US home sales see worst year since 1995

https://www.bbc.com/news/business-68035274

by belter • 3 years ago

64 128 3 years ago

steveBK1234• 3 years ago

Don't forget we have ~25% higher population than 1995 now too, so the current sales levels are quite worse than the even that 30 year low comparison.

The good news is rates are slowly heading down to normalish (4-5%) range, but the era of free money (sub 3% mortgages) are unlikely to come back. If those rates do come back, it will not be pleasant as it will be the other side of a fairly large recession.

HPsquared• 3 years ago

Need to remember to subtract inflation from any interest rate, though. "Real interest rate" accounting for inflation.

Edit: for example this one https://fred.stlouisfed.org/series/REAINTRATREARAT10Y

nobodyandproud• 3 years ago

Inflation fluctuates constantly. Mortgage rates are fixed for 15-30 years, unless one makes the mistake of getting a variable rate loan.

putlake• 3 years ago

This chart is based on forward inflation expectation, which is probably lower than actual. Ideally I'd like to see this chart until 10 years ago that compares the rate of interest on a US 10Y t-bond when issued with the actual inflation that occurred over the 10 years until it matured.

judge20207• 3 years ago

Main issue with taking inflation into account is that wage inflation doesn't exist, companies aren't giving raises every year to 'match inflation', if they do offer raises it's for retention and/or is performance-based.

antisthenes• 3 years ago

The reason 2023 year was so bad is that prices are lagging behind interest rates. In a liquid market, they have an inverse relationship, but it wasn't until Q3 of 2023 that prices actually started giving way.

There's almost a 1-year lag, which resulted in high prices AT high interest rates. Reasonably, this affected purchasing decisions.

Sales will pick back up again by Q2 2024.

steveBK1234• 3 years ago

Exactly. RE prices are sticky on the downside.

Some of it is logical (selling a leverage asset at a loss when you can just live in it / if you sell you give up your below-market-rate mortgage) and some of it is emotional (people like to win).

So as mortgage rates approach 4-5% range (not that far off, we've already dropped from 7.8% to 6.6% in 2 months), homes will start moving again. People need to upgrade/downgrade/move/etc, and the marginal cost will start to compress and make it worthwhile again.

As an example - I have a typical 2018-2020 ZIRP bottom barrel interest rates.. So while the apartment upstairs from me which is on sale for 25% more than my apartment purchase price, it would have actually cost me 75% more in monthly payments at peak interest rates. At current interest rates it is 58% higher payments, and at 4.5% it would be about 31% higher payments (pretty close to proportional to price).

So I think somewhere in the 4-5% range things get pretty normal pretty quick.

BLKNSLVR2• 3 years ago

The good news is rates are slowly heading down

Interest rates or the inflation rate?

Interest rates haven't started heading down yet, whilst inflation rates are easing, they're still higher than desired.

https://www.forbes.com/advisor/investing/fomc-meeting-federa...

steveBK1234• 3 years ago

Mortgage rates are down from peak

https://fred.stlouisfed.org/series/MORTGAGE30US

Which is what people buy based on

bugglebeetle3• 3 years ago

And yet in California, it has practically no effect on prices because people selling have absurdly low property tax rates locked in from buying decades ago, thanks to Prop 13.

dawnerd3• 3 years ago

Oregon too. People buying new construction get kinda screwed.

ilikehurdles• 3 years ago

Oregon property tax rates are insanely high on older units too IMO. How does this apply to new construction?

fred_is_fred• 3 years ago

That's the perfect analogy, a huge disincentive to move. I was telling my son today that I would love to move, we need a different house and for a variety of reasons in a different neighborhood. But I cannot bring myself to trade 2% for 7%. Back when it was 5.75% for 6.25% who cares, now it's a big deal. My exact same house now would cost me 2x in payments.

arb-spreads4• 3 years ago

Some people rent out the original house or try to transfer the low mortgage rate in order to monetize it.

cperciva• 3 years ago

Long term non-transferable mortgages are the home ownership equivalent of rent control. In both cases housing ends up being used suboptimally because moving is too expensive.

Spivak4• 3 years ago

Honestly I think this one is totally fair. I would even go further and say that property tax you pay on your house should be capped at what you're paying on the day you bought it. And even further we should just get rid of property taxes and collect it via income. We don't tax unrealized gains except for property and doubly because you can't just sell 20% of your house to pay the taxes.

Owning your home is meaningless if you can be priced out of it while just living there. Making people come up with money because they have an asset that can't be readily turned into money is silly when you can just tax money.

bugglebeetle3• 3 years ago

If you shouldn’t have to pay more in property tax, then why should you be a me to realize corresponding gains on the sale price, above inflation? After all, that has very little to do with whatever the owner does in HCOL areas, but is instead drive by the total economic activity that occurs around them. Home ownership is also meaningless if more and more people are locked out of it based on the premises of “fuck you I got mine (20 years ago)”.

SeanAnderson3• 3 years ago

It's not entirely meaningless. You have a place you can modify to your desire as long as it's allowed by the law and you're earning equity instead of paying it to a lord. Quit exaggerating.

California's laws allow for tax to not reset when passing houses down through inheritance, too. Do you feel this is also fair?

sagarm• 3 years ago

If it's unfair to tax unrealized gains from owning property, then surely it's even more unfair to tax actual work?

fxtentacle• 3 years ago

"We expect a scarce supply of existing homes for sale to keep home price growth positive this year,"

or said another way: If young families just hold off on purchasing a house for a little bit longer, prices might go back to normal. I mean do you expect the 40% price hike during Covid to become permanent? I don't.

Exoristos• 3 years ago

Positive price growth means prices rising, not falling "back to normal".

vsskanth• 3 years ago

People with 3% mortgages aren't going to sell unless they lose their job and can't make the monthly payment. I mean do you expect a large recession in the next year ? I don't.

enraged_camel4• 3 years ago

Can you look at this chart, identify the pattern, and then explain why you think a recession isn't imminent? https://i.imgur.com/pkl8nfq.png

dalyons• 3 years ago

I do. I grew up in Australia and there has been basically uninterrupted crazy property price growth for 25 years. Always a reason why it would or should go down, but it never has. Canada is the same as far as I know.

You might be very disappointed if you’re waiting for a crash

kortilla3• 3 years ago

I mean do you expect the 40% price hike during Covid to become permanent? I don't.

Don’t hold your breath for a pullback without a major economic crash.

AviationAtom• 3 years ago

I don't think there's any case in which I see it pull back anywhere remotely close to 40%, short of societal collapse. Way too many factors that keep demand high and supply low.

jdksmdbtbdnmsm8• 3 years ago

do you expect the 40% price hike during Covid to become permanent?

Definitely. US real estate is literally the best investment real estate in the entire world, and it's availabile to the entire world. Prices definitely won't be going down.

Edit: This comment has nothing to do with whether or not the US is a desirable place to live. The value of US real estate is tremendous simply because the US dollar is the hegemonic international currency and the US holds the only meaningful military power in the west. And finally, one does not have to live in a property to invest in it.

xwolfi3• 3 years ago

You may misunderstand how the "entire world" thinks about it.

I'm French and live in Hong Kong so I'm exposed to a lot of European and Asian real estate experience, have friends with everything from a villa in Vietnam to a flat in Berlin etc.

So the way we see the US is:

  - it's risky to live there, for many reasons (high crime, gun ownership, children mass murders, rampant untreated schizophrenia, drug abuse issues)

  - it's optimized for gasoline consumption, you can't really live near your work as much as elsewhere, the city center isn't as interesting as in Asia/Europe and suburbs are very low-density, copy-pasted houses, so the "value" of a property is more flimsy than other places.

  - it's expensive with low speculative upside: it's a very mature market, it might conserve some value but it won't like double like in Saigon, Bangkok or Lisbon, and it won't "last forever" like Paris or Hong Kong who have structural reasons to be expensive (Paris as capital of a European geographical center between 6 rich countries, Hong Kong as a gateway in and out of China). To give you a random example: Seattle is quite "new" and particularly useless / unknown to, say, a successful Tokyo upstart. It's considerably more expensive than what it should be from an Asian point of view.

  - Visas are annoyingly complex vs very open economies (in term of real estate investment) and the US is far down the ranking of countries you trust to access your property easily. I'd rather have a small thing in Singapore that I know I'll always be welcome to visit, than something huge in Ohio which will make me feel like shit each time I have to fill paperwork to see.

  - Political instability seems to have taken hold and we never know if foreigners will be barred from the US on a whim because of some flu. It doesn't feel that much better than China, which is considered one of the worst market to invest in around me (basically you have random chances to simply see your house unreachable for years there, or disappear).

I feel "the rest of the world" considers the US as average, not too dangerous but not too profitable to invest in. Most of my friends are very wary of investing there. I would never myself. All these may be factually wrong btw, this is just how I hear the market talks around me, in the rest of the world: the US "brand" is not very popular, is all.

ZoomerCretin2• 3 years ago

They will go down if we adopt California-style zoning reform, or enact other policies that allow the supply of housing to increase.

metaphor2• 3 years ago

US real estate is literally the best investment real estate in the entire world, and it's availabile to the entire world.

Apparently, we haven't learned shit from the Great Financial Crisis on what happens when we take a basic living essential, and rather than shepherd it as a vehicle for responsible capital preservation, the market instead shills it as growth investment.

No doubt in my mind that real estate speculation will go down as this century's most epic tragedy of the commons.

judge20207• 3 years ago

I mean do you expect the 40% price hike during Covid to become permanent? I don't.

The 08 crisis had a large impact because of inflated home values but it wasn't triggered by inflated home values. What triggered the drop in home values is all of the foreclosures that flooded the market - which was triggered by people with inadequate income/asset verification, multiple homes, ARMs, etc. The Dodd-Frank Act largely fixed all of these issues and made it so that banks had to verify you could actually afford a loan before you can get one, leading to all of the security that exists for home sales in the current day.

amir734jj• 3 years ago

I live in the midwest (Wisconsin), the newer houses are from the 1950s and the older ones are from the 1900s. People prefer to live in specific villages or suburbs because of safety and community. The inner city is ridden with crime. These villages cannot expand as they were (in most cases) already developed in the 1950s. Here, multi-family houses don't sell well. Newer houses cost a lot more than older ones. To make matters worse, usually, families combine their income to buy a house but all of my friends and coworkers that are in their 30s are still single. Additionally, we have apartments here that cost more than single-family and they are usually advertised as "luxury apartments". To summarize,

- multi-family houses don't sell well

- no new housing development in years

- people are single and can't combine their income

- house prices have increased a lot more than people's income

Panzer04• 3 years ago

This is mostly because US has these crazy 30y fixed mortgages right? Everyone who owns a loan like that is sitting on huge gains and will find it very difficult to sell given the effective loss they would realise - transitioning to another house at a 4 percentage point higher interest rate will cost them a ton of money.

Spivak4• 3 years ago

Yes, a lot of my friends are "trapped" (not really they're actually quite happy about it) in their houses because they have 2-3% interest rates locked in which is today is almost free money.

mixmastamyk2• 3 years ago

Prices rose because of those rates, so not always the bargain it may have seemed.

kortilla3• 3 years ago

It’s definitely why I wouldn’t sell under anything but duress. Going from my current 3% to 7% would be crushing.

vb234• 3 years ago

We’re in the same boat. We live in an apartment building in a neighborhood we love. Recently, a larger apartment in our building came onto the market. The seller is desperate to offload and the size would really suit our family’s long term needs. However, the double whammy of the loss we’d take selling our unit while paying a higher mortgage at a higher interest rate is just too much to stomach.

NoPicklez2• 3 years ago

I was amazed to realise that in the US they can have multiple decade long fixed mortgages. Do they also have the ability to refinance long term to a lower rate if it becomes available?

In Australia, we have fixed and variable with all fixed rates being locked for only a number of years. So you are always going to have the bear increases in mortgage rates if they occur.

Clubber• 3 years ago

Do they also have the ability to refinance long term to a lower rate if it becomes available?

Yes. You can also borrow against whatever equity you have in your house. Say you bought a house for $200 and it's now worth $250, you can borrow against part of that $50K equity if you refinance, for example if you need a new roof. I don't think you can borrow 100% of your equity though, I seem to remember 80%. It's been a while since I've done it.

analog312• 3 years ago

>> Do they also have the ability to refinance long term to a lower rate if it becomes available?

Typically yes. There are mortgages that penalize you for paying them off early, but the conventional wisdom is to avoid those.

For our previous house, my family re-financed twice. In our present house, we got a 15 year mortgage, and paid it off early.

xwolfi3• 3 years ago

Normally yes: in France we also have 30y fixed-rate mortgages (in fact, nobody sane would do variable: there's no upside except for the bank). If the rate gets way lower, you can pay the advance repayment fee and reborrow, so the banks directly just cut your rate, everyone does it. And if the rate goes up, the banks swallow the losses.

There have been discussions in parliament for decades about the prevalence of fixed rates and the cost it has for the banking sector, but it's nearly impossible now to change it. Banks simply have to make less money, and expand abroad if they want to do more predatory variable rates. The French philosophy is that banks should not speculate too much on mortgage profits and accept to make some but not optimal profit there. Suffice to say that our banks are struggling a little bit more than say British banks.

tverbeure2• 3 years ago

We’ve refinanced our previous house 4 times, between 2010 and 2013, bringing the rate down from 5.75% to 3.625%.

We did it as soon as the rate dropped another 0.5%.

marssaxman2• 3 years ago

How is it crazy? How else could one reliably afford to buy a house? The main lesson of the 2008 housing crisis, as I saw it, was that adjustable-rate mortgages are untenable; I certainly would never sign up for one, because it leaves you too vulnerable.

boulos• 3 years ago

Most of the world lacks this product. In the UK, for example, I think the most popular product is what we'd call a 2/1 ARM!

epistasis• 3 years ago

The existence of this product inflates prices, making it difficult for people to buy except with a 30 year mortgage.

The real winners are those who own before the government enforces new price inflation policies on the market. (The only reason we have 30 year fixed mortgages is because of government intervention in the market.)

gizmo686• 3 years ago

There are two sides to the transaction. The lender is offering a fixed rate loan for 30 years, with no option to call for early repayment. However, the borrower does have the option to repay early at their discretion. In exchange for this massive assymetry, the borrower pays a premium of about 60 basis points over an adjustable rate with 5 year initial rate lock.

Broadly speaking, this product makes no sense. If interest rates go up, the value of the loan goes down. If interest rates go down, the value of the loan goes up ... until the borrower unilaterally refinances and pays of the loan at face value.

Indeed, no bank actually holds fixed rate loans. Instead they immediately sell it to Fannie May/Freddie Mac, which were created by the government specifically to allow for a product as absurd as the 30 year fixed rate mortgage to exist.

Ekaros2• 3 years ago

Key is not overextending too much. Which I think was one of key issues in that collapse.

Also adjustable rates have been amazingly cheap in past and still are not that expensive. Like sub 1% total. And my adjustable rate loan would be 4.425% if it adjusted today.

positr0n• 3 years ago

It's crazy because it's a government subsidy for mortgages. The bigger the mortgage the bigger the subsidy.

lotsofpulp• 3 years ago

How is it an effective loss (or gain) if they have not sold the asset (which they are currently living in)?

williamstein• 3 years ago

One Example: you can get a "Home Equity Line of Credit" (HELOC) against your house, then use that money to do things, e.g., remodeling (the interest from such loans is in some cases tax deductible). The house you would own with a 3% interest rate is likely worth significantly more than the house you would own with a 7% interest rate, so the potential impact of a HELOC is higher.

chank• 3 years ago

It's not a loss if they're still net positive from their unrealized gains. It's basically the home ownershipt version of "I know what I've got" but they in fact don't.

commandlinefan• 3 years ago

difficult to sell

Bought the house I’m in in 2010 at a 4% fixed 30-year. I’m never leaving.

arb-spreads4• 3 years ago

Worst is an interesting framing - lowest transactions is far better.

Obviously all in housing transaction costs decreasing from nearly 10% today to something a lot more reasonable would increase liquidity and transactions. A shift towards more short term rentals is also reducing the demand for homeownership.

subpixel• 3 years ago

Short term rentals do not reduce demand for homeownership. Quite the opposite, they reduce supply for home ownership.

arb-spreads4• 3 years ago

Nicer apartments, more houses are offered as short term rentals. People's preferences adjust. Resulting demand curve for homeownership adjusts

Homeownership is a far smaller part of the 'American Dream' relative to a few decades ago.

jdksmdbtbdnmsm8• 3 years ago

A shift towards more short term rentals is also reducing the demand for homeownership.

Honestly what on Earth are you talking about??? Your logic is not clear at all, and if you're truly trying to claim that less people want to own houses then you need to make an argument because that is an outrageous claim.

s1artibartfast• 3 years ago

Two points, demand can be specific to a price point. More people would want houses for $1 than $10 million dollars.

Short term rentals specifically drive down demand. No need for a vacation house when you can rent. They drive down supply, but presumably the same number of people what to to live in a house

arb-spreads4• 3 years ago

Fairly self evident. Far fewer married people, many want to live in apartments, and others enjoy renting houses for a few years at a far cheaper rate than being locked into a dwelling.

A careful glance at any of the academic research around housing corroborates this. Or, any modicum of common sense

osigurdson• 3 years ago

Canada's real estate market seems far more precarious.

HDThoreaun3• 3 years ago

28% of the Canadian economy is real estate. China’s peak was 22% and people been talking nonstop about how unsustainable it was. Canada is absolutely fucked imo

tbruckner2• 3 years ago

Housing prices remaining high because people can't move and people can't buy because of interest rates just shows how stupidly hard it is to build new housing in the US.

jahewson• 3 years ago

Home builders operate on borrowed money so high interest rates push up their costs significantly. Worse still, with rates expected to slowly come down they’ll be selling into a market where house prices are likely lower (in real terms). Neither are really connected to how hard it is to build housing (though yes it’s too hard).

tbruckner2• 3 years ago

The financing for home builders would also be a bit lower if housing were easier therefore less risky to build.

But agree that higher interest rates hurt builders too.

tarikjn2• 3 years ago

Does anyone have a good explanation of why the Federal Reserve isn’t able to have lower interest rates for supply creation activities? It appears that would be a useful tool that would work in favor of their inflation and employment mandate.

senectus1• 3 years ago

was having this discussion with my father the other day.

The housing crisis seems to be essentially global. It's getting really very bad over here in Australia, we have young families being priced out of even the rental markets and staying in tents and stuff.

I dont understand how the building industry can possibly be going broke when people are clambering for houses to be built!

bombcar7• 3 years ago

It’s the “nobody builds used cars” problem.

The people who have the money want high end big houses to be built, so that’s the supply being added.

It’s not being added fast enough to fee up enough “used” smaller houses.

29athrowaway• 3 years ago

After 2008, there's a 600,000 housing unit deficit. Also, an increase in corporate investors buying cash and waiving inspections.

The American dream will be rented not bought. You'll own nothing and be happy.

HDThoreaun3• 3 years ago

Less than 1% of single family homes are bought by institutional investors. Post pandemic they’ve actually been selling more than buying

SeanAnderson3• 3 years ago

Do you have a source for this? I don't really doubt you but it runs counter to what I thought was happening.

asynchronous• 3 years ago

I feel like only way to fix this is with government intervention, and I absolutely hate that idea.

bombcar7• 3 years ago

You could reduce immigration or the birth rate but there are exceptional problems with both.

diogenescynic• 3 years ago

I think pandemic created a one in a lifetime structural change (remote work) that is going to take years/decades for supply to catch up with demand. I keep seeing YouTube analysts predicting a housing crash every year for several years in a row... I think they are missing that there are not as many 'local' jobs/wages anymore and a lot of the demand is from those remote/hybrid workers moving into areas that previously only had local jobs and thus housing remained more closely tied to those wages. That paradigm is now broken or forever changed. Instead of living in SF, people moved to Napa/Sonoma/Petaluma/Sacramento/Tahoe/Monterey/Santa Cruz, etc. so now housing prices have gone up in those places. Hopefully the housing/zoning laws that have been passed in California start to have an impact and we see more housing development, but I still think there are legal barriers that prevent that.

US home sales see worst year since 1995

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