Posted on 01/13/2023 6:19:19 AM PST by CFW
Home prices have started to correct as interest rates rose sharply in 2022. However, the real problem for home prices is still coming in 2023 as the standoff between sellers and buyers comes to a head.
However, before we get there, let’s review how we got here.
Since the turn of the century, there have been two housing bubbles, with home prices reaching levels of unaffordability not previously seen in the United States. Such was, of course, due to lax lending policies and artificially low-interest rates luring financially unstable individuals into buying homes they could not afford. Such is easily seen in the chart below, which shows home equity versus mortgage debt. (Home equity is the difference between home prices and the underlying debt.)
(Excerpt) Read more at realinvestmentadvice.com ...
You buy it, I'll rent it, especially if it's Sicily :)
“I don’t understand the obsession with home prices.
I’m speaking to single home owners here specifically, not those who are in the real estate business.”
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I agree with what you are saying. If you are a home-owner and not a real estate investor, why care. We bought our land and built our home because it was a place we planned to live for the rest of our lives, and then make sure our children and grandchildren had plenty of room as well if they needed it. And, we have been living here for over 40 years. We never even bother to calculate what it is “worth” because it is priceless to us and we would never sell.
And, we were right and about the grand-kids. They live with their parents on the other side of the property and can just walk down the path for a visit at any time. Given that some grandparents only see their grandchildren a couple of times a year (and not that much over the past couple of years), I can put no value on that benefit.
I think the concern about home prices, at least in my case, is the monthly mortgage payment. It’s one thing to buy a home when one is working and has a steady income with the potential for pay increase. It is quite another if one is looking to purchase a home to retire to. Most retirees have a fixed income. So why would one want to perhaps spend over half of your pensions/social security income on a house payment? I certainly do not. So Yes house prices matter in this kind of scenario. Granted the folks I am referring to make up a smaller percentage of buyers. I see a lot of familys around here buying way more than they afford on their current income. But that might be justified giving the fact they will hopefully have income increase over the time they are in their home. If I was in my 40’s again I would have no compunction about buying as much as I could afford since I would have 20 to 30 working years ahead of me.
... and likely even faster than FJB's mental capacity ... though certainly not as far.
It matters because most people do not stay in a house for more than 10-15 years these days.
My mom and dad bought the house I grew up in 1967. We sold it when my mom passed away a couple years ago. That is pretty rare these days. I have owned three houses since 1990. IMHO, buying and selling at the right time makes a big difference long term.
Now, I am interested in buying the house I will retire in. So, if the market goes down in the place I want to live in makes a big difference.
“ It should really not matter to you at that point what happens with home prices.”
In general, I agree. However, the Dims who run northern Virginia have this property tax scam perfected. When housing prices increase, they crow about not raising the millage. When prices retreat, they raise taxes “to keep the tax base stable”.
I hate that.
Overvaluation and the inflationary effects of servicing debt to purchase overvalued property is a key driver of inflation. We're experiencing worse inflation than we would have if the bubble had burst earlier.
SAM ADAMS:
You might also point out that under current Capital Gains tax laws-—single persons get tax exemption of $250,000 & married couples get $500,000 on PROFITS from such a sale.
PROFITS are different from “walk away money” calculations. You might have a profit of $400,000, but if you owe a mortgage balance of $200,000, you walk away with only $200,000.
I am just hoping that Biden & Co do not change that-—because it WILL affect politicians, also.
“I don’t understand the obsession with home prices.”
Interest rates down, prices up, interest rates up, prices down. Go with the flow. When the mortgage company says you qualify for X, buy a home priced at X-10-25% depending on your level of risk tolerance and your career stability.
Same with autos. Most debt problems are self-caused by needless overspending in the first place. They used to call it “Keeping up with the Joneses.” Today’s young people are the worst about it, instead of buying a starter home or condo, they want a trophy on their first buy, and they want expensive cars at the same time, plus motorcycles, Quads, snowmobiles and every other toy in existence.
Then they blame govt when it all goes south.
This was true back when a person usually owned only one house their entire lifetime, and never moved.
Today our society is much more mobile with people moving every 3-5 years on average, and so house prices do matter.
“What if person has bad credit”——
End of discussion for today’s mortgage market....or even earlier.
Got bad credit? We don't care.
Got a prison record? We don't care.
Don't have a job? We don't care.
Don't expect to pay us? THAT'S when we care!
I have owned 3 houses since 1966———
29 years-—16 years-—18 years. Bought this one free & clear.
I have owned 3 houses since 1966———
29 years-—16 years-—18 years. Bought this one free & clear.
$25,250 (City)-———$105,000 (5 acres)-———$145,000—(5+++acres)
“Today our society is much more mobile with people moving every 3-5 years on average, and so house prices do matter”
We are more mobile now without a doubt. When I was selling real estate I counseled people to not buy if they didn’t think they’d be in the house 7 years.
Higher interest rates always cause home prices to fall.
Higher interest rates affect everything that's dependent on financing to purchase.
Best way to take advantage of falling prices: PAY CASH.
Looking for my new home in TN as a CASH BUYER and oh boy are the opportunities opening up.
That’s very good, way to go. I’ve owned 5 principal residences plus 3 second homes since 1973. I converted two second homes into personal residences, and one second home into a rental.
Made money on every one of them, mostly tax free due to the conversions. Right now I’m down to one house free and clear and a piece of recreational land, also free and clear, and cash. The cash is waiting for the peak of this downturn. I want rural land with water rights and I have the area picked out, just watching the sales.
The other issue is that all of the young people think they need to have SS appliances, Silestone countertops, a two or three car garage, 4 bedrooms, etc.
They are not willing to do any sweat equity to fix up an old house. Mostly because they have no idea HOW to do any work around their house because their father never taught them.
I blame HGTV for the need to have all the high end items in a house.
It’s gone on my entire life, but HGTV but that has probably accelerated the issue.
Back to the headline: “Home Prices Will Likely Fall Further”
Also: Interest rates are going up.
Yeah, so what’s next?
Interest rates will drop. Real estate prices will go higher again.
If most people drove like they look at finance, they’d never look past their hood ornaments. That kind of driving leads to crashing, in traffic and finance.
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