Really, @CraigM ? A cunning and subtle one?
You see, take this ‘ere turnip and…
I don’t quite understand why there is going to be such a massive slowdown. Demand is driving prices up. In fact, many properties have been selling for way above list. So, if demand drops, doesn’t that just mean prices will stabilize and start selling in more normal fashion? It isn’t like prices will continue to climb if they aren’t flying off the market. Or does “slowdown” encompass home prices?
I see. Well, I can’t say I have high hopes for an answer, but how exactly will that help our particular situation?
You have to look at the whole market. Sure, there are some houses that were selling above list, and now they will sell at list. But there are also houses that would have sold at list, and now they will sell below list. And there are also houses that would have sold below list, and now they won’t be sold at all.
The market suddenly chilled for us in SoCal as we were unable to sell our place after about 5 weeks. Pulled it off the market and now we’re waiting for the spring, hoping it doesn’t plummet.
Yeah, but slowdown sounds like a negative term. Maybe that’s on me. If things have been way above normal, then return to a more normal situation, is that a slowdown?
I live in one of the most “affordable” neighborhoods in my city - and that means the houses are nice and less than 500k. Our neighborhood is super popular, and we get postcards from realtors all the time asking if we’re interested in selling. That’s for context.
Most of the time houses in the neighborhood are listed and they get an offer within two weeks for the listed price (we bought our house in the fall of 2015 for the asking price a day after it went on the market). I have noticed recently that the houses offered for sale have actually been reduced in price - something I haven’t seen until recently. They sold, but for the reduced prices. To me that shows a slowdown is underway. I had written it off as a byproduct of the rates going up. But perhaps there are other issues at play.
If that’s happening in my neighborhood, then it’s going to be more noticeable in other neighborhoods for sure.
It all depends on your expectations.
For instance, GDP has been consistently growing, for longer than expected. If it stops growing this year, is that a “slowdown”?
I think so. When something is consistently growing, we expect it to continue to grow.
As a homeowner in Seattle for 5 years, I hope that prices continue dropping. For the most part, the 70-80% increase in valuation on my house in that time is funny money - sure I could sell it, but I couldn’t go anywhere else in the city with the same size without paying even more than I sell it for. I could move out of city/state but have no interest in doing so.
It’s a good problem to have, of course, but it’s why I don’t care if housing prices in Seattle suddenly plummet even 50%+
That said, Seattle is also building a metric ton of housing. It’s had more cranes than any other US city for three years now, unlike other cities like San Francisco which are still building barely any new housing at all. The supply is finally starting to reach demand, with many apartments empty, and apparently now housing prices stabilizing. Those factors seems like they would weigh in just as much as increasing mortgage rates and such.
Frigging cannibals…
A big problem with Seattle though is most, if not all, of those cranes working on residence buildings were working on apartments. Condo construction was in massively short supply, and what Seattle desperately needs is more houses/condos.
Minneapolis has a similar thing where housing prices are up double-digits every year, but all the new supply is…luxury condos downtown. Because that’s where the profits are.
If only there were some way for communities to shape the housing supply in their areas. Alas, that would be socialism and we would all VENEZUALA HERP DERPA NHERGGG.
That’s the funny thing. My son and his wife put their house up for sale and got an overbid on day one, but they still need to buy a house when people here are overbidding on houses. They win as sellers and lose as buyers. The only way to really win is to sell and downsize or just rent.
Or move to South Dakota. Or Ecuador.
Trust me you’d care if there was 50% plunge in Seattle home prices. Now a 10% or even 20% wouldn’t be bad, and in some ways healthy to wring out the “irrational exuberance” that part of the Seattle and most west coast city real estate markets. But having watched the the Las Vegas market lose 50-70% in the great recession, you really don’t want that. It is literally what lead to the great recession and as bad as the last one was. Having Trump in charge during such an crisis is pretty much an extinction level event for the American economy.
Even a 20% drop puts stress on the system someone who bought near the top, and only put down 10% is underwater. People under financial stress (e.g. one of the couple lose their job or hours are cut back) will consider not making payments. At 30% even more people are underwater, but most people will still continue to make payments. Around about 50% many people are underwater on their mortgages, and even people who have jobs and can make their payments seriously consider walking away. Why not if you are a young couple and bought house for $500K in Seattle got a $400K mortgage, the house has dropped 50% from when you bought you. Now you owe $400K on property worth 250K, why continue to pay? Yes your credit rating will be ruined for 5-7 years. But simply stopping pay and leave in the house rent free for a year or so until the foreclosure goes through. Pay down your student loans (which aren’t discharged in bankruptcy).
One thing I can tell you after looking at lot of short-sold and foreclose properties in Vegas. Once you decide to not make the mortgage payment, you also skip the HOA payments, often water and electricity, and spending on home maintenance goes to zero. This depresses home prices in your neighborhood and accelerates the decline. (It is why Vegas and other market often saw 70+% drop.).
TL:DR the ripple effects of housing pricing plummet are really ugly.
That’s what leverage will do.
In principle mortgages are just another form of investment and make a lot of financial sense, but the effects of allowing regular people get themselves into hugely leveraged investments without proper understanding of the risks seems to have a whole load of problems associated with it, to the point where I wonder if mortgages even make sense to allow from a regulatory standpoint.
The housing market isn’t full of rational, knowledgeable investors, and that’s a great place for markets to go badly wrong.
What sucks is that I am in the middle of buying a house at this time. Wish the timing was a bit better.