Housing crash deniers ???

[Greg R.]

Unfortunately I've been away for a few months while taking care of some personal matters, so I haven't been able to keep up on discussions. 

However, several months ago there were ample amount of folks here insisting that a market crash/ correction was impossible and that prices would only continue to increase.

Curious if there are still people out there who feel this way? If so, I'd love to see some data that supports your view that the market isn't going to crash/ correct. 

[Greg Scott]

Quote from @Nate Pucel:

@Greg Scott

Equity doesn't matter when you lose your job though.

For the individual, that is true.
For the nation, we've been through numerous recession without a housing crash, and the most recent employment report showed surprising strength.

[James Hamling]

Quote from @Michael Wooldridge:

Quote from @Bruce Woodruff:

Quote from @Wendy Thurst:

@Bruce Woodruff

Looking at ARMs 3-5 years out now.

So you're saying to buy with ARM and then assume it will drop 3-5 out? As opposed to buying fixed and ReFi'ing?

 I just did a 7 year arm on the last property. Trying to get rate similar on fixed (this was a month ago) required a ridiculous amount of points. 7 years is plenty of runway personally and I'll still refi. Saved me 1% and points on $500k. 

 Why not just have seller pay for a 2-1 buydown? 

[Bruce Woodruff]

Quote from @James Hamling:

 Why not just have seller pay for a 2-1 buydown? 

How common is that nowadays? I guess it gives you a couple years to wait on the economy/rates...?

[Carlos Ptriawan]

Quote from @James Hamling:

Quote from @Carlos Ptriawan:

Quote from @Nick Robinson:

@Carlos Ptriawan

 I think a lot of people on BP will not have a ready command of the dissemination of this data (simply put, what it means) so I want to add some translation into plain English for those: 

- "Amid continued house price growth, just 1.9 percent of mortgage borrowers had negative equity in the second quarter of 2022, However, mortgages recently originated with low down payments are subject to enter'ing negative equity quickly if house prices decline significantly.":    They are surprised. There was an expectation of different results, a "tampering down" on inflation and this is a Harvard/Yale way of saying "Wow, WTF, aaahhh, didn't expect that, WTF, aaahhhh, we did this rate thing and thought it would shazam things to being cheaper, huh, our bad.". And follows with an kind of veiled excuse of data which again, fancy Harvard/yale way of saying "oh, but, we could still be right, I mean, maybe, if if if, maybe". Because if Harvard/Yale teaches anything, it's that your always right ESPECIALLY when your wrong, never be wrong, blame blame blame. 

- "About half of recently originated purchase mortgages have loan-to-value ratios above 90 percent, a share that has been about
unchanged for the past decade. In addition, these highly leveraged mortgage originations tend to be associated with somewhat lower average borrower credit scores.":       FHA, there talking about FHA buyers. It's just signaling who there referencing, and that it's a standard demographic, nothing new, unique or changed. This also matters because FHA buyers are HIGHLY motivated to retain there homes because FHA buyers have more limited means of securing housing, generally speaking. For example, a person of strong liquidity, would be conventional qualifying, and in large part has financial means to secure additional housing and let old go, even survive say a $50k loss, it would suck but many can weather that. FHA persons in large part leveraged everything to secure that home, and NEED it, don't have those options to just walk away and buy other. These are people who will get 2nd, 3rd jobs if need be. 

- "Other measures of riskiness remained modest. Estimates of housing leverage when measuring home values as a function of rents and other market fundamentals increased in the first half of 2022, yet they remained significantly lower than their peak levels before 2008":       Reference to cap rates, because tight caps mean, usually, lowered investor interest and activity. It's saying it's not attractive for investment buyers BUT it's not the ugliest either. 

- "In addition, interest rate risk for mortgage borrowers is currently limited. The share of adjustable-rate mortgages in new home purchases rose to 10 percent in recent months but has been at or below that fraction since 2009.":       This is a reference too '08' collapse of the financial system, which was facilitated by resetting junk mortgages. It's signaling there is no ticking time-bomb lurking out there, that things are still super healthy in that manner. 

- "Moreover, available data suggest that the nonqualified mortgage share of purchase originations edged up, albeit from extremely low":       This is a little bit of a "Huh, didn't expect that" statement because it's signaling how much liquidity ($) out there still have, and that lot's of good credit, good income, cash ready buyers are still out there, which is your conventional mortgages. Without doubt a lot more non-QM activity was expected, and it's still at very low levels. It's also a statement of those providing non-QM, that there not pressing to capitalize on the opportunity so much as of yet. Which is an indicator that a lot more in offerings can still come in non-QM, which kind of gives them an excuse to keep pressing rates up making QM harder to get because it's an excuse of "Look, it's not that bad yet because if it were, NON-QM would be taking lead over QM, so, people must be a-ok with these rates, let's keep going". So it is also a signal of continued rate increase potentials because "the pain" is not showing in activity, at "pain" levels so to speak. 

 James appreciate your effort for very thorough analysis on this. I have question:
1.  They are surprised. There was an expectation of different results --> So do you really think the very reason Fed rise the rate is to cause a crash in real estate market ?  what's actually their prediction and the outcome that they want.
2. What do you think the FHA group going to contribute to this crisis ? how big is their number?
3.  "Other measures of riskiness remained modest---> I think what Fed referencing is the ability of homeowners to pay the mortgage loan, they don't see it as a risk factor. IN FACT, THIS IS PERHAPS the greatest reason the Fed is confident to increase the rate so high because absolutely they don't see a risk for people not able to pay mortgages. This is I think what other bear followers misunderstand of Fed action.
4. My assumption is since they don't see ARM buyer as majority of note holder hence Fed decides it's ok to raise the rate.
5. They also see no credit crunch with non-QM note holders, so Fed is confidence enough to raise the rate.

[James Hamling]

Quote from @Bruce Woodruff:

Quote from @James Hamling:

 Why not just have seller pay for a 2-1 buydown? 

How common is that nowadays? I guess it gives you a couple years to wait on the economy/rates...?

6/7 weeks it was a thing being discussed with me from those in finance I do regular check-in's with, asking me to consider it, and to get my team to start discussing/promoting it. A couple weeks ago a few builders adopted it as a promo piece in there marketing. The past few days, I am seeing it coming up in regular owner occupant SFH listings.

Looks to be a lightning fast adoption of the 2-1 buy-down from what I am seeing. Kind of like how quick those "twilight" pics were adopted for listings. 

My only fear is people getting stupid with it, and in 1/2yr throwing a fit on why rates are holding 6%+, and not dropped to 3. I still hear a lot of this stupidity of an expectation that 3 is the "normal" rate. 

[Bruce Woodruff]

Quote from @James Hamling:

There is that. 3% is not a normal rate.... :-)

[Carlos Ptriawan]

I got a beautiful explanation of the whole thing.

This whole inflation thing is not a policy error.

The Inflation is not by accident, it's self-made by Fed with the main purpose to destroy old government debts and maybe.....to destroy the bondholder too (in this case China and Japan and the EU). 

So it's not the Fed that's stupid by recognizing the inflation late, it's just part of their game as the money God LOL

[James Hamling]

Quote from @Carlos Ptriawan:

Quote from @James Hamling:

Quote from @Carlos Ptriawan:

Quote from @Nick Robinson:

@Carlos Ptriawan

 I think a lot of people on BP will not have a ready command of the dissemination of this data (simply put, what it means) so I want to add some translation into plain English for those: 

- "Amid continued house price growth, just 1.9 percent of mortgage borrowers had negative equity in the second quarter of 2022, However, mortgages recently originated with low down payments are subject to enter'ing negative equity quickly if house prices decline significantly.":    They are surprised. There was an expectation of different results, a "tampering down" on inflation and this is a Harvard/Yale way of saying "Wow, WTF, aaahhh, didn't expect that, WTF, aaahhhh, we did this rate thing and thought it would shazam things to being cheaper, huh, our bad.". And follows with an kind of veiled excuse of data which again, fancy Harvard/yale way of saying "oh, but, we could still be right, I mean, maybe, if if if, maybe". Because if Harvard/Yale teaches anything, it's that your always right ESPECIALLY when your wrong, never be wrong, blame blame blame. 

- "About half of recently originated purchase mortgages have loan-to-value ratios above 90 percent, a share that has been about
unchanged for the past decade. In addition, these highly leveraged mortgage originations tend to be associated with somewhat lower average borrower credit scores.":       FHA, there talking about FHA buyers. It's just signaling who there referencing, and that it's a standard demographic, nothing new, unique or changed. This also matters because FHA buyers are HIGHLY motivated to retain there homes because FHA buyers have more limited means of securing housing, generally speaking. For example, a person of strong liquidity, would be conventional qualifying, and in large part has financial means to secure additional housing and let old go, even survive say a $50k loss, it would suck but many can weather that. FHA persons in large part leveraged everything to secure that home, and NEED it, don't have those options to just walk away and buy other. These are people who will get 2nd, 3rd jobs if need be. 

- "Other measures of riskiness remained modest. Estimates of housing leverage when measuring home values as a function of rents and other market fundamentals increased in the first half of 2022, yet they remained significantly lower than their peak levels before 2008":       Reference to cap rates, because tight caps mean, usually, lowered investor interest and activity. It's saying it's not attractive for investment buyers BUT it's not the ugliest either. 

- "In addition, interest rate risk for mortgage borrowers is currently limited. The share of adjustable-rate mortgages in new home purchases rose to 10 percent in recent months but has been at or below that fraction since 2009.":       This is a reference too '08' collapse of the financial system, which was facilitated by resetting junk mortgages. It's signaling there is no ticking time-bomb lurking out there, that things are still super healthy in that manner. 

- "Moreover, available data suggest that the nonqualified mortgage share of purchase originations edged up, albeit from extremely low":       This is a little bit of a "Huh, didn't expect that" statement because it's signaling how much liquidity ($) out there still have, and that lot's of good credit, good income, cash ready buyers are still out there, which is your conventional mortgages. Without doubt a lot more non-QM activity was expected, and it's still at very low levels. It's also a statement of those providing non-QM, that there not pressing to capitalize on the opportunity so much as of yet. Which is an indicator that a lot more in offerings can still come in non-QM, which kind of gives them an excuse to keep pressing rates up making QM harder to get because it's an excuse of "Look, it's not that bad yet because if it were, NON-QM would be taking lead over QM, so, people must be a-ok with these rates, let's keep going". So it is also a signal of continued rate increase potentials because "the pain" is not showing in activity, at "pain" levels so to speak. 

 James appreciate your effort for very thorough analysis on this. I have question:
1.  They are surprised. There was an expectation of different results --> So do you really think the very reason Fed rise the rate is to cause a crash in real estate market ?  what's actually their prediction and the outcome that they want.
2. What do you think the FHA group going to contribute to this crisis ? how big is their number?
3.  "Other measures of riskiness remained modest---> I think what Fed referencing is the ability of homeowners to pay the mortgage loan, they don't see it as a risk factor. IN FACT, THIS IS PERHAPS the greatest reason the Fed is confident to increase the rate so high because absolutely they don't see a risk for people not able to pay mortgages. This is I think what other bear followers misunderstand of Fed action.
4. My assumption is since they don't see ARM buyer as majority of note holder hence Fed decides it's ok to raise the rate.
5. They also see no credit crunch with non-QM note holders, so Fed is confidence enough to raise the rate.

 I think the Fed has been very clear in it's language and actions, both congruent with the other that they have 0 thought or intent of a "crash" in anything, but a singular focus of using rate increases to combat inflation, as a whole, not just in R.E. but economy wide as it's hitting all over.

The actions speak volumes of this with the 75 basis point increases, and the intervals of it. If the Fed wanted a crash somewhere, we would have seen 100 or 125 pt increases, along with other extreme actions coinciding in timing. 

The Fed is acting in a very "Fed" kind of way. Very simplistic, measured, in no rush of any kind. Same time it's also rather clear that the actions are not having impact they expected, they have spoken to this several times, directly. 

I see the FHA buyers adding more stabilization to the R.E. market, if anything. For most FHA buyers, equity means little to nothing, they are utilitarian focused. It's a widely blue-collar group, 1st time home buyers, coming from renting. They don't want to go backwards. So anyone says there upside down the FHA homeowner just says oh-well, just means there not moving any time soon. So it lessons the inventory pool in pre-existing home listings. This presses the market value basis more weighted unto new inventory providers, who's basis is connected to replacement costs and thus, holding that higher price level because all COG's are inflation impacted, as well as skilled labor shortage and still rolling material shortages.

Most recently one new material shortage I am dealing with is a concrete shortage. Concrete shortage, who would have thunk-it. 

Yeah I think the Fed is giving clear signals that they are seeing indicators that the economy is handling the rate increases very well, in there mind, and has capacity to weather considerably more, if such is needed. They also seem to be signaling an intention of doing a Dec increase but with the measured tone that they will read as things continue and let the market temp lead there actions, not letters from Senators or any other rhetoric, just there own self thoughts and intentions. 

[Carlos Ptriawan]

 This is a super crisp answer. Yes, there's another data modeling from Fed that Corporate America could pass this inflation/recession pretty well. They would be able to pay their debt obligation. 

In a long-term basis, this whole inflation/recession thing seems like giving benefits to the American people and gov.

Hard to grasp but quite an eye-opener.

[Richard Hadley]

@Greg R.my concerns about a crash is how it affects the people we rent to. With the recent scare we all experienced with covid and not being able to evict for non payment of rent, what other limits will they place on landlords when we have a correction or crash? If it is anything like the correction of the great depression people lost their jobs -money and ability to care for themselves, our government had to bail th out, well with our current debt in our country and the way they printed all of this money and gave it away, I don't think they will bail anyone next time. WhT happens to investors then?

[Greg R.]

Quote from @Bruce Woodruff:

Quote from @James Hamling:

 Why not just have seller pay for a 2-1 buydown? 

How common is that nowadays? I guess it gives you a couple years to wait on the economy/rates...?

 2-1 buydown is just a fancy way to describe a 2/1 arm. I have lenders trying to pitch me a 2-1, but I'd rather have a 7/1. I don't think 2 years is enough time for the rates to come down. People are going to lock a 7.5%, but get 5.5 for year 1, 6.5 for year 2, and 7.5 for year 3 and beyond. A lot of people taking 2-1 buy downs don't know what it is or what they're doing. 

[Greg R.]

Quote from @Richard Hadley:

@Greg R.my concerns about a crash is how it affects the people we rent to. With the recent scare we all experienced with covid and not being able to evict for non payment of rent, what other limits will they place on landlords when we have a correction or crash? If it is anything like the correction of the great depression people lost their jobs -money and ability to care for themselves, our government had to bail th out, well with our current debt in our country and the way they printed all of this money and gave it away, I don't think they will bail anyone next time. WhT happens to investors then?

I guess we're about to find out. We're barreling toward a full-on recession. Tech sector being hit hard. Twitter laid off 3k, Meta is about to lay off "thousands" of it's 80k workforce. It's not going to stop there either. 
I'm expecting we'll see some kind of executive attempt to halt evections. 

[Greg R.]

Quote from @Nicholas L.:

@Greg R.

https://www.cnbc.com/2022/10/3...

genuine question - if builders pull back, won't that hurt supply such that prices will be propped up?  or will it be more than outweighed by the increase in rates?

as I have said before I'm in the "I'm at a total loss to predict what is going to happen next year" camp... still just trying to find deals way below ARV and keep moving forward

It's possible, but I doubt that will happen. Demand is at a multi-decade low. People are going to plan b, multi-generational living, 2 + families living together, roommates, etc. I think a lot of buyers have figured out to alter their plans to avoid buying in an atrocious market. 

[Greg R.]

Anyone been watching Redfin stock? down 90% YTD 

[John Carbone]

@James Hamling
https://www.cnbc.com/amp/2022/...

phantom equity flushing down the toilet already. It’s just getting started. 

[Greg R.]

Quote from @John Carbone:

@James Hamling
https://www.cnbc.com/amp/2022/...

phantom equity flushing down the toilet already. It’s just getting started. 

 Yup, all this equity is like monopoly money - funny money. We'll continue to see it vanish. 

[Carlos Ptriawan]

Quote from @John Carbone:

@James Hamling
https://www.cnbc.com/amp/2022/...

phantom equity flushing down the toilet already. It’s just getting started. 

any sigma 3 appreciation would not be sustainable but once it move back to long term sigma 0 then whatever happen the price is stable from that point.

San Jose market from -13% is back to -6% only after rebound in just two months.

[Bruce Woodruff]

Quote from @Carlos Ptriawan:

Aha, but is it back for sure, or just a temporary rebound before 'The Crash'?

I still think things get worse before they get better......

[Carlos Ptriawan]

Quote from @Bruce Woodruff:

Quote from @Carlos Ptriawan:

Aha, but is it back for sure, or just a temporary rebound before 'The Crash'?

I still think things get worse before they get better......

 Aha …that’s the big quiz now LOL

the way the price chart is , home price never goes down again if it does rebound from sigma 0, let’s see who is right this time , but home pricing works bit differently than stock.

[Bruce Woodruff]

Quote from @Carlos Ptriawan:

Quote from @Bruce Woodruff:

Quote from @Carlos Ptriawan:

Aha, but is it back for sure, or just a temporary rebound before 'The Crash'?

I still think things get worse before they get better......

 Aha …that’s the big quiz now LOL

the way the price chart is , home price never goes down again if it does rebound from sigma 0, let’s see who is right this time , but home pricing works bit differently than stock.

IMHO, we have slipped way too far down the rabbit hole for everything to just 'go back to normal' anytime soon.

[John Carbone]

Quote from @Carlos Ptriawan:

Quote from @John Carbone:

@James Hamling
https://www.cnbc.com/amp/2022/...

phantom equity flushing down the toilet already. It’s just getting started. 

any sigma 3 appreciation would not be sustainable but once it move back to long term sigma 0 then whatever happen the price is stable from that point.

San Jose market from -13% is back to -6% only after rebound in just two months.

I’m only concerned with national median home values. Feeling good about my 20 percent median drop at this point. 

[Carlos Ptriawan]

Quote from @Bruce Woodruff:

Quote from @Carlos Ptriawan:

Quote from @Bruce Woodruff:

Quote from @Carlos Ptriawan:

Aha, but is it back for sure, or just a temporary rebound before 'The Crash'?

I still think things get worse before they get better......

 Aha …that’s the big quiz now LOL

the way the price chart is , home price never goes down again if it does rebound from sigma 0, let’s see who is right this time , but home pricing works bit differently than stock.

IMHO, we have slipped way too far down the rabbit hole for everything to just 'go back to normal' anytime soon.

 I thought so too but lesson learnt from CA market is if price hit long term appreciation line , it always recover following that line , it is bit surprising for me as well.

this market seems too strong.

[Carlos Ptriawan]

Quote from @John Carbone:

Quote from @Carlos Ptriawan:

Quote from @John Carbone:

@James Hamling
https://www.cnbc.com/amp/2022/...

phantom equity flushing down the toilet already. It’s just getting started. 

any sigma 3 appreciation would not be sustainable but once it move back to long term sigma 0 then whatever happen the price is stable from that point.

San Jose market from -13% is back to -6% only after rebound in just two months.

I’m only concerned with national median home values. Feeling good about my 20 percent median drop at this point. 

 National may be going lower.




but after the study with San Jose market , it doesn’t really matter …the price reduction only happened in 4 5BR category which collapse 20-40 percent …but other than that it is still within the normalcy.

these are all are just statistical error

[Carlos Ptriawan]

Another thing is after seeing the live price action ,IF our market that has 0.68 mortgage-to-income ratios could recover from a temporary crash, then MAYBE your market in TX/AZ/NV with 0.38/0.40 mortgage/income ratio should be able to weather this "recession" as well. So far it doesn't seem like a big deal. 

[Bruce Woodruff]

'We' have not paid enough for getting too greedy again (like in 2008)