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What is everyone thinking about the current housing market? Here is my summary of how it looks.
Folks are clinging to those 2.8% mortgages like their life depends on it. Who can blame them? Jump from that to a monstrous 8% on a new property? Doesn't sound enticing.
On the flipside, the inventory scarcity isn't letting up. It's like a game of musical chairs with fewer and fewer seats.
Those on the move now are the desperate ones. Job relocations, school district changes, fleeing rent hikes - they're being pushed, not pulled. Sellers are locked in by low rates and buyers are priced out. A classic stalemate.
Few people relishing the challenge. Consider the ambitious employee who climbed the ladder from entry level to VP, all while watching his 2020 property purchase appreciate. These go-getters, plus those banking on a future refinance, are still in the mix.
Yet, these are exceptions. For most, the barriers remain insurmountable.
Wealthy folks with multiple properties? They can weather the storm. The solution, as some suggest, might be an influx of new builds in populated areas. But it's easier said than done.
With the rise of remote work, job relocation isn't a pressing reason to move anymore. The new norm might tip the scales towards new constructions. After all, if current homeowners refuse to sell, builders will have to step up to maintain housing supply.
The supply-demand gap is more pronounced with the retiring baby boomers. The slow growth of supply and the pace of population growth create a bottleneck.
Some hark back to the '81-'82 period when interest rates doubled. They argue that it's more an affordability problem than an interest rate issue.
Doesn't help that Yellin kept rates low for a decade, creating an illusion of cost-free capital. Savers took the brunt of it, with the promise of a "better economy" for their children.
The 2008 housing crash had people selling homes at a 50% loss. The current crisis, however, has a different flavor. Now, we're seeing owners listing properties hoping to cash in on the inflated prices.
Inventory, indeed, is not the problem. Price agreement is. Buyers and sellers are engaged in a high-stakes game of chicken. Will sellers lower their prices first or will buyers bite the bullet?
The fear is a prolonged stalemate if rates stay high. Sales will plummet and the market will flatline. As soon as rates start to dip, though, prices will explode from pent-up demand.
The hope for some is a repeat of the 2008-2012 period. But with current price insanity, that's a faint hope.
Other prospective sellers are those who've exhausted their liquidity and are facing an 8% HELOC. For them, the move might be to downsize, sell, or rent to boost liquidity.
The landscape is complicated. Some families locked in low rates yet stretched thin on inflated prices. A slight disruption could force a sale.
In the meantime, homeowners might consider renting out their places at low rates. This would help those unable to buy.
However, the outlook isn't all doom and gloom. Boomers downsizing and cashing out. New opportunities for first-time buyers through builder financing. Investors dumping rental properties.
A possible new wave of sellers might be those capitalizing on their home equity. This could lead to new listings, adding to the inventory.
But let's not overlook the elephant in the room: The Federal Reserve. Years of near-zero rates and a sudden rate hike have blown up the housing bubble. Not the best move, if you ask me.
But let's not overlook the elephant in the room: The Federal Reserve. Years of near-zero rates and a sudden rate hike have blown up the housing bubble. Not the best move, if you ask me.
Month over month, The Fed has driven away any hopes of a robust housing market putting homeownership out of reach for so many. Only 1% of the market is moving (buying homes) right now. We need a change of attitude in the White House; that's where it starts. We need tax credits for builders to once again build for first time homeowners and to stop building in the high 6 and 7 digit list prices on the smallest piece of land. It's killing me to say that after the record setting profits they are racking up, but if we don't incentivize builders, we need to penalize them and that's usually the wrong approach. We may not be in a recession, but we are definitely in a stalled housing market, on the very edge of a housing crisis for young adults.
What is everyone thinking about the current housing market? Here is my summary of how it looks.
Folks are clinging to those 2.8% mortgages like their life depends on it. Who can blame them? Jump from that to a monstrous 8% on a new property? Doesn't sound enticing.
On the flipside, the inventory scarcity isn't letting up. It's like a game of musical chairs with fewer and fewer seats.
Those on the move now are the desperate ones. Job relocations, school district changes, fleeing rent hikes - they're being pushed, not pulled. Sellers are locked in by low rates and buyers are priced out. A classic stalemate.
Few people relishing the challenge. Consider the ambitious employee who climbed the ladder from entry level to VP, all while watching his 2020 property purchase appreciate. These go-getters, plus those banking on a future refinance, are still in the mix.
Yet, these are exceptions. For most, the barriers remain insurmountable.
Wealthy folks with multiple properties? They can weather the storm. The solution, as some suggest, might be an influx of new builds in populated areas. But it's easier said than done.
With the rise of remote work, job relocation isn't a pressing reason to move anymore. The new norm might tip the scales towards new constructions. After all, if current homeowners refuse to sell, builders will have to step up to maintain housing supply.
The supply-demand gap is more pronounced with the retiring baby boomers. The slow growth of supply and the pace of population growth create a bottleneck.
Some hark back to the '81-'82 period when interest rates doubled. They argue that it's more an affordability problem than an interest rate issue.
Doesn't help that Yellin kept rates low for a decade, creating an illusion of cost-free capital. Savers took the brunt of it, with the promise of a "better economy" for their children.
The 2008 housing crash had people selling homes at a 50% loss. The current crisis, however, has a different flavor. Now, we're seeing owners listing properties hoping to cash in on the inflated prices.
Inventory, indeed, is not the problem. Price agreement is. Buyers and sellers are engaged in a high-stakes game of chicken. Will sellers lower their prices first or will buyers bite the bullet?
The fear is a prolonged stalemate if rates stay high. Sales will plummet and the market will flatline. As soon as rates start to dip, though, prices will explode from pent-up demand.
The hope for some is a repeat of the 2008-2012 period. But with current price insanity, that's a faint hope.
Other prospective sellers are those who've exhausted their liquidity and are facing an 8% HELOC. For them, the move might be to downsize, sell, or rent to boost liquidity.
The landscape is complicated. Some families locked in low rates yet stretched thin on inflated prices. A slight disruption could force a sale.
In the meantime, homeowners might consider renting out their places at low rates. This would help those unable to buy.
However, the outlook isn't all doom and gloom. Boomers downsizing and cashing out. New opportunities for first-time buyers through builder financing. Investors dumping rental properties.
A possible new wave of sellers might be those capitalizing on their home equity. This could lead to new listings, adding to the inventory.
But let's not overlook the elephant in the room: The Federal Reserve. Years of near-zero rates and a sudden rate hike have blown up the housing bubble. Not the best move, if you ask me.
On the flipside, the inventory scarcity isn't letting up. It's like a game of musical chairs with fewer and fewer seats.
I live in Texas the small starter home is dead as a doornail. There is no shortage of 600K-1.1MM dollar homes ready to be built in DFW. Where are the small homes? Nowhere to be found!
Who can afford a 7k-10k/mo mortgage even with 20% down?
I think the OP summed it up correctly. I have seen a better supply of low end fixer homes in Arizona and Colorado. Even though these would be cash only, they may even be more sensitive to high interest rates. I suppose a lot of cash buyers for fixers might actually be using hard money loans.....If you don't need a place to live..the no fee 5.5% CD makes more sense. Some are saying the market has already flatlined.
We sold our home to a i-buyer in February and are currently renting here in SE Tucson. Our old home is still on the market and every two weeks or so the algo ratchets the price down a couple of percent. Older resale homes in the same neighborhood are selling at 10-20% under the asking price while new construction languishes because the builder refuses to offer deals beyond a paltry $3500 credit on closing costs.
A 4000-home development is underway nearby with all the major national builders involved. Homes there are selling from $400K-$800K and it appears the builders have drastically reduced the pace of construction compared to what we saw last year. A 250 house build-to-rent project is located in the same development and construction there seems to have stopped after the first twenty lots were framed.
I agree with the OP, except I don't agree that prices will explode from pent up demand. I can't see it. I see transactions rising, not prices.
Summing up what he said: the Fed completely broke the housing market, and there is no telling when it will be fixed. Beyond that, the plan is a Renter Nation, so I don't think the government cares anymore if home ownership rises as long as there are plenty of homes to rent.
I have been house hunting in the "move up" market for a year. There is just no inventory except for expensive luxury homes, and it is not plentiful even there.
FWIW, Knoxville is booming with new people moving in, and not representative of every metro, so we have the double whammy of the Fed-induced housing breakage coupled with a normal growth boom.
Last edited by Igor Blevin; 08-01-2023 at 03:30 PM..
I agree with the OP, except I don't agree that prices will explode from pent up demand. I can't see it. I see transactions rising, not prices.
Summing up what he said: the Fed completely broke the housing market, and there is no telling when it will be fixed. Beyond that, the plan is a Renter Nation, so I don't think the government cares anymore if home ownership rises as long as there are plenty of homes to rent.
I have been house hunting in the "move up" market for a year. There is just no inventory except for expensive luxury homes, and it is not plentiful even there.
FWIW, Knoxville is booming with new people moving in, and not representative of every metro, so we have the double whammy of the Fed-induced housing breakage coupled with a normal growth boom.
I wouldn't point the finger at the Fed; they have a mandate to keep inflation at 2% +/-. Blame the free spending politicians that stoked inflation with reckless spending. Here is a hint; we are now suffering from "Trumps inflation" and are about to be hit with Bidens.
How long did people expect interest rates to be at or near 0%? Historically the Fed funds rate has averaged 5% +/-. The only reason to keep them at a historically low rate is to help an ailing economy. In my opinion, people that are buying now in hopes of a return to a low rate so they can refinance are dreaming.
We have been watching the market closely as of late as we plan to buy before the end of the year. Currently, inventories are down around 25% over pre-pandemic levels and up 40% over last year. New homes are prevalent and accompanied by steep incentives. Existing home sales are not moving as quickly and I am seeing more and more price cuts in the $15k+ range.
To the untrained eye, it appears builders are flooding the market and driving down prices, which is good for the buyer.
The current interest rate does not concern me. I bought my first home in 2000 and my interest rate was near 6%. My CU is still offering a 5.875% rate on a conventional and probably closer to 5% if I went with a 5/5 ARM.
I wouldn't point the finger at the Fed; they have a mandate to keep inflation at 2% +/-. Blame the free spending politicians that stoked inflation with reckless spending. Here is a hint; we are now suffering from "Trumps inflation" and are about to be hit with Bidens.
How long did people expect interest rates to be at or near 0%? Historically the Fed funds rate has averaged 5% +/-. The only reason to keep them at a historically low rate is to help an ailing economy. In my opinion, people that are buying now in hopes of a return to a low rate so they can refinance are dreaming.
I am not talking about raising rates. The Fed had no choice but to dramatically raise the Fed Funds rate in the face of 10% headline inflation.
I am talking about the Fed holding rates at 0% for a year too long and then adding $9 billion to their balance sheets. They caused the inflation to begin with. They set the stage to break the housing market with 0% interest when inflation was already raging but being called "transitory". They inflated housing with 3% fixed mortgages and set the stage for the ultimate collapse in sales activity.
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