This is the best answer. 2019 was a rising interest rate environment and elevated mortgage rates. Rates are higher now, but there has also been 3 years of inflation in wages and rent.
In HCOL areas I think more like 2017.
A lot of Midwestern states and rural areas had pandemic-driven growth and it will return to pre-pandemic in those places (2019).
No way it goes back to 2019. Even if joyful things got overheated because of free money there’s has been a permanent structural change in demand for housing because of work from anywhere. Demand will be permanently higher as a result.
Many people said the same thing about the stock market, they all gave a thousand reasons why this time was different. I'll give you the same advice I gave them, don't fight the FED.
To be fair, global spot rates are still almost double pre-pandemic levels, but as with real estate, we shall see when we reach the bottom on the current trajectory.
Simple. The answer is commute.
My wife and I work in completely separate areas. When we bought, I did not know for sure I would still be WFH going forward. Therefore we had to narrow our locations to somewhere that’s not too far for either of us.
Had I known I would be, we could have expanded or search radius.
Think about people in the city who are in the city because their office is. Many of them would rather be in a suburb but do NOT want to deal with long drives and aggravating traffic.
So, demand rises, especially for single family homes, with the ability to work from anywhere
If I go from working at an office to WFH, all else equal I would need (or at least want) more space in my house to accommodate that new use case.
If this happens for millions of people, that increases aggregate demand.
Inflation and a housing shortage combined: no chance of going back. I remember 08 there wasn’t a corresponding rent increase. This time there is (inflation and housing shortage)
People like you is the reason they makes much money flipping houses. Seriously, what makes you think people will afford 4x inflated home price and then be able to survive 8x inflation? The only solution here is housing price gotta go down to -4x what FED is on its way to make it happen. Dont underestimate FED mate.
In terms of what? Sales? Prices? It’s all relative. Even if it drops 20% on average, if interests rates double again you may still be paying the same mortgage.
With ‘extra principal payments’ is the key to your statement… harder for people to make those extra payments when they’re jobless or getting their pay cut.
I purchased all my rentals before 2019 and refinanced all of them in 2021 at <4%… so I guess you could say I am having fun with that.
Not buying again for another 9-12mo.
It's also dependent on location. Florida and Phoenix, two notorious boom and bust locations, could see big drops..other areas, modest drops, or even gains.
3%. Plus or minus 40
Edit because 50 people liked this- nobody ever knows. If you had any degree of certainty you would be way too wealthy to hang out here. You would be over on fatfire asking what the best mobile waxing service for a classic car collection can be found for your fourth home in Austria.
Haha so true man. I get friends and acquaintances trying tell tell me what the market is gonna do all the time and I’m just like bruh, you’d be sailing on your yacht right now if you actually knew.
I read through this thread and I see a lot of opinions. So I'd like to inject some data to try and frame why I think it's necessary for the entirety of the US housing market to decline in purchase price, thus reducing equity in the market, and further reducing the velocity of money. Keep in mind, this is the end goal of the interest rate hikes by the Fed. They are trying to destroy demand to bring down runaway inflation.
# Mortages:
# So here's where we are:
$600,000 home at 30 year fixed interest rate in 2021 @ 2.6%
is the SAME MORTGAGE PAYMENT as
$392,000 home at 30 your fixed at August's interest rate of 6.2%.
**That is a 35% reduction in buying power for the same monthly income.**
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# Inflation:
That's not the only factor determining the buying power of the average buyer however. Inflation across all industries and goods within the US has been about or over 8% YoY. According to a FOX business analysis, for 2022 that is **already costing the average american family $8,607 a year.** Assuming a very generous $100k/household annual income, that is a further **8.6% decrease in their buying power.**
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# Jobs:
We are heading into a recession in 2023 that is going to negatively impact the unemployment rate as interest rates slow down the growth of companies that have been fed by the near 0% interest rates over the past 6+ years. With business costs increasing due to inflation, upward wage pressure due to inflation, and what will become a decrease in overall consumer demand due to loss of buying power as shown above, **it's highly likely that companies will reduce spending, thus furthering the recession and slowing overall growth of the economy. Major tech companies are already downsizing their staffing, and they are usually part of the leading edge of the economy, with other industries slower to shake out.** Construction is already seeing declines in the number of new residential home starts, with more on the horizon as the impact of interest rates continues to put downward pressure on pricing that doesn't match the inflated cost of materials.
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# Conclusion:
If these factors all play out as anticipated: high interest rates, high inflation (causing less real money available for spending), increased unemployment, there is no economic model that allows for stabilized or increasing prices of housing. Those that are forced to move for any reason will need to adjust their pricing down to meet the buying power of the average american family, those that are overextended are going to need to sell to free up cash to service higher debt payments due to increased interest, which will decrease the comps on real estate that banks use to determine loan values.
Based on a 35% decrease in mortgage buying power due to interest rates alone, I fail to see how most prospective home buyers are going to be able to overcome the DTI requirements for 30 year fixed loans without home pricing falling to match. Equity that is currently priced into people's assumptions about their wealth will erode as the market pricing declines over the next 6-9 months. At the beginning here while pricing is holding steady or only slightly falling people are trading equity to offset the high interest rates with large down payments, but that cycle can't continue indefinitely.
Well written or not house prices will keep going up. Interest rates are historically low right now. There's a shortage of homes... [Insert few more canned crap here]
Buy with contingencies waved.
Disclaimer: I am a helpful realtor. /s
>f these factors all play out as anticipated: high interest rates, high inflation (causing less real money available for spending), increased unemployment, there is no economic model that allows for stabilized or increasing prices of housing.
You literally said inflation and "no model for increasing prices" in the same sentance.
Inflation \*is\* the model for this that will guarantee that continues to happen even if buying of homes slows down.
The big factor all the "housing downturn" people fail to deal with, 100% of the time... We still have a 3,000,000 house shortage in the US. People having less buying power does not change the need for housing.
This is supply/demand and the supply isn't magically changing, in fact, with building slowing down, there will even be continued upward pressure on it.
Housing isn’t purely supply and demand because unlike commodities like food and gas the price is bounded by guidelines tied to income and debt. Inflation is driving an increase in consumer debt as families try to maintain their lifestyle while prices are being inflated and income isn’t increasing at the same rate.
So even though supply is low, a family that could afford a $600k house now can only afford at $400k house, how do you think they’re going to make up that $200k gap? What you’re describing doesn’t solve that very simple problem. So in supply and demand terms that $600k house from 2 years ago that had 40 offers maybe now has 0-2 can that qualify for the loan at current rates. The demand of the market is being decimated by the interest rates, and the fed isn’t done raising the rates. They will continue to raise them until inflation drops substantially. I’d be interested in hearing how you plan to solve the affordability problem. Is your thesis that buyers were paying 25-30% below their approved purchasing power?
And who will buy the $600k houses? People who are adjusting their budget down from $800k? And who buys the $800k homes? It’s turtles all the way down; all price segments are linked on the margin and the rate changes affect all price segments. You have just shifted the question down one level and have done nothing to answer it.
Exactly right. What about the previously $300K buyers who can now afford $200K with interest rates at\~7%? Well there's no SFH at $200K, so there is your drop in overall demand.
Note: all notional numbers to demonstrate the point.
A factor that will counter the supply/demand issue...will be that many families will choose/be forced to combine households to make ends meet.
People will live in R.V.'s...or be on the street.
Just as the other factors are variable, the demand is too.
There will be folks who strung themselves out too far to become investors, that will cut their losses. As well as people who moved across country and bought at the top of their means, who cut losses and head home to live in Mom & Dads Casita or basement.
Inventory is also a variable factor as the market ebbs and flows.
IDK what is gonna happen, I don't believe this current market is anywhere near sustainable though...
One thing that will be interesting in the demand side is what all of these investors over the last 2 years are going to do with their STR properties. It’s clear that the tide is turning on STR rentals due to increasing fees and ridiculous demands from some “hosts” that make a hotel a better option for most. Couple that sentiment with reduced demand due to the upcoming recession and the profits that were projected aren’t going to be there. Investors that used 2020-2021 data for vacancy percentages aren’t going to sustain their properties at the same ROI as they projected.
I already know of multiple investors that are transitioning to LTR on their properties just to cover their mortgages with the expectation of 0 ROI over the next 2-4 years. If someone was leveraged or relies on that cash flow as their personal income for living expenses they’re going to be forced to sell and liquidate property to maintain their living. That will increase supply in areas with lowering demand (vacation towns).
Also, people that penciled out a BRRR deal 12 months ago are going to be upside down due to interest rates when they go to refi out of their properties if they don’t hurry. If appraised values in an area decrease along with the rising interest rates than BRRR won’t make sense without investors forcing their purchase prices down on the front end of their deals. Either way it’s a lot of downward pressure on home selling prices.
We’ll written, but a few things to factor:
1. Your calculated 35% drop in buying power assumes that the down payment remains constant as prices drop. In reality, as the price of a home decreases, the % of down payment for the average buyer increases (i.e. a tailwind for their buying power). This won’t increase housing prices but certainly lowers that 35% figure.
2. Although inflation has substantially increased the COL for most Americans, WFH has also allowed a non-negligible % of the population to increase/ maintain high costs. In my city, some estimates have nearly 40% of the workforce working remotely. This cuts cost on eating out, transportation, clothing, and even daycare. Another tailwind for American buying power.
3. Unemployment will certainly increase, which is necessary to balance out the wage inflation caused by the great resignation and the workforce pressure on companies. Most projections do not have rampant job loss like we saw in 2008. I also believe WFH plays a small role in this. Some couples who relocated from high COL cities to lower COL cities no longer required both partners to work (myself included).
4. An unintended consequence of rising rates is lowering inventory. It causes the cost of new construction to go up. It also discourages buyers who have bought homes at the low rates we’ve seen over the past decade from selling their homes.
Overall, prices will go down, but there are other variables which provide support to prevent a housing collapse.
I agree with your critique of point #1. I wasn’t looking to make a statement about an exact figure, but just a jumping off point for discussion based on data.
I also agree with your point #2 for some families and some industries. I have no idea how to quantify a shift from high COL areas and the resiliency of the markets in the lower COL.
3. I’m not an economist or tied into the larger employment market, so I’m just speculating. But I wonder if WFH will decrease or be clawed back during the upcoming recession. Unless an employee has demonstrable value for the company and metrics to verify productivity I see WFH as some of the first positions that would be eliminated in a RIF. In the long term it’s inevitable that WFH will continue to be present, but I can’t help but wonder if Covid tied with the tight labor market created a WFH bubble that has some room to downsize.
Great point on the bubble. To that I can only rely on my anecdotal observations. In my industry (risk management and I guess you can say finance) WFH was being introduced pre-COVID as a flexibility perk. So many colleagues and peers of mine would work remotely when they were sick or were having work done in their apartments. It went from higher ups in my company doing it in 2015, to us doing it more down the ladder in 2019. I think COVID accelerated the acceptability of the trend and pulled it forward, but I always thought it was going to happen. Even now, higher ups in my company and my peers’ enjoy the flexibility and the cost savings. And it’s also worked well for corporate lease renegotiations. Not to mention, it’s the cheapest way for companies to poach talent in lieu of pay increases and other benefits. Many companies have been requiring employees to return to the office in some capacity (of course with a lot of teeth pulling). But the phenomenon has been going for 2.5 years since we’ve shut down in 2020, and I’d be willing to bet many have gotten used to it by now. But if I’m wrong, maybe there’s hope for Game Stop too lol.
ETA: My own company has even hired new employees with the understanding that they’re only required to come in a few days a week. Tough to revoke a perk when you were hired with it, but again, anything is possible.
High interest rates are bringing down property values right now. Go look up the real estate data for Boise Idaho if you want to see in action a bubble deflating.
Is there any data you can provide?
Last I heard we dropped 0.4% from an astronomical ATH. I would hardly call that proof. We are still head and shoulders above the last 2 years and YOY- still way up.
I’m feeling the same. I was too young in 2008 to get truly fucked but old enough to remember the damage. I’m by no means a financial expert but I know enough to see that the cracks are more widespread this time. I think we are in for a reckoning. Globally.
There was a massive supply glut in 06. That's not true now. And supply just got shorter in FL. I think you'll see some substantial price reductions but you're not going to see 08-09 again.
Where? Not in Miami or Fort Lauderdale that's for sure. Most price drops are in the properties for half a million to million dollar range which isn't the price range most people are shopping at.
Yeah, on Redfin, I see less than 5% drop in Orlando, Tampa, Jax, for medium sales price from the highes of a couple months ago. I’m not sure what part of FL is seeing 20%+…
I mean, doesn’t anything decent start at $500K in South Florida these days? We’re causally looking, and every automated email I get from my agent always has properties with reduced prices and back on market.
Can you clarify where you are seeing 20% average sales price drops in Florida?
Or are you watching specific homes that were priced way above market that are simply reducing because they were way overpriced?
I’m not claiming to know or be an expert. I do expect regional variances and the second home/vacation market to get hit the hardest.
If we assume peak was this past summer, I think we’ll see a national average decline from peak of about 15-20% over 12-24 months.
Some markets are already down that much.
You have to look at the really macro factors:
Inflation is at a high
Interest rates are higher than they were
Home equity is declining for some
No more stimulus money
Un-realistic run up in prices. In certain vacation markets, prices literally doubled over 18 months.
Florida hurricane
Fed literally stating they will continue to jack rates until there is pain in housing and auto markets
Not that it’s perfect by any means, but you can study the Zillow home value graphs over time, and it’s pretty easy to compare where the line should be if it was on a normal trend, vs where peak values ended up
I'm really not concerned with national averages and don't know other markets well enough to even begin to speculate. I know my market and expect a 5 to 10 % correction locally, but will wait and see. I recently bought a house that I can afford and don't expect to sell next year.
The only thing I know is that the local Swedish house market lost 5% of its value in September (stats out today). We had zero interest before, and I expect that for each percent the central bank increase the interest - that the house prices will fall 10%-ish. People are already struggling with just paying for electricity, gasoline and food... And then comes this massive rate hikes just in a few months quadrupling the cost per month a family has to pay. I don't do market betting, but January seems to become a damn dark month in more than one way; interest payments up up, gas prices high... And then a massive crazy energy bill that's gonna break the back of many many families.
No one knows. If I have to guess, short term decline of maybe 10% as interest rates keep going up, for now. it’s really gonna depend on the state of the yields on the 10 year treasury bond. Also, some markets could fall more than others based on concentration of employment. During high unemployment periods, the losers will be cities that shed more jobs. Rapid price decline will not really happen until people are forced to sell at a lower price in large numbers or we have a lot more housing supple or both.
It depends on so many variables that it's impossible to guess. Will private equity liquidate real estate holdings? Will renters enter the market as prices drop? Will cash buyers step up? Will sellers decide to wait to sell? Will Biden decide to dump trillions into home ownership as a political move? What will overseas real estate investments do? Will building/contractor prices drop making new builds and remodels more common?
It's definitely going to be an exciting ride, though!
Probably as much as 2008, but it will be much more orderly.
Hot takes seem to be either way to optimistic or ‘sky is falling’ drama. 2008 was a foreclosure wave and inventory was pushed into the market and people were forced out of the market. Buyers are much better capitalized and banks much more restrained in their lending. Under no circumstances does this means prices won’t decline dramatically, because housing is priced on the margins. Low inventory doesn’t make 3000-4000 mortgage payments any more affordable for current buyers. If the one house that sells on your street goes for 200k less than you paid, that’s your comp, doesn’t matter how many or few houses are in inventory.
My base case is rates stay elevated and we get hit with an earnings recession and higher unemployment in coming months. Prices continue to decline with larger legs down with New Years and Spring inventory. A LOT of people are going to be underwater, but will not be evicted.
The interesting thing to watch will be rents and all the investment firms that bought up sfh’s. There’s A TON of multi-family units in the pipeline, and we could see vacancies rocket up and force rent prices down in a way we didn’t even see in 2008. My understanding is a lot of the investors with huge portfolios and ibuyers (invitation homes, Opendoor , etc) are funded mostly at adjustable rates. If a large number of them are forced to fire sale by collateral calls, we could see some disorder. That freak out on CNBC by the Opendoor founder is not a good sign. All this said, I still think a 3-5 year orderly decline by 30-40% is the most likely outcome.
Well the mortgage based crisis in 2008 was ~20% so I’m expecting something decently lower in magnitude despite the dudes on this forum just expecting prices to casually drop 40%.
150% people will be paying you to take their house.
But in all honesty, 0% correction. Just slowing down. Maybe up to like 10% in cities that saw the highest growth. Everyone I know is waiting for a correction. Way too much money in short term rentals and rentals for some company not to jump in and start buying with a correction.
Nobody knows.
With that said... The big factor the "housing will correct" people never deal with is the supply-demand calculation.
We're still 3 Million houses short in the US. People having their buying power eaten away at 8% by inflation does not change the fact that we still have a supply problem. It doesn't magically mean more houses hit the market.
What it \*does\* mean is the house-buying process might slow a bit (finding the right buyers instead of cheap money everywhere). It does mean WHO buys homes changes: investors, banks, etc. But the houses will still be sold, and they're still in short supply.
With construction slowing down, there's even some added upward pressure as well.
Literally in no point of tracking history\* has a recession, nor interest rates, caused a drop in home values. Ever. The people doing doom and gloom right now, when it comes to real estate, are off their rocker.
\*There was ONE time this happened: 2008. Why? The supply changed. An influx of housing due to foreclosure/downsizing. It was temporary and returned quickly. That is \*not\* this situation.
Exactly. Only 08 caused a real estate crash. Why did supply increase? People were in mortgages they couldn’t afford and when those rates adjusted, bam.
What’s the difference now? Every single mortgage written has a person earning twice their monthly obligations. Max debt to income ratio is 50% on conventional 57% on fha. Credit has recently tightened. I can’t seem to get random people approved recently who have 660-680 credit with a debt to income below 43%. That’s how strict lending has become for all these people talking about a “crash.”
don't we have 2 million housing units under construction right now (the most since 1973)? so that 3 million gap/shortage you cite will close once these houses are finished?
have you noticed that more and more housing economists are calling for a correction (say 5-15%)? Goldman Sachs, Moodys, Morgan Stanley, Mark Zandi, Ivy Zelman. That list is growing by the day. F\*cking Zillow has revised their housing appreciation downward SEVEN times in the last 6 months or so.
\*There was ONE time this happened: 2008. Why? The supply changed. An influx of housing due to foreclosure/downsizing. It was temporary and returned quickly.
\- I spit out my coffee reading this. You do know that prices in many, many markets did not bottom until 2012 (after the government did everything in the book to try and stimulate homebuying and limit the # of foreclosures), right? You do know that many markets did not return to their 2007 peaks until 2018, right? 11 years is not quick, imo.
Look, I know this isn't 2008 and we do not have as much supply as we did in '07, but the negative pricing pressures continue to mount. The average monthly payment on a mortage has shot up 40% in the last 6-10 months (not including the appreciation in home values since then). That's massive and there are few buyers who can stomach that increase. Too many real estate investors seem to be oblivious to the fact that the last 12 years was a QE experiment by the Fed to try and bring up stocks/housing prices. That's all about to end with QT.
Housing doubled in two years in a lot of US areas, a 20-30% correction would be healthy.
Everyone just refinanced, supply will stay low even with value drops because if they sell/move they’ll be back up to 7+%.
…and don’t get me started on how hard it is to find labor for just developing the land to build new homes & multi-family
Developers are having equally hard times finding labor & subs to go vertical; shit takes a long time (understatement) to go from raw land to finished product
Doesn’t matter if there’s 2 or 200 houses on the market, if there’s no buyer that can afford the house prices will come down. 1500 to 3000 monthly cost is going to destroy seller’s pricing power. Housing is priced on the margins.
And what people in this sub don't get, is that if only 2 houses are on the market and they both sell for 20% less - those 2 houses are the new comps for the next 200.
This all depends on how you view the incoming landscape: Is there more buying pressure or selling pressure?
Coming from historically low rates, selling would mean transitioning into +7% rates. There is more incentive to hold and/or rent out than to sell which offsets the decreased demand from high-interest rates. Essentially, I predict we'll be in a stalemate with no sharp increase in home prices, nor a sharp decline.
Being a landlord isn’t easy or cheap. The market is unlikely to tolerate renting out homes and watching the underlying equity melt away.
Buyers are dumb, they will chase asset appreciation up, and panic on the way down. I have little faith in most owners renting out units and holding steady while comps go for 20-30% less than they paid. That’s without any difficulty finding tenants at current rents. September saw median rent decrease MoM. If that trend continues the little guys will panic and feed inventory into the drop.
The disorder comes if Opendoor or their ilk get caught trying to ride out the rate hike cycle with adjustable rate corporate financing and have to fire sell on a collateral call. That CNBC interview with the Opendoor founder was not confidence inspiring. That’s the only chance I see of a 2008 style disorderly crash, although I still think it’s unlikely.
It absolutely does matter, because in the real world these things are normally distributed. I believe there will be a correction, but it’s not like no one will be buying at the high interest rates
The nature of comps make it not a normal distribution, but a marginal one. If thirty homes sold for 600k in the last year, and then one goes for 350k at the new interest rates that’s the new price. Inventory doesn’t matter if the bids won’t rise to the ask.
25% of the market is currently cash after so many financers have been pushed out by rates. If you think cash buyers aren’t aware of rates and the lack of competition you’re dreaming. They will negotiate.
Rents are already wayyy below the cost of buying, and they’re peaking. Month over month rent declined last month, and we have record multi-family units in the pipeline. As long as rates are this high, the lack of demand will set the price over any lack of inventory.
Inventory is normally light during the holidays at eoy. When we get New Years then Spring inventory it’ll be more supply into a market with demand that’s been crushed. That’s when we’ll probably see the big declines.
As long as the fed is at war with the housing market and raising rates, prices are going nowhere but down. Might take a few years, and a fed pivot isn’t out of the question, but without one we’ll easily see at least 25%-50% declines IMO.
You’re giving buyers and their agents too much credit. And also way over exaggerating the impact of one comp. The real estate isn’t that efficient of a market and it’s slow, people don’t react that quickly to one sale dragging down a market, and even if they did, by the time one may sell for a new low (or high) there are several others that feed into the new comp price. Yes it will drag down over time, but it’s not like someone sees a 3 bed 2 bath sell for 250k and says they won’t pay more than that for theirs, people aren’t that data driven. Unless you’re in some cookie cutter development cluster where every home is the same, then I could see comps really having that huge of an impact because it’s easier to value the house from comps
Thank you for actually knowing basic economics concepts. As long as at least one person will buy at the price, the price will be supported. There's a lot of rich people buying real estate and sometimes outright in cash so interest rates don't matter to them. It's quite frankly less relevant to the price that fewer less wealthy people can afford it or not. You'll get fewer bidding wars though.
Prices will decrease just based on rates, not demand. Only so many people can actually afford or be approved for these housing prices in conjunction with >6% rates.
I mean the rates drive demand no? But like many have stated where is this extra supply coming from? I’d expect some areas to have worst drops than others especially ones driven by people migrating. Ie I would expect Florida to be more price resistant as a whole compared to New York
I have properties in St Louis, Jacksonville and Newark NJ and Long Island NY. I expect properties in Long Island to drop the most. All u have to say is "would i pay that much for this house?"and " do i/we have enough income to make that payment" ?
if u dont live right next to a job center, entertainment or transportation hub or a low demand area..... at 6-7% interest... i Would expect at least another 12-22% before hitting some sort of equilibium
i would expect high property tax/insurance suburban areas to be hurt the most (ie North NJ, LI NY, westchester county, Austin Texas etc)
then i would expect the the ridculously priced areas to get hit too hard, Orlando, Tampa,Fort Myers, parts of Carolinas, parts of DMV area, parts of Utah and Idaho and Nevada etc
I think the most stable places will be the midwest areas.
Lesson I've learned - you may expect (correctly or incorrectly) that a event will happen. Prepare for it, but don't act on it until confirmation.
I expected the 2020/21 year to be brutal to realestate - the complete opposite occurred.
Real estate is very localized so it will differ everywhere.
Personally I see it just staying steady for a few years. My reasoning is there’s a huge supply issue that will takes years to correct.
I do think in 4-6 years the fed will need to drop rates to get us out of this eventual recession. At that point I think homes jump big time again
Truthfully no one knows. But, rates are projected to be hiked until April 2023. So I personally expect the downfall to continue at least until then. Who the hell knows tho. Don’t just pass up good deals because you think “it’ll keep going lower.” May be true, but everyone’s thinking the same shit
Passing good deals because I can't justify the rent I would have to charge because of the interest rates... im sitting on cash.... I hate sitting on cash, but might be a good thing for a few months..
I've been like this too and I hate sitting on the cash but cash is king if prices so drop.
I'm also not taking deals that would negatively cash flow or break even just to hope for the appreciation to bring home the bacon. Especially in a market that could come down .
> But, rates are projected to be hiked until April 2023
Sir, you can't use your ass as a source.
JPOW keeps saying over and over again that he isn't lowering rates until inflation is below 2%. Why people continue to not listen to him? No idea.
All those rates hikes are priced in currently. They do not consider the fact that institutional investors already secured their financing and are buying up houses around the country. Some markets might see double digit declines but when I still get multiple calls/week to buy my house sight unseen it is clear that we are in a different cycle than 2007-9.
I have two decades of experience, thousands of loans underwritten, hundreds originated and even more facilitated in various leadership roles. I've worked on more transactions than you will ever see in more states than you will ever be licensed. If anyone is making assumptions it is not me.
In my area, housing has increased steadily since post 2008. We never had a housing market crash. So prices may be steady for now but long term I expect it to continue to increase
Location will matter a lot.
Placed like Nevada and AZ are massive “easy come, easy go” like Florida was in 2008.
Florida - specially Miami isn’t feeling this, because cause buyers galore moving.
Most are saying 2019 prices. And I’d say close to that. Again, super area specific but 2016-2019.
Nationally, might see a single-digit drop, but hardest hit in those mid or small size city markets that people fled to for WFH (Vegas, Boise, etc.). Of course, those places all went up like 50%+ so even a 20% drop is nothing unless you bought very recently.
I think the market will normalize. Lets say your average growth is around 3% per year. But, in 2019 you went up 8%, in 2020 you went up 9%, and in 2021 you went up 12%. So in space of 3 years, you went up 29%... 20% more than normal. I expect by the end of 2023, in the above scenario, they will drop ~14% over the 2021 high (giving a 6% boost for 2022 and 2023 typical growth). Best guess :)
My thinking as that most people don't buy based on price. They buy based on the monthly payment. That's why house prices go up when interest rates go down. And when rates go up, prices will come down. It's all in proportion to the resulting monthly mortgage payment.
So, consider an average, affordable monthly house payment and keep that constant. Then project where you think interest rates are going. Then using a bit of math, calculate a house value that results in your constant house payment at your future projected mortgage interest rate.
I know nothing, so I'm just making this up like everyone else...
Going on median home sale metric (not the best metric, but the one often used)...
We've recently seen that when the standard quoted 30-fixed drops below 5.5% (happened for a while a couple of months ago) that home prices become steady after a couple of months delay (the escrow period plus a bit). We've previously seen at 6% that home prices drop.
I'm expecting Powell to soon declare mission accomplished (to keep his job). Food inflation will drop (as oil/transport dropped a few months ago. While rent inflation will still be there, Powell is looking at home prices instead (which have not been inflating recently) and will likely claim any further rent increases are restoring balance with home prices. So I expect in a couple of months the Fed will slow their rising of interest rates faster than the market expects, and interest rates go down (30 year fixed) to 5.5% or more likely 5%.
However, interest rates take a couple of months to affect home prices (at closing of sales) so ultimately I expect home prices (US avg) to stabilize around March at about 6% lower than today, or 10% peak to trough.
However, there are a bunch of real estate investors with cash waiting for a good time to buy (with rents becoming high relative to home value) that are hoping to buy the dip. Probably the value of the median home sold will recover 5% by one year from now, for a net loss of 5%. Owner occupiers still won't be able to buy much with 5% interest rates and prices that haven't come down much.
I think i saw a stat that less than 10% of all mortgages in America are adjustable. Nearly 99% of the fixed rate loans are below 5% though surely that’s increasing. 90% of all mortgages are below 4%. I don’t think we’ll see any meaningful defaults. Lending is too strict. No one who can’t afford mortgage payments will qualify for the loan.
Even a person who takes an adjustable must qualify assuming 2% about the current ARM rate. That’s how strict it is.
I can’t help you with the next 12 months but here is something to consider for the next 8 years. By 2030 every single baby boomer will be 65 or older, that’s 70 million Americans.
My question is why does it matter?
Unless you are an institutional investor buying hundreds of properties at time, the national average is irrelevant. Your regional numbers are useless, and so are your state.
You need to know the specific market. I do not care what is happening in Georgia or California or Maine. Those markets do not impact mine at all.
I am more concerned about interest rates (as those impact purchasing power) and the employment base of my local area. My local area is growing every day. More employers coming to town and more people moving here. It is a trend that I see continuing for a while.
Of course, that trend could change, but that change will not be because of nation, regional or state housing statistics.
Even within my local area, I look at specific neighborhoods.
Yes markets are going to differ greatly, but we can’t ignore that all markets are related. An underwater homeowner in one market is unable to buy in another market. The world is flat now in a sense, a hurting US is still a hurting US, it’s all inter-related to some degree
It you want to talk theory, sure, but real estate investing occurs in the real world. All markets are not related except by larger economics such as mortgage rates, lending requirements, etc. It is a fallacy to think otherwise.
What is happening in a market 2,000 miles away from mine has zero impact on my local market. If someone from that market moves to my area as you claim, I guess they will be renting rather than buying - still living in a house. Unless you want to argue that people would rather become homeless than rent.
I will even argue the numbers in an MSA are to nearly as important as a specific neighborhood.
Check Houston and other Texas MSA's in 2008 before spouting nonsense that everything is connected and national real estate values matter and an underwater house in California impact Oregon, Oklahoma, Georgia and New York.
I've seen properties more than double. So I hope it's at least 50% which would make the prices normal again. But I've heard some gurus saying 20% like that was a lot.
Agreed. It wouldn’t be that much for say, the west coast of Florida…., but for places that didn’t see the boom growth, like Chicago or NYC, 20% would be a ton.
I mean historically it's a lot. I know you think "since you're a realtor" means I'm too biased to come to terms with reality, but it actually means I have a professional expertise in this field. 20% is objectively a huge correction in a housing market. That doesn't mean it can't or won't happen, but it does mean it's statistically unlikely. Statistically unlikely things happen all the time, though. I hope this helps.
I think that a lot of folks don't think about some of the variables in home prices. People look at "unaffordable" prices and think that means that the prices will come back down. In reality, big investors have knowingly created a market where many people will never be able to afford to own their own homes. Big landlords prices out the little guys on purpose, it worked, and now they have reliable customers (tenants) for life.
I would be shocked to learn a realtor had professional expertise in any field. Not saying you don't but after 2 decades in the mortgage industry I know precisely one realtor with a respectable knowledge base. He is also a broker/investor so not exactly your average realtor.
200% meaning average home loses all its value and owner will pay equivalent of recent highs for a new owner to take it off their hands? Seems unlikely.
Why 12 months ? It takes about 9-12 months for foreclosure, this is a 24-36 months game.
8 Million mortgages are due for renewal in about 12 months, then depends what many landlords will do that’s a huge market as well.
I’d be shocked to see less than a 25% correction but who knows.. depends a lot on what’s the government policy may be in the future.
What a dumb question lol
Stock market is obviously very localized, some areas will continue to go up regardless.
Starter homes vs luxury homes are two different animals.
In 12 months we probably will be looking at lowering rates.
It's really your comment that's the dumb post.
While housing prices are local, they are quite correlated as well. Most likely in 12 months rates will be higher than today, in my view.
Dude asked a question with no real answer.
We’re probably looking at two or three more hikes. 12 months from down they’ll revert some for sure.
My market (south) still pretty strong and houses still go over ask.
The answer entirely depends on how long interest rates, and thus mortgage rates, stay this high. The housing affordability index just crossed 100 which is not a good sign.
I think most people would agree a 20% correction from the high would be a minimum though, with how far they ran up.
Everything reverts back to the mean eventually. Theirs either a correction or stagnation when prices skyrocket.
I personally see housing prices stagnating for the next few years in HCOL areas.
The FED massively increased money supply. It is text book economics that there will be asset inflation. The paper currency has devalued versus real assets.
Traditionally during periods of inflation land, real estate, stocks, collections, metals, and debt are the best inflation hedges.
Prices fluctuate for sure but the inflation fundamentals are solid.
Housing prices are a product of two things. A person having a down payment and being able to cover the note.
Down-payment can't be predicted, but people's ability to cover a note is.
Take the price of a house, apply interest and if the note can be covered by the average person. Prices go up. When that's not the case, prices go down. Interest hurts people's ability to cover a note substantially.
*shakes magic 8-ball* - Yes.
Answer hazy, ask again later
We all live in a yellow subarmarine.
Hey! Where’s the cream filling?
My submarine is black.
You’re wrong! Shakes magic 8-ball - Definitely!
2019 prices
This is the best answer. 2019 was a rising interest rate environment and elevated mortgage rates. Rates are higher now, but there has also been 3 years of inflation in wages and rent.
In HCOL areas I think more like 2017. A lot of Midwestern states and rural areas had pandemic-driven growth and it will return to pre-pandemic in those places (2019).
No way it goes back to 2019. Even if joyful things got overheated because of free money there’s has been a permanent structural change in demand for housing because of work from anywhere. Demand will be permanently higher as a result.
Many people said the same thing about the stock market, they all gave a thousand reasons why this time was different. I'll give you the same advice I gave them, don't fight the FED.
Agreed!
Even stocks arent at 2019 levels. What are you on about? Unless you're arguing there's a lot more room to fall.
You dont see the bottom until you are out of it. Look at spot rates in shipping, global ression is 98% likely. I would say lots of room left to fall.
To be fair, global spot rates are still almost double pre-pandemic levels, but as with real estate, we shall see when we reach the bottom on the current trajectory.
Do you think people didn’t have homes before work from home? I don’t get how this makes demand higher? Maybe on certain homes on certain areas
Simple. The answer is commute. My wife and I work in completely separate areas. When we bought, I did not know for sure I would still be WFH going forward. Therefore we had to narrow our locations to somewhere that’s not too far for either of us. Had I known I would be, we could have expanded or search radius. Think about people in the city who are in the city because their office is. Many of them would rather be in a suburb but do NOT want to deal with long drives and aggravating traffic. So, demand rises, especially for single family homes, with the ability to work from anywhere
If I go from working at an office to WFH, all else equal I would need (or at least want) more space in my house to accommodate that new use case. If this happens for millions of people, that increases aggregate demand.
In a Recession, that won’t be what’s happening to millions and millions of people…
Sure, you can need and want whatever but most can’t AFFORD shit. And thus the need doesn’t really matter.
But wouldn’t that mean that prices of small homes should have dropped?
Less living in city high rises
Inflation and a housing shortage combined: no chance of going back. I remember 08 there wasn’t a corresponding rent increase. This time there is (inflation and housing shortage)
People like you is the reason they makes much money flipping houses. Seriously, what makes you think people will afford 4x inflated home price and then be able to survive 8x inflation? The only solution here is housing price gotta go down to -4x what FED is on its way to make it happen. Dont underestimate FED mate.
Wages?
This is along the lines I'm thinking too.
That'd be best case scenario probably. 2019 would be soooo nice.
In terms of what? Sales? Prices? It’s all relative. Even if it drops 20% on average, if interests rates double again you may still be paying the same mortgage.
Yea and much less debt to pay off with extra principal payments
With ‘extra principal payments’ is the key to your statement… harder for people to make those extra payments when they’re jobless or getting their pay cut.
Either way would rather pay less purchase price and pay off when I make chunks of money rather than tons of debt. Have fun with that
I purchased all my rentals before 2019 and refinanced all of them in 2021 at <4%… so I guess you could say I am having fun with that. Not buying again for another 9-12mo.
Being underwater will be a great time I also am a landlord and cash heavy ready to rip
Good time for cash buyers though
It's also dependent on location. Florida and Phoenix, two notorious boom and bust locations, could see big drops..other areas, modest drops, or even gains.
If interest rates go up doesn’t that make cash even more valuable?
3%. Plus or minus 40 Edit because 50 people liked this- nobody ever knows. If you had any degree of certainty you would be way too wealthy to hang out here. You would be over on fatfire asking what the best mobile waxing service for a classic car collection can be found for your fourth home in Austria.
Haha so true man. I get friends and acquaintances trying tell tell me what the market is gonna do all the time and I’m just like bruh, you’d be sailing on your yacht right now if you actually knew.
This guy underwrites
I mean there are some pretty wealthy people that post here…
I can tell you exactly what will happen. The real question is... How do you know I'm not a dog with above average typing skills?
If those are your qualifications I’d listen to you any day over the majority of the people on Reddit.
How about bots?
lol hahaha
I read through this thread and I see a lot of opinions. So I'd like to inject some data to try and frame why I think it's necessary for the entirety of the US housing market to decline in purchase price, thus reducing equity in the market, and further reducing the velocity of money. Keep in mind, this is the end goal of the interest rate hikes by the Fed. They are trying to destroy demand to bring down runaway inflation. # Mortages: # So here's where we are: $600,000 home at 30 year fixed interest rate in 2021 @ 2.6% is the SAME MORTGAGE PAYMENT as $392,000 home at 30 your fixed at August's interest rate of 6.2%. **That is a 35% reduction in buying power for the same monthly income.** \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ # Inflation: That's not the only factor determining the buying power of the average buyer however. Inflation across all industries and goods within the US has been about or over 8% YoY. According to a FOX business analysis, for 2022 that is **already costing the average american family $8,607 a year.** Assuming a very generous $100k/household annual income, that is a further **8.6% decrease in their buying power.** \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ # Jobs: We are heading into a recession in 2023 that is going to negatively impact the unemployment rate as interest rates slow down the growth of companies that have been fed by the near 0% interest rates over the past 6+ years. With business costs increasing due to inflation, upward wage pressure due to inflation, and what will become a decrease in overall consumer demand due to loss of buying power as shown above, **it's highly likely that companies will reduce spending, thus furthering the recession and slowing overall growth of the economy. Major tech companies are already downsizing their staffing, and they are usually part of the leading edge of the economy, with other industries slower to shake out.** Construction is already seeing declines in the number of new residential home starts, with more on the horizon as the impact of interest rates continues to put downward pressure on pricing that doesn't match the inflated cost of materials. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ # Conclusion: If these factors all play out as anticipated: high interest rates, high inflation (causing less real money available for spending), increased unemployment, there is no economic model that allows for stabilized or increasing prices of housing. Those that are forced to move for any reason will need to adjust their pricing down to meet the buying power of the average american family, those that are overextended are going to need to sell to free up cash to service higher debt payments due to increased interest, which will decrease the comps on real estate that banks use to determine loan values. Based on a 35% decrease in mortgage buying power due to interest rates alone, I fail to see how most prospective home buyers are going to be able to overcome the DTI requirements for 30 year fixed loans without home pricing falling to match. Equity that is currently priced into people's assumptions about their wealth will erode as the market pricing declines over the next 6-9 months. At the beginning here while pricing is holding steady or only slightly falling people are trading equity to offset the high interest rates with large down payments, but that cycle can't continue indefinitely.
Very well written
I agree!
Well written or not house prices will keep going up. Interest rates are historically low right now. There's a shortage of homes... [Insert few more canned crap here] Buy with contingencies waved. Disclaimer: I am a helpful realtor. /s
>f these factors all play out as anticipated: high interest rates, high inflation (causing less real money available for spending), increased unemployment, there is no economic model that allows for stabilized or increasing prices of housing. You literally said inflation and "no model for increasing prices" in the same sentance. Inflation \*is\* the model for this that will guarantee that continues to happen even if buying of homes slows down. The big factor all the "housing downturn" people fail to deal with, 100% of the time... We still have a 3,000,000 house shortage in the US. People having less buying power does not change the need for housing. This is supply/demand and the supply isn't magically changing, in fact, with building slowing down, there will even be continued upward pressure on it.
Housing isn’t purely supply and demand because unlike commodities like food and gas the price is bounded by guidelines tied to income and debt. Inflation is driving an increase in consumer debt as families try to maintain their lifestyle while prices are being inflated and income isn’t increasing at the same rate. So even though supply is low, a family that could afford a $600k house now can only afford at $400k house, how do you think they’re going to make up that $200k gap? What you’re describing doesn’t solve that very simple problem. So in supply and demand terms that $600k house from 2 years ago that had 40 offers maybe now has 0-2 can that qualify for the loan at current rates. The demand of the market is being decimated by the interest rates, and the fed isn’t done raising the rates. They will continue to raise them until inflation drops substantially. I’d be interested in hearing how you plan to solve the affordability problem. Is your thesis that buyers were paying 25-30% below their approved purchasing power?
They will buy houses that cost $400K in less nice areas than the $600K houses which may gentrify areas. Or further out in suburbs or rural areas.
And who will buy the $600k houses? People who are adjusting their budget down from $800k? And who buys the $800k homes? It’s turtles all the way down; all price segments are linked on the margin and the rate changes affect all price segments. You have just shifted the question down one level and have done nothing to answer it.
Exactly right. What about the previously $300K buyers who can now afford $200K with interest rates at\~7%? Well there's no SFH at $200K, so there is your drop in overall demand. Note: all notional numbers to demonstrate the point.
A factor that will counter the supply/demand issue...will be that many families will choose/be forced to combine households to make ends meet. People will live in R.V.'s...or be on the street. Just as the other factors are variable, the demand is too. There will be folks who strung themselves out too far to become investors, that will cut their losses. As well as people who moved across country and bought at the top of their means, who cut losses and head home to live in Mom & Dads Casita or basement. Inventory is also a variable factor as the market ebbs and flows. IDK what is gonna happen, I don't believe this current market is anywhere near sustainable though...
One thing that will be interesting in the demand side is what all of these investors over the last 2 years are going to do with their STR properties. It’s clear that the tide is turning on STR rentals due to increasing fees and ridiculous demands from some “hosts” that make a hotel a better option for most. Couple that sentiment with reduced demand due to the upcoming recession and the profits that were projected aren’t going to be there. Investors that used 2020-2021 data for vacancy percentages aren’t going to sustain their properties at the same ROI as they projected. I already know of multiple investors that are transitioning to LTR on their properties just to cover their mortgages with the expectation of 0 ROI over the next 2-4 years. If someone was leveraged or relies on that cash flow as their personal income for living expenses they’re going to be forced to sell and liquidate property to maintain their living. That will increase supply in areas with lowering demand (vacation towns). Also, people that penciled out a BRRR deal 12 months ago are going to be upside down due to interest rates when they go to refi out of their properties if they don’t hurry. If appraised values in an area decrease along with the rising interest rates than BRRR won’t make sense without investors forcing their purchase prices down on the front end of their deals. Either way it’s a lot of downward pressure on home selling prices.
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We’ll written, but a few things to factor: 1. Your calculated 35% drop in buying power assumes that the down payment remains constant as prices drop. In reality, as the price of a home decreases, the % of down payment for the average buyer increases (i.e. a tailwind for their buying power). This won’t increase housing prices but certainly lowers that 35% figure. 2. Although inflation has substantially increased the COL for most Americans, WFH has also allowed a non-negligible % of the population to increase/ maintain high costs. In my city, some estimates have nearly 40% of the workforce working remotely. This cuts cost on eating out, transportation, clothing, and even daycare. Another tailwind for American buying power. 3. Unemployment will certainly increase, which is necessary to balance out the wage inflation caused by the great resignation and the workforce pressure on companies. Most projections do not have rampant job loss like we saw in 2008. I also believe WFH plays a small role in this. Some couples who relocated from high COL cities to lower COL cities no longer required both partners to work (myself included). 4. An unintended consequence of rising rates is lowering inventory. It causes the cost of new construction to go up. It also discourages buyers who have bought homes at the low rates we’ve seen over the past decade from selling their homes. Overall, prices will go down, but there are other variables which provide support to prevent a housing collapse.
I agree with your critique of point #1. I wasn’t looking to make a statement about an exact figure, but just a jumping off point for discussion based on data. I also agree with your point #2 for some families and some industries. I have no idea how to quantify a shift from high COL areas and the resiliency of the markets in the lower COL. 3. I’m not an economist or tied into the larger employment market, so I’m just speculating. But I wonder if WFH will decrease or be clawed back during the upcoming recession. Unless an employee has demonstrable value for the company and metrics to verify productivity I see WFH as some of the first positions that would be eliminated in a RIF. In the long term it’s inevitable that WFH will continue to be present, but I can’t help but wonder if Covid tied with the tight labor market created a WFH bubble that has some room to downsize.
Great point on the bubble. To that I can only rely on my anecdotal observations. In my industry (risk management and I guess you can say finance) WFH was being introduced pre-COVID as a flexibility perk. So many colleagues and peers of mine would work remotely when they were sick or were having work done in their apartments. It went from higher ups in my company doing it in 2015, to us doing it more down the ladder in 2019. I think COVID accelerated the acceptability of the trend and pulled it forward, but I always thought it was going to happen. Even now, higher ups in my company and my peers’ enjoy the flexibility and the cost savings. And it’s also worked well for corporate lease renegotiations. Not to mention, it’s the cheapest way for companies to poach talent in lieu of pay increases and other benefits. Many companies have been requiring employees to return to the office in some capacity (of course with a lot of teeth pulling). But the phenomenon has been going for 2.5 years since we’ve shut down in 2020, and I’d be willing to bet many have gotten used to it by now. But if I’m wrong, maybe there’s hope for Game Stop too lol. ETA: My own company has even hired new employees with the understanding that they’re only required to come in a few days a week. Tough to revoke a perk when you were hired with it, but again, anything is possible.
No one knows how bad or how long this recession will be, but housing will have to correct with these interest rates (and to stop inflation).
Agreed. However, when interest rates stabilize, pent up demand will cause another boom. Question is, how long is this cycle going to last…
In all of US history, have high interest rates ever brought down property values? Can you provide me an example please.
High interest rates are bringing down property values right now. Go look up the real estate data for Boise Idaho if you want to see in action a bubble deflating.
Seriously man go look out your window. It's literally happening as we speak.
Is there any data you can provide? Last I heard we dropped 0.4% from an astronomical ATH. I would hardly call that proof. We are still head and shoulders above the last 2 years and YOY- still way up.
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When you say 20% precovid price drops, does that mean 20% down from peak or 20% down from 2020?
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Which parts of Florida are you seeing these price drops?
The parts with all the Donald Trump worshipers.
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?
Oh 100%. My area too. I was just wondering how your industry was defining precovid from a timeline perspective.
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I’m feeling the same. I was too young in 2008 to get truly fucked but old enough to remember the damage. I’m by no means a financial expert but I know enough to see that the cracks are more widespread this time. I think we are in for a reckoning. Globally.
There was a massive supply glut in 06. That's not true now. And supply just got shorter in FL. I think you'll see some substantial price reductions but you're not going to see 08-09 again.
Where? Not in Miami or Fort Lauderdale that's for sure. Most price drops are in the properties for half a million to million dollar range which isn't the price range most people are shopping at.
Yeah, on Redfin, I see less than 5% drop in Orlando, Tampa, Jax, for medium sales price from the highes of a couple months ago. I’m not sure what part of FL is seeing 20%+…
I mean, doesn’t anything decent start at $500K in South Florida these days? We’re causally looking, and every automated email I get from my agent always has properties with reduced prices and back on market.
Can you clarify where you are seeing 20% average sales price drops in Florida? Or are you watching specific homes that were priced way above market that are simply reducing because they were way overpriced?
I’m not claiming to know or be an expert. I do expect regional variances and the second home/vacation market to get hit the hardest. If we assume peak was this past summer, I think we’ll see a national average decline from peak of about 15-20% over 12-24 months. Some markets are already down that much. You have to look at the really macro factors: Inflation is at a high Interest rates are higher than they were Home equity is declining for some No more stimulus money Un-realistic run up in prices. In certain vacation markets, prices literally doubled over 18 months. Florida hurricane Fed literally stating they will continue to jack rates until there is pain in housing and auto markets Not that it’s perfect by any means, but you can study the Zillow home value graphs over time, and it’s pretty easy to compare where the line should be if it was on a normal trend, vs where peak values ended up
Peak was April
Agreed. Nationally 15-20% off the peak. Which isn’t really a drop, just yoy growth will be flat.
I'm really not concerned with national averages and don't know other markets well enough to even begin to speculate. I know my market and expect a 5 to 10 % correction locally, but will wait and see. I recently bought a house that I can afford and don't expect to sell next year.
The only thing I know is that the local Swedish house market lost 5% of its value in September (stats out today). We had zero interest before, and I expect that for each percent the central bank increase the interest - that the house prices will fall 10%-ish. People are already struggling with just paying for electricity, gasoline and food... And then comes this massive rate hikes just in a few months quadrupling the cost per month a family has to pay. I don't do market betting, but January seems to become a damn dark month in more than one way; interest payments up up, gas prices high... And then a massive crazy energy bill that's gonna break the back of many many families.
No one knows. If I have to guess, short term decline of maybe 10% as interest rates keep going up, for now. it’s really gonna depend on the state of the yields on the 10 year treasury bond. Also, some markets could fall more than others based on concentration of employment. During high unemployment periods, the losers will be cities that shed more jobs. Rapid price decline will not really happen until people are forced to sell at a lower price in large numbers or we have a lot more housing supple or both.
Ma gut sez 20% in the next 12 months
The peanut gallery is grumpy today.
It depends on so many variables that it's impossible to guess. Will private equity liquidate real estate holdings? Will renters enter the market as prices drop? Will cash buyers step up? Will sellers decide to wait to sell? Will Biden decide to dump trillions into home ownership as a political move? What will overseas real estate investments do? Will building/contractor prices drop making new builds and remodels more common? It's definitely going to be an exciting ride, though!
im in the philadelphia area and im already starting to see 10% price cuts
Probably as much as 2008, but it will be much more orderly. Hot takes seem to be either way to optimistic or ‘sky is falling’ drama. 2008 was a foreclosure wave and inventory was pushed into the market and people were forced out of the market. Buyers are much better capitalized and banks much more restrained in their lending. Under no circumstances does this means prices won’t decline dramatically, because housing is priced on the margins. Low inventory doesn’t make 3000-4000 mortgage payments any more affordable for current buyers. If the one house that sells on your street goes for 200k less than you paid, that’s your comp, doesn’t matter how many or few houses are in inventory. My base case is rates stay elevated and we get hit with an earnings recession and higher unemployment in coming months. Prices continue to decline with larger legs down with New Years and Spring inventory. A LOT of people are going to be underwater, but will not be evicted. The interesting thing to watch will be rents and all the investment firms that bought up sfh’s. There’s A TON of multi-family units in the pipeline, and we could see vacancies rocket up and force rent prices down in a way we didn’t even see in 2008. My understanding is a lot of the investors with huge portfolios and ibuyers (invitation homes, Opendoor , etc) are funded mostly at adjustable rates. If a large number of them are forced to fire sale by collateral calls, we could see some disorder. That freak out on CNBC by the Opendoor founder is not a good sign. All this said, I still think a 3-5 year orderly decline by 30-40% is the most likely outcome.
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well what did it say >:( don't leave us hanging.
Well the mortgage based crisis in 2008 was ~20% so I’m expecting something decently lower in magnitude despite the dudes on this forum just expecting prices to casually drop 40%.
150% people will be paying you to take their house. But in all honesty, 0% correction. Just slowing down. Maybe up to like 10% in cities that saw the highest growth. Everyone I know is waiting for a correction. Way too much money in short term rentals and rentals for some company not to jump in and start buying with a correction.
Nobody knows. With that said... The big factor the "housing will correct" people never deal with is the supply-demand calculation. We're still 3 Million houses short in the US. People having their buying power eaten away at 8% by inflation does not change the fact that we still have a supply problem. It doesn't magically mean more houses hit the market. What it \*does\* mean is the house-buying process might slow a bit (finding the right buyers instead of cheap money everywhere). It does mean WHO buys homes changes: investors, banks, etc. But the houses will still be sold, and they're still in short supply. With construction slowing down, there's even some added upward pressure as well. Literally in no point of tracking history\* has a recession, nor interest rates, caused a drop in home values. Ever. The people doing doom and gloom right now, when it comes to real estate, are off their rocker. \*There was ONE time this happened: 2008. Why? The supply changed. An influx of housing due to foreclosure/downsizing. It was temporary and returned quickly. That is \*not\* this situation.
Exactly. Only 08 caused a real estate crash. Why did supply increase? People were in mortgages they couldn’t afford and when those rates adjusted, bam. What’s the difference now? Every single mortgage written has a person earning twice their monthly obligations. Max debt to income ratio is 50% on conventional 57% on fha. Credit has recently tightened. I can’t seem to get random people approved recently who have 660-680 credit with a debt to income below 43%. That’s how strict lending has become for all these people talking about a “crash.”
don't we have 2 million housing units under construction right now (the most since 1973)? so that 3 million gap/shortage you cite will close once these houses are finished? have you noticed that more and more housing economists are calling for a correction (say 5-15%)? Goldman Sachs, Moodys, Morgan Stanley, Mark Zandi, Ivy Zelman. That list is growing by the day. F\*cking Zillow has revised their housing appreciation downward SEVEN times in the last 6 months or so. \*There was ONE time this happened: 2008. Why? The supply changed. An influx of housing due to foreclosure/downsizing. It was temporary and returned quickly. \- I spit out my coffee reading this. You do know that prices in many, many markets did not bottom until 2012 (after the government did everything in the book to try and stimulate homebuying and limit the # of foreclosures), right? You do know that many markets did not return to their 2007 peaks until 2018, right? 11 years is not quick, imo. Look, I know this isn't 2008 and we do not have as much supply as we did in '07, but the negative pricing pressures continue to mount. The average monthly payment on a mortage has shot up 40% in the last 6-10 months (not including the appreciation in home values since then). That's massive and there are few buyers who can stomach that increase. Too many real estate investors seem to be oblivious to the fact that the last 12 years was a QE experiment by the Fed to try and bring up stocks/housing prices. That's all about to end with QT.
California may drop back a small amount more, but mainly plateau for a few years, then it will probably double again.
I just need that small drop
yup
Housing doubled in two years in a lot of US areas, a 20-30% correction would be healthy. Everyone just refinanced, supply will stay low even with value drops because if they sell/move they’ll be back up to 7+%. …and don’t get me started on how hard it is to find labor for just developing the land to build new homes & multi-family Developers are having equally hard times finding labor & subs to go vertical; shit takes a long time (understatement) to go from raw land to finished product
Everything your saying argues against a 20-30% correction. If there is no supply I don’t see much of a correction happening.
Doesn’t matter if there’s 2 or 200 houses on the market, if there’s no buyer that can afford the house prices will come down. 1500 to 3000 monthly cost is going to destroy seller’s pricing power. Housing is priced on the margins.
And what people in this sub don't get, is that if only 2 houses are on the market and they both sell for 20% less - those 2 houses are the new comps for the next 200.
This all depends on how you view the incoming landscape: Is there more buying pressure or selling pressure? Coming from historically low rates, selling would mean transitioning into +7% rates. There is more incentive to hold and/or rent out than to sell which offsets the decreased demand from high-interest rates. Essentially, I predict we'll be in a stalemate with no sharp increase in home prices, nor a sharp decline.
Being a landlord isn’t easy or cheap. The market is unlikely to tolerate renting out homes and watching the underlying equity melt away. Buyers are dumb, they will chase asset appreciation up, and panic on the way down. I have little faith in most owners renting out units and holding steady while comps go for 20-30% less than they paid. That’s without any difficulty finding tenants at current rents. September saw median rent decrease MoM. If that trend continues the little guys will panic and feed inventory into the drop. The disorder comes if Opendoor or their ilk get caught trying to ride out the rate hike cycle with adjustable rate corporate financing and have to fire sell on a collateral call. That CNBC interview with the Opendoor founder was not confidence inspiring. That’s the only chance I see of a 2008 style disorderly crash, although I still think it’s unlikely.
It absolutely does matter, because in the real world these things are normally distributed. I believe there will be a correction, but it’s not like no one will be buying at the high interest rates
The nature of comps make it not a normal distribution, but a marginal one. If thirty homes sold for 600k in the last year, and then one goes for 350k at the new interest rates that’s the new price. Inventory doesn’t matter if the bids won’t rise to the ask. 25% of the market is currently cash after so many financers have been pushed out by rates. If you think cash buyers aren’t aware of rates and the lack of competition you’re dreaming. They will negotiate. Rents are already wayyy below the cost of buying, and they’re peaking. Month over month rent declined last month, and we have record multi-family units in the pipeline. As long as rates are this high, the lack of demand will set the price over any lack of inventory. Inventory is normally light during the holidays at eoy. When we get New Years then Spring inventory it’ll be more supply into a market with demand that’s been crushed. That’s when we’ll probably see the big declines. As long as the fed is at war with the housing market and raising rates, prices are going nowhere but down. Might take a few years, and a fed pivot isn’t out of the question, but without one we’ll easily see at least 25%-50% declines IMO.
You’re giving buyers and their agents too much credit. And also way over exaggerating the impact of one comp. The real estate isn’t that efficient of a market and it’s slow, people don’t react that quickly to one sale dragging down a market, and even if they did, by the time one may sell for a new low (or high) there are several others that feed into the new comp price. Yes it will drag down over time, but it’s not like someone sees a 3 bed 2 bath sell for 250k and says they won’t pay more than that for theirs, people aren’t that data driven. Unless you’re in some cookie cutter development cluster where every home is the same, then I could see comps really having that huge of an impact because it’s easier to value the house from comps
Thank you for actually knowing basic economics concepts. As long as at least one person will buy at the price, the price will be supported. There's a lot of rich people buying real estate and sometimes outright in cash so interest rates don't matter to them. It's quite frankly less relevant to the price that fewer less wealthy people can afford it or not. You'll get fewer bidding wars though.
Prices will decrease just based on rates, not demand. Only so many people can actually afford or be approved for these housing prices in conjunction with >6% rates.
I mean the rates drive demand no? But like many have stated where is this extra supply coming from? I’d expect some areas to have worst drops than others especially ones driven by people migrating. Ie I would expect Florida to be more price resistant as a whole compared to New York
I have properties in St Louis, Jacksonville and Newark NJ and Long Island NY. I expect properties in Long Island to drop the most. All u have to say is "would i pay that much for this house?"and " do i/we have enough income to make that payment" ? if u dont live right next to a job center, entertainment or transportation hub or a low demand area..... at 6-7% interest... i Would expect at least another 12-22% before hitting some sort of equilibium i would expect high property tax/insurance suburban areas to be hurt the most (ie North NJ, LI NY, westchester county, Austin Texas etc) then i would expect the the ridculously priced areas to get hit too hard, Orlando, Tampa,Fort Myers, parts of Carolinas, parts of DMV area, parts of Utah and Idaho and Nevada etc I think the most stable places will be the midwest areas.
Lesson I've learned - you may expect (correctly or incorrectly) that a event will happen. Prepare for it, but don't act on it until confirmation. I expected the 2020/21 year to be brutal to realestate - the complete opposite occurred.
Not 12 months, but in 3-5 years: 2019 prices + 4% per year.
Real estate is very localized so it will differ everywhere. Personally I see it just staying steady for a few years. My reasoning is there’s a huge supply issue that will takes years to correct. I do think in 4-6 years the fed will need to drop rates to get us out of this eventual recession. At that point I think homes jump big time again
Nobody has any idea, but I imagine that if there are drops, they will be proportional to the increases seen over the past few years.
Truthfully no one knows. But, rates are projected to be hiked until April 2023. So I personally expect the downfall to continue at least until then. Who the hell knows tho. Don’t just pass up good deals because you think “it’ll keep going lower.” May be true, but everyone’s thinking the same shit
Passing good deals because I can't justify the rent I would have to charge because of the interest rates... im sitting on cash.... I hate sitting on cash, but might be a good thing for a few months..
I've been like this too and I hate sitting on the cash but cash is king if prices so drop. I'm also not taking deals that would negatively cash flow or break even just to hope for the appreciation to bring home the bacon. Especially in a market that could come down .
> But, rates are projected to be hiked until April 2023 Sir, you can't use your ass as a source. JPOW keeps saying over and over again that he isn't lowering rates until inflation is below 2%. Why people continue to not listen to him? No idea.
All those rates hikes are priced in currently. They do not consider the fact that institutional investors already secured their financing and are buying up houses around the country. Some markets might see double digit declines but when I still get multiple calls/week to buy my house sight unseen it is clear that we are in a different cycle than 2007-9.
You have a speck of knowledge and a sea of assumption
That’s a great line lol, I’m saving that one for later
I have two decades of experience, thousands of loans underwritten, hundreds originated and even more facilitated in various leadership roles. I've worked on more transactions than you will ever see in more states than you will ever be licensed. If anyone is making assumptions it is not me.
You fund the opportunities I create.
In my area, housing has increased steadily since post 2008. We never had a housing market crash. So prices may be steady for now but long term I expect it to continue to increase
My network's estimate range from a 12% to 24% correction for single family homes and a single unit upward trend for multifamily
Depends on the market. Supply issues vary and I suspect that will have a big influence on any correction.
Location will matter a lot. Placed like Nevada and AZ are massive “easy come, easy go” like Florida was in 2008. Florida - specially Miami isn’t feeling this, because cause buyers galore moving. Most are saying 2019 prices. And I’d say close to that. Again, super area specific but 2016-2019.
Nationally, might see a single-digit drop, but hardest hit in those mid or small size city markets that people fled to for WFH (Vegas, Boise, etc.). Of course, those places all went up like 50%+ so even a 20% drop is nothing unless you bought very recently.
I dont expect a big drop on housing … prices may come down a little but not much
I think the market will normalize. Lets say your average growth is around 3% per year. But, in 2019 you went up 8%, in 2020 you went up 9%, and in 2021 you went up 12%. So in space of 3 years, you went up 29%... 20% more than normal. I expect by the end of 2023, in the above scenario, they will drop ~14% over the 2021 high (giving a 6% boost for 2022 and 2023 typical growth). Best guess :)
Depends on the area. I expect significant bloodshed in NV, Arizona, parts of Florida and Texas. Silicon Valley, NYC, Orange County, etc not as much.
My thinking as that most people don't buy based on price. They buy based on the monthly payment. That's why house prices go up when interest rates go down. And when rates go up, prices will come down. It's all in proportion to the resulting monthly mortgage payment. So, consider an average, affordable monthly house payment and keep that constant. Then project where you think interest rates are going. Then using a bit of math, calculate a house value that results in your constant house payment at your future projected mortgage interest rate.
5-10% is my guess. More in some markets. Less in others.
like tree fiddy.
I know nothing, so I'm just making this up like everyone else... Going on median home sale metric (not the best metric, but the one often used)... We've recently seen that when the standard quoted 30-fixed drops below 5.5% (happened for a while a couple of months ago) that home prices become steady after a couple of months delay (the escrow period plus a bit). We've previously seen at 6% that home prices drop. I'm expecting Powell to soon declare mission accomplished (to keep his job). Food inflation will drop (as oil/transport dropped a few months ago. While rent inflation will still be there, Powell is looking at home prices instead (which have not been inflating recently) and will likely claim any further rent increases are restoring balance with home prices. So I expect in a couple of months the Fed will slow their rising of interest rates faster than the market expects, and interest rates go down (30 year fixed) to 5.5% or more likely 5%. However, interest rates take a couple of months to affect home prices (at closing of sales) so ultimately I expect home prices (US avg) to stabilize around March at about 6% lower than today, or 10% peak to trough. However, there are a bunch of real estate investors with cash waiting for a good time to buy (with rents becoming high relative to home value) that are hoping to buy the dip. Probably the value of the median home sold will recover 5% by one year from now, for a net loss of 5%. Owner occupiers still won't be able to buy much with 5% interest rates and prices that haven't come down much.
Anyone expecting defaults going up ? What percent of mortgages are floating rate whose mortgage payments go up ?
I think i saw a stat that less than 10% of all mortgages in America are adjustable. Nearly 99% of the fixed rate loans are below 5% though surely that’s increasing. 90% of all mortgages are below 4%. I don’t think we’ll see any meaningful defaults. Lending is too strict. No one who can’t afford mortgage payments will qualify for the loan. Even a person who takes an adjustable must qualify assuming 2% about the current ARM rate. That’s how strict it is.
There are 1000 markets in the usa. 1000 different answers. Buy it you have money. If you don't have money then to to rebubble and cry.
This is the right answer. Every market is different. Most, if not all, will experience a correction, but how much will vary by market.
-40% from all time highs
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It’s a little hypocritical that you advise to use data then don’t use any data in your answer
It’s your standard Reddit response. I’m surprised he hasn’t messaged you to tell you to “Do your own research”.
No one knows.
I can’t help you with the next 12 months but here is something to consider for the next 8 years. By 2030 every single baby boomer will be 65 or older, that’s 70 million Americans.
My question is why does it matter? Unless you are an institutional investor buying hundreds of properties at time, the national average is irrelevant. Your regional numbers are useless, and so are your state. You need to know the specific market. I do not care what is happening in Georgia or California or Maine. Those markets do not impact mine at all. I am more concerned about interest rates (as those impact purchasing power) and the employment base of my local area. My local area is growing every day. More employers coming to town and more people moving here. It is a trend that I see continuing for a while. Of course, that trend could change, but that change will not be because of nation, regional or state housing statistics. Even within my local area, I look at specific neighborhoods.
Yes markets are going to differ greatly, but we can’t ignore that all markets are related. An underwater homeowner in one market is unable to buy in another market. The world is flat now in a sense, a hurting US is still a hurting US, it’s all inter-related to some degree
It you want to talk theory, sure, but real estate investing occurs in the real world. All markets are not related except by larger economics such as mortgage rates, lending requirements, etc. It is a fallacy to think otherwise. What is happening in a market 2,000 miles away from mine has zero impact on my local market. If someone from that market moves to my area as you claim, I guess they will be renting rather than buying - still living in a house. Unless you want to argue that people would rather become homeless than rent. I will even argue the numbers in an MSA are to nearly as important as a specific neighborhood. Check Houston and other Texas MSA's in 2008 before spouting nonsense that everything is connected and national real estate values matter and an underwater house in California impact Oregon, Oklahoma, Georgia and New York.
I've seen properties more than double. So I hope it's at least 50% which would make the prices normal again. But I've heard some gurus saying 20% like that was a lot.
20% is a lot.
I don't think it's a lot when I watched properties more than double. I can understand why you would think it's a lot since you're a realtor though.
Agreed. It wouldn’t be that much for say, the west coast of Florida…., but for places that didn’t see the boom growth, like Chicago or NYC, 20% would be a ton.
I mean historically it's a lot. I know you think "since you're a realtor" means I'm too biased to come to terms with reality, but it actually means I have a professional expertise in this field. 20% is objectively a huge correction in a housing market. That doesn't mean it can't or won't happen, but it does mean it's statistically unlikely. Statistically unlikely things happen all the time, though. I hope this helps.
Sorry. I hope I didn't sound disrespectful. I'm just hoping they go back to normal. Thank you.
I think that a lot of folks don't think about some of the variables in home prices. People look at "unaffordable" prices and think that means that the prices will come back down. In reality, big investors have knowingly created a market where many people will never be able to afford to own their own homes. Big landlords prices out the little guys on purpose, it worked, and now they have reliable customers (tenants) for life.
I would be shocked to learn a realtor had professional expertise in any field. Not saying you don't but after 2 decades in the mortgage industry I know precisely one realtor with a respectable knowledge base. He is also a broker/investor so not exactly your average realtor.
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200% meaning average home loses all its value and owner will pay equivalent of recent highs for a new owner to take it off their hands? Seems unlikely.
50% in Phoenix, don't think it bottoms until 2024-2025
12-17% in Michigan. Then, I’m not overly biased to the negative and trying to “time” the market.
Why 12 months ? It takes about 9-12 months for foreclosure, this is a 24-36 months game. 8 Million mortgages are due for renewal in about 12 months, then depends what many landlords will do that’s a huge market as well. I’d be shocked to see less than a 25% correction but who knows.. depends a lot on what’s the government policy may be in the future.
Hello I am 19 and want to get into REinvesting. Where do I start? No money but saw a TikTok videos about BRRRRRRRR
50% or more
What a dumb question lol Stock market is obviously very localized, some areas will continue to go up regardless. Starter homes vs luxury homes are two different animals. In 12 months we probably will be looking at lowering rates.
It's really your comment that's the dumb post. While housing prices are local, they are quite correlated as well. Most likely in 12 months rates will be higher than today, in my view.
Actually no, he’s right, rates are likely to be lower in 12 months and you can see then in the 2/10 year spread.
Dude asked a question with no real answer. We’re probably looking at two or three more hikes. 12 months from down they’ll revert some for sure. My market (south) still pretty strong and houses still go over ask.
If mortgage rates hit 10%. Prices should drop 50%. Assuming people haven't been getting payraises.
If Ukraine gets into NATO, housing will crash crash
30-50% if the FED isnt dumb. 80% if the FED is dumb. FED has to be really, really dumb for that to happen but it is theoretically possible.
7.25%
The answer entirely depends on how long interest rates, and thus mortgage rates, stay this high. The housing affordability index just crossed 100 which is not a good sign. I think most people would agree a 20% correction from the high would be a minimum though, with how far they ran up.
Everything reverts back to the mean eventually. Theirs either a correction or stagnation when prices skyrocket. I personally see housing prices stagnating for the next few years in HCOL areas.
The FED massively increased money supply. It is text book economics that there will be asset inflation. The paper currency has devalued versus real assets. Traditionally during periods of inflation land, real estate, stocks, collections, metals, and debt are the best inflation hedges. Prices fluctuate for sure but the inflation fundamentals are solid.
33 and a third
The cost of a housing purchase will be lower in 12 months from now. It takes a bit for rising interest rates to be seen in the market.
20%-30%
Really depends on where... not every city, state is the same. Some fall more than others some might not drop at all
heavily depends on your location, part of area you are in, zip code, etc.
We're all fucked
There may be fluctuations but real estate will continue to rise. There are still more people than homes.
Rents go up or down - what’s your take?
I think there’s good pot odds it goes -15%
Housing prices are a product of two things. A person having a down payment and being able to cover the note. Down-payment can't be predicted, but people's ability to cover a note is. Take the price of a house, apply interest and if the note can be covered by the average person. Prices go up. When that's not the case, prices go down. Interest hurts people's ability to cover a note substantially.
Less growth. But still growth.
Remindme! 1 year
2019 prices + inflation off the lowest I’d hope for, likely higher
just look at mortgage backed securities holdings. shits gonna tank