Real estate going crazy.

[NWSharpshooter]

I don't think it's that easily dismissed.

One driving issue is money availability, both cash and credit. Homes purchased with cash are at an all time high. That's largely fueled by the fast appreciation of home values; people are selling their homes, paying the (now comparatively small) mortgages, and then buying a replacement property with the left over cash. That cycle will stop as appreciation slows. It's already slowing. The ratio of cash sales will begin to drop.

At the same time, credit is going to tighten. We could see a scenario where the economy is so inflated, the fed has no choice but to dramatically adjust rates. It will not surprise me to see 8% to 10% borrowing rates within a year.

I also think we'll see an employment correction as the economy worsens. Which, in turn, leads to foreclosures and excess supply. That spec starter home that would have been $175K five years ago, which sold for $275K this year, could be $100K in foreclosure.

It happened fast in 2007/2008. Easy money drove that one. No reason we can't see a repeat, since easy money is driving this one, and the easy money is going to go away.

I don't know if you have tried getting a mortgage recently, but as someone who has gotten two in the last three years I can tell you that there is no "easy money." With an 800+ credit score, 15 years employment, zero debt, and 70,000 down just qualifying for a 200,000 mortgage was a very different experience than qualifying for a mortgage back in 2007. There was zero income verification back then, people were getting $500,000 mortgages with an unverified $100,000 annual income when in reality that income was closer to $35,000.


The only "easy money" in today's market is from equity in other properties owned/sold and in reality that isn't what I would consider easy money. Easy money is referencing money borrowed, which is very strictly controlled at current time.


Our first home my wife ended up the only one on the loan as I was out of the country and she qualified for $125,000 mortgage with zero down, zero credit, and an 11 dollar an hour job while a full time student. That isn't happening today.

 

[rbstern]

I don't know if you have tried getting a mortgage recently, but as someone who has gotten two in the last three years I can tell you that there is no "easy money." With an 800+ credit score, 15 years employment, zero debt, and 70,000 down just qualifying for a 200,000 mortgage was a very different experience than qualifying for a mortgage back in 2007. There was zero income verification back then, people were getting $500,000 mortgages with an unverified $100,000 annual income when in reality that income was closer to $35,000.


The only "easy money" in today's market is from equity in other properties owned/sold and in reality that isn't what I would consider easy money. Easy money is referencing money borrowed, which is very strictly controlled at current time.


Our first home my wife ended up the only one on the loan as I was out of the country and she qualified for $125,000 mortgage with zero down, zero credit, and an 11 dollar an hour job while a full time student. That isn't happening today.

Not trying to diminish your experience. Completely agree it isn't like 2007 with regard to who is borrowing and what the qualifications are.

The issue is money supply. There's a lot of it. And a big part of that translates to credit availability. More cash means larger downpayments in the hands of buyers. And there is a large, relatively new class of buyers: Those who are using large blocks of corporate equity and/or bond debt (think Blackrock). That money is subject to the same economic laws as any other money.

When equity loses value or bond debt gets expensive, that ability to fuel economic activity in the housing market diminishes.

 

[NWSharpshooter]

Not trying to diminish your experience. Completely agree it isn't like 2007 with regard to who is borrowing and what the qualifications are.

The issue is money supply. There's a lot of it. And a big part of that translates to credit availability. More cash means larger downpayments in the hands of buyers. And there is a large, relatively new class of buyers: Those who are using large blocks of corporate equity and/or bond debt (think Blackrock). That money is subject to the same economic laws as any other money.

When equity loses value or bond debt gets expensive, that ability to fuel economic activity in the housing market diminishes.

I understand that. They extra money that is getting dumped on houses is due to the extra equity in previously owned properties whose values rose quickly due to a lack of supply. We have been underbuilding something like 10 million units per year since 2008 and a few years ago that really started to ratchet things up. The credit is solid this time around. I look for climbing values to stabilize as supply begins to catch up with demand, but that could take several more years....especially if we keep shutting down economies every 3 months. What I don't see happening is a large collapse, especially not a large collapse caused by defaults on bad loans.

Short of a full on collapse I believe what we will see is pretty much what we will see in the auto market and with inflation. Prices will stabilize and possibly even become stagnant for some time, but I seriously doubt we will see a large reduction in cost anytime soon.


I could be wrong. That's why I live in a sensible house with a very inexpensive mortgage and keep my DTI ratio around 10%


I don't plan on being caught with my pants down.

 

[CAMSDADDY]

I don't know if you have tried getting a mortgage recently, but as someone who has gotten two in the last three years I can tell you that there is no "easy money." With an 800+ credit score, 15 years employment, zero debt, and 70,000 down just qualifying for a 200,000 mortgage was a very different experience than qualifying for a mortgage back in 2007. There was zero income verification back then, people were getting $500,000 mortgages with an unverified $100,000 annual income when in reality that income was closer to $35,000.


The only "easy money" in today's market is from equity in other properties owned/sold and in reality that isn't what I would consider easy money. Easy money is referencing money borrowed, which is very strictly controlled at current time.


Our first home my wife ended up the only one on the loan as I was out of the country and she qualified for $125,000 mortgage with zero down, zero credit, and an 11 dollar an hour job while a full time student. That isn't happening today.

I wont say there is easy money but I will say there are hard ways and easy ways to go about financing a home. We bought last year and Realtor turned me on to a guy that he uses. The guy is a member here but dont know his screen name. Let me tell you it was harder than we bought our first house in 2003 but it was no where near as complicated as the one we bought a few years ago. Everything was done by email and scans and it happened easier and faster than anyone said was possible. Sometimes its hard because your finance guy isnt motivated.

I think the additional hoops you have to jump through are to prevent folks from jumping in over their head which a lot of folks are still finding a way to do.

 

[Realtor]

I have a good finance guy that works quick if anyone needs one

 

[spencer60]

You've got a very tight housing market and a lot of investors looking for better returns than they can get from the market or bonds. In times of high inflation real estate always outperforms, and as I mentioned above it looks like at least 20% of all existing home purchases were for investment.

You also have (had?) companies like Zillow buying homes via algorithm for rental or resale. Plus a lot of folks who are looking to get out of their apartments in the city after seeing how the pandemic affected them.

So yeah, there is a lot of money out there now, but it's got almost nothing to do with the availability of mortgages.

 

[NWSharpshooter]

I wont say there is easy money but I will say there are hard ways and easy ways to go about financing a home. We bought last year and Realtor turned me on to a guy that he uses. The guy is a member here but dont know his screen name. Let me tell you it was harder than we bought our first house in 2003 but it was no where near as complicated as the one we bought a few years ago. Everything was done by email and scans and it happened easier and faster than anyone said was possible. Sometimes its hard because your finance guy isnt motivated.

I think the additional hoops you have to jump through are to prevent folks from jumping in over their head which a lot of folks are still finding a way to do.

Yeah the process last year was certainly not difficult, just very thorough. There certainly wasn't any room for creative accounting.

 

[CAMSDADDY]

Yeah the process last year was certainly not difficult, just very thorough. There certainly wasn't any room for creative accounting.

No doubt by the time we closed they knew how much change was in my sofa cushions and sons piggy bank.

 

[Nuke And Juke]

Not trying to diminish your experience. Completely agree it isn't like 2007 with regard to who is borrowing and what the qualifications are.

The issue is money supply. There's a lot of it. And a big part of that translates to credit availability. More cash means larger downpayments in the hands of buyers. And there is a large, relatively new class of buyers: Those who are using large blocks of corporate equity and/or bond debt (think Blackrock). That money is subject to the same economic laws as any other money.

When equity loses value or bond debt gets expensive, that ability to fuel economic activity in the housing market diminishes.

Im going to have to agree with NWSharpshooter on this one. There are a lot of writings about how this is another bubble like 2007 and it really is NOT.

I tend to think that housing in Atlanta has been suppressed for so long that what you are seeing is just the tip of the iceburg in price adjustment. The price increases are "MORE" to come.

States where lots of companies have moved to are seeing much more appreciation than Atlanta. Can you imagine if more companies come to Atlanta? Exactly why this is just the tip of iceburg. Even in states like California, you can still find fairly cheap housing in Stockton. But you're not likely going to find the jobs like in Palo Alto.

In States like Texas, you can't barely afford Austin Texas but you can still goto Waco, Galveston and maybe Houston.

This is NOT 2007...not even close

 

[Grub Master]

Most loans written today are at a low fixed rate and the borrower actually qualified for the loan. The cheater-got-ya loans with floating jacked up rates aren't prevalent. I doubt that the hedge funds are going to bail on the thousands of homes they now rent. Investors have skin in the game and with the lack of new housing people will stay put if there is a down turn. You folks that are waiting on the sidelines for a crash, please sit-in the sidelines and keep waiting. I'm buying and don't need anymore competition.