NYT Upshot: Something Has to Give in the Housing Market. Or Does It?

[MPMD]

https://www.nytimes.com/2022/01/20/u...s-surging.html

highlights for those who don't want to click through (i bolded 2 sections that were the most thought-provoking for me)

• There appears to be no quick reprieve coming for rising prices
• “It’s not a bubble, it really is about the fundamentals,” said Jenny Schuetz, a housing researcher at the Brookings Institution. “It really is about supply and demand — not enough houses, and huge numbers of people wanting homes.”
• “My pessimistic view is that the economy is perfectly capable of running with unaffordable housing,” said Daryl Fairweather, the chief economist at Redfin. This was evident over the last decade, she said, when affordability worsened even as the economy continued to grow. And that reality has enabled politicians and the public to largely neglect the issue of housing affordability. “Another way to phrase that is people will still get up and go to their jobs, even if they’re housing insecure,” Ms. Fairweather said. “That’s one reason to think we’ll still just keep letting this problem get worse.”
• Those hardships have been remarkably widespread across the country. The last time such home price growth occurred was in the years leading up to the housing crash. But even at the height of the bubble in 2006, only about 40 percent of metro areas experienced greater than 10 percent annual home price growth. In the past year, 80 percent of metros have seen such spikes. And a quarter of all metro areas have had prices rise by more than 20 percent.
• None of this is rooted in the kind of risky borrowing that inflated the housing bubble. Rather, home buyers flush with pandemic savings and strong credit have been taking out conventional loans

[CordMcNally]

I still think it's going to slow way down once interest rates start going up. There may not be a crash but I think the prices will level off for some time.

[Lordosis]

Even in these crazy times we are still cheaper than most of Europe.

The RE system had convinced people that buying a house you cannot (or barely) afford is an investment and a good financial decision.

Not dissimilar to paying 200K for a college degree for a 40K a year job.

People do not need much justification to spend money. If the banks will lend people will buy. Increasing the interest rates .25-1% is not going to slow this down too much.

[CordMcNally]

The RE system had convinced people that buying a house you cannot (or barely) afford is an investment and a good financial decision.

As much as I hate it, for many people it’s probably better than the alternative of what they’d do with that money with regards to their future. A mortgage is the most saving (I use that term loosely) that many people do. A house is a majority of a good chunk of people’s net worth.

[Eye3md]

We’ve been looking at homes. We’d like to downsize. The prices have doubled in the last few years. My concern is paying these current asking prices, and then being stuck suffering from this if I decide to try and sell again in a few years (ie, if I buy for $600k, but the home sold for $350k in 2019, will I be stuck trying to sell my home for $400k in a few years if this crazy housing trend does not hold up???). My luck with real estate has never been good. The real estate agent says “these prices are here to stay, and will likely continue to rise, so you should not have any concerns”. But, for any of us who purchased/sold a home within a few years of 2009, it’s hard to believe that is true. Maybe this time is truly different and I’ll regret not paying 2021 prices in 2023.

[CordMcNally]

We’ve been looking at homes. We’d like to downsize. The prices have doubled in the last few years. My concern is paying these current asking prices, and then being stuck suffering from this if I decide to try and sell again in a few years (ie, if I buy for $600k, but the home sold for $350k in 2019, will I be stuck trying to sell my home for $400k in a few years if this crazy housing trend does not hold up???). My luck with real estate has never been good. The real estate agent says “these prices are here to stay, and will likely continue to rise, so you should not have any concerns”. But, for any of us who purchased/sold a home within a few years of 2009, it’s hard to believe that is true. Maybe this time is truly different and I’ll regret not paying 2021 prices in 2023.

Never listen to a salesman when talking about their product, you'll hardly ever get good information. Also, why would you downsize and then move again in 2 years?

[MPMD]

We’ve been looking at homes. We’d like to downsize. The prices have doubled in the last few years. My concern is paying these current asking prices, and then being stuck suffering from this if I decide to try and sell again in a few years (ie, if I buy for $600k, but the home sold for $350k in 2019, will I be stuck trying to sell my home for $400k in a few years if this crazy housing trend does not hold up???). My luck with real estate has never been good. The real estate agent says “these prices are here to stay, and will likely continue to rise, so you should not have any concerns”. But, for any of us who purchased/sold a home within a few years of 2009, it’s hard to believe that is true. Maybe this time is truly different and I’ll regret not paying 2021 prices in 2023.

in this case i think the REA is right, however i also think many REA would tell you the same thing even if they were 95% sure we were 3 months from another 2008 style crash.

i have... not had a good experience w/ REA.

[MPMD]

I still think it's going to slow way down once interest rates start going up. There may not be a crash but I think the prices will level off for some time.

i basically agree.

my prediction (worth absolutely nothing) is slow down but no decrease.

i'd love to see what effect this has (or at least what correlation is noted) on savings rate moving forward.

the policy solutions to this are almost certainly very complex and even if reasonable ideas were out there i don't think they can be passed anytime soon. that said i could see this becoming something of a political football in the medium term.

[Eye3md]

Never listen to a salesman when talking about their product, you'll hardly ever get good information. Also, why would you downsize and then move again in 2 years?

Yeah the salesman is trying to tell me this housing market is totally different than the last crazy housing market. The way prices are going, and it seems likely not to end anytime soon, it’s hard not to believe the salesman.

I was just using the 2 years as an example. It would probably be more like 3 years

[StarTrekDoc]

Been watching for unaffordability to crush bay area and Manhattan and they implode. Nope. The 2007 crash affected them but they were first to recover too.

Pandemic has hit the rental market hard with the great resignation and work from home, but residential real estate humming along just fine.

It'll level off in some areas and maybe correction in areas that spiked just because of the national trend. Large bubble burst.... probably not.

[MPMD]

Been watching for unaffordability to crush bay area and Manhattan and they implode. Nope. The 2007 crash affected them but they were first to recover too.

Pandemic has hit the rental market hard with the great resignation and work from home, but residential real estate humming along just fine.

It'll level off in some areas and maybe correction in areas that spiked just because of the national trend. Large bubble burst.... probably not.

i think it is way more likely that some tech bro will find a way to house workers in 100 story buildings w/ 200 sq ft micro apartments right off a high speed mag lev to downtown than that housing prices in the bay will go down.

which is to say that i think the way lower and middle middle class people live will change fairly drastically in the next few decades.

part of me wishes that i was living and buying RE in what most would consider a fairly "undesirable" but large-ish metro right now: OKC, StL, Cleveland, Detroit, Birmingham, Little Rock, Lubbock etc.

[blippi]

localities are challenging it, but ca now allows multifamily homes on sfh zoning.

[StarTrekDoc]

i think it is way more likely that some tech bro will find a way to house workers in 100 story buildings w/ 200 sq ft micro apartments right off a high speed mag lev to downtown than that housing prices in the bay will go down.

which is to say that i think the way lower and middle middle class people live will change fairly drastically in the next few decades.

part of me wishes that i was living and buying RE in what most would consider a fairly "undesirable" but large-ish metro right now: OKC, StL, Cleveland, Detroit, Birmingham, Little Rock, Lubbock etc.

Lived in suburbs of Detroit and looked up properties we lived in or shopped for. Some have had a bump of 20-30%. Most just beating inflation.

Challenge of legacy metro areas is no real central business gravity to anchor and lots of land and infrastructure to sustain cheap housing.

[pysibal]

i think it is way more likely that some tech bro will find a way to house workers in 100 story buildings w/ 200 sq ft micro apartments right off a high speed mag lev to downtown than that housing prices in the bay will go down.

which is to say that i think the way lower and middle middle class people live will change fairly drastically in the next few decades.

part of me wishes that i was living and buying RE in what most would consider a fairly "undesirable" but large-ish metro right now: OKC, StL, Cleveland, Detroit, Birmingham, Little Rock, Lubbock etc.

Lubbock qualifies as large-ish? Greater area with 318k ppl.

And I know Detroit gets a bad rap but I've got an ortho friend who lives there and he says it is actually great. There are some terrible neighborhoods that you simply avoid, and otherwise there's a lot there.

Re: the housing market, I don't see why this trend would stop. There are some specific areas that are more nuts than others (looking at you, Seattle), but I've not seen any data showing that this is really an aberration when viewed historically. And like Lordosis said, other countries have it worse.

https://awealthofcommonsense.com/202...-as-you-think/

[Lordosis]

As much as I hate it, for many people it’s probably better than the alternative of what they’d do with that money with regards to their future. A mortgage is the most saving (I use that term loosely) that many people do. A house is a majority of a good chunk of people’s net worth.

That is a good point but HELOC and cash out refi make it too easy to tap. Also people tend to move often resetting their 30 year mortgage. But I have seen some people who built up a nice nest egg and were able to downsize and use it as you describe just not enough people to count on it.