The Home Equity "Myth"

Investor Mindset
4yFollow

The Home Equity "Myth"

John Carbone
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes

I hear a lot of talk about how it's different this time, and real estate prices won't be affected too much because everybody has so much "equity" in their homes. What people fail to understand is, why do they have so much equity in their homes in the first place? Sure, 3-4% gains are normal in real estate to account for wage growth and normal inflation, but the run up in real estate values to these astronomical levels is not healthy. All of the equity gained is highly driven by cheap money/2-3% mortgage rates. The interest rate is the main component to housing affordability (monthly payment.) So by having 2-3% interest rates, it artificially inflated housing values. This "equity", while it appears real, is really phantom. The fed has aggressively raised rates, we are now sitting at a 7% primary home mortgage rate. A 500k mortgage in 2021 at 3% has a payment of $2,108. a 500k mortgage now at 7% is $3,327. In order to have the payment be $2,108 now at 7% rates, you need a 320k mortgage ($2,129). That is a 36% drop in value now due to rates rising to where they are now. We can adjust for inflation and it's probably closer to 25-30%. The "equity" is being recaptured now to reflect the reality. The fed giveth, and the fed taketh away.

6Reply
98 views

Most Popular Reply

Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
4y

You summed it up well.  Our economic system is not "capitalism"...it is "debtism".  The economy moves based on the availability and cost of debt.

10Reply
See this reply in the discussion

26 Replies

Jump to latestLatest
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @John Carbone

    Don’t disagree but you are missing one big component which is the money supply. It’s also like playing monopoly and having the bank give every person 50% more than normal amount of money they are used to starting with.

    7e investments53 Reviews
    WebsiteView Page
    4Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @Chris Seveney:

    @John Carbone

    Don’t disagree but you are missing one big component which is the money supply. It’s also like playing monopoly and having the bank give every person 50% more than normal amount of money they are used to starting with.

    Isn’t that factored in with housing going up by inflation, which in theory is what increasing the money supply is? The government handout money has made its way through the system now and the consumer is drying up. Yes, wages have increased over the last few years, but at nowhere near the pace of real estate values. Interest rates where they are at now, are designed to pull all that money supply back out of the system. Low interest environment puts phantom equity in the financial system, and the high rates suck it back out like a giant vacuum cleaner/black hole. The job market is strong, but we are being told it’s going to deteriorate because of the rates (the feds own words) this will lead to negative wage growth as companies will not need to pay as much to new workers.it generally takes 3-6 months for rates to truly impact real estate values, there is a stand-off between buyer and seller, but the longer rates stay higher, the sell side has to give. the math is the math (obviously there are exceptions for boom towns or gains based on real local reasons.) 

     As for the monopoly reference, the high rates are also like exponentially increasing the “go to jail”, “income tax”, and “luxury tax” fees. 

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y

    You summed it up well.  Our economic system is not "capitalism"...it is "debtism".  The economy moves based on the availability and cost of debt.

    10Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @John Carbone:

    Everyone has their opinion. I am concerned about the investors that are cashing out equity gains from the last two years so they can purchase new property, especially those that are buying short-term rentals in hot markets. I think they're over-paying and the vacation rentals won't perform as well as they need them to. When the short-term rental fails, it could affect their personal home and drive them under water.

    My brother bought a house in Riverside in 2007. It was a new subdivision and properties were selling like crazy. In 2008 he lost over 40% of his equity and had foreclosure signs going up all around him. He didn't recover that equity for another eight years. In 2021 he sold for twice the purchase price, so it worked out for him. When he first started to panic in 2008, I told him it didn't matter because the mortgage was affordable and he planned to stay put for a long time. I think that's a vastly different scenario from new investors that jumped in these last two years.

    When things go south, we'll see who made wise purchases and who over-extended.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    4Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    4y
    Quote from @John Carbone:
    Quote from @Chris Seveney:

    @John Carbone

    Don’t disagree but you are missing one big component which is the money supply. It’s also like playing monopoly and having the bank give every person 50% more than normal amount of money they are used to starting with.

    Isn’t that factored in with housing going up by inflation, which in theory is what increasing the money supply is? The government handout money has made its way through the system now and the consumer is drying up. Yes, wages have increased over the last few years, but at nowhere near the pace of real estate values. Interest rates where they are at now, are designed to pull all that money supply back out of the system. Low interest environment puts phantom equity in the financial system, and the high rates suck it back out like a giant vacuum cleaner/black hole. The job market is strong, but we are being told it’s going to deteriorate because of the rates (the feds own words) this will lead to negative wage growth as companies will not need to pay as much to new workers.it generally takes 3-6 months for rates to truly impact real estate values, there is a stand-off between buyer and seller, but the longer rates stay higher, the sell side has to give. the math is the math (obviously there are exceptions for boom towns or gains based on real local reasons.) 

     As for the monopoly reference, the high rates are also like exponentially increasing the “go to jail”, “income tax”, and “luxury tax” fees. 


     There's nothing that says the "sell" side has to give. You are looking at options as if it were binary - either prices go up or prices go down. I would say it's equally as likely - and maybe more so, in some markets - that the total number of buyers and sellers contracts more or less equally, keeping things in good equilibrium but just a much smaller overall market. 

    Certainly at any time you will have some people who "have" to sell, and some people who "have" to buy - but if the prospect of high interest rates and declining prices eliminates pools on both sides of the equation, then nothing will change in terms of prices. 

    Here's a simplistic example. I used to rebuild old Mustangs. Eventually the prices of buying cars that could be restored exceeded my willingness to pay, so I was eliminated as a buyer. At the same time, lots of others were also leaving the marketplace - they were too young to care about old Mustangs; they weren't into cars; they were too expensive; etc. Did the price of Mustangs come down? Nope. I sold my last one 20 years ago. It was a 67 convertible that I built myself that still needed a paint job but otherwise was a fine driver. I sold it for $7k, which was a decent price for both myself and the buyer back then. Today that same car would cost me at least $20k to purchase, despite the fact that we haven't had 200% inflation during that time. Overall, the entire classic car market has contracted dramatically - younger people just aren't into it like we were when I was a kid - but prices are sky-high because there's no inventory since sellers have a bottom line and below that they're unwilling to sell at all. 

    This is precisely what I think will happen with real estate. 

    Podcast Guest on Show #243
    Skyline Properties
    View Page
    5Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @JD Martin:
    Quote from @John Carbone:
    Quote from @Chris Seveney:

    @John Carbone

    Don’t disagree but you are missing one big component which is the money supply. It’s also like playing monopoly and having the bank give every person 50% more than normal amount of money they are used to starting with.

    Isn’t that factored in with housing going up by inflation, which in theory is what increasing the money supply is? The government handout money has made its way through the system now and the consumer is drying up. Yes, wages have increased over the last few years, but at nowhere near the pace of real estate values. Interest rates where they are at now, are designed to pull all that money supply back out of the system. Low interest environment puts phantom equity in the financial system, and the high rates suck it back out like a giant vacuum cleaner/black hole. The job market is strong, but we are being told it’s going to deteriorate because of the rates (the feds own words) this will lead to negative wage growth as companies will not need to pay as much to new workers.it generally takes 3-6 months for rates to truly impact real estate values, there is a stand-off between buyer and seller, but the longer rates stay higher, the sell side has to give. the math is the math (obviously there are exceptions for boom towns or gains based on real local reasons.) 

     As for the monopoly reference, the high rates are also like exponentially increasing the “go to jail”, “income tax”, and “luxury tax” fees. 


     There's nothing that says the "sell" side has to give. You are looking at options as if it were binary - either prices go up or prices go down. I would say it's equally as likely - and maybe more so, in some markets - that the total number of buyers and sellers contracts more or less equally, keeping things in good equilibrium but just a much smaller overall market. 

    Certainly at any time you will have some people who "have" to sell, and some people who "have" to buy - but if the prospect of high interest rates and declining prices eliminates pools on both sides of the equation, then nothing will change in terms of prices. 

    Here's a simplistic example. I used to rebuild old Mustangs. Eventually the prices of buying cars that could be restored exceeded my willingness to pay, so I was eliminated as a buyer. At the same time, lots of others were also leaving the marketplace - they were too young to care about old Mustangs; they weren't into cars; they were too expensive; etc. Did the price of Mustangs come down? Nope. I sold my last one 20 years ago. It was a 67 convertible that I built myself that still needed a paint job but otherwise was a fine driver. I sold it for $7k, which was a decent price for both myself and the buyer back then. Today that same car would cost me at least $20k to purchase, despite the fact that we haven't had 200% inflation during that time. Overall, the entire classic car market has contracted dramatically - younger people just aren't into it like we were when I was a kid - but prices are sky-high because there's no inventory since sellers have a bottom line and below that they're unwilling to sell at all. 

    This is precisely what I think will happen with real estate. 

    I don’t see how it’s apples to apples comparing the largest economy in the world with the world reserve currency and huge liquidity to a very very very illiquid collectible car market. First, there is never ending supply of land to build in the USA right now to add additional supply. Over the years those cars had been scrapped, abandoned, or some are probably still sitting on one of the many rural areas. So yes, when supply is taken off the market with collectible cars, they will appreciate in value for the small subset of collectors.

    It doesn’t take a whole lot of folks to give in in order to cause a drop in real estate values, and once momentum swings (it already has) that is a difficult force to swing back unless interest rates go back down. New Multi family construction is at generational high now, complexes have been built in droves that have been and are coming on the market daily. On the aggregate, buyers will have options to wait it out. When someone needs to sell they sell, Prices are already falling every now now, and it’s just getting started. The amount of people who have second homes is also at historical levels, these people don’t need to sell.

    The fed is already telling us what is going to happen. Jobs will be lost and interest rates will be high. The fed is the casino, they have the power and the means to move the country in the direction they want. They want lower real estate values, and they will keep applying the pressure until the market is squeezed to meet their objective.

    The us consumer in general is heavily indebted and paycheck to paycheck. When the high paying jobs are lost, they need to sell their house even if they have “equity”, it needs to be sold. People who don’t own a house right now are already renting and like I said they more supply keeps coming on the market for them so that will soften rental prices. 


    If rates stay this high for 6 months or longer, it’s a guarantee values will be down 6 months from now in the majority of markets. Unless the fed cuts rates again, then the air can reinflate the phantom equity.

     Federal Reserve Chair Jerome Powell commented, “we’ve had a time of a red-hot housing market all over the country… housing prices were going up at an unsustainable level. We probably in the housing market have to go through a correction.”


    update: I found this article, it sums it up well

    https://www.google.com/amp/s/w...

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    4y
    Quote from @John Carbone:
    Quote from @JD Martin:
    Quote from @John Carbone:
    Quote from @Chris Seveney:

    @John Carbone

    Don’t disagree but you are missing one big component which is the money supply. It’s also like playing monopoly and having the bank give every person 50% more than normal amount of money they are used to starting with.

    Isn’t that factored in with housing going up by inflation, which in theory is what increasing the money supply is? The government handout money has made its way through the system now and the consumer is drying up. Yes, wages have increased over the last few years, but at nowhere near the pace of real estate values. Interest rates where they are at now, are designed to pull all that money supply back out of the system. Low interest environment puts phantom equity in the financial system, and the high rates suck it back out like a giant vacuum cleaner/black hole. The job market is strong, but we are being told it’s going to deteriorate because of the rates (the feds own words) this will lead to negative wage growth as companies will not need to pay as much to new workers.it generally takes 3-6 months for rates to truly impact real estate values, there is a stand-off between buyer and seller, but the longer rates stay higher, the sell side has to give. the math is the math (obviously there are exceptions for boom towns or gains based on real local reasons.) 

     As for the monopoly reference, the high rates are also like exponentially increasing the “go to jail”, “income tax”, and “luxury tax” fees. 


     There's nothing that says the "sell" side has to give. You are looking at options as if it were binary - either prices go up or prices go down. I would say it's equally as likely - and maybe more so, in some markets - that the total number of buyers and sellers contracts more or less equally, keeping things in good equilibrium but just a much smaller overall market. 

    Certainly at any time you will have some people who "have" to sell, and some people who "have" to buy - but if the prospect of high interest rates and declining prices eliminates pools on both sides of the equation, then nothing will change in terms of prices. 

    Here's a simplistic example. I used to rebuild old Mustangs. Eventually the prices of buying cars that could be restored exceeded my willingness to pay, so I was eliminated as a buyer. At the same time, lots of others were also leaving the marketplace - they were too young to care about old Mustangs; they weren't into cars; they were too expensive; etc. Did the price of Mustangs come down? Nope. I sold my last one 20 years ago. It was a 67 convertible that I built myself that still needed a paint job but otherwise was a fine driver. I sold it for $7k, which was a decent price for both myself and the buyer back then. Today that same car would cost me at least $20k to purchase, despite the fact that we haven't had 200% inflation during that time. Overall, the entire classic car market has contracted dramatically - younger people just aren't into it like we were when I was a kid - but prices are sky-high because there's no inventory since sellers have a bottom line and below that they're unwilling to sell at all. 

    This is precisely what I think will happen with real estate. 

    I don’t see how it’s apples to apples comparing the largest economy in the world with the world reserve currency and huge liquidity to a very very very illiquid collectible car market. First, there is never ending supply of land to build in the USA right now to add additional supply. Over the years those cars had been scrapped, abandoned, or some are probably still sitting on one of the many rural areas. So yes, when supply is taken off the market with collectible cars, they will appreciate in value for the small subset of collectors.

    It doesn’t take a whole lot of folks to give in in order to cause a drop in real estate values, and once momentum swings (it already has) that is a difficult force to swing back unless interest rates go back down. New Multi family construction is at generational high now, complexes have been built in droves that have been and are coming on the market daily. On the aggregate, buyers will have options to wait it out. When someone needs to sell they sell, Prices are already falling every now now, and it’s just getting started. The amount of people who have second homes is also at historical levels, these people don’t need to sell.

    The fed is already telling us what is going to happen. Jobs will be lost and interest rates will be high. The fed is the casino, they have the power and the means to move the country in the direction they want. They want lower real estate values, and they will keep applying the pressure until the market is squeezed to meet their objective.

    The us consumer in general is heavily indebted and paycheck to paycheck. When the high paying jobs are lost, they need to sell their house even if they have “equity”, it needs to be sold. People who don’t own a house right now are already renting and like I said they more supply keeps coming on the market for them so that will soften rental prices. 


    If rates stay this high for 6 months or longer, it’s a guarantee values will be down 6 months from now in the majority of markets. Unless the fed cuts rates again, then the air can reinflate the phantom equity.

     Federal Reserve Chair Jerome Powell commented, “we’ve had a time of a red-hot housing market all over the country… housing prices were going up at an unsustainable level. We probably in the housing market have to go through a correction.”


     It seems to me that you have a narrative that you are pushing rather than an interest in debating possibilities, over multiple threads. The fact is that no one knows with any certainty what is going to happen. I don't disagree that it's possible that some markets - maybe many markets - experience some reduction in prices - but given that all real estate is local, there's not going to be any one thing that happens across the entire US. 

    My analogy of the collectible car market was not meant to "compare" the US to classic cars, only to illustrate that there's no absolute that says sellers will magically materialize to reduce prices such that the housing market plunges. 

    Let's pretend we're in small town USA for a moment. In our small town, there's 1,000 homes and typically - let's say 2017 - at any one time 10% of the inventory is for sale of varying price points, 100 homes. Also in 2017 there are 100 buyers looking for houses. A nice equilibrium. Prices go up just with inflation, 2% per year. 

    Suddenly 2020 hits and in our small town 100 people decide they want to flee where they live and come here. Now there's 100 houses and 200 buyers. Prices start climbing rapidly. Our 200 buyers stays steady, but our 100 homes dwindles to 75 homes as the speed of our new buyers exhausts the normal churn of sellers. We get to 2022 and the Fed starts jacking rates, and 30 year mortgage rates start climbing. Some of our small-town homeowners figure they want to take advantage of super-high prices and retire to Florida, so there's a 40% increase in supply as they jump into the market. Meanwhile, half of our buyers fall out of competition altogether - they can't even afford the lowest price houses, or they go back to where they were before the pandemic. So where are we? We're back to 100 sellers and 100 buyers. Back to the same equilibrium we were at when all of this started. The buyers that remain accept that prices are higher and mortgage rates are higher, and the sellers that remain accept that massive increases have probably come to a halt. All we've done is go back where we started, at a different point of equilibrium. 

    To believe there's going to be a massive housing price downturn and corresponding drop in rental prices really means you foresee a recession/depression that lands somewhere between 2007 and 1930. That's a pretty bold prediction, and at least where I am I don't see any evidence whatsoever of that kind of economic collapse. 

    Podcast Guest on Show #243
    Skyline Properties
    View Page
    6Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @JD Martin:
    Quote from @John Carbone:
    Quote from @JD Martin:
    Quote from @John Carbone:
    Quote from @Chris Seveney:

    @John Carbone

    Don’t disagree but you are missing one big component which is the money supply. It’s also like playing monopoly and having the bank give every person 50% more than normal amount of money they are used to starting with.

    Isn’t that factored in with housing going up by inflation, which in theory is what increasing the money supply is? The government handout money has made its way through the system now and the consumer is drying up. Yes, wages have increased over the last few years, but at nowhere near the pace of real estate values. Interest rates where they are at now, are designed to pull all that money supply back out of the system. Low interest environment puts phantom equity in the financial system, and the high rates suck it back out like a giant vacuum cleaner/black hole. The job market is strong, but we are being told it’s going to deteriorate because of the rates (the feds own words) this will lead to negative wage growth as companies will not need to pay as much to new workers.it generally takes 3-6 months for rates to truly impact real estate values, there is a stand-off between buyer and seller, but the longer rates stay higher, the sell side has to give. the math is the math (obviously there are exceptions for boom towns or gains based on real local reasons.) 

     As for the monopoly reference, the high rates are also like exponentially increasing the “go to jail”, “income tax”, and “luxury tax” fees. 


     There's nothing that says the "sell" side has to give. You are looking at options as if it were binary - either prices go up or prices go down. I would say it's equally as likely - and maybe more so, in some markets - that the total number of buyers and sellers contracts more or less equally, keeping things in good equilibrium but just a much smaller overall market. 

    Certainly at any time you will have some people who "have" to sell, and some people who "have" to buy - but if the prospect of high interest rates and declining prices eliminates pools on both sides of the equation, then nothing will change in terms of prices. 

    Here's a simplistic example. I used to rebuild old Mustangs. Eventually the prices of buying cars that could be restored exceeded my willingness to pay, so I was eliminated as a buyer. At the same time, lots of others were also leaving the marketplace - they were too young to care about old Mustangs; they weren't into cars; they were too expensive; etc. Did the price of Mustangs come down? Nope. I sold my last one 20 years ago. It was a 67 convertible that I built myself that still needed a paint job but otherwise was a fine driver. I sold it for $7k, which was a decent price for both myself and the buyer back then. Today that same car would cost me at least $20k to purchase, despite the fact that we haven't had 200% inflation during that time. Overall, the entire classic car market has contracted dramatically - younger people just aren't into it like we were when I was a kid - but prices are sky-high because there's no inventory since sellers have a bottom line and below that they're unwilling to sell at all. 

    This is precisely what I think will happen with real estate. 

    I don’t see how it’s apples to apples comparing the largest economy in the world with the world reserve currency and huge liquidity to a very very very illiquid collectible car market. First, there is never ending supply of land to build in the USA right now to add additional supply. Over the years those cars had been scrapped, abandoned, or some are probably still sitting on one of the many rural areas. So yes, when supply is taken off the market with collectible cars, they will appreciate in value for the small subset of collectors.

    It doesn’t take a whole lot of folks to give in in order to cause a drop in real estate values, and once momentum swings (it already has) that is a difficult force to swing back unless interest rates go back down. New Multi family construction is at generational high now, complexes have been built in droves that have been and are coming on the market daily. On the aggregate, buyers will have options to wait it out. When someone needs to sell they sell, Prices are already falling every now now, and it’s just getting started. The amount of people who have second homes is also at historical levels, these people don’t need to sell.

    The fed is already telling us what is going to happen. Jobs will be lost and interest rates will be high. The fed is the casino, they have the power and the means to move the country in the direction they want. They want lower real estate values, and they will keep applying the pressure until the market is squeezed to meet their objective.

    The us consumer in general is heavily indebted and paycheck to paycheck. When the high paying jobs are lost, they need to sell their house even if they have “equity”, it needs to be sold. People who don’t own a house right now are already renting and like I said they more supply keeps coming on the market for them so that will soften rental prices. 


    If rates stay this high for 6 months or longer, it’s a guarantee values will be down 6 months from now in the majority of markets. Unless the fed cuts rates again, then the air can reinflate the phantom equity.

     Federal Reserve Chair Jerome Powell commented, “we’ve had a time of a red-hot housing market all over the country… housing prices were going up at an unsustainable level. We probably in the housing market have to go through a correction.”


     It seems to me that you have a narrative that you are pushing rather than an interest in debating possibilities, over multiple threads. The fact is that no one knows with any certainty what is going to happen. I don't disagree that it's possible that some markets - maybe many markets - experience some reduction in prices - but given that all real estate is local, there's not going to be any one thing that happens across the entire US. 

    My analogy of the collectible car market was not meant to "compare" the US to classic cars, only to illustrate that there's no absolute that says sellers will magically materialize to reduce prices such that the housing market plunges. 

    Let's pretend we're in small town USA for a moment. In our small town, there's 1,000 homes and typically - let's say 2017 - at any one time 10% of the inventory is for sale of varying price points, 100 homes. Also in 2017 there are 100 buyers looking for houses. A nice equilibrium. Prices go up just with inflation, 2% per year. 

    Suddenly 2020 hits and in our small town 100 people decide they want to flee where they live and come here. Now there's 100 houses and 200 buyers. Prices start climbing rapidly. Our 200 buyers stays steady, but our 100 homes dwindles to 75 homes as the speed of our new buyers exhausts the normal churn of sellers. We get to 2022 and the Fed starts jacking rates, and 30 year mortgage rates start climbing. Some of our small-town homeowners figure they want to take advantage of super-high prices and retire to Florida, so there's a 40% increase in supply as they jump into the market. Meanwhile, half of our buyers fall out of competition altogether - they can't even afford the lowest price houses, or they go back to where they were before the pandemic. So where are we? We're back to 100 sellers and 100 buyers. Back to the same equilibrium we were at when all of this started. The buyers that remain accept that prices are higher and mortgage rates are higher, and the sellers that remain accept that massive increases have probably come to a halt. All we've done is go back where we started, at a different point of equilibrium. 

    To believe there's going to be a massive housing price downturn and corresponding drop in rental prices really means you foresee a recession/depression that lands somewhere between 2007 and 1930. That's a pretty bold prediction, and at least where I am I don't see any evidence whatsoever of that kind of economic collapse. 

    I don’t have a narrative. I’m just watching global markets and listening to the guy that controls the velocity of money in the financial system. He wants lower home values/rents , that’s been a big part of the high inflation that he is determined to reign in. If it’s not dropping enough for his liking, he raises more until he gets what he wants. That’s just the reality. If you look at the history, people who go against the fed lose. There is a reason for that, they have unlimited ammunition.

    most stocks are down 50 percent from highs already, indexes down 20 percent, there’s almost no pain in the markets, no bankruptcies.. business as usual. When the fed sees this, they know they need to press the market more (more rate hikes). Not predicting the end of the world here by saying housing values are going to drop by up to 30 percent (ie, 2019 level). The whole asset bubble during Covid was fake, it’s being taken back now. 

    The reason you don’t see it yet is because it’s  lagging. Jobs will be lost, then you will start to see it clear as day. Things happen quickly. I’ll guarantee that if rates stay at these levels, you will be seeing it by February/March….the reason I can guarantee it is because its simple math. 

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    4y
    Quote from @John Carbone:
    Quote from @JD Martin:
    Quote from @John Carbone:
    Quote from @JD Martin:
    Quote from @John Carbone:
    Quote from @Chris Seveney:

    @John Carbone

    Don’t disagree but you are missing one big component which is the money supply. It’s also like playing monopoly and having the bank give every person 50% more than normal amount of money they are used to starting with.

    Isn’t that factored in with housing going up by inflation, which in theory is what increasing the money supply is? The government handout money has made its way through the system now and the consumer is drying up. Yes, wages have increased over the last few years, but at nowhere near the pace of real estate values. Interest rates where they are at now, are designed to pull all that money supply back out of the system. Low interest environment puts phantom equity in the financial system, and the high rates suck it back out like a giant vacuum cleaner/black hole. The job market is strong, but we are being told it’s going to deteriorate because of the rates (the feds own words) this will lead to negative wage growth as companies will not need to pay as much to new workers.it generally takes 3-6 months for rates to truly impact real estate values, there is a stand-off between buyer and seller, but the longer rates stay higher, the sell side has to give. the math is the math (obviously there are exceptions for boom towns or gains based on real local reasons.) 

     As for the monopoly reference, the high rates are also like exponentially increasing the “go to jail”, “income tax”, and “luxury tax” fees. 


     There's nothing that says the "sell" side has to give. You are looking at options as if it were binary - either prices go up or prices go down. I would say it's equally as likely - and maybe more so, in some markets - that the total number of buyers and sellers contracts more or less equally, keeping things in good equilibrium but just a much smaller overall market. 

    Certainly at any time you will have some people who "have" to sell, and some people who "have" to buy - but if the prospect of high interest rates and declining prices eliminates pools on both sides of the equation, then nothing will change in terms of prices. 

    Here's a simplistic example. I used to rebuild old Mustangs. Eventually the prices of buying cars that could be restored exceeded my willingness to pay, so I was eliminated as a buyer. At the same time, lots of others were also leaving the marketplace - they were too young to care about old Mustangs; they weren't into cars; they were too expensive; etc. Did the price of Mustangs come down? Nope. I sold my last one 20 years ago. It was a 67 convertible that I built myself that still needed a paint job but otherwise was a fine driver. I sold it for $7k, which was a decent price for both myself and the buyer back then. Today that same car would cost me at least $20k to purchase, despite the fact that we haven't had 200% inflation during that time. Overall, the entire classic car market has contracted dramatically - younger people just aren't into it like we were when I was a kid - but prices are sky-high because there's no inventory since sellers have a bottom line and below that they're unwilling to sell at all. 

    This is precisely what I think will happen with real estate. 

    I don’t see how it’s apples to apples comparing the largest economy in the world with the world reserve currency and huge liquidity to a very very very illiquid collectible car market. First, there is never ending supply of land to build in the USA right now to add additional supply. Over the years those cars had been scrapped, abandoned, or some are probably still sitting on one of the many rural areas. So yes, when supply is taken off the market with collectible cars, they will appreciate in value for the small subset of collectors.

    It doesn’t take a whole lot of folks to give in in order to cause a drop in real estate values, and once momentum swings (it already has) that is a difficult force to swing back unless interest rates go back down. New Multi family construction is at generational high now, complexes have been built in droves that have been and are coming on the market daily. On the aggregate, buyers will have options to wait it out. When someone needs to sell they sell, Prices are already falling every now now, and it’s just getting started. The amount of people who have second homes is also at historical levels, these people don’t need to sell.

    The fed is already telling us what is going to happen. Jobs will be lost and interest rates will be high. The fed is the casino, they have the power and the means to move the country in the direction they want. They want lower real estate values, and they will keep applying the pressure until the market is squeezed to meet their objective.

    The us consumer in general is heavily indebted and paycheck to paycheck. When the high paying jobs are lost, they need to sell their house even if they have “equity”, it needs to be sold. People who don’t own a house right now are already renting and like I said they more supply keeps coming on the market for them so that will soften rental prices. 


    If rates stay this high for 6 months or longer, it’s a guarantee values will be down 6 months from now in the majority of markets. Unless the fed cuts rates again, then the air can reinflate the phantom equity.

     Federal Reserve Chair Jerome Powell commented, “we’ve had a time of a red-hot housing market all over the country… housing prices were going up at an unsustainable level. We probably in the housing market have to go through a correction.”


     It seems to me that you have a narrative that you are pushing rather than an interest in debating possibilities, over multiple threads. The fact is that no one knows with any certainty what is going to happen. I don't disagree that it's possible that some markets - maybe many markets - experience some reduction in prices - but given that all real estate is local, there's not going to be any one thing that happens across the entire US. 

    My analogy of the collectible car market was not meant to "compare" the US to classic cars, only to illustrate that there's no absolute that says sellers will magically materialize to reduce prices such that the housing market plunges. 

    Let's pretend we're in small town USA for a moment. In our small town, there's 1,000 homes and typically - let's say 2017 - at any one time 10% of the inventory is for sale of varying price points, 100 homes. Also in 2017 there are 100 buyers looking for houses. A nice equilibrium. Prices go up just with inflation, 2% per year. 

    Suddenly 2020 hits and in our small town 100 people decide they want to flee where they live and come here. Now there's 100 houses and 200 buyers. Prices start climbing rapidly. Our 200 buyers stays steady, but our 100 homes dwindles to 75 homes as the speed of our new buyers exhausts the normal churn of sellers. We get to 2022 and the Fed starts jacking rates, and 30 year mortgage rates start climbing. Some of our small-town homeowners figure they want to take advantage of super-high prices and retire to Florida, so there's a 40% increase in supply as they jump into the market. Meanwhile, half of our buyers fall out of competition altogether - they can't even afford the lowest price houses, or they go back to where they were before the pandemic. So where are we? We're back to 100 sellers and 100 buyers. Back to the same equilibrium we were at when all of this started. The buyers that remain accept that prices are higher and mortgage rates are higher, and the sellers that remain accept that massive increases have probably come to a halt. All we've done is go back where we started, at a different point of equilibrium. 

    To believe there's going to be a massive housing price downturn and corresponding drop in rental prices really means you foresee a recession/depression that lands somewhere between 2007 and 1930. That's a pretty bold prediction, and at least where I am I don't see any evidence whatsoever of that kind of economic collapse. 

    I don’t have a narrative. I’m just watching global markets and listening to the guy that controls the velocity of money in the financial system. He wants lower home values/rents , that’s been a big part of the high inflation that he is determined to reign in. If it’s not dropping enough for his liking, he raises more until he gets what he wants. That’s just the reality. If you look at the history, people who go against the fed lose. There is a reason for that, they have unlimited ammunition.

    most stocks are down 50 percent from highs already, indexes down 20 percent, there’s almost no pain in the markets, no bankruptcies.. business as usual. When the fed sees this, they know they need to press the market more (more rate hikes). Not predicting the end of the world here by saying housing values are going to drop by up to 30 percent (ie, 2019 level). The whole asset bubble during Covid was fake, it’s being taken back now. 


     Well, they may get lower - or at least no longer rising - home values, but I don't see anything that suggests they're going to get lower rents. By turning more potential buyers into renters, it's only going to put more pressure on the rental market. Where I am (Northeast TN), I can't barely keep a house on the market more than a couple of days. Over the last decade, because lots of people are moving here, many houses that used to be rentals have been removed from the rental pool by people purchasing them for primary homes. Years ago I tried to avoid having to list a house after September 1, because the pool of renters was just severely reduced after summer. These days I don't think about it at all - I have a property open right now that just went live Friday evening - and there's already a dozen applications pending. Now I am in a growth area, and not everyone lives in a growth area, but I talk to a lot of landlords around the country and outside of some in certain boomtown markets - Phoenix, Denver, etc - all of them without exception have nothing available and no one leaving. 

    When the pandemic hit I heard so many predictions on this board of how the party was over and get ready for 50% non-paying tenants, etc. None of that even remotely happened where I am, nor to the landlords that I know. None of my tenants throughout the entire pandemic got rental assistance or anything like it. 

    As for stocks, it's impossible for most stocks to be down 50% and indexes to be down 20%. If most stocks in the S&P are down 50% then the S&P would be down 50%. Same with the NASDAQ. 

    We've been in an illogically low interest rate environment for most of the past 20 years. The reset is really just bringing things back into historical balance. It's logical that there will be some pain - you can't make it so cheap to borrow money for so long and then have no reckoning when you change the terms of the game - but inflation is a great destroyer of debt and it's going to be a huge boon for those who locked in debt at low rates. I don't know what the employment market looks like where you are, but here you can't hire *anyone* for less than 15 bucks an hour to do any job, despite the minimum wage being $7.25. The upwards wage pressure over the last 2 years has been astonishing, and nothing short of a Great Depression is going to reverse those gains. 

    Podcast Guest on Show #243
    Skyline Properties
    View Page
    4Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @JD Martin:
    Quote from @John Carbone:
    Quote from @JD Martin:
    Quote from @John Carbone:
    Quote from @JD Martin:
    Quote from @John Carbone:
    Quote from @Chris Seveney:

    @John Carbone

    Don’t disagree but you are missing one big component which is the money supply. It’s also like playing monopoly and having the bank give every person 50% more than normal amount of money they are used to starting with.

    Isn’t that factored in with housing going up by inflation, which in theory is what increasing the money supply is? The government handout money has made its way through the system now and the consumer is drying up. Yes, wages have increased over the last few years, but at nowhere near the pace of real estate values. Interest rates where they are at now, are designed to pull all that money supply back out of the system. Low interest environment puts phantom equity in the financial system, and the high rates suck it back out like a giant vacuum cleaner/black hole. The job market is strong, but we are being told it’s going to deteriorate because of the rates (the feds own words) this will lead to negative wage growth as companies will not need to pay as much to new workers.it generally takes 3-6 months for rates to truly impact real estate values, there is a stand-off between buyer and seller, but the longer rates stay higher, the sell side has to give. the math is the math (obviously there are exceptions for boom towns or gains based on real local reasons.) 

     As for the monopoly reference, the high rates are also like exponentially increasing the “go to jail”, “income tax”, and “luxury tax” fees. 


     There's nothing that says the "sell" side has to give. You are looking at options as if it were binary - either prices go up or prices go down. I would say it's equally as likely - and maybe more so, in some markets - that the total number of buyers and sellers contracts more or less equally, keeping things in good equilibrium but just a much smaller overall market. 

    Certainly at any time you will have some people who "have" to sell, and some people who "have" to buy - but if the prospect of high interest rates and declining prices eliminates pools on both sides of the equation, then nothing will change in terms of prices. 

    Here's a simplistic example. I used to rebuild old Mustangs. Eventually the prices of buying cars that could be restored exceeded my willingness to pay, so I was eliminated as a buyer. At the same time, lots of others were also leaving the marketplace - they were too young to care about old Mustangs; they weren't into cars; they were too expensive; etc. Did the price of Mustangs come down? Nope. I sold my last one 20 years ago. It was a 67 convertible that I built myself that still needed a paint job but otherwise was a fine driver. I sold it for $7k, which was a decent price for both myself and the buyer back then. Today that same car would cost me at least $20k to purchase, despite the fact that we haven't had 200% inflation during that time. Overall, the entire classic car market has contracted dramatically - younger people just aren't into it like we were when I was a kid - but prices are sky-high because there's no inventory since sellers have a bottom line and below that they're unwilling to sell at all. 

    This is precisely what I think will happen with real estate. 

    I don’t see how it’s apples to apples comparing the largest economy in the world with the world reserve currency and huge liquidity to a very very very illiquid collectible car market. First, there is never ending supply of land to build in the USA right now to add additional supply. Over the years those cars had been scrapped, abandoned, or some are probably still sitting on one of the many rural areas. So yes, when supply is taken off the market with collectible cars, they will appreciate in value for the small subset of collectors.

    It doesn’t take a whole lot of folks to give in in order to cause a drop in real estate values, and once momentum swings (it already has) that is a difficult force to swing back unless interest rates go back down. New Multi family construction is at generational high now, complexes have been built in droves that have been and are coming on the market daily. On the aggregate, buyers will have options to wait it out. When someone needs to sell they sell, Prices are already falling every now now, and it’s just getting started. The amount of people who have second homes is also at historical levels, these people don’t need to sell.

    The fed is already telling us what is going to happen. Jobs will be lost and interest rates will be high. The fed is the casino, they have the power and the means to move the country in the direction they want. They want lower real estate values, and they will keep applying the pressure until the market is squeezed to meet their objective.

    The us consumer in general is heavily indebted and paycheck to paycheck. When the high paying jobs are lost, they need to sell their house even if they have “equity”, it needs to be sold. People who don’t own a house right now are already renting and like I said they more supply keeps coming on the market for them so that will soften rental prices. 


    If rates stay this high for 6 months or longer, it’s a guarantee values will be down 6 months from now in the majority of markets. Unless the fed cuts rates again, then the air can reinflate the phantom equity.

     Federal Reserve Chair Jerome Powell commented, “we’ve had a time of a red-hot housing market all over the country… housing prices were going up at an unsustainable level. We probably in the housing market have to go through a correction.”


     It seems to me that you have a narrative that you are pushing rather than an interest in debating possibilities, over multiple threads. The fact is that no one knows with any certainty what is going to happen. I don't disagree that it's possible that some markets - maybe many markets - experience some reduction in prices - but given that all real estate is local, there's not going to be any one thing that happens across the entire US. 

    My analogy of the collectible car market was not meant to "compare" the US to classic cars, only to illustrate that there's no absolute that says sellers will magically materialize to reduce prices such that the housing market plunges. 

    Let's pretend we're in small town USA for a moment. In our small town, there's 1,000 homes and typically - let's say 2017 - at any one time 10% of the inventory is for sale of varying price points, 100 homes. Also in 2017 there are 100 buyers looking for houses. A nice equilibrium. Prices go up just with inflation, 2% per year. 

    Suddenly 2020 hits and in our small town 100 people decide they want to flee where they live and come here. Now there's 100 houses and 200 buyers. Prices start climbing rapidly. Our 200 buyers stays steady, but our 100 homes dwindles to 75 homes as the speed of our new buyers exhausts the normal churn of sellers. We get to 2022 and the Fed starts jacking rates, and 30 year mortgage rates start climbing. Some of our small-town homeowners figure they want to take advantage of super-high prices and retire to Florida, so there's a 40% increase in supply as they jump into the market. Meanwhile, half of our buyers fall out of competition altogether - they can't even afford the lowest price houses, or they go back to where they were before the pandemic. So where are we? We're back to 100 sellers and 100 buyers. Back to the same equilibrium we were at when all of this started. The buyers that remain accept that prices are higher and mortgage rates are higher, and the sellers that remain accept that massive increases have probably come to a halt. All we've done is go back where we started, at a different point of equilibrium. 

    To believe there's going to be a massive housing price downturn and corresponding drop in rental prices really means you foresee a recession/depression that lands somewhere between 2007 and 1930. That's a pretty bold prediction, and at least where I am I don't see any evidence whatsoever of that kind of economic collapse. 

    I don’t have a narrative. I’m just watching global markets and listening to the guy that controls the velocity of money in the financial system. He wants lower home values/rents , that’s been a big part of the high inflation that he is determined to reign in. If it’s not dropping enough for his liking, he raises more until he gets what he wants. That’s just the reality. If you look at the history, people who go against the fed lose. There is a reason for that, they have unlimited ammunition.

    most stocks are down 50 percent from highs already, indexes down 20 percent, there’s almost no pain in the markets, no bankruptcies.. business as usual. When the fed sees this, they know they need to press the market more (more rate hikes). Not predicting the end of the world here by saying housing values are going to drop by up to 30 percent (ie, 2019 level). The whole asset bubble during Covid was fake, it’s being taken back now. 


     Well, they may get lower - or at least no longer rising - home values, but I don't see anything that suggests they're going to get lower rents. By turning more potential buyers into renters, it's only going to put more pressure on the rental market. Where I am (Northeast TN), I can't barely keep a house on the market more than a couple of days. Over the last decade, because lots of people are moving here, many houses that used to be rentals have been removed from the rental pool by people purchasing them for primary homes. Years ago I tried to avoid having to list a house after September 1, because the pool of renters was just severely reduced after summer. These days I don't think about it at all - I have a property open right now that just went live Friday evening - and there's already a dozen applications pending. Now I am in a growth area, and not everyone lives in a growth area, but I talk to a lot of landlords around the country and outside of some in certain boomtown markets - Phoenix, Denver, etc - all of them without exception have nothing available and no one leaving. 

    When the pandemic hit I heard so many predictions on this board of how the party was over and get ready for 50% non-paying tenants, etc. None of that even remotely happened where I am, nor to the landlords that I know. None of my tenants throughout the entire pandemic got rental assistance or anything like it. 

    As for stocks, it's impossible for most stocks to be down 50% and indexes to be down 20%. If most stocks in the S&P are down 50% then the S&P would be down 50%. Same with the NASDAQ. 

    We've been in an illogically low interest rate environment for most of the past 20 years. The reset is really just bringing things back into historical balance. It's logical that there will be some pain - you can't make it so cheap to borrow money for so long and then have no reckoning when you change the terms of the game - but inflation is a great destroyer of debt and it's going to be a huge boon for those who locked in debt at low rates. I don't know what the employment market looks like where you are, but here you can't hire *anyone* for less than 15 bucks an hour to do any job, despite the minimum wage being $7.25. The upwards wage pressure over the last 2 years has been astonishing, and nothing short of a Great Depression is going to reverse those gains. 

    I’m also in tennessee, and I see first hand what you are talking about. Small markets are likely going to be the only place that avoids a drop. My talking was generally speaking housing on the whole, not in places that had homes for 100k before covid that probably only rented for $800 a month. Now, you can probably get close to double for that, because like you said wages increased from 7.50 to $15, so that kind of growth makes sense. the larger markets where values are way too high relative to income (majority of the population places) is where the pain will be felt.
    cashout refinances hit all time highs the last few years (even higher than the previous housing bubble). Median incomes have not doubled in price like in rural areas that can support the housing increase. 

    you definitely can have a situation like now where the majority of individual stocks are down 50 percent with the overall index down 25-30 percent. the indexes are weighted to large cap stocks which are right now the “better” performing companies because generally speaking they have less debt. For example, companies like proctor gamble are weighted more in the indexes. These are the last line of defense for the indexes. If the large cap companies miss on earnings, it only takes a few of these to bring the index down quickly. 

    2Reply
  • Jon KellyPro Member
    Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
    4y

    @John Carbone I understand where you're coming from. I don't see how equity is a "myth." It's real based on a basic math equation. 

    A better question is what to do with the equity when you have it. If you sit and do nothing you will be subject to market swings like you're describing. If you capitalize on the equity through selling or refinancing to scale up you'll be in a much better situation

    1Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    4y

    @John Carbone - home values have not gone up as much as you think; a good portion of the "gain" is simply that the dollar has lost value, so it takes more dollars to buy the same house. 100k in equity today are not worth as much as they were 2 years ago. Inflation does not discriminate, cash or debt both loose value. Look at equity in % rather then $ - the ratio has shifted. So the gains are real, they are just not worth that much. 

    Prices are downward sticky, seller's don't have to sell. What we are going to see most likely is that the marketplace is going to shrink - a lot of real estate agents will go hungry, especially the new ones who have never seen a tough market.

    0Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y

    I accounted for that with the 13 percent inflation the last 2 years being added to pre Covid numbers. Real estate is a great inflation hedge, there’s no doubt about that. That still leaves housing 30 percent overvalued during this time period though. According to core logic, home equity is up 27.8 percent YOY. Primarily due to low rates which allowed 20 offers on a single home to bid up the real estate value. 


    The fed knows this, they played this same trick in the mid 2000s. The idea of raising asset values gives people the illusion that they have wealth “wealth effect”, if someone is paycheck to paycheck (like most Americans are) but they are told they have 6 figures in “equity”, they still feel strong with their financial position. they don’t feel the need to save, and thus as a consumer driven economy that we are, they continue to live paycheck to pay check without feeling like they aren’t saving, because their “house is saving for them”….but then the fed hits the brakes when too much money gets out into the system and it sucks out all of that phantom equity with higher rates. It’s a genius magic trick the fed plays, I’ll give them that. One of the big drivers of the velocity of money going into the economy was people doing cashout refinances last year. It was the highest activity level for this since the mid 2000s. I don’t know if the fed will change course and lower rates again when they realize what they have done, but if they don’t the large majority of markets will be taking 30 percent haircuts, and generally in sell offs, it overshoots to the downside because people panic.

    1Reply
  • Carini Rochester
    Investor · Rochester, NY · Member since 2016 · 576 posts · 358 votes
    4y

    There's no doubt that the higher interest rates puts downward pressure on property values. Do the math on an investment property. If the interest payment is 50% or 60% more than what it would have been a year ago then I will have to offer less on the purchase price in order for the deal to make sense to me. Since all the other investors are doing similar analyses we are all going to come up with similar, lower offer amounts than we would have a year ago.

    For an owner occupied house, no such analysis is done. That decision is made much differently. Do I like the house? Can I afford the house? Do I have the income, good credit score, acceptable debt to income ratio so that I can get financing? So the higher interest rate will put some downward pressure on the price but it will have less of an impact.

    If a family needs a house, there are two choices. Either get a house built or buy an existing house. New builds are going for over $200 per square foot. Interest has some influence on the price of new house, but not very much. The price of a new house is more influenced by price of materials, and price of labor, both of which have gone up significantly in the past 5 years. There is no sign of either going down appreciably. 

    The price of existing houses are greatly impacted by the price of new construction because that's the only competition. Those are the only two options. So, as long as existing houses are priced a little below new construction they will continue to sell and to hold there value pretty well.

    There are markets in the US where house values went up too much, and in those markets prices will get 'corrected.' I think that in most US markets the correction will not be very significant.

    I think most of the content in this thread gives too much significance to interest rates for owner occupied single family houses but is correct for investment properties, commercial and multi-family.

    0Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @Carini Rochester:

    There's no doubt that the higher interest rates puts downward pressure on property values. Do the math on an investment property. If the interest payment is 50% or 60% more than what it would have been a year ago then I will have to offer less on the purchase price in order for the deal to make sense to me. Since all the other investors are doing similar analyses we are all going to come up with similar, lower offer amounts than we would have a year ago.

    For an owner occupied house, no such analysis is done. That decision is made much differently. Do I like the house? Can I afford the house? Do I have the income, good credit score, acceptable debt to income ratio so that I can get financing? So the higher interest rate will put some downward pressure on the price but it will have less of an impact.

    If a family needs a house, there are two choices. Either get a house built or buy an existing house. New builds are going for over $200 per square foot. Interest has some influence on the price of new house, but not very much. The price of a new house is more influenced by price of materials, and price of labor, both of which have gone up significantly in the past 5 years. There is no sign of either going down appreciably. 

    The price of existing houses are greatly impacted by the price of new construction because that's the only competition. Those are the only two options. So, as long as existing houses are priced a little below new construction they will continue to sell and to hold there value pretty well.

    There are markets in the US where house values went up too much, and in those markets prices will get 'corrected.' I think that in most US markets the correction will not be very significant.

    I think most of the content in this thread gives too much significance to interest rates for owner occupied single family houses but is correct for investment properties, commercial and multi-family.

    I’m already being solicited by home builders offering me 10 percent off on new construction for single family homes. I agree that rates primarily affect rental properties first and hardest, but Owner occupied won’t be spared if rates stay high. 

    your not seeing it work it’s way through the supply chain, but material prices are coming down.  Here is a chart of lumber prices, they have collapsed, oil has collapsed, the deflationary effects of rising rates are already being seen in the market. Those “premiums” to build during Covid are evaporating just as fast as they went up. There’s a labor shortage, but layoffs are already starting to happen and the fed wants more jobs lost to get back to normal. 




    1Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    4y

    @Nathan Gesner the biggest risk is those who used a HELOC to buy a long term investment. Now the rates have shot up on their variable rate debt and they have no easy way to pay that money back.

    [email protected]512-888-9122
    The Moorhead Team5140 Reviews
    WebsiteView Page
    2Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    4y

    @John Carbone

    just curious, do you have specific concerns about this potentially phantom equity?  we seem to be jumping back and forth between two questions - 

    what happens to people who don't have as much equity in their homes as they think they might?  and - 

    what prices will houses sell at in the near future?

    distinct.  i think i asked you this in another thread but - there's a huge difference, right?  because if you bought a house to live in for 30 years and don't ever have to sell, the 'equity' just goes up and down, like the stock market.

    my primary, which was a brand new build, was appraised for >100K more than i paid for it, just 1.5 years after i bought it.  this seems silly to me!  so i think i'm agreeing with you in part - how is it 'worth' 100k more?  but, this is what i value it at because i have nothing else to base value on.  if it is ever valued at less somehow, i'll adjust the value accordingly.  but, i have a 30-year, fixed rate, vanilla, big bank mortgage at 2.75%, and i won't be selling for at least 15+ years.  so... nothing happens to me if 'prices' go down and that 100K in equity isn't 'real.'

    here's a practical application. when new investors come on the forums and say they have $4.33 in the bank and want to BRRRR and what happens if interest rates go up and appraisals go down - i try to nicely tell them, DON'T GET INTO THAT SPOT. that's part of how your concern could potentially apply, right? if you're 100% absolutely counting on values to either stay where they are or keep going up, and you have no ability (i.e., CASH) to absorb any kind of anything, then you could be in trouble. but that's sort of always been a risky way to invest.

    OK, see what you think.  people are writing book length posts on these topics... amazing.

    @JD Martin thanks especially for all your balanced contributions across these similar threads.  Really, really great input.

    2Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y

    Generally, when people don't have as much equity as they think, they feel less wealthy. They are less likely to spend money. This lowers GDP, which can lead to recessions (although they changed the methodology to not measure a recession by GDP so maybe this part isn't applicable.) Velocity of money decreases, which is deflationary. Also, if someone is told they have equity by a bank of "X" amount, homeowners can (and they have over the past 2 years at record levels) borrow against their house. The HELOC's are generally variable rate mortgages and up to 80% of the "appraised" value. This increases payment, and depending on the homeowners financial position, they could be in trouble. As much as most on BP would like to think that most people are taking out HELOC's for investment properties, the reality is the money is taken out for leisure.

    With interest rates where they are now (owner occupied >7%), home prices can not rise further from here. If rates go back lower, then sure, prices can rise. But based on the facts now, and what we are being told by the FED, home values will not rise. I personally think median home values in the country will drop 20-30% and then stagnate until interest rates get cut again.

    Yes, if you bought a house to live in for 30 years and never sell then price is irrelevent because you need a place to live and you can make the payment. A mistake will be to call up the bank though, get an appraisal, and feel like you have a windfall allowing you to rack up credit card debt because as a last resort, in your mind you have 'home equity" as a safety net.

    Contrary to what most people will say, buyers have more options than sellers. Buyers are already living somewhere, so it's not like if they don't buy they will be on the streets. However, think of it like this, lets say your next door neighbor passes away and their family sells the house. They list their house at a price an "appraisal" thinks the home is worth (this is also numer you base your equity on", but they get no offers at this price level (buyers simply can't afford the payment) because rates are above 7%. These people need to sell though, and because home value went up so high they have room to lower without coming out of pocket. Someone makes an offer for 25% below asking, and they accept. This sale goes on the books (not as a foreclosure.) Your other next door neighbor gets laid off and can no longer make the payment, they decide to move in with family. They have 2 months reserves to pay the mortgage but beyond that they risk foreclosure, they need to sell (same as before.) This all snowballs quickly across markets all across the country.

    The shortage in housing is both temporary and partially an illusion. If it weren't an illusion you would have gainfully employed people living on the streets. Apart from some major cities, I don't see that happening.

    Over the next few months people will take the bait and buy in at these high prices. the longer rates stay higher though, the pool of qualified buyers will be depleted, and if the fed doesn't cut rates at this point, then the prices start to come down and fast.

    @JD Martin is a little insulated in his small town Tennessee bubble. He has a good thing going on there, i'm talking about the major metro markets where most of the population lives. His market before covid people were people making $10 an hour. These people now make probably $20 and can afford higher rents.

    0Reply
  • David S.
    Rental Property Investor · Larkspur, CO · Member since 2018 · 198 posts · 179 votes
    4y
    Quote from @John Carbone:

    Generally, when people don't have as much equity as they think, they feel less wealthy. They are less likely to spend money. This lowers GDP, which can lead to recessions (although they changed the methodology to not measure a recession by GDP so maybe this part isn't applicable.) Velocity of money decreases, which is deflationary. Also, if someone is told they have equity by a bank of "X" amount, homeowners can (and they have over the past 2 years at record levels) borrow against their house. The HELOC's are generally variable rate mortgages and up to 80% of the "appraised" value. This increases payment, and depending on the homeowners financial position, they could be in trouble. As much as most on BP would like to think that most people are taking out HELOC's for investment properties, the reality is the money is taken out for leisure.

    With interest rates where they are now (owner occupied >7%), home prices can not rise further from here. If rates go back lower, then sure, prices can rise. But based on the facts now, and what we are being told by the FED, home values will not rise. I personally think median home values in the country will drop 20-30% and then stagnate until interest rates get cut again.

    Yes, if you bought a house to live in for 30 years and never sell then price is irrelevent because you need a place to live and you can make the payment. A mistake will be to call up the bank though, get an appraisal, and feel like you have a windfall allowing you to rack up credit card debt because as a last resort, in your mind you have 'home equity" as a safety net.

    Contrary to what most people will say, buyers have more options than sellers. Buyers are already living somewhere, so it's not like if they don't buy they will be on the streets. However, think of it like this, lets say your next door neighbor passes away and their family sells the house. They list their house at a price an "appraisal" thinks the home is worth (this is also numer you base your equity on", but they get no offers at this price level (buyers simply can't afford the payment) because rates are above 7%. These people need to sell though, and because home value went up so high they have room to lower without coming out of pocket. Someone makes an offer for 25% below asking, and they accept. This sale goes on the books (not as a foreclosure.) Your other next door neighbor gets laid off and can no longer make the payment, they decide to move in with family. They have 2 months reserves to pay the mortgage but beyond that they risk foreclosure, they need to sell (same as before.) This all snowballs quickly across markets all across the country.

    The shortage in housing is both temporary and partially an illusion. If it weren't an illusion you would have gainfully employed people living on the streets. Apart from some major cities, I don't see that happening.

    Over the next few months people will take the bait and buy in at these high prices. the longer rates stay higher though, the pool of qualified buyers will be depleted, and if the fed doesn't cut rates at this point, then the prices start to come down and fast.

    @JD Martin is a little insulated in his small town Tennessee bubble. He has a good thing going on there, i'm talking about the major metro markets where most of the population lives. His market before covid people were people making $10 an hour. These people now make probably $20 and can afford higher rents.

     I think you’re on to a lot of truth John. Americans who are not wealthy (the vast majority) have a tendency to spend what they make. Pay raise? New car. Stimulus? New clothes. And so it goes. Most Americans are statistically strapped for cash all the time, and housing has been creeping up over the years to become almost 40% of their expenditures now? That’s not a number that can afford much more upside, and as a result we’re seeing a huge uptick in multi-gen households as well as homes being rented by the room. This benefits low cost markers disproportionately and I think they’ll weather this storm relatively well, but markets like San Fran, Seattle, etc will hurt, and probably in a bad way. I can only believe we will see a strong cost of living migration emerge as inflation continues to force cost cutting at all cost. 
    I suspect we’ll see a 10-20% drop in home prices. It’s also politically advantageous to kick the legs out from under housing (and energy prices) to generate positive inflation headlines, though if that can happen before midterms, we’ll have to see. 

    Generally I don’t see a lot of upside to real estate over the next 5 years outside of local hot spots. To me real estate is a store of value that’s tangible, in need, and tax advantaged and if you can get appreciation on top of that it’s a nice bonus, but I’m not counting on it to play the game. I love the ability to generate sweat equity too, even in a depreciating market so long you’re not leveraged much. This notion that prices can somehow consistently outstrip wages is of course bunk over the long term. But I also believe the days of 2-3% inflation are now in the rear view mirror. The amount of money we have to print just to service debt in this nation, especially as rates increase, creates a bit of an inflationary trap. And that makes sense; You can’t print 30 trillion and counting and pretend it won’t come home to roost. That money must be paid one way or another, and inflation is the obvious way we’ll continue to pay it when we refuse to acknowledge it otherwise. For that reason I’ll keep my money in housing, but yes, I suspect we’ll see at minimum a 10% price drop, but more like 20%. But compared to most 401k’s that’ll be smooth sailing, especially for those of us invested in low cost of living markets, building sweat equity consistently. 
    It’ll be interesting to see though; With rates climbing so fast, few people with a 30yr mortgage will be willing to sell, unless they’re moving in with another to consolidate households, pass away from age or move into assisted care, or got a killer promotion/job and have to relocate. But supply should remain very tight. In the end, people can only pay what they can pay no matter how tight the market, and prices WILL drop. 
    Rents will likely outstrip wages for some time, many of them falling into need of section 8 assistance, which is something we’re now looking to get into as I believe it’s the wave of the future. More inflation will drive more government assistance and a more dependent voter which is a boon to those pulling the strings. The majority of society will be dependent on one form of welfare/wealth redistribution before you know it, and I do believe that’ll also lead to some nefarious political opportunism that its likely to change the trajectory of this republic (“if you can keep it”) sadly. I hate the thought of section 8 as anything that comes from government inevitably comes with political strings attached, as our schools have shown first hand. But that’s the way it’s clearly going. Persistent inflation will push many into genuine need within just a decade at this rate. 

    2Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y

    hot off the press moments ago… 

    https://www.cnbc.com/2022/09/2...

    Headline: 

    Home prices cooled in July at the fastest rate in the history of S&P Case-Shiller Index

    Cliff notes:

    July’s report reflects a forceful deceleration,” wrote Craig J. Lazzara, managing director at S&P DJI in a release, noting the difference in the annual gains in June and July. “The -2.3% difference between those two monthly rates of gain is the largest deceleration in the history of the index.”

     ”Home prices are dropping because affordability has weakened dramatically due to fast-rising mortgage rates. The average rate on the popular 30-year fixed mortgage started this year around 3%, but by June had briefly surpassed 6%. It remained in the high 5% range throughout July and is now edging toward 7%, making the average monthly payment about 70% higher than it was a year ago.

    this is just getting started. Rates are close to 2 percent higher now than in July, we won’t see the data until December. 

    I’ll be honest, based on all of the talk on here about how prices won’t drop because no supply and sellers won’t sell, I thought it could take a little while longer to have the drop, but like clockwork, once rates ticked higher, it happened almost instantaneous back in July. Momentum has shifted, and there is a large black hole eating away at some of the phantom equity. Time will tell how much pain the fed will allow. 


    0Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    3y

    @John Carbone, thanks for the thought provoking comments.  I am in a small market in the middle of Wyoming, so my market may not be anything like the national market.  I have been buying property in Wyoming since the 1970s.  I have seen a lot of boom bust cycles in Wyoming.  Every one of those cycles was driven by the cost of energy.  We often had booms that were opposite from the national economy.  When oil prices spiked upwards many industries were hurt and people got laid off.  When oil prices spiked we had massive amounts of drilling going, and pipelines being built, old oilfields got pushed into secondary recovery programs.  High priced wages for the dangerous oilfield work caused a lot of money to flow into oil towns, people bought houses paid exorbitant rent, they bought new trucks, campers, 4 wheelers, guns, beer, etc.  Mobile home parks had waiting lists to get in since they were full.  Grocery stores made more, restaurants made more money, car dealerships made more money, insurance companies made more money.  You get the idea.  When oil prices dropped businesses elsewhere took off.  It was cheaper to make glass, to make cars, to drive to vacation areas.  The economy picked up, wages went up.  In Wyoming when oil prices dropped then new drilling stopped.  You cannot pay the massive costs to drill and produce more wells at low oil prices.  Drilling companies laid people off, jobs were lost in oil production, fracking companies had layoffs, drill stem testing companies had layoffs, oil service companies had layoffs, mud companies had layoffs, trucking companies who moved oil rigs had layoffs, the list was long.  Wages dropped for those who kept jobs.  Then folks couldn't make payments on 4 wheelers and boats, and campers, and those got sold.  So house got foreclosed on and pawn shops filled up on rifles and other toys.  No one bought new trucks, or ate out, or had their hair styled or nails done.  Housing prices plummeted.

    I have seen at least 4 of those cycles in my lifetime. We are currently in one of the biggest booms I have ever seen. Oil prices actually went negative for awhile during the pandemic as all the gas holding tanks were full since no one was driving and oil had to be stored sometimes on expensive oil tankers. Still prices boomed. Why? I can tell you with confidence it was not because of low interest rates as the main factor. I am in a town with a population of 3800. We normally have about 60 houses listed on the MLS. In 2019 I was actively trying to buy houses and occasionally bought empty houses that had been empty for years. It was not unusual to take a month or 2 to rent a house. MY model was to buy distressed houses, fix them up and rent them. I usually paid about 6% interest and did 15 year loans. In 2019 we had a small uptick in people buying from out of town. In 2020 we had a bit of a drop off in home buying and prices stayed a bit depressed a little while. In late 2020 and 2021 prices went nuts. They continued to climb in 2022. I bought a house in 2022 that was in pretty rough shape but in a nice area. I paid $120k, it would have been worth $70 to $80K in 2018 or early 2019. Houses that rented for $700 in 2019 are renting for $850 to $900 now. This summer and last summer I was doing deeds for 5 up to 10 properties a week. Maybe 1 in 10 of those were to local residents. People from mostly the west coast were buying houses and land like crazy. The number of homes on the MLS dropped to 10 or 12. Realtors could not find enough inventory to sell. The only houses not selling were the ones priced at insane levels. My personal residence was assessed at $140K. I listed it for sale in late December 2021 for $225K. The assessed value came up to $180K this year. I just sold it this week for $215K. Keep in mind it was an 1800 square foot bilevel with a redwood deck, new windows, new roof, new high efficiency furnace with central air, new bathroom remodels, and a newer kitchen.

    My opinion is that Covid accelerated a market that was already heating up.  People began to be able to earn big money by working remotely and not having to live in cities with populations over one million.  People were able to sell 1400 square foot houses in Washington, Oregon, and California, for 1 to 3 million dollars and buy a same quality house for $150K in my town.  Houses that we locals thought should have sold for $100K.  Some people told me they were fleeing politics, like liberal governments and defunding the police riots.  Some decided that they would just retire early and live here for half the cost of living elsewhere.

    Prices have stabilized here, and are still climbing in price, but much more slowly than the last few years.  Guys who priced a 950 square foot house for $220 thousand are slowly dropping prices.  Guys who are selling 1400 square foot houses for $190K are still selling them.  The froth has come off of the market, but not gone down anywhere near where prices were 2 years ago, and they will not for the foreseeable future.  I think a lot of the shift was from extremely expensive markets with high populations and high wages, to more rural areas at massively lower prices and a much better quality of life.  It takes 2 minutes to drive to the grocery store, and 2 minutes to drive to work, not an hour.

    In my area high housing appears to be here to stay.  High rents are here to stay.  Many vacation rentals popped up here.  There were 12 when I started 5 years ago.  There were 60 in May of this year, I would guess we have close to 100 by the end of the year.  This is happening in ALL of Wyoming, not just my town.

    Some new houses are being built, our local builders are booked up 2 years in advance, new subdivisions are popping up like mad.  Houses with acreage are still going for massive amounts, well over double what they were 3 years ago.  Lumber has really dropped, it is only about triple of what it was in 2019, not 8 times as high like it was last year.  Nobody can find workers, and the workers cannot find affordable housing.  None of the newcomers have opened any businesses or shops, unless you count vacation rentals.  A couple of folks have bought 4 or 5 houses and turned them all into vacation rentals.

    I don't think we are going to see values of houses drop in my area, despite higher interest rates, it will just climb more slowly.  At this point it is just wait and see, and know I will pay more when I can find one I can afford.

    2Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    3y
    Quote from @Jerry W.:

    @John Carbone, thanks for the thought provoking comments.  I am in a small market in the middle of Wyoming, so my market may not be anything like the national market.  I have been buying property in Wyoming since the 1970s.  I have seen a lot of boom bust cycles in Wyoming.  Every one of those cycles was driven by the cost of energy.  We often had booms that were opposite from the national economy.  When oil prices spiked upwards many industries were hurt and people got laid off.  When oil prices spiked we had massive amounts of drilling going, and pipelines being built, old oilfields got pushed into secondary recovery programs.  High priced wages for the dangerous oilfield work caused a lot of money to flow into oil towns, people bought houses paid exorbitant rent, they bought new trucks, campers, 4 wheelers, guns, beer, etc.  Mobile home parks had waiting lists to get in since they were full.  Grocery stores made more, restaurants made more money, car dealerships made more money, insurance companies made more money.  You get the idea.  When oil prices dropped businesses elsewhere took off.  It was cheaper to make glass, to make cars, to drive to vacation areas.  The economy picked up, wages went up.  In Wyoming when oil prices dropped then new drilling stopped.  You cannot pay the massive costs to drill and produce more wells at low oil prices.  Drilling companies laid people off, jobs were lost in oil production, fracking companies had layoffs, drill stem testing companies had layoffs, oil service companies had layoffs, mud companies had layoffs, trucking companies who moved oil rigs had layoffs, the list was long.  Wages dropped for those who kept jobs.  Then folks couldn't make payments on 4 wheelers and boats, and campers, and those got sold.  So house got foreclosed on and pawn shops filled up on rifles and other toys.  No one bought new trucks, or ate out, or had their hair styled or nails done.  Housing prices plummeted.

    I have seen at least 4 of those cycles in my lifetime. We are currently in one of the biggest booms I have ever seen. Oil prices actually went negative for awhile during the pandemic as all the gas holding tanks were full since no one was driving and oil had to be stored sometimes on expensive oil tankers. Still prices boomed. Why? I can tell you with confidence it was not because of low interest rates as the main factor. I am in a town with a population of 3800. We normally have about 60 houses listed on the MLS. In 2019 I was actively trying to buy houses and occasionally bought empty houses that had been empty for years. It was not unusual to take a month or 2 to rent a house. MY model was to buy distressed houses, fix them up and rent them. I usually paid about 6% interest and did 15 year loans. In 2019 we had a small uptick in people buying from out of town. In 2020 we had a bit of a drop off in home buying and prices stayed a bit depressed a little while. In late 2020 and 2021 prices went nuts. They continued to climb in 2022. I bought a house in 2022 that was in pretty rough shape but in a nice area. I paid $120k, it would have been worth $70 to $80K in 2018 or early 2019. Houses that rented for $700 in 2019 are renting for $850 to $900 now. This summer and last summer I was doing deeds for 5 up to 10 properties a week. Maybe 1 in 10 of those were to local residents. People from mostly the west coast were buying houses and land like crazy. The number of homes on the MLS dropped to 10 or 12. Realtors could not find enough inventory to sell. The only houses not selling were the ones priced at insane levels. My personal residence was assessed at $140K. I listed it for sale in late December 2021 for $225K. The assessed value came up to $180K this year. I just sold it this week for $215K. Keep in mind it was an 1800 square foot bilevel with a redwood deck, new windows, new roof, new high efficiency furnace with central air, new bathroom remodels, and a newer kitchen.

    My opinion is that Covid accelerated a market that was already heating up.  People began to be able to earn big money by working remotely and not having to live in cities with populations over one million.  People were able to sell 1400 square foot houses in Washington, Oregon, and California, for 1 to 3 million dollars and buy a same quality house for $150K in my town.  Houses that we locals thought should have sold for $100K.  Some people told me they were fleeing politics, like liberal governments and defunding the police riots.  Some decided that they would just retire early and live here for half the cost of living elsewhere.

    Prices have stabilized here, and are still climbing in price, but much more slowly than the last few years.  Guys who priced a 950 square foot house for $220 thousand are slowly dropping prices.  Guys who are selling 1400 square foot houses for $190K are still selling them.  The froth has come off of the market, but not gone down anywhere near where prices were 2 years ago, and they will not for the foreseeable future.  I think a lot of the shift was from extremely expensive markets with high populations and high wages, to more rural areas at massively lower prices and a much better quality of life.  It takes 2 minutes to drive to the grocery store, and 2 minutes to drive to work, not an hour.

    In my area high housing appears to be here to stay.  High rents are here to stay.  Many vacation rentals popped up here.  There were 12 when I started 5 years ago.  There were 60 in May of this year, I would guess we have close to 100 by the end of the year.  This is happening in ALL of Wyoming, not just my town.

    Some new houses are being built, our local builders are booked up 2 years in advance, new subdivisions are popping up like mad.  Houses with acreage are still going for massive amounts, well over double what they were 3 years ago.  Lumber has really dropped, it is only about triple of what it was in 2019, not 8 times as high like it was last year.  Nobody can find workers, and the workers cannot find affordable housing.  None of the newcomers have opened any businesses or shops, unless you count vacation rentals.  A couple of folks have bought 4 or 5 houses and turned them all into vacation rentals.

    I don't think we are going to see values of houses drop in my area, despite higher interest rates, it will just climb more slowly.  At this point it is just wait and see, and know I will pay more when I can find one I can afford.

    Good context of how things were in an oil boom town. Yeah, the baseline for housing has gone up, and that is not likely to go back to pre covid levels. Wages on the lower end have doubled. And it will take a depression to wipe that out. My premise is mostly on the median housing value which is well over 400k. Obviously rural towns that used to be 100K doubling to 200k makes sense because the wages have gone up. However, in the markets where values went from 400k to 600k+ the interest rates rising has a huge impact because these workers didn’t double their incomes like most people in small towns have as a result of the unofficial  minimum wage doubling. tennessee is same way with people retiring so there are legitimate cases for rural towns in states with no income tax like Wyoming as well. we are definitely not immune though to the wider issues. For example in your Wyoming town, you said rentals are exploding there. One thing to consider, and I’m not saying this is the case because I have no idea, but if tourism was temporary demand from Covid and those rentals don’t rent anymore, you can have those people selling the homes and an oversupply. Not saying probable, but possible. If that were the case you could see the situation play out like your prior cycles. 

    also, the fed is dead set on raising rates until the jobs market breaks. When cost of capital rises, companies don’t expand and they lay off workers. The interest rate increase has happened very quickly, and it takes some time to work its way through the housing market, so it’s not being seen yet. It’s just starting. The longer rates stay high, the worse it will get. I wouldn’t bet on small rural towns in no state income tax states having major issues though, but overall the housing market is in for trouble in the 400K plus homes.

    boise Idaho is set up to be the biggest crashed market as a result of covid migration.  

    0Reply
  • Chris John
    Member since 2020 · 671 posts · 937 votes
    3y

    @John Carbone  I agree with the sentiment, but not that the equity was mythical.  Maybe it wouldn't have spawned into existence without government intervention, but spawn it did.  Even if all the gains go away, it was here and it was real.

    @Jon Kelly hit the nail on the head.  There was nothing mythical about the equity.  It was real equity that many of us are thankful that we refinanced out and used as down payments on other properties at insanely low, fixed rates.

    @Mike Dymski hit the nail on the head too (like always).  It's a sick game, but in today's world, working hard and saving is for saps and suckers.  It's all about borrowing and redeploying.

    I loathe the game, but I'm so thankful that I game across BP during the pandemic so that I could learn to play it as I can honestly say that I don't think I would've figured it out on my own. 

    Truly, I owe this site and many of the members that are so willing to share their wisdom and knowledge a huge debt of gratitude.

    2Reply
  • John Carbone
    OP
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    3y
    Quote from @Chris John:

    @John Carbone  I agree with the sentiment, but not that the equity was mythical.  Maybe it wouldn't have spawned into existence without government intervention, but spawn it did.  Even if all the gains go away, it was here and it was real.

    @Jon Kelly hit the nail on the head.  There was nothing mythical about the equity.  It was real equity that many of us are thankful that we refinanced out and used as down payments on other properties at insanely low, fixed rates.

    @Mike Dymski hit the nail on the head too (like always).  It's a sick game, but in today's world, working hard and saving is for saps and suckers.  It's all about borrowing and redeploying.

    I loathe the game, but I'm so thankful that I game across BP during the pandemic so that I could learn to play it as I can honestly say that I don't think I would've figured it out on my own. 

    Truly, I owe this site and many of the members that are so willing to share their wisdom and knowledge a huge debt of gratitude.

    The equity was real when rates were 3 percent, I’m not disputing that. I wrote this when rates went to 6 percent and now close to 7. The market is in the process of revaluing assets at current borrowing rates. Housing will take a few months to digest this, but the end result will be that the equity people think they have right now, is not what they think. Of course people cashed in, but the window too do so has slammed shut. 
    1Reply
  • Chris John
    Member since 2020 · 671 posts · 937 votes
    3y

    @John Carbone

    Can't argue there.  I'm just glad that I came across BP early enough to take advantage of the equity when it was there. 

    Or am I?  haha.  Maybe I drove off a cliff and just don't know it yet...

    :(

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free