We hear this ALLLLL the time. I've heard it for nearly half a decade as I waited and waited and waited forever to buy a house, and yet through all of the disasters, house prices just kept going up and up and up.
The assumption is, since almost no one can afford a house, prices MUST fall.
Here's the thing no one gets: the "almost" part is very important. If, in a city of 100,000 people, only the richest 100 can afford (less than 1% of the population) a house but there's only 10 houses on the market, then prices can still continue to skyrocket.
Overall demand does not need to be super high for prices to go up. It's Demand relative to supply that matters. And in markets where supply is really really tiny then demand doesn't need to be very high in order to outstrip supply.
I've felt kind of similarly. My wife and I are young--graduated college in 2018--and I feel like I've been a bit lied to about what constitutes "good financial decisions" over the past couple years. We've been squirreling away cash to have an emergency fund, long enough to support us being out of work for 6months, paying down her student loans, trying to wait on buying a car, etc--but our friends have been buying houses, cars, etc etc, and it seems like that's been the more prudent decision time and time again.
We delayed buying a house to have a bit more in savings? House prices skyrocket, our friends who leveraged the crap out of themselves look genius.
We wait to buy a car to have a bit more in savings / wait for the used market to come down? The used market goes up, our friends who bought new cars look like geniuses.
There's part of me that keeps waiting for a correction, esp. in the housing market, both so that houses come back into our budget range, but also maybe because there's part of me that feels vindictive about the fact that everyone who, to my sensibilities, seems to be acting recklessly are making out better than we are.
Some of that is reasonable, I suspect: we're very financially conservative relative to our peer group, which means we're going to miss out on some opportunities, and I don't want to be "proven right" in saving for a rainy day by everyone else having economic hardship, but I do feel rather confused about how we're "supposed" to behave in this market.
We're also remarkably well off, as is our peer group, which will obviously skew the data radically, but it also scares the crap out of me: if these are the thoughts we're having with a household income just barely under $200k this young, what is everyone else thinking?
I know someone from FSU (former Soviet Union). Their grandparents saved for decades, literally keeping their cash under their mattress. The grandmother wanted to buy a car but the grandfather said it’s better to save. One day they woke up in December of 1991 and that money was almost worthless. “We should have bought a car”, that grandmother never let her husband live it down.
Financial decisions are not so black and white. IMO only basic rules apply: live below your means, save more than you spend, avoid debt, etc. Any advice beyond that is a crapshoot.
Banks push this to the limit by making it comparatively expensive for individual buyers to build, preferring to offer loans for already overpriced homes.
Edit: At least this has been my experience. Have people found otherwise themselves?
The funny thing is, people were saying that in 2021... and then... interest rates doubled/tripled crippling affordability, people's net worth plummeted due to decrease in stock prices, and more people got laid off... And everything keeps on trucking straight through it. I visited my realtor when she was showing a house for sale, and it was astounding the traffic and people coming up whispering to her how they wanted to make an offer that moment. And then on top of that the offers that came in with escalation clauses, waiving of all contingencies, etc. And this is March 2023.
I’m in a suburb of LA and while prices are still up quite a bit from mid 2020, houses in my immediate neighborhood are selling for hundreds of thousands less than they did at peak.
In hot markets with thin inventory there are still enough affluent buyers who can afford to pay cash using gains from other investments or family wealth. Prices are set at the margins so it only takes a few such buyers in each neighborhood to keep market prices high. Ultimately people need somewhere to live, and if they have to be in a particular area due to work or family obligations then they'll pay whatever it costs regardless of the underlying value.
With interest rates rising, the volume of buyers is dropping. In high demand areas, the folks who got lucky with a windfall or whatever, can still buy.
But the normal buyers will get more and more priced out, and the affluent area will end up with less and less volume as sellers start waiting it out because the volume of available buyers gets thinner and selling gets riskier.
Yeah but a lot of those 08 mortgages had much higher rates and even variable rates in the subprime division. Labor market is holding strong rn so even if it happens it’s gonna take much longer than a few months
If you mean dentists, lawyers, and doctors. Yeah, they were giving too many prime borrowers with great credit scores way more debt than they could sufficiently manage.
I don't think 2008 was nearly the same in terms of the fixed rate mortgage positioning. A seller in 2008 could likely move and get a mortgage at a practically the same rate as the one they were leaving. That meant that trading down in housing cost would improve their cashflow.
Sellers now with a 2.75% fixed-30 mortgage could trade down a significant amount in housing cost and end up with worse cashflow if they take on a new mortgage at 5+%.
The reality is that home prices are buoyed by a number of systemic factors that cause supply to be constrained. Prices will go down in total value due to interest rate rises. Homes will not be more affordable.
> Prices will go down in total value due to interest rate rises.
As somebody with the cash, I'd settle for even seeing this much. So far it's been high interest rates with the same high prices (in much if the Northeast).
Pressure is on supply, demand relatively strong as ever.
Supply: low and expensive new builds, heavy rate lockin.
Demand: muted due to higher rates, but sometimes people gotta move. So a slight haircut, but in many areas most likely less haircut than supply constraint.
We are seeing some sifting in the market but I personally believe sales volume is driven by supply lockin, meaning its still a seller's market.
There's a general sense that housing is not affordable for the middle class who does not already own a home. You predict falling prices with the thought that it's not sustainable and some changes in public policy will occur, as we will not allow for middle class people to be unable to afford a home.
I think this is generally correct. This is the situation in my area: Prices can never fall, because if the situation was such that prices would fall, no one sells. So there's basically little to nothing available, so buyers are stuck competing no matter the macroeconomic situation.
That’s why short sales, foreclosures, ‘mailing the keys in’, etc. were a thing.
With housing, it’s NEVER a thing that someone just sells at a loss just because.
They sell at a loss because they don’t have a choice, and the bigger the loss, usually because the less choice they have.
If labor market is still doing well, then there is little pressure. Usually that happens a bit later anyway - construction workers out of work because housing isn’t being built, or folks employed by tech workers get laid off because tech isn’t so sure about those bonuses, etc.
We’ll see though - maybe the fed will pull off a soft landing this time.
