OT: Calling JoeLeesSocks

[johnson86-1]

The Pandemic Housing Bubble is bursting, says KPMG

"Once you start the process of prices falling nationally, there is a self-fulfilling momentum to it because no one wants to catch a falling knife" says Diane Swonk, chief economist at KPMG.

fortune.com

The U.S. housing market to see second biggest correction of the post-WWII era—when to expect the home price bottom

In the third quarter of 2022, falling home prices erased a record $1.3 trillion in home equity. It isn't over yet.

fortune.com

It feels like saying 15% is conservative seems crazy. That said, 10-15% seems not crazy, except for I'm not sure where these households are going to disappear to to allow that kind of drop. Are there that many people holding on to second homes that are going to be forced to sell? That many landlords with variable interest loans that will go from slightly cashflow negative to significantly cashflow negative?

 

[aTotal360]

We need about 6 more months of a stable housing market (and rates) to figure out what prices will actually do.

Right now, sellers think it's 2021 and buyers think it's 2008.

All my investor clients looking to buy think they can steal properties. All my investors looking to sell, are overpriced by about 10%. There is too much of a gap in expectations.

 

[Maroon Eagle]

We need about 6 more months of a stable housing market (and rates) to figure out what prices will actually do.

Right now, sellers think it's 2021 and buyers think it's 2008.

All my investor clients looking to buy think they can steal properties. All my investors looking to sell, are overpriced by about 10%. There is too much of a gap in expectations.

So sellers are younger State fans who grew up with Millens & buyers are older fans who remember Tech and Ten...

 

[GloryDawg]

 

[johnson86-1]

We need about 6 more months of a stable housing market (and rates) to figure out what prices will actually do.

Right now, sellers think it's 2021 and buyers think it's 2008.

All my investor clients looking to buy think they can steal properties. All my investors looking to sell, are overpriced by about 10%. There is too much of a gap in expectations.

I can definitely see this. We weren't trying to steal a property, but we had negotiations on a flip fall through because we needed some cushion for falling prices. And he was about 10% overpriced by our calculations if everything went perfect and the market didn't go further south. About 15% overpriced to leave any cushion.

 

[PooPopsBaldHead]

We need about 6 more months of a stable housing market (and rates) to figure out what prices will actually do.

Right now, sellers think it's 2021 and buyers think it's 2008.

All my investor clients looking to buy think they can steal properties. All my investors looking to sell, are overpriced by about 10%. There is too much of a gap in expectations.

Pretty accurate analysis. We will know how bad it will or won't get in the Spring. Housing, much like Christmas trees are seasonal. So you have to look YOY at prices. Premium in the spring and summer, lower in fall and winter.

With all the teeth gnashing going on, we are still up 9% YOY on median home prices. (The second chart shows list prices of ready to go occupy homes and excludes no construction that will not be completed in the next 4 weeks.)





The biggest deal is inventory. Like everything else, supply and demand sets prices. Demand is obviously way down from a year ago. Inventory is climbing, but it's still only halfway back to "normal"... In 2006-2007 inventory was more than double normal levels.



The final thing to watch is mortgage rates. I was way off a year ago, thinking they would only get to 5% or so. They hit 7.3% on a 30 a few weeks back. But they are softening.

The normal spread between the 10 year Treasury yield and 30 yes mortgage rates us just under 2%. We are close to 3 on that spread now. As the ten year stabilizes expect mortgage rates to pull back to. 5.5-6.5% range. Still high, but better.


So to answer you question 15% nationally in 2023... No way. Some markets possibly. But the bigger factor is going to be JOBS. Everyone in the US is locked into super low rates. My house I contracted on in the fall of 2020 and closed on in 2021 would have to decline 55% in value for me to get the same mortgage payment I am locked into today. The only way anyone is going to sell is if they absolutely have to do so. That means job change or job loss.

Next year I would guess 0 to -5% nationally on home prices. My market might be one that hits double digits though.

 

[johnson86-1]

Pretty accurate analysis. We will know how bad it will or won't get in the Spring. Housing, much like Christmas trees are seasonal. So you have to look YOY at prices. Premium in the spring and summer, lower in fall and winter.

With all the teeth gnashing going on, we are still up 9% YOY on median home prices. (The second chart shows list prices of ready to go occupy homes and excludes no construction that will not be completed in the next 4 weeks.)

View attachment 261688

View attachment 261689

The biggest deal is inventory. Like everything else, supply and demand sets prices. Demand is obviously way down from a year ago. Inventory is climbing, but it's still only halfway back to "normal"... In 2006-2007 inventory was more than double normal levels.

View attachment 261691

The final thing to watch is mortgage rates. I was way off a year ago, thinking they would only get to 5% or so. They hit 7.3% on a 30 a few weeks back. But they are softening.

The normal spread between the 10 year Treasury yield and 30 yes mortgage rates us just under 2%. We are close to 3 on that spread now. As the ten year stabilizes expect mortgage rates to pull back to. 5.5-6.5% range. Still high, but better.


So to answer you question 15% nationally in 2023... No way. Some markets possibly. But the bigger factor is going to be JOBS. Everyone in the US is locked into super low rates. My house I contracted on in the fall of 2020 and closed on in 2021 would have to decline 55% in value for me to get the same mortgage payment I am locked into today. The only way anyone is going to sell is if they absolutely have to do so. That means job change or job loss.

Next year I would guess 0 to -5% nationally on home prices. My market might be one that hits double digits though.

I am thinking/hoping that the places with a high concentration of second homes will take the biggest hit. Guessing that a lot of people with second homes or vacation/investment properties might decide that's an easy place to shed costs while recognizing some gains. But that assumes they are levered up to the point where cashflow is negative. Not sure how often that's the case for these vacation homes.

 

[aTotal360]

I am thinking/hoping that the places with a high concentration of second homes will take the biggest hit. Guessing that a lot of people with second homes or vacation/investment properties might decide that's an easy place to shed costs while recognizing some gains. But that assumes they are levered up to the point where cashflow is negative. Not sure how often that's the case for these vacation homes.

It's going to take a serious recession for that to happen. 95% of my clients are buying second/vacation homes as investments (STR). As long as there is enough discretionary income to feed the vacation markets, they won't sell. We work exclusively with investors buying investment properties in the Southeast (from 30A to Gatlinburg to Blue Ridge to Foley Island). None of these particular markets are slowing down. Sure, properties are not getting 35 offers like they were in March, but the good ones still get 5-6 offers.

 

[PooPopsBaldHead]

I am thinking/hoping that the places with a high concentration of second homes will take the biggest hit. Guessing that a lot of people with second homes or vacation/investment properties might decide that's an easy place to shed costs while recognizing some gains. But that assumes they are levered up to the point where cashflow is negative. Not sure how often that's the case for these vacation homes.

I agree with @aTotal360

The place I'm living is a huge second home market. We only have 27% of our homes full time occupied. The rest are second homes or vacation rentals.

Less homes came on the market this summer than last and nothing really sold... At all. A few tried 5-10% price drops and then just took them all off the market. Nobody needs to sell yet because they can just STR full time rent.

We have a massive long term rental shortage here. There's nowhere for service workers to live. The RV park is renting spaces for $850/month without sewer hookup and waitstaff for restaurants around town are living in travel trailers their employers provide. The RV park comes by with a honey wagon to dump your pooper for $50 when you need it... The RV park is full and this is in a place that already had a foot of snow on the ground. $1000 a month effectively for a 400SF RV spot.

I figure if the STR market tanks people will look to long term rentals first, only if that poops the bed will they dump.

My neighbor probably screwed up as bad as anyone. He built 3 high end spec homes and his dream house all at once all right together on about 10 acres. Built them all at the same time for economies of scale. Broke ground in September 21' and finished this summer. Originally told me he would list at $1.3m and when he completed in June he decided to go for $1.5m. Sold one immediately. Lowered the Price if the second in September to. $1.4M. turned the 3rd into an STR.

Now he's planning on holding the second until next year because the float is more than offset by the tax savings of selling it next year. If it doesn't go, he will turn it into an STR as well. I had been avoiding him because I figured he was under water like crazy after going all in, but he made enough money in the one to take care of the mortgages on that others for a few years.

It's truly fascinating how this will all play out. The big thing I look at is inventory and jobs. If inventory builds prices will fall in a market. If jobs start getting cut at a fast rate, people will be forced to sell eventually. But right now, with our locked in2-3% interest rates, the last thing anybody wants to do is sell. Remember, in the last housing crunch interest rates were dropping like a rock. That and record inventory along with massive foreclosures and banks that won't lend created a true national housing crash. Whatever happens this time will be much more local.

 

[TheStateUofMS]

The Pandemic Housing Bubble is bursting, says KPMG

"Once you start the process of prices falling nationally, there is a self-fulfilling momentum to it because no one wants to catch a falling knife" says Diane Swonk, chief economist at KPMG.

fortune.com

The U.S. housing market to see second biggest correction of the post-WWII era—when to expect the home price bottom

In the third quarter of 2022, falling home prices erased a record $1.3 trillion in home equity. It isn't over yet.

fortune.com

It feels like saying 15% is conservative seems crazy. That said, 10-15% seems not crazy, except for I'm not sure where these households are going to disappear to to allow that kind of drop. Are there that many people holding on to second homes that are going to be forced to sell? That many landlords with variable interest loans that will go from slightly cashflow negative to significantly cashflow negative?

92% of mortgages are locked in at under 5%. Those people aren't moving. Underwriting standards are much better these days. Existing home supply is low. Unless there's layoffs by the millions, I don't see the home prices across the board coming down much, but areas that were the hottest (Seattle, Phoenix, Denver, Miami, San Fran, etc.) probably will have +20% declines.

Real Estate is all about location (and yes supply). It's hard to see home prices falling much outside of those previously red hot areas. There's like 3mo supply of homes on the market right now? I get folks will have to lower the prices on their homes to sell their homes at 7% mortgage rates, but no one is going to sell. They gonna stay put and ride this period of higher rates out. Rates will head back lower POSSIBLY at the end of 2023 but certainly at some point in 2024.

I heard today the UK is full of ARMs though. There could be some blow ups there.

 

[OG Goat Holder]

I have heard since early 2020 that 2023 is when we’d be back to normal. Thank God. All of this crap has been artificial. What really changed except for COVID? No real reason for prices on everything from lumber to used cars to houses to be this stupid except for sheep panic. I’m glad I sat on the sideline and didn’t do dumb **** for the past 2.5 years (other than refi my house, which I should have done anyway).

Then add the incel crypto stuff to it. People just went plumb insane. Scared half to death over nothing. I still hate the word ‘shortage’.