Prices clearly peaked, and the YoY price increase in some places had gotten a bit silly. But don't a lot of cities still just have a lot less housing than they should because of decades of not building enough? And even the decline in prices is mostly about the higher mortgage rates?
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).
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
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.
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...
