[prepend]

Everyone refinanced to very low interest rates. If home prices drop and people default then that’s lots of exposure to potential negative equity in all those home loans.

I think the bubble is due to extremely high home prices. In my metro area, prices are up 70% since 2020. So a drop of 40% to correct to 2020 levels isn’t unheard of.

Personally, I think the price is structural adjustments as people shift to remote work and that makes different houses more valuable (suburbs and exurbs have really increased quite a bit).

[abeppu]

> Personally, I think the price is structural adjustments as people shift to remote work and that makes different houses more valuable (suburbs and exurbs have really increased quite a bit).

To back up the idea that the price changes are mostly just about mortgage rates changing:

- In California, Redfin data shows that the peak for median sale price was in April 2022, at $839,100, and now we're at $706,000 for Feb 2023. Ooh, that looks like a >15% drop in less than a year!

- But FreddieMac shows that the average 30y fixed was 5% in mid April '22, and was 6.32% mid last month. The median home with an average mortgage was signing up to pay $4504/mo vs $4379/mo last month. That's a decline of roughly 2.8%

So it seems like home buyers today are willing to pay almost as much per month as they were at the price peak, which has drawn prices down.

https://www.redfin.com/state/California/housing-market https://www.freddiemac.com/pmms

[seizethegdgap]

I started to reply "How many of these loans are sub-prime ARMs though?" and then went and looked for the data myself. I can't tell if these ARMs are risky, but we're seeing an early-2000's-level number of people applying for them.

https://www.cnbc.com/2022/05/11/adjustable-rate-mortgage-dem...

> “More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.” At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since March 2008.

https://www.mba.org/news-and-research/newsroom/news/2022/07/...

> The adjustable-rate mortgage (ARM) share of activity decreased to 9.5 percent of total applications.

https://newslink.mba.org/mba-newslinks/2022/november/mba-new...

> The ARM share of activity increased to 12.0 percent of total applications.

Now, my wife and I bought our current house on a 5/1 ARM that was capped at +-1%/year and I think 10% total. We then refi'd in April 2020 and got on a 30 year fixed. I'm not sure if new rules after 2008 require ARMs to have total/yearly caps or not, if they do then a bubble pop will likely hurt a lot less. If they don't, then we're likely 4-5 years out from another crash.

[b1c1jones]

Your metro area is not my metro area, nor is it any other metro area besides your metro area.

[prepend]

My metro area is similar to many other metro areas.

And I think is a pretty decent reference to average US home prices going up by 45% [0] since 2020.

[0] https://www.ceicdata.com/en/indicator/united-states/house-pr...