Bubble Bursting?

I think the biggest hurdle that is coming, is the sky high cost of homes, along with the rising interest rates. The prices alone are pushing out first time home buyers, making it nearly impossible for young families to buy a home. Couple that with interest rates already pushing 6%, make it even more difficult. An interest rate difference from 3% to 6% adds about $400/month more to a $450k home.

This will certainly drive down the amount of qualified buyers, which will also decrease demand, which will lower prices… I foresee a slow down in the next 12 months. Interest rates may be pushing 7 or 8% within 12 months

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Decrease in demand will increase inventory. I’m hoping for an equilibrium that may carry us thru a while longer. But I say that with inflated optimism. There are no encouraging indicators other than nothing lasts forever.

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True, if nothing else, this will slow the skyrocketing house prices. I think the days of 2-3% interest rates are gone for the next couple decades

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Yeah, this crazy run up in prices over the last couple decades is/was really only possible due to ridiculously low interest rates. Back in the 80s when rates were upwards of 20% prices couldn’t go up since nobody would be able to afford them. I feel like we’ve backed ourselves into a corner with everyone expecting low rates and 20%/year appreciation. Sellers are super stubborn and will need a lot of convincing to realize their house isn’t appreciating 20%/year. Dropping in price? Good luck… they’ll just hang onto it and ride the market down. None of this is good for home sale volume.

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It would add more than $700 on a 30 year loan.

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Youre right, I had to run it again on a mortgage calculator… It actually adds $800/month! It goes from $1897 to $2698. Hard to believe a loan could increase that much in such a short time… Rates were below 3% just 7 months ago

Yeah, not good news for the paycheck to paycheck folks. Over the last few months people’s purchasing power has taken quite a hit. The irony is the folks pushing the limits of what they can “afford” starts with first-time buyers and goes right up into ultra high-end houses.

As I’m inspecting I’ll often overhear conversations buyers have with their agent or mortgage brokers. They pull in cars MUCH nicer than mine and are looking at houses MUCH nicer than mine but are absolutely stretching it to the limits. I don’t understand why they can’t just buy a 700K house instead of a 900K house? Learning to live within reasonable means is totally lost on Americans today (okay, stepping off soapbox and taking off cranky old-guy hat).

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So far no problem here, unless you’re a buyer:

  • Sale price: The price of single family homes rose 11% between Q1 2021 and Q1 2022 to a median of $1,025,000, the highest for the quarter since we began tracking in 1997. This is in addition to the 22% growth experienced between 2020 and 2021. Prices have risen every Q1 since 2016.
  • Price over asking: Homes sold an average of 20% over list price. This is the highest for the quarter and near an all-time high for the market. This metric can be a bit “fuzzy” as it is driven by pricing strategy: sellers and their agents often “underlist” a property to encourage offers. But assuming the strategy holds over time, the change in value shows an increasing level of competition.
  • Days on market: Properties received a ratified contract within an average of 19 days, another record-breaker for the quarter.
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Wow… that’s crazy but not too far off what is happening in Oregon and Maui. These price increases just have to be unsustainable at some point but who knows when the ball will drop!

I think when real inflation is greater than 20%, housing prices aren’t really increasing that crazy. I could have made 500% returns if I had filled my garage with 4x4 cedar fence posts 3 years ago and sold them late last year (yeah take that bitcoin). To be honest, the price of seltzer water has gone up 20%… What I remember about 2008 is one morning I got into the office, and there was some melt down nobody could understand, and my boss’s $1M retirement was down to 488k and he was going to have to work until he was 85 to make that back. In the end everything worked out, and we all needed some serious belt tightening for a couple years. Just always have money saved, that’s a cardinal rule.

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Welcome to our forum, Hasso!..enjoy participating. :smiley:

I don’t know… some of us weren’t all that shocked (disappointed, sure). I mean, when a person making minimum wage could get a stated income loan for 125% of a house’s (inflated) value I knew something had to give. It won’t be as bad this time since the banking aspect is more in check but LOTS of people have been buying on speculation and feel they are owed 20% return per year. Once that isn’t the case I think we’ll see a wave of foreclosures.

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Quote from article: “Put simply, Americans have literally never seen housing prices skyrocket like they are now for this long of a period. And every time they have approached the numbers we are seeing today in the past - in the 1970s, late-1980s, and early to mid-2000s - there was a massive real estate or stock market crash that soon followed (or both).”

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I was listening to a financial talk radio show. I am paraphrasing and I do not know the actual numbers but I am close. Average home price in America is $550K, Average borrower can afford $450K and is dropping due to rising interest rates. I am predicting inventory will slowly rise, prices will go down and by fall we will have a balanced market which is good for us.

Question is, do we go from balanced to off the cliff?

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For those that don’t follow economic news, there are two leading indicators of a recession. The first is the Treasury Yield Curve and the second is the GDP (Gross Domestic Product).

  1. Treasury Yield Curve - When the squiggly blue line goes below the red line, we are fairly certain to be entering, or are already in, a recession.

  1. GDP - Two consecutive quarters of negative GDP generally means an economy is in a recession.

Q1/2022 GDP was negative 1.4.

Q2/2022 ends on June 30th. Economic gurus will be closely watching this metric as we head into summer.

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Note for everyone (Ryan knows this I’m sure) recessions are called retroactively. The gray in the chart are past recessions, which are never recognized right away.

Is inflation somehow baked into the cake in all of this? It seems like if inflation is high enough it could prevent the numbers from showing a recession when, in fact, one is/has occurred.

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Just saw this article

Now if someone is to get hosed should the market tank, the buyer of this place would be, well…

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eww, and in Fort Collins, of all places… :grinning:

You are on to something. I was listening today and an analysist had come to the same conclusion. Inflation may be hiding a recession that is already in action. Not only that, two qtrs of Negative GDP does not mean we are in a recession, it means we have been in a recession for several months IMO.