The alternative, admitting it was obvious to everyone paying attention, would point the finger at the responsible parties (everywhere) who either initiated it, sustained it, or profited from it. Which is a great many people in the financial industry.
Why self flaggate when you can pretend it was a surprise instead?
Exactly. For me, this article trending on HN is a pretty good signal that the bags have finally been passed, and the "keeping buying" narrative is no longer necessary or lucrative.
Yup. I imagine most of the key stakeholder/editorial approvers have already taken up some kind of short position, or at least exited any of their positions that require an up and to the right trajectory quite awhile ago.
I genuinely don't get this. Everyone older than 30 or so saw the writing on the wall... hey, this is 2006-2008 all over again.
Why so many people, even institutions, kept arguing otherwise baffles me. It's like CNN telling us to stick a fork in a light socket, their experts are sure it won't shock us this time.
> Why so many people, even institutions, kept arguing otherwise baffles me.
I think it was here on HN I first saw the expression "Pessimists get the benefit of being right, optimists get the benefit of being rich."
I generally consider myself a pessimist (well I think I'm realist...) but I somewhat agree with this logic.
What really happens is that (especially) institutions have to make money today. If you're in a bubble, and know you're in a bubble, philosophically it is quite correct to point out that everything around is is built on shaking foundations and will collapse. It can be maddening to see others not understand this.
But if you're the one in change of a fund, and we're in a bubble, you can't simply not participate because their is still money on the table and your job is to grab it while you can.
It doesn't benefit financial institutions to see bubbles or question fundamentals because it may make you hesitate when you should be focused on getting that next increase.
Agreed. Even though I am way too young to have owned a house in 2006, I don't forget the stories from others about how they bought a condo for $90,000 in 2000 and turned downed an offer of $200,000 or more in late 2005.
There are many forces and policies that control housing prices in the US but one thing is obvious: it's subject to insane booms and busts.
It's the same reason they told us inflation wasn't happening, and then it was transitory, then it was because of Putin, now it is actually a good thing.
They have no respect for you or your intelligence and they want you to feel scared. The goal of propaganda is not to convert you to anything it is simply to convince you that you are alone, so that you won't have the courage to point out the emporer is wearing no clothes.
> It's the same reason they told us inflation wasn't happening, and then it was transitory, then it was because of Putin, now it is actually a good thing.
Who is "they" here? Because this is a very strange timeline/explanation of inflation and bears very little resemblance to what people who matter were actually saying.
The only part that Central banks really got wrong was that inflation that was originally driven by pandemic driven supply chain issues would be transitory. And they openly admitted they were wrong and course corrected very rapidly.
The immortal Mesopotamian space lizards obviously.
I love the part of the game where we all pretend then that we didn't actually see what we saw and that the reality we saw wasn't real.
Like when everyone said that "no one ever said masks are ineffective", or "the vaccine will be the end of the pandemic " my personal favorite was "2 weeks to slow the grow", the only one better than that was "when we said Russia hacked the election we only ever meant that people in Russia also supported Donald Trump we never meant anything ridiculous by that".
Although who can forget the iconic "firey but mostly peaceful protests" that consumed large swathes of America.
Please, link to a paper of record that said the 2016 accusations were related to actual hacking of machines.
Violence in 2020 protests was limited to several cities but people who live in BFE saw Jesse Watters tell them about the end of the empire.
CDC recommended against masks early on and I resent that for it being incorrect info even if they were doing it for a net good. But also because it gives conspiracy theorist lie-mongers oxygen.
Yeah, it's hard to call Trump a nutter when it turns out his attitude about people being out to get him isn't completely unfounded. The entire Russian Hoax is a good example of that.
oh look, someone did a bit of googling and realized what I said was true.
Then they try to imply that it's weird to expect people to understand the Russia link to Trump without some official title.
inb4 they claim I just changed the word "Hoax" to "Narrative" to hide that I'm a Trump Supporter! (I'm not), therefore I'm racist, sexist, and all other kinds of ist's and I'm going to hell! As a minority!
---
It's been discredited, and it was done under the Biden Administration.
So we know Trump dealt with this most of his presidency (arguably all of it) and we know it's turned out to be manufactured, yet somehow it absolutely cannot be true that he feels as if people are coming after him unfairly?
This is everything that's wrong with current US politics.
The persecution complex is real. You still haven't actually linked to anything, you still haven't responded to the link above with cited misbehaviors of the Trump administration regarding Russian links, and you set up enough strawmen to fill a Halloween corn maze.
It's odd how even straight up telling someone you don't support Trump won't prevent them from trying various tactics to imply you're part of the group that should be summarily dismissed.
And why? Because I pointed out things everyone knows to be true. You haven't straight up said it's untrue because even you know it's true.
But Trump! right?
I saw a youtube video yesterday where someone was banned for making a joke about gassing Ben Shapiro. The person who got banned for making the statement claimed the right-wing WHITE SUPREMACISTS were the ones who got upset. Really? A white supremacist got upset at a joke about gassing a jew?
in 20 years will I still be getting accused of being a Trump Supporter for saying things that are known to be true?
Who knows, but you are everything that's wrong with US Politics right now.
Because in "downturns" the wealthy accumulate more wealth. Since there is still stuff they don't own yet, it's time to have another downturn. Just a small/short one though, as they don't want to be too greedy. That's just rude.
"the timing" is the only thing to talk about; saying "The economy will, at some point in the future, contract." is not in any way an interesting statement.
So yeah, when they say "it's a story few could have foreseen" they are definitely talking about the timing.
Isn't it kind of the entire point of raising the interest rate? How could they say nobody saw this coming. The people in charge of fiscal policy literally said "we are going to do this"
All time high prices and rising interest rates for new loans should tell everything. If you have even basic understanding how average people are estimated for their capacity of taking loans.
And the other shoe drops. I'll have little sympathy for those who were busy buying their second house in 5 years by being heavily leveraged in order to squeeze exorbitant rent rates out of those, while I was being looked down in for not getting involved because I chose to pay down my other debts rather than accumulating more.
Here's some sound financial advice, spend less than you earn, set money aside for a rainy day and try to avoid unreasonable debt.
It’s good if you don’t plan on moving. If you need to move in the next five years, you’ll be underwater and have to cough up cash to close the sale, if you’re not willing to go through the rental schlep.
First folks up on the block in the new macro who will set the declining comps are the ones who must sell.
The idea is to just rent the house with the 2.75% interest rate or house hack it while you live there. Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever. So unless you absolutely need the cash out of that second home, should have zero reason to sell ever.
>Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever.
The price to rent ratio is above 20 in most major us cities[1]. In hot markets like Seattle or Oakland it's even above 30. With a price to rent ratio of 20, 2.75% interest, and $1 million house, your monthly mortgage payment would be $4613, but you'll only be bringing in $4167 in rent, which means a loss of $446/month. This is before expenses like maintenance or property taxes, which would make the loss even higher. With a price to rent ratio of 30, this is even worse, with $2778 in rent and a loss of $1835 before expenses.
And I'd be paying $446/month to own a $1M house. Sounds like a good deal to me, and that's before taking the tax deductions on interest, property taxes and maintenance (which is deductible, because it's a rental property).
Now you've got me thinking about getting back into the rental game...
It works as long as you can service the debt. Low or no reserves and you lose your income or your tenant defaults and you can’t make it through to eviction and re-renting? Godspeed to you.
I’ll give the same advice I gave in 2000 and 2008: don’t lose your job, everything else you can figure out on the fly.
Maybe! I foreclosed on my last home during the 2008 crises because I was so far underwater, the credit derogatory was worth it. It’s still not worth what I paid for it 14 years and two owners later. Gotta plan for nobody coming to save you but you, but if there is stimulus, support, whatever, take the money. No extra credit for playing life on hard mode out of pride or fear of moral hazard.
If you purchased the house with a personal mortgage, is the terms for that note not written so that it is expected to be your primary domicile while also explicitly stating that it will not be a rental property? Of the mortgages that I've had in the past, this is how they were written.
Or were we specifically talking about how to handle that 2nd home. I don't have experience on those contracts.
No buying a house with a personal mortgage requires you to have that house as your primary residence only for 1 year. That's pretty much the core behind the concept of house hacking. Buy, live there for 1 year, move and rent it out, repeat.
This sounds like it has an incredible tail-risk. A sound plan if everything goes to plan but if anything serious happens you might loose big time. Everything is essentially placed on one card. I am not sure how much you can reduce it with insurance (e.g. against renters unable to pay, renters damaging your home, damage from natural disasters or just random repair costs due to unforeseen failure of some equipment etc.) without making the whole calculation turn upside down. I wouldn't finance everything using debt with this reasoning.
Also, is it that easy to rent if you move away?
It's different if you live in it, but casually buying a house and renting it sounds like a huge risk.
Sure as long as nothing ever goes wrong, like an accident leaving you with a disability, a change in employment, a chronically terminally ill family member, things like that never happen to anyone though, well they happen to other people, just not me.
Things go wrong, sure. But at the same time you can't plan your life according to worst case scenario's, you won't get anywhere that way. Have some contingency plans, no need to overdo it.
These are all pretty much problems on a short horizon and only if you compromise emergency savings to finance your rental property, which isn’t a great idea. Once you’ve established rental income and a few years of paying on loan this situation flips and your income stream becomes an asset in these situations.
Also purchase disability insurance, there’s no reason to excessively worry about a tail risk that is very affordable to protect against. If you’ve got second house money you had disability insurance money a while ago.
> It’s good if you don’t plan on moving. If you need to move in the next five years, you’ll be underwater and have to cough up cash to close the sale, if you’re not willing to go through the rental schlep.
I bought a home just over 18 months ago. Put 10% down. I'm already able to remove PMI, and if I sold it today, I would be able to walk away with a _profit_ of $120-160K (and this is on a conventional loan, nothing exorbitant).
Always interesting to see this thrown out in discussions about house prices, given that homes are not an easily-traded asset. You selling today indicates that you got the ball rolling at least several weeks ago and have already secured your next home. Lots of costs to be assumed there. So this hypothetical will almost never bear any relevance. These aren't stocks.
This, and with rates rising fast, the buyer you think you have today could be sidelined next week. And I trust you're not using Zillow to estimate the value of your home.
Very true, to be sure. "Assume a spherical cow" and all that.
But no, not Zillow. One, Redfin seems to be more accurate (but still optimistic) while Zillow is -hopelessly- optimistic (or was, I haven't checked in a few months, when they were trying to bail themselves out of their own situation. I "utilize" my friend who is a mortgage broker and they use their own database to determine how they'd either "automatic appraise" a home, or require an actual appraisal.
On the flip side, I don't use BOAs valuer, either. While my home is (and always has been) 4br/3.5ba, 2600 sqft, BOA has it as a 3br/2.5ba, 2100 sqft in their database, and had it valued at 25% less than the bank appraiser (which was the most conservative of appraiser, Redfin, Zillow).
> And I trust you're not using Zillow to estimate the value of your home.
Thank you for the laugh. Related - several years ago, I built a competitive pricing dashboard for a major US homebuilder, and it sourced Zillow for a portion of its analysis. Time-to-time, I find myself hoping they got around to using a different source.
Housing prices are set by mortgage payments. If interest rates go up, prices have to eventually go down, and vice versa.
So, if you plan on sticking around to the next interest rate swing, buying at an unusually high interest rate allows you to eventually refinance, saving significant amounts of money. Buying at an unusually low interest rate offers no advantage. You’re stuck.
Why do these people always frame a reduction in housing prices as a bad thing and a turnaround to upward price pressure as a good thing? This housing market has been crazy for over a decade and progressively so, a cool down is much needed and IMO the only way to avoid future collapse. A place to live and throw a ball around with your kids should not be out of reach for average people on an open market, prices are distorted and if the forces causing the distortion don't get fixed there will be a crisis.
I think it's a psychological quirk related to loss aversion[0]. Essentially, we view a house as belonging to the owner the moment the ink dries on the mortgage papers and losing a house is objectively a painful thing. Most people don't see the other side: people like me who never owned a home to begin with. I've likely missed out on 100's of thousands in gains by not buying homes with low fixed rates in 2008-2020, but nobody writes sob stories about that. The prevailing narrative is that all the gains from the crazy housing market belong (in some just sense) to the people who happened to buy at the right time.
> A place to live and throw a ball around with your kids should not be out of reach for average people on an open market, prices are distorted and if the forces causing the distortion don't get fixed there will be a crisis.
One of the major forces that causes inflation in the market for single family homes is the broadly held desire for "A place to live and throw a ball around with your kids".
This is especially the case in cities that saw huge price increases during the pandemic and now are seeing major price declines as demand dries up.
The medicine, however much it may be needed, is being delivered by making the very people who have the aforementioned desire less able to purchase because of higher rates. It will be a great opportunity for all or mostly-cash buyers, though.
It's a bit more complicated though, interest rates are part of that function too.
Low prices & low interest rates: great for new entries to homeownership, but would require a surplus of housing
Low prices & high interest rates: great for those who buy property with cash (wealthy people and corporations)
High prices & low interest rates: great for existing owners
High prices & high interest rates: generally bad for everyone except those able to offload existing housing thy own
It's because for many Americans their house is by far their largest asset. For some it's their only meaningful asset and basically is their net worth. A decline in housing prices is a decline in wealth.
Now I am not saying that is a good thing, quite the opposite. Many many problems stem from this reality. But that's where the fear comes from, and fear gets clicks and eyeballs.
It is because fear sells, frame it as a bad thing and you get more clicks, anyone else complaining about it being the fault of capitalism or blame it on the NIMBYs or whatever just have an axe to grind.
I agree on a personal level as someone hoping to buy a home at a reasonable price in the near future, but you have to remember that most of the wealth of middle America is in the form of real estate. Sure, it's good that we're undoing excess, but that process will be painful for the economy as wealth effects are removed. It is a bad thing in the short term, even if it is better in the long term.
The problem is... timing... we've had a 12 year bull cycle. Why should we expect this un-ending growth forever. And the typical 1-2 year recession, is way overdue.
The housing market was already contracting months ago... once interest rates started ticking up. And now at ~7% mortgage rates... housing prices are going to go dramatically down. Mortgage rates were ~3%, just 10 months ago... that means payments are double at this point.
And sadly, we have seen this cycle repeat so many times at this point. Feds put the brakes on the economy and housing sinks. 2008-2009 was classic.
And also, don't look to get into furniture making where the (previously affordable) good looking, high-quality, easy-to-work-with material is 97% imported from... Russia. Baltic birch plywood, I barely knew ye.
Seriously, though. We had a deck designed for me to build (I absolutely can build it, but I have no idea how to actually lay it out). We've been sitting on it since COVID, because the price of materials has been just astoundingly high. What was $1200 in early 2020 is now $2800-$3200. I just cannot justify that cost. I'm praying this stuff comes down soon, I want my deck damnit.
You might want to reconsider. Having a year or two of deck time is pretty awesome. I went ahead and paid inflated prices and never looked back. Fresh air and a great view have pretty much replaced trips to the cinema for me.
I'll say that so far they have been perfectly fine for utility projects I would normally use 2x4 lumber for, like storage shelving. With some care in designing the structure I actually prefer them since they are lighter. Finally when the rough rounded edges are ripped off they even look somewhat nice.
I bought some 2x4 at the big box home center yesterday and I was both pleasantly surprised by the cost and the fact 50% of them were straight. Normally I have to pick through the pile to find the maybe 1 in 10 that are acceptable.
I disagree with some of your second statement. I'm pretty handy and my dad is a carpenter. My significant other sand I spent almost a year and a half looking for a "fixer-upper" homes with the intent to buy and fix and live. For that entire year and a half almost every time we found a home that wasn't a complete trainwreck, someone would come in (sometimes from out of state) pay cash sight unseen and they would get the home. Considering this was going to be our first home, we couldn't compete.
A few months later, we would see the same home back on the market, with a significant markup and basically some light tile work, and a coat of paint. Not really worth the "fee" IMO.
Further, most of the "flipped" homes we looked at were absolutely done by DIYers. Not to knock people who have the drive to do it, but the work was absolutely not to professional standards and not worth the price listed.
So to say that buyers are free to buy fixers-uppers isn't completely true, nor fair.
All of those signs out there that say "We buy homes for cash" that are linked to a flipper gets them some info. Otherwise, they actively send out mailers as junk mail to see if there's any interested parties willing to sell their house. They also tend to watch foreclosure auctions much more closely than your average home buyer.
There's many many ways an interested party can learn advantages over your common house hunter.
They are rent-seeking with the information asymmetry created by the real estate cartel in this country. Many of the flippers do barely any 'fixing up' besides manipulative adds to increase the houses prices over the cost of the improvement. In a perfect information system, that shouldn't be possible. But the real estate industry locks down the information in order to justify insane fees for selling homes.
Flippers, like scalpers, are scumbags who manipulate a market w limited supply. Flippers are worse in a lot of ways because instead of not being able to afford a concert, people can't afford a place to live.
Someone please thing about the gamblers! Investment comes with risk. I don't mean to come off as sounding heartless but house flippers are part of the reason we have a booming homeless population. Taking a cheap home, renovating it and banking the delta might get your some extra dosh in the pocket but it also makes homes more often out or reach for lower and middle income buyers.
I would not be surprised if the Fed oversteers in both directions, and rates start coming back down as fast as they went up. If that happens, this could all be another pump fake downturn that heads right back up. Especially since the labor market is more than fine and this correction seem to be purely due to lever pulling vs actual market dynamics.
I think there's a long way to go until the excess gets cleared out. Maybe not a long way down, but a long time period with poor returns to put things back in balance.
The Fed has historically been extremely reluctant to lower rates. The actions 2008 onwards were a massive historical aberration. One that was proven fairly correct when you compare the US's macros relative to Europe's, where the ECB did not take as aggressive measures.
One could argue that they should not have kept interest rates low in the 2nd half of the 2010s, but it was those low interest rates that has allowed the Fed to rapidly increase rates and yet barely touch historically average rates.
> The actions 2008 onwards were a massive historical aberration
Just like the time right before that, when Greenspan cut rates and kept them low fueling another major asset bubble. It's almost like that's the new normal.
> allowed the Fed to rapidly increase rates and yet barely touch historically average rates
If only someone could get a loan using the historical average rate.
Anyone willing to pay a lot of money to sit in a hotel ballroom to listen to someone tell you how to get rich in real estate definitely qualifies here.
A nicer way of saying that is that it draws in people who are good at working with their hands, but aren’t as good at understanding the Fed and the economy.
I know better than to buy a house in early 2022, but I don’t have the skill to profitably improve a home, either.
I think this refers to leverage introducing a risk of ruin with volatility where it wouldn’t otherwise exist.
If you’re unlevered and have a long time horizon, volatility essentially doesn’t matter. All that matters in the long term is the annual rate of return.
If you’re levered, however, a sufficiently volatile underlying will cause you to get liquidated which sets your return to zero.
Perhaps its a hint at our economic structure being built on an assumption of steadily rising home prices? And the somewhat dire consequences of exceptions leading to sharp policy changes to resume the "norm"?
I could see that as a form of path dependency. Past decisions about our economic framework end up having an outsized effect on today's policy.
Good. Fuck them. Remember that they do the absolute minimal to extract as much money as possible. Get an older house not flipped with a decent kitchen.
It's been a while since I've read a sentence that ignorant in financial news. Everyone saw this coming - we all just disagreed on the timing.