In my own guessing where real estate might be going you’re post hits on the two opening points I’ve lead my thoughts with:
“…people can't afford these homes that they're buying…”
1) With homes selling at such comparably higher values than two years ago – i.e. a previous rental address of mine in Portland OR selling for $250K in 2017 sold for $400K in late 2021 – they are, by raw valuing, substantially higher risk mortgages for the individuals qualifying for ownership.
a. By extension, there will statistically be more foreclosures in the next 2 or 3 years…
b. …especially as Federal Reserve borrowing rates are planned for an incremental rise to 2.0% by calendar year’s end.
2) Compounding the risk of higher value mortgages is the overall interest rate (7 percent?) along with rising gas prices cutting into the homeowner’s ability to pay these abruptly higher value mortgages.
this isn't really true. the risk isn't associated with the purchase price. the risk is associated with the borrowers ability to repay the loan. banks are't giving out bullsh**t loans to just anybody. people are being vetted (as they should be) and required to, you know, actually put down money. that is a
huge difference from 2008.
And as HB stated, nearly 80% of mortgages being pumped out- are
fixed interest rate.
“The root causes of the next crash won't be the same as the last one…”
1) In 2008 the banks AND the individual home buyers were BOTH exposed to risk. This time around, I believe the risk is almost entirely on the buyer. Banks mitigated their lending risks in wake of the 2008 meltdown and, unlike in 2008, they have the advantage of demand presumably remaining high. Banks can likely sell foreclosures without the tide of financial losses that spurred 2008’s meltdown.
2) I will go further and say the next foreclosure “crisis” might not play out as a crash or even a market disruption. Home values might very well remain high through oncoming waves of expected foreclosures if the demand remains high thanks to the increase costs of building materials, construction, and time consuming regulations slowing down the ability to raise supply high enough to meet demand.
the 2008 crisis was caused by massive amounts of garbage loans being pumped out- loans with virtually no vetting of income, asset, or employment- and with as little as like 1% or less down and
90+% of these loans had adjustable interest rates - and these loans were accounting for
over 20% of all home loans being pumped out leading up the crash- when historically these types of loans have been 5-8%. And
of course people would just walk-away from a home they couldn't afford or were underwater in if they had no real skin in the game (low or no downpayment) AND their interest rates were ballooning.
Garbage loans being pumped out lead to
MASSIVE speculation by developers buying up shit land in middle of nowhere that should've been worth nothing- overpaying massively for said land- and massive
overbuilding of spec homes and developments that there wasn't true, real demand for. It was all funny money was being injected into the system- which caused demand and therefore home prices to spike- it wasn't
REAL DEMAND like there is right now. It was
all artificial. There was no shortage of supply like there is now- there was inventory and homes for sale everywhere. It was just so easy for any asshole to get a loan to buy a home. That is not the case today. At all.
The cash buyers are really driving prices up in a lot of the hot markets. Can't compete with cash.
And what REALY crashed the system was all those garbage loans being rolled up into huge tranches of loans- CDOs- and the FRAUD that went on with the rating agencies being paid to rate that trash as AAA (good as gov't bonds) and then all the credit default swaps being sold betting against those garbage CDOs- which really just multiplied the losses to infinity and triggered the collapse.