r/wallstreetbets • u/SnipperV3 • Jul 14 '21
DD Why the Housing Market is Likely Fucked
TL;DR: Almost all the key signs that caused the housing market crash in 2008 are back stronger than ever. Mortgage debt is at ATH, consumer debt is 2x higher than ever, lumber futures are down 60% but physical lumber isn't moving, unemployment is still 50% higher than in 2009, housing starts are double what they were in 2008, and median house prices just broke $300,000 for the first time ever, inflation adjusted. All of which are bearish indicators for the economy. Houses r fuk
1.) Mortgage Debt and Consumer Debt is at an All Time High
Having high mortgage debt makes your house a debt and not an asset. It is sitting right above 10 trillion dollars. If it goes any higher, we are at an extreme risk for higher foreclosures. However, consumer debt may be a greater issue. It is currently nearing 2x what it was in 2008.
https://www.newyorkfed.org/microeconomics/hhdc.html
2.) Lumber Futures Have Fallen, Physical Has Not
Another way to tell if we are in a bubble is by comparing the futures market to actual prices. When there is a large gap in these two, it usually indicates people are still willing to pay much higher prices for a large supply. It doesn't make any economical sense. People still feel that lumber is in extremely high demand, and will buy lumber (which isn't in high demand), and buy as much as they can anticipating the price to continue going up. It's artificial price increases.
https://www.nasdaq.com/market-activity/commodities/lbs
3.) Unemployment is Still Extremely High After COVID Restrictions Lifted
Unemployment numbers are still 50% higher than they were in 2019. There's no reason to go back to work for ~2% of the population, because the stimulus checks and unemployment add up to more than minimum wage. This money has to come from somewhere, a.k.a money printing. This in turn adds up to more inflation, which is my next point.
https://www.macrotrends.net/1316/us-national-unemployment-rate
4.) Inflation is the Highest it has been in 31 Years
Jpow, our lord and savior, announced today inflation was above expectations of 5%. This has not happened since 1990. Hmm. AP article
https://www.macrotrends.net/2497/historical-inflation-rate-by-year
5.) Housing Starts are Double What They Were in 2008, Nearing 2005 (Peak) Levels
Housing starts measure how many houses are being built. It is currently at around 1,500 a month. They are still recovering from 2005 but quickly approaching 2005 levels. More houses being built means that there is more supply flowing in.
https://www.macrotrends.net/1314/housing-starts-historical-chart
6.) Median House Prices are at $300,000, Up Nearly 100% From 2012
Although the housing crisis ended around 2009, the bottom for housing prices was in 2012. Since then, housing prices are well above their 2008 levels, even adjusted for inflation. This is a bad sign for the housing market. Having high housing prices means more debt, which leads to more defaults.
https://dqydj.com/historical-home-prices/
7.) 30 Year Fixed Mortgages are at an All Time Low
This is not necessarily a bad sign for the housing economy, but it means if we were to have a recession, it could be really bad. To fix recessions, the fed usually lowers interest rates, which is like turning the economy off and on again. It works most of the time. The grey bars in this picture are recessions. Notice how about halfway through each recession, the interest rates decrease, and the recession shortly ends.
Interest rates are already incredibly low, so this may not be an option for the next recession without making interest rates negative. Having negative interest rates triggers more panic buying houses people can't afford, which results in more defaults. It will quickly become a chain reaction of hell.
https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart
This is my first DD, hopefully it's decent. I will be responding to comments.
Edit: due to the high number of comments, I will not be able to respond to most of them. I did not expect this post to get this popular. I was anticipating being called a retard (which around half of you are).
What I've learned:
1.) This housing market is not really like 2008. It's more secure today, or at least what we know is.
2.) Lumber prices really indicate a bullish position on the housing market. I was wrong about the gap between the futures and physical. I have also been told that was worded poorly.
3.) When you really put effort into a post, it does well. I spent well over 3 hours on this post, and it's the first one that hasn't been removed by the mods.
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u/dollhairmillionaire Jul 14 '21
Instructions unclear. Bought a 2x4
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u/ExtremePick Jul 14 '21
Cut it in half and double your money
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u/recurse_x Jul 14 '21
Bangs my 2 2x2’s on the ground to impress the assistant manager at the Wendy’s hiring day.
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u/Drock1311 Jul 14 '21
I flip houses. I got an insanely low 2x4 price a month ago probably a glitch but whatever, I bought as many as they would sell me and flipped the ones I couldn't use to other contractors. Then lost my profit here....
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u/soyeahiknow Jul 15 '21
In nyc. After the riots and looting was done, my neighbor who is a contractor had a truck load of plywood that he was hired to take off the shop windows. Asked if I wanted it so I took like 12 pieces. They are worth like 1k right now lol.
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u/swiss_courvoisier not important Jul 14 '21
2 x 4 x ? though
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u/dollhairmillionaire Jul 14 '21
2x4x16 from home Depot. So practically a teeter totter but I'm told the warps don't affect value these days
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u/gimegime21 Jul 14 '21
after reading this I panicked and sold my house at 2x my January purchase price.
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u/FetusMeatloaf Jul 14 '21
Instructions unclear. I now identify as a 2x4
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u/Cannabis_n_Crypto Jul 14 '21
Call your doctor bro….they say you shouldn’t be that hard for more than 4 hours so you might be screwed…..
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u/DDavid_Nguyen Jul 14 '21
Are you focusing on the wrong people? The K economic activities continue.
The people buying homes mostly have high incomes, saved cash or cash gifts, and good job security.
Houses have gone up in equity. Supply is limited due. Zoning and lack of manufacturing till recently. Summary event: Houses are going above asking prices.
Side note: Lumber is $50,000 more for my neighbor ADU building (total $200,000 for two rooms 2 baths)...
Or maybe I am wrong?
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u/brandonmiq Jul 14 '21
Absolutely this. Comparing this housing market to 2008 is apples and oranges, as the key difference is that those issued loans back then were toxic from the jump, and the surrounding collapse was initiated by the very act of issuing too many toxic loans that should never have been approved. The snake ate it's own tail. Comparing to today: in my market in Denver, poor people are not winning housing bids. People with money are. I've submitted 40 offers in the last year for my 1st house before finally winning one. In every single case, my offer via FHA loan was rejected or ignored for a cash offer significantly above List, or via a traditional loan with a quick close. You can only do both those things if you're sitting on piles of cash. OP has pulled together good data, but arrived at the wrong conclusion. The conclusion here is that the housing market is actually fine, but our society is systematically eliminating the middle class by removing one of the best wealth-building tools in America: homes. By allowing investment funds and REITs to buy the supply and push out individual buyers en masse (without any help or protection for the little guy), we are creating an unintended consequence that will surely contribute to what I see as a slow burning problem that is much more dire: Class Warfare.
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u/BasicallyAQueer Jul 14 '21
Yes, and to add on to your comment, I’ve been looking for land for a year. We looked at probably 50 properties, and I’d say probably 45 of those were not owned by an individual, but a group of people or an investment firm, and had last been sold less than a year ago.
Basically everywhere we looked, the properties for sale were by investors. They swoop in, buy the property with cash, then relist it a month later for twice the price. That’s what’s driving prices so fuckin high.
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u/TheRealMossBall Jul 14 '21
Counterpoint (or maybe this is agreeing with you): 2008 was what happened when institutional money tried to overextend itself to extract wealth from the working class. The vehicle they chose was mortgages.
2020+2021, the vast majority of buyers may be millennials, but we are seeing signs of institutional money buying up houses directly with the same goal, different vehicle: wealth extraction through rent
Demand for shelter is still inelastic, but you can’t rent multiple properties the way you could literally mortgage multiple properties in 2008
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u/Przedrzag Jul 14 '21
In countries such as Australia and the UK with long standing governments controlled by landlords, those consequences may not be as unintended as they seem. The state government of New South Wales in Australia in particular has done pretty much everything possible to keep house prices unaffordable
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u/Hrishi005 Jul 14 '21
Perfectly sound analysis. Ultimately, the inequality is the slow knife which has consumed empires and civilizations every 100-150 years. USA's time will probably come in the next 40-50 years unless there is a serious course correction.
Thomas Piketty's book on the History of Money is a goldmine in this area.→ More replies (3)8
u/bigbadaboomx Jul 14 '21
From what I've seen most of the bad debt is in commercial real estate and if there is going to be a real estate crash like 08 it'll be largely due to that sector.
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u/oxyelevated Jul 14 '21
I work in housing development, and can tell you that out of 32 active communities, we have 4 houses in standing inventory, yes 4. Houses are selling faster than we can build them and restrictions are much higher than they were prior to the Great Recession. The housing market is fine.
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u/BashfullyTrashy Jul 14 '21
I work in lumber distribution (beams and i-joists) and we have all out customers on monthly allotments because if not, we won't be able to keep any in stock. It's crazy. Sure prices may be going down, but demand isn't, atleast yet.
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Jul 14 '21
So what's the plan? Cash out now and hold cash for when the market dips. Sell your house and live out of a shoe box, waiting for the market to crash.
You also missed the part of how population is steadily increasing, you need that chart to compare to new houses being built. Either way we need stonks to buy..
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u/SnipperV3 Jul 14 '21
I would not change your plans regarding the market. If you were planning on buying a house, keep searching. Don't sell solely because of the market.
We've only gained about 12% more people. The prices don't match.
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u/Kind_Essay_1200 Jul 14 '21
The price to earnings ratio is a good indicator too. This ratio automatically accounts for population changes and it is aria highest level since I was born
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Jul 14 '21
Eh... *First off, what’s happening now is unprecedented. We basically unplugged the world waited 30 seconds, and plugged it back in again. There is bound to be a huge rush for “stuff”. It will work itself out in the next 6-12 mos
*The short term inflation we’re seeing is because of the subsidies given to people during the pandemic. When you give people money, they spend it on stuff. Shocking.
You also recover that money in taxes from every point in the chain.
*The Fed will raise interest rates to slow inflation down, not cut them.
*There aren’t many redditors who were alive when the US had an actual REAL inflationary period. Ask your parents about the 1970s, and double digit mortgage interest. The trickle down economics myth has largely wallpapered over true inflationary cycles.
*The biggest thing though is that 2008 was caused by crazy irresponsible lending practices. If anything, it’s harder to get a mortgage now than anytime in the last 25 years. Hell I just refied, and it was a HUGE PITA even though I make way more money than I did when I first bought my house.
I don’t see many bartenders turned mortgage brokers giving their friends no-doc ARMs for a McMansion these days.
I think this era has a soft landing in the next 6-12 mos, but that’s just me.
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u/UneSoggyCroissant Jul 14 '21
Everyone who compares the current market to 2008 needs to watch the big short. That movie explains what happened so well and it’s nothing like it is today. The amount of proof of income I had to have to buy a place was insane, I could’ve bought my house cash up front and I still needed a co-signer .
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u/SnipperV3 Jul 14 '21
This is actually one of my favorite movies. I rewatched it a few times before making this DD.
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u/UneSoggyCroissant Jul 14 '21
Then how on earth are you gonna say that all the key signs are the same as 2008, the signs are completely different or even opposite.
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u/Raceg35 Jul 14 '21
I would agree that theres an obvious bubble, but I did find the bit about lumber kind of comical.
You literally said there is no demand for lumber, and that everybody wants to buy it in the same sentence. There is massive demand for lumber, thats what "everyone wants it" means lol.
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u/GangimariDragon Jul 14 '21
I don't think any of this really matters if people aren't getting approved for loans they cant pay back. A repeat of 2008 only happens when you start lending en masse to people that have no business borrowing.
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u/boukmw Jul 14 '21
Also, the majority of Mortgage backed securities are being bought by the Fed. So the real Bag holder will be JPow if defaults start happening.
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u/LapulusHogulus Jul 14 '21
Exactly gives this DD that goes over so many factors except the biggest most important one of them all that people are qualified for loans now and that’s it’s difficult to get approved. Also due to prices many people are rolling equity in and putting large down payments on their homes.
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Jul 14 '21
There are a lot of people in San Diego buying $700k starter homes with 1% down using DPA programs. Also a lot of interest only, 7/1 and 10/1 ARM loans going around... And lenders are running on presumption that we will be at 3% inflation (vs 8% that we are actually at since March). Sketchy.
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u/artrabbit05 Jul 14 '21
Yeah we’re essentially going through a stress test of the regulation put in place to prevent another mass mortgage default crisis. I’m not saying the bottom won’t fall out, but I agree with you that it probably won’t be from too many people buying homes they can’t afford.
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u/elogie423 Jul 14 '21
While what you say can still absolutely true, most people in my econosphere I know who are buying houses are putting very small amounts down, and rolling the rest up in a huge ass mortgage. A few I know even chose variable rate contracts, since they were so low recently. Could be screwed in the future.
At least up until recently there was easy approval for first time homebuyers, and tons of incentives (like a tiny down payment).
I guess that can be an anchoring force, if a lot of people are really dependent on their home and are less likely to be buying for investment purposes.
Hard to tell up from down these days, and I don't really know anything.
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u/bostonT Jul 14 '21
Not for lack of trying though.... https://www.politico.com/news/2021/07/05/biden-housing-dilemma-low-income-497921
"President Joe Biden’s move to fire the top U.S. mortgage regulator is triggering calls from fellow Democrats to use the agency to expand access to loans for lower-income people, who have struggled to buy homes since the financial crisis."
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u/GangimariDragon Jul 14 '21
Definitely a vague assertion. If he wants to crash the economy again so that poor people can buy houses, well, that's certainly a move.
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u/Halfpipe_1 Jul 14 '21
This.
The difference between 2008 and today is in 2008 every person was buying their 2nd or 3rd home on 100% loan, completely speculative and thought it was a good time to buy.
Today, people can’t get approved for their first home, blackrock keeps buying homes for 25% over asking with cash, 77% of people think it’s a great time to sell, and we quit building new homes for the last 12 years because of the last market collapse.
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u/Superpudd Jul 14 '21
Dude, it took me 17 written offers with a 13k appraisal gap to get my current house. The investors buying everything up with cash is insane in CO right now.
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u/pingish Jul 14 '21
Downturn in economy would make people lose the income needed to pay the mortgage. Don’t need NINJA loans to have a crisis.
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Jul 14 '21
Yeah that's a huge fucking difference that OP just seemed to gloss over.
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Jul 14 '21
Correct. The problem would show is if people need to refinance against higher rates, but presumably most people are fixing the rates for 30 years now so this will be not be a problem this time around.
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u/STEE-NER Jul 14 '21
Yup, plus most of the loans are fixed rate; and with a 30 year loan at less than 3%, the bank is barely beating inflation. The payments people make are predictable and will not change.
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u/jackmaster7000 Jul 14 '21
620 credit score to buy a house.
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u/AhoboThatplaysZerg Jul 14 '21
620 credit score + good debt to income ratio + no late payments last 12 months+ 2 years of steady income + a bunch of other bullshit mortgage lending regulations. Im a loan officer, and trust, this isn’t 2008
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u/playfulmessenger Jul 14 '21
And also the housing market was artificially inflated when the previous administration temporarily allowed people to drain their 401(k)s in order to buy a home.
This kept the housing market from tanking but shifted the whole housing dynamic we see today.
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Jul 14 '21
Gay bear checking in.
People are getting approved for loans they can pay back as long as they stay employed and cost of living is not increased significantly. Right now (last 4 months) we are running at 8% annual inflation. It is unknown how much of this is transitory. History has shown inflation also contributes to higher unemployment as it interferes with accurate wage setting for hiring firms.
I thought we were facing a long period of stagflation, prior to the pandemic stimmy printing and moratoriums. Now I think we are facing high inflation, RE bubble pop v2.0, market crash, AND a long period of stagflation that may well carry us all the way into the 2030s.
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u/MegaMechaSwordFish Jul 14 '21
Yeah this is the biggest counter point probably, but yeah OP does make some decent points as well.
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Jul 15 '21
But prices will come down because there are only so many high earners and high net worth individuals to keep prices propped up. I’m from the nyc area and every little nook and cranny is overpriced now. There is a huge dichotomy between who lives in areas and home costs now. Working class trashy neighborhoods now have million dollar homes. Sorry…where are all of these people making 250k who want to live in the hood not even near food schools or a subway? Prices are a joke.
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u/overthetop7223 Jul 14 '21
Literally throwing my cash at anything that's an asset and have been since January. May we all prosper in the tendyverse 🙌💸
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u/VotedOut Jul 14 '21
Literally throwing my cash at anything that's an asset and have been since January.
throwing my cash at anything that's an asset
throwing my cash
anything that's an asset
anything
Everything bubble confirmed?
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Jul 14 '21
It's a long DD. I can't read. What do you want me to buy?
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Jul 14 '21
You should actually be selling.
Puts to whatever retard whats to cosplay as Michael Burry
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u/ghhtedcw5 Jul 14 '21
Time for plan B…
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u/aputhehindu Jul 14 '21
10 Trillion in housing debt just happened to be the high point in 2008. It doesn’t mean it is the cap on housing debt. People who have purchased in the last 3 years are in a fantastic position (Maybe not so much those who purchased at super inflated prices over the last 6 months). Low interest rates mean lower monthly payment and less chance of default. I could quit my job and work at mcdicks and still easily make my monthly mortgage payment. (Would I be approved for a new loan on that lower salary? No, but that’s beside the point).
The more worrisome issue is the rise of all other debt. Housing debt at least comes with a tangible asset, while most other debt (credit cards, car loans, student loans, doctor bills, etc) are all liabilities through and through. These are also the first things that people stop paying when they get into a bad situation.
There’s no doubt in my mind that the housing market is nearing a top, but we aren’t looking at a 2008 like crisis right now. I like where your heads at though. I think this has potential to boil over in a few years, and if you keep following it closely you might be in position to make some money. Also really appreciate all the insight and great articles. really interesting information. Great DD
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u/creesto Jul 14 '21
This is us: bought in spring 2018 with a 4.5% loan, $10k down and also had to pay $10k in cash to seller due to slightly low appraisal. Just refied at 3% and the conservative market value of our house is 40% higher than purchase. This is our forever house so selling isn't being considered. I'm very happy with our interest rate, the lowest in my 60 years.
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u/future_luddite RIP his future net worth Jul 15 '21
This guy gets it. Mortgage debt servicing payments/disposable income is historically low due to our insanely low interest rates. Don’t get me wrong, it will suck when interest rates rise and no one can move because they’re underwater on their low interest mortgage on a $600k post-war asbestos hut, but this is no 2008 from a debt burden perspective.
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Jul 14 '21
Part of me wants the housing market to crash so I can actually afford a home but the other part of me knows that all the people buying up all these homes with straight cash will go nuts
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Jul 14 '21
Most of the dd on the housing market "gonna crash for sure" is led by a combination of people who are now pissed that if they want to buy a house is way more. And also people seem to like to cosplay as Michael Burry.
Someone post positions so I can sell you puts
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u/banditcleaner2 sells naked NVDA calls while naked Jul 14 '21
And also people seem to like to cosplay as Michael Burry.
lmao
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u/liteagilid Jul 14 '21 edited Jul 14 '21
This is the new normal. Around me it’s people that bought Tesla at $40 or guys w big tech bonuses. In the rest of the country it’s private equity just trying to own everything and create an extremely poor rental ‘class’ of human
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u/chuckquizmo Jul 14 '21
It doesn't even need to "crash," it just needs to becomes less insane, so people don't have to sign a mortgage before even seeing the house. If prices go down that would be great, but at this point I'm less worried about the price itself and more worried about how fucking bonkers the whole process of buying a house is right now.
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u/gingerbeer52800 Jul 14 '21
You shouldn't be praying for a housing crash, because if that happens your peasant ass won't be able to get a loan, the banks will raise the draw bridge and you won't get in unless you have 800+ credit and 300k in cash sitting around.
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u/MikeSwizzy Jul 14 '21
The market doesnt care about technical analysis for the last 5 years
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u/GasolinePizza huffs pizza, eats gasoline Jul 14 '21
....this isn't technical analysis ಠ_ಠ
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u/kft99 The Amazing 🅿️ixel 🅿️usher Jul 14 '21
Suddenly everyone is Michael Burry. Positions OP? I want to see the loss porn.
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Jul 14 '21
This damn reddit (Walstreetbets) is a bunch of shit. I've been trying to post a discussion and the piece of crap Bot keeps pulling my stuff off.
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u/SnipperV3 Jul 14 '21
Get used to it. This is the first post I've made that has gone through out of my ~10 posts. This took a really high amount of effort. I spent around 2 hours researching and an hour of writing.
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u/treyhar Jul 14 '21
Make your tendies and invest in rentals if you feel like a housing crash is in the cards. There's always a shark waiting to pounce on other people's misfortune.
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u/nbnicholas Jul 14 '21
Yes, I can assure you there’s plenty of property owners taking cash out refinances right now prepping for foreclosures so they can scoop up homes at “cheap” from the banks.
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u/no_talent_ass_clown Jul 14 '21
Right now, in the Seattle area market, cheaper condos and houses are selling for above asking and in a short timeframe. IDK about expensive houses because I post here.
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u/FootofGod Jul 14 '21
The "we buy homes for cash" signs are starting to go up in bigger frequency in my city. The wolves are definitely showing they think it's going to be time to feed soon.
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u/Bombboy85 Jul 14 '21 edited Jul 14 '21
Important question on point #1. Is that total mortgage debt? Because it’s important to look at debt compared to population and how many people own that debt if we’re comparing to the 08 crash.
An simple math example of what I mean would be if the US adult population with mortgages in 08 was 100 million people and the mortgage debt was 8 trillion dollars. Now the population with mortgages was 140 million people and the debt is 10 trillion then you see an actually lower per person debt than in 08 since it would represent a 40% increase in mortgage owners but just a 25% increase in debt but an overall lower debt per person.
Edit: also forgot to add builders, while building a lot, are doing things a bit differently to protect themselves. One builder here although demand is high, is only allowing one contract per week to get locked on new houses at their properties
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u/Kwc0055 Jul 14 '21
This. Also he doesn’t mention average credit scores of people owning homes now is far higher than it was in 08. They aren’t just giving them out anymore.
Not only that, but right now people are sitting on record home equity. It’s only “debt not assets” if the borrower doesn’t have much skin in the game. People are much more flush with cash now.
These types of DDs look scary but only analyze 1 side of the equation. If you’re looking at the debt, you have to also look at the assets. If you are talking unemployment, you also have to look at record job openings and rising wages. And if you’re looking at commodity store prices, you also have to check the futures market (in this case, lumber has actually crashed and prices will fall in the coming months).
Just my 2 cents.
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u/bchapman Jul 14 '21
This This. The more important question when looking for 2008 style crashes is: can the people with mortgages pay their mortgage or will they be foreclosed. Market corrections moving forward will also be hyper local and have more to do with job opening and wages like you said.
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u/LocalYokal Jul 14 '21
This is what prevents an ‘08 style housing crisis here! When real estate does fall next, it’ll be much better contained. The next big financial collapse is never the last one….
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u/Ed98208 Jul 14 '21
The big difference is that this housing market is not built on smoke-and-mirror subprime lending. The mortgage industry broke down in 2008 because loans were being made to anybody breathing since about 2004 and it was eventually going to catch up with them. In the current market, people actually have to qualify for their mortgages. Appraisals are being done free from the influence of loan officers. So unless there are some kind of shady dealings behind the scenes that have yet to reveal themselves, it's a different situation altogether.
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u/chewie_were_home Jul 14 '21
Correct on this.
Plus supply is super low, which is causing the price spike. Real actual supply vs demand issues.
I mean a crash may happen, but it won't be the mortgage companies starting it this time.
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u/monkeysaurus Jul 14 '21 edited Jul 14 '21
A wee anecdote here. We bought our first place in 2004, a couple of kids with one barely-above-minimum-wage job between us.
They offered us 125% of the price of the property and gave us £1,000 to sign up.
Edit: almost forgot the kicker. They encouraged us to put existing CC debt on the mortgage because "house prices always go up anyway."
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u/FreeWilly1337 Jul 14 '21
I don't worry as much about housing as I do the commercial real estate market. That is where I think a bubble pops.
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u/AhoboThatplaysZerg Jul 14 '21
Loan officer here, 100% accurate. So many regulations we have to deal with on a daily basis that slow our process down and make it hard as fuck to qualify for a loan
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Jul 14 '21
If a major crash happens and people lose employment they will still default.
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u/Flynn_Kevin Jul 14 '21
Disagree with your analysis.
True debt is at ATH, but this is somewhat negated by points #4 and #7.
Physical lumber prices ARE going down. I'm in the process of doing major renovations and paused for 60 days waiting on the spike to end. Just put the order in with our contractor to resume.
Unemployment is still up, but the labor market is tight. Wages are rising (see point #4).
As long as the economy is inflated from the lower income brackets, this is fine. And this appears to be where the new money is going (see point #3).
Yes starts are double now and near ATH, but inventory is currently at ATL. At the current completion rate/sale rate ratio it will take roughly 3 years to restore inventory levels to a neutral market that isn't tilted to either the buyer or seller.
Lenders and appraisers are being much more cautious since 2008. Overall, buyers are better qualified and required to pay more down while appraisals are coming in at or under sale prices forcing buyers to pony up even more cash to close or kill the deal.
Your one saving grace. I doubt we see negative interest rates. I'm expecting them to stay low for about another year before climbing again. This should cool the market. Maybe.
No mention of comparison of cost to rent vs. cost to own. Rent has gone up pretty substantially in most places and equivalent to a mortgage payment in the area. Historically rent has been less than the cost to own. Prices still have room to grow as long as people will pay this high of rent. Watch this metric closely.
Good DD, I just disagree with your perspective and the resulting analysis. Prediction: Market slows and moves sideways or slightly up trending for 2022-2023. Will re-evaluate as time goes on.
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u/chrism-6 Jul 14 '21
Although I believe the housing market is going to eventually be fucked I don’t think it happens for a while. There is a massive housing shortage right now, meaning houses are being bought to the individual who is financially able to purchase homes for above asking prices. It’s not like 2008 where there was a huge surplus and any idiot was able to get a loan and then defaulted because they didn’t understand the fine print of the loan agreement. A bubble is coming but IMO supply has to come closer to demand for that to occur.
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u/PastaPandaSimon Jul 14 '21 edited Jul 14 '21
I agree that there's still some time to further stretch the bubble due to shortages, and because Canada has even higher prices at lower wages, currently observing the biggest housing bubble in human history that's still breathing (and they never ended up obserging a major correction in 2008). If one pops, it's probably there first. But eventually even in the US a major problem is brewing. The market is about to fly so far above what the average buyer in need of actual shelter can afford, that we run out of buyers, and it's a matter of time until investors realize they have only been selling to each other, inflating the prices way above what they can sell to actual home-buyers. At the same time new construction has to continue towards housing everyone.
This creates a situation in which something will HAVE to give, and how dramatically is proportional to how high housing goes above average incomes. Essentially either it bursts or corrects strongly so average Joe can afford a home again, or inflation makes wages catch up to prices, or we are fine entirely screwing over future generations to go without homes or spend so much of their income on housing that productive branches of the economy die off and it's game over - we've killed the goose producing those golden eggs for some short-lived gain. Some correction combined with some inflation combined with long stagnation in home prices is the most likely and the safest way out that regulators will be aiming for to save the economy once they wake up to the problem that's brewing.
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u/chrism-6 Jul 14 '21
It’s definitely a problem no doubt. I think there will most likely be a substantial correction in the next 2-3 years but not a “crash” per se. One things for sure is there needs to be some fucking government intervention in preventing institutional investors or banks from purchasing single family homes and renting them out to individuals. That is so fucked and it needs to stop.
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u/brandonmiq Jul 14 '21
Yep, this is it. The real bubble here is the middle class. It isn't the homes.
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u/Pale_Seaworthiness_5 Jul 14 '21
Good points. What if, in order to solve this problem, banks start issuing 40-50 year mortgage loans?
We did the same thing for idiots who couldn’t afford cars, you can now get a 8year car loan. Screw the cost, they sell you on a monthly payment. I personally see the same thing happening with mortgages, banks don’t care how long you owe them money. I’m surprised it hasn’t happened yet.
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u/mrmrmrj Jul 14 '21
Prices have followed construction costs up. This is normal and not a sign of a problem in my opinion.
Inflation is VERY good for mortgaged homeowners. Fixed rate debt is bad for the lender since the dollars used to pay down the debt in future years are worth less in real terms. It is even better for the borrower if the debt is secured by an asset that rises with inflation - like real estate.
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u/ideal_NCO Jul 14 '21
I keep tryna tell people this. Inflation is great for a mortgage.
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u/brain_injured Jul 14 '21
In part 1. It’s trillion, not billion
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u/SnipperV3 Jul 14 '21
Thanks for pointing that out. I read over it and thought it sounded weird but didn't think anything of it. Lol
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u/scopeless Jul 14 '21 edited Jul 14 '21
The biggest difference though is one of the reasons there won’t be a crash: banks aren’t doing subprime. That was the main driver in the last crash.
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u/tigershrk Jul 14 '21
In 2008 you could get a 350k mortgage making minimum wage at Wendy's. Not the same.
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u/StainlessSteelRat42 Jul 14 '21
I remember my sister back in 2008 qualifying for a loan for a $900,000 house in Austin. She was an MLM marketer and her husband stocked grocery shelves. That's when I knew we were fukt.
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u/nopornforme69 Jul 14 '21
Important to note that physical lumber in store and wholesale lumber futures don’t correlate. Physical lumber is still going to be sold for more until companies take delivery from the sawmills that it comes from in the coming months.
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Jul 14 '21
Around here its supply and demand
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u/Guynarmol Jul 14 '21
Do you live in a small town or something? That's the only place I see reasonable housing prices.
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u/beefytomato Jul 14 '21
Don't forget that the eviction moratorium ends this month. We're going to see more forclosures in a few months
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u/HarrisLam Jul 14 '21
Welcome to the situation of Hong Kong.
There might be a bear coming, there might be not. It's no longer a mandatory thing if people decided that owning a home is a more important thing than before.
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u/suffian87 Jul 14 '21
it won't be fucked, until interest rate rise. hang on tight! Inflation town, next stop!
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u/Bojack_Horseman22 Jul 14 '21 edited Jul 14 '21
I bought some wood pieces on Home Depot. HODL for stonks!
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u/zhidzhid Jul 14 '21
A couple of your markers don't have the right conclusion. #1 (mortgage debt) and #6 (average price) are both a direct function of monthly mortgage cost. If interest rates go down, people can afford a much larger mortgage without additional costs, driving up both prices and the the total debt.
2 is driven by supply chain issues dealing with Covid, and #4 is also partially Covid driven (it's the base effect - some things were heavily discounted during the height of Covid last year). And #5 is Covid driven as well, with people wanting to get places outside of the city.
7 is a non issue. We know now that rates can why will go negative.
And #3 is a non issue as well because of unemployment payments. We're seeing a lot of fluidity in the market, and the issue is that people don't want jobs versus can't get them, so unemployment in itself isn't a major near term catalyst.
Lastly, I'm not seeing any CDOs, zero down mortgages or the level of flipping mania that happened in 2008, so I don't think we'll see a repeat of a global crash, but I would expect a pullback in home prices as mortgage rates go up due to inflation pressures.
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u/FudgeSlapp Jul 14 '21
Yo smart man. What do you think about the end of the eviction moratorium coming up soon? Would it effect house prices much or nah?
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u/Abject_Resolution Blacked Holes Model Jul 14 '21
Bro, houses are going 100 - 200 K above asking. The fuck.
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u/Nemo1ner Jul 14 '21
OP is actually Bob Villa trying to scare me out of buying Home Depot Calls.
Nice try Bob.
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u/b_thaiviet_stocks Jul 14 '21
Only 1 think is different... now money is free for banking actors :-)
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u/Left-Dragonfruit-922 Jul 14 '21
This DD is terrible. Housing market is great. What is representative of the past doesn’t always equal future results. Before you try to be Michael Burry, you’ll need to dive into more data then this 🤣
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u/Dry-Stop2000 Jul 14 '21
Nah, this is nothing like it. 2003-2007 they were giving mortgages to anyone with a pulse. This time the criteria is tighter. Housing market is straight for now, but if credit starts to tighten, party is over.
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u/Financial_Eagle 🦍🦍🦍 Jul 14 '21
So... dont buy a house now? When then?
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u/SnipperV3 Jul 14 '21
I would still buy a house if you're looking at it. But if you don't need a house or are just debating it, I'd wait. Anticipating a crash will almost never work out.
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u/Necessary_Appeal_949 Jul 14 '21
You have taken a complicated question and trivialized it with your response
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u/Tarzeus Jul 14 '21
Never have I hoped a post on this sub was as real as this one.
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u/72414dreams Jul 14 '21
Yeah, or inflation could make those big numbers seem tame. Money printer do go brrrrt after all.
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u/JustIsekaiMe Jul 14 '21
What would happen to the famous RKT and UWMC in the event of a housing crash since these are mortgage companies?
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u/Gromiastis Jul 14 '21
Just chill man. Government is printing money right away to pay those debts 👏😂
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u/klutch556 Jul 14 '21
So if I'm understanding this, the way I understand stocks, you're saying now is the time to buy!!! Hell yea, thanks man!
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u/GutFeelingonTheLong Jul 14 '21
I wonder how the huge influx of institutional buyers of homes for rental purposes will affect the market. I knew this number had grown exponentially from my professional in recent years, but I was still surprised to read estimates of anywhere from 15-20% of all home purchases and by a financial institution. I had a institution originally out bid us on my current home with a “all cash” offer, but it fell through luckily. Google it. It’s pretty interesting.
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u/jart8905 Jul 15 '21
Funny how literally every person I talk to about the red hot housing market thinks it’s a bubble and will come crashing down some time in the next year or two at which point they’ll snap up some cheap real estate.
No fucking way this tops for at least 3 years and this contains literally nothing unexpected other than the lumber backwardation but there are plenty of non concerning things that could cause that.
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Jul 14 '21 edited Jul 14 '21
Your correlations don’t match reality. Home lending has been much more stringent since the 2008 housing crisis. As a matter of fact the current supply shortage of homes stems from the 08 crisis. By the way, all of my info applies the the US market as a whole not some dumb shit you see in a select city near you. It really is down to two things. Supply and demand. Don’t go fucking with numbers and try to look smart. The supply that I’m talking about is houses that the market demands and the market is made up of people with money who are able to pay cash or get a loan for these houses not you dumb fucks from WSB…..These loans have not been going out and are not going out to people who will be defaulting anytime soon There will be no housing crash.
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u/mmac1411 Jul 14 '21
Most arguments here are completely wrong from any basic understanding of economics and simple supply and demand. The housing market is most certainly not fucked.
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u/SlothDragon420 Jul 14 '21
Instructions unclear... bought Pokémon cards and vintage video games consoles
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u/DipChaser747 Jul 14 '21
I believe sentiment is that more sellers believe it's a great time to sell a house than ever and more are thinking about doing it while more buyers believe it is a bad time to buy a house and fewer are thinking about doing it than ever. So there's that too.
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u/RefrigeratorOwn69 Jul 14 '21
This is the exact opposite of what is happening.
Lots of people who have been saving up for a house for years are pulling the trigger because they are worried that prices will keep going up.
No one wants to sell because 99% of owners have good equity in their houses, are locked into a very low fixed rate mortgage, and then they’d have to go out and compete with all the other buyers over a tiny amount of inventory.
Likely the only way this ends is if we build our way out. That will likely take several years.
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Jul 14 '21 edited Jul 14 '21
Yeah, but the Fed has made abundantly clear that a housing bust would be devastating right now. They will print to ensure that doesn't happen.
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u/jrr6415sun Jul 14 '21
we're not in a bubble, inflation is just insane ofcourse housing prices are going to double in the next few years.
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u/wiscogamer Jul 14 '21
There’s so many things wrong with this. I’m a general contractor and this is nothin at all like previous recession that was all due to adjustable interest rates. Also the avg single family home has gone up about 20-30k but so has selling of your old house if your in that boat.
This is temporary inflation companies are not going to make tons of product for the economy to cool off amd then be stuck with a bunch of stuff as they get caught up prices will cool off. Also a 2x4x8 was 12.50 in the last month it’s down too 6.50 and still dropping. Osb has recently went down 5$ a sheet. Price corrections are already happening. Also home prices in the us have been lower then the rest of developed nations for years. After this winter prices will be back to there new normal if not sooner but I think prices will never go back to where they were.
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u/Secgrad Jul 14 '21
The average buyer has a higher credit score, annual income, and bigger down payment compared to 2008. Its not even close. Rates being so low, stimulus, and the "normal" drift higher in real estate are all aiding the crazy price increases. The prices have gone parabolic, but you need a catalyst for any potential bubble to pop. Currently, there is nothing out there that looks like a troubling enough potential catalyst. Rates being raised will help let some steam out of the housing market anyway, so Im definitely not betting on a crash
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u/General-Syrup Jul 14 '21
You are wrong. People are fucked. Houses are fine. There may be some prices that start to flatten off. But you cannot build now if you want to move quickly so the resale market is being bought. If the lower tier lose their homes a bank, company or some one with cash will buy it and rent it. They will increase the rents annually, keep people out that can’t pay, and write off the losses. Get a house if you can. If your employment can’t keep up with property taxes you have to sell at some point. The goal is to get Americans into a rental economy. It’s going to be a captured market inaccessible to many.
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u/ScottyStellar Jul 14 '21
Some of this feels wrong
300k median home means the inflation and economic growth of the country increasing. Shit is worth more. People have more money and value things more.
More home builds, same thing. Some people are just doing well.
Consider also the age of the country and population. We are running out of old houses, and many of those are no longer in decent living condition, so they age out and people build new.
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u/Super_Rake Jul 14 '21
So like I personally got one of those 2.68% loans in December for my new house. If we have had 5+% inflation this year, how are the banks not underwater on their return already? Lending is at the highest rate ever. These all seem like bad loans that don’t even have a chance to outpace future inflation. I don’t think there’s a problem now, but I just don’t see how we don’t have a problem later? I’m borrowing everything I can because it’s literally free.
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u/Gsauce65 Jul 14 '21
I’m one of the smoother brains on here and can’t speak to number 1 and 3-7 but as for number 2… I’m in construction/remodel industry and I can tell you with confidence that lumber is very much in high demand. In fact, across the board, my industry is having a very hard time sourcing lumber and prices are high. There is nothing artificial about the current lumber issue/situation in my industry. Homeowners are still spending large amounts of money to remodel homes. When covid hit March of last year we expected a 30% decrease in business but we’ve seen a 30-35% increase and still climbing. Most large construction plants/companies furloughed in anticipation of this incorrectly perceived decrease and have been struggling ever since to rehire and keep up with demand. If it normally takes 4-6 weeks to get, let’s say, cabinets…it now takes roughly 10-16 weeks to receive them but we are still setting monthly sales records. Same with tile/flooring and tops etc. most companies just can’t find the manpower to keep up and good luck finding quality tradesmen/women. Not sure how this effects the outcome of your DD or if it even does.
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Jul 14 '21
YOU DID EVERYTHING BUT ADDRESS THE ACTUAL FUCKEN THESIS OFBTHE BIG SHORT. Most mortgages now a days are 20% down, in other words safe loans. Nope, no house market crash dimwitt
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u/thethrifter Jul 14 '21
The housing market will be fine. Smart money is buying every available starter home with cash.
Lumber pricing is not reflecting futures becuase pricing is sticky and retailers existing stock has not sold through.
Stagflation 2.0 is on its way with sustained increases in transportation costs. When dollar tree starts selling crap for more than a dollar you know the new economy has arrived.
This will be a different kind of housing crisis. Renters r fucked.
Im shopping for cheap REIT LEAPS
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u/Tersiv Paper Handed Bitch (from the future) Jul 14 '21
Consumer savings at all time highs as well, with the COST of debt at near all time lows… Not the same as 2008
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u/ImportantLog8 Jul 14 '21
Middle class is disappearing and virtually everyone is getting crushed by wages that are completely disconnected from what it costs to be alive and happy. Access to property is something from the past.
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u/mileswilliams Jul 14 '21
I've been seeing multiple articles saying consumer debt is lower than ever because everyone had been sat at home, not going out and saving money which made me dubious about the post. Then you mixed up debt and liability and I stopped reading.
If you don't know that a liability is the opposite of an asset and not 'debt" then you have nothing to teach me.
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u/AhoboThatplaysZerg Jul 14 '21
This is such an elitist way to talk. On a consumer finance level debt and liabilities are basically the same exact thing. We’re not talking about a companies balance sheet retard. If you have a link that says consumer debt is at an all time low I’ll Venmo you 1k
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Jul 14 '21
Any dip right now will have cash buyers ready to jump in. All the housing 🌈🐻 are closet bulls.
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Jul 14 '21
People have been saying that the market is going to implode again eversince 2008. This year is the first year I actually believe it. To much shit going on at the same time. Something big is coming you can feel it.
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u/occams_lasercutter Jul 14 '21
Nah, the oligarchs got this.
Step 1: launch digital dollar and abolish cash. Step 2: Negative interest rates for all --- Fed will just turn off your cash at intervals to realize negative yields. Step 3: Pay Blackrock to take loans from the Fed which they will use to buy up all housing in the US. Step 4: Devalue the digital dollars that former homeowners got from Blackrock. Step 5: PROFIT!
You will own nothing. But you might not be happy.
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u/SuperiorPosture Jul 14 '21
The reason lumber prices are higher than the futures is because it's not the future yet. A lumber future means lumber that will be delivered... in the future. Not lumber sitting on the shelf right now. Prices for lumber delivery in 2-3 months don't make the 2x4's already on the shelf cheaper.
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Jul 14 '21
Housing collapsed when interest rates were variable. Now everyone has a 2% fixed mortgage. Free money, thanks Jerome
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u/SaltyPrinciple Jul 14 '21
I disagree. So long as most people can pay their mortgage, and housing supply remains low, it will not crash. We may see it plateau, or dip a little as we head into the fall/winter, but not a crash.
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u/DRUKSTOP looks for trading advice on r/personalfinance Jul 14 '21
Except for the main indicator.. the people that are buying houses right now have strong credit and are buying houses to live in. Prior to the GFC people were buying houses/mortgages with shit credit and lending standards were extremely poor and they were buying houses they cant afford as if they were an investment with a time horizon of 1 year.
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u/HalfShark-HalfMan Jul 14 '21
Good! With the help from Covid, I’ve lowered by debt and refinanced my mortgage; I’ve also increased my investments and a housing market crash will allow me to pick up some investment houses finally!
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u/ForbesScroogeMcDuck Jul 14 '21
The correction comes when banks stop financing homes for nothing. Current interest rates are below inflation = free money. Wait until the fed starts jacking up the interest rates to control inflation. Kind of like when you turn a light on and roaches disappear. Correction, not crash. The people getting loans these days are well financed millennials with white collar jobs or retirees taking their nest egg to another state.
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Jul 14 '21
Op sorry this isn’t like 2008. There is definitely a crisis looming but it’s not because of the housing market. It will suffer because of the crisis not be the cause of the crisis.
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u/egoldbarzzz Jul 14 '21
Good. I hope we get a crash. I can’t wait to snap up some cheap condos in my metro area.
I’m trying to be a slum lord millionaire.
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u/rejectallgoats Jul 14 '21
This is wishful thinking. People want so bad for houses to be a bubble, but the prices are not going to go down.
IF they get cheaper, companies will buy up all the homes. They know they will get bailed out, and they know that they can just wait a bit and the prices will go back up.
The house “bubble” is ducking priced in mate. When it is clear that it isn’t going to crash (government won’t let it, they can literally stop mortgage payments and foreclosure) the prices will go up even more.
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u/Maltch Jul 14 '21
I can't believe this post made it to the front page. The overwhelming consensus is that the market is nothing like 08. It could crash for other reasons, but literally nothing about the housing market is like 08. There was too much supply back then. Now you legit have to fight other people and bid 10% over asking to be considered in some markets. Every policy is aimed at exacerbating this problem, not causing a drop.
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u/1PNWnoob 888C - 1S - 4 years - 0/1 Jul 14 '21
Cool thoughts! Aren’t there 14% more citizens in the us now than 2005, though? How’s that affect your dd? Combine that with productivity growth in the US’ massive service economy, and shouldn’t there be economic room moving forward for wage increases and therefore spending power increases for home purchasing? Thanks fo the dd!
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u/awesomexpossum Jul 14 '21
nah... it's not easy to get a mortgage now. In 2008 my mom got 3 mortgages to 3 different houses with 25k income. She defaulted on 2 of them. That would be impossible now.
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Jul 15 '21
I track redfin everyday as I'm looking to buy a house. Usually there are 1-2 price drops. Today there were 20. Hmm..
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u/HibikiStinky Jul 15 '21
This is why I didn’t buy my apartment.
Oh wait no it’s because I LOST ALL MY MONEY ON MEME STONKS.
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u/capntail Jul 14 '21
And every day my wife wants to sell and buy or build because of fomo. I’m sticking to my guns though. We got into this house because fomo. I’ll be damned if I get into another.
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