Despite what you hear, aside from a few select areas of the country, I predict the price of existing homes will come down nicely going forward. They've peaked. I am 1000% sure. I'm no economist, and I don't have access to the types of weekly, monthly, quarterly, etc data that these folks have aside from the weekly big picture type stuff released by the various government agencies that track things... but I don't need to. I have eyes. The type of common sense that Peter Lynch and Buffett applied to stocks, applies to many aspects of our lives. I have always used, and it's reliable, a general rule of thumb that a 1% rise in the 30 year fixed reduces one's buying power by just about 10%. Amazing, but it's true. And I really think my 10% rule, has crept, or is creeping up, for at least 70% of American families. From higher utilities, maintenance and services, property taxes (especially property taxes), the true cost of home ownership needs to be adjusted upward. Banks are gonna figure that out, trust me. Keep an eye on the foreclosure rate. Here's common sense. We are around 8% on the 30 year, yet houses are still being priced like they are made out of gold. Don't believe me? Go on Zillow and look at prices of homes around where you live. Pretty sure you'll be shocked. I love Zillow's website, it puts a treasure-trove of data all in one place that used to take forever to find. A house doesn't even have to be on the market, you can still you just click on it from the aerial view and it tells you what its worth, sale history, tax history, pictures etc. Now this is where my post here will sound kind of demeaning, but these real-estate agents... they are ALL using Zillow when telling folks how to price their home. Someone that wants to sell goes to Zillow and it says their house is worth $500K, even though they bought it for $320K back in 2018. They call a realtor, who also uses Zillow now since it has apparently become the de-facto authority on home prices, the realtor see's Zillow's price, and up for sale it goes at $500K. So up until now, that has been working pretty well in decent markets, I'll give you that. It's easy to see what is selling where, asking price vs sale price, days on the market etc. There is no denying, some of that data has been quite impressive. But I am telling you guys what, this dynamic is not only tapering off, I think it's gonna hit a wall pretty soon. There are tons and tons and tons of homeowners that were smart and refi'd a few years back, from around 4.7% on a 30 year, down to like 2.7% on a 15 year fixed, shaving years off their obligation, while their payments remained relatively flat or only slightly up. More people however did similar moves but stayed with the 30 year just for the lower payments. The good ones are probably locked in a little under 3.8% +/-. These folks aren't budging. Think about it. What are the odds this type of slightly upper middle-class demographic (doctors, engineers, mid-level management, two income households etc) all across America, is gonna walk away from that type of rate to purchase a better home now? They can't. It's a lose lose. Sure their homes have went up huge in market-value, but even if they have to upgrade, more kids etc... any upgrade is an apples to apples comp on price appreciation. Sure their $350K home is now worth $500K, but the guy that owns the $500K dream house they looked at 8 years ago but decided was out of reach, tough luck, it's now $780K. And even if their salaries did go up enough to swing the dream house deal, ... that 8% interest rate on top of all the other things I mentioned above... destroyed all that like an atom bomb. "Sorry honey, we still can't afford that house. I guess we're just gonna have to buy bunk-bed for the kids' rooms." This type of macro shift doesn't happen all at once of course, but over the course of the next 18 months, I am predicting home prices are gonna drop handsomely as all the dust settles. Those mortgage underwriters, they aren't stupid and the sting of '08 has not be lost with passage of 15 years. Time to tighten the purse strings.The qualifications for new loans will be adjusted--- and people are gonna be shocked to see what they can actually afford to buy (in the eyes of the bank at least). A lateral move using their current income--- means moving into a crappier house. People don't do that, they stay put. And new houses coming on the market, sit there as demand wanes. Prices come down. What's the long term stock plays here? Hmmm. Not sure yet. Lots of ideas. I'll think of something. But one thing I know for sure, you folks that are looking to buy a home right now... pfff, bad move imo ----unless you have lots of money and don't care. And of course that's everyone here at ET. So nevermind. ~vz
Been buying/selling homes & condos the past 11 years in FL. 12 transactions with #13 closing this week. 1-Redfin is more accurate than Zillow with their estimates IMO. Zillow usually shows a higher valuation than Redfin. 2-The condo that I'm selling this week had multiple all-cash offers but NO offers from anyone that wants to live there. Only investor offers so the price I accepted is a bit less than expected. Investors don't care if a home gets away. They care about PRICE and won't chase their investment unlike someone that's after their "dream home". 3-I don't see a large drop in home prices though. Wealthy investors are seeing what's happening with fiat currencies around the world. If inflation continues high or even higher wealthy money want's to own STUFF. With many homeowners locked in at 3-4%, there's not many that want to move so low supply on the market will get swallowed by the investors that want out of fiat into STUFF. 4-2025 could be interesting in FL with the new rules taking affect in which condos will be required to have fully-funded reserves. I'll likely own no homes going into Jan. 2025 but will be watching for opportunities if they should arrive as a result of the new rules. Some condo communities will see their HOA fees double/triple. OUCH! Could cause forced selling.
I see it as a race between higher rates and an eventual slowdown/recession which will send rates right back to zero. At least in rich coastal metros, high housing costs are underlaid by sky-high incomes - 300k+ for a professional couple being common. There’s none of the speculative fervor or NINJA/liar loans or any of the other crazy stuff from the 2000s. On top of that you have the endless bid from mountains of institutional capital; rents at 5-6% for blue chip RE compare favorably with 30 year yields at ~430bps. Maybe things go flat for a few years with gradual single-digit declines in some areas, but it’s really hard for me to see any kind of serious drop.
I bought my first house back in the early 1980s. I put 20% down and got a conventional loan at 11.75%. I thought I screwed the bank! The rates at the time were on the way to 20%+. I spent the next several decades in the stock market and real estate. Mostly I never saw rates under 9%. Usually they were over 10%. Everyone was still buying houses, houses were still appreciating. Since the early 80s I bought and sold a lot of houses, duplexes, and small apartment buildings. It was very lucrative. And the rates were always higher than they are today. These days in my neighborhood in Texas, houses are still selling, at record prices, sometimes with multiple offers. Not much on the market because I’d say most people have mortgage in the 3s, or lower. For prices to go down all those people are going to need to sell. There needs to be supply. I’m not seeing that happen. The only supply appears to be coming from builders. I have a hard time seeing major downside movement. Worst case I could see a long period of stagnation until people get used to higher rates and have time for their salaries to catch up. Just my opinion.
Yeah its an excellent point and I had suspected a lot of those houses that sold quick were not purchased by owner-occupiers. I didn't mention it because I thought well, they are buying at the exact wrong time and they are gonna get burned. I guess if that money keeps coming, yeah, you a 100% right. I wonder how much of that money is from overseas. If I see a house that has been empty forever, I usually check the County website to see who owns it. There are two in particular that I really like, both are both real diamonds in the rough, and they have sat empty for at least 3 years. Minimal maintenance. If any. I think the grass got cut once this summer on one. There's no requirements where this one sits so it was probably the people next door. They are real nice and I actually pulled in and talked to the guy about the house last year. You can't even figure out who owns the damn things. The one is definitely Chinese as the name of whatever corporate vehicle it is that owns is obviously Chinese, and the County lists an Los Angeles PO Box. The other is a local PO Box to an LLC, which I looked up and is registered to some law office in NY.... I mean one has to wonder, why are properties being scooped up and left vacant? At least in this case. It doesn't make any sense. I always joke to my friends, that they are positioning them for use as future safe-houses. Sometimes I wonder if that is in fact the case. I mean, it doesn't make any sense, at least with these two because they would rent fast at a good price after a good $5K makeover. Assuming the inside's are 1/2 way ok.
Yeah again, good point reiterating the supply issue. It's very important. Especially in cities with dynamic economies. Obviously I think the prices will drop farthest and fastest in the so-called fly-over areas of the country.
The Fed really destroyed the liquidity of the Housing market. What do you expect from idiots who were buying 2% Apple Bonds in 2020? At this point the only way the housing market sees price discovery is a major recession. Until then go long the house builders. Anybody who refinanced in the last few years has no reason to sell until the job market gets a lot worse. We need like 8+% unemployment. Whoever owns these 2.5% 30 year mortgages is in deep trouble. I assume its the Fed & Fannie Mae. Lets hope it isn't the regional banks.
C'mon VZ, if you're talking about the US, this is one BIG country. Everyone will simply grab their things and move out of the most expensive area (like California) and relocate to the cheaper areas (like Idaho or Georgia) thereby reinflating home prices elsewhere. Obviously, that depends on the economy. If we should get a severe recession, anything could happen, possibly including another real estate implosion, circa 2008.
Schiz! I thought you died. I have not checked in on B1's thread lately. Where you at with things? December close higher or lower than where we currently are? Eh and btw, I don't know about Idaho, but GA is anything but cheap. So I heard. What state has Mt Rushmore? I think it's cheap out there.