Part of the reluctance is the inability to qualify. If you take the $400K average house it might still be too expensive at $300K with 7% interest. People who don't absolutely have to move just stay put especially if they own a house the last 5 years or more as even the same house now would be way more expensive, and anything bigger or nicer is out of the question. I tell my clients that the rate change is going to be more of a trigger than any of the other variables but I also agree with you that the monetary environment does not at all look like the 10-year will go down any time soon
This market is run like wall street runs their stock market pump and dump. People are left holding the bag as usual. You will own nothing and be happy seems to have come true.
Next time around isn't going to be pretty, and as someone else here observed, it is likely to make the 2008 debacle look mild by comparison.
Owning one's home has been sold to the public by flogging the "wealth building" aspect of home ownership. I think this needs to change. Rental property has been a good investment off and on, but people need to start looking at their principal residence as a home first, and an investment second. The benefits of owning one's home include stability in one's living situation (no landlord can throw you out) and, when finally paid off, a significant reduction in your housing expense. How much your home is "worth" should not be all that important, since its utility to the owner doesn't change as a result.
Unfortunately, with the housing landscape moving more and more toward rentals, with big investment firms owning fleets of thousands of homes, the "homeowner mindset" may soon become extinct.
Tax revenue depends on housing prices always increasing. If the price plummets by 40% then sellers may be paying very little taxes on that sale depending on their basis. Will the government let this scenario unfold?
They already did something about this - after the GFC they dropped interest rates to record lows... revived the housing bubble ... and things were wonderful for 15+ years...
But in reality they reflated the previous bubble to obscene levels.... and now they are trapped... they cannot rescue the situation by reducing interest rates because 1. that would likely result in hyperinflation and 2. the bond market knows this and that's why long term rates remain elevated... bonds yielding less than the anticipated rate of inflation are about as attractive as picking up a red hot piece of steel with your mouth
I am 87 and I have been through the housing crash that many homeowners are now or going to face. 1980 Exxon, Chevron, union oil were determined to end the oil supply problems, then facing the United States by development, of the mountain of Oil Shale
in Western Colorado. My partner and I decided to build 2 4plex rental units. We each borrowed 100,000 12%, and rented the units at $700/mo. Things were so good we were trying to put together a 30 to 40 unit project.
Then Sunday, May 2, 1982 came and Exxon announced the immediate closing of their Oil Shale project. Monday morning 1000s of high paid workers were fired and locked out of the project. As quick as U-Haul trucks were available our 4plex apartments were vacant. End of story my partner and I turned each $100,000 unit back to the bank for a credit $30,000 and a 20 year $70,000, 81/2% mortgage on our personal residences.
Rental property is only as good as your renter. My motto is “Never ask a renter how they are doing, the answer will always be No Good”.
Yep, the oil patch is like a point on a wagon wheel. Comes and goes.
Imagine the poor bastard renting to recent college grads who have decided en masse not to pay their debts. Good luck collecting rent. They are the next band of squatters.
Agree that the housing bubble is on shaky ground. That old British saying "John Bull cannot stand 2 %" should be ringing in everyone's ears.
American Exceptionalism = debt plus low interest rates, and both drove this bubble.
The education bubble may be further along. It started when the Obama/Biden team announced that they were going to let universities charge what ever they wanted and hastily told folks not to worry because they were going to lend people all the money they needed. When the rose came off this bubble during Biden's term in office, what did he do? He reasoned that if he eliminated student debt, he could grow the education bubble to new heights for decades and funnel trillions more tax payer dollars into our university system.
The moral of the story is: Don't think for a minute that the USG will give up on house price appreciation without one heck of a fight.
What you might see:
1. Loan forgiveness.
2. Allowing folks to refy to original purchase price.
A good list, and even at that, it doesn't include the excesses in lending that led to the 2008 housing bubble/crash. Remember NINJA loans, "liar loans", guarantees, etc.? Not to mention the practice of basing borrowers' ability to pay using the low "teaser" payment on ARMs, rather than asking honestly if those folks would be able to make payments after the first mortgage rate hike.
When you think about it, it was despicable the last time around to finally let the low income people into the racket. They relaxed lending standards for these people late in the bubble because they were running out of buyers; this ensured that they bought near the top with little or no down payments, thus ensuring that those who could least afford it would be the first go to underwater when the air finally came out of the balloon.
Buying appreciating property has always been considered the middle class path to building wealth, but this path was largely barred to lower income people. It is understandable that people should want to let them have their chance, but if it is to be done, the system should provide for their entry early enough that the odds of building some equity are reasonable.
And now we read here in California that they are allowing "undocumented" immigrants to take out mortgages. What could go wrong?
JPB-good list and I'm sure we will see a lot of it. The focus of my list was that point in time when people do not want to buy housing and not because they can't.
As the US pushes forward with its own form of neomercantilism, I expect volatility to explode.
"When the new are waiting to be born and the old refuse to die, monsters appear".
I can't remember the source of the above quote, but I believe that time is now and agree with it fully.
I can only hope. We sold our house in Johnson county Kansas (suburban Kansas City) in 2016 for a little over $130,000. I just checked and the only two houses in that neighborhood are listed for around $400K.
We sold our house because we needed to move to a neighboring county (new job) and eventually file bankruptcy. Bankruptcy laws in Kansas do not allow own to one a home one does not live in.
Now we are approaching retirement, and renting. We can afford to buy a house for maybe $200K, and that's only because my mom died before she ran through all her savings in a nursing home. My husband is an attorney, and I'm an actuary. Life in the US sucks these days, and it's going to get a lot worse. I wish we had never had kids. Kids are for billionaires and illegal aliens.
That part of the comment may be a little harsh. My "children" are still living with us. One is a college grad, unemployed. She is at least a nice kid. The other is in college, and not at all nice. I get bullied and have no idea how to deal with it. The younger one was away at college for the first year but is planning to be back at home this next year. It's cheaper that way, but oh so much harder in the daily living. And hardly anyone gets good jobs after college anymore.
Thanks John, noticing interesting developments in my wee NZ town! 1000 people. We lost a big mill employer last year. Snow seasons unpredictable, tho theres plenty of other athletic pursuits here (Tongariro Crossing etc). The housing market was dead as. Homes sitting for ages, no buyers. And lowered prices. I bought 4 years ago, and renovated, at great expense. At the time i was borderline over capitalised. Now I would say I have lost $150K. I have noticed in the last month, lots more on the market. Yes, probably Air BNBs. And some will be rentals that were for employees who have since left for Australia probably! I was considering moving, purely cos I wasnt happy in this town. Now I think, having lost capital, I might as well stay and enjoy my refreshed Asset and get some value from it if I cant get the money!
I saw the writing on the wall and we sold our Queenstown residence having lived there long enough to get passports... and ditched what is a dying country for Perth... akin to moving a higher deck on the Titanic...
NZ has a massive - impossible to solve - energy problem (similar to the UK and Europe except that NZ is too far away to ship in already expensive LNG).
NZ is rationing what remains - that is why high energy operations like mills have closed.
While we may certainly see deflationary forces play out early in what is likely an imminent secular financial collapse for those who have the option of holding real estate (a tangible asset) longer term be sure to consider the benefits of doing so during what will ultimately prove to be an inflationary secular financial collapse, particularly if they have a rock bottom fixed rate on a mortgage. Study real estate during the 1970's to gain a sense of the opportunity longer term. I for one won't be surprised if this secular financial collapse proves to be an order of magnitude worse than that of the 1970's. Real estate may serve as a financial life saver for many although it is relatively illiquid and associated costs, including property taxes, can be expected to rise dramatically in nominal and potentially inflation adjusted terms.
The sellers would be smart to start thinking about selling now. Bad news next year.
Home owners will be left holding the bag next year.
Very well written 👍🏼👍🏼
Part of the reluctance is the inability to qualify. If you take the $400K average house it might still be too expensive at $300K with 7% interest. People who don't absolutely have to move just stay put especially if they own a house the last 5 years or more as even the same house now would be way more expensive, and anything bigger or nicer is out of the question. I tell my clients that the rate change is going to be more of a trigger than any of the other variables but I also agree with you that the monetary environment does not at all look like the 10-year will go down any time soon
This market is run like wall street runs their stock market pump and dump. People are left holding the bag as usual. You will own nothing and be happy seems to have come true.
No problem ..blackrock and the fed will be there to mop it all up
Next time around isn't going to be pretty, and as someone else here observed, it is likely to make the 2008 debacle look mild by comparison.
Owning one's home has been sold to the public by flogging the "wealth building" aspect of home ownership. I think this needs to change. Rental property has been a good investment off and on, but people need to start looking at their principal residence as a home first, and an investment second. The benefits of owning one's home include stability in one's living situation (no landlord can throw you out) and, when finally paid off, a significant reduction in your housing expense. How much your home is "worth" should not be all that important, since its utility to the owner doesn't change as a result.
Unfortunately, with the housing landscape moving more and more toward rentals, with big investment firms owning fleets of thousands of homes, the "homeowner mindset" may soon become extinct.
Housing continues to remain steady in price and sales here in Sonoma County, north of San Francisco. People are still fleeing the Bay Area.
FYI
https://charleshughsmith.substack.com/p/the-family-home-from-shelter-to-asset
https://charleshughsmith.substack.com/p/the-cost-of-owning-a-home-is-soaring
We sold a year ago and now rent.... there is no upside left... all downside... to owning... including exposure to a certain plunge in prices
Tax revenue depends on housing prices always increasing. If the price plummets by 40% then sellers may be paying very little taxes on that sale depending on their basis. Will the government let this scenario unfold?
They already did something about this - after the GFC they dropped interest rates to record lows... revived the housing bubble ... and things were wonderful for 15+ years...
But in reality they reflated the previous bubble to obscene levels.... and now they are trapped... they cannot rescue the situation by reducing interest rates because 1. that would likely result in hyperinflation and 2. the bond market knows this and that's why long term rates remain elevated... bonds yielding less than the anticipated rate of inflation are about as attractive as picking up a red hot piece of steel with your mouth
I am 87 and I have been through the housing crash that many homeowners are now or going to face. 1980 Exxon, Chevron, union oil were determined to end the oil supply problems, then facing the United States by development, of the mountain of Oil Shale
in Western Colorado. My partner and I decided to build 2 4plex rental units. We each borrowed 100,000 12%, and rented the units at $700/mo. Things were so good we were trying to put together a 30 to 40 unit project.
Then Sunday, May 2, 1982 came and Exxon announced the immediate closing of their Oil Shale project. Monday morning 1000s of high paid workers were fired and locked out of the project. As quick as U-Haul trucks were available our 4plex apartments were vacant. End of story my partner and I turned each $100,000 unit back to the bank for a credit $30,000 and a 20 year $70,000, 81/2% mortgage on our personal residences.
Rental property is only as good as your renter. My motto is “Never ask a renter how they are doing, the answer will always be No Good”.
Yep, the oil patch is like a point on a wagon wheel. Comes and goes.
Imagine the poor bastard renting to recent college grads who have decided en masse not to pay their debts. Good luck collecting rent. They are the next band of squatters.
I agree. Our capitalistic system is in real trouble when the educated among us, are the ones that won’t honor their debts.
Agree that the housing bubble is on shaky ground. That old British saying "John Bull cannot stand 2 %" should be ringing in everyone's ears.
American Exceptionalism = debt plus low interest rates, and both drove this bubble.
The education bubble may be further along. It started when the Obama/Biden team announced that they were going to let universities charge what ever they wanted and hastily told folks not to worry because they were going to lend people all the money they needed. When the rose came off this bubble during Biden's term in office, what did he do? He reasoned that if he eliminated student debt, he could grow the education bubble to new heights for decades and funnel trillions more tax payer dollars into our university system.
The moral of the story is: Don't think for a minute that the USG will give up on house price appreciation without one heck of a fight.
What you might see:
1. Loan forgiveness.
2. Allowing folks to refy to original purchase price.
3. Paying people to assume housing debt
It ain't over til it's over folks
A good list, and even at that, it doesn't include the excesses in lending that led to the 2008 housing bubble/crash. Remember NINJA loans, "liar loans", guarantees, etc.? Not to mention the practice of basing borrowers' ability to pay using the low "teaser" payment on ARMs, rather than asking honestly if those folks would be able to make payments after the first mortgage rate hike.
When you think about it, it was despicable the last time around to finally let the low income people into the racket. They relaxed lending standards for these people late in the bubble because they were running out of buyers; this ensured that they bought near the top with little or no down payments, thus ensuring that those who could least afford it would be the first go to underwater when the air finally came out of the balloon.
Buying appreciating property has always been considered the middle class path to building wealth, but this path was largely barred to lower income people. It is understandable that people should want to let them have their chance, but if it is to be done, the system should provide for their entry early enough that the odds of building some equity are reasonable.
And now we read here in California that they are allowing "undocumented" immigrants to take out mortgages. What could go wrong?
JPB-good list and I'm sure we will see a lot of it. The focus of my list was that point in time when people do not want to buy housing and not because they can't.
As the US pushes forward with its own form of neomercantilism, I expect volatility to explode.
"When the new are waiting to be born and the old refuse to die, monsters appear".
I can't remember the source of the above quote, but I believe that time is now and agree with it fully.
I can only hope. We sold our house in Johnson county Kansas (suburban Kansas City) in 2016 for a little over $130,000. I just checked and the only two houses in that neighborhood are listed for around $400K.
We sold our house because we needed to move to a neighboring county (new job) and eventually file bankruptcy. Bankruptcy laws in Kansas do not allow own to one a home one does not live in.
Now we are approaching retirement, and renting. We can afford to buy a house for maybe $200K, and that's only because my mom died before she ran through all her savings in a nursing home. My husband is an attorney, and I'm an actuary. Life in the US sucks these days, and it's going to get a lot worse. I wish we had never had kids. Kids are for billionaires and illegal aliens.
Are your children still talking to you?
That part of the comment may be a little harsh. My "children" are still living with us. One is a college grad, unemployed. She is at least a nice kid. The other is in college, and not at all nice. I get bullied and have no idea how to deal with it. The younger one was away at college for the first year but is planning to be back at home this next year. It's cheaper that way, but oh so much harder in the daily living. And hardly anyone gets good jobs after college anymore.
Thanks John, noticing interesting developments in my wee NZ town! 1000 people. We lost a big mill employer last year. Snow seasons unpredictable, tho theres plenty of other athletic pursuits here (Tongariro Crossing etc). The housing market was dead as. Homes sitting for ages, no buyers. And lowered prices. I bought 4 years ago, and renovated, at great expense. At the time i was borderline over capitalised. Now I would say I have lost $150K. I have noticed in the last month, lots more on the market. Yes, probably Air BNBs. And some will be rentals that were for employees who have since left for Australia probably! I was considering moving, purely cos I wasnt happy in this town. Now I think, having lost capital, I might as well stay and enjoy my refreshed Asset and get some value from it if I cant get the money!
I saw the writing on the wall and we sold our Queenstown residence having lived there long enough to get passports... and ditched what is a dying country for Perth... akin to moving a higher deck on the Titanic...
NZ has a massive - impossible to solve - energy problem (similar to the UK and Europe except that NZ is too far away to ship in already expensive LNG).
NZ is rationing what remains - that is why high energy operations like mills have closed.
https://fasteddynz.substack.com/p/nz-is-running-out-of-gas-literally
https://fasteddynz.substack.com/p/new-zealand-is-a-total-shit-show
https://fasteddynz.substack.com/p/new-zealand-update-gas-shortages
https://fasteddynz.substack.com/p/necrosis-in-new-zealand
So many are leaving NZ for Australia it makes me wonder if the 'dual citizenship' rules will be amended.. or cancelled completely.
Good analysis John. This was a year ago: https://www.doctorhousingbubble.com/california-home-prices-on-a-roller-coaster-monthly-payment-for-a-california-house-1410-in-2012-and-5210-in-2024/#more-9757
While we may certainly see deflationary forces play out early in what is likely an imminent secular financial collapse for those who have the option of holding real estate (a tangible asset) longer term be sure to consider the benefits of doing so during what will ultimately prove to be an inflationary secular financial collapse, particularly if they have a rock bottom fixed rate on a mortgage. Study real estate during the 1970's to gain a sense of the opportunity longer term. I for one won't be surprised if this secular financial collapse proves to be an order of magnitude worse than that of the 1970's. Real estate may serve as a financial life saver for many although it is relatively illiquid and associated costs, including property taxes, can be expected to rise dramatically in nominal and potentially inflation adjusted terms.
Can't wait for the fun!