It's sickening that this is always marketed as bad news, even though we've been in a bubble for the past 20 years. The bad news is that we decided that owning a house is a retirement plan instead of giving people proper retirement plans. Somehow every non-homeowner has to be a policy slave to the passive income of some wealthy person. And we defend it by claiming that old people who are worth enough money not to work are not wealthy, as if we care about old people. We only care about old people as model "savers" who can be used to morally justify policies that directly and overwhelmingly benefit the very wealthy to the obscenely wealthy.<p>And also, there's a problem with revolving credit (i.e. a 2-year mortgage), such as Australia or Britain, or anything that is floating along with some interest rate. But these are a) intentional problems that the people making the loans hope will make them rich, and b) problems with pricing, because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
I am just not sure about this. There are more Millennials than Gen X, and Millennials are in their prime family-building and house-buying years. At the same time, in the aftermath of the Great Recession, not much new housing was built. The intersection of those two trends might mean demand exceeds supply purely mathematically. Especially if people who locked in mortgages at lower rates are reluctant to sell as a result, furthering lowering supply.<p>Certainly prices may come down in some locations as interest rates go up if there aren't enough cash buyers, but will it be enough to counteract the imbalance of demand and supply? I think it's an open question.
Hopefully this discourages investment firms from buying up housing stock[1]. To me the long-term danger for housing affordability seems to be that individuals will be priced out by institutional money.<p>[1] <a href="https://www.wsj.com/articles/blackstone-bets-6-billion-on-buying-and-renting-homes-11624359600" rel="nofollow">https://www.wsj.com/articles/blackstone-bets-6-billion-on-bu...</a>
One thing we always collectively fail at addressing is how to classify housing in a special category of goods, where simple free-market rules don't apply. Things like rent-control are in this direction, yet we never articulate what the goals are and the compromises we're willing to make.<p>Allowing the next generations a good start in life means that everyone that wanted houses to be a great investment need to take a loss, there's simply no way around this and we should collectively accept this.<p>I'd also be for completely different taxation levels depending on if this is your first, second or third home (properly handling even if first buying before selling within x months, so you only have a single home), if you're a company, if you're a foreign citizen that merely wants to snatch some random safe property.<p>Some problems really need a complex, evolving and carefully weighed solution, and housing really has been shamefully abused so that the haves screw other the not-yet-haves.
"House-Price" is a terrible metric that only <i>house sellers</i> really care about. Everyone else is more concerned with monthly total housing costs. If house prices stayed the same and interest rates increased 2-3x that means monthly payments for new mortgages also increase. Buyers are unable or unwilling to pay the higher monthly cost so they bid less and the price comes down but their total monthly payment does not decrease.<p>In some sense this is a transfer of wealth from home owners/sellers to banks/lenders and hopeful and prospective first time buyers see no benefit, aside from maybe smaller down payments.
Bring it on. As a first time buyer, I don't even care about prices going down as much as I care about being able to actually buy a home that I want without feeling like it's a blind gamble.<p>I want to be able to look at a listing, talk to the realtor, have a scheduled showing, and put in an offer at list price with inspection/appraisal contingencies. You know, like how normal life was forever until the last 5 years.
I don't even see a reason for a recession yet. We are forcing this slump on ourselves for no reason. If some aspect of the economy is fundamentally rotten then of course a recession is imminent. However, there is nothing like that now. Very low unemployment, a genuine reason for inflation (supply chain issues), low supply coupled with a very sudden need for more space causing housing price jumps. The only issue is excess cash in the market because of government stimulus. That could have contributed to the excess jump in stock market which also led to the home price increases. However this doesn't mean we should be in a recession.<p>Ok, now the interest rates are going up to counter the inflation. I am not convinced it will dent anything other than home and car prices. In this scenario, is a full blown recession actually going to happen if so why?
According to my Dad, younger generations have never experienced a housing environment where your home value goes sideways for a decade. With rates this high and going higher. We may experience our first example of buying a house and selling the houses 10 years later for about the same price.
Take a look at inventory: <a href="https://fred.stlouisfed.org/series/ACTLISCOUUS" rel="nofollow">https://fred.stlouisfed.org/series/ACTLISCOUUS</a><p>We have a ways to go to get back to "normal" whatever you define that as.<p>Locally and anecdotally, I've noticed houses are sitting on the market much longer, and I'm starting to see "price lowered" emails from Zillow. We've definitely entered a cooling off and people are moving less.
I doubt this. The super rich have too much money and need this converted to assets. In the UK at least you're not just competing against would be first time buyers but multi-national companies wanting to expand their portfolio and the super/ultra rich.<p>We need to tax the rich to redistribute the wealth. Own more than 3 homes as a single entity? Mega taxes etc.
A price-slump in emerging markets with a ton of startup money is practically guaranteed. Bangalore's real estate has been propped up by speculative investor money leading to overpaid employees for a decade, and I can see it collapsing soon. Canada is probably in a similar situation.<p>US cities' housing value is entirely captured within the local committees' ability to block any and all construction nearby. If zoning limitations are eased then the American housing market will crash irrespective of the nature of the economy around it.
If you analyze the house prices in "fast-moving" economies (bay area, nyc, etc.) you will see prices have corrected rapidly. However relative to the interest rate, these asset prices are still somewhat inflated. However due to the cash-heavy nature of buyers in these specific markets, you can expect less correction relative to interest rates as cost of borrowing is less of a concern.<p>Now move out to more desirable places to live (say, San Diego with it's great sunshine) and you will see asset prices are blown way out of proportion. This is a very geo-specific asset class, so you will have to look relative to the geo.<p>Unfortunately or fortunately, it has a lot to do with the interest rates and inflation. What you will see is with the layoffs and for folks who have taken out ARMs to optimize the cost of borrowing, a lot of folks are in for a big wake up call.
Could be wrong but the Economist doesn't usually make predictions like this? This article doesn't have the same depth they usually write to. The reasoning behind their predicted price slump is that interst rates are going higher, making homes less affordable. But I think they stop there without looking at any other factors. Such as, the tempering effect of rising commodity and labor costs of new builds. The other half of the article is about knock-on effects of higher interest rates and the predicted price slump.<p>I guess I'm not saying their predictions will or will not come true, just that they don't support them.
I'm very skeptical that there's going to be a prolonged slump. What happens when the next economic recession/crisis comes, and the Fed starts lowering interest rates again? Couple that with how wages are adjusting for inflation, and you're going to have a floor on prices that'll probably be higher than most people think.
Underwriters are much more strict after the 2008 crash and it’s become more difficult to qualify for a conventional mortgage. New home builders were building less overall and focused mostly on building expensive ($500K+) rather than affordable homes. In addition, cash buyers still make up over a 3rd of US home purchases which include many investors. A healthy drop in prices might happen in the near term but any kind of doomsday scenario is unlikely to play out IMO.
It would be astonishing if they didn't. 30-year rates have gone from <3% to 8% in the past 2 years, and will rise further. If they go to 10%, that means a monthly payment more than twice what you would have had 2 years ago.<p>Home prices can only go as high as the top bidder can afford. How many people are ready to buy the same house at the same price for twice the monthly payment?
Maybe globally true but if you live in a strong developed country I disagree. Looking back at a +-150% value increase in 20 years I'll take a slump but every other indicator like more pop and less being built works against this theory. Ofcourse I can see this in less desirable areas of the world being true or regions like china with massively bloated housing sectors.
Are this valid arguments?<p>>First, because gummed-up property markets are a drag on the jobs market. [...] the uncertainty makes people hesitant about moving<p>It could also mean that a huge supply of real estate makes it easy to move for everybody who doesn't own a house<p>>Lower house prices also hurt growth in a second way: they make already-gloomy consumers even more miserable.<p>Or it frees huge amounts of capital for those who buy a house when prices are low.<p>This is all insignificant to a coming disruptive change. China and India are incentivized to develop more efficient modes of housing. The west is cut off from that development by insisting on maintaining the status quo with zoning laws.<p>Even if western citizens remain in their countries, the west will lose the migrant science workers when they move to where housing doesn't take half of your income.<p>As a consequence, the housing market can collapse even more.
It's inevitable, as the 30-year mortgage is an intrinsically toxic product: <a href="https://byrnehobart.medium.com/the-30-year-mortgage-is-an-intrinsically-toxic-product-200c901746a" rel="nofollow">https://byrnehobart.medium.com/the-30-year-mortgage-is-an-in...</a>
If the market was something remotely non-dysfunctional a slump would be expected.<p>BUT, why are thousands of buildings/units empty in NYC that have been empty for years with an outrageous rent? Because among other things the owners win/lose less when the building is empty due to taxes plus many are with a noose around the neck waiting for the big sheik to come around and buy their building for a non-sense amount of money.<p>A version of that exists all around the country, plus builders "stopped" building new houses around a year ago, so inventory will disappear and prices will stay or even go up.<p>Apartment buildings are the exception for now but it's a gamble and with the high costs of everything ( now including finance ), I don't see how those prices will slump.<p>They'll stop being so ridiculous at best.
Aside from supply and demand, housing prices depend largely on how much money is available to pay for them.<p>Lower interest rates and looser monetary policy, stimulus, and loan assistance all drive prices up.<p>Higher interest rates, tighter monetary policy, and stricter loan qualifications push prices down.<p>In the US, at least for now, it seems the fed is committed to tightening, which will push prices down (all else being equal).
The housing market is quite peculiar in many aspects.<p>The article is right about the effect of interest rates, they tend to push the prices up when they are low and having high interest rates will reduce demand of people who are using houses as investment assets.<p>This is far from marginal but also not the complete picture.<p>Most homeowners are living in them, and most potential home buyers are looking to do the same.<p>The core (and thus the long-term trends) of the supply/demand game in the housing market is directly related to demography.<p>Short term panic can occur, but unless people are dying _en masse_ or you wait long enough to see effect the demographic slowdown in your area, I don't think the housing market is susceptible to crash durably.<p>I think it would be an excellent thing if it could stabilize.
> The cause of the crunch is soaring interest rates: in America prospective buyers have been watching, horrified, as the 30-year mortgage rate has hit 6.92%, over twice the level of a year ago and the highest since April 2002. ...<p>Bond markets tell a very different story. In the US, the yield curve is either inverted or flat from the 1Y treasury all the way out to the 30 year. Parts of the curve have been inverted on and off for a long time.<p>This is pointing to much lower rates ahead. Mortgage rates, too.<p>The global house-price slump, if it occurs, will happen not because of high mortgage rates, but in spite of falling mortgage rates. The driver will be job losses and financial turmoil.
A slump is likely. Or specifically a correction followed by a period of slow/no growth, but I don't expect a crash similar to 2008. The last housing crash was primarily due to a combination of overleveraging and overbuilding. The cost of nails, wood, and labor hadn't increased to the same degree.<p>The recent asset price increases have been supported by broad inflation. I don't see how prices drop significantly without monetary deflation. If we see deflation at scale, then <i>everything</i> is in trouble.
> <i>In condo-crazed Canada homes cost 9% less than they did in February.</i><p>OK, but how do they compare to February of 2019? According to this[0] they are still 20-25% higher than that point in time.<p>[0] <a href="https://tradingeconomics.com/canada/housing-index" rel="nofollow">https://tradingeconomics.com/canada/housing-index</a>
Bought a new home in a community that isn't finished (signed contract last November, closed in July). The prices they are advertising for the new homes under construction seems to be holding firm, but it also looks like those homes are sitting on "available" far longer than my street did. I had an investor come to my door asking about the area; the price he was telling me he was quoted was eye-poppingly low.
Experts have been saying this every year for the past decade. It pays to just ignore these predictions, imho. Had you heeded these warnings 5 years ago , home prices have have up so much that even if prices do fall, you will likely still not be able to buy at the price you had originally planed to buy. Waiting too long means having to buy at a much higher price , even if there is another correction.
Amen! Inshallah! etc<p>> As that edifice of capital crumbles, consumers are likely to cut back on spending. Though a cooler economy is what central banks intend to bring about by raising interest rates, collapsing confidence can take on a momentum of its own.<p>Sounds like hitting 2 birds with one stone. Or maybe we don't need to hit one of the birds, not raise interest rates, and thus not cause the other problems mentioned?
If there is a housing crash coming, the builders around me tend to think otherwise. Lots of new construction starts.<p>I think as it often happens, the most likely outcome is that lower priced areas will see the brunt of the value decrease, while higher priced neighborhoods may at best see a moderate speed bump.
"When people cannot move, it saps labour markets of dynamism"<p>I wonder how much new WFH norms will reduced this impact? I suppose the concern is those working in jobs with the most need to live close to their place of work are those that are least able to move.
It's logical as it costs more and more to maintain a house<p>until now we were moving to gigantism (houses, cars, ..) (like species without predation), but now hitting the planet's limits we will reduce our dependencies
It turns out when <i>i</i> is greater than 0, it decreases the present value of future payments. Who knew? I've been working in this industry for five years and I've never seen it happen.
I missed the news for when there was a house building boom. Oh, there wasn't? Then the law of supply and demand will keep housing prices high. People don't like being homeless and now the Boomer's children are having children and demanding more housing.
Seeing a lot of long term analysis in these comments, I would add: Whenever the boomer sell-off begins, that will be the paradigm shift. It may be in 5, 10, 15, or 20 years.