Like the housing market collapse of 2008: empty and unfinished houses due to inability to make mortgage payments or secure more financing. Another collapse could be worse if it were rents becoming too expensive. As it is, many people are already renting rooms.
Also, the unfinished properties eventually became finished and the empty homes rehabbed, cleaned, and re-occupied after a lot of foreign investment. Initially, rents were relatively cheap around 2012 but not anymore.
2008 again & it will happen.
Very few jobs now can afford homeownership total costs even if home’s free: taxes, repairs/maintenance, utilities, HOA, insurance.
A lot of people lose significant equity, and since homes are often the largest asset a person owns, wealth declines. Take that money out of the economy and it doesn’t bode well.
You’d have to have a surplus of homes and a bunch of people not able to make mortgage payments. The market has cooled but isn’t anywhere near the same conditions as 2008. Unfortunately home prices are going to slowly increase in the near future and price more people out of the market completely. Homeownership is going to get harder for future generations and ultimately evolve into a more difficult state.
It wouldn’t look good. I can tell you that. People sit around, hoping for it to happen so that they can buy property cheap, but that cheap property comes at a high price for the rest of the economy.
Worse than 2008. The 2008 credit crisis happened because lenders were over-leveraged and there were a ton of subprime mortgages on the books that basically torpedoed enough of the mortgage-backed securities to cause major insurers to have a liquidation problem. It didn’t have a lot to do with there being a ton of houses on the market that were overvalued, though it did cause a brief slump in housing prices.
If housing prices went through a deflationary correction, it would make 2008 look like a walk in the park. Many billions of dollars of assets would vaporize immediately, and unless immediate action was taken to stabilize the market, it could collapse, and that’s a nightmare scenario.
If you really want to lose some sleep, consider that so many corporations and foreign entities bought properties the last time the values were down, and are now reaping the rewards of much higher rents and values, it will for sure be 10x worse next time. Investors will buy everything they can get their hands on.
If you really want to lose some sleep, consider that so many corporations and foreign entities bought properties the last time the values were down, and are now reaping the rewards of much higher rents and values, it will for sure be 10x worse next time. Investors will buy everything they can get their hands on.
Great for home buyers (prices). Bad for people who have leveraged real estate (mortgages) and people who lent money to others to buy real estate (banks / mortgage buyers like the gov).
Houses cannot be both a good investment (increasing prices above inflation) and affordable.
I feel like there are younger people sitting back thinking this is the only way to get an affordable house. There are two problems with this approach.
The first is that way too much institutional investment and wealth are now tied up in housing assets. The government will never allow the bottom to fall out of the market without a bailout, like we saw in 2008.
Second, if there IS anything like a 2008-like deflation event where banks are over-leveraged, NO ONE CAN GET CREDIT. So it won’t matter if housing prices are lower, no one will lend you money.
Well, given how insane house prices have become over the past four years and how much equity exists on paper in those same houses, it would likely be more of a reversion to the mean.
Housing would fall at least 25 percent and take the whole economy down too. Would take 3 or 4 years to reverse. Eventually it would pick up and we’d navigate our way back to unaffordable pricing again
Imagine nobody is able to get a job. Most people lose their careers.
And then rents flatline for like 2 years. During that time, the government will release trillions in stimulus, and basically give a blank check to banks to buy the house you just got foreclosed on. And then they raise your rents.
Really, a lot of our economy is propped up by real estate speculation. If real estate prices start to dive, well that’s the scaffolding crumbling.
The only solution is decommdification and passing laws that dictate investments cannot be for nonsense like housing and real estate. Until then, well, I guess we all enjoy the cycle.
The “lock in” we see with people who don’t wanna leave 2.5% mortgage rates would look wholesome compared to the lock in from people underwater on their mortgages.
More bankruptcies. More neighborhoods with houses abandoned.
Maybe more private equity gobbling up opportunities (ick).
The current market is crashing in places like Florida where large groups bought houses to AirBNB which is failing. So you’re seeing the collapse in the secondary market which is interesting.
This market will crash faster because it’s not people primary home and many were purchased by corporations and WILL not be financially devastating on the person dumping it.
What it could do is open a lot of housing at reasonable prices for first time home buyers. But more likely large hedge funds will suck them up and fuck normals again.
Next you have the people who will lose their jobs and have a more traditional crash which happens slower because people don’t like to lose their primary home.
So this is going to be a two part crash at this point.
I think it would be accompanied with massive political backlash. Unfortunately many people, particularly in older generations, have used housing as a primary means of investing and maintaining their wealth.
One thing people forget: unemployment is always tied to housing deflation.
Small businesses often have their businesses loans secured but things like property. Less money in the small business world, less hiring, less companies growing, less competition in the market, both in terms of products/services sold and competing job offers.
So yea, unemployment++;
On top of that, falling property values mean loan issuers (banks) are going to pull back on new loans, you’ll need more money down and a higher income than you do right now. They don’t want to be stuck with someone who can’t pay a mortgage and a property worth less and less.
So deflation would definitely not benefit anyone younger unless you’ve got a ton of cash. If you’re a boomer with a lot of cash it might means you can snag that summer home you’ve always wanted at a discount but were hesitant to actually buy.
For most people in the US, there would be no big deal. The vast majority of housing issues years ago were mostly in 4-5 states.
If there is no boom, there is no subsequent bust.
Where I live there was no boom then or now. Home prices have grown at a more reasonable rate. Because of recent economic activity, I expect housing prices to be temporarily inflated where I live.
We’re already seeing signs of steady deflation in home prices as it is. Some regions it is happening at a faster rate than others. Inventory is still very high and interest rates hanging around where they are is causing it. I expect rates will inevitably be cut, and this deflationary trend in house pricing will reverse. It’s really more of question of “when” imo.
I know at least a dozen people who are holding onto cash, waiting for the market to crash so they can buy in. But ironically, that’s exactly why it won’t crash too many people are sitting on cash, ready to pounce. Lol
The housing market is 18% of the entire US economy. If you add related things like furniture/decor etc. it’s even more. Even 2008 only saw deflation in overheated areas. Many markets were just flat for several years. And that’s what shutting down the mortgage market for a few months looked like. Deflation in the WHOLE market would look more like 1930’s depression. Bread lines, homeless camps (even larger than we ALREADY have).
As bad as the current inflation problem is in the housing market, at least it’s driven largely by supply and demand. 2008 made it tragically out of balance.
It’s not going to happen anytime soon. There is significantly more demand than supply, mortgage rates are damping housing starts, and underwriting standards are significantly stronger than they were 2008.
Weird question. We have an enormous shortage of housing in the U.S. across most markets. So much so that prices have continued to rise despite the 30yr mortgage rate going from 3pct to 7pct in just a few months. The fastest run up in interest rates since the late 70’s.
I think it’s going to be different than we’ve seen before (like in 2008 as others are noting) because for the near future at least, housing markets seem to be wildly different depending on location/region. I have family in TX and FL who can’t sell their homes right now without taking a loss but where I live in the PNW, people are trying to buy our home for twice what we paid for it and it’s not even for sale!
Deflation would happen when supply exceeds demand and price cuts occur in search of liquidity.
It would most likely be preceded by a large negative economic event that causes the need for liquidity.
My guess is going to be something somewhat similar to, but more muted than 2008. More muted simply because there are less unqualified borrowers and more people with liquidity willing to step in when the price is right.
I also think that real estate deflation will be more regional this time around. The craziest RE markets are high on stock gains, which is tech driven (s&p is heavily tech weighted). When the equity markets come down, housing prices in VHCoL and HCOL areas will come down much harder than Midwest/rural areas.
Thank you for listening to my unqualified, unsourced opinion.
from AI- M1 jumped from $4.8 trillion to $16.2 trillion dollars in May 2020, more than tripling in a single month. Prices will rise. Too much money is still being created and spent. Prices wont fall unless that money leaks out of the economy through bankruptcy or more imports than exports. If something like krypto crashed and disappeared then prices fall cause the quantity of money is reduced. Otherwise there are money printers in both parties.
Thr 2008 crisis was closer to 20, but basically if you bought between 2005 and 2009 you needed to hold until 2013 for the market to recover.
Housing crashing is a problem because people who end up needing to sell a house for less than it cost need to eat those losses, or the bank needs to. Either ways, that’s less money for everything else.
How bad it is depends a bit on the government and fed response. The US fed rate is too high to prevent further sliding in housing prices by itself. But the fed is responsive after the fact, it doesn’t try and pre-empt things (for good reason). Federal tax policy as well as political dysfunction could also matter though, a shortage of input goods and labour can drive up costs while supply contracts. You could also see the government trying to heavily intervene in the housing market and regulations, which could be good or could be bad. Letting people build unsafe housing might drive down costs now but cause problems later, on the other hand cutting red tape to expropriating land for housing and just saying build more, minor environmental consequences be damned could speed things up a bit.
If the government does everything wrong and makes it worse though… Well let’s just say it could be a long 4 years.
Comments
It would look a lot like the 2008 financial crash.
It would be people in there 20’s-30’s actually being able to buy homes.
2008
Like the housing market collapse of 2008: empty and unfinished houses due to inability to make mortgage payments or secure more financing. Another collapse could be worse if it were rents becoming too expensive. As it is, many people are already renting rooms.
Also, the unfinished properties eventually became finished and the empty homes rehabbed, cleaned, and re-occupied after a lot of foreign investment. Initially, rents were relatively cheap around 2012 but not anymore.
Austin Texas, supply outpacing demand.
2008 again & it will happen.
Very few jobs now can afford homeownership total costs even if home’s free: taxes, repairs/maintenance, utilities, HOA, insurance.
The last time it happened, people died.
A lot of people lose significant equity, and since homes are often the largest asset a person owns, wealth declines. Take that money out of the economy and it doesn’t bode well.
Historically it has been about a 50% correction. In CA at least.
In FL and TX they have so overbuilt it’s going to contract about another 33%.
Gl has specific.problems and the condo market there will be so cheap in 2 years.
If we are lucky it will only be 2008 level of correction
You’d have to have a surplus of homes and a bunch of people not able to make mortgage payments. The market has cooled but isn’t anywhere near the same conditions as 2008. Unfortunately home prices are going to slowly increase in the near future and price more people out of the market completely. Homeownership is going to get harder for future generations and ultimately evolve into a more difficult state.
It wouldn’t look good. I can tell you that. People sit around, hoping for it to happen so that they can buy property cheap, but that cheap property comes at a high price for the rest of the economy.
Worse than 2008. The 2008 credit crisis happened because lenders were over-leveraged and there were a ton of subprime mortgages on the books that basically torpedoed enough of the mortgage-backed securities to cause major insurers to have a liquidation problem. It didn’t have a lot to do with there being a ton of houses on the market that were overvalued, though it did cause a brief slump in housing prices.
If housing prices went through a deflationary correction, it would make 2008 look like a walk in the park. Many billions of dollars of assets would vaporize immediately, and unless immediate action was taken to stabilize the market, it could collapse, and that’s a nightmare scenario.
If you really want to lose some sleep, consider that so many corporations and foreign entities bought properties the last time the values were down, and are now reaping the rewards of much higher rents and values, it will for sure be 10x worse next time. Investors will buy everything they can get their hands on.
If you really want to lose some sleep, consider that so many corporations and foreign entities bought properties the last time the values were down, and are now reaping the rewards of much higher rents and values, it will for sure be 10x worse next time. Investors will buy everything they can get their hands on.
People upside down
The biggest downside would be loss of equity to current homeowners
Lower housing prices.
Great for home buyers (prices). Bad for people who have leveraged real estate (mortgages) and people who lent money to others to buy real estate (banks / mortgage buyers like the gov).
Houses cannot be both a good investment (increasing prices above inflation) and affordable.
You’d have to divorce housing and speculation, and that won’t happen.
I feel like there are younger people sitting back thinking this is the only way to get an affordable house. There are two problems with this approach.
The first is that way too much institutional investment and wealth are now tied up in housing assets. The government will never allow the bottom to fall out of the market without a bailout, like we saw in 2008.
Second, if there IS anything like a 2008-like deflation event where banks are over-leveraged, NO ONE CAN GET CREDIT. So it won’t matter if housing prices are lower, no one will lend you money.
Well, given how insane house prices have become over the past four years and how much equity exists on paper in those same houses, it would likely be more of a reversion to the mean.
Housing would fall at least 25 percent and take the whole economy down too. Would take 3 or 4 years to reverse. Eventually it would pick up and we’d navigate our way back to unaffordable pricing again
Imagine nobody is able to get a job. Most people lose their careers.
And then rents flatline for like 2 years. During that time, the government will release trillions in stimulus, and basically give a blank check to banks to buy the house you just got foreclosed on. And then they raise your rents.
It would look like moonbeams and lollipops with unicorns and fairies.
Seriously not going to happen. There is so much pent-up demand that pricing is going to hang tough.
Probably a small correction in a few markets.
With the price of materials and labor, I don’t think we will see a large decrease in housing prices.
Consider reading this article
the housing theory of everything
Really, a lot of our economy is propped up by real estate speculation. If real estate prices start to dive, well that’s the scaffolding crumbling.
The only solution is decommdification and passing laws that dictate investments cannot be for nonsense like housing and real estate. Until then, well, I guess we all enjoy the cycle.
The “lock in” we see with people who don’t wanna leave 2.5% mortgage rates would look wholesome compared to the lock in from people underwater on their mortgages.
More bankruptcies. More neighborhoods with houses abandoned.
Maybe more private equity gobbling up opportunities (ick).
The current market is crashing in places like Florida where large groups bought houses to AirBNB which is failing. So you’re seeing the collapse in the secondary market which is interesting.
This market will crash faster because it’s not people primary home and many were purchased by corporations and WILL not be financially devastating on the person dumping it.
What it could do is open a lot of housing at reasonable prices for first time home buyers. But more likely large hedge funds will suck them up and fuck normals again.
Next you have the people who will lose their jobs and have a more traditional crash which happens slower because people don’t like to lose their primary home.
So this is going to be a two part crash at this point.
I think it would be accompanied with massive political backlash. Unfortunately many people, particularly in older generations, have used housing as a primary means of investing and maintaining their wealth.
One thing people forget: unemployment is always tied to housing deflation.
Small businesses often have their businesses loans secured but things like property. Less money in the small business world, less hiring, less companies growing, less competition in the market, both in terms of products/services sold and competing job offers.
So yea, unemployment++;
On top of that, falling property values mean loan issuers (banks) are going to pull back on new loans, you’ll need more money down and a higher income than you do right now. They don’t want to be stuck with someone who can’t pay a mortgage and a property worth less and less.
So deflation would definitely not benefit anyone younger unless you’ve got a ton of cash. If you’re a boomer with a lot of cash it might means you can snag that summer home you’ve always wanted at a discount but were hesitant to actually buy.
For most people in the US, there would be no big deal. The vast majority of housing issues years ago were mostly in 4-5 states.
If there is no boom, there is no subsequent bust.
Where I live there was no boom then or now. Home prices have grown at a more reasonable rate. Because of recent economic activity, I expect housing prices to be temporarily inflated where I live.
We’re already seeing signs of steady deflation in home prices as it is. Some regions it is happening at a faster rate than others. Inventory is still very high and interest rates hanging around where they are is causing it. I expect rates will inevitably be cut, and this deflationary trend in house pricing will reverse. It’s really more of question of “when” imo.
Panic. No confidence in valuations = no lending = no sales. Neither banks nor would-be owners are interested in acquiring a depreciating asset.
Big companies and rich people buying up all the cheap inventory so they can continue to financially rape the average consumer
Without legislation it would look like a recession
Like 2008. And I’m here for it.
I know at least a dozen people who are holding onto cash, waiting for the market to crash so they can buy in. But ironically, that’s exactly why it won’t crash too many people are sitting on cash, ready to pounce. Lol
The housing market is 18% of the entire US economy. If you add related things like furniture/decor etc. it’s even more. Even 2008 only saw deflation in overheated areas. Many markets were just flat for several years. And that’s what shutting down the mortgage market for a few months looked like. Deflation in the WHOLE market would look more like 1930’s depression. Bread lines, homeless camps (even larger than we ALREADY have).
As bad as the current inflation problem is in the housing market, at least it’s driven largely by supply and demand. 2008 made it tragically out of balance.
Unfortunately, deflation would probably be worse.
Lots of job loss.
It’s not going to happen anytime soon. There is significantly more demand than supply, mortgage rates are damping housing starts, and underwriting standards are significantly stronger than they were 2008.
Weird question. We have an enormous shortage of housing in the U.S. across most markets. So much so that prices have continued to rise despite the 30yr mortgage rate going from 3pct to 7pct in just a few months. The fastest run up in interest rates since the late 70’s.
Source: Tracking housing is part of my job.
Pain. Unmitigated and unrelenting pain. Because too many, for too long attempted to exploit it.
That’s from the sellers perspective.
The buyer’s perspective would be different.
RET law changes in 2012 make the share holder suffer while banks drive prices thru the roof.
I think it’s going to be different than we’ve seen before (like in 2008 as others are noting) because for the near future at least, housing markets seem to be wildly different depending on location/region. I have family in TX and FL who can’t sell their homes right now without taking a loss but where I live in the PNW, people are trying to buy our home for twice what we paid for it and it’s not even for sale!
Hope. And despair.
Not an economist.
Deflation would happen when supply exceeds demand and price cuts occur in search of liquidity.
It would most likely be preceded by a large negative economic event that causes the need for liquidity.
My guess is going to be something somewhat similar to, but more muted than 2008. More muted simply because there are less unqualified borrowers and more people with liquidity willing to step in when the price is right.
I also think that real estate deflation will be more regional this time around. The craziest RE markets are high on stock gains, which is tech driven (s&p is heavily tech weighted). When the equity markets come down, housing prices in VHCoL and HCOL areas will come down much harder than Midwest/rural areas.
Thank you for listening to my unqualified, unsourced opinion.
May 2020 jump:
from AI- M1 jumped from $4.8 trillion to $16.2 trillion dollars in May 2020, more than tripling in a single month. Prices will rise. Too much money is still being created and spent. Prices wont fall unless that money leaks out of the economy through bankruptcy or more imports than exports. If something like krypto crashed and disappeared then prices fall cause the quantity of money is reduced. Otherwise there are money printers in both parties.
if a housing crash starts another global recession there won’t be a china to prop things up this time
Low housing prices, and no money to pay for housing.
By how much? Housing prices are already down about 5%
https://fred.stlouisfed.org/series/MSPUS
Thr 2008 crisis was closer to 20, but basically if you bought between 2005 and 2009 you needed to hold until 2013 for the market to recover.
Housing crashing is a problem because people who end up needing to sell a house for less than it cost need to eat those losses, or the bank needs to. Either ways, that’s less money for everything else.
How bad it is depends a bit on the government and fed response. The US fed rate is too high to prevent further sliding in housing prices by itself. But the fed is responsive after the fact, it doesn’t try and pre-empt things (for good reason). Federal tax policy as well as political dysfunction could also matter though, a shortage of input goods and labour can drive up costs while supply contracts. You could also see the government trying to heavily intervene in the housing market and regulations, which could be good or could be bad. Letting people build unsafe housing might drive down costs now but cause problems later, on the other hand cutting red tape to expropriating land for housing and just saying build more, minor environmental consequences be damned could speed things up a bit.
If the government does everything wrong and makes it worse though… Well let’s just say it could be a long 4 years.
Looks like somebody would be buying property and waiting it out
Austin.
Id wager that it would likely look like bulk starter home developments.