Economy The great housing market crash of 2022

[panamaican]

If it wasn't huge corporations buying up so many houses I might believe a crash is coming.

But it is, so it won't. Prices might come down a bit but there's no crash coming.

Yup, people are making the mistake of believing that because Joe Average can't afford a house that there aren't buyers. They're slow to understand that the reason Joe Average can't buy that house is because he's being outcompeted by deep pocket institutions.

The housing market has plenty of buyers to prevent a crash, what it doesn't have is a plenty of lower middle class buyers who can afford the down payment. But the housing market will be fine because all of those people, who can't buy the houses, will still rent the houses. And that is enough motivation for investors to keep acquiring.

 

[CaptHANDSUP]

The Government does not need to 'stop' it. They just need to not bail out the fuckers when shit goes pear shaped. For a people so in love with capitalism, we sure seem to be fickle about it.

it’s just another clear-cut example of ‘capitalism for the poor and socialism for the rich’.

 

[Blayt7hh]

The Government does not need to 'stop' it. They just need to not bail out the fuckers when shit goes pear shaped. For a people so in love with capitalism, we sure seem to be fickle about it.

That would be nice but I don’t think these guys are going to need a bail out. They’re gaining enough power that they can influence the market.

 

[MeatheadMike]

There is a lot of pent up demand and interest rates have barely gone up. There are six more fed meetings this year where rates are expected to rise at each. Scarcity and time limits both lead to desperation which is why we still see buyers. These are emotions though and they will get slaughtered. Q1 GDP was negative and layoffs have barely even started yet.

Interest rates have increased nearly 100% in a few months and done very little to slow the housing market... yea they will probably increase more and may price some people out of the market. But even still its not going to cause a decline in prices anytime soon. Many people will just over extend themselves and just run into financial problems years down the road.

Work from home doesn’t work, it’s a day off.

Have you worked from home? During the pandemic most places faced no loss in productivity, and most employees even said their productivity increased since they didn't have to waste time commuting. Big tech companies like Google, FB have made work from home permanent for many employees, other companies (like mine) are adopting a hybrid model.... basically work from home is here to stay.

The baby boomers who own most houses, and even multiple houses each, will need to sell as their income earning capacity goes to 0 and their deb servicing costs rise.

Baby boomers have mostly payed off their houses which they bought in the 80s-90s and many of those who didn't, had the chance to refinance at the lowest interest rates in history last year. They have little reason to downsize, especially since many have adult kids now who can't afford their own housing and are living with them.

People think investors will save the market. It’s the opposite. If everyone who owned homes lived in them and there were no investors, then no one would sell because where would they go? Investors though don’t need the home if it’s losing money.

Just wait.

Agree that investors are a big part of this housing shortage. People need a place to live though, so they will either get squeezed now trying to own a home with high interest rates, or be forced to rent from those investors. Maybe those buying now and getting squeezed will have problems later on, but that won't be felt for a few years at least, and that's assuming there won't be other buyers to pick up the slack.... if I were to wait, I think I'd be waiting a very long time.

 

[MeatheadMike]

Yup, people are making the mistake of believing that because Joe Average can't afford a house that there aren't buyers. They're slow to understand that the reason Joe Average can't buy that house is because he's being outcompeted by deep pocket institutions.

The housing market has plenty of buyers to prevent a crash, what it doesn't have is a plenty of lower middle class buyers who can afford the down payment. But the housing market will be fine because all of those people, who can't buy the houses, will still rent the houses. And that is enough motivation for investors to keep acquiring.

Yes, basically the door is abruptly closing on homeownership for the middle class.

 

[MeatheadMike]

With the amount of inflation we are facing up here, we may need a Volcker shock if it keeps going

I think inflation has probably peaked and we may start to see a slight decline (in the US) when the April report is released in a few weeks.
But all these price increases on homes are likely permeant.

 

[cooks1]

That would be nice but I don’t think these guys are going to need a bail out. They’re gaining enough power that they can influence the market.

Well....if that's the case, people should not worry about home values dropping. I highly doubt large corporations are purchasing homes in record numbers at high values during an up market just to collapse the housing market.

If your supposition is true, the flip side is more likely. They are buying the houses to rent them and not sell them. Their refusal to sell will constrain supply and make purchasing harder. And the higher interest rates will make purchasing harder still and force more people into renting. Which will drive rents up....and since they have so many properties..........

But there is a flaw in the design of their death star. These companies, as they always do, because they can, impossibly leverage themselves when they make these moves. As it becomes harder and harder for people to affordably live, they will just find other solutions. Kids will stay with their parents longer. People will live 6, 8, 10 to a house if they have to. More will become homeless. Disrupters will enter the market. Other solutions will present themselves.

When that happens....not if....when.......these enormous companies will be in great peril. I feel confident this will happen because it's what always happens. When it happens, these companies must be left to die. They cant be bailed out. When they die, property values will plummet. People will be bitching and moaning about it left and right, completely oblivious to the fact that they just got what they wanted.....cheaper property options.

At the root of this problem is the fact that people who own property want the values to go up. And people who want to buy property want to buy it cheap. You can't do both things at the same time.

 

[Blayt7hh]

Well....if that's the case, people should not worry about home values dropping. I highly doubt large corporations are purchasing homes in record numbers at high values during an up market just to collapse the housing market.

If your supposition is true, the flip side is more likely. They are buying the houses to rent them and not sell them. Their refusal to sell will constrain supply and make purchasing harder. And the higher interest rates will make purchasing harder still and force more people into renting. Which will drive rents up....and since they have so many properties..........

But there is a flaw in the design of their death star. These companies, as they always do, because they can, impossibly leverage themselves when they make these moves. As it becomes harder and harder for people to affordably live, they will just find other solutions. Kids will stay with their parents longer. People will live 6, 8, 10 to a house if they have to. More will become homeless. Disrupters will enter the market. Other solutions will present themselves.

When that happens....not if....when.......these enormous companies will be in great peril. I feel confident this will happen because it's what always happens. When it happens, these companies must be left to die. They cant be bailed out. When they die, property values will plummet. People will be bitching and moaning about it left and right, completely oblivious to the fact that they just got what they wanted.....cheaper property options.

At the root of this problem is the fact that people who own property want the values to go up. And people who want to buy property want to buy it cheap. You can't do both things at the same time.

I’m not sure if home values are going to drop or not. We are in strange territory

I do think your scenario of people finding other ways to live is likely. But it’s not good and it signals the death of the middle class dream. I’m not convinced these companies will collapse. Even if they do and things return to normal, that’s a long time people aren’t building wealth and huge disruption to the market.

 

[HankScorpio]

As a guy whos been trying to buy a house since just before the pandemic, and would love for the to be a housing crash.... I can say with great confidence there won't be one.

This is nothing like 2007, where banks had lax lending standards and people were taking variable rate mortgages. People are able to service their debts and the problem is there's just not enough houses to fulfill demand and there won't be for the foreseeable future.

I thought that the higher interest rates would at least calm things down but they made it even more competitive because of desperation and fear of missing out. Just last week I put an offer in on a house ($35k over asking with appraisal contingency waived) and it wasn't even enough to be considered as a backup option. They were likely getting multiple cash offers.

Everything I've read about the housing market says the growth will likely decrease this year, but all that means is prices will still go up, just not as fast as last year.

Anyway, Id be willing to do a sig bet with anyone who thinks there will be a a housing crash this year.

Yes. Unlike 2008 banks will profit from foreclosure now. In 2008, many homes were underwater, now this isn't the case. What most people misunderstand about 2008 is it was good for the consumer to get foreclosed, basically getting them out of a bad deal. The banks fucked up so much many of them would've gone out of business, had the taxpayers not bailed them out.

In these Covid-foreclosures however, the homes are worth more than the loan amount. Meaning the banks will profit from foreclosures. Because of this banks won't be dragging their feet on foreclosures.
Unlike 2008, these people have got to find a way to get back on track or risk losing a lot of money.

 

[lifelessheap]

When, I was looking at Eagle, Idaho there was some houses around 300k to 350k. Now, it starts at 600k. And realistically, it is 650 for for what we wanted. How can this happen in two years?


Doesn't seem natural.

 

[cooks1]

Yup, people are making the mistake of believing that because Joe Average can't afford a house that there aren't buyers. They're slow to understand that the reason Joe Average can't buy that house is because he's being outcompeted by deep pocket institutions.

The housing market has plenty of buyers to prevent a crash, what it doesn't have is a plenty of lower middle class buyers who can afford the down payment. But the housing market will be fine because all of those people, who can't buy the houses, will still rent the houses. And that is enough motivation for investors to keep acquiring.

This is largely true. But when the upward rent pressure puts too many people in squalor and untenable situations either for buying or renting, they are simply going to adjust. That adjustment could come in a lot of forms, some good and some bad societally. Those adjustments sooner or later will put strain on the 'deep pocket' institutions you are referring to. At which point we will find out if they actually had deep pockets or if they were just leveraged to the hilt.

When these deep pocket institutions are on the wrong side of the see-saw, they can't be bailed out. They need to be allowed to go under. At which point the market would flood with available housing and prices would plummet. We have to let that happen. Because that will be when lower middle class American will be able to get a good foot on the property ladder.

I bought my house in the summer of 2007. Which was not the absolute worst time to buy. But it was pretty fucking shitty. My house and floor plan is the most common one in our neighborhood. Literally 50 just like mine. So I always know what mine is worth.

I spent 300k in 2007 for my house. The guy across the street spent 400k in 2006 for the exact same one. But when the bottom was completely out, people were buying the same house for $180K. Now, you can put it on the market today at $575K and you would have a sold sign on it tomorrow. St Johns County has some of the best schools in the nation and is also one of the fastest growing counties in the nation. Building is going on everywhere and prices are still going up.

With all the debt and speculation in the housing market, I don't see how another crash can be avoided. Think about oil. There have been times in the last 2 decades when oil was north of $100 a barrel when demand was nowhere near peaks. And times when it was $30 a barrel and demand was high.

 

[cooks1]

I’m not sure if home values are going to drop or not. We are in strange territory

I do think your scenario of people finding other ways to live is likely. But it’s not good and it signals the death of the middle class dream. I’m not convinced these companies will collapse. Even if they do and things return to normal, that’s a long time people aren’t building wealth and huge disruption to the market.

I agree. I think a good common sense solution would be requiring companies to have the same down payments, D/E ratios, and debt profiles individuals have when they buy homes.

 

[method115]

I bought my house in the summer of 2007. Which was not the absolute worst time to buy. But it was pretty fucking shitty. My house and floor plan is the most common one in our neighborhood. Literally 50 just like mine. So I always know what mine is worth.

I spent 300k in 2007 for my house. The guy across the street spent 400k in 2006 for the exact same one. But when the bottom was completely out, people were buying the same house for $180K. Now, you can put it on the market today at $575K and you would have a sold sign on it tomorrow. St Johns County has some of the best schools in the nation and is also one of the fastest growing counties in the nation. Building is going on everywhere and prices are still going up.

With all the debt and speculation in the housing market, I don't see how another crash can be avoided. Think about oil. There have been times in the last 2 decades when oil was north of $100 a barrel when demand was nowhere near peaks. And times when it was $30 a barrel and demand was high.

Yea I'm see similar in my area and in a similar situation. My whole area was new build my plan was one of like 4 different plans in the subdivision. I see houses selling for over 100k what I paid in 2017. New houses being built very close to mine are easily going into the 300k range now. I paid 175 for mine.

My boss actually sold while all this was going on because it was to much money for him to turn down. Now he has to drive like 3 hours every day to and from work. He couldn't purchase another house and ended up having to move way out of the city.

 

[cooks1]

Yes. Unlike 2008 banks will profit from foreclosure now. In 2008, many homes were underwater, now this isn't the case. What most people misunderstand about 2008 is it was good for the consumer to get foreclosed, basically getting them out of a bad deal. The banks fucked up so much many of them would've gone out of business, had the taxpayers not bailed them out.

In these Covid-foreclosures however, the homes are worth more than the loan amount. Meaning the banks will profit from foreclosures. Because of this banks won't be dragging their feet on foreclosures.
Unlike 2008, these people have got to find a way to get back on track or risk losing a lot of money.

Ummm......the banks would only profit because the property values are high and rising. But you don't get a foreclosure crisis in that situation. People just sell and take the cash before the bank steps in. You don't have a foreclosure crisis until the property values fall. And then the banks don't profit.

 

[MeatheadMike]

This is largely true. But when the upward rent pressure puts too many people in squalor and untenable situations either for buying or renting, they are simply going to adjust. That adjustment could come in a lot of forms, some good and some bad societally. Those adjustments sooner or later will put strain on the 'deep pocket' institutions you are referring to. At which point we will find out if they actually had deep pockets or if they were just leveraged to the hilt.

When these deep pocket institutions are on the wrong side of the see-saw, they can't be bailed out. They need to be allowed to go under. At which point the market would flood with available housing and prices would plummet. We have to let that happen. Because that will be when lower middle class American will be able to get a good foot on the property ladder.

I bought my house in the summer of 2007. Which was not the absolute worst time to buy. But it was pretty fucking shitty. My house and floor plan is the most common one in our neighborhood. Literally 50 just like mine. So I always know what mine is worth.

I spent 300k in 2007 for my house. The guy across the street spent 400k in 2006 for the exact same one. But when the bottom was completely out, people were buying the same house for $180K. Now, you can put it on the market today at $575K and you would have a sold sign on it tomorrow. St Johns County has some of the best schools in the nation and is also one of the fastest growing counties in the nation. Building is going on everywhere and prices are still going up.

With all the debt and speculation in the housing market, I don't see how another crash can be avoided. Think about oil. There have been times in the last 2 decades when oil was north of $100 a barrel when demand was nowhere near peaks. And times when it was $30 a barrel and demand was high.

You might be right, but it would take years for such a crash to happen (certainly won't happen this year as the OP claims). There would first have to be some kind of economic recession where very high unemployment removes potential buyers from the market and forces home owners who can no longer afford payments to sell. Investors would also lose as people wouldn't be able to afford rent... but they only get screwed if everyone else does first.

 

[HankScorpio]

Ummm......the banks would only profit because the property values are high and rising. But you don't get a foreclosure crisis in that situation. People just sell and take the cash before the bank steps in. You don't have a foreclosure crisis until the property values fall. And then the banks don't profit.

Rationally, you're not wrong.

However, most people might be trying to hang on, or not understand they have equity. I think the main point of mine you're over looking is, the banks are going to foreclosure faster than they did in 2008. Decreasing the probability the consumer can sell, or make a rational decision.

2008 was a crisis for the banks. However, this go around, I think, the unwitting consumer is in crisis mode. No bailouts for them though.

 

[method115]

Rationally, you're not wrong.

However, most people might be trying to hang on, or not understand they have equity. I think the main point of mine you're over looking is, the banks are going to foreclosure faster than they did in 2008. Decreasing the probability the consumer can sell, or make a rational decision.

2008 was a crisis for the banks. However, this go around, I think, the unwitting consumer is in crisis mode. No bailouts for them though.

How fast do you think banks can actually foreclose on a home? It takes months for that process to happen. People can sell their houses in days. At most you wait a week or two.

I think the situation you are describing is very rare and unlikely to happen. Who owns a home but doesn't understand it's worth money right now? How many people can possibly fit into that category? It has to be so few it's not even worth talking about.

 

[irish_thug]

Yes, basically the door is abruptly closing on homeownership for the middle class.

I've lost track of how many times I've said it, but if I didn't buy when I did, I'm not sure I ever would have been able to.

 

[panamaican]

This is largely true. But when the upward rent pressure puts too many people in squalor and untenable situations either for buying or renting, they are simply going to adjust. That adjustment could come in a lot of forms, some good and some bad societally. Those adjustments sooner or later will put strain on the 'deep pocket' institutions you are referring to. At which point we will find out if they actually had deep pockets or if they were just leveraged to the hilt.

When these deep pocket institutions are on the wrong side of the see-saw, they can't be bailed out. They need to be allowed to go under. At which point the market would flood with available housing and prices would plummet. We have to let that happen. Because that will be when lower middle class American will be able to get a good foot on the property ladder.

I bought my house in the summer of 2007. Which was not the absolute worst time to buy. But it was pretty fucking shitty. My house and floor plan is the most common one in our neighborhood. Literally 50 just like mine. So I always know what mine is worth.

I spent 300k in 2007 for my house. The guy across the street spent 400k in 2006 for the exact same one. But when the bottom was completely out, people were buying the same house for $180K. Now, you can put it on the market today at $575K and you would have a sold sign on it tomorrow. St Johns County has some of the best schools in the nation and is also one of the fastest growing counties in the nation. Building is going on everywhere and prices are still going up.

With all the debt and speculation in the housing market, I don't see how another crash can be avoided. Think about oil. There have been times in the last 2 decades when oil was north of $100 a barrel when demand was nowhere near peaks. And times when it was $30 a barrel and demand was high.

I think that entirely boils down to whether or not we think rent pressure ever reaches that point.

I don't think it will. Most of what I've been reading says that it's not the mortgage payments keeping people out of the market but the down payment and closing costs. Which, to me, says that so long as people have jobs, they'll pay rent. Which is why even if prices drop some, we won't see a crash. Although I do think prices will drop somewhat as interest rates climb.

 

[method115]

the down payment and closing costs.

Exactly. What I see happening is what already happens here in Texas. States setup a program that gives first time home buyers their down payment. It's the program I used and the salary cap was reasonable. It was above the average pay for Texas but not so high that your just handing it out to people who can save up with some discipline. I just barely was able to make the program and we had to leave my wife (gf at the time) off the loan.