THE WOLF STREET REPORT
Brick & Mortar
Cars & Trucks
Companies & Markets
Housing Bubble 2
Inflation & Devaluation
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Email to a friend
I’m not sure housing prices will be a slow-moving thing in the future, in all areas. For example, if prices can rise 30% in a year, in some cities, based on low interest rates and positive wealth effect, it seems they could drop 30% in a year as those factors reverse.
It will depend greatly on:
1. Skin in the game. 0% down, closing costs rolled into closing and banking on sweet equity leveraged roll of the dice.
2. How long those who stop paying can sham to stave off foreclosure.
3. Consequences of non payment. Today, it’s fairly litte.
No need to worry. The government will start paying their mortgage. Why anyone works anymore puzzles me.
Lol….so true and so hilarious!
Na, they aren’t corporations, so they won’t get any Republican socialism..
You are absurd.
It was sarcasm, that’s how I read it.
LOL. Too true. Not a penny of stimulus for this working fool.
I am puzzled too.
I think you will end up being old and broke
Why people won’t unite and vote for living wages instead of slave wages puzzles me. Why women make .70 on every dollar that a man makes puzzles me. Why education isn’t affordable and governors vote against universal Pre-K puzzles me. Housing being a basic human need and right but not being regulated to keep costs affordable puzzles me. I could keep going on and on and on.
People still work and tirelessly put in job applications for positions that would pay better than average.
I know no one cares. Everybody hates each other.
U.S. only helps those coming across the border and those who are colorful……..
I thought I was the only one getting that ..
Unions. Join a strong noncorrupt union and wages go up. Non unionised workers with employer decided wages are without exception, lower. it is not rocket science. Most workers are not good negotiators, and will benefit from good, decent people negotiating for them
Having bad credit has consequences across the entire financial spectrum, from cost of credit to what you pay for insurance.
This didn’t stop hundreds of thousands if not several million from walking away from their mortgage.
To this point, having bad credit doesn’t keep anyone from losing access. Higher insurance rates aren’t as bad as being several hundred grand underwater on the mortgage.
As for job searches, many or most of these people will be unemployed or underemployed anyway when or shortly after it happens.
I absolutely LOVE this…
Prices go Parabolic for a bit.. Rise 87% then another 19%.. then another 35%…
Then,,, they drop 30 Percent..
Everyone reports that prices are going down!!!
Think about it…
Do the math…
It’s like “renter’s math”.
morty mc mort,
OK, example: the price of a $100,000 home rises, as you said, by 87%, to $187,000 then by 19%, to $222,500, and then by 35% to $300,400. Then when the price drops 30%, this home is now back at $210,000, wiping out the 35% gain, plus some of the 19% gain. If the price drops 50%, to $150,000, then it wipes out the 35% gain, the 19% gain, and a big part of the 87% gain.
It’s always a good thing to remind folks that prices can rise many thousands of percent, but can only ever fall 100%.
Hmmm… So, a house purchased a couple years or so ago for $100, rises to $300k, then loses most of the gains, and stops at $150k. I might not be a maths expert, but thats still a 50% increase.
Real estate should not be a means for profit. It is land, and homes on it ate just that, HOMES, for families to live in, not assholes to get rich off of. The narcissists who make money off real estate all deserve nothing less than to be hing, drawn and quartered.
More than “a couple of years,” and maybe more than one owner. The last one to buy is in the hole.
And it puts the person who bought in at recently at 280k or more substantially underwater, even with just the 30% correction.
Caly said: “Real estate should not be a means for profit. It is land, and homes on it ate just that, HOMES, for families to live in, not assholes to get rich off of. The narcissists who make money off real estate all deserve nothing less than to be hing, drawn and quartered.”
There are a lot of “assholes” out there that are very happy with themselves. What part of the 1%, with their average worth of $34,000,000 do you think made it off of real estate?
It’s hard for them not to be all in on capitalism and free enterprise. They “earned it.” Never mind that many of them never produced a product.
There is always more mathematical “friction” for prices to rise, opposed to dropping. > If you have a $100 in value (of any asset) and the price drops 50% (stocks and housing have done this many times), it then takes 100% of increase to regain the 50% loss and get back to break-even ($50 has to increase y 2x or 100% to get back to $100). > Now, factor in the time-value of your money/investment (your rate of return) and you have lost money, even if the price/value returns to the original level. Yikes
Pay attention to previous sales prices. Many houses are going on the market for outrageous prices that are right around the previous (peak) sales from 2006 or 2007. So if fools want to buy at peak and go underwater until the next bubble, God Bless them. Personally, we’re waiting until the market correction. Here in north eastern IL we’ve already started to see foreclosures and short sales. Not many, but there were none in the areas w are targeting just last month. Good luck to all.
Nice math…too bad most Americans are too stupid to understand this ! It’s even worse if you factor inflation…your house has to go up 8% a year just to match inflation
Caly said: “ Real estate should not be a means for profit. It is land, and homes on it ate just that, HOMES, for families to live in, not assholes to get rich off of.”
You know this statement is not well thought out, right? Think about your logic applied to ANY business. For example, grocers who are making huge profits on food when this is a human staple. No one should make money on food! What about car manufacturers? I have to go to work. How dare those car companies make a profit when I need to make a living! What about these cell phones companies making all that gobs of money at my expense when I need a cell phone to conduct my business! Your logic is ridiculous. I will agree there are certain professions that are greedier than others and have reputations as such like attorneys and realtors. These are truly leaches on society and need to be reined in. Sure they provide a service if only they could be better regulated. The realtor is the underlying problem as to why real estate gets proportionally out of whack. Think about how a property is sold over and over with a 3 to 6% realtor commission. If you don’t understand this principle than you lack education my friend.
It is still worth more than you paid for it.
If you’re the original buyer… this is many years of price gains. If you bought three years ago from the original buyer, the original buyer made the money and you’re in the hole.
It the biggest scam going,take whatever a family needs whether it be a house,car,medical ins,any ins.food,and keep raising the price until the breadwinner either hangs him or herself or they both work 2 or 3 shit paying jobs just to keep the bills paid American dream my ass.
Calvinism (capitalism, “free market”, invisible hands, etc, etc, ad nausem) simply found them “not worthy” or “lacking” for some “mysterious” reason.
The bright side is when they work themselves to death, they go to heaven forever. Their kids start even worse off, money and education wise, and suffer even more….but still get their eternal reward if they work and “behave”…..those who get extremely lucky maybe get a piece of this “American Dream”….fewer all the time.
Ask anyone with a shitload of wealth how our system works so well for everybody. They will explain it all.
Sounds like American nightmare. Remember the saying “the next generation will have it better than the last”? Days are long gone.
Yes but they will crash even more than people think…People don’t want to believe me but I have yet to be wrong. My track record is 100% so far let’s see how I do on this one too. 😉
I thought I was the only one getting that ..
Wyoming michigan march 1 2022 house a house was bought for 130,000 and being resold nothing done to it april 27th for 240,000 that is not a slow process . They will drop quickly and soon here . The median income is 60,000 a year . It will burst soon .
What stymies me is, where are all the high-end buyers supposed to come from??? That pool will run as dry as the Colorado River. But speculators apparently have $$ to burn, they will default and not blink an eye after fouling the nest for hardworking families, seniirs and anyone else who once hoped to buy a secure home.
And how is it that municipalities have become so spineless as to let investors and speculators ride rough-shod over the rest of us? Tbe American Dream has become nightmare.
It all comes down to knowing your poker: you have to know when to hold em and when to fold em. Being one up on the manipulators, scammers, liars, cheats, politicians, wall st. Fed, media and mega Corporations is an art form and can take decades of hard knock economics and various other fields of expertise to master. Mostly all profiting now is by scamming someone, everyone is doing it, so the average innocent nice guys or gals are getting clocks cleaned, regularly. It all starts at the top with the world’s wealthiest families who own most of the money and the largest corporations, then their executors the central banks, wall st on down the line. Each one requires special considerations on their style and capability but they all exist by the same means – to scam anyone vulnerable. And the scamming is not just monetary… It is mentally, physically, emotionally and the biggest, imho, spiritually.
The whole housing market problem is caused by greedy realtors and crooked banking. Ive been a contractor for 45 years im glad im retired what i see out there makes me want to become violently sick .Mostly rookies that havent had a good ethical teaching claiming to be carpenters. The whole things a disgust and will be ending soon
Greedy realtors? What do they control? Banks are largely controlled by federal regulation and builders are throwing up garbage homes with pretty granite and fancy bathtubs that I wouldn’t want to have to repair in 5 years.
I agree! Lots of greedy realtors and corrupt banking or loan processing.
“Greedy realtors”? Who ultimately sets the price of a home, the broker or the seller and the market. The agent might suggest a price but the seller ultimately decides what to ask and the market decides the value of the house.
Please show me someone who decides, “I’m going to be a nice guy and sell my house cheap”.
And than you take advantage and buy real estate at low prices and lower tax rates took advantage in 2008-09 also took advantage in 2020 when stock went super low super cheap and sold super high
As a realtor of some 37+ years, these last several years have been terrible in my town. Medium price of $1.6 million is killing our community. I hope there is a bubble of about 30% down. We probably won’t have one as we are in a very desirable beach area over the hill from Silicon Valley. When you have people with too much money, interest rates are pretty much a mute point.
All cash offers are king and very common.
So there me bubbles in a lot places, but you won’t see one if you are near a place with too much money. As I often say, where are the people you actually need in a community going to live.
Silicon Valley are values dropped 40% during the last RE bust.
Similar in the UK in some smaller communities.
All the big family homes are emptying out of families where the kids have left home, but filling up with wealthy elderly retired couples.
Families are moving away from the area. Or talking about it. Including maybe us if things don’t improve.
Part of us thinks if this trend continues and other friends with kids leave, it’ll be a crappy place to bring up a family over the next 15 years.
It’s very sad how it’s changed since 2012/13 when we moved into the area and decent family homes would sit for months at reasonable prices.
I hope for a 50% drop, after-all they’re only homes, and if you own just one the net effect is mostly irrelevant.
A good bit of reversion to the mean and punish house speculators would do us all some good for the future.
Funny – I think perhaps you and I are neighbors. Maybe you even sold me my house! I agree that a 30% or more drop wouldn’t necessarily be a bad thing for our community and watching with interest to see if it happens. I don’t have any visibility re: cash buyers but I do get the sense that it’s common even at today’s prices. Rank & file comp has changed dramatically in the Santa Clara valley since 2013 or so and there are a lot of people with a lot of money. I don’t think this fairly recent change in ic comp is really understood outside of the Silicon Valley technical community
Then explain how it is seen there. I come to this site to learn. Thank you.
and also to try to shame rich boomers (very difficult, see my post above)…..because they make me embarrassed and ashamed to be one and I don’t deserve to be…I wasn’t a social pig like they were and still are, even in the face of planetary destruction for our species.
Home prices will fall hard if the economy enters recession and people lose their perceived wealth in the form of stocks, bonds, and RE. We’re already heading down that path. Lots of companies in Silicon Valley have lost 80% of their stock value, which means that stock option income has dried up for many folk. Now the bigger companies like Google, Microsoft, and Apple are losing value.
Bobber you make the critical but often ignored point of the power of consumer sentiment (aka emotion) on buying decisions. The technical ability to afford a particular home is not enough if the consumer won’t pull the trigger because they are nervous about job stability, decreasing net worth, etc. Or if the herd mentality says to wait on the sidelines at the moment. When FOMO goes away, so goes the bidding wars.
Never thought a real estate “professional” would admit this. Let me ask: when was the last time you counseled yr seller to accept a reasonable offer, or refuse to sell sight unseen???
I’m a Realtor of 25+ years and I do exactly that, every single time. A reasonable offer may have superior terms besides cash, like a convenient closing date. I also counsel my buyers to not waive inspections, etc. Why is this so surprising?
Every real estate agent with common sense would suggest their client take a reasonable offer. Not because it helps the seller, but because it earns them a faster commission on the sale.
If the seller holds out for an extra $10k, the agent has to put in all that extra work to find that extra pay, but only receives an extra $100 or so to their commission.
So dont think that the agent wants to hold out. They don’t. They want to make the sale, cash their check, and move on to the next property.
@ Funny –
why not 70% down?
So true! Our little town is getting eaten alive by people buying second homes, driving the price up and families can’t afford to stay. As a teacher it will soon kill our school.
There is such an oversupply of buyers, a significant percentage of them could go away in the market still might not be at equilibrium (i.e. 6 months supply of houses on the market).
Where I live in FL, there is about a 2 wk to 1 month supply of existing houses on the market, so theoretically, there are 6x too many buyers
Other factors none of the pundits are considering: new housing was way under built after the crash, from 2007 to 2013 or so; the crash started 15 yrs ago, the US population has aged, older ppl move less.
If you look at the metrics for example, Southern California, since the seventies ,
Every cycle of 10-12 years has a retraction, this cycle lasted from 2009 to 2022 13 years of prices going up steadily because of the historic interest rates being consistently record low, now with the rates going up, housing bubble will pop, not rocket science to see this happen , don’t have to be an expert and don’t be fooled by people that work in the real estate industry that still claim business is great.
True, it’s the relatively small amount of new buyers, pandemic punters, and those betting on permanent work-from-underwear/remote-employment in the last 18 months who will be most affected by a 20-30% drop in housing. That’s why a drop greater than that is likely.
Prices were stretching the limits of affordability before the health scare. There won’t be a correction until prices are at least 30% less than now. 30% is just the froth. If an asset drops 50% it takes a 100% rebound to get back to the starting price. A 30% decline needs a 43% rebound, etc.
Demand was massively brought forward by the corona money blizzard. We are now entering the vacuum created by that. The recession already started.
2-4 years from now there will be good deals again. Hoping for that anyway. You don’t make money when you sell. You make money when you buy right.
I need to believe this & want to purchase soon
Wolf are you a sailor?
I am living on my sailboat in PUNTA GORDA FL.
Then rising sea levels don’t matter!
A rising tide lifts all yachts?
Are you in lashley where all the live aboard’s have to leave?
Back 400 hundred years ago when I attended economics class…..the profs used to say……look for housing starts and airline traffic to determine the future of the US economy
Today it’s more……semiconductors
but…….if housing does soften……it ain’t good.
Mortgage applications the past two weeks have been positive…..sounds like the last desperate buyers want to get in before they get priced out. Semi’s are so screwed up with shortages that any forecast is a total guess.
Welcome to the world of……..everybody is confused…….except the fed who is positive that it’s all as clear as day……of course the day they are referring to is the day Katrina hit New Orleans.
The 9th ward would not have flooded if the corp of engineers had maintained the levy and the corp of engineers had their funding cut off in 2000.
Chaos creates opportunity.
the capitalist mantra. It is why capitalists call capitalism the best economic system in history. You can’t kill it, you can chop off its head but it judt grows two more.
Corporate law allows a corporation to have as many heads as it damn well wants (shell corporations, of different types).
All designed for hiding money, moving or making it, and maybe a few as “punishment lackeys” to be cut-off if society complains too much.
A truly magnificent system!….where in the “system” was the decision made? Who made it?
Why, somewhere in the corporation, of course!..
..and it’s a person, too, (when it wants to be) with all those rights, you know?
Then there are interconnecting boards of directors.
They couldn’t ask for more in a business constructing “law”….and it’s still being fine tuned. SCOTUS just gave them even more rights, today, I believe, as more money is just more “speech”.
Wonder what a month’s worth of rent is in “talk”?
Pay attention to previous sales prices. Many houses are going on the market for outrageous prices that are right around the previous (peak) sales from 2006 or 2007. So if fools want to buy at peak and go underwater until the next bubble, God Bless them. Personally, we’re waiting until the market correction. Here in north eastern IL we’ve already started to see foreclosures and short sales. Not many, but there were none in the areas w are targeting just last month. Good luck to all.
So…building 9ft below sea level in a coastal city that regularly gets hits by hurricanes had nothing to do with it?
The reason New Orleans is called the “Cresent City” is for 250 years, people were smart enough to only build in the areas that didn’t flood regularly…so it looked like a cresent.
No of course it didn’t. Don’t you know that people have a birthright to live where they please even at someone else’s expense?
Having said that, I’m in favor of the government wasting the money to keep the city from becoming the next Atlantis. I could say why, but I won’t.
“Mortgage applications the past two weeks have been positive….
Purchase mortgage applications were roughly flat with 4 weeks ago, after the weekly drops in between. And they’re down 8% from a year ago:
I applied for a mortgage to potentially buy a rental on Thursday of last week, about three in the afternoon pacific time. By noon Friday I had 15 cold calls from other brokers asking if they could compete for the mortgage. I have never had this happen before, even once.
I finally asked one of them if it was really that bad out there, he told me it was. Refis have dried up, new mortgages are dropping off with higher rates.
The blood is too small a trickle in the gutter right now for most to notice, but I think it will increase faster than most think.
Whenever you get a Tri-Merge credit report pulled (one needed for mortgages) — the bureaus sell those leads called “trigger leads” to any mortgage broker wanting to pay for them.
A small solution is to advise the client this will happen and cement the relationship – and/or enter an incorrect email and phone number on the application going in … then fix it after the bureau is done selling the lead. Anyhow…. welcome to the mortgage business.
Lots of layoffs in the mortgage industry already, from Wells Fargo on down.
Some/most of the people getting mortgages now applied months ago and had their rate locked in for 90 days. Expect to see a sharp decline as the locked-in rates shoot upward.
The market isn’t no where near what is was last bubble so many people paying over asking price and cash hard to think they will all just walk away from that investment if only we would see lower prices ill forsure buy more property its always nice to take advantage of peoples fear and make money on it the one I loom at it is if I’m wrong and prices stay low one day than money wouldn’t have been good anyways with inflation I try to take advantage of low markets in 2008 I bought real estate now its wroth 4x and its rental income and In 2020 made alot of cash in stocks super cheap history has shown always buy cheap and hold dont use money you will need asap and you’ll be good
Ariana, all your periods are missing!
They’re expensive, inflation. Gotta conserve them.
In “normal” times a house was an “asset” that barely kept up with inflation and had huge holding costs of:
Now it’s a huge leveraged gamble to score massive amounts of free money and little consequences if it doesn’t work out.
Realtor market data is still showing monthly increases in average home prices that outpace my yearly income.
It’d be nice to have 3-4 start homes sitting collecting a couple hundred thousand every month on value. If you could time the market, hello 10 year earlier retirement. Or more.
Have you looked at rent increases vs. your annual income? Some people falsely believe that there are no costs associated with renting other than writing a check to the landlord.
Nothing is further from the truth.
My rent hasn’t changed the entire time I’ve lived in the northwest. It’s still 600 for a bedroom rented from a home owner.
I don’t plan to rent from a corporate landlord or an apartment or anything like that. I’m not paying 1600/mo for a studio apartment when there are plenty of people on craigslist or by word of mouth that are struggling to pay the bills and will gladly take half of that. By my standards and the way I like to live, anything short of living in the woods on acreage is going to be a miserable proposition. An apartment vs room mates is inconsequential; I hate both options so I’ll take the cheaper. I’m only home half the week anyways.
If forced to rent from an apartment I’ll take living out of my truck or going back over the road trucking. I already stay in hotels half the week, how people can stomach decades of apartment living is baffling to this antisocial hermit. Suburbs are another blight that are substantially worse than apartments.
There are major costs I personally have to pay in this current situation with renting. Mainly my sanity, how people are just content to sit and watch tv in little more than a prison cell is beyond me. Not having the ability to have a dog, tinker in the shop, play instruments, take a piss behind a tree, not have to deal with neighbors and draconian HOA busy bodies, etc etc.
Growing up in a secluded rural area and poverty forcing me into the rat race has given me an amazing perspective on how much the typical American lifestyle is impossibly trite for my tastes. Endless levittowns and keeping up with the Jones’s aren’t for me. Passive aggressive letters in the mailbox and scornful looks every spring for not fertilizing the 200sqft patch of grass to make it a matching dark shade of green for a house I’m just a tenant of is the epitome of what I hate about it.
If only a Davey Crockett level shack wasn’t a speculative investment worth half a million dollars. Thanks j pow and co. I hope it all comes crumbling down. I can’t stand being in city traffic, snotty people, and the absolute boredom of TV watchin’ livin’.
Yeah, Prices are insane, I had found a place I really liked was triingvto get pre approved before Covid & prices went insane, now I’m stuck waiting & think maybe cheaper to live on cruiseship
That’s good stuff TG!
TG: Not everyone can live the lifestyle you do because they have children and need access to employment. The comment I made referred to the comparison of cost of renting vs. owning was based on other posters who crow about how much better it is to rent, as if those ownership expenses aren’t being passed on to them by their landlord.
My rental experience was different and we couldn’t wait to escape cliff living. I own (thankfully) and my costs over the past 5 years have increased about $200 a month (10% over 5 years) as compared to my daughter who got whacked with a 37% increase in her rent, alone, on the latest lease (one year) renewal.
The community I live in is considered a “resort”…. so it’s empty for 8 of the 12 months of the year. You could literally lay in the street in front of my house and not worry about getting run over. Not many Karen’s to deal with as they have now left “after the season” and I don’t frequent the “amenities” when they are here. I live here to get away from the noise and rat race. It gives me hives when I have to go where all the “fancy folk” go.
We figured out the American lifestyle a long time ago. I rode the wave of corporate life only to provide good schooling for the kids and access to specialized health care for the spousal unit who I lovingly refer to as the Bionic Woman. We now live where, often, the loudest noise you hear are a hummingbird’s wings.
Average home price can be a little misleading, because it depends on the mix of houses being sold. Right now, the most stretched buyers, ie the ones trying to get into the cheapest homes, are dropping out. The ones left are the ones with enough cushion that they’re buying more luxurious homes. When lower end houses stop selling entirely, and high end houses have slight price cuts, the average selling price parodoxically still goes up, purely because the mix of high end and low end houses starts tilting toward high end houses.
The real indicator to watch is the Case Schiller Index, which tracks sales data of individual houses, which means it’s not subject to changes in the mix of housing being sold. But that index is based on past 3 months of actual sales, which means it always trails the market by at least 3 if not 6 months.
Property taxes in Texas have skyrocketed. The state should be renamed Taxes. Now the property taxes and homeowners insurance are as big or bigger than the mortgage payment. People cannot afford to live in the houses they own unless they have a huge income to support it. My daughter owns a house that was worth $150,000 at most a couple of years ago. Same house is now worth $600,00.
Move to Nebraska high taxes cheap houses
Real estate in Austin is insane if you believe Zillow’s numbers. I see numerous houses sold in the last two years now valued 40-60% higher.
Zillow is one of the culprits here. I gave up looking for an affordable modest home here in Vt last year. Zillow flooded the internet with properties half of which were not real in terms of value. An outfit like Zillow cold-calls a homeowner and offers to list it at some astronomical price based on some algorithm. Of course the elderly or upwardly mobile are going to bite the bait.
More recently Zillow backed away from that sham. You can Google why for yourselves, but basically they stepped in sh**.
Zillow is based in Seattle… the failed city where income inequality is on display under every bridge and in every park…where else???
Housing has always been a money maker if you had the right income for the house you bought first most only payed the bare minimum you should always pay extra to free up cash if you need it you save up enough and buy another house with your equity and so on intrest rates were high at a time so people who only made the minimum never went anywhere but inflation wasn’t ever 20% so people just always buy stuff they can’t afford you can always make money if you buy at the right time all the people that sold in 2008 lost money and credit i bought and gained there lost the people that held got all the equity back plus way more
Ariana, are you so busy that you don’t have time to type in periods at the end of your sentences?
It’s difficult to read that stream of consciousness.
I agree that prices have skyrocketed…BUT…there are two hard truths:
1. Demand still outstrips supply. There are simply not enough single-family homes – hence the spikes in apartment construction. See it all over Austin, TX.
2. Our homes, for decades, have been built by cheap labor and, as a result, a perfect storm has been brewing on the construction labor side for years.
Because the labor side has been predominantly driven by undocumented workers (which builders, realtors, architects, lenders, and homeowners gladly accept) they had no voice/leverage in improving their pay and quality of life. However, because fewer young people are going into the trades (“Geez dad, I want to be a barista and not a roofer”), and the tightening of the borders, there is definitely now a shortage of skilled labor.
Presently, the skilled labor force (albeit dwindling) is still dominated by undocumented workers, but they now have a voice and are finally getting just compensation. I’m glad these men and women are finally getting prosperity wages – not just “living wages” for their families. It’s time we ante up and pay realistic wages to build our homes.
It makes no sense that a realtor makes 3% to drive a pretty SUV and show a couple a house for 30 minutes (if even) and walk away with $30K on a $1,000,000 house. And a framer that risked his life to frame the same house over 3 weeks probably made .003 percent of $1,000,000.
When home prices fall, the construction costs will not inherently follow suit. No way.
On the coasts, it’s the land cost that is the primary input. When a 3,000 ft home on a postage stamp lot goes for $3M, land has to represent 60% or more of the cost. That land component is highly speculative and can fall fast.
Tightening of the Borders? Whoa. I must have missed that one. It’s relatively easy for predictions when you don’t encompass all the factors that are involved. Sure, housing availability is a factor. But, having a job and qualifying for the mortgage is also. It takes a ready, willing and able buyer for every seller. What about the companies entering a recession who have to layoff employees. Suddenly they’re not qualified. Could a downward spiral affect housing prices? Availability or not. There are always sellers have to sell regardless of “market” value. They will lower their price. Then the Appraisers start lowering their values as well. Homes don’t appraise for contract price. Bankers don’t lend. Stocks & Bond losses affect the amount of down payment available. I’m just saying there are a lot of factors to be considered.
Kentucky, maybe your state’s borders are tightening, but I will guarantee you that my state’s borders are not (Texas).
The point is the Texas borders are tighter now than when Texas homes were built in the 70s, 80s, and 90s. That’s a fact. Are people still crossing? Absolutely. But not as easily. The spigot has tightened.
I remember in the 90s, ICE did a raid in Austin, and a group of masons was deported to Mexico. Those masons were back on the job within 48 hours.
In the late 70s, ICE raided a big steak house restaurant in Chicago. Loaded the whole staff up and took them back to Mexico. Most of them beat the bus back.
A friend watched ICE come to a large shopping plaza total remodel, take EVERY person actually working with a tool away, leaving only the ”stuporvisors”…
Workers never came back, and the project was absolutely stalled for six months in 2017…
Tons of workers needed urgently at every level of construction industry from what I read, but being retired, SO SAD, TOO BAD,,,
@Kentucky: We were building a house in Denton, TX in 1998. We were delayed by a couple of weeks because the builder rep told us that they had to send all of their workers down to Austin because of an ICE raid. He knew it would take them a couple of weeks to get back across the river, and sure as that, our construction resumed about two weeks later.
I was doing oil & gas work in the Zapata, Texas area and illegals like that area to cross the river (shallow areas). Illegals often asked the oil field workers which way was Houston and they were told “just go straight north of here for a while”. Of course, straight north meant 100 miles of sagebrush, rattle snakes and 100+ heat. I hear some actually made it the 100 miles.
@Halibut – sounds like what used to happen with bears in Yosemite valley, also back in the 70’s. They’d come down in the spring and throw cubs into the trash containers; the ones with flat 800-pound plate-steel lids, flush to the edges, and a hand-pull chute. The cubs would pile food-scraps into the chute. It would get dangerous for tourists and the Forest Service guys would tranquilize repeat offenders and drive them out into the Sierras. You guessed it, the story was that the bears often beat them back.
OK AA, I’ll give you what you are trolling for.
How many people do you figure you tortured and killed?
Maybe the state should do something about its own borders…
It’s still primarily a function of the lowest interest rates in history. I would add basement level credit standards (which some call “strict”) but that’s not going to change for the foreseeable future.
The country and the population didn’t magically become wealthier during the pandemic.
It’s an artificial crack-up boom.
If you think Realtors do 30 minutes of work for $30K, then you should go into it. And good luck to you… 95% of newly licensed agents are out of the business in 2 years, because they go broke… You clearly have no idea how difficult it is to make a decent living as a Realtor. Tell my wife and kids how easy is when I work 60+ hours per week and miss most sports games, school play and concerts and social events held evenings and weekends for my “easy job”. With no benefits, health insurance or company funded retirement. I’m not complaining, I love what I do and for me the pluses outweigh the minuses. But it isn’t “easy money” by any stretch.
I believe the industry is broken. Sincerely. Houses are truly not sold on the merits of their construction. It’s smoke and mirrors. It doesn’t matter how well built the home is or isn’t. The 3rd party inspections prior to closing are the equivalent of getting a doctor’s physical fully clothed while wearing a winter parka.
Realtors, understandably, promote the nearby schools and walkability of the neighborhoods. But, without disrespect, realtors don’t know whether a house is well built or not. Nor do the third-party inspectors because the inspections are superficial. They don’t go below the surface.
If someone is seeking to buy a $600K vintage car or a $600K piece of fine art, a smart buyer would enlist the help of a seasoned professional/expert to scour the car or painting for provenance and defects. People buy $600K houses on a $300 superficial inspection every single day. And in this hypermarket, many are skipping those inspections.
We don’t value the real construction of our homes. We value the subway tile and the chef’s kitchen.
When I was a new Realtor back in 1986, I was selling a condo as my first transaction. I mentioned at the staff meeting that there were no organized guidlines on how to proceed step-by-step. The manager appointed me as head of the committee to draft a procedure manual for new agents. Turned out that there are 23 steps (in CT) to a condo sale that the agent must perform. People think selling homes is just turning a key and getting a signature. Not so.
Housing prices have Bern artificially inflated by speculators from Wall Street.
Together with the corrupt media they manipulate the people.
For instance, what hsppened in 2007/08 when gas went sky high? People struggeling to put food in the table and ging to work stopped ging to spend on nonnecesseties …and crashed the market…
What crashed the market was the collapsing banking system and financial sector, and the housing bust. This was a financial crisis. Americans and the rest of the world looked at it with shock, and stopped doing stuff.
Yeah, it’s a real brutal job for sure.
“It makes no sense that a realtor makes 3% to drive a pretty SUV and show a couple a house for 30 minutes (if even) and walk away with $30K on a $1,000,000 house.”
I’m glad someone finally had the guts to stand up and tell the truth for a change. Many realtors (Not all) we deal with are lazy, incompetent. and completely useless. We appraisers wind up having to do most of their work for them. They often refuse to show up to the property relying on lockboxes. When the weather is nice they are more likely to be found at the beach or playing golf, rather than doing their job of helping sell their listings or show the property.
Like I always said when I lived in California, “When real estate gets slow, the real estate agents go back to the tennis courts”.
I agree with everything you said, Tom.
If it was that easy everyone would do it.
Everyone IS going it. And most are now starving. There are way too many Realtors (another sign of a bubble). Only the good ones will make it through this downturn.
The realtors that I’ve used over the years to handle the very few personal house purchases and sales were so crooked, lazy and incompetent that they nearly killed their own deals and lost their commissions. Except for a few good ones out there (5%) most of these people are part timers who couldn’t get a job that required real skills or work ethic.
EL…..And you made $20m (so you said) at it. You must be “good”.
Sell it yourself? Put up a sign and wait. Get a realtor and stand out of the way. They do more than I ever thought . From finding buyers finishing paper work and everything you never had a clue about. I have never tried being a realtor and I hate paying their fees but I love their results.
I’ve sold several homes without a realtor. It’s not hard at all.
Tom, you seem to have blinders on with that comment. Yes, Realtors are truly leaches on on the real estate industry. You truly make the easiest money of any industry just because you have the MLS racket in your corner. If an Elon Musk-like individual could create a true buyer-seller platform on the internet it would put the MLS out of business finally. All can use standard title companies’ sales documents readily available to all. Realtors at best are worth a fraction of what is typically charged in real estate transactions. This is the underlying problem as to why real estate inflates so drastically. Imagine when a property is sold just three times. A conservative 18% commission makes any transaction hyper-inflated. There’s something wrong with this scenario as any reasonable person can see.
“1. Demand still outstrips supply. There are simply not enough single-family homes –”
This is RE propaganda. What has happened is that people haven’t put their vacant homes on the market to ride up the home price spike. But this has now ended. This is the shadow inventory that is now slowly starting to show up on the market.
For example, in ALL major coastal cities in California, the population has dropped for at least two years in a row, and in some cities, it has been longer, such as LA. This includes San Diego and San Francisco. While at the same time, lots of new housing units have been built, and there are plenty of vacant homes out there.
The Census Bureau’s numbers of vacant homes are nonsense because of the problems of identifying vacant homes and defining what a “vacant” home is. But if you build lots of new homes, AND the population is dropping for two or more years in a row, you don’t have a housing shortage that is driving up prices, you have a ridiculous bubble mentality and RE propaganda, such as you posted, that is driving up prices, and then they pop because the fundamentals are gone.
Agree with your point regarding locations where the population is dropping. Unfortunately, that is not happening in central Texas. It’s extremely difficult for any of us to make blanket statements that ring true for the entire nation. I speak specifically about the central Texas market.
Austin, TX really didn’t need stimulus money outside of the hospitality and service industries. But because the government couldn’t pick and choose which industries get the stimulus money, Austin became the epicenter of an all-night drug-induced rave.
For example, did that ATX law firm REALLY need millions in PPP loans? But because the PPP loans were not discriminatory with regard to industry or region, the free for all will deliver a throbbing local and national hangover.
And with blanket statements in mind, even within a specific city, there will be different pressure points with regard to valuations. Within the ATX metro area, the outer bedroom community bubble will see more percentage drops in value than the core downtown/central bubble. It always comes back to location, location, location.
Dad and I had wheat nurseries in Castroville and Hondo long ago.
Good farmland and good people. West of San Antonio.
This is God’s County
Drive Through It
-Sign post at the edge of town.
Austin has become completely uninhabitable. Unlike modern cities with mass transit, it has very little. Consequently there is gridlock everywhere. I have been in huge traffic jams in Austin on I-35 at midnight on Saturday night. Anyone with any sense wants to get out because it’s over.
Your “construction quality” and “appraisal” comment is dead on, though…no stats involved there. I only owned one home in my life and I built it all myself…..took 16 years, though, only 4-5 full time while officially living there, and I never got to the finish stuff you mentioned.
The buyer had two contractors inspect it, plus I had complete set of construction photos of all hidden stuff.
One said, “What are you building, a bank?”
Lots of new construction in coastal California???? Simply not true. try Zillow.
Look at the actual data, not at the Zillow idiocies, for crying out loud.
In 2021: Total Numeric Housing Unit Growth during the year: Rank, City, Total growth in housing units:
1 Los Angeles 14,493
2 San Diego 6,378
3 San Francisco 4,497
4 Oakland 3,551
5 Irvine 2,775
6 Bakersfield 2,209
7 Roseville 1,892
8 Sacramento 1,698
9 Fresno 1,644
10 Fremont 1,642
From the Dept. of Finance, State of California, go to page 11
San Diego’s building boom is a combination of multi family buildings being built all over and the massive increase in building of ADU’s, especially in the city. The Mayor and council here have overshot the state ADU mandate by immeasurable amounts. Technically, there is no limit as to how many ADU’s you can build if you choose to participate in the city’s “bonus” program. This has effectively rezoned every single city (not county) parcel to multifamily, not the presumed two homes on a lot as the state envisioned.
You want to know why things are so expensive in the city? Take the sun, the jobs, and then toss in a very progressive city council and mayor who effectively up zoned the whole city; higher zoning almost always drives land values higher.
In case you think I’m kidding, just look at the ADU permits pulled in the last several years and how it’s exponentially increasing in 2021 and 2022. Look at the rental listings and see how many are a second, third, or fourth unit on a lot. Look at the sales of a property bought last year and now on the market this year, half the time it’s got a new house on it. Junk is selling for close to a mil only because it has duplex, triplex, quasi apartment, etc potential.
The latest dirty trick the city has pulled on a couple of neighborhoods (one by SDSU and the other by UCSD) is to propose rezoning fully half of each area to allow 5-8 stories tall. Most everyone is fighting it and we stand a chance of getting them to reverse their decision, but if it actually gets rezoned get ready for junk parcels to go for 2 mil or more as developers buy up adjacent parcels to build 100 unit plus complexes.
As was said in the pod cast: look at San Diego, it’s crazy what’s happening. But it’s not that our prices are crazy, they’re largely determined by crazy political decisions, all of which have made land value skyrocket.
I realize I’m always walking on thin ice every time I post here so I’m going to abstain from posting the various links to the various websites that have documented what’s happening as well as the city site that spells out the city’s code. If you want them let me know, but they’re easy to find.
Land values will continue to rise here in crazy ways as long as these policies are in place.
@ Wolf, well, it depends on your definition of “coastal” then. 🙂 I don’t have data, so I will just guess that almost none of that growth is within sight of the ocean (say ~2 miles).
@ Bob, the SDSU area is an abomination now. Tall ADUs 3′ from the PL poking out from behind single story cottages. Those used to be cute working class neighborhoods. I guess the upside is that anyone willing to leave gets to exit with a whole lot more capital than they would have if this explosion hadn’t happened. I feel terrible for those who don’t want to, or can’t, leave.
In San Francisco, for example, if you live next to the Pacific, be prepared to not see the sun in the summer, and be prepared for misty, cold, and windy weather in the summer. The cheaper housing is out that way because it’s tough to endure the weather. There are micro-climates in SF that are much more comfortable, with plenty of sun in the summer.
I live in SD. Have for almost 40 years. Used to be great. Totally sucks now. I just came in from listening to a police helicopter with loudspeaker describing a criminal they’re trying to catch. This happens almost daily. I live in a very expensive area. Can’t wait to leave. America’s finest sh#thole.
Yeah John, it’s really really bad here. Get out and talk as many people as you can into doing the same. I’ll stay though….I like suffering…masochist, I guess.
“But if you build lots of new homes, AND the population is dropping…”
The population is not dropping that fast, compare to new family formation by millennials .
yes, we don’t see population growth to cause the home shortage, but we have long waited millennials that wants to come out of basement!
Every open house I go, I see 95% new-wed couples or , families with 4-6 year old kids.
What hold this crap housing market from collapsing is millennial’s need to experience life.
Yes, we (millennials) are bag holders!!!
We have to feed the 401k payments to lucky Boomers, pay their medical bills with our taxes, and buy their crap houses that were built God knows how many decades ago.
And at the same time get humiliates that we cant stand on our two feet.
I am not buying anything now, done!
feel the frustration?
Educated but Poor Millennial,
Good lordy. So lets unpack just this one:
“(1)We have to feed the 401k payments to lucky Boomers, (2) pay their medical bills with our taxes, and (3) buy their crap houses that were built God knows how many decades ago.”
1. unadulterated BS. Everyone “feeds” his or her own frigging 401k payments. Learn how they work.
2. boomers paid all their working lives into Medicare, and now the older half of boomers are starting to use it, and they’re STILL paying into Medicare because Medicare is NOT FREE. Boomers bitched for decades about paying these payroll taxes, and now they get to benefit from them. You get to do the same thing: bitch about them for decades, and then benefit from them, while continuing to pay into them.
3. Buy their “crap houses?” I thought you said you’re not buying “anything now.” And if you don’t like the “crap houses” the boomers had to live in, if those “crap houses” are too shitty for you, well, build your own super-house that meets your standards and stop whining, for crying out loud.
Educated but Poor Millennial, You need to change your screen name. You give millennials a bad name. I know a bunch of millennials, and they’re running companies, and they sold companies, and they work hard and are making a lot of money, and they’re movers-and-shakers, not whiners.
No need to change my Screen name, because we are poor bag holders with master degree , LOL .
The house build in 1940 in LA is a dream for us. Yes they are untouchable crap. New house to built,? Well that is even more unaffordable, no need to explain. Put yourself in my shoes, with a higher degree, me and my wife are working professionals that cant afford a place to buy, solution? Let me know.
Thanks for pointing out that you’re already privileged. So quit whining. And join the club. I had a master’s degree and couldn’t even find a decent job, rented a dump, worked hard, eventually got a second master’s (MBA) to get a better job, during which time I also worked, as I worked my entire life, school or no school, because I was poor, and had no parents, and eventually I could buy a condo in one of the cheapest cities in the US, namely in Tulsa, not LA.
Get real. These are issues that have dogged all young people for generations unless they grew up wealthy. And not many boomers grew up wealthy, I can guarantee you that.
You can probably buy a condo in Tulsa too. Something like $100k will get you a decent unit. A house might go for $150k. Some of the commenters here live in Tulsa. I highly recommend it. The city will pay you $10,000 if you move there with your work-at-home job. If both of you do that, you might get $20,000 to move there. Great down payment!!!
But no, you want to buy a house in one of the most expensive cities in the US at your young age, and you’re whining because you can’t. And you’re whining because the houses that boomers live in are “crap houses.”
I look at the millennials that I know personally, and they work hard and scramble, just like I had to when I was their age, and I still do.
But they’re a lot smarter than I was, and have access to a lot more info than I had because when I was that age, the internet was in its infancy, and we still had “car phones” and the only thing you could use them for were phone calls. And those phones cost $2,000 installed. Eventually, we got cellphones that you could carry in your pocket, and that was a huge thing. And that tech eventually turned into useable smartphones.
You have no idea how privileged you are. Boomers gave you that tech and made it cheap for you.
The millennials I know remind me very much of me in my younger years, bound and determined to do something with their lives, and it’s hard and often frustrating, because no one gave us anything for free either.
I’m sick of this generational whining and blaming.
10 years ago, it was a few boomers whining about the “entitled” millennials, and I shut that stuff down here.
Now a few of those millennials are returning the favor, and I’m shutting this stuff down here too.
You are absolutely right
Educated but Poor Millennial
You Millenials didn’t have to serve in the military (its all volunteer now) and were not dragged into the Vietnam War like a lot of us to have our lives ruined when we went in and when we came out of that unpopular war into a sick Stagflation economy . I am so sick of listening to whining dogs like yourself and frankly I don’t give a f$ck about your problems. END OF STORY.
Regarding (1). There’s no shortage of actual housing. The number of housing units in the US, divided by the number of people in the US, is the same now as it was at the peak of the prior housing bubble.
The shortage is in housing, in places where people want to live, that’s available for occupancy at rents or prices that people can afford.
A few points. There may be local areas where demand outstrips supply, Austin being one. But for most cities, and the country as a whole, this isn’t true. Household formation has been lower than new housing construction for several years now.
Second, absolutely construction costs can and will come down if/when there’s a bust. Construction has high fixed costs (that backhoe still has loan payments whether it’s working or not) which means people will often take on loss-making jobs because something is better than nothing.
Also, regardless of what it costs construction companies, what they can *charge* the end customer will be based on comps. In the last housing bust, I saw new construction luxury homes being sold for land value, ie the construction cost being charged was zero, because that was what everyone was pricing their houses at just to get out from under a property whose carrying costs were eating them alive.
Bottomline is prices can come down quite a bit regardless of what intrinsic costs might be.
U never worked in construction,can tell by your idiocy.most profit margins are 5%
Not true at all small bug:
Worked in construction from 1951 to 2019, and although 5% was the absolute MINIMUM I personally ever added to ALL costs including overhead, most of the contractors I worked for, especially the remodel specialists, added at least 20% and some just took all the ”hard costs” and doubled them.
Average on top of ALL costs was probably about 15%
But isnt that just businesses net-profit after every potential cost and upcharge has been paid? A secret you learn through business mangement experience is that nearly every (lasting, successful) business really has to make about 50% gross margin over true base costs to survive, then they divide that margin up across other subjective “overhead” expenses like paying executives and leasing an office, losses, then you report any remainder as “profit”. So if you decide to get a newer more expensive office or choose to give yourself a raise, you subtract that from your margin, then suddenly you can claim to be making slimmer profits and try to justify raising prices agian… Obviously the same isnt true for many incompetent small businesses that for some reason try to compete for the bottom lowest-price seeking customers, but there are other business secrets to stay out of that market as well. Car dealers pull this all the time, buy a trade in for 10k, sell it for 20k but claim theyre only making a couple percent profit because of “costs” when really the cost is just the managers overpaying themselves. Basically if youre not charging double your costs youre not running a business up to modern standards in our hypercapitalist society.
If you work in construction and the best you can make during good times is 5%, sounds like you shouldn’t be in construction.
If 30 minutes were in fact all it took to gain that 3% I’d agree with you unfortunately that is no where near close to neing reality sire be nice if it were 🙂
30k in labor to frame a $1,000,000 sounds about right here in Puget Sound country.
Could go to 50k if it is a complicated project.
No way to generalize that portion of construction of any type building EL:
Depends HUGELY on if cast in place concrete foundation only, slab on grade over block foundation and side walls of frame or block, stick frame or trusses for floors and roofs, etc., etc.
It’s why the ”estimating” part of the construction industry is where the old folks who know their math — and now computer programs of all kinds,,, AND have ”paid their dues in the field” end up.
Thank you. We’ve sold 4 houses in our lives as my career took me to new areas of the country. Each time the house sold itself within a matter of 1-3 days. Three of those houses never even had time to put a sign out front. When I think about the outrageous amount of $ spent on middlemen for very little work it just bothers me even to this day. Even when looking for a home, I’ve already identified the hinges we want to look at. The realtor simply unlocked each door. That industry is ripe for disruption.
Amen Jake! Out with the Realtor leaches.
Everyone I speak to thinks this is a housing bubble, “great time to sell,” etc . It is the opposite of 2006-7 when everyone I knew thought housing prices would always go up.
Based on that popular consensus, perhaps housing prices have a lot farther to go up— especially in markets where many/most purchases are for cash? I say this as someone who sold their house in March of last year—every single person said “it’s the perfect time to sell”. Literally, 100 percent consensus on that opinion. So— can’t be true?
I predict and I hope I am wrong that Home Prices will drop much faster
then expected especially in the first 3 Months after the Pop and in the Hi End Markets.
The way the Fed created this whole mess has created a trend of similar types of events all in the wrong direction.People have learned how to keep Money rather then let it flow .
Was learned it from the Fed it seems.
Banks and credit unions not raising savings rates on deposits but rather
keeping funds in house and the Fed word transitory comes to mind.
Such BS is not a Happy Camper situation.
Home speculators may jump to sell before Home prices drop father time will tell.
With the huge Inflation of home Value currently how could a huge drop be surprising ?
2020 to 2022 saw housing prices increase at a faster rate than 2004 to 2006. We have also seen mortgage rates rise at their fastest pace ever.
I suspect the decline in prices will likewise be swifter this time around. A 20 to 30% decline by this time next year is quite possible.
I think this Fall is when the panic will truly begin to set in.
“I think this Fall is when the panic will truly begin to set in.”
The SHTF January 23, and every day thereafter.
Mark your calendar.
No way dude, financial doomsday will happen on the 30th of February, 2023. Guarantee it. Wanna bet me a million bucks?
You’re not old enough to vote, are you Gbanga?
Let me give you some advice. It does not pay a prophet to be too specific, unless you’re really, really sure. Then it does.
For example. I can tell you to the day when the US federal political system will begin to unravel.
As for ‘financial doomsday’, for half the population that occurs two to four days before payday, if not earlier, on a regular basis.
Did unnoticed feb 30 no such date hahaha
Not only am I old enough to vote, I am old enough to have been elected Prince!
— your friendly neighborhood Nigerian Prince
A “huge drop” would be surprising this time around as opposed to 2008’s “fake” demand because of two different real dynamics in new construction:
1) The sales prices of new homes are in line with historic profit margins for homebuilders as they navigate crazy material increases and
2) demand for new homes continues to outpace inventory.
Until these two dynamics are interrupted, housing won’t crash. Most likely what will occur is sales prices will simply level off. Where’s the bubble under this scenario? If you’re talking about the economy as a whole crashing, it won’t be because of housing (or should I say fake mortgages) that brings it down this time.
Let the real estate collapse like Lehman! About time!
Yup, couldn’t agree more, let it crash twice as fast as it went up and twice as hard in the decrease as well. Although I think the likelihood of that happening is very low and will take years to play out as many sellers especially in hot market like Socal is still asking insane prices, it’ll take many months for these sellers to stubbornly lower the asking as long as there’s still whiff of demand out there.
Crazy thing is, people noticed there’s a bubble after this crazy covid spike yet as a readers of this site will tell you, the bubble use already there well before 2020 as Wolf wrote about it many times before.
Okay, so let’s say it does drop precipitously…
Where are you?
You see a house you want to buy… at what point do you pull the trigger?
10% drop ? 20 % drop? 30 % drop? Is it a primo property or a dump? Mortgage rate vs price drop does matter….
Are you going to be pissed because you bought at a 20% drop and it continued to a 40% drop ?
Or did you wait and somebody else bought the property at a 20% drop while you were waiting for a further drop…
I would opine that when or if housing drops, you could just as bad off if you bought into the mania at very low interest rates as buying into a downturn now with higher interest rates without seeing how it shakes out…
Just because you can’t see the mines in the field,
doesn’t mean they’re not there…
That’s called a market.
It usually works pretty well unless government steps in with cheap and easy money or price controls.
I’ll give you a hint.
At one time, newspapers used to have articles on why renters should buy because it was “cheaper” to own you own home. But renters didn’t want the risks and costs.
And rental houses were cash flow positive on day one or they never got off the ground.
And NO ONE banked on sweet equity to fund a retirement or put kids through college.
“ And rental houses were cash flow positive on day one or they never got off the ground.”
Actually not, brother…
Prior to the Reagan/Stockman screwing of America, rental houses had a 5 year depreciation schedule..,
Afterwards it was changed to a 20 year depreciation…
While cash flow positive is certainly nice, tax flow positive is infinitely better….
“ And NO ONE banked on sweet equity to fund a retirement or put kids through college.”
Many people through the years used 2nd mortgages or HELOC to pay for their kids college… also many folks in Florida would probably disagree on the retirement part…
My thoughts exactly.
A while back I posted here that I can imagine discussions here not about how long the insanity will last on the way up, but instead how much more can it fall and if this is the time to go all in 🙂
Alku, I think you’ve got a good question. It would be great if someone like Robt. Shiller (or Wolf Richter) weighed in on that – what are the characteristics of a housing market bottom?
A book on stock market analysis, “The intelligent Investors guide to stocks” by Kiril Sokoloff, described a bottom as when bad news no longer affects the stock price in any meaningful way. Call it a dead cat non-bounce.
There’s also an interesting book written by Russell Napier in 2009, “The anatomy of the bear”. He reviewed business journal articles (e.g. WSJ), reports from the FED, etc. a few months before, during and after of four major market bottoms. He described some common identifiers as: news of economic recovery was generally ignored by investors as they had all gotten too pessimistic; there wasn’t a “capitulation” – it was more of an absence of energy/enthusiasm/belief – volume was low, investing interest was low.
But I wonder if something out there describes housing market lows…
Or what if the price drops 30% but interest rates on your loan are 15%.
That actually happened to us in 1984ish. Worked out quite well for us. If mortgages are 15%, bank interest on deposits is in a comparable place. We also made one additional payment against the principal per year. Due to a confluence of circumstances (no, not a gift or inheritance – promotion and a successful side hustle), we paid it off in 5 years and then continued to make the payment to ourselves. That’s how we became our own “bank” and have done that ever since.
Nothing like those usurious rates going into your own pocket rather than a bankster.
The bubble has already popped, there have just been too few transactions yet to cause the numbers to roll over in a significant way to affect the statistics.
The other factor that might come into play is social media. I called the last bubble but there was very little way to get that message out and the narrative was controlled by the lame stream media that gets a lot of advertising dollars from the REIC. Now things spread like wildfire on social media. – look at crypto, meme stocks and NFTs. On just the handful of social media sites I follow that discuss a possible bubble it’s gone from never gonna happen to how bad is it gonna be by the commenters just since the start of the year. Of course interest rates have changed the game, but it only revealed what a house of cards the whole thing was.
My prediction for a few months now has been that all pandemic related gains in stocks, crypto and RE will get wiped out. Could go lower, much lower but that’s my minimum target for now.
Banks are the experts at making good loans and they don’t always get it right. Government guaranteed bank loans during Pandemic ensured a lot of debt was added to the system that is going to be a drag on the future.
There are reasons 10 year in Japan is 0.2% and in Germany 0.9%.
reminds one of student loans doesnt it?
Or how the S&L debacle began….
This would only occur if all the money supply created by the Fed during the pandemic is somehow sequestered and withdrawn. That cannot and will not happen.
That’s already happening through the RRPs, and will happen more seriously through QT.
Won’t this money also “disappear” if it were invested in anything that subsequently drops in price?
Of course it’s an unrealised loss, but from an accounting perspective it’s a real loss.
I assume if you look at say Nasdaq and multiply volume by price on a daily basis where price was above todays value, you can calculate the sums ‘lost’ for any give investment asset?
There must be hundreds of billions going down the pan right now, before QT begins?
RE problems are with two major climate events, sea level subsuming most of FLA and the CO River going dry. The Midwest is now blanketed with dust storms, was never habitable, (why the plains Indians were nomadic). Inflation represents the cost of being on high ground, financially or otherwise. This is the big reason why the auto market is otherwise buoyant, as a renter you can always get away from the place you are at. The problems in the [nomadic] economy are psychosomatic, cultural, micro-environmental. Destruction of habitat.
1) Tiny sample — one unidentified very garbled data point
2) total garbled politically. What does beach have to do with wokeness? Like, what’s the point here, the message? Why not just say whatever it is? Is it contempt for rich people or something about real estate or politics or what?
3) Um — wealthy people like it at the beach because it is really nice and they can afford it? They can move away or collect insurance if there is a problem?
My proximity (as a non-wealthy but fortunate person) to the Pacific makes it 10 degrees cooler all summer than inland. And not being on steep highlands means away from the fires that now happen every year.
Northern Midwest where the water is (and where the dust isn’t) is the future. Places like Duluth and Traverse City will be the booming cities of the future.
Oglala reservoir water going into corn going into make work fuel plants….maybe add mass societal psychosis problems?
To intelligently discuss this topic one must consider tgese points
*Replacement costs have soared, unlike previous bubbles
*There are corporate entities standing with piles of cash directed to invest in real estate by their investors in attempt to beat inflation, unlike prior bubbles (2008)
*VRBO makes it easier to invest and get a return on residential investment
Cash buyers have been relatively unchanged in the range of 23%-28% of total buyers. And they aren’t stupid. They don’t want to overpay.
Overall home sales in March — deals made in Feb, with rate locks from prior months, when rates were a lot lower — fell to the lowest since June 2020, down 4.5% YOY because your “corporate entities” can’t make up for the decline in home buyers.
Most of the buying done by corporate entities was to acquire huge portfolios of rental homes from developers and management companies with no impact on the housing market. Just big corporate entities shuffling billions of dollars of rental homes around amongst each other. I’ve covered this many times here.
You miss the concentration of ownership IMO
Fewer own more and more
Mostly from China? Flea
Replacement costs do not determine market values.
Corporate entities rely on the same cheap money and loose credit standards as individuals. But unlike individuals, the government doesn’t (normally) guarantee the loans used to buy homes in bulk. Higher rates and tightening credit conditions will impact corporate buyers at least as much as individuals.
Corporations do not buy homes to live in it. If the ROI doesn’t meet their minimums, they won’t buy or sell what they own.
Corporations also depend upon renters who can afford the rents they charge. I’m placing my bets that far fewer will be able to afford current rents in the near future (maybe next years if not sooner) than can do so now.
“Replacement costs do not determine market values.”
Do you deny it is a consideration as to values…which was my point?
“I’m placing my bets that far fewer will be able to afford current rents in the near future”
I agree that the trend may be shifting….now try and rent a place in AZ or FL…and tell me what you come up with.
I would argue that the enormous bank and government financing scheme bailouts of around 2009 constituted a government guarantee (albeit after the fact) of loans used to buy homes in bulk. Too big to fail, remember?!
That’s what I had in mind as an exception, hence not “normally”.
I also can’t say it won’t happen again, but the government is running out of latitude to subsidize anything and everything all the time.
Going forward the government is going to increasingly have to choose. The inflationary effects of the “printing” and deficit spending are just the beginning.
I’m going with the belief that they’ll never stop. No matter how deep into scientific notation they need to go, a dollar freshly poofed into existence will extinguish the risk taken on of any dollar of debt these banks get stuck with. All side effects of this policy are external to the system. These purseholders will ride this wave all the way in until it’s nothing but a mist.
By the time the cost of houses drops to where people used to be able to afford them, very few people will be able to afford them. Even fewer than those who can afford them now. Much fewer.
It’s such an easy prediction, I’m a little disappointed that so few people see it. I suppose we don’t have enough eye-openers yet.
Interest rates will be higher, the economy will be (much) weaker, and employment will less secure with many fewer jobs.
He means REAL eye openers…..no analysis required.
Used cars are still to high they need to drop another 25%+ to come into parity.
I think it’s unlikely, as I pointed out, that prices will go back to the old normal of mid-2020. That’s just how inflation works. It backs off some for some product, and then people start buying again, and prices rise again. If prices drop 15% or even 20% at the retail level, they’re still much higher than before, but people think it’s a deal, and off we go…
The home price to household income ratio varies from place to place. I read Ft Myers/Cape Coral has the most overpriced real estate in Florida. Mortgage rates are expected to increase this summer. Work from home employees have been returning to their offices.
1) In the last 70 years, since the 1950’s, we had 11 lightweight recessions.
The worst and the longest was : (-)5.1%, 1.5 year, between Dec 2007
and June 2009.
2) In 1966 the Dow peaked @1,000. Four years later the economy entered
a lightweight recession. It lasted 11 month, down (-)0.6%, between Dec 1969 and Nov 1970. The next one : Nov 1973 to Mar 1975 was the second longest and second deepest : (-)3.2%.
3) JP tight money cannot last forever. It’s a temp condition. Either
the economy adjust to a new level of money and return to prosperity, or
either to deflation, or inflation.
4) JP $2T RRP, bank’s money, not the Fed money, is 8% of $24T GDP and
about 7% cash of $30T gov debt.
5) Backwardation led to 8% inflation. In the last 100 years US economy
have been subjected to 24% inflation and (-)17% deflation.
6) The Fed, ECB and BOJ distorted historical norms : moderate inflation
is between : 5% to 8%. A rapid inflation : 10% to 20%. CRAZY, runaway, a hyperinflation : 25% and up.
I would rather buy a 350k house at 7% than 550k at 4%
You’re one of the few people that seem to “get it”. It’s never the payment… it’s what you pay for the item.
Cardinal rule of buying an automobile. Payments are irrelevant. Negotiate price of the vehicle first. Figure out how to pay for it second. That’s why car dealers use the “Four Square”. To confuse the mark. The mark doesn’t really know what they paid for the car until they’re “in the box”. All they see is the razzle-dazzle of the mumphly payment.
My favorite quote when eavesdropping on a finance office conversation in Philadelphia was:
“Sir, your monthly payment on your 1990 cheapmobile is $552 per month for 48 months.” (The MSRP was something in the realm of $15,000)
Customer, slouched in the chair across the desk: “Maaan… if the bank don’t care, I don’t care.”
The dealer made sure he folded the first payment into the loan and made it on behalf of the customer so they didn’t have to deal with “first payment recourse”.
I pay cash for cars. I don’t care about monthly payments either. Last one I bought was a used current year model in 2016, for about $13K “all in” with 9500 miles.
Kinda like the guy who buys the stock because it has a 3% dividend….then watches the stock drop 4%.
Cars are an expense purchase while stocks are gambling. LOL
This is the way.
The 7% interest rate most likely will go down some overtime and then the house will appreciate faster than a $550k house at 4% because the interest rate will likely rises and crimp house appreciation.
Also, another big issue no one thinks about (until they need to) is the insurance replacement costs for homes built with cheap labor over the last fifty years. Construction workers from the 80s are not in shrink-wrapped bags waiting to be rehydrated to rebuild homes at 80 labor prices. However, insurance companies like to use the logic that your house is a depreciating asset that simply isn’t physically worth as much as when it was built. On the flip side, appraisers, realtors, and lenders will tell you your 80s home is worth $$$. “Until it floods or catches on fire.”, whispers the insurance adjuster.
The point of this reply is the valuations are all over the place depending on the lens one is looking through at any given point in time. It’s a mess.
Now don’t get me started on the 3rd party inspections at closing. Haha.
Check out this article from 2019 regarding insurance coverage…
10 year heading lower and you think the housing ‘bubble’ will pop after the Fed increased the currency supply by 40%. Cognitive dissonance is a hell of a drug.
“10 year heading lower”
You’re fantasizing. But enjoy!
There is going be a bond market rally at some point with a partial retracement where the 10YR will rally. I’m guessing six months or slightly longer.
I expect it even as the FRB continues to raise the FFR and implements QT.
But after that, if the bond market mania ended in 2020 as I think it did, interest rates are going to soar.
“There is going be a bond market rally at some point with a partial retracement where the 10YR will rally.”
We already had these bond market rallies, including last week. A huge one. The yield fell something like 35 basis points in a few days from peak to trough. By Thursday morning, it was over, and yields rose by 10 basis points through Friday at the close.
I was agreeing with you, but this doesn’t mean that interest rates won’t decline even as the FFR increases and QT is in proces. Market rates have already risen a lot in anticipation.
What I am saying is that, after a 2+ years bear market where the 30YR lost almost 70 points on the futures contract (191 to 134), there is going to be a partial retracement that is a lot bigger than the one last week.
It’s going to surprise a lot of people because the fundamentals are a lot more negative than at the peak when the majority loved bonds at the even more pitiful yields then available.
I agree, they front ran TNX, it can come back down as Powell yesterday hinted at top rate of 1.75….
we can’t pay for the debt much above that…..
I’m selling in Inner sunset, one of more desireable still not edgy places in San francisco, I will let you know how fast it goes, last real view of city and ocean….I say a week at 200K over asking
“Powell yesterday hinted at top rate of 1.75”
Where do you people get this BS? He said two 50 basis point hikes over the next two meetings, which takes the top rate to 2%, and then more rate hikes but maybe 25 basis points each. And if data is still hot, those 25 basis points will go to 50 basis points.
This tightening denier BS is just getting so tiring.
Hey wolf Sri Lanka is defaulting on dollar bonds -china could be next will this bring the house of cards down,might be a good article thanks
There will be plenty more countries defaulting on their dollar debt. The USD is blasting higher killing both the debtors and US exporters. Expect complete destruction ahead!
These investors got paid a lot of interest to take those risks, and now it’s their time to accept the consequences of their decisions. These investors will lose money unless they get bailed out by the IMF or whatever. That’s what investors are supposed to do: profit and lose money because they took risk. This is no biggie. Just life.
You remember then why to never ever buy an emerging market bond fund. This “other people’s money” shouldn’t be your money.
Maybe he was talking about the bottle of 10-year-old bourbon he was nipping……
Its time to buy long term treasuries at 10 to 1 leverage. We’re heading into a recession (if we are not there already) or depression.
John Paulson’s hedge fund made $20 billion shorting the housing market in 2008.
Booms and busts can be immensely profitable, which is why we have them, but they aren’t all that easy to engineer because the lead times are so long, and pesky regulations get in the way, and besides, people are watching. As the Wicked Witch of the West said, these things must be done delicately, or you hurt the spell.
The process was summarized by Georgetown historian Carroll Quiqley in ‘Tragedy and Hope: A History of the World in Our Time”, based on publications by everybody from Ricardo to Garfield to Keynes, and therefore not very original.
Nobody knows where the ‘hope’ part comes from. Quigley was before my time, so he could not have used Yours Very Truly as any basis for it.
It’s taken the Fed, among other players, over ten years to engineer the present Immensely Profitable Crisis, but then again, the hangover from 2008 is still a nasty one, so it’s taken them a while. Besides, they want to be reasonably sure they don’t blow themselves up this time, but they’ll risk it just because they’re greedy and just as prone to wishful thinking, personal delusion, and susceptibility to believing things that are not true as most people are.
The bad news is that they don’t have a handle on the risks in the shadow banking system or the quadrillion-dollar derivatives market any more than you do, and completely disregard the fact that The Light at the End of the Tunnel is an overloaded freight train, but they’re going for it anyway, damn the torpedoes.
For some reason they don’t believe that weapons-grade pleonexia is always terminal. Go figure.
“pleonexia” – had to look that one up. Have never, ever seen it before.
Given the times, we should see that word a lot.
1) Gold do nothing all day during a 8% hyperinflation. Gold and silver stocks suck, while Bunge, Mosaic, CF…are rising.
2 After peaking in Aug 2020 gold is backing up on the 2011 peak.
3) Gold is trading in a 1.5 year uptrend channel : Mar 8 to Mar 29 and Sept 27 2021 lows. // Parallel from : May 24 2021 to Apr 18 2022 highs.
4) Bubble down/ Bubble down : Aug 9 2021 low bubble down, Mar 7 2022 high bubble up, a shooting star on very high vol, a fake breakout to trap investors, a new all
time high @2,078.80.
5) Split the uptrend channel : 70% of the activity is in the lower half, the
6) For entertainment only : accumulation.
Bunge & Chevron have a “Joint Venture” partnership to “establish a reliable supply chain from farmer to fueling station.” at the Destrehan, Louisiana and Cairo, Illinois soybean crush plants being constructed.
7,000 tons per day by the end of 2024 will processed if run at capacity. Because, “We share a commitment to sustainability and reducing carbon in the energy value chain.” -Greg Heckman, Bunge CEO.
Chevron will make diesel and jet fuel out of the soybeans.
Something wrong about putting other people’s staple foods and source of proteins into a gas tank. Two pounds of soybeans supply the protein equivalent of 5 pounds of boneless beef, 15 quarts of milk, 6 dozen eggs or 4 pounds of cheese. Countries like India – Mexico and Vietnam South Korea and Bangladesh – use it as a large part of their diet..
So now their food is priced based on OPEC equivalents…and Bangladesh is not rich. We can make the methanol/alcohol of other greens..
I am wondering if plumbing in financial system is getting very stressed. Gold up against yen and Euro roughly 15% y/y. People are bidding for dollars now and margin debt decreasing and gold being sold off pretty hard last few days. When you can’t breath, only dollars will do.
As I keep saying, US dollar strength is going to destroy the entire world economy. US exports fall to nothing killing American jobs while foreign holders of dollar denominated debt default. It’s a perfect storm.
The dollar is “strong” only when measured against other fiats..
it is plummeting in real terms, purchasing power. And that is the ultimate metric, IMO.
Not if you are the country who has the power to print money that most countries are using, and the power to extract (destroy) people’s saving by manipulating the market by inflating and deflating market. But of course, nothing ever lasty forever. Eventually, this powerful country will be flipped upside down once people come their senses that there are a number of powerful, money-grabbing, weathy players who actually taking controlling this bullish country to get what they want.
I think the real estate correction will be more complex and varied than in 2008. Some markets will fall, some won’t. The wealthy will NOT sell their homes in the Hamptons, or Tahoe, or Aspen, or Naples, or Park City, etc. for 2 reasons: 1) Real estate will actually be viewed as a safer place than stocks and bonds to store wealth in our inflationary environment and 2) Those wealthy enclaves offer the best security against the angry masses in an increasingly dangerous society.
Therefore, for example, I suspect many wealthy New Yorkers would sell their multi-million dollar Manhattan Condo before they’d EVER sell their safe and secure home in the Hamptons.
So my theory is that the wealthy areas won’t hardly correct at all.
correction: SOME wealthy areas won’t correct at all. Those that are near city centers will not be immune to a drop…
Problem with the real estate market is it has been levered up like everything else so it is susceptible to boom and bust.
$40 billion a month….by the Fed….
and still no good answer….and sadly no good questioning.
The combination of 2017 tax reform and pandemic have made for some interesting real estate changes, favoring small resort and mountain communities in low tax states and disfavoring large cities in high tax states. I think the work from home thing will be the new norm, and that the trend will continue in this direction.
Large cities in high tax states are in a massive bubble as well. No place’s real estate valuations are “disfavored” by the last few years’ changes.
Federal regulation will mean Tether will be exposed as the fraud that it is, and the whole crypto space will collapse.
Nowhere is safe if chaos ensues
Absolutely correct small bug!!!
Seen it clearly in the past when folks have decided to go after those on top; think Paris in 1789, many other places where the oligarchy of the time thought they could keep out the rioters, etc., and found out they could not, even with tons of ”security” forces on site, many of whom joined the mob.
While I am NOT in favor of ”free” anything, I AM totally in favor of ”jobs programs” based on teaching real world skills of all sorts AND housing programs aimed at making HOME OWNERSHIP at least affordable for anyone who will actually do ”real” WORK to earn a HOME for their family.
1) The hyperinflation induce a European recession.
2) We produce Nargas & oil, stingers & F-35, soybean and wheat. EUR/USD @1.04, before reaching parity.
3) European companies selling in US – like cars co, supermarkets, chemical
co – will make higher profit, despite the lull in US economy.
4) Import from China will be cheaper because USD/CNY is rising.
We will need less from China, because of the slowdown and pay less, because of the stronger dollar.
5) In 1934, during the depth of the depression, gold was up to $35/oz from $20/oz. European central banks sold their gold in US, because the value of the dollar was up 70% one morning. US accumulated tons of gold.
6) That lasted until 1949. Inflation and high debt reduced the value of the dollar.
7) From 1949 US was selling gold.
8) To be continued…
Good commentary. We sold our primary residence today. List price+2%. Both agents from same firm. The buyer has missed out on 5 previous offers over 2years. Wanted a specific school district due the belief of the superiority based on past history. Anyway this market is fully baked and is starting to smell very bad. Au and Cash still smell sweet 🧁🎂
Institutional investors bought 18.4 percent of all homes sold in the Q4 2021, an increase from 17.4 percent in Q3 2021 and 12.6 percent in Q4 2020, according to Redfin.
If you’re waiting for homes to become affordable again you could be waiting rather a long time, and quite honestly aren’t likely to ever get there.
I’d supply additional scary information but I’m already over my limit and can’t post graphs anyway, but I trust doughty readers here can make the appropriate extrapolations without additional commentary.
I think homes for investment will not be as sticky as homes bought to live in. They might be the first to get dumped if ROI gets to poor number.
“I think homes for investment will not be as sticky as homes bought to live in. They might be the first to get dumped if ROI gets to poor number.”
That’s a very big ‘if’. Prices have skyrocketed, but so have rents. In 2021, return on investment on single-family rentals was 8%, the highest return of all 18 property sectors researched by Green Street. Other researchers concur. And because rents are going higher, ROI could also be expected to go higher, maybe keeping pace with inflation.
Our Illustrious and Righteously Esteemed Host is of the opinion that it’s “just big corporate entities shuffling billions of dollars of rental homes around amongst each other.” Which seems counterfactual, in that it doesn’t explain why they have, in recent years, decided to acquire billions in rental homes in the first place, and continue to acquire more. WSJ has reported on bidding wars to buy entire neighborhoods.
According to Statistica, US home ownership peaked in 2004 at over 69%, declined to less than 64% in 2016 to 1990 levels, recovered to nearly 66% in 2020, and last year reversed to decline again, back to 2000 levels. We believe corporate America has sensed an opportunity, caused by supply which did not meet increasing demand.
Private equity firms and corporate landlords and investors saw a shortage during the recovery from the 2008 debacle, and they saw a captive market. They bought up properties, raised rents, cut services, priced out family homebuyers, and forced renters out of their homes. Investment in new, affordable housing now goes to high-priced housing instead.
Institutional investors seem to have pursued a strategy of acquiring enough properties in vulnerable localities to give them pricing power there, and they are liking the strategy so much they’re acquiring more, contributing to rising prices and rents, spreading from those isolated localities. Blackrock is the poster boy for this, but there are many others. It’s complicated, and not amenable to discussion in a comment.
The coming pop in the housing bubble is expected to be something of a repeat of 2008, but the pattern and the conditions have changed, and this time they know The Fed has their back. This is part of a larger analysis, to include issues having nothing to do with RE, like demented politics and ecological destruction, which expects a bigger pop projected to occur around 2030, with an even bigger pop projected to occur around 2040.
After that there really won’t be that much to talk about.
For most anyone who bought pre-pandemic, they can take a 30% drop and still have positive equity.
Yes, many people bought at peak prices in 2021 and into 2022, but with so little inventory, the number of new buyers at these peak prices is pretty small.
As you mentioned, the peak of home ownership ine 2004 was because many subprime borrowers were allowed into the housing market that previously would not have been given a loan.
It was a different type of bubble as 80% of the new subprime borrowers in the mid 2000s would default eventually.
The current buyers are more financially sound. Maybe it is a misleading financially sound do to stock market gains? But that is the case right now. But none of those subprime borrowers were financially sound in the mid 2000s.
Certainly, current house prices will be hard to support if wages over the next several years do not increase and if interest rates stay high.
If the Central Banks follow through on rate increases and QT. Housing is going to take a hit.
If the Central Banks panic with a slowing economy and slow down and ease up on the tightening, Housing prices will probably dip a little but prices will stick. Mortgage rates below 6% is still a good rate long term. If the FED lets inflation stick around the 5% to 9% YOY range like they did in the 1970s, housing prices will probably keep going up like it did in the 1970s.
as professional class millennials in a major city without parents to buy us a house or lend us down payment money, this feels true. no matter how much we save, it has never been enough. and so we rent sfh for our family of four. every millennial who didn’t get family money or doesn’t work in tech is in the same boat. most of that 65% are boomers. millennials have spent most of their lives renting and big investors/pe want to keep it that way. price fixing single family homes for desperate millennials gets rid of middle class rent control (aka the mortgage) and keeps us dependent forever. i hope these guys lose their shirts, but they probably won’t.
that timeline of “pops” reminds me of Christopher Clugston’s forecast in his 2019 book ‘Blip: humanity’s 300-year self-terminating experiment with industrialism’. His data-crunch sobers one up regarding the accelerating depletion of non-renewable resources critical for civilization as we know it.
Not so sure about that, Old School.
Homes bought by institutional investors or private funds are absolutely LOATHE to take losses. Much more likely is that they weather out the storm, extend the planned life of the fund (most 10 year funds have an extension provision if the manager deems it appropriate to hold on).
Moms & pops may sell when they see their asset sagging and it doesn’t have positive cashflow. But the big boys will HODL, because they can, because they usually have positive cashflow (usually….a collapse in rents, big problem).
no MM’s, PE and investment houses can take losses and account for it. It’s the same in stock market, Blackrock can short a stock it owns 6% in to buy lower and they do, they understand where it will end up and they will make sure it gets there…
This flashy Bel Air mansion that was listed at $87.8 million flopped at auction — and now the seller is furious
An over-the-top modern mansion in Bel Air was listed for $87.8 million for an auction. But the highest bid came in just under $45.8 million, according to the seller Alex Khadavi.
Khadavi — who owes tens of millions of dollars to several creditors, according to court filings — had hoped the auction would precipitate a sale price large enough to cover his debt.
If the sale gets court approval, the mansion would be the fourth most expensive home to ever sell at auction.
Excessive real estate prices are a net negative for society because they imply a transfer of wealth from buyer to seller even though the seller has not contributed anything to society. ( unless they built it )
Excessive policy inducements to own real estate should be curtailed. They are causing damaging boom bust cycles as well as the effects described above and below.
These failures are extremely important because they prevent people from living their lives properly, which inhibits the formation of families, having children and so forth …
Government subsidies inflating prices to where homebuyers are effective debt slaves undermines the reason for doing it, to give people a stake in the society.
Homes are a consumer good with a long shelf life. Artificially inflating home prices doesn’t increase prosperity but is at most a zero sum game. It creates no wealth.
This could be the crack that breaches the dam:
WSJ: Many buyers in contract for new homes calculated monthly payments based on near-record-low mortgage rates
Many buyers in contract for new homes calculated monthly payments based on near-record-low mortgage rates
When will humanity realize the capitalism is a fake bunch of bullshit that just rapes the physical environment and vulnerable people? It’s not efficient, but just the opposite.
What you’re complaining about is crony capitalism. Which we have in abundance.
To quote Larry Kudlow…”Free market capitalism is the best path to prosperity”.
Larry Kudlow is a moron
The communist Soviet Union was a fake bunch of bullshit that just raped the physical environment and vulnerable people. To paraphrase someone Capitalism is lousy but better than the alternatives..
You can thank the communists for winning WW2
Prices are not dropping 30% but there will be some price correction. What many of you fail to realize is that there is a real world migration of people leaving big cities as a response to Covid. People buying property in Florida are still getting their NYC salaries and working from home, not to mention many are renting out a room in their house in order to afford their mortgage. This is not the 2008 housing crash, because the credit requirements are stricter. More people are forced into buying depressed and less desirable properties because rent has become unaffordable as well.
I totally understand: This time is different! 🙂
And uou may add they will turn the area they are moving to into a s$ithole just like the area they left. Just give em a few years.
The major issues are these corporations; some backed by investment firms. I live in Florida and one firm bought an entire subdivision just to rent out. Even though these companies are paying cash; people’s pensions and investments are being used to fund this type of craziness. So not only are they pricing perspective buyers out that are looking for a home but also driving the rental market up by making affordable rent unaffordable. When this goes to hell you need to blame those greedy corporations for driving the market up and the government for waiting as long as they did to put a handle on it.
They bought an entire subdivision of rental homes that the developer had built as “build to rent,” which is a very hot trend in real estate. One big company sold rental homes with tenants in them to another big company.
Watch “The big Short”
The 2007 bubble popped when the adjustable rate mortgages kicked in and people were immediately underwater.
Now look at what happened to mortgage rates lately. I wonder whether some Michael Burry type hedge fund already ran his spreadsheets on it. Would be interesting to watch CDS prices, but of course they are OTC and you will only know after the bubble popped.
And no, nobody has the Fed’s back today. This is not 2007. The Fed is insolvent. The MBS on its balance sheet are worthless. If they have to mark them to market, that will be a sight to behold. Their priority is fighting inflation. However dubious that may be, you do not do that by pumping up the RE bubble even more.
This time it’s different.
“The MBS on its balance sheet are worthless.”
Complete BS. The MBS that the Fed holds are guaranteed by the US government. They’re nearly as good as Treasury securities.
Today I went for my usual laps swim around 11 am. The pool was half full of people in their early 30s with their families, and this is Monday and it’s not a holiday. For young people like them, not to be working and connecting with the world and each other, is so dangerous for their financial stability and prosperity.
It seems to me, that the world north, East, west and south is awaiting the arrival of something. This lounging, “working from home“, escaping covid that doesn’t even kill young people, it’s so bizarre. Deep in their hearts, they know it’s not right, That it can’t be right, but they do it anyway… Because people generally speaking are opportunists. But it’s more complicated than this of course.
There is no economy in the world that has ever survived or thrived without hard work, without taking risks, without being there where it’s happening. Our society in all states are in stagnation, morally, financially and mentally.
And there are people here, that think that the FED is going to save the next bubble/s. Those that think that are delusional, only hard work and real work will save us.
I moved from NYC, the city, to south west Florida in January 22. The north is in big big trouble financially, wait for those bubbles to pop, because they are all sitting on ticking bombs. Everything is so over leveraged, it will crumble like a house of cards. Everywhere … It will be a financial Tsunami. The FED won’t be able to stop. The FED and central Banks will sort out the debris But They won’t be able to stop what’s coming, because they will have to run for their own survival. And it doesn’t even have to be a war involved…
Pretty grim, but I don’t see another way.
Calvin, you very well may be correct. That said, technology has allowed us much more flexibility in our lives if we are lucky enough to be able to take advantage of it.
I run and own two small tech companies, I work plenty hard, and make a good living (I don’t see myself a wealthy, but I’m sure many others would). Because of technology, I can take time off during what would be the “normal work week” to be with my family and play. I can work at night, on the weekend, etc…
With the new work from home opportunity, many people are finding that they can do the same thing. Personally, I think its a much healthier way of life for many people (it is for me, certainly) as long as they can self motivate to get the work done when it needs to be done.
My daughter is a pilot for one of the majors. She’ll sometimes be home for two weeks… and will be one of those at the pool.
My son is in tech and works whenever he feels like it as long as deadlines are met, the quality of the work doesn’t suffer…. and he can usually be found up to his butt in sawdust during the daylight hours.
My DIL is a civil engineer that works around the world. She will sometimes have to take calls at night to deal with international clients, so her work hour vary. She’ll be seen in their jungle of a garden during the daylight. They have a sound proof room in their house for her “office”. Their bedroom is also acoustically sealed (special drywall, windows, insulation, doors….) to allow for daylight sleeping or shut out nocturnal wanderings.
My wife and I are not gainfully employed, so we’re around – at least until 9:00 PM 😀
So, out of 5…. 5 of us are not “working” in the old paradigm, yet all of us are creating something tangible.
This comment is so out of touch lol. Imagine creating some hypothetical scenario about the lives of these families that you know nothing about to fit some framework of how you think the world should work. Just swim your laps and mind your business. Jesus
Comments are closed.
The Fed, which is trying to slow demand to tamp down on consumer price inflation, gnashes its teeth.
This inflation shock finally goosed the ECB out of its reckless NIRP policies.
The giant’s footprint reduction to cut costs sinks Commercial Real Estate.
It’s already playing a key role in every one of Powell’s press conferences.
The model of “growth at all cost” has been taken out to the dump.
THE WOLF STREET REPORT