Reply to Federal Reserve: signs abound that housing market is entering bubble territory

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Nobody talks about the effect a stock market crash will have as well. Stocks have doubled or more in the past 5 years. The Nasdaq almost quadrupled. How many people used brokerage money or retirement money or even got lucky with some play money to leverage themselves into a house they couldn't otherwise afford? Once that sort of money vaporizes, less people will be entering as buyers->housing crash.[/quote]

I think very very few.  The only way most normal people can use stocks to get into a bigger house is by selling them and using them for a downpayment.  The vast, vast, vast majority of Americans are not getting asset-backed mortgages, and most of those that did are still going to be just fine.  It's not like the average joe or jane has made enough in the market the last 5 years that dividend income was a substantial part of their monthly payment.[/quote]

To add the point which is implied here but may not be obvious--credit underwriting is still worlds different than it was pre-2008.  Just because you have a big downpayment doesn't meant you're going to get the loan unless you have the W2 income to show that you can afford the monthly payment.  If there truly is a massive crash such that a ton of people lose their jobs, then sure, at least some people will get foreclosed on.  Although the big equity cushion will help and maybe they'll just sell before that.[/quote]

Have you ever applied for a mortgage? Then you know that banks approve you for way, way more than you can actually afford. They don’t actually care if you can afford it, they just want to make sure your financial background meets a very low bar. The more and more unaffordable housing gets in relation to median income, the more people are stretching to the limits of their preapproval. What’s going to happen when inflation eats into these peoples’ budgets, or when they become underemployed due to the inevitable recession ahead?

Also people are definitely using stock gains for real estate, especially down payments. Even 401ks. It’s scary how many people you’ll read on Reddit who justify withdrawing from their 401k (with penalty!) for a house because they claim houses are a better long term investment.[/quote]

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