically doubling. I agree with you on cash buyers but what percent of the market is that really?

Investors bought 24% of all single family homes last year.

https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents

And obviously if the market tanks further that is only going to increase. So I think that cash buyers are a portion of buyers significant enough to move the needle as far as housing prices go, even in markets where you're not getting fire sale prices.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Twenty percent? In this area?

Regardless of “real value” I don’t think investors who can pay cash, homebuyers who don’t need large mortgages, or even regular old 20% down homebuyers would wait until prices around the DMV dropped 20 percent before purchasing real estate. I think that if prices dropped 10%, tops, they will assume it’s being sold at a discount if you’re thinking long-term.

Affordability for anyone taking out a mortgage has sunk - with monthly payments basically doubling. I agree with you on cash buyers but what percent of the market is that really?

Investors bought 24% of all single family homes last year.

https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents

And obviously if the market tanks further that is only going to increase. So I think that cash buyers are a portion of buyers significant enough to move the needle as far as housing prices go, even in markets where you're not getting fire sale prices.

You would think there would be more investor activity if the market tanks but in my experience they panic and try to limit their losses. There were no investors in sight when we were buying in 2010. It’s counterintuitive but people usually join the bandwagon when it’s the worst possible time - 2006 and again in 2021-2022.

[Anonymous]

Anonymous wrote:Most of the article is behind a paywall. The part that isn’t provides only this prediction: “Over the coming year, Zandi now predicts U.S. house prices will shift somewhere between 0% to -5%.”

You can see him talk about this on CNBC. Check youtube

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Twenty percent? In this area?

Regardless of “real value” I don’t think investors who can pay cash, homebuyers who don’t need large mortgages, or even regular old 20% down homebuyers would wait until prices around the DMV dropped 20 percent before purchasing real estate. I think that if prices dropped 10%, tops, they will assume it’s being sold at a discount if you’re thinking long-term.

Affordability for anyone taking out a mortgage has sunk - with monthly payments basically doubling. I agree with you on cash buyers but what percent of the market is that really?

Investors bought 24% of all single family homes last year.

https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents

And obviously if the market tanks further that is only going to increase. So I think that cash buyers are a portion of buyers significant enough to move the needle as far as housing prices go, even in markets where you're not getting fire sale prices.

You would think there would be more investor activity if the market tanks but in my experience they panic and try to limit their losses. There were no investors in sight when we were buying in 2010. It’s counterintuitive but people usually join the bandwagon when it’s the worst possible time - 2006 and again in 2021-2022.

Oh duh. That is a good point. They do do that.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:People have been waiting for almost 15 years for that big downturn.

Not quiet. Housing bottomed in 2012-2013

Right, that's when it bottomed. If you bought in 2006, you need to wait until around 2017-2018 to get back into the black and break even.

Same thing will happen with those who bought during the pandemic - they will probably need to wait 10-12 years to get back to break even. If they can hold out that long (death, divorce, cancer have a way of messing up your life plans...), they will enjoy an ultra low mortgage rate and sock away equity plus the tax write-off for interest.

But it's going to be a decade of waiting, IMHO. Just like the Great Financial Crisis.

There are homes still not breakeven from 2016 price. With the expected 20% drop, it will never breakeven. All these years, those who bought without thinking long, are paying much more in housing instead of saving that money in retirement.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:People have been waiting for almost 15 years for that big downturn.

not really. the past 2 years prices have gone up 40%. I think the ones waiting for a downturn are in the past 2 years.

Prices have not gone ip 40%, at least in the DC metro.

In any event - I still think the people looking for a downturn are the people who were looking to buy in the last 2 years and dealing with insane market.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Twenty percent? In this area?

Regardless of “real value” I don’t think investors who can pay cash, homebuyers who don’t need large mortgages, or even regular old 20% down homebuyers would wait until prices around the DMV dropped 20 percent before purchasing real estate. I think that if prices dropped 10%, tops, they will assume it’s being sold at a discount if you’re thinking long-term.

Affordability for anyone taking out a mortgage has sunk - with monthly payments basically doubling. I agree with you on cash buyers but what percent of the market is that really?

Investors bought 24% of all single family homes last year.

https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents

And obviously if the market tanks further that is only going to increase. So I think that cash buyers are a portion of buyers significant enough to move the needle as far as housing prices go, even in markets where you're not getting fire sale prices.

This. Its actually very bad that the unser $500k market is investors. Prices out first time homeowners and prevents them from having an asset.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Twenty percent? In this area?

Regardless of “real value” I don’t think investors who can pay cash, homebuyers who don’t need large mortgages, or even regular old 20% down homebuyers would wait until prices around the DMV dropped 20 percent before purchasing real estate. I think that if prices dropped 10%, tops, they will assume it’s being sold at a discount if you’re thinking long-term.

Affordability for anyone taking out a mortgage has sunk - with monthly payments basically doubling. I agree with you on cash buyers but what percent of the market is that really?

Investors bought 24% of all single family homes last year.

https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents

And obviously if the market tanks further that is only going to increase. So I think that cash buyers are a portion of buyers significant enough to move the needle as far as housing prices go, even in markets where you're not getting fire sale prices.

You would think there would be more investor activity if the market tanks but in my experience they panic and try to limit their losses. There were no investors in sight when we were buying in 2010. It’s counterintuitive but people usually join the bandwagon when it’s the worst possible time - 2006 and again in 2021-2022.

Oh duh. That is a good point. They do do that.

PP here again. But 20%? That just seems crazy that people would let a south Arlington house that sold for 1M this year get down to 800K. I don't think I'm a particularly good investor but even with a mortgage I'd be tempted to buy a house at that kind of discount.

[Anonymous]

Only 0-10% in Maryland, according to their map.

I live in Bethesda, where prices never come down. However, I am expecting a stabilization for the next couple of years.

[Anonymous]

Inventory is increasing steadily and price drop is also increasing steadily. Buyers just disappeared. Very interesting times

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Twenty percent? In this area?

Regardless of “real value” I don’t think investors who can pay cash, homebuyers who don’t need large mortgages, or even regular old 20% down homebuyers would wait until prices around the DMV dropped 20 percent before purchasing real estate. I think that if prices dropped 10%, tops, they will assume it’s being sold at a discount if you’re thinking long-term.

Affordability for anyone taking out a mortgage has sunk - with monthly payments basically doubling. I agree with you on cash buyers but what percent of the market is that really?

Investors bought 24% of all single family homes last year.

https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents

And obviously if the market tanks further that is only going to increase. So I think that cash buyers are a portion of buyers significant enough to move the needle as far as housing prices go, even in markets where you're not getting fire sale prices.

You would think there would be more investor activity if the market tanks but in my experience they panic and try to limit their losses. There were no investors in sight when we were buying in 2010. It’s counterintuitive but people usually join the bandwagon when it’s the worst possible time - 2006 and again in 2021-2022.

For investors, it is not about panic. It is about cash flow, they are all hit by higher vacancy rate. Renters default and maintenance cost. They are not considering appreciation / depreciation. The goal is not to put good money behind bad. Getting rid of the property is the best option to lower the risk and liabilities for investors.

[Anonymous]

So does that mean 20% drop in numeric value or is that accounting for inflation?