patrick.net

I like MishTalk along with Wolf Street and Calculated Risk Blog. They all speak the hard or inconvenient truth.

I remember Calculated Risk Blog back in 2005 when it was sounding the alarm about inflated home prices. Then Patrick was on 20/20.

The 3% mortgage rates in 2020 - 2021 really made a disconnect as far as housing prices versus income. They were not that low back in 2002 to 2006 when home prices were being run up.

We got a 3% rate back in summer of 2016, and the mortgage provider said she never saw rates that low; she said the mortgage should be no more than 5 times our household annual income for that 3% rate.

.

Unemployment is going to have to climb from currently 3.5% to at least 5% for the 2% annual inflation target to be realized. I read a healthy unemployment rate is between 4 and 6%.

I've been reading a lot about layoffs as far as white collar jobs such as at T Mobile.

The white color worker demographic are who were driving up inflation like dropping $120 easily at a medium-priced restaurant and paying $400 a night for an AirBnB vacation rental.

I just read also Amazon warning its workers to return to the office, as work from home is over. That may cause a shakeup as far as job cuts as well.

Mish even is reporting about a less tight labor market: https://mishtalk.com/economics/job-openings-and-quits-are-in-a-steep-plunge-the-fed-will-be-pleased/

.

Big_Johnson says

People from all over the world want ti live in places like the US, Germany, Canada. Soon, the avg joe in the US will have no chance to own a house ever.

That depends on zoning and the home builders.

They could stack each 3 bedroom, 2.5 bath, 2 car garage townhome on a 1200 square foot lot and build at least 100 townhome units in a development. That is one affordable housing concept.

There is plenty of open spaces in Kansas, Nebraska, Indiana, etc to build homes.

Housing prices have to adjust in order for there to be enough demand given various factors like the 30 year mortgage rate, employment conditions, etc. An affordability crisis means less demand overall and we'll just see three families living in a home designed for one family.

But I see the point as far as examining the housing starts chart at the Federal Reserve St Louis website.

They need to increase housing starts as they never recovered after the housing market collapsed around 2009.

.

Home builders simply do not trust the government. That is why infrastructure to build houses was not added during the price run-up. Lumber prices skyrocketed, but little extra production was added. Same with all the building supplies needed as well as construction workers in general. Instead of adding personnel/supplies, the builders just let prices rise and kept production at about the same level.

Small businesses also are also looking at government fuckery and instead of large expansions, they are instead sitting on record amounts of cash.

People have gotten used to the government run boom/bust cycles.

Even with the huge run-up in prices during Covid, the annual production of units was similar to the 1960s, when the population was much smaller. This is not only in housing, but across the differing sectors of the economy as a whole.

https://fred.stlouisfed.org/series/HOUST

Misc says

Even with the huge run-up in prices during Covid, the annual production of units was similar to the 1960s, when the population was much smaller. This is not only in housing, but across the differing sectors of the economy as a whole.

It's amazing that we can have flat, or reduced vehicle production and sales despite a population explosion.

Income to prices is becoming less relevant as an indicator because of the financialization of housing. Rich people and corporations are just buying up more homes.

I do believe we are in a new housing, hell American dream Era. Economic expectations are going to be very different going forward.

Healthcare, education, housing and vehicles rising faster than inflation and incomes. Is that correct?

Big_Johnson says

Houses are the greatest assets to own because population increases but no additional land is being produced.

They said the same thing about down town office buildings too.

GNL says

Healthcare, education, housing and vehicles rising faster than inflation and incomes. Is that correct?

In other words, as I kept mentioning, gov (fake) low inflation numbers vs real (very) high inflation. Very likely one may get protection with stuff like real assets. With so may complicated factors, things like RE may not crash in many places. Nasty inflation is always in stealth mode. Like other here mentioned, inflation is planned by gov for rich which is a stealth tax for middle and poor.

porkchopXpress says

Income to prices is becoming less relevant as an indicator because of the financialization of housing. Rich people and corporations are just buying up more homes.

I referenced an article on ZeroHedge about this and a couple of Patnet posters made disparaging remarks about it being overly pessimistic.

I guess home prices will come down when the rich need to sell them at lower prices. That is the operating and maintenance, or carrying costs, are too burdensome and its beneficial to sell at lower prices.

I have been seeing locally a proliferation of new apartment buildings going up, which may help to increase supply enough to at least slow housing inflation.

.

ad says

I referenced an article on ZeroHedge about this and a couple of Patnet posters made disparaging remarks about it being overly pessimistic.

Yes, that would be the Housing Experts of PatNet.

I think we need to look to the late 70s and early 80s (the last time rates rose rapidly) rather than the 2000 housing bubble and subsequent collapse. How this plays out is anyone's guess but it's probably not a rapid crash.. if anything a long slow decline until wages catch up with valuations.

Last year the increase in interest rates took the wind out of the housing market. This year:

Sales of newly constructed homes were up 4.4% in July to a seasonally adjusted annual rate of 714,000 from a downwardly revised rate of 684,000 in June, according to a joint report from the US Department of Housing and Urban Development and the Census Bureau. Sales were up 31.5% from a year ago.

26% of the sales were to 1st time buyers. Yes, 40% of those 1st time buyers got down payments from the bank of Mom and Dad (Mom and Dad have near record financial assets).

This has led the Atlantic Fed's GDP NOW forecast for the 3rd quarter to put GDP growth at a 5.9% annualized. Over the last few weeks the dollar has gotten stronger AND commodity prices have been shooting up. - This is similar to what is expected when the economy is coming out of a recession.

https://www.atlantafed.org/cqer/research/gdpnow

GreaterNYCDude says

if anything a long slow decline until wages catch up with valuations.

I look at the 2008 housing crash and it bottomed around 2012. It may bottom at late 2020 level prices.

I look at 2016 prices and figure an annualized gain of 4% each year for housing.

So that may be applied as far as figuring what prices should be at now, or where they may bottom based on 4% annualized gains.

.

The media over the last 8 years or so has been so anti-patriarchy it's comical. However, for traditional American families (married with a couple of kids) never divorced saved up some dough, their financial situation is staggeringly good. The top 20% or so have a net wealth over $1 million. That's over 20 million American families. The price for a good house in a bunch of flyover country is mid-400s. A 20% down payment is about $100k. A lot of money, but doable for this demographic to gift the kids the down payment, and they are doing so in droves.

This is something that did not happen in 2008, which was predicated on NINJA loans. We are talking borrowers with solid jobs that can exceed previous price to income ratios because of this down payment gift from the patriarchy.

ad says

I have been seeing locally a proliferation of new apartment buildings going up, which may help to increase supply enough to at least slow housing inflation.

School has already started over here and I'm noticing over one thousand listings for apartments/homes still for rent on Craigslist. Inventory has definitely been expanding with new apartments being built all over (including some near campus). Could get interesting soon...

GreaterNYCDude says

I think we need to look to the late 70s and early 80s (the last time rates rose rapidly) rather than the 2000 housing bubble and subsequent collapse

Yes.

When I was in high school my best friend's family moved away from our neighborhood in San Jose to a Peninsula city that was closer to his parents' jobs. This was in spring of 1977.

I remember reading in the local San Jose newspaper then that median home prices went up in SJ by one third year to date (1977) (basically, Q1). I got obsessed with that amazing price increase over a short time period. Those were the last days before Proposition-13. A one-third rise (in a few months) of house prices meant a one-third rise for assessments for all properties, causing a near-overnight one-third rise in Property Taxes for all property owners. Retired folks, schoolteachers and other local civil servants like public safety (who till then could afford to live in the communities they worked for). An overnight crisis for many property owners of modest means. It's no wonder that Prop-13 was on the ballot the year after that (1978).

In those days there was no internet. No Zillow, no Redfin. The Classified Ads in the local paper were the source for information on house prices. Even as a teenager I was fascinated by how these sorts of stuff affected ordinary people. So I would scan those ads from time to time.

The typical Classified Ad had a maximum number of characters you could pay for, approximately two lines across the column (or something like that). So the listings would have the address, and abbreviations like 3/2 (for bed/bath), sq foot of house, and maybe a bit more info like AC (which was rare in the Bay Area in the 1970's, - folks have become pussies nowadays but that's a different story).

In addition to the abbreviated facts about the listing were the terms of the mortgage. You see, in those days, before the S&L crisis, mortgages were assumable for the buyer, under the terms of the original mortgage contract. So when mortgage rates skyrocketed in the 1970's, the terms of the mortgage would be listed on the Classified Ad right alongside the physical characteristics of the property. A seller would allow the buyer to assume the original mortgage that typically had much lower rates than "at market rate" for the biggest chunk of the purchase price. Then the buyer would get a high-rate mortgage for the smaller amount to bring the total up to meet the overall amount financed. This approach to home buying kept the market liquid for both buyers and sellers, and kept a floor on the prices. Any of you snarksters out there who wanna call me out on what I say as a liar, go to the library and find the old classified ads in the microfiche archives or whatever. You'll see it.

The collapse of the S &L industry ended this financing practice. So that's one of the big differences between those days and these days. It is different this time.

What prevents buyers now from financing the sale at a rate, slightly higher than their mortgage? RE investors do it all the time when they sell their investment properties.

SFH ownership is moving into corporate hands. As recently as 2005 there was no institutional ownership of homes, in 2022 they represented up to 1/3 of the buyers in some markets. Nobody knows how this plays out as long as they get their purchase money for less than 1/4 of what we have to pay.
I have heard from someone who rented from one of these entities. They never once saw a person from the rental office. You apply, sign agreements, and pay online and they give you a code for the front door. You leave when your tenancy ends the same way. As a long time landlord it sounds dystopian AF to me. 'Social Credit Score' in the US will be run by FICO and Experian et al, and you better have a warm sleeping bag if it falls too low.

Robert Sproul says

SFH ownership is moving into corporate hands.

According to data reported by the PEW Trust and originally gathered by CoreLogic, as of 2022, investment companies own about one fourth of all single-family homes. Last year, investor purchases accounted for 22% of American homes sold. I think this includes also individual investors / landlords who form a LLC.

About 50% of my townhome community is owned by landlords.

Invitation Homes is the largest owner of single family homes.

.