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

[slo town]

In Silicon Valley a high tech, dual income family making $400K per year is not uncommon. $35K a month. Think about that. And that's just salary. Land at the right company and get stock options.....you're set for life by age 40 and will never need to work again.

I spent my entire career in Silicon Valley, prior to the get rich in 10 years era. It's not an easy way to make a living. Technical complexity and constant change has a way of making one feel inadequate. And even in the technical space, it's a dog-eat-dog environment. Silicon Valley is a zero sum game.

Scott

 

[JHZR2]

In Silicon Valley a high tech, duel income family making $400K per year is not uncommon. And that's just salary. Land at the right company and get stock options.....you're set for life by age 40 and will never need to work again.

Scott

And how is that relevant to folks in IN, TN, FL, NJ, NV, WI, ID, etc??

 

[slo town]

And how is that relevant to folks in IN, TN, FL, NJ, NV, WI, ID, etc??

They retire or WFH remotely and disrupt housing markets. They price locals out of their own hometown housing market, somewhat akin to carpetbaggers.

Scott

 

[CKN]

And how is that relevant to folks in IN, TN, FL, NJ, NV, WI, ID, etc??

Many, Many who are buying homes in Idaho and Nevada are from someone else. The house price increases are beyond shocking.....

I can speak of those two states.

 

[Wolf359]

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.

Is that really the fault of Realtors and mortgage brokers? Who is putting a gun to people's head and making them sign all those documents? Mortgage documents take about an hour to sign and of course the contract isn't valid if it's under duress. They're all bought by people of their own free will. Same as people who overpay for a car, do we really blame the car salesmen for selling them the car or do all the threads on here about people buying cars they can't afford aimed at the ones who can't afford the cars?

You walk into a car dealership, the car salesman is going to try and sell you a car. You got see a realtor, the realtor is going to sell you a house. You go see a mortgage broker, the mortgage broker is going to try and get you a mortgage. I don't recall anywhere in any class or continuing education which said anything about not selling a house to a particular person if they don't meet some specific criteria even if they qualify. As a matter of fact, it's quite drilled in that you shall not discriminate or you'll get in big trouble with the law so it's basically set up to sell houses, not talk people out of it. You don't make any money in a 100% commission job if people don't buy. Part of the job is to qualify the buyer though so you only deal with buyers who can afford to buy. You don't get into whether they should or not, then you'd be acting like a stock picker trying to pick winners and losers and bound to get in trouble if you don't pick correctly. If you don't pick, you can't get in trouble.

 

[alarmguy]

Been to Florida poking around and looking at houses at least five times in the last five weeks, two times just last week. Actually going to make a decision real soon, like in days or hours whether to put our house here in SC on the market and sign contracts on one in Florida.

I can testify there is NO shortage of new homes in Florida, Florida is a huge state so specifically talking about Northeast Florida starting around St Augustine to the GA border and I find it amazing, all the new homes and communities being built. Just incredible in most cases, they just start building going right down a block, dozen homes or more at a time under construction.

Im not sure how I ended up on this path of maybe moving, I guess, getting older, I have been in this home and in the South for 16 years now and looking for a change and another new home that I will not have to repair and put money into as well as the next step in life and a lifestyle.

Im not sure we are ready yet, this has been a hard decision because we love where we currently live but looking forward we know we wont be here in this area forever and would like to do it sooner rather then later because of the fear of being priced out later, though right now that has been unfounded as our house here has been climbing in value, just unsure how long that will continue unless I start upgrading things as the years move forward..

 

[alarmguy]

They retire or WFH remotely and disrupt housing markets. They price locals out of their own hometown housing market, somewhat akin to carpetbaggers.

Scott

I think hedge funds are having a greater impact then employees in the Tech Industry.

Any popular area where homes move fast, hedge funds, investors are buying up homes, they also select a few homes out of that group and pay WAY over market value this in effect makes all the homes that they purchased in an area for less money much more valuable as the comps on the homes they overpaid for justify the high asking prices on the homes they previously purchased.

Really interesting new twist in the market. The area in which I live has seen a large amount of homes being bought by these funds to the dismay of regular buyers constantly bidding on homes only to lose them to a hedge fund at a much higher price.
If we decide to move I hope I am not too late highest price wins. Some may think that is greedy but if you think about it, price is what the market will bear, even these funds buying up homes at high prices know the public can afford them, so if you think about it, the homes where priced too low to begin with. They arent going to buy homes they cant sell.

 

[slo town]

I think hedge funds are having a greater impact then employees in the Tech Industry.

Any popular area where homes move fast, hedge funds, investors are buying up homes, they also select a few homes out of that group and pay WAY over market value this in effect makes all the homes that they purchased in an area for less money much more valuable as the comps on the homes they overpaid for justify the high asking prices on the homes they previously purchased.

Really interesting new twist in the market. The area in which I live has seen a large amount of homes being bought by these funds to the dismay of regular buyers constantly bidding on homes only to lose them to a hedge fund at a much higher price.
If we decide to move I hope I am not too late highest price wins. Some may think that is greedy but if you think about it, price is what the market will bear, even these funds buying up homes at high prices know the public can afford them, so if you think about it, the homes where priced too low to begin with. They arent going to buy homes they cant sell.

Good point, and I agree. And although I am a staunch capitalist, I believe this practice should be made illegal. Same with foreign ownership of housing. Make it illegal.

Scott

 

[Wolf359]

Good point, and I agree. And although I am a staunch capitalist, I believe this practice should be made illegal. Same with foreign ownership of housing. Make it illegal.

Scott

That's just protectionist thinking that lead to the great depression back in the 30s.

The same thing will happen to those guys in a downturn. Zillow just got of the housing market, they did the same thing, paid top dollar and realized it's not that easy to flip a property at scale. The small landlords can do certain things cheaper than a big corporation that has rules to follow and people to pay. I do certain little repairs myself as a landlord. If you have to pay a guy a fixed rate for every minor item, the costs go up and the profits go down. Lots of corporations got burned in the downturn. Japan was buying up lots of properties decades ago and got burned when the market fell. The real answer is to build more housing. Housing is only going up because it's a scare commodity. Making it less scarce lowers the price. You're only trying to fix the symptoms, not the underlying cause by banning it.

 

[alarmguy]

Good point, and I agree. And although I am a staunch capitalist, I believe this practice should be made illegal. Same with foreign ownership of housing. Make it illegal.

Scott

(good post)
Wow, yes, I too am a staunch capitalist. Im on the fence how I feel about it, simply because as a seller, I want one of their cash offers over market value. But I stress I understand your point, manipulating the market is taking place IF they all are intentionally over paying for a limited number of homes to bring up the value of homes they just bought.
Some definitely are and I suspect if not illegal it will be soon.

Its a tough call for sure, at first I felt a little outraged but then looked to the "other side" as a seller. They are increasing the value of homes AND people can still afford them, if they couldn't, the homes would not sell. So one can almost argue that some of these homes are a case of the homeowner underpricing their home only if they are not intentionally over paying for a limited number of homes to create comps for the others, yeah, again, agree, sounds illegal.

As far as foreign ownership of housing (and some other things), I am with you 100%, no ifs ands or buts.

 

[dishdude]

Good point, and I agree. And although I am a staunch capitalist, I believe this practice should be made illegal. Same with foreign ownership of housing. Make it illegal.

Scott

You can't be that much of a staunch capitalist

Not that I don't disagree...

 

[Wolf359]

As far as foreign ownership of housing (and some other things), I am with you 100%, no ifs ands or buts.

Let me get this straight. You're a staunch capitalist but want to restrict foreign ownership so that sellers will get less money even though you don't have any ownership rights with the seller on the theory that by doing so, that will keep the price low so that you can buy it cheaper than what they're going for now. You want to take away existing rights and not compensate the seller so you can buy things cheaper.

I think that's more like communism than capitalism.

There's also lots of foreigners who buy property here, green card holders, people here on work visas, etc. Works the other way too, a millionaire owner of a company I worked at owned homes all over the world. He'd fly to France and not bring any luggage as he had a home there.

 

[CKN]

Let me get this straight. You're a staunch capitalist but want to restrict foreign ownership so that sellers will get less money even though you don't have any ownership rights with the seller on the theory that by doing so, that will keep the price low so that you can buy it cheaper than what they're going for now. You want to take away existing rights and not compensate the seller so you can buy things cheaper.

I think that's more like communism than capitalism.

There's also lots of foreigners who buy property here, green card holders, people here on work visas, etc. Works the other way too, a millionaire owner of a company I worked at owned homes all over the world. He'd fly to France and not bring any luggage as he had a home there.

Chinese Nationals bought my house in California ten years ago - PAID CASH. I had another offer-for slightly more, but he would have to go through conventional financing.

The wife and I took the CASH.

 

[MolaKule]

According to a study released on Thursday 14 JUL 2022, the U.S. homes deficit more than doubled between 2012 and 2019 from 1.65 million to 3.8 million.

In 2012, the nation’s affordability problem appeared to be concentrated on the coasts and in the Southwest. However, Up for Growth has identified a housing deficit in a total of 47 states and the District of Columbia as of 2019. The study found that the average U.S. state had a housing deficit of 79,000 homes in 2019.
California led the housing gap with a shortage of 980,000 homes, followed by Texas with 322,000 homes, Florida with 289,000 homes and New York with 234,000 homes.

Other states with severe housing underproduction in 2019 included Washington, New Jersey, Colorado, Arizona, Illinois, Georgia, Massachusetts, Virginia, Minnesota, Oregon and Utah. Six new states added to the underproduction list since 2012 include Mississippi, Missouri, Nevada, Oklahoma, Rhode Island and South Carolina.

Some of the article does not necessarily makes sense- like how is there a massive housing shortage in a state with ten consecutive years of population declines.

U.S. housing market's underproduction crisis getting worse, new analysis finds

A nonprofit focused on housing equity and home creation is calling for more houses to be built in areas with high economic mobility, access to jobs and existing infrastructure.

www.foxbusiness.com

I don't know about other areas but here the home growth and construction of new dwellings has been at a rapid pace.

I would assume part of the problem may be getting qualified construction workers to replace those who simply quit or removed themselves from the construction trades.

 

[Owen Lucas]

I'm receiving consistent, daily, and large (5-10%+) price reduction alerts in my Zillow and Realtor app feed. Most likely sellers realizing they can't hit a home run and reverting back to realistic pricing.

If these reductions continue, we will achieve pre-pandemic pricing and then some to account for higher interest rates in my view resulting in housing discounts 20% +/- of 2019 prices with the dips being even more pronounced in highly inflated areas such as Austin, Vegas, Los Angeles, FL, etc.

Homebuyers are cancelling new housing contracts on poorly built pandemic homes and many people are getting priced out due to interest rates, inflation. If you can wait until end of the year early 2023 you might be in for a nice housing discount.

 

[ripcord]

Just saw an article saying that home loan originations were down last month to 2008 crash levels. I would think that would be a leading indicator. Fewer buyers means lower prices.

On the other side are speculators trying to hedge against inflation.

 

[JHZR2]

Is that really the fault of Realtors and mortgage brokers? Who is putting a gun to people's head and making them sign all those documents? Mortgage documents take about an hour to sign and of course the contract isn't valid if it's under duress. They're all bought by people of their own free will. Same as people who overpay for a car, do we really blame the car salesmen for selling them the car or do all the threads on here about people buying cars they can't afford aimed at the ones who can't afford the cars?

You walk into a car dealership, the car salesman is going to try and sell you a car. You got see a realtor, the realtor is going to sell you a house. You go see a mortgage broker, the mortgage broker is going to try and get you a mortgage. I don't recall anywhere in any class or continuing education which said anything about not selling a house to a particular person if they don't meet some specific criteria even if they qualify. As a matter of fact, it's quite drilled in that you shall not discriminate or you'll get in big trouble with the law so it's basically set up to sell houses, not talk people out of it. You don't make any money in a 100% commission job if people don't buy. Part of the job is to qualify the buyer though so you only deal with buyers who can afford to buy. You don't get into whether they should or not, then you'd be acting like a stock picker trying to pick winners and losers and bound to get in trouble if you don't pick correctly. If you don't pick, you can't get in trouble.

Fault? I said nothing about putting guns to heads, or being discriminatory. I talked about these people lining their pockets on imprudent transactions, and pursuading language about how fabulous something is.

Here are some pretty simple graphics that make the point about the million dollar house.

Yeah, you could argue things on this. Maybe one doesn’t have an HOA. Maybe taxes are lower (or in many cases much higher). But what might be more telling is this:

And that’s at 3.12%. So think about that for a second. A 30 year jumbo is no longer 3.12%… more like 5.6%

So that 20% down case (of which many aren’t… many people didn’t put that much down on much lower priced houses) that $432k of interest payments on a million dollar home becomes more like $750k or payments. Just on interest alone. Absolutely nothing to show for it, and working heavily against the “investment” for decades to come.

You said it’s a $200k-ish income household that can afford these. But can a $200k gross household, which probably brings in $150k net, before car payments, child care, cable tv, power, retirement savings, rainy day savings, etc. can they really afford to throw away nearly a million dollars in interest… not to mention the $12-24k+/yr on property tax (IOW, the first $1-2k of NET income one actually brings home).

Makes for a real estate millionaire on paper, but not after Uber-low equity, and mounting debts get rolled up. Maybe 10% of American households have take home incomes suitable (on paper with high percentages of take home going to mortgages) of million dollar houses. Of that group, half are below average and have no idea how to handle money. Wait… most in America don’t know how to handle money. But are magical real estate millionaires with massive debt and no real assets or savings to their names except what the claim that the house is worth… that they own a fraction of..

Google sw developers or whatever else are anomalies. The median household income in America in 2020 was $67k. Even if it’s gone up 10% since then, the million dollar home is not America. Yeah I get it that such folks wouldn’t pre-qualify. Still, There are lots of people stretching for these homes when times were good…. I know of some that are already looking to get out…

The proliferation of these giant super expensive homes isn’t prudent…. Just because people want them isn’t a good reason. We don’t give stuff to our kids just because they want it. It’s the makings of another crash. And look, I’m not intrinsically against million dollar homes, and certainly not against those who can afford them. I heartily dislike cheaply made million dollar McMansions that look exactly like, complete with poor build quality of a house that sells for a third of the price elsewhere.

I just think that there are a lot of imprudent decisions being made because of the mantra that for everybody, RE is such a good investment…. Yet people don’t really have their fiscal house in order… I think most folks would agree that buying a $70k truck on $100k income isn’t smart. Yet how many people do it? But all of a sudden when it’s RE people are savvy and making “investments”. Yeah it’s real. But buying overpriced stuff in overheated markets on the premise of an investment is just silly.

Though I’ll take a crash to buy more at reasonable valuations…

 

[Wolf359]

Fault? I said nothing about putting guns to heads, or being discriminatory. I talked about these people lining their pockets on imprudent transactions, and pursuading language about how fabulous something is.

Here are some pretty simple graphics that make the point about the million dollar house.

Yeah, you could argue things on this. Maybe one doesn’t have an HOA. Maybe taxes are lower (or in many cases much higher). But what might be more telling is this:

And that’s at 3.12%. So think about that for a second. A 30 year jumbo is no longer 3.12%… more like 5.6%

So that 20% down case (of which many aren’t… many people didn’t put that much down on much lower priced houses) that $432k of interest payments on a million dollar home becomes more like $750k or payments. Just on interest alone. Absolutely nothing to show for it, and working heavily against the “investment” for decades to come.

You said it’s a $200k-ish income household that can afford these. But can a $200k gross household, which probably brings in $150k net, before car payments, child care, cable tv, power, retirement savings, rainy day savings, etc. can they really afford to throw away nearly a million dollars in interest… not to mention the $12-24k+/yr on property tax (IOW, the first $1-2k of NET income one actually brings home).

Makes for a real estate millionaire on paper, but not after Uber-low equity, and mounting debts get rolled up. Maybe 10% of American households have take home incomes suitable (on paper with high percentages of take home going to mortgages) of million dollar houses. Of that group, half are below average and have no idea how to handle money. Wait… most in America don’t know how to handle money. But are magical real estate millionaires with massive debt and no real assets or savings to their names except what the claim that the house is worth… that they own a fraction of..

Google sw developers or whatever else are anomalies. The median household income in America in 2020 was $67k. Even if it’s gone up 10% since then, the million dollar home is not America. Yeah I get it that such folks wouldn’t pre-qualify. Still, There are lots of people stretching for these homes when times were good…. I know of some that are already looking to get out…

The proliferation of these giant super expensive homes isn’t prudent…. Just because people want them isn’t a good reason. We don’t give stuff to our kids just because they want it. It’s the makings of another crash. And look, I’m not intrinsically against million dollar homes, and certainly not against those who can afford them. I heartily dislike cheaply made million dollar McMansions that look exactly like, complete with poor build quality of a house that sells for a third of the price elsewhere.

I just think that there are a lot of imprudent decisions being made because of the mantra that for everybody, RE is such a good investment…. Yet people don’t really have their fiscal house in order… I think most folks would agree that buying a $70k truck on $100k income isn’t smart. Yet how many people do it? But all of a sudden when it’s RE people are savvy and making “investments”. Yeah it’s real. But buying overpriced stuff in overheated markets on the premise of an investment is just silly.

Though I’ll take a crash to buy more at reasonable valuations…

Been selling several million dollar homes lately. The person you're ranting and raving about I don't encounter and sound mythical. Basically not that many are actually sold and the ones that are, the people buying them can afford them. Do you read of any stories of people who bought million dollar homes and now say they can't afford them? When I look at the original purchase price on some of these, they were originally in the 400-700k years ago depending on how back you go.

 

[KrisZ]

I can confirm that houses around Austin, Round Rock, Georgetown are sitting for quite some time on the market and asking prices are coming down. New builds are also sitting as many people that pre-qualified last year, cannot get financing now due to higher rates and are walking away.

 

[Owen Lucas]

Been selling several million dollar homes lately. The person you're ranting and raving about I don't encounter and sound mythical. Basically not that many are actually sold and the ones that are, the people buying them can afford them. Do you read of any stories of people who bought million dollar homes and now say they can't afford them? When I look at the original purchase price on some of these, they were originally in the 400-700k years ago depending on how back you go.

What are the down payments that these $MM home buyers are paying? It seems like a bad investment unless you're into the 8 figure range considering returns in the stock market (when it goes up) and anticipated depreciation in the coming crash.