I agree.

Low interest rates created a bubble in all asset classes.

Home prices will come down.

I believe there is a lot of economic pain ahead as higher interest rates will significantly reduce discretionary spending for many consumers. Consumers won’t be able to use home equity cheaply to bail them out of other debts or finance lifestyles on the cheap. This board is not representative of general population as this group tends to be money focused and saves money at a much higher rate then national average. It’s all part of getting back to risk being accurately priced into markets. Long term that is healthy for the economy. However, governments always do stupid things so that is a wild card.

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Posted by molsusports

Member since Jul 2004

37157 posts

Posted on 11/27/22 at 1:46 pm to wiltznucs

quote:

So, in your situation I’m still thinking about buying. I agree with others that there will be some better home price bargains next year. As for the rates; lock it in. From a historical perspective they aren’t that high even now; and if they do fall you can always ReFi.

The landmine for buyers is refinancing to a lower rate will not be possible if home drops too much in value compared to the mortgage

Last time around people who were too far upside down eventually just gave the keys to the bank and walked away from their homes.

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Posted by wiltznucs

Apollo Beach, FL

Member since Sep 2005

9262 posts

Posted on 11/27/22 at 2:58 pm to molsusports

quote:
The landmine for buyers is refinancing to a lower rate will not be possible if home drops too much in value compared to the mortgage

Last time around people who were too far upside down eventually just gave the keys to the bank and walked away from their homes.

Both statements are true.

This isn’t like the last time around though.

This time home prices went up due to global inflation and implications of the virus. Labor costs went up. States like Florida voted in minimum wage increases. Supply costs went up too.

People by virtue of Covid had stimulus checks, student loan payment suspensions and were spending less money due to lockdowns. They suddenly had more disposable income. Not to mention historically low loan rates. This fueled the increase in home prices.

Last time around there was a lot of speculative home investment and people getting loans who shouldn’t have been. In 07’ I knew many people who lived in one home who were building one or two more. I know someone who had 4 builds under contract when the bubble burst. With the idea of selling the others as soon as they were built for a profit. Obviously, things didn’t work out once the sub-prime and ARM bubble burst. This rampant speculation isn’t the case today.

Mortgage lending standards are much higher now. There’s no Countrywide/BOA giving out 0% down loans with “as stated” income values. So peoples ability to pay should also be less of a factor.

Finally, current demand for homes continues to be greater than supply. This won’t allow for a massive backslide we saw in 07-10’. There will be a tipping point in home price reduction where people will happily accept the higher interest rate. Some people in the mortgage industry think this price reduction to tipping point will be less than 10%.

My crystal ball is as good as anyone’s. That is to say; entirely likely to be wrong. That being said; the current situation is clearly different than the last time and expecting a similar outcome to the last time is the least likely scenario.

The biggest loose end I see is another area of speculative investment. That is AirBnB and VRBO homes. Should inflation continue and people limit their travel; these homes are going back on the market.

This post was edited on 11/27/22 at 3:05 pm

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Posted by Shankopotomus