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

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.
Yeah. I work with folks across the country and actually know multiple. In the NC, SC, VA (non-dc) and TX markets. Folks that want to live in decent commuting areas near dc have struggled with that for a while.

$MM homes aren’t abnormal in NJ, and that’s where the $25k+ tax bills really hurt.

Of course a realtor selling multiple $MM homes is going to be for it, walking away with 3-6% commission. Why would you find anything wrong with people wasting nearly a million dollars to mortgage bankers and not saving properly for kids college, retirement, etc.?!? You’re walking away with the commission… prices tank and you do it again. Perpetual motion feeding off of poor financial decisions.
 
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I was watching the news yesterday and this morning. They had 2 different news segments talking about this. One talked about how mortgage originations in Austin have fallen below levels seen since 2000. The other story was interviewing several real estate agents, each of whom said that the sales volume bottom has fallen out in the last two months, and one very active home flipper who said that he is not purchasing anything because he can't sell his current inventory.
 
I was watching the news yesterday and this morning. They had 2 different news segments talking about this. One talked about how mortgage originations in Austin have fallen below levels seen since 2000. The other story was interviewing several real estate agents, each of whom said that the sales volume bottom has fallen out in the last two months, and one very active home flipper who said that he is not purchasing anything because he can't sell his current inventory.
I think this is just the beginning. Home builders are abandoning homes and many buyers cancelling contracts due to comparable homes selling for less than their cancellation fees. The death spiral has begun.

This guy has been pretty spot on with his predictions, data, and research:

 
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.
Usually at least 20%, sometimes more, anywhere from 30-50%. The point isn't that it's an investment, it's a place to live so they're willing to pay more for lifestyle. I've done a few cash deals too, in those cases those guys show bank accounts with 2-5 million. Either retirement funds, trust funds or just savings/stock market returns. You guys focus on saving money but once it's saved, people spend it too. For the supposed crash, home ownership is typically at least 7-10 years or more, I suppose they're just planning on riding it out. In the meantime you have someplace to live.
 
Yeah. I work with folks across the country and actually know multiple. In the NC, SC, VA (non-dc) and TX markets. Folks that want to live in decent commuting areas near dc have struggled with that for a while.

$MM homes aren’t abnormal in NJ, and that’s where the $25k+ tax bills really hurt.

Of course a realtor selling multiple $MM homes is going to be for it, walking away with 3-6% commission. Why would you find anything wrong with people wasting nearly a million dollars to mortgage bankers and not saving properly for kids college, retirement, etc.?!? You’re walking away with the commission… prices tank and you do it again. Perpetual motion feeding off of poor financial decisions.
Oh yeah, commissions are lower here, anywhere from 4-5%, some areas only do 4% so you're just looking at a 2% commission split. Why are you assuming that people are wasting a million dollars? How are you qualified to make that judgement that you're passing? I don't really get into their financial lifestyles, they would probably consider it prying into their private lives and then dump me. It's not a requirement and I don't think anyone really does it, it's hard enough to figure out if people are qualified to purchase to begin with. In this area, hardly any have really suffered from poor financial decisions if they held on long enough. I knew people who bought in 2005 near the height of the market and then it was down for 10+ years but it's now well above what they paid.
 
Why are you assuming that people are wasting a million dollars?

Which million dollars are you talking about? The asset or the interest?

I think anyone who has read my financially oriented posts on here knows that I’m against paying interest.

The graphics I showed indicate the issue. And you made my point about the pricing on such homes just a year or few years ago.

I’m not anti-$1MM house per se. Im against the inability to truly afford it because people are told they can afford some huge fraction of their take home, and pay the thing on a 30 year note with massive amounts of interest going to the bank. If you can buy a $1MM house cash or with a significant downpayment and 15yr mortgage… maybe ok. In some cases the property taxes are major killers too… but it’s really an issue of what can prudently be afforded, and how much massive amount of money is paid on interest.

I know one case where a house was to be built, bought at over $700k by DINKs with sun-$200k income. Before it was finished, it’s value was over $1M. For what good reason? And since they didn’t close yet they somehow didn’t lock in a rate. So the massive interest payments that are going to be due are going to severely drag down their lifestyle for what? For nothing.

In the last few years salaries have gone up. But RE has gone up faster. So the people buying the $500-700k houses a few years back are making marginallly more but now are buying $1M+ houses on not a lot more income. Guess what happens then?? And the realtor and mortgage banker are laughing all the way to the bank. And the “smart” people earning this money are eroding their buying power bit by bit. But to keep up with the no ears it’s coming from family-oriented things. Like mom not being able to stay home at all when baby is born. Things that IMO are unhealthy for the long run. But hey, they have their $1M house.

I get it that proportionately the amount of money on a cheaper house is spent on interest too. But I’m a 15 year mortgage kind of person. A don’t pay interest type of person. So it’s unfathomable to pay nearly 2x the house’s value by the time interest, fees, and taxes all are paid…. On such a massive bill.
 
Around here they're tearing down $700k houses and replacing them with $2.1M homes.


 
Which million dollars are you talking about? The asset or the interest?

I think anyone who has read my financially oriented posts on here knows that I’m against paying interest.

The graphics I showed indicate the issue. And you made my point about the pricing on such homes just a year or few years ago.

I’m not anti-$1MM house per se. Im against the inability to truly afford it because people are told they can afford some huge fraction of their take home, and pay the thing on a 30 year note with massive amounts of interest going to the bank. If you can buy a $1MM house cash or with a significant downpayment and 15yr mortgage… maybe ok. In some cases the property taxes are major killers too… but it’s really an issue of what can prudently be afforded, and how much massive amount of money is paid on interest.

I know one case where a house was to be built, bought at over $700k by DINKs with sun-$200k income. Before it was finished, it’s value was over $1M. For what good reason? And since they didn’t close yet they somehow didn’t lock in a rate. So the massive interest payments that are going to be due are going to severely drag down their lifestyle for what? For nothing.

In the last few years salaries have gone up. But RE has gone up faster. So the people buying the $500-700k houses a few years back are making marginallly more but now are buying $1M+ houses on not a lot more income. Guess what happens then?? And the realtor and mortgage banker are laughing all the way to the bank. And the “smart” people earning this money are eroding their buying power bit by bit. But to keep up with the no ears it’s coming from family-oriented things. Like mom not being able to stay home at all when baby is born. Things that IMO are unhealthy for the long run. But hey, they have their $1M house.

I get it that proportionately the amount of money on a cheaper house is spent on interest too. But I’m a 15 year mortgage kind of person. A don’t pay interest type of person. So it’s unfathomable to pay nearly 2x the house’s value by the time interest, fees, and taxes all are paid…. On such a massive bill.
All real estate is local. You had this entire rant earlier. Your issues don't really apply in this area. Mostly because pretty much any area you bought in in the last 10-15 years or even the last 5 years have done nothing but go up. You're also citing a specific case, most of the time on an average sale, you lock in the rate, you're misconstruing the exception for the norm. Most people in general don't really gamble and when you hear that rates are going down, you would think people would just float the rate but they lock it anyway, now with rates going up, they lock as fast as possible. Interest is deductible and you're right, probably the hardest part of owning a home is in the first 5-10 years, but after a while you have inflation, you get raises/promotions, value of property goes up, etc, then the interest is nothing to worry about. And if you really are in trouble, then you dump it and walk away with some nice change in your pocket from the appreciation. Some people have become accidental flippers because they need to relocate in just a couple years instead of holding on for the long term for whatever reason and they end up making money on the deal.

Everything isn't equal, before you had lots of people chasing a house, you'd hear of 10-12 offers on one property. Now it's slowed down, the ones who can't afford it were the ones who dropped out, now down to just 3-5 offers or even just one or two. Also you're not talking about the average American, the ones that can afford it are probably in the top 15-20% of wage earners, not exactly chicken feed that the average American might be earning. Don't cry too hard for those guys, they'll be ok, eventually.
 
Which million dollars are you talking about? The asset or the interest?

I think anyone who has read my financially oriented posts on here knows that I’m against paying interest.

The graphics I showed indicate the issue. And you made my point about the pricing on such homes just a year or few years ago.

I’m not anti-$1MM house per se. Im against the inability to truly afford it because people are told they can afford some huge fraction of their take home, and pay the thing on a 30 year note with massive amounts of interest going to the bank. If you can buy a $1MM house cash or with a significant downpayment and 15yr mortgage… maybe ok. In some cases the property taxes are major killers too… but it’s really an issue of what can prudently be afforded, and how much massive amount of money is paid on interest.

I know one case where a house was to be built, bought at over $700k by DINKs with sun-$200k income. Before it was finished, it’s value was over $1M. For what good reason? And since they didn’t close yet they somehow didn’t lock in a rate. So the massive interest payments that are going to be due are going to severely drag down their lifestyle for what? For nothing.

In the last few years salaries have gone up. But RE has gone up faster. So the people buying the $500-700k houses a few years back are making marginallly more but now are buying $1M+ houses on not a lot more income. Guess what happens then?? And the realtor and mortgage banker are laughing all the way to the bank. And the “smart” people earning this money are eroding their buying power bit by bit. But to keep up with the no ears it’s coming from family-oriented things. Like mom not being able to stay home at all when baby is born. Things that IMO are unhealthy for the long run. But hey, they have their $1M house.

I get it that proportionately the amount of money on a cheaper house is spent on interest too. But I’m a 15 year mortgage kind of person. A don’t pay interest type of person. So it’s unfathomable to pay nearly 2x the house’s value by the time interest, fees, and taxes all are paid…. On such a massive bill.
How about when (the stock market is doing good normally) you can get more interest on your money than the interest you are paying on a mortgage, wouldn't that be the optimal way to invest ones money? Makes sense on paper unless I'm missing something.
 
How about when (the stock market is doing good normally) you can get more interest on your money than the interest you are paying on a mortgage, wouldn't that be the optimal way to invest ones money? Makes sense on paper unless I'm missing something.
Yes, the only thing you'd be missing is when the market is down like it is this year. But over the long term, it tends to average about 10% or so, at one point it was over 15% over the last 10 years as the bad year aged out and stopped dragging down the average. But you need to have money to invest in order to profit from the market. Although if you only put 20% down on a million dollar property which is 200k, it goes up 10% and on paper you've actually got a 50% gain but once you pay all the fees and costs associated with selling, it's less than that. But you don't have capital gains taxes which you'd have on the stock market if the gain is less than 250k/500k if you lived in it.
 
All real estate is local. You had this entire rant earlier. Your issues don't really apply in this area. Mostly because pretty much any area you bought in in the last 10-15 years or even the last 5 years have done nothing but go up. You're also citing a specific case, most of the time on an average sale, you lock in the rate, you're misconstruing the exception for the norm. Most people in general don't really gamble and when you hear that rates are going down, you would think people would just float the rate but they lock it anyway, now with rates going up, they lock as fast as possible. Interest is deductible and you're right, probably the hardest part of owning a home is in the first 5-10 years, but after a while you have inflation, you get raises/promotions, value of property goes up, etc, then the interest is nothing to worry about. And if you really are in trouble, then you dump it and walk away with some nice change in your pocket from the appreciation. Some people have become accidental flippers because they need to relocate in just a couple years instead of holding on for the long term for whatever reason and they end up making money on the deal.

Everything isn't equal, before you had lots of people chasing a house, you'd hear of 10-12 offers on one property. Now it's slowed down, the ones who can't afford it were the ones who dropped out, now down to just 3-5 offers or even just one or two. Also you're not talking about the average American, the ones that can afford it are probably in the top 15-20% of wage earners, not exactly chicken feed that the average American might be earning. Don't cry too hard for those guys, they'll be ok, eventually.
Yeah you’re not convincing me. There’s no redeeming quality or benefit to people in the upper 15-20% spending nearly a million dollars in interest on a home. Sorry. That has nothing to do with the locality of RE. Especially when you look at the quality of most recent construction, the locations, etc. Manhattan, Carmel, the beach most anywhere… OK… some third tier city where people are icing to escape the bad decisions of their last place? Not so much.
 
Yeah you’re not convincing me. There’s no redeeming quality or benefit to people in the upper 15-20% spending nearly a million dollars in interest on a home. Sorry. That has nothing to do with the locality of RE. Especially when you look at the quality of most recent construction, the locations, etc. Manhattan, Carmel, the beach most anywhere… OK… some third tier city where people are icing to escape the bad decisions of their last place? Not so much.
Well of course it's expensive here but otherwise you'd just be renting and those million dollar homes rent for 4k+ a month. Even the old stuff is still 2-3k. You can deduct the interest and paint a house you own whatever color you like and don't have to worry about being kicked out if the landlord wants to sell. Quality of construction has nothing to do with it, most home inspectors don't really call out the quality in a home. as long as the house isn't falling down, they say it's fine. Or maybe we just have better building codes/building inspectors around here than your area. Doesn't come up as an issue when I sell property.
 
Yes, the only thing you'd be missing is when the market is down like it is this year. But over the long term, it tends to average about 10% or so, at one point it was over 15% over the last 10 years as the bad year aged out and stopped dragging down the average. But you need to have money to invest in order to profit from the market. Although if you only put 20% down on a million dollar property which is 200k, it goes up 10% and on paper you've actually got a 50% gain but once you pay all the fees and costs associated with selling, it's less than that. But you don't have capital gains taxes which you'd have on the stock market if the gain is less than 250k/500k if you lived in it.

50% gain is a bit of a stretch.

You buy a million dollar property with 20% down. In the first year you pay $42k in interest and $10k in principal.

Even at year 10, you have minimal principal, but LOTS of interest paid.

Numbers don’t lie.

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So what timeframe is 10% in a year? Around me it has been doing that annually for the last few years.

So after 1 year, that 10% hypothetical gain ($100k) is really more like $60k. I agree the fees erode the paper earnings if one was to sell.

Imagine it’s more like 10% over 10 years. 10 years in the homeowner is still paying $36k in interest for just $17k in principal on a $1MM-ish property. So in 10 years time over $400k has been spent in interest (!!!!) on that $100k gain. So you’re WAAAAAY negative.

2A6BFBB4-4938-4C22-A395-A1FFB9C0778F.jpeg
84A2B584-A681-4A60-ADB8-5079E48CEBF4.jpeg

Again, numbers don’t lie.
 
Well of course it's expensive here but otherwise you'd just be renting and those million dollar homes rent for 4k+ a month. Even the old stuff is still 2-3k. You can deduct the interest and paint a house you own whatever color you like and don't have to worry about being kicked out if the landlord wants to sell. Quality of construction has nothing to do with it, most home inspectors don't really call out the quality in a home. as long as the house isn't falling down, they say it's fine. Or maybe we just have better building codes/building inspectors around here than your area. Doesn't come up as an issue when I sell property.
I suspect your definition of quality is vastly different than mine. I’m talking quality old construction. Inlaid floors, chestnut or other old growth wood trim, etc.

Not the spec Home Depot type trims, thin sheet rock, etc. Has nothing to do with codes and building inspectors. I’ve seen the same stuff in the east, west, and south. Because the Hovnanians, Hortons, Lennars, etc. are building the same sort of thing all over. No thanks.
 
50% gain is a bit of a stretch.

You buy a million dollar property with 20% down. In the first year you pay $42k in interest and $10k in principal.

Even at year 10, you have minimal principal, but LOTS of interest paid.

Numbers don’t lie.

So what timeframe is 10% in a year? Around me it has been doing that annually for the last few years.

So after 1 year, that 10% hypothetical gain ($100k) is really more like $60k. I agree the fees erode the paper earnings if one was to sell.

Imagine it’s more like 10% over 10 years. 10 years in the homeowner is still paying $36k in interest for just $17k in principal on a $1MM-ish property. So in 10 years time over $400k has been spent in interest (!!!!) on that $100k gain. So you’re WAAAAAY negative.

Again, numbers don’t lie.
You're also missing a few things, how much would you pay in rent instead? It's not like you really have the option to be homeless although I suppose you could live in an RV and cut down on expenses. Plus you also deduct the interest although the last tax law changes limits it somewhat.

But of course owning a home will cost more than renting, but you have to pay more to get more. Otherwise everyone would just rent.

I didn't give a time frame for 10%, could be a year could be two, could be 100% in 5-10-15 years.

Pretty much any house in this area that was bought 10 years ago is probably up at least 20-30% if not 50-100%. Location is important.

As Mark Twain said, figures don't lie but liars can figure. Basically you're cherry picking your facts without taking in the entirety.

Come back once you factor in the interest rate deduction and appreciation and the cost of renting vs buying. Buying still costs more than renting but after 10, 20, 30 years, your mortgage may be way down and your interest payments are going down, meanwhile how much do you think rents will go up in the next 30 years? There's a reason they say the tax laws favor the rich, you have freebies like the interest deduction, capital gains exclusion on the sale of a primary residence, etc. What do renters get? Nothing.
 
You're also missing a few things, how much would you pay in rent instead? It's not like you really have the option to be homeless although I suppose you could live in an RV and cut down on expenses. Plus you also deduct the interest although the last tax law changes limits it somewhat.

But of course owning a home will cost more than renting, but you have to pay more to get more. Otherwise everyone would just rent.

I didn't give a time frame for 10%, could be a year could be two, could be 100% in 5-10-15 years.

Pretty much any house in this area that was bought 10 years ago is probably up at least 20-30% if not 50-100%. Location is important.

As Mark Twain said, figures don't lie but liars can figure. Basically you're cherry picking your facts without taking in the entirety.

Come back once you factor in the interest rate deduction and appreciation and the cost of renting vs buying. Buying still costs more than renting but after 10, 20, 30 years, your mortgage may be way down and your interest payments are going down, meanwhile how much do you think rents will go up in the next 30 years? There's a reason they say the tax laws favor the rich, you have freebies like the interest deduction, capital gains exclusion on the sale of a primary residence, etc. What do renters get? Nothing.
Where did I say anything about renting?

A lower priced house, perhaps. A shorter mortgage that could be paid off in no time.

You mentioned deductions. You seriously think someone should be proud of paying $40k in interest so they can get 30c on the dollar on their income taxes?!?

I agree renting or some other means of living needs to be factored.

But it’s still the matter of your hypothetical $200k/yr person spending $40k on interest (not to mention the principal and taxes).

As I stated, I’m against interest (and taxes), not necessarily the $1M home (quality of modern construction aside), and especially not against those who have high paying jobs.
 
Not the spec Home Depot type trims, thin sheet rock, etc. Has nothing to do with codes and building inspectors. I’ve seen the same stuff in the east, west, and south. Because the Hovnanians, Hortons, Lennars, etc. are building the same sort of thing all over. No thanks.

There are differences. Some builders use thermo-ply sheathing or pink foam board with metal straps for the racking strength (cheaper than plywood or OSB). Living in one of these homes, you'll know when it's windy out, because the house is making rattling and creaking noises like a cheap mobile home. I lived in a house like this (was the first one I bought) and the first few nights I lived there, I thought someone was breaking in from all the noise it made.
 
Where did I say anything about renting?

A lower priced house, perhaps. A shorter mortgage that could be paid off in no time.

You mentioned deductions. You seriously think someone should be proud of paying $40k in interest so they can get 30c on the dollar on their income taxes?!?

I agree renting or some other means of living needs to be factored.

But it’s still the matter of your hypothetical $200k/yr person spending $40k on interest (not to mention the principal and taxes).

As I stated, I’m against interest (and taxes), not necessarily the $1M home (quality of modern construction aside), and especially not against those who have high paying jobs.
That's exactly my point, you didn't account for renting instead of buying which is the default option. Lots of times if you want a particular area with the good schools then you're talking a high dollar amount for a good sized property. Sure you live in a hovel instead of what you're used to but people also like to entertain and have people over and they'd be wondering why you're making 200k and living in a tiny place.

Interest is just another expense, but if you compare renting with owning, while you pay interest when you own, at least you can deduct it. You can't really deduct rent. Also people tend to refinance after a few years anyway, when they make more money, they can refinance into a 15 year mortgage. That probably won't really happen in the future if the rates stay high but if rates drop that's certainly possible. People tend to refinance after 3 years on average just like average home ownership is 7-10 years, no one really pays interest on the same mortgage for 30 years.

While you see lots of shoddy modern construction, those older 100 year homes around me are worse, typically utility costs are like 2-4x times higher because they didn't do much insulation back then because energy was cheap.

That 40k in interest works out to about the 24% tax rate for a couple filing jointly so you save $9600 in taxes so it really works out to $30,400 or about $2500 a month. You can easily spend more than that a month just on rent for an equivalent type home. And your interest payments go down over time whereas the rent only increases in time. That's why there are rent/own calculators, typical payback is somewhere between 3-7 years depending on various factors and that includes interest payments.

Lower priced home or small home are basically the choices of the buyer. Who are you to interfere with what people want? They normally watch too much TV and want what they see on TV. Real estate brokers and mortgage brokers don't interfere with people's financial lives. Real Estate brokers are not financial advisors, they just stick to selling real estate. You can rant and rave all you like, but it's really the fault/desires of the buyer that controls, real estate brokers and mortgage brokers have nothing to do with it. There is absolutely ZERO training on financial matters for real estate brokers so they are ABSOLUTELY not qualified to tell someone whether maybe they should be funding their retirement account or saving for their kids college fund. They are absolute not qualified to sell insurance or any other financial products or even required to have any knowledge of it. You're basically told to refer all that out, contact a home inspector, lawyer, accountant, tax professional, financial consultant, etc. Only give advice where you're qualified and as a licensed broker, you're only licensed to sell homes. Should Uber drivers check to see if people should really be going to a bar? Their job is to drive you to a place. That's it. Real estate brokers jobs are to sell you a home.

And why are you even expecting a real estate broker or mortgage broker to see if it's really appropriate for them in the whole scheme of things? Name one sales job where they actually do that aside from financial consultants. If you want an iphone, the phone store will sell you one, basically you can buy whatever you like without anyone digging into your financial status and seeing if it's really appropriate for you. You requirements/expectations for that really doesn't make any sense.
 
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Sure you live in a hovel instead of what you're used to but people also like to entertain and have people over and they'd be wondering why you're making 200k and living in a tiny place.
BTDT. Well not the $200k bit but the 700sqft house. I figured, not much more than rent, and the payment never goes up.

Once done with that, stretched a bit into our current home. Not going to live in the poor area of the world, so that sets rent at one level. Hard to rent and save. Yeah ya lose money to interest, but rent is 100% lost money, with little safety net (we know friends who got turned out when landlord sold house, others seem at the mercy of when landlord wants to fix things).

Real question is, what is the diff between rent and mortgage, and is that rent in an area that one is ok with? It’s unfair to compare a studio in crack lane with a house in a gated community. You can do that studio when young, but at some point it seems time to move on.
 
Here is a chart showing the statistical odds of falling home prices in these markets. My two cents- these markets rose so high, any fall in prices is nothing to lose sleep over. If you own a home in Phoenix, Nashville, etc- it will still sell at a very nice profit today even if you purchased just one year ago.
Screenshot 2022-07-25 at 04-39-56 Falling home prices This interactive map shows the statistic...jpg
 
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