Maybe there will be no "correction" to housing market- U.S. housing market's underproduction crisis getting worse

[PimTac]

That is not necessarily true in CA. I've been trying to build a custom home since the beginning of covid, in SoCal. The state is quite intentionally making it tough for single fam. homes, with incentives for big projects that involve high density housing. The restrictions/requirements for single fam. houses is ridiculous.

We have the same thing up here in the Seattle Tacoma metro. No more subdivisions with just single detached. Apartments and townhouse style are the norm in order to boost density.

I have 120 homes going in on a lot of five acres across the street from me. By the time you plan in streets and sidewalks and required green areas the room for houses is condensed.

 

[brianl703]

And property taxes are based on home value. No way will government allow a big reduction in this income stream.

The way local government dealt with the last housing market crash back in 2008--they just jacked up the tax rate to make up for the lower values.

 

[slo town]

The way local government dealt with the last housing market crash back in 2008--they just jacked up the tax rate to make up for the lower values.

Which states did that?

Scott

 

[brianl703]

Which states did that?

It was done by many localities in Virginia.

 

[Wolf359]

Yes incentives for those big projects that involve high density housing. However, in some locations the incentives require a certain amount of units to be affordable to lower income folks. It is a difficult balancing act to build that type of housing and to make it profitable.

The problem isn't really in building it to make it profitable, the problem is being able to sell them because people who can afford market rate don't want to mix in with those who can only afford the affordable units. The other thing I see in condo complexes with affordable units is that the market rate units end up subsidizing the condo fees of the affordable units so their condo fees tend to be higher than other buildings that don't have affordable units. That kills the price somewhat on resale value.

 

[Wolf359]

The way local government dealt with the last housing market crash back in 2008--they just jacked up the tax rate to make up for the lower values.

It's a pretty standard practice. We have prop 2 1/2 so the entire tax revenue of the town can't go up by more than 2.5%. But normally you figure out the entire assessed value of the town and then the budget and then divide to get the proper tax rate. Means that when the prices go up a lot, the tax rate goes down, when the market crashes, the tax rate goes up to account for the smaller tax base. It's why some people pay a lot more than 2.5% in increased taxes, the assessment could have gone up a lot more if the property was improved or was in a popular section of town. It's why some people don't like to get permits, lets the local government know you made things better so they can tax you more.

 

[JHZR2]

It depends on the neighborhood. Just about any 40-60 year old neighborhood in Manassas, Virginia (suburb of DC) has been on a steady decline for decades.

Go look at a 40-60 year old neighborhood in the western suburbs of Chicago (ie, Glen Ellyn, Wheaton, Elmhurst) and many neighborhoods look better now than they did 30 years ago. My old neighborhood in Elmhurst, they added street lighting and of the few really crappy houses that existed 30 years ago, all have been torn down and replaced with something better.

One difference may be that there's still lots of undeveloped land around Manassas, so there's always the opportunity to buy into a "better" neighborhood with brand-new houses.

Very true. I heard that about Delaware some years back… houses quickly become “old” because they just tear up the next plot of farmland and sell “new” homes that people want.

Coming from the middle class inner ring suburbs of NYC, this was foreign to me. Lane was long gone before the 1950s. Sure, the car replaced the train and ferry, but not much else changed. People kept up their homes, the homes were well made, not crappy sheetrock and Home Depot trim.

Personally, I’m hoping for a real good recession. It amazes me how people of very limited means are all buying million dollar homes and throwing around talk of money like that which they’ll not earn in real life for significant time, and for which their financials would t ever let them save it for real. It’s all funny money.

 

[Wolf359]

Very true. I heard that about Delaware some years back… houses quickly become “old” because they just tear up the next plot of farmland and sell “new” homes that people want.

Coming from the middle class inner ring suburbs of NYC, this was foreign to me. Sure, the car replaced the train and ferry, but not much else changed. People kept up their homes, the homes were well made, not crappy sheetrock and Home Depot trim.

Personally, I’m hoping for a real good recession. It amazes me how people of very limited means are all buying million dollar homes and throwing around talk of money like that which they’ll not earn in real life for significant time, and for which their financials would t ever let them save it for real. It’s all funny money.

Interest rates have a big effect on what you can afford. You can borrow a million at 3% if you made about 150k a year. Now at about 5.5% for a 30 year mortgage, you'd need to make about 205k a year.

I guess there's several articles about people who made money in bitcoin and also in the stock market but those are both down now.

Luckily I diversified into both real estate and the stock market, my real estate holdings are now up but the stock market is down. Sometimes I used to wonder why I didn't liquidate my entire real estate portfolio and just stick it all in the stock market and this reminds me why not.

 

[ecotourist]

There is a big correction in house prices underway in Canada. And that's a very good thing.

Houses in my neighbourhood (it's nice but not that nice) have been selling for the past year for between $1,250,000 and $1,750,000. Those are crazy prices. No young person can afford them. We have a doctor shortage and can't attract young doctors to the area because they can't afford to live here.

 

[eljefino]

Builders knew/ know not to start with interest rates on the rise and a situation where they'll be left holding the bag. They're holding off waiting for land to drop in price.

Building might slow down once the half-finished houses out there now get completed. It may make sense for someone to handle their own land plus building at some point soon.

 

[wag123]

Non-IT folks are leaving Austin, at least in my circles. They are going to San Antonio, and parts south.

Friends $300k house is now $705k in Austin suburbs.

My old $122k house in Round Rock is now $340k.

Those types of numbers combined with a growing interest rate really hurts the first time homebuyer with no equity from a previous house to put into another one.

I disagree with the premise that there will be no correction. A correction has already started where I live.
I live in Austin. Houses were selling in 2-3 days for over asking price just six months ago. Not any more. There are quite a few houses in my neighborhood that have been on the market for 2-3 months now, and they have been lowering the asking prices on them. As a matter of fact, EVERY house that has been put on the market within the last 2 months is still for sale. Housing prices have gotten WAY over inflated here in the last 3-4 years. Combine the selling prices with the very high insurance rates, excessive property taxes, and interest rates that have doubled in the last 4-5 months, housing has become absolutely unaffordable for working class people. Housing is only worth what someone can afford to pay. When the new houses that are under construction today finally come to market, and remain unsold for a period of time, the prices will come down precipitously and quickly IMO. New construction will then come to a screeching halt. I have seen this before.

 

[ripcord]

Remote work will eventually push a lot of white collar workers further from urban centers shifting housing demand patterns but that shift may take many years to work through the market.

Everything I see being built my way is massive $400K+ McMansions. I wonder who really has the scratch to afford one of those. No one is building more economical housing, even though that's what we really need.

Around here, 400K will buy a very modest condo surrounded by subsidized rent apartments if you want to live in town. Or it will buy an older 2br ranch style on a tiny lot somewhere further out.

 

[JHZR2]

Interest rates have a big effect on what you can afford. You can borrow a million at 3% if you made about 150k a year. Now at about 5.5% for a 30 year mortgage, you'd need to make about 205k a year.

I guess there's several articles about people who made money in bitcoin and also in the stock market but those are both down now.

Luckily I diversified into both real estate and the stock market, my real estate holdings are now up but the stock market is down. Sometimes I used to wonder why I didn't liquidate my entire real estate portfolio and just stick it all in the stock market and this reminds me why not.

We make a good deal more than either of those amounts and no way I’d want a $M house on payments. Of course in my neck of the woods property tax eats into buying power too, and it’s the gift that keeps on giving.

Agree diversification is key.

 

[supton]

Remote work will eventually push a lot of white collar workers further from urban centers shifting housing demand patterns but that shift may take many years to work through the market.

I have to wonder if that will really hold up. Team building tends to work better in person. Might not need to be in-office 5 days a week, but it's pretty hard to be in 1 day a week when you live 500 miles away.

I also have to wonder: if the bottom really does fall out, like some like to speculate, all it would take is for employers to get the upper hand and WFH comes to an end. Supply and demand: if an equilibrium is ever met again, where number of workers = number of jobs, employers are going to be more willing to hire those who are willing and able to be in office.

 

[ripcord]

I have to wonder if that will really hold up. Team building tends to work better in person. Might not need to be in-office 5 days a week, but it's pretty hard to be in 1 day a week when you live 500 miles away.

I also have to wonder: if the bottom really does fall out, like some like to speculate, all it would take is for employers to get the upper hand and WFH comes to an end. Supply and demand: if an equilibrium is ever met again, where number of workers = number of jobs, employers are going to be more willing to hire those who are willing and able to be in office.

I can't make a strong argument either way, but from personal experience, every single hire the software consulting company I work for has made in the past three years have been geographically remote. One of our clients is a bank and even with their deep pockets they couldn't find a mid level dev who was willing to come into the office 4 days a week for 8 months.

 

[supton]

I can't make a strong argument either way, but from personal experience, every single hire the software consulting company I work for has made in the past three years have been geographically remote. One of our clients is a bank and even with their deep pockets they couldn't find a mid level dev who was willing to come into the office 4 days a week for 8 months.

Software might be a bit different, but who can predict the future? I certainly can't.

 

[MotorFan]

I have to wonder if that will really hold up. Team building tends to work better in person. Might not need to be in-office 5 days a week, but it's pretty hard to be in 1 day a week when you live 500 miles away.

I also have to wonder: if the bottom really does fall out, like some like to speculate, all it would take is for employers to get the upper hand and WFH comes to an end. Supply and demand: if an equilibrium is ever met again, where number of workers = number of jobs, employers are going to be more willing to hire those who are willing and able to be in office.

I think COVID acted as something of a time machine, substantially accelerating a lot of trends in business and society that were inevitable anyway, things like WFH for example. I think the vast majority of WFH folks prefer WFH and it's the new normal, no going back to the pre-COVID days. People appreciate not having to burn $ 5.00/gallon on gas to 'enjoy' attending the big inner city crime sprees downtown at the office, plus with the mania on CO2 emissions the 'greens' should be demanding unnecessary vehicle driving be banned as a sinful environmental crime when so many can WFH.

 

[slo town]

I think COVID acted as something of a time machine, substantially accelerating a lot of trends in business and society that were inevitable anyway, things like WFH for example. I think the vast majority of WFH folks prefer WFH and it's the new normal, no going back to the pre-COVID days. People appreciate not having to burn $ 5.00/gallon on gas to 'enjoy' attending the big inner city crime sprees downtown at the office, plus with the mania on CO2 emissions the 'greens' should be demanding unnecessary vehicle driving be banned as a sinful environmental crime when so many can WFH.

I agree with everything you said, but with this shift to WFH we will see a dramatic shift in things elsewhere. Large companies will survive WFH. Small businesses will not. WFH will put millions of small business, lunch time restaurants out of business. But WFH will strengthen the likes of Amazon and the stranglehold large corporations have on our economy.

Scott

 

[Wolf359]

We make a good deal more than either of those amounts and no way I’d want a $M house on payments. Of course in my neck of the woods property tax eats into buying power too, and it’s the gift that keeps on giving.

Agree diversification is key.

Yeah but you wouldn't believe the number of people I bump into making well over 100k and they're just either right out of college or just a couple of years. So while they might not be buying the million dollar house, they're close to it or a married couple with 100k+ incomes each can easily do a million plus. Done some sales to Google engineers where we weren't worried when they waived the finance contingency even though they were going to get a mortgage.

I also have to wonder: if the bottom really does fall out, like some like to speculate, all it would take is for employers to get the upper hand and WFH comes to an end. Supply and demand: if an equilibrium is ever met again, where number of workers = number of jobs, employers are going to be more willing to hire those who are willing and able to be in office.

Right now it's the other way. Lots of stories of people quitting companies that don't do WFH and either take a job with either a small pay raise or even a pay cut just because WFH saves you a couple hours of commuting time that you don't get paid for and have to pay to commute. So to stay competitive, they have to allow WFH or watch half their staff leave. You'll have to wait til unemployment is high before you see WFH go away and if enough major companies keep it, it would be a competitive disadvantage even when unemployment is high.

 

[JHZR2]

Yeah but you wouldn't believe the number of people I bump into making well over 100k and they're just either right out of college or just a couple of years. So while they might not be buying the million dollar house, they're close to it or a married couple with 100k+ incomes each can easily do a million plus. Done some sales to Google engineers where we weren't worried when they waived the finance contingency even though they were going to get a mortgage.

My point was that even though our personal income is substantially higher, I think it’s a bad move to dump that much money into many of these poorly built homes in “hot” markets. No thanks.

And I’m not anti- real estate. I own multiple properties some of which are for my use and pleasure, others which produce income.

But it’s just insanity when practically overnight, homes that are $250-300k homes (and low quality) in some markets, are sold at $600-700k, but are then valued at $1M before they’re even done. It’s funny money that isn’t real, setting up the sheep for a life of servantude. No, the jobs and salaries aren’t that much higher in most of these markets. The Silicon Valley analogy is irrelevant in more or less the rest of the country.

I get it that especially realtors and mortgage brokers will push some big percentage of income in terms of what people can “afford”. After all, to the realtor it’s a 6% commission, and to the mortgage broker, the $1M home becomes $2M in payments.

That doesn’t make it prudent. Sometimes unavoidable perhaps. But not prudent all the same.

Then you end up with people slaving to their jobs and pushing their kids into daycare. People in massive debt. People with no retirement savings. That is more and more the norm. It’s unfortunate. But the realtors and mortgage bankers are laughing all the way to the bank.