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Homes in 97% of U.S. cities are overvalued, Moody's says

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Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#201

Post by betaby »

seanmcdirmid wrote: post #55
maxerickson wrote: post #30

Earlier quoted context omitted.

Square feet aren't a great affordability measure (they tend to come in rather larger lumps). In any case, why not just continue the era of abundance? We aren't really running short on space, and there is at least some indication that the lack of housing availability is a policy failure (rather than an expected outcome of some physical process or limit).

We lack space in the few urban areas people want to live in. If people were flexible about where they wanted to live, you’d think that the cheap land/lightly zoned places would prosper, but they don’t.

I don't know. In Canada housing is expensive everywhere.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#202

Post by majormajor »

snowwrestler wrote: post #78
DoubleDerper wrote: post #31

Earlier quoted context omitted.

Relative to which assets? Stocks? Cars? Forex? IP? Crypto? Genuinely curious because everything is more expensive than it was before. If everything is overvalued, then nothing is overvalued [relatively]

Stocks would be an obvious point of comparison. They’re down but real estate prices remain up. The argument for overvalued housing is that everyone got antsy during the pandemic and wanted to change houses and change neighborhoods, but that will settle down now that the pandemic is waning. Tech stocks seem to be falling because the pandemic-driven surge of screen time is fading now that the pandemic is waning. So: is…

Stocks are still massively up even today (S&P 500, Dow, Nasdaq) since early 2000, the "before times" for much of this current real estate spree.

S&P 3400 in Jan 2020, 4146 today.

Dow 28,600 to almost 33,000 today.

Nasdaq 9000 to 12,300 today.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#203

Post by 9oliYQjP »

jmyeet wrote: post #173

Moody's who quite famously engaged in what should be criminal conspiracy regarding the rating of MBS [1] leading up to 2008 that cost pension funds, mutual funds and investors billions of dollars makes further statements about the housing market. Sorry but I don't put a lot of stock in what Moody's says about anything. There's pretty strong evidence that the rise in house values is structural not speculative. This is…

You might be right. But I just want to add that this housing asset bubble is global in nature.

We here in Canada have been running the interest rate increase experiment ahead of the US. We've also had a much worse run up in housing prices. There are rundown shacks in Oshawa, Ontario selling for more than nice homes in Los Angeles. Where the hell is Oshawa? That's the whole point, it really doesn't matter but it's a former General Motors factory town about 1 hour east of Toronto.

Two months ago the real estate bulls were saying what you were saying now about supply. But the numbers are in for major areas like the greater Toronto area after a single 50 bps increase this past quarter like the one the Fed just dropped down south. Some suburbs of Toronto have already seen median prices drop 10-20% off their January/February 2022 peak prices [1].

The volume of home sales has plunged 41% in Toronto [2] as the market absorbed the 0.5% interest rate hike. And we haven't seen anything yet. A huge chunk of the buyers today have pre-approvals with interest rates from 75 bps ago. Around June 1 these buyers need to commit to a purchase to provide enough time for their lenders to close the deal at the old interest rates before those expire. The Bank of Canada is also expected to make a further 50 bps to 100 bps jump in rates in early June.

Anecdotally, there are already horror stories of over leveraged buyers -- perhaps amateur investors or a family that stretched themselves to the limit to buy -- only for their deal to fall through because the banks won't appraise the home at what they agreed to pay for it.

As a wannabe first time homebuyer myself, I've heard every argument you've said repeated ad nauseum up here in Canada the past half year by real estate bulls -- who I might add, have been totally right in their assessment of our crazy market which could only go up for perhaps the past 15 years -- only for the market sentiment to completely change overnight within a month or two of the 0.5% interest rate hike.

[1]: https://preview.redd.it/w61ns3b7jgx81.jpg?width=1024&auto=we...

[2]: https://www.bnnbloomberg.ca/toronto-home-sales-plunge-41-in-...

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#204

Post by ryanSrich »

11thEarlOfMar wrote: post #195

I live in a development of 115 homes, next to a development of 500 homes. Prices are up 50% in the last 18 months. There are zero out of 615 homes on the market and this is supposed to be high season for transactions. It makes no sense to me.

I think a lot of people are panic buying at this point. The fed has several rate hikes planned, so the TCO is only going up from here. I don’t see prices coming down. We could see the increase in prices slow down, but it’s almost guaranteed a house right now is going to be cheaper than a house in December. Even if the price stays the same, your rate might be 12% in November.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#205

Post by dukeofdoom »

01100011 wrote: post #166
dukeofdoom wrote: post #114

Would you rather hold cash or a home during a period of inflation. Most people wisely chose to put it in a house. With a 7% compound interest rate, your money doubles every 10 years. With a 7% inflation rate, I believe it halves in the same time frame. Perhaps it's not that houses are worth more, it's that money is worth less. A 350k house in 2010 should be 700k now if the real inflation was 7%. And at least where I…

That's great unless we stagflate and people lose jobs or income. Hard to say what we're looking at now.

Or we might see a level of inflation not seen in decades. The kind of inflation we saw before the fall of Communism. Where communist governments kept printing more and more money while working people could buy less and less with it. It got so bad that eventually they just barely had enough for food.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#206

Post by rrrrrrrrrrrryan »

bkjelden wrote: post #136
pjmorris wrote: post #91

Earlier quoted context omitted.

I think there's a more concrete measure of value: house prices related to income. Historically (Robert Shiller has a chart for the US going back to 1890) house prices (and mortgages and rents) have maintained a stable relationship with income. Occasionally that relationship is strained but it has usually fallen back in line. One exception to this was the extraordinary, ongoing, support to the financial system post-20…

One major problem I see with comparing housing prices to income is that most homebuyers in the US are using leverage (a mortgage) to buy their home, and the last 15 years or so have seen comparatively low mortgage rates compared to the several decades beforehand. Housing prices have been able to balloon because debt has been very, very cheap. Whether or not that will continue remains to be seen.

As rates rise to more normal historical levels, and purchasing power diminishes, who will people sell their homes to? Prices will eventually have to come down.

This is the argument that homes are currently overvalued.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#207

Post by HWR_14 »

bradleyjg wrote: post #163
bkjelden wrote: post #136

Earlier quoted context omitted.

One major problem I see with comparing housing prices to income is that most homebuyers in the US are using leverage (a mortgage) to buy their home, and the last 15 years or so have seen comparatively low mortgage rates compared to the several decades beforehand. Housing prices have been able to balloon because debt has been very, very cheap. Whether or not that will continue remains to be seen.

A majority of consistent voters own homes and want house prices to increase. That means most politicians want house prices to increase. The government dominates all aspects of residential lending. What’s the smart bet on what will happen?

> A majority of consistent voters own homes and want house prices to increase.

Are there actually data that say that? I'd only expect data to exist on the first half, but there may also be data (as opposed to a fairly good supposition) from the second.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#209

Post by prawn »

ahoy wrote: post #104
lumost wrote: post #90

Yet another asset crash would annihilate whatever assets millennials have happened to acquire. This would leave the millennial generation largely asset free as they enter their 40s except for inheritance.

I'm not really sure how. I can count on 1 hand the number of under-40 homeowners I know.

I'm not in the US, but can only think of one person in my rough age and social circle that is renting (and that was because he split with a partner and she bought his share of their house). Fairly middle class cohort, mix of public and private schooling. Average house price here is about $1m, though most would have bought earlier and cheaper.

Anyone younger and buying now would be up against it. I think housing affordability is one of the biggest issues we have.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#210

Post by smabie »

finlake wrote: post #124
streetcat1 wrote: post #81

Earlier quoted context omitted.

So this is not entirely correct. If I am not mistaken 30% of buyers are cash buyers, hence they do not care about the mortgage rate. Second, the big issues is with houses supply. The high rate basically lock most current sellers which have very low mortgage rate (compared to 5%), hence reducing the supply more.

I disagree. Until now there might have been 30% buyers with cash, but with rising interest rates that will stop being the case if house prices stay up. People with large sums of spare money always look for ways to park their money. Interest based products (term deposits, bonds etc.) will now become more attractive, diverting some cash flows away from housing.

Alternatively with interest rates higher, buyers might think they can't get a higher return than the interest rate on the mortgage, thus lowering the opportunity cost of paying all in cash.
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