Housing Bust #2 Has Begun – WOLF STREET

Imploded Stocks
Brick & Mortar
California Daydreamin’
Cars & Trucks
Companies & Markets
Credit Bubble
Debtor Nation
Federal Reserve
Housing Bubble 2
Inflation & Devaluation
The housing market in the United States has turned down, and in some big markets very dramatically so. Other markets lag a little behind.
That’s how it went during the last Housing Bust, that I now call Housing Bust #1. During Housing Bust #1, Miami, Phoenix, San Diego, Las Vegas, etc. were a little ahead; other places, like San Francisco were a little behind. In 2007, people in San Francisco thought they would be spared the housing bust they saw unfolding across the country. And then it came to San Francisco with a vengeance.
This time around, San Francisco and Silicon Valley, and the entire San Francisco Bay Area, are at the forefront, along with Boise, Seattle, and some others. In the San Francisco Bay Area, during the first 10 months of this housing bust, Housing Bust #2, the median house price has plunged faster than it did during the first 10 months of Housing Bust #1. That’s what we’re looking at. I’ll get into the details in a moment.
Across the US, home sales have plunged month after month ever since mortgage rates started to rise a year ago. In January, across the US, total home sales plunged by 37% from January last year. Sales plunged in all regions, but they plunged worst in the West, by 42% year-over-year, and the least worst, if I may, in the Midwest, by 33%. This is happening everywhere.
The median price of all types of homes across the US in January fell for the seventh month in a row, down over 13% from the peak in June. Some of the decline is seasonal, and some is not.
This drop whittled down the year-over-year gain to just 1.3%. At this pace, we will see a year-over-year price decline in February or March, which would be the first year-over-year price decline across the US since Housing Bust 1.
Active listings were up by nearly 70% from a year ago, though by historical standards they’re still low. Lots of sellers are sitting on their vacant properties and are holding them off the market, and are putting them on the rental market or are trying to make a go of it as vacation rentals. And they’re all hoping that “this too shall pass.”
“This too shall pass” – that’s the mortgage rates. The average 30-year fixed mortgage rate went over 7% late last year, then in January, it dropped, went as low as 6%, and the entire industry was breathing a sigh of relief. This was based on fervent hopes that inflation would just vanish, and that the Federal Reserve would cut interest rates soon, and be done with this whole nightmare.
But in early February came the realization that inflation wasn’t just going away. Friday’s inflation data confirmed that inflation is reaccelerating, that it already started the process of reacceleration in December. Some goods prices are down, but inflation in services spiked to a four-decade high. Services is nearly two-thirds of what consumers spend their money on. Inflation is very difficult to dislodge from services. The Federal Reserve is going to have its hands full dealing with this – meaning higher rates for longer.
And mortgage rates jumped again and on Friday were back to about 6.9%, according to the daily measure by Mortgage News Daily. Just a hair below the magic 7%.
And potential sellers are still sitting on their vacant properties, thinking: and this too shall pass.
So how many vacant homes are there? The Census Bureau tracks this. In the fourth quarter last year, there were nearly 15 million vacant housing units – so single-family houses, condos, and rental apartments. That’s over 10% of the total housing stock.
In 2022, the number of total housing units increased by over 1.3 million. If each housing unit is occupied on average by 2.5 people, that’s housing for 3.3 million more people than in the prior year. The US population hasn’t grown nearly that fast in 2022.
Ok, so now here are nearly 15 million vacant housing units. Of them, 11 million were vacant year-round. Some of the 11 million were being remodeled to be rented out, and others were for sale, and that’s the inventory we actually see, and there are other reasons why homes were vacant.
But 6.6 million homes were held off the market, for a variety of reasons, such as that the owners don’t want to sell the property at the moment.
If just 10% of these 6.6 million homes that are held off the market show up on the market, it would double the total number of active listings. If 20% of these homes show up on the market, it would trigger an enormous glut.
This is the shadow inventory. It can emerge at any time. And during Housing Bust 1, this shadow inventory that suddenly emerged created the biggest housing glut ever.
Since the San Francisco Bay Area is ahead of the game, let’s look at it more closely. It’s a market with a population of just under 8 million people. The median price of single-family houses in January plunged by 35% from the crazy peak in April last year. Year-over-year, from January to January, the median price has plunged 17%. This is according to the California Association of Realtors.
In dollar terms, the median price plunged by over half a million bucks from the peak. That’s a lot of money to go up in smoke.
Well, it’s not really money that went up in smoke, it’s the illusion of money that went up in smoke.
Prices had spiked so fast during the free-money era of the pandemic that this massive plunge didn’t even take the price back to January 2020.
Not that many people bought a house during these three years, and fewer still bought a house near the peak. So the plunge in prices didn’t actually impact a lot of homeowners – just those who bought after mid-2020. That’s a relatively small number. The homeowners who bought in 2019 and before, that’s the vast majority of homeowners – they are still above water, and many of them are still sitting on a lot of equity.
But this thing is moving fast now.
During Housing Bust 1, over a two-year period, the median price in the San Francisco Bay Area plunged by 58%. Now, we’re 10 months into housing bust 2.
So over the first ten months of Housing Bust 1 back in 2008, the median price plunged by 21%.
Over the first ten month of Housing Bust 2, in 2022 and 2023, the median price plunged by 35%.
In other words, the median price is now falling faster than it did in 2008.
Granted, median prices are not the most reliable measure. They’re very volatile and they’re seasonal. And they can get skewed by a change in the mix. For example, if the rich pull their homes off the market because they can afford to hang on to them, and only mid- to lower-end homes are sold, then there are fewer high-end homes in the sales mix, which pushes down the median price. This happened during Housing Bust 1, and was a factor in the 58% plunge in the media price.
There are other markets that have home price declines that are similar to those in the Bay Area, including Boise and Seattle. But other markets just started turning down.
In the Bay Area, home sales – so the number of sales that closed – collapsed by 37% year-over-year, which is just above the national average of 34%. This is the sign of a frozen market.
Active listings have jumped in the Bay Area, and days on the market have nearly tripled from a year ago, to 32 days.
Pulling the home off the market is now a common practice. What lots of sellers are now doing is that they list the home at some aspirational price, and no one shows up. A month later, they pull it off the market. A month later, they list it on the rental market to see if they can get someone to fork over enough in rent to cover the mortgage payment. And that obviously doesn’t work. So then a month later, they pull it off the rental market. And then another month later, they relist it for sale at a lower price. Others are trying to make a go of it as a vacation rental, but there are tons of vacation rentals all over the place, and it’s hard to make that work.
If sellers cut the price enough, eventually the home will sell. If the price is right, anything will sell. The clearing price is reality. The hard part is for the seller to accept the clearing price, if they can actually afford to sell at the clearing price.
Some sellers put the home on the market priced right from the beginning, and they make a deal quickly.
For sellers, this is not the time to dilly-dally around. If they do dilly-dally around, they’re just going to chase prices lower. Those who panic first, panic best.
It’s not like there is no market out there, and no buyers. There is a market and there are buyers, but the market and the buyers are just a lot lower than where they used to be.
So why is all this happening so fast?
It’s not the economy. People are working, their pay has gone up by the most in four decades. Unemployment is still near historic lows. Actual layoffs and involuntary discharges – meaning people getting fired – are near historic lows.
Even during the Good Times, there are on average 1.8 million layoffs and discharges every month, and that’s part of the normal churn in the huge labor market. Every month for the past two years, including late last year with all the layoff announcements hailing down, the total actual layoffs and discharges were below the Good Times lows before the pandemic, they were at 1.5 million a month or below, the lowest in the data going back over two decades.
Unemployment goes up when there are more of these layoffs, while companies stop hiring, and those that got fired or laid off suddenly can’t get a job any more. And that’s just not happening yet.
Companies have hyped these layoff announcements for months. Usually their stock price jumps when they do. But they’re just announcements, not actual layoffs, and they’re by global companies for their global staff, and many of those layoffs take place in other countries.
Actual layoffs are easy to check in California because companies with more than 75 employees have to report them under the Worker Adjustment and Retraining Notification Act.
San Francisco was the worst off with layoffs, in terms of the size of the labor market. But it only had 7,000 total layoffs since July, despite all the hoopla about the 5,000 layoffs at Twitter alone, and the tens of thousands of layoffs at a bunch of other companies that are either headquartered in San Francisco or have big offices in San Francisco.
And that was as bad as it gets in California. But other companies are hiring, and in California overall, employment has still increased. And the unemployment rate is still historically low.
In other words, there just isn’t a surge in unemployment. The labor market remains tight. People are working and they’re getting big pay raises, and many of those that got laid off are finding new jobs quickly. And that should be great for the housing market.
But this housing market didn’t get tripped up by a surge in unemployment, not even in the Bay Area. Unemployment is a shoe that might drop on this housing market in the future.
What tripped up the housing market so far is the toxic mix of several factors, including:
Home prices had exploded into the stratosphere because of the Federal Reserve’s monetary policies – and nothing else – because of the nearly $5 trillion it printed between March 2020 and March 2022, to repress long-term interest rates, including mortgage rates, and to create the biggest asset price bubble ever.
But now all this is over, now we have raging inflation, the Fed hiked rates, and will hike them further, they will go over 5%, and the Fed is pursuing Quantitative Tightening, and by the end of February, it cut its balance sheet by over $600 billion.
So the Fed is hiking rates and unwinding its balance sheet, and asset prices have come down, including stocks and bonds and cryptos, and housing.
What we’re seeing is the unwinding of the biggest asset bubble ever – including home prices. And so far, this has nothing to do with unemployment or the overall economy. Jobs are plentiful, wages are up, consumers are spending, companies are spending and investing, governments are spending like there’s no tomorrow.
This could change: Unemployment might surge, and job openings could vanish, and consumers who lost their jobs could cut back on spending, and state and local governments that are still swimming in pandemic money, will run out of this pandemic money and then they will have to cut spending. All this is the other shoe that could still drop on the housing market.
But it hasn’t dropped on the housing market yet. The decline in the housing market so far has been driven entirely by the rapid disappearance of free money that everyone had gotten used to since 2008. Housing Bust #2 may turn out to be a sobering trip from the free-money decade in la-la-land, back to normal.
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The Housing Bust 2 may be starting in the San Francisco Bay area but it is not reflected in the price of SFH’s and Condo’s yet. I’ve lived in SF for 20 years and make about $115/hr and there is no way they I have ever felt that I could afford to buy a residence large enough to feel comfortable living in. Meaning, over 800 sq feet, with parking and laundry in my home. Homes less than $1,000,000 are few and far between, in the hinterlands or a dump. All of the properties have been snapped up by wealthy hedge funds or foreign money. I have not seen anything change in this regard, so far…
You can get a pretty decent condo for $1 million or a little less, with 900 – 1,600 sf. New construction too.
Median condo price is $990k, meaning that HALF of the condos that were sold in January sold for less than $990K.
Zillow lists 289 condos for under $1 million.
“In other words, the median price is now falling faster than it did in 2008.”
Woohoo! Keep it up! But the cold hard reality is that, save 7 or so markets, the rest of the US is NO WHERE NEAR 2008 – 2010. It’s that simple. And we won’t arrive near or pass those levels of broad, national decline without a massive pickup in unemployment. 190K 1st time unemployment claims is rock bottom. It’s as if there’s literally been zero layoffs.
Yes, the economy is reaccelerating which means the 450 basis points rise to the FFR hasn’t cut it. Granted, history tells us it may take another 6 months for the FFR to really percolate through the economy. As such, the Fed continues to slow roll FFR increases. Given the current data, we should be at 600 basis points with the real possibility of 700 starring us down the barrel of the Fed’s loaded gun.
A measly $38B in loses. And like you say, the Fed can’t go broke and their current dot plot isn’t pushing core PCE inflation down to 3% anytime soon. If inflation rises through the summer, we all had better get ready for a 7-8% terminal FFR. Every month the Fed adjusts it’s dot plot upwards with no real handle on what the actual terminal rate will be.
What’s really needed is a 25% drop in the stock markets ASAP which would really effect people’s net worth and willingness to let these price increases continue. I’m ready to go. 90% of my money is in brokered CDs.
the real problem is lots of those californians moved to Arizona
and doubled our housing prices
I have better than 97% occupancy in rentals
and over 1/2 homes selling today are CASH
I’m buying and estate sale at 1/4 california price
not sure if I’ll flip or keep as rental
either way I make better than 15% ROI
mortgage – so sorry I just pay cash
“I’m buying and estate sale at 1/4 california price”
Hahaha, what kind of market is that where you can buy a house at 75% off?
called Arizona
Estate sale sounds like ‘distressed’ real estate… 1/4 of 1M+ would go a long way in some areas and with some houses.
Is this a slumlord type situation?
Thanks Wolf, you are correct as usual. I think my point was missed and I should have been more specific. The median Condo price is $990K.
My point was that I a “blue collar”, hourly wage earner making around $200,000/year cannot afford to own a $990K home. There is no way I can even save the $90K for a down payment in less than 20 years. I spend $3,100/month on rent alone. Right now in San Francisco you need to have inherited property/money or have a job paying 300K/yr to afford to own a home. Unless you find a “good deal” which will most likely be a dump or in the hinterlands. Hedge funds and foreign investors snap up the housing stock to rent or just let it sit empty. I have heard for at least 10 years, build build build will bring prices down and make it “more affordable”. Thousands of these home have been built and the price has not come down. I do not qualify for any assistance from the City because I make too much. For me it looks like I will forever be a renter. Unless the median price comes down at least another 33% to around $600K. So as I see it, the 2nd housing bust has come not to me but the Hedge funds and wealthy investors.
Jas, your take home is what.. around 150-160k a year? and 40k goes to rent. How are you not able to save 90k in a span of several years? Where’s the rest of the money going?
Even if you max out 401k contributions you should be able to save enough each month to make a considerable downpayment
Your experience makes no sense to me. I lived in The City from 2000-2011. Started with a combined income of 69K in a one bedroon (700 SQ ft). at $1650 in lower pac heights rent controlled apartment. Got the rent reduce in 2003, thank you dot com bust and probably could have done the same in 2011 but we left. Rent control meant rent increased 2% a year max We never made more than 100K and averaged 85K but we were still able to save more than 10% down on 750K by the time 2010-2012 rolled around and prices bottomed from the GFC. We would have easily afforded a one bedroom in lower pac heights and if we were willing to go to ( at the time) mission bay, potero hill, outer sunset, outer mission, diamond heights, bernal heights, Bayview, hunters point, the Richmond, or many other neighborhoods we could have afforded a two to three bedroom condo.
Not saying it didn’t happen to you but I am saying it was possible with the appropriate actions to save and afford a property in that time frame with your salary in The City.
I have to concur with Troy, you must have some other expenses if a 200K salary can’t get you into a 900K home. To compare, I’m using CAD but for this comparison it’s fine to use 1 to 1. My salary last few years averaged about 80K, last year I moved up to just over 100K. My current rent is 1600/Month, it’s less than other places because I moved way out in to the burbs of Vancouver and stayed put, this allows me to save but I pay for it in commute time, prior to that I put in a hard year and a half in a total dump for 800/month, it was an awful place but I saved a lot. Few yrs ago me and a buddy split on a fixer upper, 1yr later and 25K in material we sold it for a marginal profit. Right now I have a modest car, cost 32K (in Canada everything is more) paid for in cash and 110K sitting on the sidelines, I’m waiting and hoping for prices to come down.
It’s all doable but unfortunately requires some sacrifice, if I made 200K/yr in tech I’d be laughing right now. But I do feel your pain, 900K is a lot for just a condo, but you guys get much better weather than anywhere I can get in Canada 😂
200K annual income is pretty handsome. If you’re having trouble saving, maybe get outta that overpriced ass’d city?
That said, my brother-in-law is a partner/contract lawyer and I think he makes shy of .5 a mil annually and even he groans about money; there’s maybe a lesson here…
But yeah, you probably shouldn’t be looking at a 900K house. I would think 750K would be max, which should afford you quite a spread. Me — I’d rather buy a restored land yacht and bank the difference.
And “the rest of the money” is probably going to stuff like insurance (health insurance alone is out of control). Maybe student loan debt? Some condos might appear affordable at first glance, until you factor in HOA fees. Then there’s property taxes, which are absurdly high in CA (unless you’re a boomer who lucked out with prop 13). 200k in SF doesn’t go far, which is wrong.
Take BART or find a cheaper place.
People take the ferry from Vellejo over every morning.
I knew a guy that repaired elevators that drove from Vacaville for like 30 years. (Not suggesting this btw)
Also, stop spending all your money 😉 Honestly, a lot of people blow $12k a year on restaurants and complain they’re “broke.”
Jas, Is this one more fake post from a frustrated realtor to claim that all real data posted here is shit and that housing never goes down.
If yes, you guys have already fooled a bunch of first time buyers during Pandemic who are depressed to find that their houses are already down a years salary and 3 years savings!
In Seattle, with price falling ~2% every month, buyers are saving ~ $20K every month on a million dollar house for a full cash purchase. Add the 30 year 7% interest to that $20K, and it becomes $48K savings for every month they delay buying the house.
That’s more than thrice the earning of most households in this region.
So while there has been corrections, this is still NO TIME TO BUY.
Jas is correct, just look at Zillow. The condos below 1M are mainly 1b/1b 800 sqft.
And a new construction price on Zillow doesn’t reflect the price you pay. I bought several new construction houses and you always end up more than what they advertise on Zillow.
In general, a lot of the FUD currently is fooling people into thinking we have another 2008 coming. It’s far from true. But wait and see yourself.
Tavor, In Seattle, with price falling ~2% every month, buyers are saving ~ $20K every month on a million dollar house for a full cash purchase. Add the 30 year 7% interest to that $20K, and it becomes $48K savings for every month they delay buying the house.
That’s more than thrice the earning of most households in this region.
So while there has been corrections, this is still NO TIME TO BUY.
I would love to see your data resources that can show the -2% every month in the Seattle market.
Being an investor, I’d be all over that market.
However, I’m also a real estate broker and have access to the actual MLS data and it tells me a different story:
City of Seattle:
Average Sales Price
Days On Market
Average Sold To List Price
Average Price Per Sq. Ft.
If there’s other data that you’re interested in, I’ll do what I can to provide.
Coach Jim,
“average sales price”???? Really? You’re out there citing “average” price? Average price is absolutely the worst measure. I deleted all of the links to your thingy.
So here is the Case-Shiller which lags behind, for the Seattle metro. It is based on “sales pairs,” meaning it tracks the price of the same house when it sells in the current months to when it sold previously. This is the most accurate measure of home prices we have, but it lags. The median price is not nearly as reliable but it’s still a decent measure. Average price is absolutely the worst because it gets skewed by a few outliers.
So per Case-Shiller, in the Seattle metro:
Month over month: -1.8%.
From the peak in May: -15.1%.
Year over year: -1.8%.
Lowest since October 2021.

Nobody can time the market. When Covid hit people said we will enter a depression. The worst thing you can do is buy a house. Well I did and it worked out beautifully. I got lucky! Super lucky. I had no idea that the market will take off like a rocket.
I bought because we could comfortably afford it and I wasn’t too worried about prices dumping because I planned on staying in this house long term.
Fast forward 1-2 years and people said the forbearance tsunami is coming. A wave of foreclosures! People were wrong again.
Fast forward and interest rates are skyrocketing. Another 08 type drop is coming! Are the FUDsters right this time?
I believe it when I see it 🙂
@ Coach Jim
Beyond the charts provided there is no way to avoid the simple math. Borrowing costs have gone from sub 3% to now 7% and climbing. The rule of thumb is that each 1% of rate increase correlates with a 10% drop in purchasing power – meaning a 10% drop in sales price.
And you seriously believe that residential will hold it’s value? No one’s buying your take. As an “investor” now is the time to sell.
Good luck
@Tavor said “I believe it when I see it :)”.
Why doesn’t Tavor see the 15% drop in Seattle case shiller index over 7 months from peak?
Oh yes, being a “RE investor”, his survival depends on spreading misinformation to help find a bag holder for his shit.
It’s a tough business to be in today. I would give Tavor my best wishes, but it won’t really matter.
#1. Your statement about condos in SF — “condos below 1M are mainly 1b/1b 800 sqft” — is BS. You didn’t even look at Zillow it seems. Or you looked and lied. There are 169 condos with 2 or more bedrooms below $1 million listed for sale right now on Zillow. That’s a huge number for a small expensive market like SF.
46 of those 2-bedroom+ condos are listed below $700K.
#2. You’re hyping RE so that people will buy so that prices stop falling and start rising again because your wealth depends on high home prices and high rents, as you explained many times. So that’s your point of view, and it makes sense from your point of view because your wealth depends on it. And you’re trolling these comments to help promote your wealth (or perhaps you’re just a paid RE troll).
Others look at this chart and think it’s better to be patient, very patient, before buying and thereby putting a stop under the plunge and bailing out people like you, LOL
If you’re not patient, you can lose $500k in a hurry. Some people already have, as you can see:

“46 of those 2-bedroom+ condos are listed below $700K.”
And I don’t care where you live. $700K for a 2 bedroom, run of the mill condo is still very overpriced.
EVERYTHING is still overpriced, including SFO! Prices have to fall 50% just to wipe out the 3-4 year gains prior to May 2022.
“EVERYTHING is still overpriced, including SFO! Prices have to fall 50%…”
I totally 100% agree. Long way to go. Falling knife… We just started. You gotta be patient with housing. It’s not crypto. Housing Bust 1 took 4-5 years, amid massive money-printing spree and interest rate repression.
Now we have inflation, QT, and rising rates. The 30-year fixed is at 7%. Totally different ballgame: No money printing, no interest rate repression.
BTW, “SFO” is the airport. The rest of San Francisco is SF or San Francisco or whatever. But not “Frisco” which is a city in Texas.
“no interest rate repression”
With Fed Funds still around 8-9 % below the actual inflation people are actually experiencing ?
I guess I don’t agree .
Thanks Wolf for taking time to replying these real estate pumpers.
I see this particular article touched a lot of people invested in real estate in a wrong way 😳
“46 of those 2-bedroom+ condos are listed below $700K.”
Sounds low, honestly… do those include BMR listings with income limits? TICs where you are in some weird contractual arrangement with the other owners?
It’s high compared to how few there were a year ago.
TICs (Tenancy in Common) are a very small number. Just a few sales each month. There are three legal ownership models in SF: condos, co-ops, and TICs. Look up the legal differences.
Already looks 08ish in SF, which I think is the point of the article.
Will it 08? Less? More!?!
No one knows. What happened in housing is rare here in the states. It might be just a shitty investment for a while. It might be a crash.
But housing looks fucked to me. Not Japanese asset bubble fucked, thankfully, but not somewhere I am looking to invest for a long term horizon expecting a return. And if just looking at housing for consumption, rents and putting your money elsewhere seems like better returns in a world of cash at 4-5% for a while.
Don’t be too emotional and rely on anecdotes.
Just follow the data and you’d see things clearly .
Thanks to WR for these data.
warning to anybody who is tempted to comment before a careful reading. please carefully read the above before posting. I’m tired of Wolf having to school errant children who insist on opining with their usual schtick, and then Wolf has to put on the Iron Glove. It’s always uncomfortable and embarrassing for the flock.
I bet you were teacher’s pet.
Jas may be socaljim / kunal under new names: “Here in socal, Sun never sets on the housing markets …..”
brilliant post.
I listened to the podcast version of this post so I’m guessing that doesn’t count?
Freedom of speech should always be honored just in case something was misunderstood or misinterpreted by anyone. Wolf decides,it is his sight.
If Wolf decides to have an “AI” algorithm to sensor certain topics that is his business, or if he just decides on his own.
For instance, instance certain subjects arfe off limits, and comments are removed without discussion.
Regardless, I still like the sight, but wish cetain subjects were allowed to be discussed. The pandamoneum pandemic messed things up.
…site…cite…sight…(…think i’d have a lot more trouble than I do with the ‘Murican tongue were i not a native speaker. Wolf, as usual, shames most of us in that regard…).
may we all find a better day.
site==sight. cite site. Site – location, Website. Cite – to quote something.
Agree. Freedom of speech is a right, but it’s not valuable when people make statements that are clearly biased or unsupported by facts.
There’s a lot of garbage on the internet. I think Wolf screens 90% of this out, but he lets some of it get through so we can watch them get taken behind the woodshed. It’s good humor.
Jas and Tavor, what’s it like in the after-world?
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” ― Upton Sinclair
Unfortunately, we’ll have to slog thru that crap till we hit bottom many years from now, at which point we’ll hear the “see, I was right!” posts from these same sales-clowns.
Hey, everyone has to eat, and some paychecks are dependent on lies to generate those sweet commissions.
May-Day 15/2023?
@ Phil – I feel the same way. And Wolf seems so tired of that so he usually calls every such comment a BS or a lie – which also feels embarrassing.
I dunno I like the chatter. For example, the obsessive denialism helps give a feel as so many folks are talking their books and are leveraged long in RE.
Herd hasn’t spooked yet. Otherwise we’d see more anger at the banks, the Fed, the government for getting them into houses by “tricking” them with low rates for a decade.
I dunno. I kinda enjoy it in some sadistic manner.
$115/HR. I’ll take it. Thank You.
Everyone have a great weekend. 😂😂
$115HR is good money in a state with no income tax, like FL or TX, but in CA or NY where the overall tax rate can be over 50%, it’s living paycheck to paycheck money. I know from experience.
$115/hr and living paycheck to paycheck!!
We are a very diverse country.
Love your response!
If you’re living paycheck to paycheck on 115/2=57.5 an hour take home, you have bigger problems than not finding a 2bd condo to your liking.
Most people don’t have an in-come problem, they have an out-go problem.
$57/hr sole income pre-tax in NYS is absolutely paycheck to paycheck from NYC straight up the Hudson. Some of us manage on less, but it requres serious thrifting, home haircuts and foregoing retirement savings. God I loathe this state.
Post tax, eh, you’d be fine if you stopped keeping up with the Jones’. Time to trade in the BMW for a Toyota and lose the unused fancy gym membership.
I’m with you. But don’t diss “home haircuts.” I think mine looks pretty good and I like doing it. There is something very satisfying about handling a power tool.
Lily: It’s $57.50 an hour AFTER taxes (if taxes eat 50%).
Sorry. @ $2300 a week…. $10K a month (fuzzy maff) is not po’ boy money.
We do a lot better on a lot less. Our fixed monthly income (not the variable part) is a similar amount…. and we don’t spend nearly half of it (and we deny ourselves not much… just stupid stuff). When the Jones’ can’t keep up with themselves…..
If you can’t save on $10K a month, someone has a spending problem.
Home haircuts the way to go. If you know how to prune a shrub or manipulate/sculpt reasonably well in any medium you can sneak by ok with a patience and some proper shears. Women’s hair is a different story, and usually benefits from the finesse of a seasoned coiffurist.
It’s always the classic no state income tax mantra. Before anyone crows about low tax Texas, please check out the sales taxes, the gigantic property taxes and the huge homeowners insurance rates. A regular house for sale now in San Antonio: $1706 a month for property taxes and $445 a month for insurance. That’s a total of over $25,000 a year. Sales taxes will nick you for another $5K to $8K a year. That doesn’t even take into consideration the utility bills: 59 days over 100 degrees last year – maybe 65 this year and getting hotter every year.
Thank you Escierto, been saying this a while, as much as we love about Texas it is absolutely not a low-tax state, that’s got to be one of the biggest marketing myths pushed by any state in decades. Texas property taxes can be crushing in many districts, some of the highest in the US and they cause a lot of pain to families because it’s not like your home value is a liquid asset you can use as an ATM to pay off those assessment taxes. Travis and Hays counties (Austin) are notorious but the drift in property taxes has gotten bad across the state, even in the rural towns with more cows than people. I’ve worked in a lot of states and have family in others and it’s probably only a couple states, maybe New Jersey and one or two in New England that have a heavier property tax burden than Texas. Then there all kinds of hidden licensing fees, surprisingly high business taxes and the effective taxes from things like speeding tickets can be brutal. And if you get divorced in Texas you’re likely to lose your shirt especially if you’re a doctor, executive or other high-earner because it’s a money-maker for the state and the divorce courts make sure to impute your costs as high as possible. (Though being fair that’s true for most US states, might as well go expat if you actually want to get married and have a family, most countries don’t see divorce as a profit center)
It’s just funny how even as polarized as America is, one of the few things left and right supposedly agree on is that Texas is some kind of idealized right-wing haven, when in fact Texas cities and urban culture are probably some of the most diverse and progressive in the US and on economic policy, if they actually looked at Texas taxes and esp the property tax most conservatives would scream it’s more socialist than Sweden, if not communist. (And Sweden for that that’s worth doesn’t even have a bad property tax burden, most of the EU is lighter than the US on that especially for a primary home and taxes are more limited to point of sale and investments–one of the ways the whole claim of “lower tax USA” in general is a myth) And you’re right about the utility bills and homeowners insurance too, Texas really is following closely in the footsteps of California despite all the ways it tries to say it’s different. A big irony now with a lot of the California transplants getting buyers remorse and realizing they came out of their frying pan and into a fire that dredges up a lot of the very things (housing bubble, high taxes, awful traffic) they thought they were leaving.
The same property taxes and insurance in FL and they are rising.
Texas property tax are, for a southern state, insane. When my son moved from Tampa to Texas for work I was excited, getting tired of Florida, so I thought I might follow.
Nope, the average property tax is double that of a Florida resident, even more if your Florida Homestead.
Insurance is the killer in Florida at the moment. No reason to think DeSantis will fix it. Crist didnt, Bush didnt, Scott didnt…….
I’m hoping it slows the Blue state Yankee tide lol.
…seems that a Master Berra event horizon may be approaching in other areas…
may we all find a better day.
“Always go to other people’s funerals. Otherwise they won’t go to yours.”
Holy baloney. $115 an hour could mean many things. W2 wages? 1099 wages? Contracted wages through an LLC/S-Corp?.
Assuming $115 an hour W2 wages, that’s about $230K per year converted to 40 hours per week. In San Fran, that may not be a lot money for someone who is constantly spending money on restaurants, ordering takeout 3-4 nights per week, car payment, rent, vacations, etc. I would call it decent money in San Fran and combined with a spouse who makes the same or even half of that, then it becomes comfortable money in my mind. Everyone is different. I know people making $300K in Texas as a family of 4 and living paycheck to paycheck BY CHOICE.
We all make choices. Jas CHOOSES to live in San Fran. Most people focus on the money coming in, but the most important part is the money coming out.
As a bay area native, and having been an hourly worker for most of it, I find the number of $115 to be an oddity. In my experience, when I started to earn over $60/hr at any company, they usually just bumped me to salary. As it stands now, I’m “skilled labor” doing very technical welding work, and of the type of industries available in SF, I can only think of one place that might pay an hourly worker $115/hr for their time without a full benefited salary role. Heck I was just recently offered a job in with the title “space welder” that didn’t pay half that number. Something seems fishy with story.
It’s 2023. 115 is the new 60.
He did put “blue collar” in quotes. Maybe IT work of some kind?
Wolf, you’ve been using the phrase “back to normal,” paired with “biggest asset bubble ever.” I’ve lived through a few of the prior busts in my 74 years. I know you don’t have a crystal ball, and I asked this a week ago on an earlier housing post… Don’t you expect a period of “below normal” before “back to normal” returns?
Make no mistake, I not only want to see back to normal, I’m expecting it. And by that, I mean the end of the ultra-wealthy raking in gains while working people suffer. My vision of normal is a thriving middle/working class. I think it’s incoming, but there’s going to be some damage before Main Street entrepreneurs start outperforming Wall Street gamblers again (as they certainly should and will)….
Hi Laurence. I’m 71. IMO “normal” is not returning in my or your lifetime. Hunker down. May we all find a way to fulfill our remaining days with enjoyment every day with family and friends. Go hiking. Go hunting. Go fishing. Best of luck.
My take, normal will not return in dollar terms as dollar is falling like a brick (high inflation). We should return to normal when corrected for real inflation rates because, QE is no longer possible without hyperinflation.
When will normal return? Inflation remains stubborn and frustrations will start peaking soon. Corrections are steeper than last time and will actually pick up pace. So I fell its only 1 to 2 years to an inflation corrected normal that may not be the bottom due to systemic and political risks.
“QE is no longer possible without hyperinflation.”
Actually I’d love to hear about this take in more detail. I’m not schooled in economics. My understanding so far is that after ’08 we saw massive asset price inflation and growth in wealth inequality because most or all the money went to the wealthy, a lot of pandemic relief money went to the public and now we have inflation in goods and services. Or is it that we are now dealing with fallout from ’08 QE but only now is it showing up in CPI and CPE and stuff?
People have been predicting hyperinflation for the past 50 years.
I think the quickest summary is this –
1) For a far too long time, DC used its money printing power to artificially drive interest rates *far* lower than they would otherwise be (DC did this by printing money to buy its own and others’ debt),
2) Artificially low interest rates caused artificially high asset prices (via something called the Discounted Cash Flow formula) and in general unsustainable artificial demand in everything,
3) To offset pandemic impact, DC did 1 and 2 again, on meth.
4) Pandemic/Ukraine War/Dumbass computer chip fires caused supply chain disruptions that ignited real shortages/price spikes…hugely amplified by all that macro-economic meth that DC had been dealing for over a decade.
That’s pretty much it – we can step through the details but it would take a lot more time.
Seba: When you look at *real* vs official inflation numbers, and when you also consider asset inflation from 1980-82 to 2020-22, it’s in fact been hyper. That is, (1) you have to look at what we’re all really paying; and (2) the historically unprecedented run-up in asset prices mostly across the board.
Gomp, I’m 79 and “normal” to me is a daily bowel movement.
Other than that, I keep my head down and keep thinning the cabbage around here.
Very true
Its a matter of time when we all would seek this kind of normalcy 😀 no matter how much money or houses we own
A thriving middle class…
Well, we are seeing wages skyrocketing for the lower incomes but of course the rich made the most off the pandemic. This is a good example of trickle down economics in action. The rich go from making 100 million a year to 200 million a year, while the working stiff goes from 20/hr to 25/hr.
Hyperbolic? Sure. But it’s not far from reality. I don’t think the middle class is going to grow in size in the future. Let alone prosper. I guess we’ll see though. I think the golden age of the US is likely past us. Corporate power and money in politics is getting well out of hand. It seems like we’re regressing back to the days of robber barons. A lot of things are better than they were but 50-100 years down the road, I think the greed of the rich will choke whatever advances we make to the point that they’re window dressing.
But again, I’ve spent my entire 20s holding a steering wheel and jamming gears. That makes for a pessimist of British proportions.
There are two large classes reflected by two parties in this country. One class/ party wants to take money from the middle class and give it to the below middle class (welfare). The other party wants to deregulate business so the rich can fleece the lower and middle class. Either way. There is no middle class party that’s wants to tame welfare and hold big business to account. The result will be less middle class.
I got a great LOL from this comment. ‘Welfare’ in it’s traditional meaning is at it’s lowest level in history – this is reflected via the percent it supplies for actual costs: food stamps, Medicaid, assistance for housing, minimum wages, etc.
Meanwhile, if you are reading this blog and have not yet figured out how much the government, the Fed, etc. is subsidizing the billionaire class, there is nothing anyone can do to explain it to you.
I just looked it up. Approximately 35% of households receive “needs” based government support. And that doesn’t include Medicare or social security. I couldn’t find all government subsidies easily, but I bet it’s well over 50%
That’s the point of my original comment. Everyone at the top and bottom are on the take. There’s no where, no party, to run to for the middle class who just pay. You just have to pick one and hope they don’t do anything too stupid.
Well said.
I don’t agree
Both the parties want to make money for themselves and their friends but one party has the mask of no big government and encouraging entrepreneurship while other has the mask saying we care for people
But remember at the end of the day both parties are out to rape and pillage this country
One political party pays their middle managers – congress type persons — well to provide ”socialism” for the poor.
The other ”party” pays their middle managers to provide ”socialism” for the rich.
Been that way since the formerly conservative democratic party followed LBJ through the looking glass to become ”reactionaries” on the left, and then the republican party followed ronnie ray gun through that same portal to become reactionaries on the right.
Crazy upside down ”interesting world” we live in these days,,, eh?
I agree. The middle class has no advocate.
However, in my view, it doesn’t matter. The middle class will recover despite this, because it’s not about politics, it’s about market economics & capital investment in real things, and Main Street is where the free market works when all the financial engineers and central planners have wrecked everything else.
The democrats have more billiionaires than the Republicans. The only reason that the democrats are willing to hand out money to the poor is so they have money to buy more stuff from the rich. The rich people plan is to pile massive debt on the nation because they have no intention of every paying a large share of their income to pay off the bill.
When you look at the total gains of the superrich, both realized and unrealized, the tax burden is down around 3-4% of income, mostly because unrealized gains can accumulate for decades and never get taxed.
The real rate the rich pay is another of my favourite topics, as I’m a flat tax advocate. Take the 17% idea that was going around many years ago. If we all pay 17%, no deductions, then your tax percentage doesn’t increase as you work harder and earn more (no penalty). On the other hand, the rich pay 17% too (no deductions).
We all just cough up 17%. The income tax form is one page. And no individual needs an accountant. Nor will the IRS require scrutiny of pages of deductions and exemptions. Fewer IRS workers, accountants and lawyers. more actual workers and producers. Less waste in total, by far….
I’m in my mid 40s. What we coin as being “normal” is a return to the economy of maybe the 90s? 80s?
In truth the only long period of sustained “normal” in the terms of how most people think of it is going back from about 1945 – early 1970s. The poor were gaining income faster than the wealthy, the middle class was huge. Taxes were much higher, regulations on financial institutions were much higher, and we didn’t have any boom-bust cycles.
People were also content with much less. Homes were far smaller, we couldn’t really load up on debt like credit cards, etc. You kind of had to live within your means.
I don’t think we in America are capable of going back to that. The dynamics of our system are so different that. Barring some kind of massive change in social mentality and massive regulations on financial institutions, it’s hard to imagine we won’t just keep repeating these boom bust cycles.
RE: In truth the only long period of sustained “normal” in the terms of how most people think of it is going back from about 1945 – early 1970s. The poor were gaining income faster than the wealthy, the middle class was huge. Taxes were much higher, regulations on financial institutions were much higher, and we didn’t have any boom-bust cycles.
As an 84-year old senior, I remember what happened in early 1970. First, due to the reckless money printing to pay for Vietnam, price inflation skyrocketed to an astronomical 2% (yes) which scared Nixon enough to slap on wage/price freeze which backfired big time.
Then in 1971, on the advice of Arthur Burns, he reneged on the Bretton Woods agreement and terminated the gold backing of the USD, thereby turning it (along with all other currencies tied to it) overnight into a worthless piece of engraved paper with zero intrinsic value (like the stock certificate of a defunct company) propped up by nothing but the coercive legal tender law (legalized counterfeiting) and this blatantly dishonest act was applauded by the Financial Media as “closing the gold window” as if it was an accomplishment (the favorite ploy of all crooks).
In those days a Big Mac used to cost around 50c, gas was around 20c/gal, an average family sedan around $3,500, a typical middle-class house in Florida was around $30,000 and gold around $100/oz.
Comparing them with today’s prices, it is clear that ALL nominal prices have gone up more than 10 times or, more accurately, the fiat USD with which prices are quoted has lost over 90% of its purchasing power due to monetary inflation which nobody ever talks about and this trend will continue without end like falling into a Black Hole . . .
A minor correction, in 60’s average gold price was around 380.
I price RE in terms of gold, so 70 oz is a historical normal for a “middle-class house in Florida”
Ulysses, your comment, “The poor were gaining income faster than the wealthy, the middle class was huge. Taxes were much higher, regulations on financial institutions were much higher, and we didn’t have any boom-bust cycles,” is partially true but largely wrong.
There was no time that income for the middle class was rising at a faster rate than the wealthy. What happened in the post-war period was that all three “classes” were gaining prosperity at about equal rates. Taxes were higher for the wealthy, but their wealth continued to grow as it had in the past. Wealth and income tracked pretty consistently for the middle and uper class. The massive shift happened with Reagan’s tax cuts. Then the income differential widened and has not stopped. The “boom bust” cycle, or business cycle has not disappeared and was boom and bust a long, long time. This isn’t new. It wasn’t created by the Fed to enrich the wealthy and impoverish the middle class, although there are a lot of paranoids that think so.
All domestic use of gold for the US dollar was ELIMINATED entirely in 1933 and the price of gold was fixed at $35 per ounce and stayed that way until around 1972 at which time the price of gold was allowed for float in the commodities markets and moved to around $100 per ounce.
I’m only 68 but I remember buying five McDonald’s hamburgers for a buck after school 20 cents each.
Every change begins with changes in social mentality. For better or worse. The words fairness, everyman, empathy and honesty no longer have the high values they had 60 years ago.
Not that the 1970s and before that didn’t have their own problems, but values have definitely changed. Greed and selfishness have become more socially acceptable, even in some cases valued highly.
Everything goes in cycles and I expect at some point this too will change. Historically it doesn’t change in an easy way, but who knows..
When I entered the automobile business (wholesale manufacturer side), you could do business on a handshake as most dealers were self made entrepreneurs.
Now? Don’t go into the room without an army of lawyers. The B-school frat boys destroyed that business and this country.
Remember the old joke of “what’s the difference between a dead snake and a dead lawyer in the road?” There’s skid marks in front of the snake. Ditto the B-school wunderkind.
I really don’t perceive that to be true. Greed is not in season, at least not with the younger switched on kids. In fact, there is a palpable tension growing between the shits and the grunts in the US.
The pandemic, future shock and the diminishing returns of working class compensation have all combined to create both a collective dissipation as well as a outward disgust for a system designed to harness the labor and output of the many for the few.
Laurence, I’m afraid ‘normalcy’ for the middle class is a thing of the past.
Labor participation, Corporate off shoring, sky rocketing national debt, social security/medicare on the brink.
With the baby boomers falling into retirement and millennials slowly entering in ‘life’ (having a home, getting married, having kids, getting a career job) the whole ‘economic engine’ is off kilter.
The government continues to band-aid it with government policy, but in the end the train is still heading for a brick wall.
ONE SAVING GRACE is that this is America!
IF you get out there, bust your a$$, burn the candle at both ends, manage your way through all of the B$, you can still prosper.
You can own a business, you can invest in real estate, Wall St., etc. etc., it only takes some education, OJT, drive, and the grace of God, but you can make a good life for you and your family still.
I’d trace this back to Alan Greenspan’s tax rate and interest rate cuts. Low interest rates mean people could afford more expensive homes due to lower monthly payments. This in turn causes higher demand. As the supply of homes can ‘t scale up quickly, this causes home prices to rise. This is Econ 101 supply and demand stuff.
Since then, the party got wild, and nobody wanted to stop it. Housing bust #1 was a wake-up call, but only the homeowners got really hurt. Once the foreclosures ended, houses were cheap for a time. However, low interest rates soon goosed home prices back up to pre-Bust #1 levels, so the speculators jumped back in and the party was on again.
Only now, when inflation due to pandemic weirdness reared its ugly head, are we seeing interest rates rise. This will cause much pain in the real estate markets for a long time, as people with underwater houses can’t afford to sell, and folks seeking to build new housing encounter the problem of higher material costs paired with lower house prices.
As long as the rich get richer at the expense of the rest of us, folks earning median salaries won’t qualify for loans to purchase median-priced homes. I’m glad I bought my home several years ago, have steadily paid down my mortgage, and have no need to move. I couldn’t qualify for a mortgage on it now.
“folks earning median salaries won’t qualify for loans to purchase median-priced homes”
I don’t get why people think a median worker should be able to afford a median home. Those two medians (worker and home) are entirely unrelated. The median salary worker is, by definition, in the middle of the distribution that includes a lot of minimum wage workers.
It’s like saying “the median worker should be able to afford a median private jet”. That’s obviously an exaggerated example to make a point.
First you write:
“I don’t get why people think a median worker should be able to afford a median home. Those two medians (worker and home) are entirely unrelated. ”
Then to “support?” this view you write
“It’s like saying “the median worker should be able to afford a median private jet”.
Sorry, this logic is a non starter. If there are homes for everybody then logically the median home price correlates with the median income. This assumes that the buy/rent equation is in balance.
And then you’re correlating house affordability to jet prices?
He is in favor of the Lord/serf economic model of the 1200’s.
Yes, jets, to make a CONCEPTUAL point.
“If there are homes for everybody then logically the median home price correlates with the median income. This assumes that the buy/rent equation is in balance.”
You have to make a ton of assumptions for that logic to be accurate, including that everyone from the lowest earner on up should be able to afford to buy. That way you’d have a shot at the two distributions lining up, so the medians would line up. Of course that’s not accurate. Right away you’re slicing off probably/maybe 25%+ of the entry-level (or near) workers from ownership because they simply earn too little to own, period. And then there’s supply. We know there aren’t as many homes as there are people who would like to own them. That’s what rentals are partially for. Not is just some mean capitalist country, but pretty much the entire world.
Now picture those two distributions. The median of homes will be well above the median of worker income. That’s just how it is.
And I’ll add… some will chime in “yeah, but it USED to be that median income afforded a median house”. Yes, I bet that was when demographics and income distribution were very different.
I’m not saying the two medians not matching up is a good thing or a bad thing. I’m just trying to explain WHY they don’t match up, and shouldn’t be expected to.
Nonsense. We have affordability as something that is and has been tracked.
But as a median worker i should be able to afford a median private jet as nice as all the other median work private jet owners. It would only seem fair??
People’s expectations of a starter home have changed dramatically. Our first house was a 1,200 square foot, 3 bedroom/1bath ranch house on a slab with a one car garage. Formica countertops. Sheet vinyl kitchen and bath floor. 12×12 vinyl tile everywhere else. Vinyl cove molding for the wall to floor. No central air. Metal door jambs with slab doors. Closets the size of a suitcase.
You likely couldn’t give that house away today. Everyone wants the HGTV dream home for $1,200 a month, with a pool, 3 car garage, granite, hardwood floors, 3 spa-like baths, and an ocean view. Don’t forget the Viking range and 42″ built in refrigerator.
Lol, I don’t even…
There are plenty of homes. It’s just that many are empty “investment” vehicles. While other people squat those investments or live on the street. Perhaps someday coming to a sidewalk or empty home near you.
El Katz, many many people would be very happy with that starter home you describe. They can not afford it. One of the the biggest groups of buyers of RE recently have been investors. Since around 2012 or so. Even they look for those homes, but not in a downward cycle.
It’s possible that those in your circle don’t like them, but that is not the case for most.
Do read some of the real estate rags regarding current first home buyers and what they are looking for. They want their parent’s house and won’t step down one iota.
Dunno where you live, but I doubt that there’s a long line of peeps signing up for that slab ranch. If so, cities like Wheeling, WV wouldn’t have $25K houses going unwanted. There’s a site “cheapoldhouses” or something along those lines….. many cities have homes you can buy for a buck. Are they broken? Absolutely. Fixable? Yep.
I have a tendency to buy distressed homes in schmancy neighborhoods. I buy the ugly and broken. Someone told me, a long time ago, to buy the smallest and homeliest house in the best neighborhood you can afford. That we did.
Why did I do this? It’s my hobby – I find it much more interesting that golf (which is among the stupidest games ever invented) Most people look at repairs as “erma gerd!”… I look at them as a challenge. My spousal unit tolerated it for several decades because she always marveled at where we ended up when it was complete…. we simply bought junk and fixed it. It may have required that we live in two rooms for awhile (the current house, we had our kitchen stuff all over the living room for 6 months), but at the end of the day, they were showplaces that, when we were done with them, sold quickly.
El Katz, we’re talking two different languages- WV and Ca,. Three actually, you mentioned real estate rags..
WV is probably the cheapest place to buy a home in all of the US. People are not moving there in droves. Although, if I was a republican I probably would.
All of the west coast, where I consider “home” is so overpriced that many people would be more than happy to buy a place like the one you describe. If they could afford it. Same in many less expensive places like Ohio where a friend of mine lives. The people who want to just can not afford it.
Oops, posted in the wrong spot, sorry for double posting..
El Katz, also, distressed homes are a whole other ballgame. I’m looking for one out of necessity but I know how to fix things. Most people don’t. And out of the people who don’t, only those who are naive are going to buy one to live in because they don’t understand the costs of repair. What you are buying is a specialty thing. I doubt you could find much that would be worth it in an expensive market like the west coast right now.
Alan Greenspan had nothing whatsoever to do with any tax rates.
El Katz, also, distressed homes are a whole other ballgame. I’m looking for one out of necessity but I know how to fix things. Most people don’t. And out of the people who don’t, only those who are naive are going to buy one to live in because they don’t understand the costs of repair. What you are buying is a specialty thing. I doubt you could find much that would be worth it in an expensive market like the west coast right now.
Laurence & others,
Agree re the ‘what even is normal’ sentiment…
I’m 32 and am fortunate to have a 2.7% mortgage – but I truly believe interest rates won’t be this low again even in my lifetime.
One thing that the last couple of decades has taught us is that anything is possible and unprecedented things happen all the time – quite frequently in fact.
Some European countries already had negative interest rates and 0% mortgage rates so there’s really no good reason to believe that 2.7% is some sort of ultimate lower bound.
Just as easily nominal house prices could crash by 50% or more or inflation could peak at 20% or more.
Basically, all bets are off. To anyone who says otherwise ask them to show you written dated evidence of their advance predictions of HB1 and GFC, giant bailouts and infinite QE, the pandemic and extreme excessive fiscal stimulus etc.
Just like no-one will predict the next black swan and its unanticipated impact on the world’ financial system.
You may be one of the least dazed and confused commenters on this site.
32 and you own a house? No way (if you listen to the whiners)!
Most people can find a house… once you join the “property ladder” you can eventually get the house you desire.
Obviously, you’ve done it. Both my kids did it. Ain’t rocket surgery. Just takes balls and compromise.
Sure — that and no divorces, illnesses or deaths, PTSD, addiction, job loss/pay cuts or other myriad setbacks.
“balls & compromise“…better trademark that & all other iterations of it (testes & settling-for-less, etc.). Then order up a few thousand t-shirts & bumper stickers. It really captures the spirit of…buying a house.
Actually, you’re not fortunate. You got taken by the financial system and you’ll likely pay somewhere in the future. Let me explain, but the basic summary is this: you can always refinance an interest rate (if rates go low), but you can never refinance the principal (if the house value goes down). Therefore, *for a given monthly payment*, it’s always better to have a higher interest rate with a lower principal than the reverse. You have the reverse.
The only way you come out ahead on this is if you hold your home for 15 or 30 years (i.e. fully paying off your mortgage). And even then, when you eventually sell your house — even if it’s 50 years from now — you will make less money since your initial purchase price was so high.
But you’re 32, and lots of life events can happen. Marriage, kids, divorce, job loss, illness, even good things like a new job you like but that requires you to move to a new state. If any of these events happen to you, and you need to move while you still have a substantial mortgage left during a time when interest rates are high (like now), most likely you will be underwater on your mortgage because your house price will have declined below the remaining principal on your mortgage. Not only can you lose your entire down payment, but you can end up on the hook for hundreds of thousands more to make up the shortfall to your bank, or else declare bankruptcy and endure 7-10 years of credit history hell to get out of it.
IOW, that 2.7% mortgage is like a pair of golden handcuffs: it’s a deal that caused you to overpay on the price of the house, and now, you will never be able to renegotiate that price (like you could an interest rate), and your only hope of this not ending in disaster is that you manage to pay off enough principal through the years of paying down your mortgage such that if/when a life event happens that requires you to sell your house, the principal you have remaining to pay is less than the reduced price of your house.
I don’t mean to wish you ill, and I hope everything works out for you. But I just want people to stop swallowing the real estate industry’s BS spin that somehow every time, any time, no matter what, is always “the best time to buy!”
You didn’t get a deal, and you’re not “fortunate” unless you think the person who sold you that house and walked away with a fistful of equity now converted to hard cash, is somehow *un*-fortunate.
I should have said “normal-ish.” I don’t obviously have an exact line = normal. Sometimes there is an undershoot involved, and sometimes there is not. In Japan’s housing market, after their huge bubble in the 1980s, there was no undershoot. There was just a very long tedious trip back to normal.
Goldman recently released a chart showing that 99% of mortgages have a rate lower than the current 7% rate.
This dynamic is going to create some short, intermediate, and long term effects that are going to be difficult to predict. It could be many years before we reach anything resembling “normal” in the housing industry.
Plus add on the climate change inflation such as the billion in weather damage in CA these last two weeks, the $52.6 billion NY stated they need to deal with climate change costal storms this week, shelter inflation isn’t going backward for many years, if ever, depending on how fast the future changes on many levels.
I agree that 7% mortgages drastically hurt sales, yet there is a lot of inventory that will not enter the market until rates drop substantially as many folks are “locked in” and can’t afford to lose their 3-4% mortgage rates. Thus for mortgage free sellers and buyers in prime properties, the market may hold up much better than expected. The next few years are going to be volatile and tricky for both buyers and sellers, and luck will play a very large role.
Looking at Goldman’s chart, I’m shocked how many conventional 30 year mortgages are locked at 3% rates:
With locked in homeowners, the market could see more single unit house rentals hit the market as some people will hold those primary properties at 3% and rent them out, and buy a secondary property to live. Could be a good time to rent a very expensive home on the cheap. I did that twice during the last housing bust, one being a large three story waterfront home in which the developer was in trouble and I was just required to pay the property taxes and keep the utilities paid.
What I think would be very difficult for housing is if/when an “unemployment recession” occurs, as the 8-12 month short sale process delay will start at that moment, and short sales drop all resale values fast. Thus beware that 8-12 month lag “if” unemployment goes up substantially if you are a seller.
The irony is a lot of the inflation volatility has been caused by the low rate mortgages caused by the Fed MBS purchases, which allowed homeowners to borrow hundreds of thousands of dollars per family across the entire county. In simplest terms, money just appeared in their bank accounts like magic with absolutely no productivity, creativity, or labor required. The outcome was obvious, “something for nothing” does have consequences, no matter how delayed the effects.
For example, a new Zillow survey found out that 48 percent of homeowners younger than 40 have tapped their home equity in the past two years, mostly for home improvements. Yet 90% of those homeowners have YET to spend all the money the borrowed, which means there is plenty left for 2023, and all bets are off for 2024 unless the Fed folds and creates an even bigger mess for 2025…TBD…
The Fed helped create consumer immunity to higher prices, and thus has taken away a lot of their strongest monetary powers from to control inflation. So I’d be shocked if they plunge into the ZIRP and QE infinity rabbit hole anytime soon, and if they do, it won’t be for very long as inflation will return with a vengeance like happened in the 1970s.
To steal from Churchill, the Fed is truly “a riddle wrapped in a mystery inside an enigma”, so good luck attempting to figure out the future beyond a simple coin flip…
“…yet there is a lot of inventory that will not enter the market until rates drop….”
This explains low realtor commissions, but not low inventory. People need to stop regurgitating this, in terms of inventory, for which it’s logically incorrect Why? Because:
When a homeowner sells the house they live in, they then have to move into something else, and end up buying something else. So: 1 house comes on the market and 1 house is taken off the market and the net effect on inventory is zero (+1-1=0).
Only Realtors benefit from this because they’re making commissions off both sales; and Wall Street firms benefit from it because of mortgages, MBS, fees, etc. Inventory doesn’t benefit at all.
The only events that increase inventory are these:
1. vacant homes that are now held off the market are put on the market (this can be hundreds of thousands of homes that show up suddenly).
2. Homeowner dies or moves to nursing home or moves to a rental or moves to another country to retire more cheaply, or moves in with kids/parents, etc. and the home is put on the market, and no home is taken off the market.
3. New homes are being built.
I know it is implicitly included in your 1-3 list, but I would just amplify on the looming increase in apartment supply (which, please sweet Jesus, let come to full fruition per reports).
Actually, it would be great to get a monthly post as this supply actually hits the market in various metros…the industry sites have all been reporting on it for 8-9 months, but there is less coverage of the promised supply actually hitting.
That is a good piece of info on the under 40s home equity tap… thanks for those numbers and info.
If it’s a 2nd, money is in the bank. If a HELOC and not drawn out already, the bank can and will reduce those lines. Happened to me in 2009.
Our conundrum is that we will likely consolidate three households onto one property….. the main house goes to the youngsters because they’re fancy-like….. the secondary house goes to the prosperous geezers (me and the spousal unit)… and the ADU goes to my sister who had a medical setback. So, three houses down to “one” (as it’s sold as one property, despite having three dwellings). My son’s spousal unit has a mother that has bupkus… so there might be a second ADU built on the property and 4 turn into one.
The benefit of *not* living in a cliff city.
Thanks, Wolf.
I really respect your opinion. I could easily imagine this being a Japanese-style economy. I’m thinking of this as a secular event (one or more decades). No quick fixes to this one, as the financial engineers and central planners have exhausted most of their ammunition via increasing micro-management since 1987 (Greenspan), in my view. That is, the intervention card has been waaaay overplayed when there was no reasonable (history-based) justification to do it, and now that set of tools is wasted and exhausted.
As I’ve said a few times now, my take is still optimistic, because I think the failure of the central planners is the other side of the coin of the recovery of the unmanaged market economy.
(I’m assuming that Marxists don’t take over Washington…. Marxists wreck everything they touch, and the only fix for Marxism is total systemic collapse. But that is another topic entirely, and I don’t think the US is going Marxist, at least not at this juncture.)
Considering there are zero “Marxists” currently in Congress, I don’t think we are in any danger of them “taking over” any time soon.
“Main Street entrepreneurs.” Nice one Laurence. That was me at age 14. And for the 43 years thereafter. Now that I’ve been retired for a few years, my philosophy is to live within one’s means and enjoy life, each and every day.
Where I live, in Minneapolis’ Longfellow neighborhood, nice, classic Craftsman-style older homes in the mid-$300k range are still selling. $240 per square foot, give-or-take, seems to be the number.
Congratulations, Prairie Rider.
I’m “only” 8 hours north of Minneapolis (in Kenora, ON), and I’ve spent some time in those craftsman neighbourhoods. I enjoyed running the back laneways and pedestrian paths in the summer months….
My prediction is that incentives will again favour self-made entrepreneurs, obviously not the “same” as before, but with an edge over “failing” Wall Street, “once again.”
Those sellers are not just “sittimg on their properties”. They have to pay insurance and taxes on them. Pretty soon, you’ll find lots of keys under doormats. And maybe, for Gen-Z’ers a little note with a smiley saying “sorry”.
Sadly in CA many are paying artificially low taxes thanks to Prop 13
Only if they’re older folks that have lived in their homes for years and years. Not the younger generation of buyers, they’re on the hook for monster taxes in CA, in fact around $12,000-$15,000/yr for every $1 million dollars in assessed value. Think about that. I see homes around the South Bay area selling for $2-$5 million dollars, and I then I get to go back and look at property taxes. I don’t know if its hilarious or just sad at this point, but we have people here buying “average” price homes that pay $20,000-$50,000/year in TAXES alone. FOREVER.
Tell me again how that’s “the American dream”?
John G,
$20-$50k…” Hear ya. The only thing worse would be if CA could mark homes to market. Then ALL homes in that price band would pay taxes that high, rather than just recent buys.
But hey, prop tax looked crazy high like that when my dad bought his house around 1980. “OMG, $2k in annual taxes forever!” Now he pays around $3.5k. So maybe $20-$50k won’t look so bad a ways down the road!
Take a peek at Ill-annoys: My sister had a $500K house there (11 years ago) and the property taxes in Will County were $17K a year. Can’t imagine what they are now.
You could argue they’re artificially low, or you could argue that recent buyers’ are artificially high.
Prop 13 primarily benefits commercial RE and huge multifamily complexes that are held as LLCs or incorporated so the owner of record for tax purposes hasn’t changed for decades and never will until the law changes.
The main effect on single family neighborhoods is a severe “graying” of the population, since empty nesters have no incentive to downsize and end up staying in huge homes well into their 80s, while local schools shutter and the young families that are around often live in cramped apartments.
The passing of prop 19 in 2020 will eventually lead to repeal of prop 13, since it made it much more difficult to pass down the 70s-era tax bases to heirs in perpetuity. Many voters who would have had an incentive to support the current regime now have an incentive to reform it. Those who pay high California sales & income rates will be less and less inclined to give large property tax breaks to a smaller and smaller group of longtime land owners.
“Prop 13 primarily benefits commercial RE and huge multifamily complexes that are held as LLCs or incorporated so the owner of record for tax purposes hasn’t changed for decades and never will until the law changes.”
That’s not exactly correct. When entities such as corporations or LLCs own real estate in California, the real estate is subject to reassessment if there is a “change in control” of the entity that owns it, either directly or indirectly. An entity can own real estate for a long time, but you can’t use an entity to effectively transfer ownership to another party and avoid reassessment. The Revenue and Tax code defines what constitutes a change of control for property tax reassessment purposes.
Remember, not the whole country is experienced bubble prices like the hot markets in California, Texas, Florida. Sure they have gone up but not as much. Thus some areas are not going to drop as much in prices. I would argue that these flyover places where undervalued versus inflation over the past 20 years.
During the peak last year, I read an article that stated that a person who bought a home in Los Angeles in 2020 is sitting on a growth of 800k of equity growth. Of course, this has dropped over the past several months.
But in contrast, a person who bought in Kansas City in 2010 is only sitting on $100k of extra home equity growth.
Now people in Los Angeles are probably worried about losing $400k in free equity so they may want to sell now to lock in that equity. But somebody in the Kansas city is really not worried about losing 50k of their 100k in equity on a $300k home. Why? Selling the home now for $300k – real estate fees would come to a net $272k on the sale. Moving costs will run another 3 or 4k so you are at $268k and then buy again when housing hits $250k in a couple of years. Just to net $18k. I just don’t know. I say this because I know a few people that are selling their homes and plan to rent and buy again when price bottom in 2 or 3 years. All that hassle for 18k extra money. Will the come out ahead. l Their monthly rent is higher than their current mortgage payments/property tax payments. That extra monthly savings could have been invested in stocks or treasuries. They might come out ahead but barely. Was it worth the hassle?
Lets say they did not even have a mortgage on the house they will sell. After they sell they now have a $18k per year rent vs $6k ($3k in property tax and $3k in home maintenance) for a net loss of 12k a year that could have gone into savings.
In my country, during the hyperinflation of 1996, there was a politician who came out and said, “for God’s sake, brothers, don’t buy”. That’s one thing that could help
Powell essentially said that in June 2022, during the press conference, when he was asked about housing. He said, wait with buying a home until inflation is down and “the housing market settles in a new place.” This is what he said:
“If you’re a home buyer, a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again and mortgage rates are low again. This will be a process whereby ideally, we do our work in a way where the housing market settles in a new place…”
People refuse to listen to what Powell actually because they always want to hear pivot signals that Powell refuses to give, and so they imagine them, and thereby miss the crux of what he actually says.
People refuse to listen to what Powell actually because they always want to hear pivot signals that Powell refuses to give, and so they imagine them, and thereby miss the crux of what he actually says
This is because the young were children or teenagers in 2008 and before. They have no memories of those events. They don’t have the experience to make comparisons.
Watched a few different fund managers on various programs last week, I think they all heard him loud and clear, but they hate it, and are working to create a narrative to get him to change course. It’s seems their business is literally as much a confidence game as it is about rates of return.
LL: how many times have you heard a “fund manager” say, “Investors, I think you should take your money and put in under your mattress. Things look bad,”? You can count them on your middle hand.
At this point Powell has, either via ignorance or willfully, lied about transitory, lied about liquidity conditions, lied about the economy on too many occasions to the point he isn’t seen as trustworthy to a large percentage of investors, which takes away their ability to “word-message” control the economic system. I agree with El-Erian, the Fed has lost credibility and that will make the Fed both more stubborn and less flexible to change their direction quickly, as they attempt to regain that lost credibility. The psychological and political effects can’t be ignored, and will unfortunately play a larger role in 2024.
I am personally concerned about Fed independence six months before 2024 elections. Depending on who wins, it would seem the Pres can fire the central bankers at will so that loss of independence could be destructive. Even now the “Warrens” are hammering the Fed and setting them up as scapegoat in case the economy tanks and people lose jobs, and so the political circus will get worse as we approach 2024.
Plus the Fed often attempts to be neutral during election cycles, and neutral won’t cut it with sticky inflation and low unemployment and labor shortages, thus I think 2024 could get “messy” unless the fed gets inflation under control in 2023, and then they can turn neutral in 2024 without having inflation flare with a vengeance and being black-mailed into unwise choices by those attempting to get re/elected.
“…the Pres can fire the central bankers at will…”
Apparently not. It’s not that easy. Or Trump would have fired Powell. There are some conditions under which a President can fire a Fed Chair, and they’re apparently not that easily met.
“Apparently not. It’s not that easy. Or [the former President] would have fired Powell. There are some conditions under which a President can fire a Fed Chair, and they’re apparently not that easily met.”
Then why did the allegedly resolute Powell publicly cave to T’s veiled threats?
Powell was appointed in 2018 and reappointed in 2022. The chair serves four year terms. There has never been a standing chair “fired” by a president and so no precedent exists, and may not have the authority to do so. It would either be decided through congressional legislation or in the courts. As to caving, I would assume Powell is not immune to politics especially around his appointment/reappointment time.
Carter somehow got rid of the dude before Volcker by “promoting” him to Treasury.
I will have to go check but from what I can tell Burns served two full terms 70-78. He left for the AEI in 78 and was an ambassador to Germany in the early 80s.
Wolf said that Powell said: “If you’re a home buyer, a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and WHERE INFLATION IS DOWN AGAIN AND MORTGAGE RATES ARE LOW AGAIN. This will be a process whereby ideally, we do our work in a way where the housing market settles in a new place…”
sounds like pivot talk to me. shows his mind-set, just like his 2% inflation target shows his mindset. he is a long term inflationist, as would be expected from bankers set on keeping a working class is debt and wage servitude.
“Pivot talk”??? You cannot be helped, LOL
@ Wolf –
As I was writing the above post I was musing about an anticipated trademark response from you.
Didn’t matter. The appeal of calling out the duplicitous, lying, thieving slime-buckets for what they are, was too much to resist.
Your commentary and reasoning, moved me to the “no pivot-for a while” view some time ago, not because of what the proven liars say, but because it is in their best interest to preserve their thieveocracy.
Even if they succeed in moving to their joke inflation rate of 2%, that is still inflationary. Though assets prices should move down, other than a crash, assets will theoretically remain valued with an expected inflation premium intact.
My current view is a long stagflation.
Whatever happened to the income/price ratio of about 2.6? I see many pundits who claim to be bearish on housing talking about 25% drops as if it’s the end of the world while ignoring the fact that prices would still be multiples higher than 2.6.
Is that ratio (which is more a recommendation than historical fact as far as I can tell) irrelevant today? New paradigm or some other bs? The US ratio is about 6 which seems untenable whatever you think the “good” ratio is.
Ratio you mention, approximately 40% of gross income WAS used by lenders on the mortgages we qualified for in late ’70s and 80s xp.
Houses we bought were in the $40-70K range in THE bay area, needed some serious work which we were in the biz of major remodels for others – licensed and insured, etc.
These same houses, that I am entertained to watch, hit highs above $1 MM recently.
Just down right criminal IMO, agreeing so much with DC in that regard…
Even in those days, some folks had bumper stickers ( remember them ? actually on bumpers ) saying ”End the Fed” and ”Clean House, Senate Too.”
Too bad that both of those didn’t get implemented, eh
My favorite bumper sticker: “Parole officers do it with conviction.”
“Don’t Buy Anything”
There were ‘Words of Wisdom’ from none other than Jeff B’ founder of Amazon…
From the man threatening to make an unsolicited bid on the Seahawks
“Home prices had exploded into the stratosphere because of the Federal Reserve’s monetary policies – and nothing else – because of the nearly $5 trillion it printed between March 2020 and March 2022, to repress long-term interest rates, including mortgage rates, and to create the biggest asset price bubble ever.”
According to CoreLogic’s SFRI, rents are up about 22% since the beginning of the pandemic, ahead of general inflation of around 15%.
The surge in inflation was at least partly due to massive wasteful and unnecessary fiscal stimulus.
The surge in rents which is cooling off rapidly suggests an imbalance between supply and demand caused by other pandemic-era policies e.g.
demand increase due to lockdowns, remote working, school and business closures, travel restrictions etc.
and supply drop due to supply chain challenges delaying completion of new apartment buildings and renovation of old ones, eviction moratoriums etc.
Most of this has mostly unwound as the pandemic has ended but many people are still spending a lot more time in their homes doing remote work than pre-pandemic.
So while Fed money printing and interest rate repression was the main culprit, saying “nothing else” seems like a bit of an over-simplification.
“…rents are up about 22% since the beginning of the pandemic, ahead of general inflation of around 15%.”
Despite this, rents are still too low based on current home prices. Rents must come up and/or home prices must come down for the imbalance to be resolved.
As with apartment complex purchasers, SFH buyers/flippers who insanely overpaid during the days of ZIRP, are now trying to desperately recoup by squeezing tenants for historic rent spikes – but you can’t get blood from a stone (but if losing the property is the alternative, the owners will try).
Vacancy rates are already heading up due to the record rent spikes – first started seeing stories about this in Phoenix in October 22.
Looking back, I got a taste of this in 2019. I messaged someone renting out their house for what I thought was too much. I asked if they would come down, but they were only able to come down about $100/month because of their high mortgage payment.
In October 2019 before anyone had heard of Covid, the mortgage rate was around 3.65% according to Freddie Mac and it bottomed out at 2.65% during the pandemic.
This translates into a 14% increase in buying power for the same mortgage payment (ignoring taxes and insurance).
House prices nationally peaked at about 43% higher than pre-pandemic according to the Case-Shiller index while rents were “only” 22% higher over the same time frame (according to SFRI).
My next door neighbor seems to have pulled his home from the market. I’m assuming the 90 day RE contract with his agent expired and they got zero hits. 1985 build in West Hempstead in Long Island NY here, bought for 500-550 sometime around 2000 I think, did all the work himself and the home is absolutely beautiful.
Agent listed it for 1.1. No hits, dropped it to 1.065. With the interest rates your average monthly payment was $8900 for mortgage+taxes. That’s entry pricing into Garden City, one of the most sought after districts on the south shore of Long Island. It eventually flatted out at $8199 a month. Still no hits. Sign disappeared off the front lawn last week.
I was tempted to go talk to him and low-ball him at 650 and discuss a rent-to-buy option as we have a sizeable down payment ready to go. I know his wife wants to retire soon and they want to move back to Turkey, but with the current political state going on in that area they might have put that plan off.
What’s your consensus on that financial plan of attack for the home? I figured aside from lawyers and home inspections we could not deal with the slimy RE agent’s wanting their 3% commission for doing nothing and some other costs.
If you KNOW your market, and feel this is a ‘fair’ and equitable offer for both parties, I’d say go for it.
Good luck.
I would go short on Turkey???? HEE HEE
You seriously think it’s realistic to expect to be able to buy a home for 650k that the seller paid 500-550k TWENTY THREE years ago? (And put money in to improvements it sounds like?) AND you want it to be a ‘rent to buy’ option? LOL.
That’s not a ‘financial plan of attack,’ it is delusion.
Something is only worth what someone else is willing to pay for it.
Maybe in 2012 this was possible when you purchased a foreclosed home from the bank.
I hope we don’t get to that point again.
2012 home prices essentially rolled back to 2002 prices in the hardest hit areas. That is a 5 year plunge from the peak in 2007. 10 years of stagnant house price growth. 2002-2012.
I’d recommend looking at Redfin and Zillow to see what year that house was worth 650K. If it was 2019, make the offer. When my daughter purchased a house in 2016, it was the same as the the original selling price in 2007. We approved of the purchase and the paranoid sellers were happy to finally sort of break even because they thought prices would plummet again. They had held on through 2012 which was much worse.
Bob, ironically in 2019 it was worth about 650k LOL. Was checking realtor site and scrolled back on the chart a bit.
The sad part? He’s paying $19,700 a year in taxes :-/
@Seen It All Before – that is excellent advice to check sale history of properties.
“I hope we don’t get to that point again!” We are selling our property and plan to rent for a few years. The prices in our target market are sticky and inventory is low, particularly under $300K. Over $450k there are reasonably priced homes considering great quality and great location. We are moving to a state in the southeast that is seeing continued inmigration from urban NE cities, Chicago, California and oddly to me Texas. A significant percentage of the peeps moving in are retirees.
The house price went from an estimated 650K in 2019 to 1.065M now? I realize that enhanced features add value but location is more important. Location hasn’t changed since 2019.
Wow! The bubble was huge in your area.
I’d wait a few months to see if the groundskeeper wasn’t mowing the lawn or pulling the weeds and then offer the 650K 2019 price as a favor.
” He’s paying $19,700 a year in taxes :-/”
That should reflect on the price. 650K seems fair.
I’m sorry about the SALT 10K cap. Biden and the state/local governments haven’t fixed this and it is hurting some areas.
Interest on 650K at 7% for 30 years will be about 45K for the first year. You can easily deduct 55K (10K for the SALT cap, and 45K for interest) from your taxes.
The SALT cap used to be an issue but now the higher interest paid is dominating discussions.
He bought the home in 2009 for 500k. The market here had just started to falter. I know a few people who bought at inflated prices then that are barely above even now, as hard as that is to believe.
Homes in desirable neighborhoods are still on the market for 7-800k that haven’t been touched since the 70s or 80s, and kept together with patchwork as needed and zero renovations inside, plus with those sellers never grieving their taxes ever and they are paying 15-17k a year. To me that’s the biggest turnoff on a home, is the owners were idiots in not keeping their taxes low as possible and now they are trying to walk away from the property for an insane price and needing a ton of work.
My house in the PNW was just reassessed at $865k the property taxes for 2023 are $5400. Its 2000 sq.ft. with a 1300 sq.ft. detached garage, 1/4 acre lot, water view….
Lol, I wouldn’t to a neighbor. You might run into the guy and he will know who you really are beyond the polite hellos.
Don’t get me wrong, I respect the play. But people can take it personally when you neg their financial position that harshly.
Find other opportunities. It’s not hard to look up liens.
You know what the crazy part is Nate? We actually were looking up liens or short sales or foreclosed on homes, ones that had water/mold damage that were unsuitable to live in without remediation first, and no bank would even respond to my agent about said home. It was frustrating. Even more frustrating to see that home suddenly get ‘sold’ to some contractor after persistently trying to say ‘hey, we’re interested in buying this’ for 6-7 months. Someone mentioned on here some articles ago that banks would either A)keep the home for close contacts to sell it to or B)sell it for all cash offers only.
Funny how that works. It’s like the system is not fair or barely supervised employees are not trying to maximize value to shareholders unless supervised.
Expensive dinners and gift baskets do magic.
Do it. But do it almost apologetically and say here’s my number if you need it.
Chances are he won’t go for it, but it is definitely worth a try. Most people decide one way or another whether they want to rent out or sell. Many would rather sell for less then renting. What might make it easier is to suggest a property manager that can collect the rent and leave him out of dealing with collection etc.
What will probably happen is he will put it back on the market at a much reduced price that is higher than your offer. But- well worth a try, you never know. The market is running out of people who want to buy at current prices.
Or you can wait for a year or so and buy it for much cheaper
Or he can simply stay and not sell it at all. Some people have the ability to do that… Not everyone’s hair is on fire.
Sadly, panic mode sets in with some people and they think their hair is on fire after a 5% drop from what they paid.
Don’t panic! And always carry a towel. Enjoy your Forever Home!
Some very interesting data.
I think housing will suffer but have doubts it will be anything like the big bust of 2009. Perhaps certain locales (like SF) that have extremes in compensation and housing cost
But other areas of the country, while having seen the crazy price runup in 2021 coming out of the COVID lockdown, likely didn’t experience the volume of craziness to create major problems.
The other factor is that many people got into housing during COVID with extremely low interest rates and while the price of their house may drop some, they intend to stay put and the only thing that would change that would be a large scale drop in employment nation-wide.
Finally, a lot of housing has been bought by people with extra money as an inflation hedge as well as diversification hedge with their wealth. So I don’t see them being pressured to sell out any time soon.
Again, some cities and regions will see pressure in prices and mortgage defaults, but unless things overall turn really ugly, a giant housing crash I don’t see.
“a lot of housing has been bought by people with extra money as an inflation hedge”
NAR’s housing affordability index is now hovering around the same lows as housing bubble 1 and the late 80s.
On both of those previous occasions when housing has been so overvalued, housing failed miserably as an inflation hedge for more than a decade …..
“Finally, a lot of housing has been bought by people with extra money as an inflation hedge as well as diversification hedge with their wealth. So I don’t see them being pressured to sell out any time soon.”
Wait. So investment in a devaluing asset is an inflation hedge?
Locking in a fixed rate mortgage protects you from rising rents. This is why I purchased as an inflation hedge. I had rented for nearly a decade previously and every lease I had signed was slightly more than the last one.
A mortgage payment is only one part of the total monthly expense though. What if insurance costs rise? Maintenance? Repairs? Improvements?
“What if insurance costs rise? Maintenance? Repairs? Improvements?”
Valid points – and I’m also worried about my property taxes continuing to rise. My city already reassessed my property last year, ‘adding’ 100k of ‘value’ to it. Personally I feel this is unfair.
Despite having significant equity in my property, I *want* house prices to come down for this reason.
All that said, I still feel I’m in a better position than having to budget an extra $100/month in rent every year when signing a new lease.
As AF frequently says, we’re all about to become a lot poorer.
I think most people who with extra money who bought a house as an “investment” do not live in their “investment” and will end up selling unless they can rent and the rent more than equals all expenses. Including all aspects of property management.
Squatting is on the rise. If an empty property gets squatted then the results = a lot of repair. I saw one property that looked like someone took an axe to the walls and roof. It’s a wonder the people who did it didn’t get electrocuted. Maybe the electricity was off. If the electricity and heating is off then you have other, more accumulative damage from condensation.
Maintenance? Repair? Improvements?
Learn to fix stuff yourself. Buy the right tools and materials and go for it.
Example: HVAC contractor came out because our blower fan punked out. Two of the recommended repairs I paid for. The third, they wanted $385 to replace a start/run capacitor. The part was $13. 4 wires (slide on lugs) and one screw to replace. I did it myself.
Here’s a clue for those of you who *fear* equipment breakdowns. Get a “systems” endorsement on your homeowner’s insurance. Ours is about $60 a year (that’s a whole five bucks a month for the math challenged). It covers everything that’s bolted to the house: furnace/heat pump/air conditioner/built in oven/water heater/ dishwasher / blah blah blah. Has a $500 deductible but you don’t have to use some substandard contractor.
We have solar hot water (big $ saver). It blew out a year ago. $4K to replace. Went with the contractor of our choice. Paid the $500 deductible and got an entirely new system.
Our heat pump punked out (as described above). I spent $973 to have it fixed. The insurance company will not only reimburse me $473 for the repair ($500 deductible), they’ll pay me for the part and labor to replace the capacitor at flat rate. Net to me? Nearly zero.
This isn’t a “home warranty”…. it’s through your homeowner’s insurance. Home warranties are a rip off. This has paid off in spades.
Homes aren’t rocket surgery. I’m presently rebuilding my sister’s irrigation system (biggest problem is component availability). Doing it with a pair of vice grips, battery pliers, and a garden shovel. Irrigation “specialist” wanted $3K. A day and a few hundred bucks and it’s just as good (if not better because I give a sh*t if it works properly) as a perfeshunal renovation.
Two investing saws.
What everyone knows isn’t worth knowing. Bernard Baruch
It’s what you don’t see that kills you.
No one except the Big Short people saw the GFC coming.
(And no one saw COVID coming except Tepper and the Barrons cover was Dow 30k in Jan 2020)
I think you’ll find that asset classes correlation converge to 1 in a severe downturn. I doubt housing will be much of a “hedge” but we shall see.
I thought the same in 2008 HB1 )
Housing Bust #1 lead me to retire from Real Estate Investing in the Midwest. Saw lots of good RE companies shut their doors and others continue to prosper.
Watching Housing Bust #2 as a retired person still makes me disgusted with our Govern ment. They continue to create bubbles that pop, benefiting the rich, growing Govern ment, and making the poor, poorer.
A little anger ;-D
Employment is still good, and huge numbers of people renovated in the last few years. Will feeling more house-poor decrease the work for remodel contractors? Towards the rural side, construction and mortgage lending/real estate provide some of the higher paying jobs in boomtown tourist service economies. If people are done buying, flipping and remodeling, that goes away. Both realtors and contractors return my calls these days, an indicator for me. 18 months ago that was not the case.
Increasingly competitive nightly rentals that have never been fully occupied are also a big part of these tourist towns, where hotels and nightly rentals employ and compete for lots of cleaners and other services.
On the other hand, flips or quick fixes to sell are often horrible quality and need to be redone. The eventual trashed out foreclosures also need labor.
So, what’s going on in housing services this spring, outside the big cities?
I was a building contractor in Humboldt Co CA from 2000 to 2017, so my business saw the whole cycle of Housing Bust #1. Mostly remodels so I avoided some of the horror that folks doing spec homes suffered, but my income dropped by 2/3 from the peak in 2006 to the trough in 2011. It didn’t really recover to the “mean” until 2016. Thankfully I had a long client list that helped me survive, but some builders lost everything, and many of the contractors that were newly minted during the mania disappeared into the hinterlands to grow pot.
Every business is unique, so my experience isn’t necessarily applicable everywhere, but I recall the oft repeated saw, “History doesn’t repeat, but often rhymes.” There’s a lotta poetry out there right now to these old ears.
“In 2022, the number of total housing units increased by over 1.3 million. If each housing unit is occupied on average by 2.5 people, that’s housing for 3.3 million more people than in the prior year. The US population hasn’t grown nearly that fast in 2022.”
Yes but it’s possible that household formation has been outpacing population growth and that household size has been shrinking during the pandemic. Has anyone seen any definitive data on that from a reliable source?
Household formation has almost certainly increased recently due to “free” government money and the even bigger fake boom, not because of anything sustainable in the economy. It was weak before the pandemic.
It’s just another aspect of the fake economy which I keep on reading as if there is something normal about it.
Agree – and I’ve been thinking that people who (can afford to) live alone will be a thing of the past once our costs of living have gone up beyond a certain point.
You cannot use one year as a data point.
Go look at the census numbers to find out how many houses were built per decade and then look at the population added in those decades.
New housing per decade
1970s 12.1 million
1980s 12.2 millon
1990s 12.5 millon
2000s 14.5 million
2010s 7 million
Population adds per each of the above decades has been pretty constant between 24 million to 28 million.
I am not saying we have too many or not enough houses. But based on the prior 30 years prior to 2010, we have built 30% fewer house in 2010s. Maybe we built too many in the 2000s?
In contrast we have seen multi family building growth skyrocket in the 2010s.
Population growth and household growth has plunged over the decades you listed. So throw your list into trash.
Over the last 10 years, on average, just 1 million households were formed per year. Meaning, you need 1 million additional housing units per year to cover them. In 2022, the US added 1.3 million. And similar in prior years.
There was a huge oversupply starting in ca. 2004 that triggered, among other things, the housing bust. It took a long time to eat up that oversupply.
I feel like I have seen this part of the economic cycle a few times. John Taylor was on saying Taylor rule says we should be at 6% assuming core inflation is 4%.
Housing and stocks are going to get creamed if we go to 6% Fed funds. The least financially savvy and the speculators will loose everything. Warren Buffet types will pick up assets at deep discounts to long term cash flows. Politicians will pass new laws to fight the last war.
“Housing and stocks are going to get creamed if we go to 6% Fed funds. ”
I don’t think that’s true at all. We are already at 4.5, I thought it would have killed the stonks and housing at 3%.
Everything is still alive and kicking.
“Everything is still alive and kicking.”
Yes, thank god! But it’s a lot lower.
Housing and stocks desperately need to get creamed.
I agree and find it sadly amusing how many people moan about Fed policies but then get very upset when you suggest that asset prices are inflated. So, ZIRP is evil but so are rational interest rates if it means popping bubbles. This is why we have the economy we do; we believe all the lies and end up ignorant, broke and broken by an unfulfilling life.
YOU will never be rich and the rich will always be richer. Time for a revolution. Nah, it’s too late.
Stock valuations are entirely psychological. Housing substantially so, given the level of speculation.
There is a no “red line in the sand” for interest rates that will trigger a bust of the asset mania, which has not busted yet. Financial conditions, meaning the ability to borrow, are as loose or close to as loose as ever. Yes, it’s more expensive to borrow but credit standards are still; absurdly low.
A lot of investments including some rentals and stocks don’t make sense when you can get 5% on no risk 6 month treasuries. Even more so at 6% ond 7% rates if we get that far.
Things are spiraling out of control fast. After the bad inflation report a week ago, the FED will be raising rates into next year. Next there will a major uptick in unemployment. Here are the numbers for consumers: Car loan delinquency’s are up to all time highs and mortgage delinquency’s are creeping up too. Repo’s and foreclosures will be coming again. Hang on folks.
Loan delinquemcies still seem to be at historical lows… agreed its a potential warning sign to keep an eye on but I don’t think we’re there yet.
I don’t think any of this is true… I’m fairly sure wolf has posted about delinquencies still being historically low and while I wouldn’t mind seeing the Fed continue raising rates. Raising into next year would put them in the seven range at least and I don’t see that happening with the YOY base effects making inflation appear lower then it actually is.
I’d say the real problems will be when unemployment starts ticking up and the Fed can’t cut because inflation is still too high.
This is great information, thank you.
The fed raises rates but then puts long term estimate of fed funds rates as 2.5%ish on dot plot. “This too shall pass” is largely aligned with the fed’s own projections even if they talk more hawkish in the short term.
This is precisely what keeps everything afloat imo. Everyone knows that the higher rates are transitory and the fed will go back to 2% in a year or so.
The fed is pretty much useless. There’s no way they can get out of this.
butters write, “Everyone knows that the higher rates are transitory and the fed will go back to 2% in a year or so.”
I wouldn’t say everyone knows, but everyone is hoping, hence the Pivot mantra.
With regards to the FFR going back to 2% (soon): Nope! This time is different: INFLATION! The FED knows inflation isn’t transitory (anymore), and their stand on rates haven’t changed: higher for longer. The FED is on track with QT, and will increase rates by 0.25% (or more) every meeting. Raising rates slowly deflates the bubble(s) slowly, i.e., without crashing the economy. I was with Depth Charge in the notion that the FED should just increase the FFR by a 1%, akin to ripping the band-aid off a wound … just get it over with, i.e., crash everything, everywhere, all at once. But Wolf has convinced me otherwise … the FED has a plan, and it’s following through with it. It’s Wall St. and “investors” that are (stupidly) fighting the FED.
Unemployment is low, wages are rising, people are still spending, but inflation is sticky … so, NO pivot from the FED. 😁
Unfortunately, with every increase in FFR rate, folks thinks it’ll be the last and it’s time for a pivot and QE … and to this, in the next meeting, J Pow will say … Hold my beer!
Are you still transcribing the audio clips by hand or have you joined the AI Revolution yet, Wolf? YEAAAAA! ROBOTS ARE GONNA RUN EVERYTHING!
I was able to use the Housing Bust 2 trends to help negotiate my annual rent increase down. If there’s going to be pain, let’s rip the band-aid off and get it over with.
No AI here. My contact with AI has taught me to loathe the results of AI.
Could an AI do worse than the Fed? Why not try it and see?
One problem with Artificial Intelligence is that it lacks Artificial Common Sense…
Well, AI neural nets are primarily trained by scraping Internet web sites. Remember GIGO? Garbage in, garbage out!
Plus the owners of the “AI” will put their own “guidance” / guard rails on it. Beware.
I disagree that the run up of prices was exclusively caused by ‘free money’ the past three years. Low interest rates certainly helped, but those existed long before the pandemic. In many markets in the mountain west where I live, Covid lockdowns and work from home led to a flood of cash buyers starting in summer 2020 and not subsiding until mid to late 2022. Park City, Bozeman, Whitefish, Boise, Pinedale, Ennis, and on and on…from larger resort towns to small cowboy towns. If we had seen the exact same interest rates, and free $1250 checks, and even forgiven PPP loans for some reason without Covid ever having happened…this rush to the mountain towns and resultant 70-120% price increase in those markets would not have happened.
I for one want to see those prices drop significantly. In some markets that has started happened, but in others, prices are head scratchingly sticky still.
Many of those buyers are now wanting to be sellers. We are seeing this in Park City, my realtor friends are all telling me that people who bought 2-3 years ago are now contacting them to sell. They moved here from big cities in CA (mostly), Chicago, Dallas, states like Florida, and New York with the wave of “remote workers” from everywhere else. Problem is, they are discovering there’s no services to supply their endless needs from sub contractors, to summer camps for their kids. Sub contractors don’t call back and the waiting lists for summer camps started 3 months ago. They sit in traffic to get to the resorts because Vail has oversold on so many levels, namely the cheap passes that every resort in the West has hitched their wagons to. So they are moving back to where they came from because the perfect life they envisioned in Park City (and every other mtn town in the West) just isn’t what they envisioned. Most will sell for less than they paid, since economics tells us with interest rates going up along with bond prices, all other asset prices must go DOWN. Many of them bought at super inflated prices too, and spent a grip on renovations since purchase.
I, for one, say good riddance to the remote worker herd into my mountain community. As a local who moved here 16 years ago for the mountain town lifestyle, from another mountain town, what has happened in my mountain community is best portrayed by the South Park episode that depicts life in Bozeman with the surge in Tesla owners paying a million dollars for a shack, and the city council rearranging life to accommodate the “City People.” LOL. If you haven’t seen that episode, find it, and watch it. You’ll get a chuckle.
As someone who’s ancestors homesteaded in SW Montana in the late 1880’s I like the way they deal with the people moving to Bozeman on the hit TV series “Yellowstone”, especially the developers.
I’m in the Denver suburbs but also spend time in Summit County CO, have been a long time second home owner there.
Prices are already coming down here. It’s a combination of bubble deflation and new much stricter STR regs which are popping the bubble of all the AirBnB buyers who were relying on rental income to leverage their purchase. We don’t rent our place and would be happy to see fewer STR people in our neighborhood, but these regs are definitely moving prices lower.
Having said all that, work from home is a long term thing. Yes there are places that are very vocally calling people back to the office, but many many more are realizing that people work from home happier and better for all kinds of reasons. Our business employs about 70 people in total, we had zero remote workers 5 years ago, now 15 people, several out of state, just as productive and much happier. Mountain towns are desirable places and will be more so as the climate warms. Prices will come down for sure, but the longer term is very positive for these locations and it will never be as it was 30 years ago again.
It depends. Some people who have a lot of self motivation and do well WFH, many others don’t. I had to deal with several companies and government during the pandemic and most of them were less productive. There were only 2 that were more productive. The others took twice or even 5 times longer to get anything at all done. IT is probably better- the ones that couldn’t function well didn’t seem to have any way to connect to information easily. One of them in particular was downright pathetic, could barely if at get anything done, and ironically they are the only ones still WFH.
I left Bozeman summer of 2021 because of the insanity. I moved there because I LIKE living in a desolate wasteland.
The Blackfeet called Gallatin Valley “The valley of thorns” for a reason. I’ve been patiently waiting for these people to realize there’s not much but wilderness and freedom of spirit.
Looking at prices in northern mt its slowly changing. One more winter should do it.
The one comment in Wolf’s article that I think is suspect relates to raises of employees. My experience related to a CA tech company is that raises have been modest both last year and the current year. And stock comp has dropped. So, I would like to see better data on employee income in local markets. I also expect CA tax collections from employed workers to decline but I haven’t seen the data yet. My conclusion: Employees have lagged behind the inflation rate, (a range of 5-10% over the last two years) in total comp. I exclude execs because they always do better than average. So the ability of workers to buy houses with a 30 year fixed rate mortgage has plummeted. Confirmed by the data that Wolf has provided.
My experience says the same, raises aren’t close to keeping up with inflation. But I realize times are tough and I have a good gig that is WFH and plenty of time off. Mike Greene was on block works saying the Google and meta people that get laid off will have a very hard time finding a salary close to what they had in this job market and I agree. I also think there are a lot more layoffs coming in tech, the revenues just aren’t there.
Your comments on bust #1 made me think of a question. In bust #1, US prices tanked and I recall a lot of lenders taking ownership of forclosed homes. Folks walking away from upside down situations.
However, at that time, I seem to recall that the Canadian RE markets had a small price adjustment plateau, but did not have the same level of “price adjustment”. Rather I got the impression that they just kept on increasing for the most part.
I am wondering if you think there is a double dip price problem north of the border, and whether Canadian lenders are going to have multiples of the US bust# problems.
Sorry if this Q is a bit off topic.
Thought I saw an article about Canadian lenders extending mortgage length to cover increased interest rate.
This is indeed what is going on up here in Canadaland. Basically your monthly payment stays the same and a larger proportion of it goes into interest, less into equity. My parents, some friends along with some coworkers are in that situation.
As for price stagnation in ’08, primary cities like TO and Van saw stagnation, construction slowed way down, pop kept growing and prices just kinda stayed put for years. In some secondary markets prices collapsed by like 50%, in middle Canada prices dropped small amounts over a very long period, this was to do with oil price collapse. Since then primary city RE went to the moon and seems to be heading into the gutter now. Precon projects seem to be on offer for slightly more than even a year ago though, however the brochures read like investor prospectus, various uncentives and “guaranteed” rental income etc.. so they’re listing them high but I don’t think they’re getting the offers because last year this kind of info was not flooding my inbox. I see media pushing the “Chinese investors are coming back” stories, despite the fact that majority of investors are actually domestic. At current asking prices and interest even techies won’t be able to qualify, they barely could at low rates, so unless property investors are going to hold a large proportion of RE from now on then prices need to come down quite a bit still.
So, anecdotally, I think RE in primary cities in Canada is heading into the shitter
Yea and that is why the BOC is keeping interest rates on “Hold.”
If real estate goes in Canada and the carbon tax, anti oil lobby keeps in control, What else is holding up the eCONomy?
“TO” and “Van”? Do you mean “YYZ” and “YVR”?
Interesting about the level payment with the ratio of interest to equity being adjusted in a rising rate environment. Somehow feels like the mortgagee is desensitized by this “even payment” while his equity seems to be diminishing. Sort of like boiling frogs starting with cool water.
Is it possible that this “level payment” can go upside down with none of the payment going to equity..? Would that become a negative mortgage in that instance? Is there then the potential for a head on collision between losing equity and falling RE value?
I could see at some point where lenders see an upside down situation coming at them. Wonder if the mortgage has provisions for them to call a default due to equity shortage while the homeowner has maintained his payments up to date?
Have seen this, equity loss, happen to folks who signed up for the ”interest only” type of mortgages in the last couple boom/bust cycles Credit; most folks I knew who did that ended up walking away.
And BTW, someone above commented that the era 1945-’70 ish had relatively stable RE prices, and perhaps that was true some locations.
Dad, in the construction industry in FL, had NO work at all come into his office for six months in 1956, and we ended up selling the farm and one of the two houses to be able to remain in the other house, but even that one had to be sold eventually, and parents rented housing the remainder of their lives.
Private Profits and Socialized Losses for the Rich have distorted economic reality in USA ever since the FED was started to ensure those socialized losses and prevent the rich from getting wiped out as had been the case for eva previously…
CreditGB, you nailed it. That’s exactly what’s happening. 25% are paying interest-only or even eating into their equity (not including reduction in property values of 10-25%).
Canadian banks reported large loan loss provisions on their balance sheets last quarter. The ONLY way out of this mess is if rates go down. They are getting ready for the possibility that they won’t.
We’re stuck here between a rock and a hard place. Our GDP was flat last quarter, the next step is negative GDP and job losses. So we are feeling these interest rates hard. However, if the US which has the more resilient economy at the moment keeps increasing, our currency will go down the toilet, which will bring back inflation. Stagflation is a very real possibility North of the border.
RE buyers in GTA and GVA are living in Lalaland. The realtors have convinced them that this is the bottom and if they don’t act now, the immigrants will come and buy up everything. Classic dead cat bounce. These people are at least getting better prices than buyers last year, but are under the illusion that rock bottom rates are around the corner. Globalization makes it such that we need to be in sync with the rest of the world. As long as inflation keeps roaring in the US, Europe and Asia, our rates will remain relatively high.
I got an idea – when Zestimate is that good and everybody is happ with the Zestimate of their home, let them pay property taxes by the Zestimate:)
This “analysis” is very misleading without some context. You are using absolute numbers to make the case that there is a substantial amount of inventory, but that just doesn’t hold up under even the slightest bit of scrutiny.
“In the fourth quarter last year, there were nearly 15 million vacant housing units – so single-family houses, condos, and rental apartments. That’s over 10% of the total housing stock.”
[deleted by evil censor Wolf]
You can see the detailed discussion of the vacant units including the held-off-market units, and what causes them be held off market, based on Census Bureau data, right here. It’s a long article and a little geeky, but try it:
C’mon Wolf, you can’t expect people to actually READ an article, that’s so last century!
That was a very good article. Describes one of the biggest omissions when calculating the directions of home prices. Highly encourage people to read it.
Lots of cities with population in the 80k-200k range in Midwest have fewer then 100 active homes for sale. Inventory seems to be dropping going into spring market. I don’t know how this can equal lower prices?
If rents stay high, I don’t see investors selling in droves either. For this bubble to burst we need sellers!!!!
I posted above that it may not worth it to sell in the Midwest. It is not much of a bubble. It was not in 2008 either. My area saw a 10% to 15% drop. in prices in HB1. In 2008, it was not worth the hassle of selling a $180k home to protect against a $18k – 20k loss in equity.
The West coast and Colorado may be places where it does make sense to sell and find a lower cost place to live and capture home equity gains.
Well, things are still hot here in Naples, FL. 4,500 – 5,000 sqft, 4-6 bedrooms, pool, etc – $6M – $12M, depending on location within Naples. These are nice homes, but nothing the Great Gatsby would like in.
On a side note, as the FED’s and others blance of MBS wind down, will there be a time where those that need long term placement of money lower the interst rate to be able to place the money?
After all, if “to few” apply for mortgages, at some point those that want long term money placement have to lower their price to get the wanted volume.
The question for investors is always this: where can I get the best return, at x risk? MBS compete with that. If you can get better returns at similar risks somewhere else, that’s where you go. The foundation of all this are 10-year Treasuries, which have essentially zero credit risk. And you go from there. So yields of government-guaranteed MBS are always higher than 10-year Treasury yields.
Money printing created a lot of cash that needed to go somewhere, and investors chased all kinds of assets, which pushed down yields and pushed up prices, but the 10-year yield was always lower than the yield of MBS.
Now there’s QT, the opposite of money printing. QT destroys cash – the Fed’s QT already destroyed $628 billion in eight months. And as less cash is chasing securities, demand for securities is declining, and investors demand to be compensated better in order to buy. That’s why yields are higher.
The 6.75 30 yr is not “historically” punishing.
It is the fact that the rate is applied to the SPIKED prices.
I bought my first home with 11% mortgage rates….but homes were reasonable.
How about “Housing Bust Finalis Actum”. Latin for Housing Bust final act.
As the title of TGDFA suggests, we’re nowhere near the final act.
I can tell you that nothing is happening in some places of the bay area. I live in Los Gatos and I see homes below the $2m mark
1) Sold before the first open house
2) Receiving multiple offers
3) Being sold over asking price with multiple bids
I am talking about, again, homes under $2m mark, which are mostly townhomes and the like in good school districts.
I am not sure how those median prices work, but the market here is back to COVID times. Which sounds crazy but it is a fact.
Good lordy. This not-in-my-town stuff just never stops. For those who don’t know: Los Gatos is a small town by San Jose, and both are in Santa Clara County, which forms part of Silicon Valley.
In Santa Clara county, median price of single-family houses:
From peak: -22%,
Sales volume, yoy: -40%

Los Gatos may be an outlier, within reason. Just saying some zones may experience less of a dive than others. Just to say, Los Gatos is not simply ‘a small town next to San Jose’. It’s Los Gatos!
Los Gatos will always be an outlier and won’t soften – too much tech “old money”,meaning more than ten years old and now in a diversified portfolio, and it is a pretty nice place for Silicon Valley execs to live.
Likewise I am not seeing any softening and little inventory in places where I am looking for “pre-retirement”. It’s not that Wolf is wrong, it’s just I’m not seeing what the mass data is saying in specific areas I’m looking for my next house, which are resort areas with no concerns of schools and with mostly all cash buyers. Maybe folks with second homes will start unloading, but it isn’t happening yet.
In terms of resort areas, home prices in the Lake Tahoe area have plunged from the peak in March/April through January. We went skiing up there at the end of January, beautiful, snow out the wazoo, lots of skiers, the Lake was gorgeous in the winter, home prices way down from last spring’s peak and YOY. Lots of second homes up there.
A house in Saratoga next to Los Gatos closed last month at $500,000 over asking price of $3M. An unremarkable house on a nice lot in a good area with good schools in the best region of the Golden State. It’s on Ravenwood Dr., look it up. Yes it’s an outlier but don’t miss the investment lesson(s) this outlier can teach you. It’s the difference between doing really well and not well at all in real estate.
I grew up in an unincorporated area down below and across the tracks from Los Altos Hills. Los Gatos seemed like such a lovely place in the 60s. At our address in Mountain View, my father took about 40 years to pay off his VA loan for a $12,500 three bedroom house on about a third of an acre. The lot was actually cut out of a fruit orchard, so we had cherry, apricot, and plum trees. Absolutely wonderful physical location to grow up — open spaces and natural beauty. An hour or so drive over the mountain to the beaches.
However, at no time in my life was I tempted (and/or able) to plunk down the huge amount required to live in an enjoyable area somewhere in Santa Clara county. In general, too much smog and too crowded. Koyaanisqatsi (life out of balance).
There are always submarkets in a given larger area that do better or worse because of local desirability. It’s kind of a corollary of nothing goes to heck in a straight line, not all submarkets go to heck at the same speed. When I lived in SF, the “special” submarket was Noe Valley, it just didn’t fall as much during bad times because so many local people are trying to move there to get out of the worst of the fog.
Whoa hey I’m in Los Gatos too. Homes under a million here are not a thing. If you want to get an idea of what’s in store look at what you got for 2.5-3 million right now vs 1 year ago. BIG difference. I watched a home (one street over from us) go from 3.7 all the way to being sold for 2.7 in around 8 months. That’s a million dollar hit. It’s coming for Los Gatos too, it just take time.
Inflation is not going to come back to 2% until stuff like this real world example stops: friend calls me and says “hey Ben, did you get the ERTC? Me: “Huh?” Friend: “Yea! Free! Money! The government is handing it out for retaining employees during pandemic.” Me: “Um, I already got $40K free money from PPP.” Friend: “Great, now get ERTC, its different….even MORE free money!” So I contact my payroll company that has a program in which they do all the calculations and submit all the forms to the government for ERTC. Now I get another $10K in free (printed) money from the government. This is insanity. Whatever happened to saving money for a rainy day? Do we really want a government that thinks they need to babysit and coddle us when there are difficult times? Soup kitchens and homeless shelters I can understand, but free money to everyone? Makes zero sense.
ERTC expired in 2021. That’s the last year you can claim it for. You cannot claim it for 2022.
Not tax advice. But you can check here:
Paychex is my payroll company and they are filing for 2021. The dole is ongoing.
I think you can amend your old returns for the time period covered and receive the credit. Per the link, “The Employee Retention Credit (ERC) is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to Dec. 31, 2021. Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates.” The last sentence is the key.
Sorry hit enter. The “adjusted employment tax return” combined with a refundable credit can allow a refund in the current year if the criteria was met for the covered period and the credit has not been claimed before. I have not looked up the details but the possibility definitively exist under the scope of government speak.
Sure. You can always amend old returns. But the last year you can claim it for is 2021. You cannot claim it for 2022.
I’ve been hearing ads for that program nonstop on Bloomberg 960 AM radio for the last couple months.
The IRS specifically warns about scams from “third-party ERC schemes” at the bottom of the linked article:
“Beware of Third-Party ERC Schemes — Employers should be wary of third parties advising them to claim the ERC when they may not qualify. For details: COVID Tax Tip 2022-170.”
Also apologies: I put in the wrong link initially. Now it’s the correct link.
“Me: “Um, I already got $40K free money from PPP.””
How cute. The government gave you a new car for free.
Yes, and thank you Depth Charge, and everyone else for the printed (stolen) money from all of us to me, courtesy of the best politicians money can buy.
We got several hundred K in PPP, it was used to pay employees who had no work for about 3 months. In our business, the net effect was that we didn’t furlough or lay off anyone, and the income of the owners and the employees ended up being basically the same as if there had been no lock down. Not saying this was good or bad morally, but it was legal and this was the result. We absolutely would have furloughed people for several months otherwise, probably not laid off people though.
Your company was the classic example of what the PPP program was intended for. The problem was the idiots in Congress didn’t require that businesses lose revenue or income, so a lot of companies that not only weren’t negatively affected, but were positively affected (for example, kitchen remodelers), got huge windfalls.
Those windfalls are driving a lot of the inflation today, IMO.
And I certain there was a ton of PPP fraud.
I love these charts. If you look at them from an integral calculus perspective you sum under the curve. The run up to bust #2 is a monster compared to bust #1.
An interesting perspective, but what about the number of houses sold at each time point? To do a true comparison based on the area under the curve, there would be need to be constant sales per unit time within each housing bust time period, and that constant sales number would need to be identical between the two housing bust time periods. If not, the calculus gets way more complicated.
True. If you set a boundary condition as housing stock being constant and amorphous then you get a good snapshot. Yes the devil is in the details but I like the charts because they tell the story, to an approximation, in the blink of an eye.
Number of sales for the US. Check Housing Bust #1 v. Housing Bust #2:

That’s an interesting chart and adding home mortgage interest rates would be even more interesting.
Good grief. And assuming there is a larger stock of existing homes in bust #2 vs bust #1, does it not make the ~4 million existing home sales of bust#2 an even smaller part of the ~4 million in bust#1? Or is that what the “seasonal adjustments” attempt to even out.
So now we need to do a double integral to measure the volumes encompassed by the two curves when placed on orthogonal axes? Then again, since the curves don’t look very smooth, you would probably want to estimate using Riemann sums. And you would also want to look at new home sales in addition to existing home sales.
But eyeballing the 2 graphs, it would seem that Moi’s instincts are correct and that the run up to HB2 is not that different from HB1.
Look out below!
Lots of RE pimps in this thread trying to argue feelz vs stats. Good luck with that.
Just heard a radio commercial where they advertised loans with no income or tax form verification. That message was tacked onto the end so I think they took their normal ad and modified it but I need to hear it again to identify the lender and find out if their just in my state or national.
Right now there are homeowners and renters. Homeowners have boats, and campers…
Renters just get to pay more rent.
Enough, bring on the reset.
And you realize those can be financed too right?
There is what people flash and what they got. Those numbers don’t always line up.
Update: That new house built on the lot by a big builder in Seattle (where they actually tore down a nice house to build it) IS JUST SITTING THERE VACANT WITH THE LIGHTS ON ALL NIGHT AND THEY’RE NOT EVEN PUTTING IT ON THE MARKET. So there is not a ton of inventory in Seattle. Seems like the builder is intentionally keeping it off the market to keep inventory even lower.
My mistake, this one actually sold for 3 million but is still sitting there vacant with all the lights on all night. Something fishy is going on. I think the builder bought it under a different name to keep prices artificially high. I don’t think this one is money laundering from China.
Is the builder from China?
Nah. They are decent quality homes. Just I’ve heard people are getting money out of China, etc and buying these things as an investment. But the price is gonna drop in half so it would be a bad way to launder right now. More likely it was some other type of fake sale to make it look like people still wanna spend that much. Just interesting coz it’s right near me. I don’t actually follow this stuff that closely.
Oh. OK.
Have the squatters moved in yet? What’s the address?
How about Glendale Burbank in north Los Angeles ? Nothing has dropped over 5%. So your point of comparing 2 years of Housing Bubble #1 with few month of the #2 can be telling us that we have to wait more? Is housing continue dropping micro amount?
Markets go in cycles, and have their own reflexivity (Soros term, hate soros but good term). They go up a little then more then faster then bubble up ….and die. They do the same on the way down, even faster. I always found real estate quite (not perfect) easy to time based on bank lending (easy/hard) and people psychology. I spent some time in Cali last year from various places and all I saw was happy people, feeling rich from their magic equity, buying second homes, air bnbs, flying business and always talking real estate prices. That was the top. The cycle is now down. It’s a long cycle, investors are gone, it will end when people are disgusted and depressed and banks don’t lend. Then and only then will be the time to go shopping. In 3-5 years. Before that will be painful, lots of the magic equity will disappear, or never existed to begin with. The giant sucking sound of $ vanishing will certainly lead to a nasty recession. It’s a given. Leveraged losses are the worst. Time to rent.
I’m a long time SF Bay Area resident and own a house pretty much free and clear. Could have participated in leveraged purchases of second homes or airbnb’s during the pandemic boom, but have seen several real estate cycles here and don’t like excessive leverage, and we are busy traveling a lot in retirement, so we didn’t do that. Still happy as ever to be here, things are great when you’re debt free and live within a short distance from an ocean, snow covered mountains, wine country, and a bunch of vibrant cities. If you don’t drink the kool aid and hop on the bubble train, you don’t get the nasty hangover.
A small anecdote – a house on my cul de sac (in a north bay town) went up for sale recently as the elderly long term owner had to move to assisted care. They did some cosmetic work on fixing it up before putting it up for sale, but it was sort of a 1970s style interior that the prior owner hadn’t really upgraded, and not the most pristine house overall.
They put up a for sale sign on the lawn not long ago. It barely had a listing, no time for an open house, and had three offers from buyers’ realtors ready to pounce – and a sale pending within hours of listing, then closed within a week or two. Will be curious to see what it sold for once that info goes public, but it sure didn’t linger long. So it’s not all doom and gloom out there, even though the trend is down.
Yes, per article here: “If the price is right, anything will sell…. Some sellers put the home on the market priced right from the beginning, and they make a deal quickly.”
Its going to be tough to shake out those who have 3% mortgages.
Even if their property drops by 25%, they still have the equivalent of a 4% 30 yr mortgage…still under inflation.
I read some REITs are restricting withdrawls….(Blackrock?)…..how does this end?
I’m not bullish of real estate, but I sense people who own will cling to their largest hard asset in the face of inflation.
Volume seems light in the real estate industry, and volume is always a confirmation of price action.
“Its going to be tough to shake out those who have 3% mortgages. Even if their property drops by 25%, they still have the equivalent of a 4% 30 yr mortgage…still under inflation.”
This is irrelevant in terms of inventory. It only matters to Realtors because they get paid commissions on each sale.
Why does it not matter for inventory? Because:
When a homeowner sells the house they live in, they then have to move into something else, and end up buying something else. So: 1 house comes on the market and 1 house is taken off the market and the net effect on inventory is zero (+1-1=0).
The only events that increase inventory are these:
1. vacant homes that are now held off the market are put on the market (this can be hundreds of thousands of homes that show up suddenly).
2. Homeowner dies or moves to nursing home or moves to a rental or moves to another country to retire more cheaply, or moves in with kids/parents, etc. and the home is put on the market, and no home is taken off the market.
3. New homes are being built.
“When a homeowner sells the house they live in, they then have to move into something else, and end up buying something else.”
And if they have a 3% mortgage, they can’t take it with them.
So, IMO, if I may…….that is an incentive to stay put, which was my point.
I listed the three ways in which inventory INCTREASES. So read them carefully.
Just wanna point out decreases are births and migration. We’re fine, older folks love the young and the Mexicans/Californians.
I think the implication is that those with <3% mortgages will only sell if they're struggling financially and about to be underwater – therefore, selling to move into a rental, back home with parents etc.
Unemployment & loan delinquencies are still very low – I agree we're not there yet, but home prices are dropping like a rock and imo its a plausible future scenario.
Is there any significance to the percentage who sell, and then rent? I know several people who have done that before or near the peak.
Several, I know, does not make a cohort, but if it is going on nationally at an increased rate, would this not actually affect inventory, at least near term.
I’d be curious to see these numbers too – it would either validate or refute this hypothesis.
Yes, I know a real estate pro who did that last year (comments here even), with perfect timing at the peak of the market. If rents come down at higher-end new-ish apartments or houses, that is a functional arbitrage. Some of those places are really nice. But I don’t know what percentage of people do that. It think it’s a small percentage for a variety of reasons.
That’s an interesting observation.
As an add-on observation, consider that the 3% mortgages won’t significantly impact net inventory levels, but they will operate to significantly reduce the number of RE transactions over the next few years.
In a normal market, a large portion of transactions relates to people moving to different locations, or moving up or down in home size. I’ll call these replacement sales. These transactions likely supported high market prices in the past, because people could sell and buy at the same overpriced level. They didn’t really care too much about buying into an overpriced market, as long as they were sellers too.
Now that those replacement buyers/sellers are largely eliminated from the transaction base, the first-time buyers and last-time sellers (i.e., aging retirees), plus investors, will take a greater role in the market.
This could lead to interesting price dynamics that magnify the impact of home affordability levels. Buyers and new investors can’t buy (mathematically), but sellers and existing investors won’t mind selling to lock in gains. This could greatly accelerate price declines.
I’ve already made comments about this in the data I’m seeing in Seattle suburbs. At these low (but increasing) inventory levels, it appears a larger share of houses being listed relate to houses that were off the market for 20 years or more. Many of these people are likely the older empty nest retirees making that final sale. It’s a great time to sell, and they are in a great position to capture the gain and accomplish lifestyle objectives at the same time. These people, plus investors, plus builders try to reduce bloated inventory, could be the parties driving prices lower this year, in a reduced transaction environment.
Agree 100% that the dynamic you’re describing will amplify price drops.
Just like in 2008: prices drop a bit, some become forced sellers, those sales push prices down, which brings out more forced sales & invnentory on the market… rinse & repeat.
Wolf has excellent points on how inventory must increase.
These are part of the 3 D’s: Death, Divorce, and Disaster.
Wolf covered Death.
Divorce, sadly, is a constant thing. Often, the house is often sold if there are no young kids. It could result in an increase in home sales if both have enough to purchase again, or if they both have to rent, it is a decrease.
Disaster is fairly generic. It could be massive job losses which aren’t happening yet. It could also mean natural disaster. A co-worker in Florida was flooded out during the last hurricane. They are selling (not at a loss since they purchased decades ago), and renting for awhile.
With the aging baby boomers, as Wolf pointed out, moving to a rental nursing home puts more homes on the market.
Someone else pointed out in a post that many VRBO’s were purchased during the pandemic with excess cash. They are not vacant but with declining VRBO rentals due to a glut, is the cap rate above a good 5% Treasury rate? This will take awhile to clear out.
How would you classify the sale of a second home? Is that an increase in inventory?
Yes, definitely. When a second home gets put on the market, it’s a vacant home that gets put on the market, and the owner lives in the first home and doesn’t have to buy another home. So it adds to inventory.
Vacant rentals should not be in the vacant homes category.
They’re NOT in the held-off market inventory of 6.6 million units that I was talking about.
Noted. Thank you.
The “Listing from Hell” sitting 1 1/2 block from my house has no one looking at it, and the Realtor has turned the lights on and left them on 24/7. I have to close my blinds to sleep at night. It looks like a prop for a horror movie like Psycho Part II. Can some Realtor explain to me what the f.ck is the purpose of leaving lights on a 4,000/sq foot house on 24/7? And who pays the electric bill? And where are all these climate change finatics, talking about the carbon footprint of this monster home. Where are they when we need them ??????
I have no idea what the realtor’s purpose is here, but I do want to note that compact LEDs, which are what most people use these days, use about 10-15% the power of traditional light bulbs. So lights being left on aren’t nearly the waste they used to be.
They’re trying to prevent squatting. Squatting is on the rise, along with vandalism. They may also leave the heat on at a low level to prevent rot. Lights produce some heat so leaving both on isn’t a double cost.
We had this thought when we sold my mom’s house.
We left the lights on to prevent squatters. We left the heat on to an acceptable level for showings. We left the landscape irrigation on to prevent dead plants. We had to legally have trash pickup. We had to legally pay the property taxes. Insurance went up because the house was vacant while it was being sold. Insurance companies don’t like vacant houses due to the tremendous damage potential of water leaks (plumbing or roof) or fire when nobody is there to notice..
We figured that we had about $500/month in expenses while the house remained for sale.
There was huge motivation to sell ASAP.
Insurance doesn’t go up because the house is vacant unless you remove all the furnishings. If the furnishings remain, it’s considered habitable, so it’s “occupied”. We checked with the insurance agent and that’s what we were told.
The house where I presently am staying is vacant about 1/3 of the time… but the inside water if off (so no risk of flood), the water heater is off (huge electricity savings), HVAC is set appropriately for the season with automatic switch for temperature extremes (web accessible), irrigation is on (web accessible to control water usage). Lots of timers (web accessible) on both lamps and pot lights.
A few hundred bucks up front and the payback is swift.
Maybe we did things in the wrong order.
We had a huge estate sale for my Mom’s stuff and sold all of her furniture first. Then we worked on fixing the house for sale.
The insurance company considered it vacant while it was being sold.
‘Average Toronto home prices continue to fall on a year-over-year basis, dropping a record-breaking 17.9 per cent between February of 2022 and February of 2023, per newly-released market data.
Homes that were going for an average of $1,334,062 across the GTA last year at this time are now selling for an average price of $1,095,617, marking the steepest price decline ever recorded (or at least since realtors started keeping track of this metric in 1988.)’
Canada has a quirky system
The standard mortgage in Canada isn’t the 30-year fixed, as it is in the U.S., but a five-year mortgage amortized over 25 years. That means the loan balance has to be refinanced at the end of five years, exposing the borrower to any increase in rates that has occurred in the interim. Thus there is a real problem developing up there, as opposed to those locked into a 3% for 30 yrs down here…who will tend to be rigid .
If annual wage inflation continues to exceed 7%, there might be an end to falling home prices. At one time San Francisco rose to the top of the list of the most overpriced U.S. cities. A new single family home in another area might be purchased for $350,000.
Seeing SEATTLE here alot and maybe with good reason.
There’s an installment at Zerohedge from Saturday March 4th titled “First Time Homebuyers….” with an interesting graphic that denotes how supply at the mid and high ranges is increasing all over but supply of lower end housing is decreasing. With one exception. Seattle.
Wolf hates Zerohedge and my reference to it might get me relegated but I’d be interested in understanding why RE across the economic board in Seattle is trying to get out before the music stops. Is there something in the water??
Not trolling you Coach Jim. Does your evidence differ??
I think ZH has a lot of garbage articles, but one thing I do like is that they don’t generally moderate the comments, and they allow unpopular things to be posted that go against the modern zeitgeist that most sites, like ABC and the Washington Post, censor.
When prices spike like they did through March 2022, they also spike at the old low end, and the same houses at the old low end become the old mid-range, and there is no inventory at the low end anymore and no sales because the old low end is gone due to spiking prices. That’s the result of spiking home prices.
“Wolf hates Zerohedge”
No I don’t. they run a very successful publication. But they publish everything from the worst toxic BS to mid-level garbage to the best financial stuff. But people don’t drag the best financial stuff into here generally, they drag the other stuff into here because it’s a lot more exciting, and I don’t allow that.
What goes on at ZH, stays at ZH.
Agree. Both have their benefits. I like Wolf much better than Tyler. No BS.
ZH is the new National Enquirer. Catchy headline but not many facts.
I don’t know where the commenters come from, but they are often scary. Probably ex-buyers of the National Enquirer.
A greatly appreciate the civil discourse on Wolf Street.
ZH has devolved into a slime pit of right-wing hatred. I gave up on them years ago. No contrary fact or comment can be made without being attacked with religious, political and racial epithets. Wolf, you might be ascerbic at times, but the overall mood and behavior here is well above the norm. Thanks to you and the other commenters for that.
Wolf, I GREATLY RESPECT and appreciate your insights and was by no means trying to bring in BS data links on my previous post.
I appreciate the education that ‘average’ price is wrong and a misleading indicator. And that the ‘median’ price is a truer metric.
I’m like you, trying to understand the world around me, decipher the BS click bait, the doom/gloom media headlines, and at the end of the day find the TRUTH.
Which, you seem to respect and promote. (Tip of the hat to you).
My one issue I do have, since we’re focused on truth, and SOLID DATA that we can hang our hats on……
The Case Schiller home index you shared showing a 15% reduction from May 2022.
I’m sorry, but that one spews hyperbolism to me.
We all know that the real estate market was uncharacteristically INSANE. With homes selling within hrs vs. days, buyers having to waive everything, offers having to be $50,000 over list, etc. etc. (in the Seattle/Puget Sound market).
So where is the true baseline to measure todays housing prices to understand if the sky is falling? Is now a good time to buy or not? (I know rates are insane, aside from this).
Viewing the listing inventory, days on market, price per sq ft, does this not help us understand the ‘supply’ side?
It’s apparent that TODAYS market is equally skewed as last year, but now it’s skewed on the ‘demand’ side. With interest rates at 7% ish and I believe will continue to climb through 2023 it’s kicking/keeping 10’s of 1000’s of would be homebuyers into the rental market.
What would happen to the housing market if rates went to 5% tomorrow?
All of this being said, and I think we can agree, as of right now, the sky isn’t falling, but the market is in search of it’s ‘normalcy’ aka equilibrium, which with all of the curve balls (helicopter money, Fed buying MBS’s, Fed keeping rates artificially low, Fed aggressively raising rates, housing shortage, builders controlling inventory, government housing policy (aka Dodd/Frank), etc., etc) and that journey is a wayssssss off.
I appreciate all of the education that I can get, I want to grow, understand, and help share the truth.
Wolf, I’m adding to my bucket list to have a beer with you someday!
Coach Jim
Speaking of Seattle:
Seattle was a s#ithole in 1973 when I lived there for 5 horrific months before the Tech revolution. Boeing was the only game in town and they had just laid off nearly their entire workforce.
I stayed with a friend of mine from the Navy on the first day there. There was a drive-in movie screen two blocks from his home which you could see from his driveway. It was showing hard core porno movies. It was downhill from then on.
Seattle and porn.
1981. Porn on the big screen Fairborn Ohio.
Next to air force base. Good clean
living Midwesterners. Didn’t bother me.
I’m sure it bothered some people.
I live in Washington state far from Seattle.
Many people here love to criticize Seattle even though we have a significant homeless population ourselves.
I do have one word of caution for those waiting on the sidelines for a much bigger correction to buy a home. Nobody will send you a memo when the bottom is in…
I’m sure many of the home sellers today are kicking themselves for not selling near the top one year ago. The same will happen at the bottom. Many will wait too long for a lower price and miss the boat, and then be caught chasing on the way up.
So while this correct is likely in the early stages, don’t pass up the opportunity to buy the right house at your right price.
Or the bottom could flatline for years or decades. How anyone has faith in this country or dollar coming back from this is just on hopium. No viable way. Hyperinflation, default or both.
It’s not like so much a preference to wait for a better deal as it is a wait for a home to become remotely affordable. A wait to be *able* to buy. Waiting for a better deal will come later. Most of the low end stuff right now requires so much repair work that it makes it much worse in affordability. So, even those are not affordable. I think the people buying them are naive as to costs and will have regrets.
Yes of course, it needs to become affordable in the first place. Which for many is a long way away.
My point is mostly that one can’t always put one’s life on hold forever. There’s never the perfect time to get married, and there’s never the right time to have kids. They always arrive at an inconvenient time. Same with waiting for the right time to buy a house. Something is always wrong—there is never the best time, nor the perfect price, etc…
That’s most of your buyers now.. Most of the investors have left the house..
I agree it is tough to pick off the bottom. That being said, I think we are a long ways from the bottom. In the Seattle area rents for houses are cheaper than paying a mortgage for a similar house. That means prices have room to fall.
Someone else mentioned rents need to come up. They would if the market could bear it.
Nobody has a crystal ball.
However, if someone has the opportunity, earnings, and savings to buy their forever home today and hold for at least 12-15 years, they will do OK.
I beg to differ.
I think investing your capital and breaking even in 15 years is a disaster for those seeking to build wealth. Most people should be doubling their net worth in 15 years to keep up with average investment returns. Those who buy overpriced housing in the West and South are doing the opposite. They are putting on the financial shackles.
In the Midwest and Northeast, it won’t be as bad, but buying now will still will put your wealth building plan in reverse for a while.
Please define “breaking even”. Is that net of rent? Or are you only considering purchase price vs. market value at some future point, forgetting you still have to live somewhere?
Rent is lost money. Mortgage payments reduce principal. Savvy people know how to amortize a 30 year mortgage to a 15 with minimal financial impact. So… rent plus increased equity (even if it’s a reduction in the *loss*) can play out. Then there’s the SALT deductions…. and potential long term gains.
Think of it this way…. you pay $2,500 a month to rent. That’s $30K a year. X’s 12 years. $360K gone forever. Same $2,500 to pay down your mortgage (yes, taxes, insurance, etc., eat a part of that, but you do have renter’s insurance unless you’re a dope), the SALT income tax benefit….. Lots of moving math parts, but it’s not as lineal as some want people you to believe.
Our present house is “free”. We have recouped every stinkin’ nickel we ever spent on a house and ended up with a *free* house. We took the proceeds from the last sale, downsized a whole 200 square feet, followed our formula of “crappiest house in the best neighborhood”, and have *made* $300K on this dump, even in this market (yes, it’s based on fact as the house next to us, smaller and without the view sold for $300K more than we paid – net upgrades, we’re still $225K to the good).
Those that keep discouraging people from making property purchases are doing those folks an injustice. It’s a long term game, not a speculative one. If it takes a few years to turn yourself upright, so what? You still have to live somewhere….
Besides, home ownership can be fun…. just like classic cars. Neither is a rational investment. But there’s pleasure to be derived and, if you pick the right car, you can turn a profit… just as easily as you can lose your heinie by picking the wrong vehicle. If you pay $15K for a bicycle and choose to sell it a few months later, how much did that cost you? Half? Two-thirds? How about that Rolex you bought a year ago? How much of a haircut did you take there? Or that marriage that ended up in divorce…. what did you lose? Half? Stuff happens.
Live your life. You don’t know what’s going to happen in the future. Best laid plans turn to dust. I’m sitting in a house that belongs to a woman that has a $5M net worth… and she can’t remember where she lives: not the address, doesn’t recognize a picture….. What does the $5M matter to her at this stage of the game?
Not everything is a purely financial decision. Make sure you enjoy yourself prior to your “Use by” date…
El Katz,
You obviously don’t appreciate the trend in play here. Study the key statistics. We are sitting at the absolute worst time to buy a home. The past is irrelevant. What you did the past 30 years was irrelevant, part of a bygone era of ever-lowering interest rates.
You can say we don’t know what will happen, but the statistics, trend, and expectations have never been clearer to a thinking person. The key statistic being, of course, home affordability.
Also, from a financial standpoint, it doesn’t make sense to bring emotions into it. Waiting a couple years to buy a home does not lock you out of the housing market forever. That’s FOMO thinking. We’re talking about letting the bubble pop a safe distance from your bank account, which will be better for a person’s family, marriage, and education funding in the long run.
Being flexible on the timing of your biggest purchase in life makes sense.
El Katz has an excellent point.
A Primary Home isn’t an investment. It is a place to live long-term. We all need a place to live. Our choices are renting or buying (or, I suppose a used tent on a street corner). If you pay a mortgage for 15 years, even if you sell the house for what you purchased it for, you have a significant amount of principal that you will receive back. With renting, you get nothing back.
With a fixed rate mortgage, your payments are fixed for 15 or 30 years (neglecting smaller increases in insurance or taxes).
This is great insurance for your future. Historically, rent increases have far exceeded any property taxes or insurance increases over 15 to 30 years. They have to for a landlord to be considered a business person.
Eventually the mortgage is paid for. You can comfortably retire on just the insurance and property tax expenses. I calculated these above to be about $500/month above minimum. This is livable on SS. $2500/month in rent is likely not livable for someone on fixed income.
I don’t even consider a primary home as an investment. I consider it a generous inheritance we will leave to our kids with the generous stepped up basis. My mom was very generous. She left my brothers and I a house with over 700K in tax-free gains. She had purchased it in the 1970s. With the stepped up basis, we paid no tax. Actually with RE fees and closing costs, we declared a loss on our taxes. Thank you Mom and Uncle Sam!
My crystal ball is broken.
I thought, and many on this blog, thought house prices would crash in early 2020 with the pandemic. We were so wrong…..
We should have bought our Forever Home in 2019. Despite everyone telling us it was a bubble.
You and I think they will crash 30% now due to the crazy pandemic bubble and rising interest rates. Are we right this time?
When is the bottom? Should I wait to buy my forever home at a low? How low is low? 10%, 30%, 50%? It is all opinion based on facts with the Fed able to change the outcome immediately.
Should I buy my forever home now or wait another 5 years for what I think is the bottom?
If this was 2007, during similar times, I would have missed out on having 16 years of mortgage principal paid and lost 16 years of rent.
Or, if I buy a house now with a 7% mortgage, will houses crash again and I can refi at 5%? Can I happily enjoy my house with my 5% mortgage for 15-30 years and retire? History says this is likely as long as I don’t panic or be forced to sell.
Again, I am looking forward 15-30 years. I don’t care about 2 -5 years from now. 2-5 years from now it will only be a paper loss but in 10-15 years, I can almost guarantee that your mortgage will be less than current going rent.
Rent doesn’t have to be $2500.
BION, $825. Near medium sized semi expensive city.
Anybody here know what covenants are. No ? I didn’t either until 2 years ago.
Last year winners in bidding war are now a loser.
Buying now and sitting for decade or more would still make one a loser in next 2 year or so when you can buy at much lower price.
No one knows how things would turn but right now affordability is a big issue. Mortgage rates have gone up 100% or more in last 1 year or so, home prices need to reflect this new reality sooner or later.
I see home prices going up in near future when and if everyone starts making more money or rates fall down a lot with economy still good.
They’re only “losers” if their entire being is equated to money. If their wife is happy, their kids are happy, they’re a happy family, and life remains manageable, who are you to dictate that they’re “losers”?
Maybe you’re the “loser”. Ever consider that?
And, no… I’m not a real estate shill. Never owned more than one house at a time and always lived in them.
Wages have not kept up with inflation. When does this ‘near future’ begin? When and if?
@El Katz:
When I said losers , I meant investors or people buying their second third homes.
There is no price to peace and happiness.
I have friends who bought last year for 1.5 million dollar, they were happy last year but not any more as their purchase has already last 20% or so. 20% is $300K which is not a small change for them. This is their 4th home :-(. Their wives had to rejoin the work force because of these losses : in real estate and stocks as well. Their take in 2021 was: Wife don’t need to work s as she can make $150K/year just on stock trading
I don’t go down to commenting at personal level.
Be peace be with you.
login typo alert: jon?
Sorry Wolf, it was login typo Jon not Jo 🙁
Disagree. The RE roller coaster has been going up since 2010 with REAL interest rates declining until as one UK banker opined ‘they are the lowest in 5000 years’
Well, five thousand years? But the lowest in 100 years anyway. This regression to the mean is a longer term cycle than the usual 2 to 3 year thing. As for folks who think time of year has anything to do with this: ‘the spring buying season’ etc.
I track inflation using Gas Buddy, especially local stations (I live in the Bay Area). Gas prices have risen significantly in the last month, and especially fast in the last week. Gas prices drive inflation, even eventually filtering into core inflation. Powell still has a lot of work to do.
Wait. You use gas prices exclusively to track inflation?
Why not just roll dice?
saying real estate is overpriced because it’s unaffordable is laughable.
The land doesn’t care if you can afford it. There is someone somewhere who can.
Is gold overpriced? Is Tesla overpriced?
Real estate and gold are the only real things in this f*cked up paper world.
“The land doesn’t care if you can afford it. There is someone somewhere who can.”
But obviously not enough people, LOL:

I guess this potato I am looking at is not real, according to you.
It’s basic economics. When demand and supply both drop on the chart, the market price settles at a lower level, notwithstanding your pronouncements.
I use gas prices for daily info about inflation and trends using daily data. They are likely more accurate than government numbers. The economy runs on gas and diesel. I also look at weekly jobs numbers called JOLTS, core CPI monthly, and core PCE monthly. FYI, inflation is taking off again
Gas prices shot up 15 percent in the last month. The effects of this increase will filter into core CPI.
“Shadow” inventory is not only a problem in RE, but all asset classes at the moment. Same thing happening in used car sales.
Even in stocks. Various hedge funds and other financial institutions are carrying huge numbers of “shares sold but not yet purchased” on their balance sheets. I am far from an expert, but it seems to me that recent market volatility is many of them winding down these positions. If the market crashes before they are able to get them to a comfortable-level, all hell will break loose.
The other side of the coin that IMO is primed for a “black swan event” is the credit markets. If rates don’t go down, how many of these smaller lends will have to fold? That has the potential to have a cascading effect on a large sector of the financial market.
Good point. With all the global leverage and derivatives full of layers of unprecedented greed, with everything going on with wars and climate change and deglobalization, it seems prudent to consider worst case scenario now more than ever – severe protracted depression. Can I pull through… Everything looks primed for a black swan to crumble the entire global house of cards. Almost everywhere you go, the fear is palpable, already.
Fear and resentment are felt everywhere, from shoppers pondering in front of supermarket food shelves to RE agents and crypto conferences. Exuberant greed might keep this market for a while longer, but the stars are aligned for a major shake-up.
I got excited after reading that median price is dropping faster this time than ’08. Alas, I don’t see any noticeable drop in new build prices here in Austin, TX. New build prices are like 70-80% higher than prepandemic level here and that’s after 10 months of brutal beating stock market has taken. Do we have any hope left? How long do I need to wait? I’m afraid the interest rate hike will stop soon and builders will start raising their prices right after!
Housing is a slow moving ship.
You need to wait for a year or two at least for things to become clear.
The rate hikes would take its time to manifest in the economy.
Bob, Jon, and El Katz above all make valid points regarding the decision to buy a home. If we see this as purely financial, what we have here is a Buy versus Rent decision, which is quite common in business (for example in CAPEX versus OPEX of operating machinery). The best way to look at this decision is from a net present value perspective. Go to Calculator Soup for NOV. Enter $1.5 million for a typical home in SF, 15 years of rent cash flows at net $60k per year ($6k per month gross minus expenses), 7% interest, and 2x the price when sold in 15 years (as local wisdom has it prices double in SF every 10 to 15 years). Sounds amazing doesn’t it? Well the net present value of those 15 years is $63,000. Not exactly enticing, more like just threading water. And that is if you are lucky abd everything goes according to plan!
You are not considering the key factor.
If interest rates stay higher for longer, BOTH housing prices and rents decrease. That makes it a timing matter, not a buy v rent decision, particularly in the West in South. Your view might make some sense in some slow markets that haven’t risen much in the Midwest and Northeast, where median housing prices are $500k or less.
Prudent buyers will wait for higher interest rates to do their damage to asset prices, then buy. They can avoid losses in the hundreds of thousands. W
Let’s be honest. When mortgage more than double in a year, the fuse is lit and home prices are going to blow unless something changes (like a pivot). That’s really all you need to know.
Student loan payments are still paused.
Key difference between #1 (2008) and #2 (present).
Reality needs to get real again.
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The Fed’s QT is happening for the first time simultaneously with the refilling of the TGA. Both draw liquidity from markets.

Markets surprised by hike and hawkish tilt on fears about inflation expectations and surging labor costs without productivity gains.

And nearly 60% off the purchase price in 2005. Price discovery sets in. Deals are being made.

Walmart U.S. gave us some color: ecommerce sales +27%; grocery sales +12%; non-grocery brick-and-mortar sales -10%.

To shed some additional light on the jobs report.

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