re: Housing prices and Interest rates

I think they do want to build, just near impossible to fill the bulk of the inventory shortage with all new builds. Most of that inventory should come from resales. Not enough bodies in the trades to keep up with new builds as is. New builds will always command a premium price anyway. Your bargain starter houses are a decade or two old and being sat in by owners with a 3% interest rate.

I don't see a way out other than both buyers and sellers sitting on the sidelines until the economy/inflation stabilizes, probably post election, and interest rates drop somewhat. People will have to accept not seeing near 3% for a while.

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The issue is the type of house being built. Land has gotten so expensive that the only way to turn a reasonable profit on a project is to squeeze the biggest house possible on the smallest lot possible. This translates into lots of cramped, shiny white 3,000 sq/ft houses which cost 2-3x what a reasonable "starter house" might cost.

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Agreed.
Starter inventory only opens up when families in starter homes move out and move up in quality.
That presumes that the current owner doesn't just become a landlord. Or a landlord doesn't come in and pay over market value for a low principle real estate investment.

I just find it odd that people are purchasing these expensive homes with the price of food and cars amongst other things.

Something just doesn't add up. They may be purchasing these in hopes of interest rates going down but I could see a lot of people in trouble in 2-3 years time.

If we hit a recession then look out. Things could get bad really fast. These is no way that many people can afford an $800 car payment and a $3,000 monthly mortgage.

If rates drop to say 6%, a lot of people sitting on the sideline will jump in, raising prices. $20 OSB will turn in to $50 OSB, quickly. I think the people waiting on a more favorable rate will get another dose of sticker shock.

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I just find it odd that people are purchasing these expensive homes with the price of food and cars amongst other things.

Something just doesn't add up.

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Last year around this time I was predicting a major recession. I was wrong, I didn't take into account the nearly suicidal level of debt US consumers would engage in just to avoid hampering their lifestyles.

Credit card debt: Looking at the rate of increase from April 2021 til now exceeds the rate of increase from any other point of the 2000s except for the brief period during the heart of the sub-prime fiasco of 2008-2009 (I have no idea what that sharp jump is in 2010, normally that means the FRED changed how they were calculating things).

The differences between now and the 08-09 issues are that the current scenario has been going on far longer (so, more debt... LOTS more) and lowering rates back then (to spur growth) wouldn't risk a creating hyperinflation environment.

Credit card interest rates are skyrocketing. Those increasing rates combined with increasing consumer debt are, naturally, creating an strong increase in card delinquency rates. This is while inflation has been strongly outpacing real wages since Q1 2021 (edit the graph to add in CPI then set both to percent change from a year ago).

This is all going on right as a recession (despite how its defined) becomes more and more likely and a "soft landing" becomes about as likely as inflation being "transitory".

Meanwhile...

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“The most likely outcome is that the economy will move forward toward a soft landing.” - Janet Yellen, October 2007

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...the Jim Cramer of the Treasury/Fed set continues to say how Bear Stearns is fine.

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If we hit a recession then look out. Things could get bad really fast. These is no way that many people can afford an $800 car payment and a $3,000 monthly mortgage.

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Agreed (also, add in a ~$300 student loan note). I also worry that we may see a snowballing effect with Unemployment. The brunt of new jobs created over the last year or so have been travel & leisure, those are some of the most non recession-proof jobs around. If we hit a recession Unemployment is going to look abnormally strong as those jobs get cut. As Unemployment begins quickly increasing, job creation will drop and I think a lot of businesses see all that and go into an early survival mode by pre-emptively shedding jobs.

Unless something unforeseen (like a full-scale war, some miracle energy tech, etc) happens, I don't see a path for any other way this plays out.

Inventory related.

Older houses were refinanced to 3% mortgages. Expect those won't be on the market for 20 yrs.

New houses need built. Prices shouldn't go down too much because of supply/demand.

Incomes will rise because of inflationary expenses, so prices will continue to rise.

Interest rates on mortgages will be 6.5-8%, which is statically average.

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that the fed will hold rates where they are in their next session

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You're conflating QT with interest rate policy. Those hikes have virtually no effect on anything beyond the 2 year and even the 2 year isn't behaving like they want it to right now.

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The real issue will be everyone sitting in their homes with a 3% interest rate, and not willing to leave it unless absolutely necessary. Builders won't be able to keep up with demand when rates drop to 6% or so, 6% is enough to get people off the sidelines, but not enough to get the people out of their houses at 3%.

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thats me baw

What about interest rates @ or around 5%? What timeline is projected for that?

True...