
It's time to worry about the housing market again - dmitriy_ko
https://www.financialsamurai.com/time-to-start-worrying-about-the-housing-market-again/
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bradleyjg
Post-WWII the US home ownership rate increased from under 50% to between 60%
and 70% and has stayed there ever since. [https://dqydj.com/wp-
content/uploads/2014/11/historical_home...](https://dqydj.com/wp-
content/uploads/2014/11/historical_homeownership_1890_present_USA.png)

I'd argue that this makes for a bad public policy environment. With such a
high levels of concentrated investment in a single asset class political
manipulation of that asset class isn't just tempting, it's practically a
political necessity. What the voters demand is impossible to sustain forever
(monotonically increasing nominal prices _and_ above the rate of general
inflation growth over every five year period), but with such high political
pressure politicians try anyway.

~~~
closeparen
Mass renting creates the _worse_ political incentive structure of anti-
gentrification, motivating people to oppose any improvements in their
neighborhoods.

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pmorici
The Redfin CEO warned about weakness in the housing market back in August
while discussing Redfin's earnings.

[https://www.marketwatch.com/story/housing-market-has-hit-
a-s...](https://www.marketwatch.com/story/housing-market-has-hit-a-
significant-slowdown-in-recent-weeks-redfin-ceo-says-2018-08-09)

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mindslight
Maybe if the bubble were _ever_ allowed to actually just deflate, then we
wouldn't be in a state of perpetual worry?

The present feedback loop is straightforward: CPI is an average of consumer
goods and the price of housing. Due to technological and economic progress,
the costs of manufactured goods are always dropping. To maintain the Fed's
stated goal of continual inflation, new money must be injected into the
housing market to compensate.

(The same goes for anything else that can be financialized, eg cars)

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ronnier
I have two houses paid off in the Seattle area. I'm tempted to sell them (I
rent one out), but I don't know what I'd do with the money. I could hold and
wait for a downturn and buy again but that seems risky.

~~~
a_wild_dandan
The recession is coming. We're in the 2nd longest expansion in US history (at
~10 years), and the contraction is on the horizon. Liquidating a property now,
waiting for the recession to hit, and sticking the money into a low-fee index
fund seems pretty reasonable. Maybe a financial advisor could check in and let
us know if that's a valid strategy? I've been thinking of doing something
similar.

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Bombthecat
I'm not so convinced that we are entering a recession.

I think we will more likely enter a dystopian phase to squeeze out more money
from the workforce.

~~~
claydavisss
I agree that for the dominant tech titans, reducing costs is the next phase.
Amazon has saturated the US market for Prime accounts...Apple has found a
near-term ceiling for phone prices...etc etc

The most obvious tool for juicing margins in the next two years is in reducing
costs (headcount or salaries)

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hedvig
Why can't the overlords just accept current profit margins?

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WJW
It's an unstable condition in a game theoretic sense, because if you don't
push for a higher margin when you have the chance, your competition might and
then you go out of business altogether because they can outspend and outinvest
you. So you always have the incentive to optimize margin as high as you can.

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sovietmudkipz
As someone who just purchased a primary home, it’s unnerving to hear about a
correction on the horizon and that my house won’t be worth the debt I took on.

I’m still recovering after tapping into my 6 mo emergency fund to make the
down payment. I think I need to move to a more aggressive E fund regeneration
strategy. The article states having ~20%~ 10% of home value in liquid cash; my
~6~ 3 month E fund is about there.

I haven’t learned how to check the indicators to tell if the economy is about
to go through deleveraging yet. I don’t know if I’m seeing more attention to
this type of article now that I own a home or if the presence of these
articles are in indication something bad is about to happen.

I guess the future will tell. I’ll tighten my belt much more and get that E
fund back up.

I wasn’t working in 2008 during the recession; I’ll prepare just in case I
lose my job. No new debt.

Edit: article recommends 10% the value of your home in cash, not 20%, to get
through a downturn. Updated this response.

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GhostVII
Whats the issue with your home not being worth the debt you took on? Obviously
it isn't great to have an asset like that loose value, but most people don't
change homes very often, so the value of the home shouldn't have much impact
on your life until later. Even if the value goes to 0, you can still live in
it just as well as if it's value stayed constant.

~~~
twblalock
> Whats the issue with your home not being worth the debt you took on?

There were tons of short sales during the last recession because people could
not afford their mortgage payments and their houses were worth less than they
owed. It's a very bad situation to be in, and if you lose your job you might
have no choice.

Another less bad situation is that you might need to turn down better career
opportunities in other cities because you aren't able to sell your house.

Being in that kind of a jam really diminishes your control over your future.

~~~
bradleyjg
> Another less bad situation is that you might need to turn down better career
> opportunities in other cities because you aren't able to sell your house.

If the house price stays the same this still ends up costing you roughly 6%.

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TuringNYC
True. So assume they put down 20% and hae 20% equity. A sale will cost you 6%
(up to 8% in places like NY where you have transfer taxes.) That leaves the
person with 12% equity (of which 4-8% will wiped out on the purchase.) This is
painful _but they arent yet losing money they dont have.

If the house is underwater (which the OP discussed) then you _literally cannot
sell without making up the difference.* Meaning, _YOU PAY_ someone for them to
take the house. That is a horrible situation. Also, that means you have less
than 0 left to purchase the next home.

~~~
bradleyjg
The bottom line is that it's a bad idea to buy a house unless you are fairly
certain that you will be staying in it for at least 6-10 years. Anything else
is unduly relying on nominal price appreciation.

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Pxtl
That time never stopped here in the big-city parts of Canada. The US housing
crisis was a speed-bump in our endless upward price-march out of
affordability.

~~~
refurb
Vancouver sfh’s are down at least 10% now from their peak last year.

The slump has already started.

~~~
jiveturkey
vancouver is completely different. the government is intentionally depressing
prices.

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jldugger
Every time I read these articles, I'm optimistic this might mean rents are
going down, but they always have an asterisk: "Well, except the bay area."
Which is understandable -- with 20 cities in the Case Shiller index, one
bucking the trend does not negate the trend. But alas, I don't get to live in
an index of 20 cities.

And it should be noted, this article is from February 2018.

~~~
segmondy
House prices have fallen in the Bay Area, I've been keeping an eye on it. If
it falls well enough I will move there. The reason no one wants to reduce rent
in the Bay is because of rent control. I saw some multi units for sale, folks
were stuck renting out 2 bedrooms for less than $1,000/month.

~~~
jldugger
> House prices have fallen in the Bay Area, I've been keeping an eye on it.

[https://fred.stlouisfed.org/series/SFXRSA](https://fred.stlouisfed.org/series/SFXRSA)
is bit lagged (most recent data is july) but doesn't seem down?

> The reason no one wants to reduce rent in the Bay is because of rent
> control.

Is rent control common in the south bay? AFAICT, there's only Mountain View
which passed by ballot initiative in 2016.

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kokey
I'm not sure what the situation is in the US, but in the UK there has been a
number of changes which has helped increase the rate of new house building to
increase the stock. This, along with Brexit uncertainly, looks like it's
starting to show signs of slowing down the dramatic shortages and house price
rises we've been seeing for decades. Some people bought based on assumptions
regarding the rate of price rises and may be disappointed, but I don't expect
a crash resulting in a lot of defaults because lending criteria has been
tightened and many people have the last recession in their recent living
memory so they are more careful.

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swang720
As someone that doesn’t own a home, I really do hope for a correction so
housing is more affordable here in California.

While Californians are aligned on many things, in some ways your perspective
on the housing situation depends a lot on whether you own a home or don’t.

If things stay their course I plan on renting indefinitely and moving to
another state where prices are relatively affordable for my family.

Having grown up in the Bay Area, it’s a little disconcerting that I can’t
afford to settle down here after moving back after college.

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gniv
This is from beginning of February. Things have indeed gotten worse since
then. Especially the mortgage rates.

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UncleEntity
> In 2017 I experienced softening rents first hand when I tried to find
> replacement tenants for my SF rental house at a similar rent of $9,000 a
> month.

That's more than I pay for a _year_ for a 2bd apartment in downtown Phoenix...

