So when this bubble bursts, we’ll plunge into a depression?
Pippin: What about the Great Recession?
Aragorn: You’ve already had it.
Pippin: We’ve had one, yes. What about second Great Recession?
Merry: I don’t think he knows about second Great Recession, Pip.
By my count this will be the fifth “once in a lifetime” economic crash in my lifetime.
Yay capitalism!
Yet, somehow the rich get richer, even in “once in a lifetime” economics crashes.
If you look, historically there was a big crash every ten years or so prior to the great depression. Then a whole bunch of financial reforms and regulations were put into place and we had about forty years of relative stability. And then in the 80’s and 90’s most of them were thrown out. And fuck me if we aren’t back to a regular cadence of crashes.
Something something history doomed something…
It’s very unlikely to see the bubble burst again.
Housing is kind of finate, and land is one of the few things that literally is finite.
08 happened and no one was really ready for it. But now the banks and “investors” just won’t slow down buying, because they’re competing against each other now and not individuals.
Prices will keep going up for property, but overall sales will continue to decline. Because once a bank/corporation/investment group buys a property, they’re fucking keeping it.
Banks don’t buy properties, they foreclose on them. They will unload as fast as possible and take a write down.
Big hedge fund and other similar large investors don’t hold onto money losers, and they care about maximizing their return. If the spread between rent and sales price is this high, I’d expect some of the ones that bought a while ago to be considering selling and taking their appreciation gains vs holding onto a cash flow that is multiples lower. Plus corporate lending is a completely different animal than homeowner loans and many of these properties will soon be needing to refinance into a much higher rate. Their owners will sell rather than take a huge hit to cash flow. And many of these bought properties 5-10 years ago and did capital upgrades that are now aging. They’ll be looking to exit before the next upgrade cycle.
Smaller investors can get pretty badly burned in these markets and may not be able to hold on.
Not saying a crash is inevitable or even likely, but real estate is cyclical and we are almost certainly near the top of our current cycle.
I’d like to subscribe to your newsletter.
For real. Nobody else expresses this point of view and its refreshing
Banks don’t buy properties, they foreclose on them.
Lol
https://www.cnn.com/2021/08/02/business/family-homes-wall-street/index.html
No need to stress about that decision when you could never afford a home anyway.
I couldn’t have bought my home without help from family for the down payment. That said, if interest rates didn’t make the monthly payments so high, there are some programs that will give you a grant for the down payment, for example ones that encourage people to move to more rural areas.
Where are these mythical rantals that cost 1600/ mo?
You can still get ~1000/mo in a decent apartment in an urban area in Ohio.
If the urban area you are talking about is specifically the east side of Cleveland, or near parsons in Columbus then maybe. But as it stands right now in the cleveland area specifically (can’t speak about another place) you’ll struggle to find anything that’s upkept for less than 1300 right now.
At least that’s my experience
Depends on the area but 1600 a month is about 19200 per year, which assuming a 5% increase year over year (not exactly realistic but worse case scenario) equates to around 678,800 after 20 years. Depending on the quality of home you’re renting, that could be anywhere from half a million to over 2 million for a 20 year mortgage.
Going to vary wildly by where you are living but overall, seems renting is the cheaper solution, and the caveat of whether or not that home will be worth what you paid for it in 20 years if you decided to sell it. And of course, not considering property taxes.
Our mortgage is under $1000 a month. For a three bedroom house. Granted, we don’t live in the most desirable city, but it’s in a really nice, low-crime neighborhood which is close to a bunch of stores and the mall.
I don’t even want to know what rentals cost around here.
Ya, for those of us lucky enough to have been in a position to buy when the market was down, it’s great. People looking to buy a house today are fucked. We bought our home at the end of 2011. We paid $150k for a ~1250sq.ft. home, on about half an acre of land and the local school district is well rated. It’s a more rural area, with the local economy linked to several area US DoD installations. We refinanced the loan and pulled some money out to re-do the roof and windows and now sit at 3.5% APR. The end result is a monthly mortgage payment of ~$950/month.
Our house now appraises for ~$340k. While some of that movement is likely related to finishing the basement and adding 500sq.ft. of living space and an extra bathroom, most of it has just been market movement. Given today’s interest rates, payments would be north of $2000/month. While we could probably make that work, it would make saving any money difficult.
Given current conditions, I think the article is right. Rent for now and hope the housing market corrects.
That sounds like a dream. I just bought a $550k house with $130k down and pay $3500 a month. Rates are absolutely ridiculous. At the same time, I don’t think it’s cheaper to rent at the moment.
I see! So rent has to increase to close the gap, right? RIGHT?!
