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The global housing market is heading for a brutal downturn

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Re: The global housing market is heading for a brutal downturn

#61

Post by inglor_cz »

ReptileMan wrote: post #51
inglor_cz wrote: post #18

If the nominal prices stagnate or even go down, but mortgage interest rates go significantly up, there is no positive change in affordability for the average buyer. The monthly mortgage installment will stay high, only the principal/interest balance within it will change. The sellers are the ones who will get less money, but the buyers, unless they have huge savings, won't benefit much.

They will since they always can renegotiate their mortgage once interest rates go down.

This is a good observation.

Nevertheless, the worst obstacle in owning a home is actually buying it. Ten or fifteen years downstream, your principal payment likely represents a much smaller fraction of your income than it did when you bought the property, and you can renegotiate the mortgage in better times, as you say - so even the interest can be kept under control.

But the first years of your first mortgage are a real challenge. You need to cough up the downpayment, you might have young kids to take care of, you might still be relatively low on the career ladder etc.

Re: The global housing market is heading for a brutal downturn

#62

Post by candiodari »

pavlov wrote: post #58
bboygravity wrote: post #52

Earlier quoted context omitted.

It does for those with savings in things that the government can't print.

Seems like it’s the other way around? Real estate is a thing the government can’t print. When its value goes down, it becomes more affordable to people with savings in fiat.

Except for most people monthly cost is the metric that matters. So let's compare housing going up 10% per year with 0.5% interest rates to housing going down 10% per year with 5% interest rates:

Least extreme loans: Euro style mortgages (fixed monthly payment, capital repaid over loan duration)

300k house, 0.5% interest rates, 10y: monthly payment of 2563$

270k house, 5% interest rates, 10y: monthly payment of 2865$

Most extreme loans: Interest only loans (note: duration doesn't matter):

300k house, 0.5% interest rates: monthly payment of 125$

270k house, 5% interest rates: monthly payment of 1125$

The whole point of inflation AND of the measures the central bank takes to combat inflation is to reduce usage of goods relative to labor. Meaning the same work will buy less Big Macs, less education, less housing.

More work less pay. Not less pay in money. Less pay in housing, medical care, pizza, ...

I hope you do see WHY the central bank interferes. It does not fundamentally change the situation, that's done by people, the international situation (more COVID in China, which is not over yet, than the situation in Ukraine. Although the situation in Ukraine definitely doesn't help), ... the central bank is protecting the currency, NOT your living standard.

You see the way to win in this system: if there is a housing (or X) downturn ... and you buy with high interest rates, DURING the crisis (which will be scary, of course), is the way to win big. That's the point. We want to limit the damage done to everything backed by loans.

That is fully intentional. The point is to stimulate loaning money to use productively. We want people to buy houses, start new restaurants, build new shopping malls, hospitals, bridges, ...

Re: The global housing market is heading for a brutal downturn

#63

Post by benj111 »

bamboozled wrote: post #36
benj111 wrote: post #34

Earlier quoted context omitted.

Are people hoarding cash/assets? From what I understand the savings rate has been dropping across the western world. In theory though, savings are countercyclical. People made unemployed can still maintain their spending. So it helps break the feedback loop of redundancies -> falling spending -> redundancies. Although we seem to be heading for recession, with high inflation and interest rates, so the normal mechanism…

I'm not spending my money until house prices come down basically, so maybe I'm the cause of the recession but bad luck I guess.

If you're refraining from spending you are suppressing inflation. Where high inflation looks like it is going to cause a recession. so I would say your actions are a net benefit.

Re: The global housing market is heading for a brutal downturn

#64

Post by benj111 »

ChrisMarshallNY wrote: post #42
benj111 wrote: post #34

Earlier quoted context omitted.

Are people hoarding cash/assets? From what I understand the savings rate has been dropping across the western world. In theory though, savings are countercyclical. People made unemployed can still maintain their spending. So it helps break the feedback loop of redundancies -> falling spending -> redundancies. Although we seem to be heading for recession, with high inflation and interest rates, so the normal mechanism…

> From what I understand the savings rate has been dropping across the western world. I’m not sure that’s the case. It may have just declined, but I think it was pretty high, during the COVID years.

I was thinking generational timescales, rather than the last 2 or 3 years, so we're probably both right.

Re: The global housing market is heading for a brutal downturn

#65

Post by benj111 »

vasco wrote: post #38
benj111 wrote: post #31

Earlier quoted context omitted.

Not necessarily. If you have an asset worth 100k and a mortgage for 200k, then it isn't very good if you want to move, or change mortgages. Also, if you're a net seller (downsizing, moving to a care home) you may have been relying on funds locked in the house for other things. So this is generally good for younger people and bad for older people.

I'd choose a young person getting their first home over an old person moving to Florida, but I'm a young person so I'm biased.

The pensioner who can't afford to move to Florida is now staying in their nice big family home, instead of selling it to a young growing family. Also that pensioner may now be a drain on the state, so it isn't a simple choice.

I don't disagree with your broader point though. This (high house prices) is basically a massive transfer of wealth from the young to the old. Unfortunately the old are the ones that tend to vote, so the politicians won't fix it. But until the young as a class do start voting, I don't think it reasonable to blame the old and the politicians for the problem, this is democracy in action.

Re: The global housing market is heading for a brutal downturn

#66

Post by benj111 »

cudgy wrote: post #49
benj111 wrote: post #39

Earlier quoted context omitted.

High inflation is good if you've just bought a house though. Yes it's hard to begin with but compound inflation soon erodes the value of the debt.

This assumes housing moves with inflation, which will not be the case if real wages to pay high interest mortgages do not rise with inflation or prices for housing drop to compensate, which has already started. Buying at the peak even with low interest rates is not a panacea.

>This assumes housing moves with inflation

No it doesn't. When you buy a house your price is locked in.

It assumes wages track inflation which is generally the case.

I also made no assumption as to whether this is a peak or trough in the housing market. Obviously it's better to buy at the bottom but that requires market timing. But in either scenario, assuming wages track inflation, the value of your mortgage is eroded faster, the higher inflation is.

Re: The global housing market is heading for a brutal downturn

#67

Post by kerbs »

pavlov wrote: post #58
bboygravity wrote: post #52

Earlier quoted context omitted.

It does for those with savings in things that the government can't print.

Seems like it’s the other way around? Real estate is a thing the government can’t print. When its value goes down, it becomes more affordable to people with savings in fiat.

If you’re the kind of person who has cash to buy a house (or a significant down payment), what are the odds those assets were in cash and didn’t go down with the greater market?

Feels like a very narrow slice that would be cash-heavy over the last 1-2 years that would benefit from whatever size a house drop ends up being.

Re: The global housing market is heading for a brutal downturn

#68

Post by rightbyte »

inglor_cz wrote: post #18

If the nominal prices stagnate or even go down, but mortgage interest rates go significantly up, there is no positive change in affordability for the average buyer. The monthly mortgage installment will stay high, only the principal/interest balance within it will change. The sellers are the ones who will get less money, but the buyers, unless they have huge savings, won't benefit much.

The buyer do benefit from lower prices. How is this even a talking point. It is as silly as counterintuitive.

If there is less loan to pay back for the same asset, the loan taker benefits.

Re: The global housing market is heading for a brutal downturn

#69

Post by snapplebobapple »

charlieyu1 wrote: post #30
ThrowawayTestr wrote: post #25

Contrary to the wording of the title, this is a good thing for people that treat housing as a place to live instead of an ever appreciating asset.

Housing downturn in an environment of rising interest rates doesn’t help affordability

This is not true over the lifespan of the loan (especially in the US market where interest rates are set for the whole period but can be easily refinanced), although it is possibly true in the immediate term around house purchase. In the immediate term it depends how the affordability of the downpayment changes relative to the affordability of the payments for the individual buyer. in the longer term it depends where interest rates are likely to go. Given they are now relatively balanced vs history it's tougher to say but as we raise interest rates further to combat inflation the likelihood interest rates will go down and the buyer will be able to renegotiate later become very likely.

Re: The global housing market is heading for a brutal downturn

#70

Post by baq »

Beaver117 wrote: post #5
baq wrote: post #4

Earlier quoted context omitted.

It’ll happen slowly then all at once. Be ready to make a move in the next couple years. Be patient, but pounce quickly.

If the downturn is so short you need to "pounce quickly" it isn't much of a downturn. Some countries have had stagnant real estate markets for years. Anyway interest rates are not going down to 2% anytime soon so don't hold your breath. People who bought/refinanced in 2020-2021 will probably never sell.

I see HN didn't take my horoscope well, so I'll leave this chart as an addendum ;)

https://data.sca.isr.umich.edu/get-chart.php?y=2022&m=9&n=41...

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