Quote from @Jay G.:
Quote from @Michael Wooldridge:
Quote from @Jay G.:
Quote from @Michael Wooldridge:
Quote from @Jay G.:
Quote from @Greg Scott:
The market may correct, but I firmly believe there won't be a crash. The reason is simple, equity.
Before 2008 people with no income could get liars loans and buy much more real estate than they could afford. We heard stories of cleaning ladies buying multiple million dollar homes. When home prices starting falling, the whole thing collapses like a house of cards because nobody had any equity. They couldn't sell and get out. We had cascading foreclosures creating a downward spiral.
Recently, prices have been surging. Given the laws passed after the Great Recession, appraisals and lending is highly restricted. Appraisals have not been keeping up with prices and lenders won't lend above appraised value. We sold a house in 2021 and in one day had 20 offers. Several of them had acceleration clauses stating they would pay more than anyone else up to $X. Both of them waived any financing contingency because they KNEW the house wouldn't appraise for what they were offering. They had to make up the difference with cash. Those people have a ton of equity in their homes. If they had to sell, they might take a haircut, but they aren't going to get foreclosed.
There is no house of cards here to come tumbling down.
Greg, you can use something like property radar to travel a nicer neighborhood that you're familiar with and look at the notes/debt recorded. Do this for 10, 50, 100 homes and build some statistics of LTV to see what's really going on in your area and how much "correction" can be tolerated before people have no skin in the game. I think many people feel they were lucky to (cashout?) refi or buy new below 3% -- but if housing "corrects" as you put it, then combined with interest rates having nearly tripled, those people are stuck.
Many will have extracted (through cash out refi) all of the post-correction equity those that bought this year are in worlds of hurt - paying tops into increasing rates. Probably buying as much home as buying power will allow.
So those may be first to (again) walk away and default due to little to no skin in the game. If we learn from history, it only takes single digit defaults to get the ball rolling.
And as you say things ARE different this time.... we had large publicly traded buyers like $BLK (Blackrock) who would come in and push market higher. So those companies, each quarterly report they release to shareholders may have to.... make adjustments... to their holdings. Possibly similar to the way Fannie and Freddie managed their REO's?
But no worries! After another 7-10 year bankruptcy cycle to lock buyers out of rock bottom cash and courthouse steps deals, we can do it all over again.
Predicting bankruptcy crisis similar to last time is interesting. You do know many people bought a second home before walking away last time right? And it was because they were upside down 80-90k and they were willing to take the credit hit.
People won’t walk away from homes because they lost some equity. People walk away when they were upside down. Lending standards are very different.
Yes, so many "CASH" buyers right now. It's very hard to get a HELOC when you have negative equity :)
Very few people have negative equity. Half the country hasn’t even lost median value yet.
The other half has lost nominal. And historically we’ve had more cash down and cash deals on housing than ever before over the last 3-4 years. People have lost equity. But housing would have to drop quite a bit more before you’d have risk of people with negative equity.
Housing has barely started to drop vs interest. Interest nearing 400% increase from lows? If interest stays lofty, or worse, goes higher yet... there'll be some adjustments. Not everyone has fixed rate. And many FHA buyers from past 36mo could not afford to be in the houses they're in if they had to buy it again today. They would be denied. The chain being as strong as the weakest links etc.. FHA ARM's?
Bulk of loans have been fixed rate. Far more than ever before. That said ARMS are more popular this year. Which who cares? They will be refinanced in the next 5-7.
As to rates going higher? They will in December when the Fed raises another 50 basis points. IT’s not news. It’s expected.
Rate increases only matter if you buy. There is a reason why 2023 will likely have about 50% of the homes sold vs 2021.
As to FHA. For most markets they got pushed out of the market entirely, especially in the Northeast. They barely bought in the last 2 years. Not worried one bit about first time buyers.
