What's going to give first? Interest rates? House Prices?
I was on the market to buy a place. First time home owner jitters, but interest rates started to rise fast. Buying power dropped so much that I'm dropped out. At these rates, I really need the price to drop by 20%-ish. I'm sitting on cash and it feels like shit. I wonder how other people feel.
Arguably the 1980-81 era is a bit of an outlier, but perhaps instructive due to some of the similarities. The Fed under Volcker caused mortgage rates to rise to close to 20%. This was done to quell inflation that had proven persistent during the 70s. Back in '08 I recall looking at home sales data for my state (Oregon) during that era and there were quarters where the average selling price went down almost 20%. Of course, that's average selling price - it doesn't necessarily translate to home prices falling 20%, volume also fell (also consider that Oregon was very timber dependent then and there was suddenly a lot less home building going on). I suspect we'll see mortgage rates this time around hit 8% which really isn't an unusual rate historically, but given current prices that kind of rate will cause disruption. Bottom line: wait for rates to go higher - prices will fall. You can refinance the mortgage after rates go back down some, but I wouldn't expect to see 3% 30 year mortgages for a long time.
Timing the market is risky. Nothing guarantees that things will pan out the way you describe + your reader might be throwing money down a rental drain unless they buy.
We have had a historic move up in rates but that is coming out of COVID with rates at levels that don't even make sense to lend at for 30 years with out the Fed.
It would seem hard to believe housing prices are not overvalued with that artificially low rate regime but it is also hard to see housing prices crash in a massive inflationary environment. I would think we have a small pull back and then a flat line as time catches up with price.
Of course, real estate price is always local so generalizing to the whole country doesn't mean so much.
Canada I think is more interesting than the US with all the adjustable rate mortgages. Obviously, that is not going to end well when those rates adjust as an adjustable rate mortgage is basically a bet on what is happening, not happening.
Housing isn't overvalued. Housing is in shortage, so it priced at the maximum of affordability. Either you pay the landlord or previous owner (low interest) or you pay a bank (high interest), but either way you pay all you can.
Interest rates are highly sensitive to markets that have fairly tight feedback loops.
Home prices are set by relatively few transactions taking place at any one time in a close geographic area. There’s going to be a good amount of lag between higher rates prices actually dropping, especially given that the trend was increasing prices. We’ll likely see a leveling off first, then a degree of fall.
It’s hard to speculate about how much the prices will fall, ultimately homeowners make up such a large proportion of the population that they have a lot of leverage as a voting block, and government is responsive to their desire to protect their investment. Given the degree of run up we saw during, and even prior to, COVID, I’d estimate that there is a lot of room for prices to come down, but a lot of that drop is going to be driven by policy, not “free” markets.
I think it depends on if real estate is still being devoured by investment groups. And during high inflation, it doesn't seem like they're going to stop parking their money in homes any time soon. And since they can buy with cash, interest rates don't matter to them.
I think that was a temporary market distortion caused by too much QE and pent up demand from COVID making single family homes more liquid than they would have been otherwise.
Pooling money to buy single family homes only makes sense to me when the entire bond and equity market is over priced. Surely, there is a ton of capital that wishes it was liquid right now and not in portfolios of slightly over priced single family homes with liquidity drying up by the moment.
Something like 15% of all home sales over the past year were institutional buyers according to a report by the national association of realtors. [0]
It was more dramatic for some counties - Austin’s for example saw 41% of homes sold to institutional buyers.
As rates rise and a recession looms, time horizon before profitability shrinks and ability to pay rent falls into question, which puts these regions at risk of a crash in price as these parties may have to liquidate.
Well even Blackrock only has $60 Billion in housing in a $36 Trillion housing market. So not much (although it varies by location and market prices can be affected by outliers.. so there are exceptions, sure).
Keep in mind, these investment groups need to make cash on cash return above their hurdle rate, otherwise their investors pull the plug. Their goal is to make returns, not take all the housing from poor families while they cackle to themselves in their underwater bond villain lair while petting a white cat.
Also, historically, 1% interest rate increases leads to 10% decrease in home price because of the mathematics of mortgages and the fact that most people only look at the monthly. As far as "Cash" buyers, a sizeable number aren't actually cash, there are a number of services that make it appear that way for home purchasing. My brother used one to make a "cash" offer in the Bay Area recently.
TL;DR - Unless you have a wife who is 8 months pregnant, just wait. There's no need to buy in while prices and rates are both this high.
Someone has to be buying up all those houses in CA that the people fleeing the state are still selling at inflated prices.
If the net population of a state has dropped enough for them to loose at least one seat in the house of representatives, but houses are still selling for high prices than logically it's not people buying up those houses.
> If the net population of a state has dropped enough for them to loose at least one seat in the house of representatives,
While California is estimate to have lost some population after the 2020 census, the seat lost due to the 2020 census was with a population gain from 2010. The fixed number of seats means gaining population at less than the national average can result in seat loss (more easily the more seats you have to start with.)
With the right nationwide distribution of population gains, a state could even lose seats while gaining population at or above the national average rate (especially if some of the states that start out with population below the average size of a house seat are gaining population slower than the national average, since they can't lose seats in any case.)
> but houses are still selling for high prices than logically it's not people buying up those houses.
In California as everywhere else in the nation, the number of active listings has fallen dramatically in recent years; prices are high not because demand is high (particularly), but because supply has become very low. It doesn't take many people trying to buy to drive market clearing prices high when almost no one is selling.
My personal opinion, based on what happened in 2008 in my area, is that the exact impact will be local. I think in some traditionally desirable places, prices will level out or only decrease slightly as interest rates rise. Lower inventory will help keep these prices up as increased competition keeps prices inflated despite higher interest rates.
In other places, I think prices will fall as rates rise, since overall affordability will go down, but there won't be as much buyer competition to prop prices up.
At some point, the dam will break and people who've been sitting on the sidelines and accumulating large down payments will start bidding prices up again, causing more sellers to list, which in turn will get more buyers involved.
Same boat. I did some investigation into historical interest rates vs. housing prices, and I learned that there's really only a weak correlation between housing prices and interest rates (and funnily enough, it's a positive correlation).
I'm glad the housing market is slowing down. I'm not in a rush to buy (not willing to do super short review dates after listing) and not willing to get into a bidding war.
I'm on working on my masters with gaTech's OMSCS. Taking a summer class atm, and will finish in the fall. Going to start on a new job search and maybe TA a class too.
I hit a wall everyday in texts I read/do. If googling/stack exchange doesn't help I try again later or the next day. Almost everytime I am able to figure it out immediately upon the second try after sleep or X hours have past, strange how that works.
Back in the 80's homes were 4-5x the avg income
2002 5-6x
Now 8-9x
I rather buy something on 12% that's 4x my income than what my option is today.
[1] https://www.longtermtrends.net/home-price-median-annual-inco...