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Ask HN: What are idling first-time home buyers doing?

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Re: Ask HN: What are idling first-time home buyers doing?

#21

Post by tmnvix »

algoatecorn wrote: post #18
arghnoname wrote: post #5

I think of pricing as a probability distribution, and while it's possible that prices continue to increase, in my view the downside risk on house prices predominates. Here are a few possibilities: 1. high interest leads to an increase in rates, significantly increasing payments and making current prices less affordable. 2. A recession drops wages 3. Stock prices drop precipitously, devaluing a lot of paper money in s…

All perfectly valid points. May I ask what you mean by #1? Interest rates are historically low and a fixed mortgage will only change based on property taxes and insurance. #2 is something I thought about a lot as I was buying my first home, but I couldn't see how a drop in wage would change anything, since my mortgage is now less than what I paid in rent for just a modest apartment.

Not OP, but as I see it, this is not so much about existing mortgages.

New purchases will be funded by loans on terms with higher rates. Because most borrow close to the limit of what they can service, future purchases will be for less. If you and your neighbour both purchased for $1M a year ago and your neighbour sells theirs for $800K this year (because that is all any new purchaser can afford), then your house is also now valued at $800K.

Re: Ask HN: What are idling first-time home buyers doing?

#22

Post by deanmoriarty »

arghnoname wrote: post #5

I think of pricing as a probability distribution, and while it's possible that prices continue to increase, in my view the downside risk on house prices predominates. Here are a few possibilities: 1. high interest leads to an increase in rates, significantly increasing payments and making current prices less affordable. 2. A recession drops wages 3. Stock prices drop precipitously, devaluing a lot of paper money in s…

Do you have any evidence that #1 would actually happen, if interest rates rise?

I was listening to a podcast a while ago where an economist was discussing that if we go back in history and look at the times when interest rates rose, rarely/never we find that housing prices actually went down. They counterintuitively stayed flat or continued to rise (in the US).

Re: Ask HN: What are idling first-time home buyers doing?

#23

Post by AnimalMuppet »

deanmoriarty wrote: post #22
arghnoname wrote: post #5

I think of pricing as a probability distribution, and while it's possible that prices continue to increase, in my view the downside risk on house prices predominates. Here are a few possibilities: 1. high interest leads to an increase in rates, significantly increasing payments and making current prices less affordable. 2. A recession drops wages 3. Stock prices drop precipitously, devaluing a lot of paper money in s…

Do you have any evidence that #1 would actually happen, if interest rates rise? I was listening to a podcast a while ago where an economist was discussing that if we go back in history and look at the times when interest rates rose, rarely/never we find that housing prices actually went down. They counterintuitively stayed flat or continued to rise (in the US).

Depends on how stringent of evidence you want.

Supply and demand in housing doesn't work on the purchase price. It works on the monthly payment (and the down payment), because that's the limiting factor for most buyers. If interest rates rise, the monthly payments rise for the same total house price. So fewer buyers can pay those prices. The demand curve shifts, so the price point shifts.

I saw this with our first house. We paid $61K, at 9% interest. Two years later, interest dropped to 7%, and our house was worth $90K. If we had bought the same house two years later, our monthly payment would have been the same.

Yeah, I know, that's anecdote, not data...

Re: Ask HN: What are idling first-time home buyers doing?

#25

Post by llampx »

fairity wrote: post #10
techdragon wrote: post #4

Saving cash, because the obvious situation is to wait for the crash. It’s going to happen and then I won’t be wasting 2/3rd of my money on the inflated market investment value of what is one of the basic human needs. Real estate as an investment is the sand that a big part of the currently precarious global financial situation sits on. It’s going to collapse in my lifetime and I’d rather be sitting on a pile of cash…

Given how rare a 66% crash is, it seems suboptimal to sit on cash until one occurs. I think there are only two instances in the past century where prices crashed 66% from all time highs. At a 7% annual return, you’ll triple your principal in 16 years, at which point you will still come out ahead even after a 66% crash.

In recent years, house prices have gone up faster than most people's ability to save up a down payment (barring 0 down offers).

So let's say you wanted to save 20% for a down payment and closing costs. That 20% was growing faster than people's ability to save for it. These are the buyers that have been priced out of the market and are the ones that pretty much have to wait for a crash.

Re: Ask HN: What are idling first-time home buyers doing?

#28

Post by techdragon »

llampx wrote: post #25
fairity wrote: post #10

Earlier quoted context omitted.

Given how rare a 66% crash is, it seems suboptimal to sit on cash until one occurs. I think there are only two instances in the past century where prices crashed 66% from all time highs. At a 7% annual return, you’ll triple your principal in 16 years, at which point you will still come out ahead even after a 66% crash.

In recent years, house prices have gone up faster than most people's ability to save up a down payment (barring 0 down offers). So let's say you wanted to save 20% for a down payment and closing costs. That 20% was growing faster than people's ability to save for it. These are the buyers that have been priced out of the market and are the ones that pretty much have to wait for a crash.

While I’m not in this exact situation, it’s why I’m waiting. I’m barely over the edge of this with enough that I could pull the trigger assuming I feel like completely changing my work life balance, commuting arrangements, social life, etc, in order to move a significant distance away in order to take advantage of lower property prices.

It’s obvious as someone living in an area where value is rising faster than peoples ability to save, that the crash will be quite dramatic in these areas in particular. While I don’t expect a 2/3rd crash across the entire property market, I do expect major price realignments well in excess of 25%

Re: Ask HN: What are idling first-time home buyers doing?

#29

Post by ipaddr »

AnimalMuppet wrote: post #23
deanmoriarty wrote: post #22

Earlier quoted context omitted.

Do you have any evidence that #1 would actually happen, if interest rates rise? I was listening to a podcast a while ago where an economist was discussing that if we go back in history and look at the times when interest rates rose, rarely/never we find that housing prices actually went down. They counterintuitively stayed flat or continued to rise (in the US).

Depends on how stringent of evidence you want. Supply and demand in housing doesn't work on the purchase price. It works on the monthly payment (and the down payment), because that's the limiting factor for most buyers. If interest rates rise, the monthly payments rise for the same total house price. So fewer buyers can pay those prices. The demand curve shifts, so the price point shifts. I saw this with our first ho…

Those account for first time buyers only with the min down payment.

Re: Ask HN: What are idling first-time home buyers doing?

#30

Post by odonnellryan »

llampx wrote: post #9

Investing cash in other places and expecting a big crash. Laugh at me if you want.

Just make sure you're understanding charts like this: https://dqydj.com/historical-home-prices/

Maybe we are due for a correction - but there are reasons why housing went up so much the last few years. One is correction from the bust after 08, another is because people drastically changed their lives in response to the pandemic.

It is not super easy to get a loan. It isn't going to be like 08.

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