[bequanna]

> House prices are set at the margins, just like any asset. Even if the folks with 3% mortgage rates sit tight and don’t sell, there will still be downward pressure on prices because prices are not determined by non-transactions.

YES! There is a sort of delusion that has taken hold of people who became “house rich” in the past couple years. They seem to think that if they don’t sell, their house will still be worth whatever fantasy number they have in their heads.

It does get me thinking about the psychology of these economic cycles and how the transformation of that delusion to acceptance/sadness on an individual level will impact their buying habits and risk taking. On a large scale, it is easy to see this is sort of spiraling into a protracted recession.

[Test0129]

Similarly, the delusion of the "house poor" hoping for another 2008 is frankly hilarious.

The difference is, if you picked up a house at 2.7% you will be winning for a long time. There are fewer ARMs, which means a small more protracted "collapse". Housing supply is still non-existent and will be into the near future. Wages will need to keep pace with housing costs in order to provide anyone a chance to succeed. Even after a so-called "recession" in housing they'll still be too expensive. For example, if my house dropped 50% in value, it'd still be way over what I bought it for.

The only deluded people are the ones not holding property. Make no mistake, if you didn't buy/refinance in 2020 you lost out on a literal once in a lifetime opportunity to lock a massive short against the fed.

[fratlas]

> you lost out on a literal once in a lifetime opportunity

I don't think anyone can make claims like this, lots of people made the right decision by not buying into an inflated market with job instability around the corner. I think the correction is needed, any people who didn't overextend will be fine if they intend to stay put for 5-15 years.

[forgingahead]

Yeah this the thing - somehow those of us who chose not to over-extend in times of exuberance are the ones who lost out? I've been renting for a long time, but my market still doesn't let me buy a home that I could live in with my family for an amount that won't make me lose sleep when rates go up (like everywhere outside the US, most mortgages are ARMs here). Like many of this board, I'm in the upper-echelon of earners in my location, but I refuse to over-extend on a housing loan like many folks in my location.

The only difference is that recently I've resigned myself to the fact that maybe I'll never own in my current location - which even though may be emotionally sad, at least I don't have a crazy monthly payment for a shoebox apartment.

[xenadu02]

The parent comment is making a really good point (in a roundabout way):

It is just another variation of "timing the stock market". Even if you're correct you can end up losing so much money on the upside that long-term you lose compared to people who buy into a bull market.

Depending on the exact circumstances of when you bought, your mortgage rate, how much prices fall, how long you can hold, and how much prices recover you can still end up losing by not having bought during the run-up.

Here's a made up bay area example:

A house sells for $2m in 2014. Due to rising prices over 8-10 years you end up buying for $3m at 2.5% interest in 2021. The market then tanks by 30%. That puts the house back at $2.1m. Over the following 5 years the market recovers somewhat and the house is worth $2.8m in 2026.

A naive view says "see! it was correct not to buy in 2021! waiting was the correct choice."

But that's not the whole story.

Buying in 2021 means you did not pay $5k/mo rent from 2021-2026. That's $270k. Not all of that will go to principle but some will. And you're 5 years ahead of the mortgage payoff schedule compared to not buying.

Speaking of time value of money... buying in 2021 means you got 2.5-3% interest on your 30 year mortgage. Depending on how things play out buying in 2026 might end up with 4-6% on the same mortgage:

2021 Purchase @2.5%: total interest paid $1.26m 2026 Purchase @4%: total interest paid $2.15m 2026 Purchase @6%: total interest paid $3.47m

In this scenario buying in 2021 ends up with the bank paying _you_ to take the mortgage since inflation is up. If you assume inflation says around 2-2.5% after that you more or less borrow the money for free.

Buying in 2026 costs you around $1m-$2.2m over the life of the loan.

In this example even accounting for the market dropping 30% _and_ not fully recovering it still made more sense to buy in 2021. Remember this is just one example with a lot of assumptions. I'm not saying this is what will happen. I'm merely pointing out that you can predict prices are inflated, wait for them to fall, and end up losing compared to a "sucker" who bought at the peak.

[type-r]

Wages haven't kept up with housing costs for quite a while, not sure why they would start now.