Housing Analysis

[eyephone]

Martin - remote work will swing back in a couple years once offices are re-opened, at least in the Bay area. The huge amount of new office space being built up here tells the tale. So many buildings coming online in 24/25 including the huge downtown SJC Google Village. It will take a couple of performance review cycles for people to get the message, or accept the massive pay cuts for moving out of the Silicon Valley salary market.

I think 2 years from now you'll have plenty of inventory but a smaller pool of qualified buyers due to changing job market and higher rates. Everything finds equilibrium and a pro like you will always be in front of the transaction train.

Microsoft publicly announced to come back to get ready to get back to the office.

Mayor of NYC wants people to come back to work.

Google just publicly announced that it prepares to bring back workers to the office.

These are companies that have existing long term leases or own the buildings.

I know people and business that have not renewed their lease or plan on not renewing. (or simply left because they cant afford to pay rent)

 

[irvinehomeowner]

Let the polls decide:
https://www.talkirvine.com/index.php/topic,18295.0.html

If I could work remote forever, I would.

 

[usctrojancpa]

When my buyers are not competing with 5-10+ other offers on every single home that I'm putting offers out on then I'll know the market is really slowing down. 

 

[Cares]

When my buyers are not competing with 5-10+ other offers on every single home that I'm putting offers out on then I'll know the market is really slowing down.

When my buyers are not dropping like flies because they are priced out or downgrading their search criteria then I'll know the market is cooled.

 

[usctrojancpa]

When my buyers are not competing with 5-10+ other offers on every single home that I'm putting offers out on then I'll know the market is really slowing down.

When my buyers are not dropping like flies because they are priced out or downgrading their search criteria then I'll know the market is cooled.

Yup, I've only had a few low-end buyers drop out and go to the sidelines but the rest are still actively looking even with the higher rates.  Other ones are having to increase their budgets or settle on something smaller or looking outside of their target area/s.  Higher rates have no effected my middle market and high end buyers, they just keep bumping up their price ranges as they started out very conservative (<70% of the borrowing capacity).

 

[CalBears96]

When my buyers are not competing with 5-10+ other offers on every single home that I'm putting offers out on then I'll know the market is really slowing down.

When my buyers are not dropping like flies because they are priced out or downgrading their search criteria then I'll know the market is cooled.

Yup, I've only had a few low-end buyers drop out and go to the sidelines but the rest are still actively looking even with the higher rates.  Other ones are having to increase their budgets or settle on something smaller or looking outside of their target area/s.  Higher rates have no effected my middle market and high end buyers, they just keep bumping up their price ranges as they started out very conservative (<70% of the borrowing capacity).

It is actually laughable to think that higher rate will deter mid to high end buyers. The main factor is price of the homes. I mean, you get a good price at higher rate, you can always refinance later when rate drops. But if you buy at high price, there's absolutely nothing you can do about it later.

 

[usctrojancpa]

When my buyers are not competing with 5-10+ other offers on every single home that I'm putting offers out on then I'll know the market is really slowing down.

When my buyers are not dropping like flies because they are priced out or downgrading their search criteria then I'll know the market is cooled.

Yup, I've only had a few low-end buyers drop out and go to the sidelines but the rest are still actively looking even with the higher rates.  Other ones are having to increase their budgets or settle on something smaller or looking outside of their target area/s.  Higher rates have no effected my middle market and high end buyers, they just keep bumping up their price ranges as they started out very conservative (<70% of the borrowing capacity).

It is actually laughable to think that higher rate will deter mid to high end buyers. The main factor is price of the homes. I mean, you get a good price at higher rate, you can always refinance later when rate drops. But if you buy at high price, there's absolutely nothing you can do about it later.

Most all of my middle market and higher end buyers are move-up buyers who have seen huge equity appreciation in their current homes and all of them don't even need to sell their exit properties to purchase a home (but some do to take reduce their loan amounts on the move-up home and benefit from the $500k tax free gains).

 

[CalBears96]

Most all of my middle market and higher end buyers are move-up buyers who have seen huge equity appreciation in their current homes and all of them don't even need to sell their exit properties to purchase a home (but some do to take reduce their loan amounts on the move-up home and benefit from the $500k tax free gains).

I'm pretty much in the same boat as your buyers, then. I mean, I didn't have a huge equity appreciation since I bought both of my current homes at the peak back in 2005-07 timeframe, but they both do have some appreciation. I don't have to sell either house, but I still plan to sell both since I'm not big on owning real estate and I'm sick of being landlord. I could reduce the amount if I wanted to, but I still prefer to use the money to invest in the stock market.

 

[irvinehomeowner]

It is actually laughable to think that higher rate will deter mid to high end buyers. The main factor is price of the homes. I mean, you get a good price at higher rate, you can always refinance later when rate drops. But if you buy at high price, there's absolutely nothing you can do about it later.

This is similar to the age old argument on TI/IHB that higher rates will result in lower prices.

And so for those who are experts in timing the market, it's better to buy when prices are low and rates are high.

The one flaw in that, prices do not drop proportionally to rising rates... and there are many buyers who don't care about rates thus decreasing some pressure that rising rates may have.

 

[CalBears96]

It is actually laughable to think that higher rate will deter mid to high end buyers. The main factor is price of the homes. I mean, you get a good price at higher rate, you can always refinance later when rate drops. But if you buy at high price, there's absolutely nothing you can do about it later.

This is similar to the age old argument on TI/IHB that higher rates will result in lower prices.

And so for those who are experts in timing the market, it's better to buy when prices are low and rates are high.

The one flaw in that, prices do not drop proportionally to rising rates... and there are many buyers who don't care about rates thus decreasing some pressure that rising rates may have.

I'm not saying that higher rates will result in lower prices. I'm just saying higher rate doesn't have that much effect if the housing price is within your range. Higher rate has a bigger effect on refinance than purchase. LL's point that the drop in purchase is due to higher rates is laughable. Low inventory has a bigger effect than higher rate.

 

[OCtoSV]

Rates have a huge impact on price. I bought my house in SV in early 2017 when rates were similar to today, and that rise in rates from 2016 had lulled the market a bit. I only had to beat out 3 other offers and my agent was savvy enough to coach me on going with zero loan contingency which won the day. The house has almost doubled since then with 3 zero cost refis taking me to sub 2% on my 15 yr.  Our area's appeal is a wide open feel, like a Westlake Village, with the top public schools outside of Saratoga and Cupertino, like an Irvine. Our zip code is ~40K people. A good SoCal comp would be Arcadia. Close to 50/50 Asian/white demographics (Arcadia is probably higher Asian).

 

[Cares]

Yes, rates have direct correlation with home price but it is not the only lever that impacts price.

 

[OCtoSV]

ok, jobs are #1, rates a close #2, inventory #3

 

[sgip]

1 - Jobs
2- Inventory - people will by in a 16% rate market - providing there are homes.
3 - Rates
4 - Cash flow and tax policies

Imagine the market here had the cash flow from outside the US was choked off, or if as was done 30 or so years ago, see tax policies adjusted to make real estate investment less attractive as was done at the time with commercial property.

My .02c

 

[Liar Loan]

I agree with the sentiment that it's better to buy when home prices are cheap and rates are high.  That time is coming.

Right now, home prices are sky high - higher than the 2007 bubble adjusting for inflation - and rates are the lowest in 5,000 years of human history.

 

[AccidentalAnalytics]

Unlike 2007, rents have also kept up with HPI.

 

[Liar Loan]

Unlike 2007, rents have also kept up with HPI.

Not true muchacho. 

The National price-to-rent ratio is at an all-time high (blue line).  The Composite 20 - representing urban areas - is only exceeded by the 2005-2007 bubble peak (red line).

This chart implies prices would need to fall 36% to get back in line with long-term averages.

 

[irvinebullhousing]

Theoretically, if you're not getting any raises and the cost of necessities like utilities, groceries, and gas are all going up, your rent should go down. If the nation is in a recession and people start tightening their belts on spending, you'd think that landlords might take pity and charge a little less to offset that change.

While that'd be great in theory, that's not the capitalist way. Home prices fluctuate. But rent prices? Your landlord is experiencing the same squeeze, and they're probably going to respond to that by jacking up your rent.

 

[irvinehomeowner]

I'd go inventory over rates... not everyone finances home purchases so rates becomes meaningless... but everyone is affected by inventory.

 

[Liar Loan]

Theoretically, if you're not getting any raises and the cost of necessities like utilities, groceries, and gas are all going up, your rent should go down. If the nation is in a recession and people start tightening their belts on spending, you'd think that landlords might take pity and charge a little less to offset that change.

While that'd be great in theory, that's not the capitalist way. Home prices fluctuate. But rent prices? Your landlord is experiencing the same squeeze, and they're probably going to respond to that by jacking up your rent.

The eviction moratorium led to a shortage of rental supply because all the deadbeats got free shelter for 17 months.  That artificial supply shortage led to outsized rent increases for those responsible renters that desperately needed to find housing during the pandemic.  Rental price indexes are calculated using newly signed leases, so the pandemic effects overstate the actual increase in rents for all renters. 

It will take time to undo this artificial supply imbalance.  The CDC moratorium ended in September and it will take time for landlords and the system as a whole to catch up on eviction filings.  Even now, filings are only at 60% of normal.
https://evictionlab.org/updates/research/eviction-filing-trends-after-cdc-moratorium/

Still, evictions remained well below historical average after the moratorium was lifted. At their highest level, in the second month after the moratorium ended (September 27 through October 26), the 48,387 eviction cases we recorded was still only 63.4% of historical average.