Maybe there will be no "correction" to housing market- U.S. housing market's underproduction crisis getting worse

[PandaBear]

I personally won't lump different geographical locations into one equation and predict whether it is a good investment or not.

Even within the Bay Area, during 08, the pricing collapse was greatly different between the lower income area like Stockton / San Leandro dropping like 60-70%, to Cupertino / Saratoga dropping like 20%. You probably can already guess which one has more financially secure owners and which one has higher volatility.

This time, the boom was not due to NINJA loan related financial engineering. The run up was due to stock boom, QE, and low interest rate. The drop would also be from these being taken away, and the "house poor" people who use their stock portfolio and target RSU / stock option value to borrow just to get their first house would be the one running into trouble. If they got lucky and bought before the run up, found a remote job and pay cash for a home in a cheap area, they are set and won't be touched by the coming downturn even if they lose their jobs.

Someone with 5 years of work experience and buying their first condo to have roommates paying their mortgage in a "housing hack"? They are probably the one who would walk away and let the bank deal with it.

 

[CKN]

I personally won't lump different geographical locations into one equation and predict whether it is a good investment or not.

Even within the Bay Area, during 08, the pricing collapse was greatly different between the lower income area like Stockton / San Leandro dropping like 60-70%, to Cupertino / Saratoga dropping like 20%. You probably can already guess which one has more financially secure owners and which one has higher volatility.

This time, the boom was not due to NINJA loan related financial engineering. The run up was due to stock boom, QE, and low interest rate. The drop would also be from these being taken away, and the "house poor" people who use their stock portfolio and target RSU / stock option value to borrow just to get their first house would be the one running into trouble. If they got lucky and bought before the run up, found a remote job and pay cash for a home in a cheap area, they are set and won't be touched by the coming downturn even if they lose their jobs.

Someone with 5 years of work experience and buying their first condo to have roommates paying their mortgage in a "housing hack"? They are probably the one who would walk away and let the bank deal with it.

All over the country people are mentioning 2008. The truth of the matter is that in many areas/states, the state in which I live Utah for one, will see a softening of prices but not a crash. There are far more people moving in, and those already here that wish to buy a home. It's still simple supply and demand. The last story I have read is that Utah has a housing deficit of 40,000 units.

 

[14Accent]

I'm currently 33, and bought my house in 2014 for $143,815. It's a 4br, 1.25 bath with 2,600 sq. ft. total, ~1,600 finished. For those that live in MN, I bought in the North Side neighborhood. For those that don't know: the North Side has long been a staple of inequality and economic depression in the Twin Cities, which is exactly why I found this place to be a great investment.

At the time, I was staunchly against moving to this neighborhood. Admittedly, due to stigma. Then, I saw the property and immediately fell in love. Built in 1905, it's a 2 story + attic and unfinished basement on an alley adjacent lot. The PO bought the house as a flip, however he was not a "flipper". He lived here for 3ish years, spending time making sure the renovations were done to his liking. Full gut in the kitchen, replaced with all stainless appliances, real hardwood flooring, granite counters. All the wiring was brought up to code, as was the plumbing. He added an 8' privacy fence and had a new slab poured for the new 2 car garage. Windows were replaced with double-hung pieces, which had to be expensive given the custom dimensions required for a house this old.

Anywho, the real reason I bought was PROFIT. As a first time buyer in 2014, I was able to secure a decent 4.125% rate with basically no money down. The state provided me with a $5k grant designed to get first time buyers into homes, which combined with a 3.5% down payment requirement for FHA loans meant that I was only required to write a check for $600-ish at closing.

As of today, I owe somewhere around $119k on the loan, while the property itself could potentially bring $230-$250k if not more. I'd sell in a heartbeat, if it weren't for the lack of affordable options here in town.

 

[Number_35]

There is a big correction in house prices underway in Canada. And that's a very good thing.

Houses in my neighbourhood (it's nice but not that nice) have been selling for the past year for between $1,250,000 and $1,750,000. Those are crazy prices. No young person can afford them. We have a doctor shortage and can't attract young doctors to the area because they can't afford to live here.

Ecotourist, you're on "the island", right? I've heard Victoria's prices have gone crazy - has the boom spread up-island as well?

 

[Number_35]

I'm currently 33, and bought my house in 2014 for $143,815. It's a 4br, 1.25 bath with 2,600 sq. ft. total, ~1,600 finished. For those that live in MN, I bought in the North Side neighborhood. For those that don't know: the North Side has long been a staple of inequality and economic depression in the Twin Cities, which is exactly why I found this place to be a great investment.

At the time, I was staunchly against moving to this neighborhood. Admittedly, due to stigma. Then, I saw the property and immediately fell in love. Built in 1905, it's a 2 story + attic and unfinished basement on an alley adjacent lot. The PO bought the house as a flip, however he was not a "flipper". He lived here for 3ish years, spending time making sure the renovations were done to his liking. Full gut in the kitchen, replaced with all stainless appliances, real hardwood flooring, granite counters. All the wiring was brought up to code, as was the plumbing. He added an 8' privacy fence and had a new slab poured for the new 2 car garage. Windows were replaced with double-hung pieces, which had to be expensive given the custom dimensions required for a house this old.

Anywho, the real reason I bought was PROFIT. As a first time buyer in 2014, I was able to secure a decent 4.125% rate with basically no money down. The state provided me with a $5k grant designed to get first time buyers into homes, which combined with a 3.5% down payment requirement for FHA loans meant that I was only required to write a check for $600-ish at closing.

As of today, I owe somewhere around $119k on the loan, while the property itself could potentially bring $230-$250k if not more. I'd sell in a heartbeat, if it weren't for the lack of affordable options here in town.

That's in the Twin Cities metro area, correct? I'm surprised prices are that low.

 

[ecotourist]

Ecotourist, you're on "the island", right? I've heard Victoria's prices have gone crazy - has the boom spread up-island as well?

Yes we're on the island, on the Saanich Peninsula in fact (part of so called greater Victoria). I don't know what has happened up island. Prices have generally been lower there and may not have gotten as crazy as they did here.

In the past year very ordinary houses (little street appeal, older construction and never updated, etc) have been going for $1.25 M and up. Nicer houses have been going for more like $1.75 M. Really nice houses on the water in this immediate area are in the $3 - 5M range. This is a nice area but not that nice.

Our house has (theoretically at least) more than doubled in value in 7 years.

I'm not sure I'd be willing to pay these prices if I were retiring today. Young people and middle income people can't afford to buy a house here anymore. And that's not good.

But mercifully prices have softened recently and there have been few to no sales "above asking". In fact there have been a few price reductions. But back to some kind of normal is a very long way.

 

[Number_35]

Yes we're on the island, on the Saanich Peninsula in fact (part of so called greater Victoria). I don't know what has happened up island. Prices have generally been lower there and may not have gotten as crazy as they did here.

In the past year very ordinary houses (little street appeal, older construction and never updated, etc) have been going for $1.25 M and up. Nicer houses have been going for more like $1.75 M. Really nice houses on the water in this immediate area are in the $3 - 5M range. This is a nice area but not that nice.

Our house has (theoretically at least) more than doubled in value in 7 years.

I'm not sure I'd be willing to pay these prices if I were retiring today. Young people and middle income people can't afford to buy a house here anymore. And that's not good.

But mercifully prices have softened recently and there have been few to no sales "above asking". In fact there have been a few price reductions. But back to some kind of normal is a very long way.

My family lived in Victoria from 1960 or '61 until 1963.

We lived at 145 Wildwood (IIRC, the details are fuzzy this many years later), which I think was a rental, for one or two years, and then my parents went out on a limb and in 1962 bought a big 2-story on Monterey. Can't remember the street number. It was built in Dutch Colonial style, and had a very deep backyard with blackberry bushes. They paid $19K, and had trouble getting their money out of it when they sold to move here after a year.

I took a school bus to Jiminy Cricket Nursery School, which I think was private and no longer exists.

My godparents lived in this incredible sprawling ultramodern house in an area my parents called "Ten Mile Point". They had beachfront property.

I imagine the little rental would be priced high now, Monterey would be twice or three times that, and Ten Mile Point would be astronomical.

 

[JeffKeryk]

Yeah you’re not convincing me. There’s no redeeming quality or benefit to people in the upper 15-20% spending nearly a million dollars in interest on a home. Sorry. That has nothing to do with the locality of RE. Especially when you look at the quality of most recent construction, the locations, etc. Manhattan, Carmel, the beach most anywhere… OK… some third tier city where people are icing to escape the bad decisions of their last place? Not so much.

A couple things... A mortgage is using other people's money to gain an apprecaiting asset. I could barely afford my house when I bought it, and I bought at the bottom of the market. I lost $$ on the house I sold. Well, I could have stayed in the other house, or I could have rented. I made a decision to take a risk and now I have a $2M+ property free and clear.

You either pay your mortgage or someone else's mortgage.

 

[JeffKeryk]

CA prices statewide are leveling off and dropping in some areas. The Bay Area is still appreciating, but slower. There is a house around the corner that is overpriced; my neighborhood will not bear $3M for 2000 sq ft. Who are they kidding?

 

[JHZR2]

A couple things... A mortgage is using other people's money to gain an apprecaiting asset. I could barely afford my house when I bought it, and I bought at the bottom of the market. I lost $$ on the house I sold. Well, I could have stayed in the other house, or I could have rented. I made a decision to take a risk and now I have a $2M+ property free and clear.

You either pay your mortgage or someone else's mortgage.

I do agree that you pay yours or you pay someone else’s. But I suspect that all that has gone on is going to result in some bag holders outside of the really established markets.

From 2012 to 2022, cpi went up by 24 percent, so $100,000 in buying power went up to $124,000. A house that went up more/faster greatly outstripped the cost of most items. In many places doubling in that time. The issue is the vast majority of job wages have not doubled(not even close) since 2012. This fact can be hidden to a certain extent when mortgage rates are in the 2%s, not so much in the 5%s.

The trend around me is nearly doubling in that time. Plus $9-30k/yr property taxes (on the examples below), which stifles buying power significantly more than house price or even interest rate… so this is probably slower than places like Charlotte, Phoenix, NOVA, etc. This is from the low to mid-end (there are at least 14 more >$2M from a cursory Zillow search) within three miles of my home:

Housing prices can't go up at multiples of cpi or wage growth for long periods, or housing becomes unaffordable. That’s my point. Much of this isn’t commensurate with most of America, who aren’t doctors/tycoons/Bitcoin gamblers/BigLaw partners, etc.

 

[97K15004WD]

One thing I haven't seen mentioned here (In North America - NA) are families staying in multi-generational homes. Fairly common in Europe for a family to live in the same home so housing stock doesn't matter. Stale population growth and steady employment lead to static family homes.

Is that happening anywhere around in the NA area that you guys see?

 

[wag123]

One thing I haven't seen mentioned here (In North America - NA) are families staying in multi-generational homes. Fairly common in Europe for a family to live in the same home so housing stock doesn't matter. Stale population growth and steady employment lead to static family homes.

Is that happening anywhere around in the NA area that you guys see?

Multi-generational homes are VERY common in Texas. In some cultures this is an excepted norm.

 

[JHZR2]

One thing I haven't seen mentioned here (In North America - NA) are families staying in multi-generational homes. Fairly common in Europe for a family to live in the same home so housing stock doesn't matter. Stale population growth and steady employment lead to static family homes.

Is that happening anywhere around in the NA area that you guys see?

I know one family that does this. And it’s more of an in law suite entirely separate from their house. Only one though out of the people I interact with.

There are cases where extremely elderly parents go to live with their older (retirement age) children when widowed and unable to live at home alone. But that’s an avoidance of a nursing home, not a play to make ends meet due to house affordability.

 

[BMWTurboDzl]

One thing I haven't seen mentioned here (In North America - NA) are families staying in multi-generational homes. Fairly common in Europe for a family to live in the same home so housing stock doesn't matter. Stale population growth and steady employment lead to static family homes.

Is that happening anywhere around in the NA area that you guys see?

Yes. I'm seeing it primarily around SoCal and the Bay Area.

 

[alarmguy]

I think the only crisis is in the media. if it wasnt, the media would not exist. Think about it, is there anything in the media that isnt a crisis, they tell you ever aspect of our lives are.
I read the OP post and why I needed to reply. The news story mentions Florida has a housing Crisis. Its laughable, freaking hundreds of brand new homes available where I am looking in Florida, in fact I dont know a state where I cant buy a new home, so that "news story" is pop tart click bait. I have now been to Florida 7 times in the last 7 weeks looking to see if we want to move in the coming year or two.
Nothing but media hysteria of the newest generation. When my wife and I looked in 1988 for a home, the Real Estate agent felt bad for us, homes were so expensive and nothing much on the market... fast foward to 2022, homes are still so expensive and nothing much on the market.

People need to turn off the 24 hour so called news, something we didnt have in 1988 to make us feel miserable so they can sell advertising, people dont tune in if the news is good and why there is never a day in the media with good news. The public is being played..

Here you go = (dont just check Florida, look at all the other states too)

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Lennar | New Homes For Sale - Building Houses and Communities

Everything’s included by Lennar, the leading homebuilder of new homes for sale in the nation’s most desirable real estate markets.

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news.kbhome.com

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[Dave Hess]

alarmguy,

Where in Florida are you buying a house ?

 

[alarmguy]

I do agree that you pay yours or you pay someone else’s. But I suspect that all that has gone on is going to result in some bag holders outside of the really established markets.

From 2012 to 2022, cpi went up by 24 percent, so $100,000 in buying power went up to $124,000. A house that went up more/faster greatly outstripped the cost of most items. In many places doubling in that time. The issue is the vast majority of job wages have not doubled(not even close) since 2012. This fact can be hidden to a certain extent when mortgage rates are in the 2%s, not so much in the 5%s.

The trend around me is nearly doubling in that time. Plus $9-30k/yr property taxes (on the examples below), which stifles buying power significantly more than house price or even interest rate… so this is probably slower than places like Charlotte, Phoenix, NOVA, etc. This is from the low to mid-end (there are at least 14 more >$2M from a cursory Zillow search) within three miles of my home:

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Housing prices can't go up at multiples of cpi or wage growth for long periods, or housing becomes unaffordable. That’s my point. Much of this isn’t commensurate with most of America, who aren’t doctors/tycoons/Bitcoin gamblers/BigLaw partners, etc.

The problem with this is you didnt take into account the monthly payment. Home prices mean nothing, its the payment.
The property owners get the money in a low interest rate economy

alarmguy,

Where in Florida are you buying a house ?

Well, let’s not say we are buying a house in Florida just yet.
This just started out as a curiosity but we really liked what we saw, at the same time we love our home and where we live but feel like the area has stagnated and ready for our next phase of our lives now that the kids are grown and have their own homes.

We are looking in Northeast Florida because it is only a 4 Hour drive from where we live now and Pretty easy drive for our adult kids.

We considered pretty much everything from Saint Augustine to the Georgia border along I 95.
We have pretty much settled on an area in extreme Northeast Florida toward Fernandina Beach/Amelia island area and Yulee.
We have the community picked out, well actually two communities, we keep going back-and-forth, we have homes picked out right down to the specific lot and are under construction, however the timing is not great, we have the holidays coming up and we’re big as a family on the holidays, it’s also difficult to get timing right with a new homebuilder when you move out of your existing home.
Throw in a little separation anxiety about moving and we’re not sure if we will or we wont but pretty sure within the next couple years we will.

At the same time we very well may call the builders agent in a day or two and tell them to send contracts! We have done a similar thing last month and chickened out/didn’t sign.
After seven weeks of contemplation we have pretty much settled on one community and one specific lot where a home is being built.
One of the uncomfortable feeling is our costs will be significantly higher than South Carolina not drastic but significant.
The property taxes, HOA fees, CDD fees really start to add up, yet the communities very nice.
If I still lived in New York they would seem cheap but after being spoiled in South Carolina for so long they seem just a little pricey meaning I’ll pay about double in fees and property taxes than I pay now maybe a little less than double but it’s significant.
Add in gas and good is more expensive too.

At the same time we love the area and places to dine as well as the stores and beaches.
One thing that does concern us is I doubt the boating will be as good as the boating in our 41 mile long lake here but willing to give that up as much as we like it.

As you can see this is not been an easy decision for my wife and I but really at the point if we decide to do a complete remodel of our existing home in South Carolina or just sell it at the top of the market and buy a brand new one in Florida, decisions decisions decisions and we have been driving ourselves nuts over it

 

[JHZR2]

The problem with this is you didnt take into account the monthly payment. Home prices mean nothing, its the payment.
The property owners get the money in a low interest rate economy

My whole premise has been monthly payment. Looking only at the monthly payment from my POV is folly. Thus why I had pages of comments about internet, the massive amount of money spent to the mortgage bankers, etc. Just because you can afford something with plenty to spare doesn’t make it prudent.

I’m more a boglehead than a HGTV real estate believer. Do t get me wrong, I’m all for owning RE and own multiple properties. I recognize that what I can afford doesn’t make it prudent. Going back to my earliest posts on this, the overinflated market, fueled by printed money, insanely low interest rates, and the push of realtors and mortgage bankers hasn’t done most folks any favors… and the supposed equity that has grown is funny money.

 

[14Accent]

That's in the Twin Cities metro area, correct? I'm surprised prices are that low.

Correct, sir. North Minneapolis has LONG been seen as the misfit cousin of the Twin Cities, and for good reason. Even back in 2014, I saw the impending collapse of the real estate market here. I can hardly keep track of the amount of high rise apartment buildings being constructed in town, yet single family homes are becoming more and more rare.

As I said, my house was/is an investment. While I never expected 100% gains over 10 years, I'm also not surprised. Much like me, to this day there's a massive pool of first time buyers simply looking for a place to start their family. North side real estate prices remain depressed relative to adjacent cities, however things are changing quickly.

 

[Cujet]

I think the 1970's are a better comparative match than the 2008-9 downturn.

Where inflation reduces the real world value, even while prices stay relatively level.