I’m sure that the lack of foreclosures will matter too yeah. We probably haven’t even seen that impact all hit the market directly yet though. It takes a while from when foreclosure starts until its actually sold on the market. So the foreclosures on the market are probably trailing down rather than a quick drop.
Let us recall from the '08 foreclosure fiasco that banks purchased the foreclosed homes and just let them sit empty for years, until prices bounced. So if there’s a steep enough drop in asking prices, it could happen again.
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I am very bearish on real estate. It has had a huge run up and never really resolved the imbalances from the 2008 recession. In many areas prices are far too high relative to incomes. That will correct itself.
That doesn’t mean all real estate is overpriced or will lose value. Real estate markets are very local in nature. With that being said I think the Chicago area real estate is going to do particuarly poor because of population loss from high taxes and pension obligations.
For an example of how this plays out look at the Connecticut real estate market outside of NYC. You can buy houses for less than their cost to build 20 years ago even when you assume the land is free.
Coronavirus could also effect urban real estate. I think more companies are going to want to allow work from home to avoid lawsuits. If you no longer need to commute in an expensive urban center then you can live anywhere, even cheap rural areas. No need to pay insane San Francisco or Manhattan prices. I think a lot of people will look at cheaper housing and lower population density.
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One huge element propping up current prices are the low interest rates, which isn’t a huge deal to me. However, it is definitely appealing to people looking to get a 30 year mortgage.
Low interest rates could be a risk to anyone buying. When rates rise then the house will fall in value.
It is better to buy a house at a low price with a higher interest rate because you can always refinance or prepay the mortgage. If you overpay for a house and it loses value you are screwed.
Except you never know whether the price is high or low, and you never know which way the rates are headed.
Thats nonsense. People should be thrilled to get a 30 year loan with 2.8%
Low interest saves home buyers gobs of money over decades.
THe risk you cite makes theoretical common sense but its basically imaginary.
While there should be a cause /effect in play between interest rates and home prices, I’ve yet to actually see home prices crash because interest went up.
1st google hit on the topic :
Further if interest went up in the future and your house dropped in price then that is a paper loss rather than a real loss.
If interest rates go up it should cause the stock market to go down. Does this mean we shouldn’t buy stocks? ?
Do you really believe there is zero correlation between interest rates and house prices?
I don’t think there is a huge correlation, but from a really basic level the monthly payment amount is what matters in most home purchases. That could change in the environment we are entering into (perhaps having a down payment will start to matter more).
There isn’t zero corellation. IN a vacuum they’d directly impact one another.
Like I said, in theoretically it makes perfect sense. But that theory is only looking at the 2 things in a vacuum and not looking at an entire economy with dozens of factors.
But in reality theres many other variables involved and you can’t just split out mortgage rates and house prices. If you look at 100 years of home prices you can’t really find any direct relationship between interest and home values.
Other big factors that impact housing are inflation, the actions of the Fed and the increase/decrease of the economy generally. You can’t untangle mortgage rates and home values from those other factors and they all with each other together.
There are lots of ways to value if a house price is too high or low. The price to rent ratio and median income to median house price are great indicators.
I remember having this discussion on FWF in 2006-7. I wish I had listened to those who predicted the collapse
My two cents a drop but not as big as then b/c more skin in the game and tighter lending standards mean less walk aways. We shall see.
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I predicted the crash and it was nothing but frustrating, let me tell you. I saved up around 50k for a downpayment and tried to buy my house.
While waiting for housing prices to go down the government literally did everything possible to bail out overleveraged homeowners out and prop up prices ensuring younger generations would never get a deal. Zero-interest rates, quantitative easing buying mortgage-backed securities, first-time homebuyer tax credit, loan modifications, HARP loans, etc.
Fortunately, I flipped my position in 2010 (I might have been a year early from the bottom) and bought. My house is now worth maybe 3 times what I paid for it.
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If folks walking away from their current commercial leases is harbinger …then it is not crazy
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was it a harbinger with the last crash? Makes sense homes go last…
Commerical real estate and residential real estate are pretty different markets and not much relation to one another.
I don’t think if a large % of restaurants and retail shops stop paying their leases that this will mean much of anything to the cost of buying single family homes.
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Prices in Seattle are down a small bit. Sales volume has dropped drastically.
King county median prices down ~0.7% from March to April
New listings down 35% year over year
Pending sales down 12%
So while the activity has plummeted the price only went down a small bit … so far. But then thats Seattle which had been a relatively strong market.
That makes sense to me. People are being allowed to not pay their mortgage while not facing foreclosure or credit report hits. This will take a long time to play out.
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The current market will take years to figure out. I don’t have a crystal ball, sadly.
What i can bet on right now is the commercial office market will take a huge hit but other than that, not too sure of anything
Personally, I don’t believe we will see much of a drop - the government will provide a comprehensive backstop.
I don’t think the nominal prices will fall… but I think the real price of houses goes down. Most Americans cannot afford a home based on their income. Some cities like LA are absolutely absurd where houses sell for 10 times the median income. Older generations that bought decades ago made huge profits but younger generations are screwed.
Either incomes have to go up so that people can afford houses or housing prices have to go down.
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