Housing market's gonna crash

Jstas

So I saw an article late on Friday from website that follows lending trends and interest rates and stuff. I'd post it but I read on a temp link from a friend and it's behind a pay wall so I can't get to it anymore. But they basically said that the average monthly mortgage payment has increased by 45% in the past two years which equates to about $600 more per month on average. So a mortgage payment is now on par with renting a moderate 2 bedroom apartment/condo near a major a city. It's no longer cheaper to buy.

That said, I saw this article this morning sent to me by my real estate broker:

https://www.realtor.com/news/trends/housing-market-showing-signs-of-correction-what-buyers-sellers-need-to-know/

I knew this was coming with the fed interest rate changes. But with the above assessment on mortgage trends and the interest rates changes coupled with inflation, lending is going to go back to 2009 levels of freezing.

From the article:

Home sales have already been dropping; fewer buyers are seeking mortgages because they can’t afford the double whammy of high prices and rates on top of soaring inflation. Real estate agents are reporting smaller bidding wars and sellers cutting prices. Prices have even begun falling in a few parts of the country.

“A housing correction has begun,” says Mark Zandi, chief economist at Moody’s Analytics. “There are a growing number of cracks in the housing market, and they’re going to turn into fissures and fault lines in the coming months.”

Median home list prices in America hit a new high of $425,000 in April—up 14.2% in just one year, according to the most recent Realtor.com® data. Meanwhile, average mortgage interest rates climbed to 5.25% in the week ending May 19. That’s a 75% increase in a year’s time.

The result is that new buyers would be paying about 50% more for the same home compared with a year ago in their monthly mortgage bills. And that’s greatly diminishing the buying power of many Americans—especially during a time when inflation has hit a 40-year high, gas prices have spiked, and even rent levels are nationally hitting new highs.

So if you are OK with the exorbitant prices and waging a bidding war to get in to a house, do it ASAP 'cause while prices are high, interest rates are still relatively low with 5.25% average. They get over 6% and you might as well eat your hat and rent for the next decade. If you do go for a mortgage, eat the PMI, put 5% down and go 30 year fixed.

I am sooooo glad I did that and didn't take the "easy money" bait to re-fi that we've been being pummeled with. Our mortgage is sub 4% and staying there until payoff.

mhardy6647

It's OK by me, since we're sans mortgage -- but, yeah, I do realize it can be traumatic for some folks.

Jstas

Well, the problem is that when mortgage lending dries up, cash flow slows. Mortgages are one of the biggest money transfer vehicles the economy has. When house buying dries up, it "trickles down" and stops cash flow. When the cash flow stops, the banks end up sitting on more and more cash. It's not being lent because risk is too high and return is too low to mitigate the risk, especially when the economy is in the dumper, inflation is rampant and job growth is stagnant.

It's not just mortgages that won't be being signed. It's business loans and such as well. But mortgages are what give banks the funding to lend out for business support. If there's no money coming in because new mortgages aren't being written then there's less capital to invest on small business loans and other investments.

That secondary lending and investing is one of the biggest drivers of economic growth. When that slows, job creation slows and unemployment rises as businesses on the edge already get pushed over.

We had a crash in 2008 and it took almost 10 years for that market correction to show sustained growth again.

We're currently heading into that same situation only, there's nothing that can be done about it. No bailouts are going to fix it. This correction has to happen so that the cash flow dries up and dollars are taken off the market which will drive up the value of the dollars left out there. That process takes YEARS, though. Things won't get cheaper, there will just be less dollars to distributed the value for which means each dollar's percentage of the total wealth goes up. So while it looks like things are cheaper, they really aren't. There's just more cash flow with less cash available. That's why the economy was booming since about 2014-2015 until things went sideways. There's lots of reasons why which I'm not getting in to. I'm just saying things are going to be rough for a while.

So it's going to hurt more than those just looking to buy right now. We're all going to feel the pinch and it'll probably be the 2030's by the time relief shows up.

SIHAB

I don't think it will "crash". (IMHO) More like a correction.
Blackrock, the Chinese, etc will be still snapping up
prime real estate.

treitz3

So will the investment companies, further driving up rental prices.

Tom

heiney9

There will certainly be a correction, but it will in no way be a repeat of 2008. Things in the housing industry will tighten up and move back to normalcy. Loans will slow to a more manageable pace, prices of homes on average will come down. Lack of inventory is primarily what's driving the higher prices and bidding wars. As rate go up that will slow down the pace of home buying to let the high prices cool.

A 5.5-6.5% mortgage is still a great rate. Not the lowest we achieved, but still respectable none-the-less. I work in title insurance and we never, ever anticipated how busy we stayed during all of COVID. Doing closings at people's car window's in the parking lot, etc. when necessary.

My company stayed lean thinking demand for mortgages would crater during COVID, that did not happen and we (I) worked my **** off trying to keep up. We moderated a bit early this year, but frankly the market here has started to pick up again. I would guess for mostly the fence sitters who need to make a move. In this market lots more commercial transactions too.

As long as employment stays as strong as it is now, the correction will not be felt that dramatically.
These things just never seem to follow logic sometimes

I refinanced in late 2020 when I thought rates had bottomed out at 3%. They went lower yet after that.

That all said, it's anybody's guess and it could be anything from very bad to mild.

H9

Emlyn

I expect prices to moderate in my area next year not crash. As it stands, even houses that need a lot of work are under contract before they really hit the open market. There are very few properties being put up for sale and a lot of places that had been rented out have been renovated and flipped during the pandemic to meet high demand.

The messed up thing is when real estate prices go down and inflation remains relatively high local governments will feel the need to increase property tax rates to bring in more money to fund schools, police, fire departments, etc. So even those who got a low interest rate in the last few years will be seeing their mortgage payments increase even more than the last couple years.

audioluvr

I don't know about that but if I get one more call from some real estate broker asking me if I want to see my home, I'm going to want it to crash.

heiney9

If you escrow taxes, yes, your mortgage payment will go up if taxes go up. I don't escrow so my mortgage payment will stay the same, but I'll feel it when I go to pay my property taxes if/when they go up.

Where I live in Illinois, home prices are cheap compared to many places........but our property taxes are ridiculously high compared to many places in the Country. A $150,000 house can pay upwards of $6K+ in property taxes a year. A $150K house here is comparable to a $300-350K house elsewhere.

mhardy6647

heiney9 wrote: »

There will certainly be a correction, but it will in no way be a repeat of 2008. Things in the housing industry will tighten up and move back to normalcy...

A 5.5-6.5% mortgage is still a great rate. Not the lowest we achieved, but still respectable none-the-less. I work in title insurance and we never, ever anticipated how busy we stayed during all of COVID. Doing closings at people's car window's in the parking lot, etc. when necessary.

...

That all said, it's anybody's guess and it could be anything from very bad to mild.

H9

Ain't that the truth?! Our first home's mortgage was at 13.25%. Fortunately it was a fairly small mortgage & we paid it off fairly fast. The best thing any mortgage-holder can do, I'd opine, is to pay anything he/she they can towards principal every month on top of the monthly P&I payment. The impact it has on the accrual of equity, not to mention the lessening, long-term, of the amount of money wasted on loan interest, is astonishing.

It is fun & enlightening for neophytes to run a few "what ifs" on a mortgage calculator or spreadsheet.

sucks2beme

I bet 150k houses in Illinois are pretty rare right now!
Correction? I bet it will be pretty bad. Correction is the polite
Way of saying we knew it was stupid, but we still jumped
in with both feet and hyped the cr@p out of it.
Investors have been making sight unseen offers on houses
all over my neighborhood. This kind of feeding frenzy doesn't end
well. The only ones that will make out on this are the cities
cranking out the new and improved taxes. And you'll be stuck
with that tax rate for years. They NEVER lower taxes once they
reach a high point. It just stands still during a downturn.
When the head of JP Morgan states there's an economic
hurricane coming, better believe them.

Jstas

Heh, I have a property valued at $169K, property taxes on it are over $6800 a year.

Anyway, I don't see recovery or even moderation in the current fiscal climate that's been artificially induced and sustained through global political BS.

What I also see is lending drying up to all but the most qualified borrowers. With sky high inflation, that's going to drive property taxes up because funding for schools and such will get tighter as prices go up due to devalued monetary units increasing costs of operation alone. Forget about improvements or expanded services. This goes for everywhere, around the globe too, not just the U.S.

Housing prices have increased 40-50% in the past two years alone and that means that to get into a 5% down, fixed rate mortgage, you need to save more for a down payment. Significantly more. Just a year ago, the average home price was ~$370K. Today it's $425K. In 2018, the average price was still below $300K.

So in 2018, for a 5% down, 30 year fixed rate, you'd need about $15K to put down on a house plus closing costs and such, so $20K. Not unattainable.

In 2022 you need a little under $22K so actual costs at closing would be close to $30K. That's double what folks need to put down now. Add to that fact that you'll need something north of $2K a month for your mortgage, insurance and PMI if you don't, like Brock said, escrow. But pretty much every lender is requiring escrow now, especially for first time buyers.

With inflation high it's harder to save money. It's also harder to pay for life and an emergency like a broken car can create a dire financial situation for a young buyer. Add to the fact that rent averages have pretty much doubled and the avenue to home ownership is either paved with the blood, sweat and tears of excessive work and sacrificing until it hurts or privilege.

The current economic situation that has no signs of letting up at all is going to kill home ownership. Yeah, some folks will still be able to do it but the majority won't and they'll be stuck in rental complexes or buying town homes and condos.

mhardy6647

heiney9 wrote: »

If you escrow taxes, yes, your mortgage payment will go up if taxes go up. I don't escrow so my mortgage payment will stay the same, but I'll feel it when I go to pay my property taxes if/when they go up.

Where I live in Illinois, home prices are cheap compared to many places........but our property taxes are ridiculously high compared to many places in the Country. A $150,000 house can pay upwards of $6K+ in property taxes a year. A $150K house here is comparable to a $300-350K house elsewhere.

Real Estate taxes here are astoundingly high, but it's a bit misleading because there is no state income taxes. Towns like ours basically fund their operations (schools and town services) off the backs of local real estate taxes. It's just the way things are in NH. Live Free or Die!

I am actually not complaining, but the amount of land we have is just a wee bit to small to put any of it into current use. In other words, on a per-acre basis, our taxes are about as high as they can be in this town (which is saying something, since there are quite a few multimillion dollar properties in the 'hood).

nooshinjohn

We refinanced two years ago and took 5 years off our mortgage, keeping the payment the same. We took no money out and our payment stayed the same. We got 1.99 for twenty years.

Jstas

You got lucky.

I responded to a few refi solicitations just to see.

Because we weren't 5 years in, despite having enough equity to qualify, we didn't "qualify" for a fixed rate but they offered us stupid low introductory rates that were "subject to change in market conditions" which is a fancy was of saying "adjustable rate".

I even asked about cutting the term in half and no dice.

So we stayed with what we have. It'll be more in the long run but like Doc says, throw what you can at it in addition to regular payments. $100 to $200 extra a month equates to $36-72K over a 30 year loan. That cuts your principle amount down significantly and you'll likely see your pay off WAY sooner. Like years sooner.

motorstereo

Agree with adding whatever extra one can afford to add towards the principal. Also the best time to do it is at the very beginning of the loan when the payment is almost all interest. I cut every corner I could so I was able to do this early on and was able to say good riddance to my mortgage after 13 years. So I saved approximately the price of the house on the 7 3/8% loan. No doubt the lender wasn't pleased with my way of thinking.

The same thing applies to a new car loan. As long as there's no prepayment penalty start applying extra on the first payment and watch those extra interest payments disappear. Both of my recent new vehicle purchases were paid off in just over a year by accelerating the principal payments. There's something about someone earning a living from my interest payments that just rubs me the wrong way.

heiney9

We have high property taxes, high income taxes, high sales taxes and high gas taxes in IL. You will probably ask the same question I ask myself, why am I still here? My roots are here, most family is here and I haven't hit the threshold for "change", yet.....but it's damn close.

If I actually calculate how much of my income goes to taxes in IL vs. another state I'd want to live in, I know I'd probably cry....lol. But it's my choice to stay (mostly), long term girlfriend has input and most of my immediate family live here and my parents are at an age where they need their kids around to help out. My parents are pushing 80 and my Mom is starting to decline. I couldn't leave now knowing they need occasional help or need us near by if they need help.

Oh yeah, we are among one of the most politically corrupt states too!

H9

Jstas

I live in NJ.

We are the only state besides Massachusetts that will give Illinois a run for their money in fiscal oppression and political corruption.

I totally get where you are coming from. I've lived in NJ most of my life and it's home because it's where what makes home, home, exists for me. Could I live somewhere else? Yeah, sure but family keeps me tied here. So I make the best of it.

I wasn't ragging on you, just taking the opportunity to flex my tax rate muscle 'cause everyone I know outside of NJ ALWAYS complains about tax rates. Then I start rattling off numbers, percentages and so on and they stop talking about tax rates and start thinking about how much of a jerk they think I am. Which is better than listening to them complain about tax rates.

BlueFox

I bought my home in CA in 1990 for $172K (house and all fees), and my father in MD asked why I bought such an expensive house. LOL. At that time I was considered a poor person and this was a dirt cheap house in the poorest part of the city. I only was able to qualify for the loan since there was a program to assist poor people in buying a home, and I just barely qualified as being poor. I then busted my butt working, taking no vacations, buying very little of anything, and paid it off in 2001. It is now worth a little over a million, and thanks to Proposistion 13 my property tax is about $3500/year. I guess this home was probably my best investment.

NotaSuv

We bought our home last May..it has increased 80K in value..taxes paid last year were a whopping $879.57 yes $879.00 for the year
umployment in the county is 2.2% and there are PAGES of jobs starting over 100K in aerospace and its cottage industries...this area will do nothing but continue to grow for years to come.

Toolfan66

I always pay extra towards the principal, I love watching the numbers drop, seeing what we owe on it, and what it’s worth is a very satisfying feeling.

heiney9

John,

I know NJ is almost as bad or worse in some cases as IL when it comes to taxes and corruption. There is no real paradise, as every where has it's trade-offs. For now I choose to stay put and take it up the **** just like always....lol.

I am not really complaining just putting it out there.....one last rant, for all the taxes and user charges I pay, I don't feel like I get my monies worth, that's for sure. And I am not wanting to take this in a political direction.

I am in the servicing of the housing industry so I hope it doesn't take a dump as I like what I do and get paid pretty well to do it. We are a lean locally owned company and if it does take a dump I think we'll survive.

H9

muncybob

$879/yr!!! It's gotta be made up somewhere else I guess?
After reading this thread I feel lucky with a nice $200k property and taxes under $3k. My daughter bought a house just over 1 yr ago after losing out on several "bidding war" listings and wants to be able to retire in 12 yrs. Told what she needs to pay on the mtg. and she said well, maybe 15 yrs. ...I said good luck.

sucks2beme

House is currently valued at 285k. We were part of Memphis due to an annexation.
The area got a state bill passed that enabled us to be de-annexed.
They did hit us with 3 years of taxes to cover city pension obligations.
Last one is next month. Then it's just county tax. It was 1500 but got
raised to 2100 per year. So 2100 per year, no state income tax.
I'm sure the city will be jacking up everyone's taxes.
People in the next county over to the east are paying half the taxes I am.
Upstate N.Y. is paying through the nose. Glad I didn't take the job offer I
had up there. Wife's relatives complain a lot, and the state income tax
In N.Y. isn't great either.

TEAforONE

My wife and I,had her house ( before we met) that we used as rental property to pay off the mortgage. We lost our awesome tenants of about 10 years,and if we kept the house,it was going to need some serious investment to fix things, like 20 cement steps, a new roof,and some other assorted goodies. My wife really just wanted to get out of the rental biz. She was worried that no one would buy it. It was listed for 4 days,and sold for $15k over asking with no inspection. As is condition right up front. How long can the market sustain this??

But as everything is starting to unfold,I think we are going to see all sorts of ugly. The likes we have never seen before. My advise is pay off everything you can,and lessen your debt.

mhardy6647

Apropos of @TEAforONE's comment above: Mrs. H and I are both seriously debt-averse.

Milito

We were able to paid off our house in 2014 and then bought our new house a little over a year ago and paid cash. We were very fortunate to be able to do that.

However we don't live a high end life style, I drive a 2015 car and my wife drives a 2018. We have also always saved more than some of our friends and relatives. Our investments also have done well over the years.

We don't owe anyone anything as we just paid off her car.

mhardy6647

Milito wrote: »

...
However we don't live a high end life style, I drive a 2015 car and my wife drives a 2018. We have also always saved more than some of our friends and relatives. Our investments also have done well over the years.
...

That's the way to do it.
Good for you!

Jstas

heiney9 wrote: »

John,

I know NJ is almost as bad or worse in some cases as IL when it comes to taxes and corruption. There is no real paradise, as every where has it's trade-offs. For now I choose to stay put and take it up the **** just like always....lol.

I am not really complaining just putting it out there.....one last rant, for all the taxes and user charges I pay, I don't feel like I get my monies worth, that's for sure. And I am not wanting to take this in a political direction.

I am in the servicing of the housing industry so I hope it doesn't take a dump as I like what I do and get paid pretty well to do it. We are a lean locally owned company and if it does take a dump I think we'll survive.

H9

Calm down, I wasn't bagging on you, just commiserating. There's few people out there who don't live in Illinois that can truly say they got it just as bad. NJ is one of them.

And yeah, not getting political either but we don't get our money worth either. I'll leave it at that.

I certainly don't want stuff to go sideways and I don't want to see people lose jobs or businesses over it. But I see it coming and I just gotta say something is all. I guess we're all gonna just have to ride it out and hope for the best but prepare for the worst.

pitdogg2

I see a major correction coming, we can only hope it is something like the housing market or fuel, IT may be something even bigger like United States bigger....Some I feel are really trying to take us down a very destructive path.... it seems.

VR3

Let's face it... Our leaders for the last 15 years have decided hard times and failure is not an option. They have pumped trillions upon trillions of dollars into the market and bailed out company after company.

You can't simply hit reverse and not expect a mess.

I fully expect the next two to three years, maybe longer to be a somewhat painful experience.