not necessarily. A lot of demand many areas is due to people paying in cash , such as the Bay Area. Also, real estate did well in the 90s despite rising interest rates, same for 2007-2018.
If you mean they have fallen from the peak of May 2022 you would be right. But that's not the story. And that has no bearing on fundamentals. Just because there has been a price movement doesn't mean it got disconnected from fundamentals. Price came off peak? Ok. Well cost of money also ramped up disproportionately to that. Prices have been resilient and when rates go the other way, they will go even higher IMO.
Prices are still, on median, 100k higher NOW over pre-pandemic. That's 33% more in just a few years. Sale to list prices is still at 98.9%. Off the peak of 103.1% but money was WAY cheaper then.
March 2020 median home price was $300k. March 2023.... $400k. [1]
March 2020 loans were about 3.5%. March 2023.... 6.5%.
It costs a shit ton more to service a loan now, inventory is down, yet prices are only 30k off the peak.
Is everyone buying a house with these interest rates a moron? No they aren't. Are banks approving risky loans now? No they aren't.
Volume is irrelevant when we are talking about fundamentals. Sellers are a key part of that. If they pull inventory due to the numerous factors in the housing market and the economy, then the prices are what they are. There is no shadowy hand now keeping home prices higher over their fundamentals, nor a shadowy hand telling the homeowners to not list their home. This is the market at work; and its been resilient with what is going on.
And to my point, if you couple supply and demand with the state of affairs and you look at build cost you'll see that current inventory is priced at or better than any fundamental analysis would suggest. And not overpriced.
I ONLY buy on build/replacement cost. Sure some areas went crazy, but if you are disconnected from build costs, you are rolling the dice and I highly recommend you don't do that unless you love the house so much you don't care what happens. But by and large, housing prices are NOT disconnected from replacement costs. They are still cheaper.
If you can buy a "used" house for 300k. Or build a new house for 350k (+6-12 months of your time and carrying costs on the housing you are currently at and potential unexpected costs), then where is the disconnect? I don't see it.
If housing WAS disconnected from the fundamentals, then you'd simply see a shit ton more building going on and with more inventory and less buyers and affordability due to interest rate hikes, price would drop a lot. That's not the case. There has not been a meaningful price drop with the interest rate hikes, we just have less buyers on average, and about 4% less on the sales price to list.
People waiting on the sidelines in most markets aren't going to be happy as inflation keeps on trucking, build costs are out of control, and inventory is low. Rent will go up.
"Year-over-year rental price growth will rise from 5.8%, as of June 2022, to 8.4% as of May 2023, according to a Federal Reserve Bank of Dallas forecast that uses data from the federal government’s consumer price index"
You used to be able to just stash cash and then when interest rates jack up you could get a real deal. No more. Housing is an inflation hedge and the market has been pumped up.
When the pivot occurs and cheaper money returns because the asset owners would rather have inflation than deflation, the housing market will go even higher IMO. 30T debt and 180+T in unfunded liabilities along with a pissed off world that has gotten drunk off cheap USD leaves no choice but to print in overdrive. I won't be holding USD or more than retirement money in the stock market. I'll be primarily in RE and private companies. If you are big on stocks, you may still do ok - we've seen that we can print and not cause extreme inflation, by pushing dollars into equities. But I think that game will end as it's further exposed and money rotates out.
I'm not so sure about that, a lot of the conditions previously supporting real estate investment have given way. Oil's down, China is volatile, interest rates have risen, arguably you could say the trend could reverse due to people who previously bought as investments needing their money back.
Not really, prices have barely come down in most desirable areas. They may come down eventually, but it's usually a slow process unless there is a financial crisis (in which case the Fed will panic and cut)
It's skyrocketing across the world. Sweden for example has seen levels of growth in real estate prices that rivals Hong Kong, the Bay Area or London.
There are many, many, many reasons why but I wouldn't expect the prices of homes across the world to drop when basically all interest rates have been at rock bottom for a decade. People with capital to leverage really have it made.
Hard agree. Real estate is spiking up, but you are to observe that construction materials and wood just normalized back to where they were. Same with cars, this is due to rental companies repurchasing their fleets. It's a temporary supply issue, we are not in an inflationary market just yet.
demand can drop as people lose their jobs and the companies buying up residential real estate on speculation see their portfolio values drop and their cash positions get squeezed by a recession.
And interest rates went from 20% in 1980 to 2% in 2021. Like fashion bags and NFTs they were financialized. The market can remain irrational longer than you can remain solvent. Seen China and the massive building there, but it didn't lower prices... they're higher than SF or NY!
It's not just housing. Look at bare land or abandoned buildings in CA. Those also grew by similar amounts or even more! Why develop it when it goes up in value? Why not own multiple empty homes when they "only" go up in price. Well, welcome to higher interest rates and likely a less deflationary world (deglobalization) with non-wage inflation that prevents the Fed put.
A TON of investment properties were purchased over the last few years, so those may be sold as investors need to balance out the huge losses they took on stocks, crypto, etc.
With rising rates, the counter pressure on prices from buyers may not exist in large enough supply to prevent the investors selling from driving prices down.
Real estate prices will fall in a high interest rate, cash poor environment. More than most people appreciate. Since real estate is at all time highs relative to median incomes, something has to give.
Except that in the article it said that even the sub-million dollar homes were being pushed down by the same forces.
Tax law changes, higher interest rates, and currency controls on foreign buyers means it costs more in real wealth to buy a home, so the prices shrink to match. (or they don't shrink and the houses just stay on the market)
Those property prices are not going down any significant amount. The capital system in the US has realized it can buy up as much property as possible and use it to extract as much wealth as possible via literal rent seeking. Places that are not close to anywhere have had rent prices explode. Oh, and if there is a massive 2008 like housing crash, the banks themselves will hold on to the properties keeping prices high. Meanwhile the Bezeo's themselves that have the AI will be buying up as many real assets as possible.
The issue is that these are properties that suit single young professionals /couples and speculators. This creates scarcity in the middle of the market and drives onward pressure for family dwelling units. In turn the pressure for family dwelling units drives cash-in-and-commute out to the home counties. All of which hollows out communities and the city - schools and infrastructure suffer much.
Prices are also down because of tax - sharp tax; which is a good thing in terms of dealing with speculation.
That is true. You must keep long term in mind tho. Long term all real estate prices have gone up and up with short term crashes. This is people needing to park money, which will eventually backfire when no one can afford the prices anymore.
Also high real estate prices have hurt other areas of the economy. And the demand is largely due to money laundering out of China, not fundamentals.
reply