I wonder how many buyers are counting on being able to refinance at much lower rates in a few years. And what will happen if rates don’t actually come down much in the medium term.
I think the question of whether NIMBY ability to block housing is eroding is definitely relevant -- we have a _bunch_ of states passing laws that reduce the burden of Process on housing construction. It would be interesting to see if there's any kind of change in the pattern of _where_ housing starts are happening that correlates to having passed YIMBY policies.
We were just talking about the likelihood of a recession this morning and have the impression that one is unlikely in the near term future. This may be anecdotal, but the people we know who are buying houses have the money to buy houses and don't need mortgages. Just last night, some friends of ours agreed to sell their house for 60% over what they paid for it three years ago in an all cash deal. When some friends died two year ago, other friends bought their house as a rental property, again, all cash. Those are just some of the many all cash deals we've been hearing about. What we haven't heard was anything about banks and interest rates.
With wealth concentrating into tighter and tighter circles, the people with enough money can buy things like houses, cars or aircraft without borrowing. Everyone else was squeezed out of the buy a house market some time ago, so they'll spend on experiences or more modestly priced goods like televisions or ATVs or brand name ketchup. It's like the 19th century. The aristocrats buy town houses, pricey jewelry and summer estates. Everyone else struggles to keep a roof over their head.
I don't think the situation is weird. It was predictable. My girlfriend basically forecast the return of the cloth of gold when they starting calling the 1980 election for Reagan.
As a retired real estate broker I can say with confidence that Bill McBride is the best when speaking about the housing market. I'm happy to see your referral to him. He's also pretty good at predicting recessions!
If ONLY the Treasury would give us some TIPS for intermediate tenors! Within the 5-year (under target) expectation of 2.18% the is room for expecting a nasty recession dip and over target recovery.
What about VR finance v fixed rate? SVB ought to be pushing lenders to offer more VR's.
Hey Brad, thanks for discussing housing. Maybe I can write off my subscription!
My smart friends in real estate appraisal think that new home construction is serving as a substitute for the residential resale market. Bill McBride and others show a significant decline in resales compared to the pre-pandemic baseline with rate lock-in the most obvious explanation. New construction is filling that need. Builders are known for creative financing options like rate buy-downs at much higher levels than what we see in the resale market. Also, pandemic supply issues had an effect on spreading out the supply of new construction so the builders have more product available. Creative financing by builders stuck with inventory completed or in the pipeline makes new construction attractive.
So there is now a huge amount of deficient demand at the high-end because of an unwillingness of those who would otherwise trade up to sacrifice their current low rate mortgage. And so strong housing construction is by the counterbalancing excess demand in the rest of the market.
I wonder how many buyers are counting on being able to refinance at much lower rates in a few years. And what will happen if rates don’t actually come down much in the medium term.
We have owners who don't want to sell
Developers who need to build
And lots of buyers - either flush buyers or ones who, as you point out, assume current rates won't last forever.
Unhatched chickens are surely being counted somewhere. :-)
I think the question of whether NIMBY ability to block housing is eroding is definitely relevant -- we have a _bunch_ of states passing laws that reduce the burden of Process on housing construction. It would be interesting to see if there's any kind of change in the pattern of _where_ housing starts are happening that correlates to having passed YIMBY policies.
We were just talking about the likelihood of a recession this morning and have the impression that one is unlikely in the near term future. This may be anecdotal, but the people we know who are buying houses have the money to buy houses and don't need mortgages. Just last night, some friends of ours agreed to sell their house for 60% over what they paid for it three years ago in an all cash deal. When some friends died two year ago, other friends bought their house as a rental property, again, all cash. Those are just some of the many all cash deals we've been hearing about. What we haven't heard was anything about banks and interest rates.
With wealth concentrating into tighter and tighter circles, the people with enough money can buy things like houses, cars or aircraft without borrowing. Everyone else was squeezed out of the buy a house market some time ago, so they'll spend on experiences or more modestly priced goods like televisions or ATVs or brand name ketchup. It's like the 19th century. The aristocrats buy town houses, pricey jewelry and summer estates. Everyone else struggles to keep a roof over their head.
I don't think the situation is weird. It was predictable. My girlfriend basically forecast the return of the cloth of gold when they starting calling the 1980 election for Reagan.
As a retired real estate broker I can say with confidence that Bill McBride is the best when speaking about the housing market. I'm happy to see your referral to him. He's also pretty good at predicting recessions!
He is indeed...
If ONLY the Treasury would give us some TIPS for intermediate tenors! Within the 5-year (under target) expectation of 2.18% the is room for expecting a nasty recession dip and over target recovery.
What about VR finance v fixed rate? SVB ought to be pushing lenders to offer more VR's.
Well, with today's TIPS 2.22 and 2.25 there is less room for expecting a big dip and recovery
But I still want those intermediate TIPS.
Hey Brad, thanks for discussing housing. Maybe I can write off my subscription!
My smart friends in real estate appraisal think that new home construction is serving as a substitute for the residential resale market. Bill McBride and others show a significant decline in resales compared to the pre-pandemic baseline with rate lock-in the most obvious explanation. New construction is filling that need. Builders are known for creative financing options like rate buy-downs at much higher levels than what we see in the resale market. Also, pandemic supply issues had an effect on spreading out the supply of new construction so the builders have more product available. Creative financing by builders stuck with inventory completed or in the pipeline makes new construction attractive.
So there is now a huge amount of deficient demand at the high-end because of an unwillingness of those who would otherwise trade up to sacrifice their current low rate mortgage. And so strong housing construction is by the counterbalancing excess demand in the rest of the market.