[larrymyers]

There's been a lot of news coverage lately about how low inventory is going to continue to keep housing prices high, despite mortgages going up.

Basically people with 2%-3% mortgages are going to sit tight, because they can no longer afford a comparable house were they to move. Low inventory means prices won't drop as much as people hope with rising interest rates.

The only wild card here is what will happen with cash buyers, who aren't affected by mortgage rates.

[vinyl7]

Inventory is already well on its way back to 2020 levels, and is exceeding 2019 levels in some areas. The "shortage" was caused by demand from extremely low interest rates, now that demand has died...the shortage is over. Not to mention, as we head into this recession and life/layoffs continue, people will be forced to sell if they can no longer cover their mortgage.

https://twitter.com/RickPalaciosJr/status/158868887009456128...

https://twitter.com/NewsLambert/status/1589036074441281536

https://twitter.com/NewsLambert/status/1589034547697836032

[jjcon]

3 cherry picked cities in the USA? Here is a better source that is national (USA):

https://fred.stlouisfed.org/series/ACTLISCOUUS

Listings are still very low compared to pre-pandemic levels not to mention by many metrics there was already a shortage before the pandemic stemming all the way back to the great recession. Some interesting reading:

https://usafacts.org/articles/population-growth-has-outpaced...

https://www.usatoday.com/story/money/2022/10/26/housing-mark...

https://www.pewtrusts.org/en/research-and-analysis/blogs/sta...

https://www.fanniemae.com/research-and-insights/perspectives...

[vinyl7]

We're really only a month into the new rates. People who locked in at the sub 6% interest rates were still closing in October. Either we see a dramatic drop in prices or inventory will surge.

Housing affordability has been demolished with these higher interest rates, so sales will drop off a cliff as we're already seeing with mortgage companies doing mass layoffs.

[nostrademons]

Likely people will take their houses off the market and rent them out. With mortgage rates going up and liquidity drying up, a lot of prospective buyers are deciding they're going to sit tight in a rental. That puts upward pressure on rents and gives an incentive for sellers whose desired price can't be met with the new rates to just sit tight and collect rental income.

Same thing happened when buyers disappeared in 2020 - most of the more marginal homes just got taken off the market, and either rented for a year or given a fresh coat of paint and some renovations to sell for a few hundred K higher in 2021.

[jjcon]

> so sales will drop off a cliff as we're already seeing with mortgage companies doing mass layoffs.

Certainly, but read these articles. the expert economists and firms. While that may be true it is also true that far fewer people will sell their homes and very few homes will be built exacerbating an already 20 year problem of under building. The USA will have a low demand and low supply problem in the short term but the low supply problem is likely to persist for quite some time (just as it has for the past decade).

[antisthenes]

Yeah, with the caveat that '18 and '19 inventory was AWFUL. My friend purchased a house in '17, and I - in '18, and we both to increase our budgets by ~15-20% in order to be able to afford _any_ house that didn't look like an environmental disaster.

Even then, these were 70 year old starter homes.

Basically - if you live in a desirable area, don't expect housing prices to reflect a 35% drop off of the interest rates increasing. Expect to pay roughly 2018-2019 prices, maybe even with 5-10% on top, adjusting for inflation.

[chadash]

> The only wild card here is what will happen with cash buyers, who aren't affected by mortgage rates.

Depends what you mean by cash buyer. There's a few different categories here and people sometimes get confused.

1) Someone who is very wealthy and has enough cash (or cash convertible assets) lying around to buy house without financing. I'd put Bill Gates in this category. I think most people assume that this is what all cash buyers are (albeit not as wealthy as BG)

2) Someone who sold a home that previously appreciated in value and is now able to use the difference (plus some savings) to pay for the next home in cash. For example, you bought in Brooklyn in 1970 and now want to retire in Miami. You can probably sell that first place and have enough liquid cash to buy in Miami. This is sort of like category 1, but not necessarily someone who is wealthy in a way that most people imagine.

3) Someone who has access to some other means of temporary financing. For example, let's say you run a company and have a close relationship with your bank. You might already have a line of credit with the bank collateralized against your business or other assets that you can draw down to get a temporary loan so that you can make a "cash offer", which you then plan to turn around and get a mortgage on. You don't need to be able to afford $600,000 in cash to buy a $600k home. You just need to be able to have some means of financing it in between when you buy the home and when you take out a mortgage. Often times this might be a family member or friend helping out.

4) A real estate investment company that buys houses in cash. Again, you may not actually have the cash around, but you have a banking relationship and the ability to get large amounts of cash on short notice and without the amount of due diligence a mortgage reuqires.

In 2020-2021 when the housing market was at its peak, I suspect that a substantial chunk of "cash buyers" probably fell in category 3. Yes, people had more money and there were lots of bitcoin millionaires, but not enough to hear about multiple cash offers on $500k homes (if you are the sort of person with $500k in cash to spare, you probably want more than a $500k home).

In any case, all of these groups are affected by the current environment. The stock market is down and there are just fewer people in Group 1 right now. Sure, Bezos and Gates are just fine, but the person who had $10M in liquid assets in 2021 might have $7M in in late 2022 and is probably a lot more nervous about taking money out of that. For group 2, the house you are selling isn't gonna sell for as much, so you'll have less money to spend on your next house. For group 3, these people were planning to use financing as a bridge, but the underlying mortgage rates still very much affect you if you plan to take out a mortgage after the sale. And of course, Group 4 is probably the most effected... what kind of person in their right mind is investing in residential real estate right now :)

[ackbar03]

This whole inventory argument is genuinely confusing to me and I never quite understood why everyone was talking about a sudden inventory "shortage" around 2020. Did a large number of houses suddenly get destroyed? Or was there a sudden massive increase in population?

If neither of those things happened, then in my opinion there isn't actually a "shortage", and the extra demand is maybe just from remote working and low interest rates. If those factors retreat and become less favorable, I presume the demand will retreat and new buyers will crawl back to wherever they were living before and this "shortage" will disappear as quickly as it came.

[jjeaff]

The sudden inventory shortage was due to the pandemic. Many people took their houses off the market in order to wait and see how things were going to play out. Hiring slowed down as well and many that did change jobs went to remote jobs. You don't usually have a reason to move if you don't have a job change. Then of course lots of people working from home caused more demand for homes as those in smaller apartments or houses decided they needed to upgrade.