How 3% Mortgages Altered the Housing Market for Years to Come: A Lot Smaller but More in Balance than it Seems, Hence Dropping Prices Despite Low Inventories

Lot of demand and supply gone in equal, with no net impact on inventory, but huge impact on sales, commissions, profits, and jobs.

By Wolf Richter for WOLF STREET.

The artificially repressed mortgage rates from March 2020 through March 2022 caused a huge number of homeowners to refinance, including to cash-out refinance, into 30-year fixed-rate mortgages with rates of around 3%, many of them below 3%.

If these homeowners want to sell their home and buy a bigger home or a smaller home, or a home in a different location, or whatever, they would have to change from a 3% mortgage to a 6.5% mortgage, and that’s a no-go zone. So they’re not selling, and they’re not buying. They’ve left the market.

This is bad for home sales, which have plunged, and for real-estate brokers that make money off each transaction, and for mortgage bankers that make money off mortgage originations, and if there are no transactions, they make no money and they have to find another job.

But the 3% mortgage jail has zero net impact on inventory.

When a homeowner sells the house they live in, to buy something else to live in, it has zero impact on inventories nationwide overall because a homeowner who sells their home and buys another home, adds one unit to inventory and subtracts one unit from inventory (+1 – 1 = 0).

All they do is churn the market, which is good for brokers and bankers. But they do not add inventory overall.

So if these homeowners cannot move because they cannot switch from a 3% mortgage to a 6.5% mortgage, it pushes down demand (yes ✔) and it pushes down inventory by the same amount (yes ✔), and the end result is a smaller market in terms of, both, demand and supply.

What actually adds to inventory of homes for sale?

In all these situations below, a home gets put on the market, and no home gets taken off the market, with the result that inventory actually rises. You can think of maybe a few other situations, but these are the big ones:

1. New construction. Lots of new homes are being built and inventories of new houses for sale at all stages of construction have piled up massively:

2. Homeowner dies or moves into care facility, and the home gets put on the market. Lot of that going around now.

3. Vacant homes being put on the market. We walked through the Census Bureau data a little while ago, taking the math from the 11 million homes that are vacant year-round down to the 3.5 million homes that could be on the market (rental or sale) but are held off the market for a variety of reasons. If just 20% of these 3.5 million units that are held off the market show up on the for-sale market, it would increase inventory by 75%.

4. Homeowner moves into a rental and puts home on the market. Some of that going around now, as homeowners try to lock in the high prices and to outwait this. I know a few myself, including a Realtor who totally nailed the peak in her local market last summer when she sold and moved into a nice rental house.

5. Homeowner moves in with friends or relatives or combines households. This could be a variety of arrangements, such as caregivers moving in with parents, or two single homeowners moving in together and making do with one home.

6. Homeowner moves to another country for work or to retire, and the home gets put on the market.

With the 3%-ers taken out as Buyers and Sellers, the total market is a lot smaller now, and will be for years to come.

Homeowners selling a home they live in to buy another home to move into adds zero to inventory in the end (+1 – 1 = 0) though that’s what brokers and bankers live off. That’s why the National Association of Realtors and the media, and just about everyone else, are constantly blaming low inventory on homeowners being locked into their homes with a 3% mortgage, when in fact, they’re only to blame for low sales – and plunging commissions and big job cuts – but with zero impact on inventories.

It means that there are a lot fewer buyers, which is what we’ve been seeing, and that there are a lot fewer sellers, which is what we’ve been seeing. In other words, a huge group of BUYERS and SELLERS were simultaneously and in equal numbers taken off the market by 3% mortgage rates, and they’re gone for years to come.

That demand is gone; and that supply is gone, in equal measure, with no impact on the inventory, but with a huge impact for sales, commissions, profits, and jobs.

The market is more in balance than it seems: hence dropping prices.

So now, it’s the remaining buyers and sellers that make the market, and they’re a much smaller group, making for a much smaller market.

The price drops are showing that within this much smaller market, there is more balance, and that buyers emerge when prices are low enough. And when these buyers have bought, prices drop further to pull in the next wave of buyers, which is just a normal market – but on a much smaller scale. And what is gone is the massive churn of homeowners selling and buying in order to move.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  279 comments for “How 3% Mortgages Altered the Housing Market for Years to Come: A Lot Smaller but More in Balance than it Seems, Hence Dropping Prices Despite Low Inventories

  1. SoCalBeachDude says:

    This inane buying and selling of houses is a rather inane notion, and it is hard to understand why people don’t just buy one house and live in it forever which keeps property taxes very low here in California with the basis being the original purchase price increase by only 1% of the tax assessment in any year. My parents purchased the lovely home I live in back in Summer of ’58 and I’m happily living in it today in Spring of ’23.

    • Happy Jack says:

      You’d be singing a much different tune if you had to buy that same house and it wasn’t “given” to you.

      • DougP says:

        You are making an assumption that may not be correct. I know many that live in their parent’s home and none were “given” the home. Because of the costs of long-term care, the homes were indebted, and with multiple siblings, they had to actually buy the home of their youth from the trust in order to keep it in the family. While many do inherit homes, not all.

        • Harrold says:

          If he purchased, the home, wouldn’t the taxes have reset?

        • AverageCommenter says:

          So the parents put the home in a trust that was not controlled by the children? Sounds like the parent didn’t have much faith in ya kiddo. What a shame lol

      • Truth says:

        You are of course correct. Those given homes (or buying at “gift” prices) are in a different position than those without.

        • joedidee says:

          I know hard money lender that loves the 3% crowd
          they’re making deals to WRAP the current loan and pay owner the equity portion
          in that way they keep cheap financing in place

    • Pants_Relief says:

      Moving around used to be more common in America, and was a great way for people to pursue opportunity and prosperity that they otherwise wouldn’t have found in the town they were born in.

      It sounds like you’ve been very fortunate to receive a house in a beautiful state. Congratulations!

      • old school says:

        New construction is a driver of real economic activity as it requires a lot of labor and materials to build a house. Selling an existing home doesn’t add much to real economy, but there needs to be a market for existing homes.

    • SwissBrit says:

      SoCalBeachDude – where did you live before now?
      Never bought a house to live in on your own before you got given/inherited your parents’ house?
      That aside, peoples’ circumstances change; better salary, more space needed, etc.
      You can rarely buy the house of your dreams early on, but you can change up.

    • Bs ini says:

      Considering the fact that I lived and worked through the period of corporate downsizing and consolidation where the number of offices dropped from 18 regional offices to 1 over the course of 15 years. Hard to stay in the same home when the job relocates. Plus the office and job losses were in locations such as Tulsa Ok Denver CO Midland Tx Houston Tx. I had the unfortunate experience of loosing 50 percent of my house value (including Mtg ) . Housing does not always go up. Ask the folks living in Detroit and the NE steel towns or the coal towns .

    • Jeff says:

      This has to be a troll.

    • Wolf Richter says:

      Mortgage rates were above 7% only for a few days at a time so that average weekly 30-year mortgage indices were above 7% only in two separate weeks (once in Oct and once in Nov). In early February, they dipped to 6.0%. The last weekly average was 6.3%. Yesterday’s daily average was already above 6.6%. Mortgage rates have been above 6% since September, and they’re still in the same range around the 6.6% mortgage. For homebuyers, nothing has changed.

      • hatefedbs says:

        Could the fall in housing offset the inflation of other goods and services? they’re saying ~6% inflation yoy, but most people are looking at 11%+

    • Dale Chiusano says:

      Around here they build new homes on the same lot as the old homes. No new lots are available. They tear down the old homes. If you don’t comply a junkyard dog Realtor knocks on your door and tells you that you need to move to a retirement community. A Builder’s shill sends you a flyer in the mail telling you that your home is functionally obsolete, and that it cannot be improved or is not cost effective. They site a young family that would like to move to your neighborhood to take advantage of the good schools, which you are not using anymore. They say that it is your duty to get out of the neighborhood. In other words, you are cruel to stay in the house you’ve lived in most of your life.

      • KGC says:

        My small town (8000 residents) has set boundries; there is no more space. So they changed the zoning, and all the houses on 1-2 acre lots got bought up, and now have 5-10 houses on them. But the infrastructure was designed for the lower population density, and that’s causing some real issues since there’s only 3 ways into town, and it’s a pretty big detour if something closes one of them.

    • Sacramento says:

      There is something called a “Pump & dump”

      And it’s everywhere.

      All throughout 2020 to 2022 I saw lemmings jumping enthusiastically over the precipice.

      Economics is a lot of fun if you enjoy train wrecks….and I like train wrecks.

    • yahboo11 says:

      everyone leaves this planet the same way u will have a less robust life living in one place just because of money everyone doesn’t have the same priorities

  2. Deepwater says:

    Not sure I would describe rapidly falling house prices as “normal” multiple times

    • Wolf Richter says:

      Not “multiple times” but “one time.”

      But yes, prices going down after going up is part of a normal market.

      • Phoenix_Ikki says:

        Agree and since we had one of the most abnormal and fast run up ever in modern history, let’s hope the way down is just as abnormal and violent, that would only be fair and normal part of the cycle.

        Because if price only back down to end of 2019 level, then for many already bubblicious markets it’s really nothing to write home about and historically we would still be in bubble definition like in West Coast as you have shown and wrote about many times before..

        • Happy Jack says:

          If the market in Phoenix was to drop to “end of 2019” levels that would mean a 40-50% drop from today’s prices.

          What’s you point again ?

        • phleep says:

          As with stocks, plenty of people are still anchored to super-bubble prices mentally. It is, IMO, a spurious point of reference, built on an unsustainable over-print of money and credit. This is part of why inflation persists. Prices and profits are still, and should be, adjusting. At least we are not heading so headlong into bubble-dynamics for a change. And, a lot of folks should, accordingly, feel less wealthy.

        • Augustus Frost says:

          When was the increase bigger in a similar time period in the past?

          This isn’t “one of” the biggest housing bubbles in US history, it’s THE biggest one and the Case Schiller charts profiled here prove it.

        • rojogrande says:


          “As with stocks, plenty of people are still anchored to super-bubble prices mentally. It is, IMO, a spurious point of reference, built on an unsustainable over-print of money and credit.”

          FWIW, I agree completely and have seen this mentality first hand.

        • sufferinsucatsh says:

          But what’s so odd about that is the fed was making the cash to buy homes in QT right?

          So you went and got a mortgage, say right at the ceiling of your salary. Some would say “that’s too much to take on” but you better bet people were taking them on.

          They get their dream house (which was 50% less not 2 years before), the fed gets their jumbo loan for mortgage backed securities.

          But now wait, these buyers are now not happy and want to sell.
          Is it Tough snikees? Or Sell for a loss?

          And if they sell for a loss, who gained from their whole endeavor? Who lost?

          Did the fed accomplish anything? or is this housing market a negative byproduct of QE?

        • Finster says:

          Much agree, phleep. I always want to yell at whiners for cherry-picking high water marks as their definitive point of reference. Houses and stocks are still at pretty inflated prices using more normal times as a baseline.

      • Wolf Richter says:

        Read the G*d D**n F***ing Article (RTGDFA)

      • Expat says:

        Mr. Wolf, there is a Mister Lawrence Yun on line two calling to say you are, and I quote, “Wrongedy, wrong, wrong! House prices only go up. Buy now or die of cancer.” Shall I put him through?

        • Phoenix_Ikki says:

          Just tell Lawrence luny to use his other handle Kunal to post his thoughts on this comment section…telephone call is soooo 1990s..

        • Swamp Creature says:

          “Shall I put him through?”


          Lawrence Yun is right for a change. Houses are not going down here anytime soon. They have stabilized. Even Refi’s are starting to pick up. People need a place to live and will pay whatever the traffic will bear. Those waiting for a big decline will be waiting forever. Even the “Listing From Hell” a block from me just went “UNDER CONTRACT” after a small price reduction.

    • Leo says:

      The Realtors have a tough decision to make. Do they pretend to become RE investors and defend their house Zestimates, or do they become honest with their commissions business and force sellers to lower expectations.

      It’s time to let go. Chasing high commissions by spreading misinformation will result is much fewer sales resulting in much lower commissions. It’s a bad time to find a side job in middle of layoffs to make for commissions loss.

      I encountered a new realtor who sold a home to a neighbor just before pandemic, and was so influenced by the price jump, that when the neighbor hired her to resell the house, she ended up proudly buying it herself at pandemic peak price. In Seattle outskirts that house is now 20% down. Greed, inexperience and jealousy is a bad combination.

      • Jon says:

        Most of the realtors when they pump home prices they do it genuinely .

        Most realtors don’t really have the gray matter to look at the bigger picture like the readers of this blog

        A realtor I know is very kind and genuine but she is always pumping real estate.
        Don’t blame her as this is what she genuinely believes in

        Also her livelihood depends on not understanding what’s really happening.

        I see the same here.
        Many people here are real estate pampers as they are some how invested in rising home prices

        • Realist says:

          Disagree on the comments regarding realtors. A realtor is here to make a transaction. 2% of 600k or 500k. Who cares. But no transaction and no commission. That’s the issue. “Pumping real estate”. Have you ever met someone who said: I don’t want my own house? The idea of renting and paying off someone’s mortgage doesn’t really make senses intrinsically RE doesn’t have to be pumped up. The market makes the price not comments on the internet or lines by realtors.

        • Augustus Frost says:

          Realtors are salespeople, not financial analysts or students of market history. They may understand basic economics, but they are still in the sales profession.

          Most people are also trend followers going allowing with crowd psychology. It happens with Wall St (even when they aren’t engaging in self-promotion), economists and the ultimate trend follower, government.

        • rojogrande says:


          “Have you ever met someone who said: I don’t want my own house?”

          I certainly have, several of them. It’s not most people I know, but I think most people have met someone whose had buyer’s remorse after a home purchase.

        • El Katz says:

          Re: Realtors as real estate “pimpers”:

          What would one expect them to do? Have any of you ever purchased an item or service when the salesperson told you it would drop in value/depreciate and the service wasn’t worth the powder that it would take to blow it up?

          Of course not.

          It’s no different than when you present yourself to a prospective employer or client. Are you going to tell them you’re mentally unstable, or about to go bankrupt, or that the last major project you lead had huge cost overruns and ended up being a dismal failure?

          Of course not.

          Yet you expect behavior contrary to yours from someone else under similar circumstances.

          Buying a home is, and always was, an emotional purchase. When you dissect the economic details as some here do, one could come to the conclusion that it just doesn’t pencil. (Of course, buying food doesn’t pencil either as it just turns to crap in short order.) However, people do it every day. In some cases, it does pencil – but that’s normally for people who deal with life in longer horizons and assign a value to housing security for them and their family. Yes, there comes a day when it has to be sold, regardless of the economic conditions. But the same applies to stocks, precious metals, luxury watches, jewelry, and about every other thing you can think of. Have any of you ever taken the rock you bought your wife and tried to sell it back to the jeweler that sold it to you? Talk about getting your a$$ handed to you….

      • Seba says:

        That’s a good point. I’m not sure about other markets but the few RE agents I’ve talked to and dealt with in either Toronto or Vancouver Canada have all been investing in RE, one agent told me him and his wife owned close to 20 properties, though I can’t verify that. With the duration of the bubble and the rate of appreciation I think a lot of them got seduced into speculating, you can only watch your colleagues score so many times before you start to feel like you’re missing out. I wonder how they feel about the current market, probably hoping number of listings stay low through the spring and summer, I’m assuming a big drop in prices over multiple properties would eclipse any income from commissions.

        • Augustus Frost says:

          In a normal market, putting your money in something you know best makes sense, as long as you are not overly concentrated and have adequate diversification.

          The problem is that this isn’t a normal market and hasn’t been for a long time.

        • SpencerG says:

          I doubt they own those 20 properties and have them sitting empty. My mother was a realtor for 25 years before retiring after a stroke. At one point my parents owned nine properties… and traded down to four BETTER properties after Hurricane Katrina which they still own in their 80s. They never sit empty for long.

          NOT ONLY do Realtors have better knowledge of the local market than anyone else out there… and can swoop down on any good deals that come along… but they also have a steady stream of people coming into the office “looking for a place to live.” In a nation with a 50% divorce rate, such happenings (quick distress sales and a need to rent) are constant. To say nothing of people moving into a community who need to start a job before an appropriate house hits the market (or before they unload their current house).

          So if you have a vacancy in your four, nine, or twenty properties you simply let your fellow Realtors know and offer them a commission for telling their clients about it if that is the local standard. As long as the value of the properties doesn’t actually drop (like in the Great Recession) then you will come out ahead in the long run. Sideways movement in prices after a false run-up doesn’t matter if you Buy Low… and have someone else paying the note!

      • Mari says:

        I think it is time to suspend the free money mantra and belief that prices only go up.
        As we all know there are bubbles that popped up everywhere and it just becomes unsustainable for anyone to afford anything let alone a house that has artificially skyrocketed 20-30% + in 2 yrs!! The expectations have to come down and everyone should do better and try to achieve some stability otherwise this country really is doomed and doesn’t learn from crises of the past.

      • Swamp Creature says:

        I’ve met 1 honest, competent Realtor in my entire personal life. The woman told me not to buy a house I was looking at to buy in 1987 because it was on a busy street and would be dangerous for young children.

        Most Realtors are like junkyard dog Attorneys. Only use them when you HAVE to.

        • SpencerG says:

          “I’ve met 1 honest, competent Realtor in my entire life”

          How nice! You met my mother.

          But I take you larger point as well… when she retired the average IQ of the profession dropped considerably.

  3. Monty says:

    Of course you’re right that nationwide the inventory doesn’t change due to homeowners refusing to sell and move to a new house, but there must be some geographic imbalances, right?

    Maybe this means (for example) older homeowners stay put in Minnesota, and don’t sell to move to Florida. Wouldn’t that reduce inventory in Minnesota and increase it in Florida?

    • Wolf Richter says:

      Given the huge flow of people in all directions over time, it tends to balance out over time. That said, California has lost population over the past two years, and the Bay Area has lost quite a bit of population, while new housing supply was added, so that’s where you some extra pressure that you might not, or not yet, see in some other markets.

      The US overall has had the least population growth in ever in 2021, I believe.

      • Moose Meyer says:

        “Over time.” How much time Wolf? Florida residential real estate has been in an asset bubble for years. $1,500 a square foot for absolute dreck. And it seemly keeps on going. Meanwhile, the rust belt has nominal appreciation and in many areas declines in value.

        • sufferinsucatash says:

          There was an article about TikTok users moving to Peoria, IL (I think) because the houses were going for 50k. The couples just uprooted to own a home there. Wild!

        • VintageVNvet says:

          Anyone paying $1,500 per SF for anything less than totally excellent housing in FL is a sucker MM.
          The very pleasant, very mixed in all ways, hood we inhabit these days in the saintly part of the TPA bay area has small and medium houses selling if old and needing updating for around $300-325, and then, when rehabbed nicely at around $400-425.
          Not in the ”high rent” district far shore, but not any kind of high crime or much at all, etc.,

      • Eric says:

        The Census Bureau estimated a resident population of 331,823,629
        in Dec 2020 and 332,588,566 in Dec 2021, which is an increase of only about 0.2%. The increase in 2022 was about double that, i.e. 1.5 million people and 0.4%.

        To me this is where the housing shortage narrative falls apart….where are the new buyers coming from? What’s changed is more people (or companies) own multiple properties.

        • sufferinsucatash says:

          The census was done b4 the pandemic if I remember correctly. Those people were everywhere like flies. I’m going to hawaii in 2029 when the next one is done. bleh

        • Wolf Richter says:

          During the pandemic — much of it in the second half of 2020.

    • Leo says:

      Let’s see what flippers can do.

      What banks are doing with drop in Long term bonds is to hold till maturity and fudge accounting category to hide losses hoping that either there will be no withdrawals to force them to sell or hoping that Fed will Pivot. We all know how it’s working out :).

      Now back to flippers. They can hold hoping that Fed will Pivot (it won’t anytime soon). They can sell at considerable loss, but they are clearly not doing this yet. However these flippers are in worse positions than bankers because
      1. Holding a house costs more money than holding bonds (maintenance, utilities, hoa, property taxes, insurance).
      2. The borrowing costs of flippers is much higher than that of bankers who were paying 0% on their deposits.

      So in non-recourse states, flippers would just handover keys to bank and walk away making the taxpayers eat the losses!

      • Leo says:

        This was a reply to libdis below.

      • MM says:

        “Holding a house costs more money than holding bonds”

        Its also a lot more work than holding bonds.

        Right now you can get 5% for doing asolutely nothing with 1-3 year CDs, and just wait till long term rates come up…

  4. libdis says:

    I guess the whole flipping market is finished. There are still many getting ready to come on line when you ride around Tampa. Ouch.

    • John says:

      Flipping was impacted when the top was in. Many would be flip homes will eventually show up listed as an REO and like in 08 these homes will be in various stages of rehab. I picked up one around 2010 that was down to studs in the kitchen and bathroom. There was a stack of laminate flooring and other materials to finish it but the newbie flipper just waked away. It was a good deal and I did many more as the market was dropping. The biggest factor to success is in the speed of the rehab. I have a formula that determines what I can pay and how long I have to get it ready to list. If the rehab runs long it can wipe out most of the profit. No-mans land is just after the top and before the pricing falls. Once prices have had the first move down you can start to dip your toe in the water. THE biggest question I have is when will the foreclosures start to show up at the court house steps. There are many reasons a home gets foreclosed even if the house has equity? I have to think there is a shadow inventory because of the moratorium? Wolf do you know if there is a backlog?

      • Zev says:

        He’s written on this before. Foreclosures (and other credit defaults) were at historic lows during the pandemic. They’re starting to tick up, but we’re nowhere near the highs of the financial crisis – yet.

      • All Good Here Mate says:

        I’ve been looking for a house for a few years. Your post is an excellent summation of why the very first thing I do is see when it was last sold…. “ The biggest factor to success is in the speed of the rehab. I have a formula that determines what I can pay and how long I have to get it ready to list. ”

        My translation as a potential buyer… “I get the cheapest crap on discount from any place I can, hoodwink local inspectors, and hope that the paint doesn’t peel off before the showing.”

        I’d never buy a flip for more than 2% than what the flipper paid for it. Never.

        As if laminate vinyl flooring is a special thing.

        • Natron says:

          Heck if you look at the new construction around here I’d take an older house with a coat of paint on it, if the bones r good pretty much any day over the crap that’s going up now.

          That being said you make your money on real estate when you buy it as far as I can tell, assuming your exit plan works properly of course.

      • Gilbert says:

        “Flipping was impacted when the top was in …”

        You assume history will repeat itself, meaning your tactic will work again. Possibly. But the FED might not pivot like last time, which will doom anyone trying to replicate your method.

        What we all need is sanity in the markets, i.e., for the FED to let the free market do its thing.

      • sufferinsucatash says:

        I used to watch this show on HGTV. Man those were entertaining to watch them yell at the subs. Then turn to the camera and say “These subs are killing me”.

        One of the guys got in trouble for selling “flipping courses” which seemed like cult gatherings.

        Strange times man! Strange times

        • Anthony A. says:

          Pretty soon we will have the new and improved Carlton Sheets infomercials back on TV again!

  5. Inno says:

    Agreed, and add in:
    1. Remote Work, which at the margin will reduce job-induced moves,
    2. Decreasing domestic reproductive rates (below 2) and
    3. Likely tightening immigration policy

    and I don’t see the next big wave of hype starting for a while…at least 6 months :)

    • Happy Jack says:

      I think the “remote work” thingy is what helped drive the explosion in prices in the west including AZ and ID and possibly Austin, TX. Those ignorant folks who fell for that are now being called back to the SF’s, LA’s and Seattle’s of the world.

      • Jon says:

        My company in CA has remote wfh policy .
        Many people bought homes far away from office thinking this would continue and moved 2 hours inland

        Few months back people got called 2 days a week then 3 days a week now 4 days a week

        Just surprised how things changed fast

        • grimp says:

          This just happened “in my area”. Memo went out – wfh/hybrid work going from effective full remote to 4days in/1wfh starting May 1. (Ultimately it will go back to full time in office/plant). Presented with company productivity metrics showing productivity loss etc. It’s not surprising to me, but I’m sure there will be some outcry. WFH seems to have many zealot supporters, but it’s not the best way to run all businesses.

        • Vasc doc says:

          Yup my wife’s WFH job got called back into the office at least 3 days per week. She had a pre covid WFH deal with the company. They reneged saying no exceptions. Very tough for her right now as we had moved for my job. She is back to the interviews. Much less fully remote jobs out there than 6 months ago.

        • Canazei says:

          I’m retired and my wife and I travel a lot for pleasure, often to states in and nearby our California home.

          During 2021 mainly, we had some different sets of friends who were allowed 100% remote work. It was great – now we had travel buddies who could come with us much more often for trips of a week or two in nearby states or within CA, whereas most of our travel friends are not yet retired.

          They would come with us and do about 4, maybe 5 hours at most of work in the morning to just after lunchtime. Then we’d go out and sightsee, hike, have a drink, or whatever all afternoon. Occasionally they’d get a work call or email during the afternoon while we were out, which they could usually dispose of in 5-10 minutes, then back to the fun.

          I’m not saying this was the case for all remote workers, but I definitely did not see 8 hours of hard work a day out of any of them during these times. I am a skeptic about the productivity of remote work in such cases, except for perhaps computer programmers and those who can do their most taxing work while alone, and may work all kinds of odd hours during a full 24 hour day. Those were not the types of jobs our friends had, though. Most are now back at the office, if they are still working.

      • sufferinsucatash says:

        It might just be cheaper to learn who is remote work. Dissolve their position and hire new younger people for less.

        I wouldn’t put it past corporate America!

        • Queenie says:

          Most layoffs in the first wave at my company were remote, WFH. Now it’s 3 days a week in the office. Covid every week, of course, nobody wants to come back. Managers been getting the Covid, 🤣

    • Ridgetop says:

      “2. Decreasing domestic reproductive rates (below 2)”

      I agree.

      Boomers retiring/dying and the following replacement generation X is smaller and had fewer kids. But will the first half of the Millennials kick it back into gear. If so when?

      My generation Z son, first of the group is spending everything he makes, on food, concerts and fun. Everything but saving for a house or even a car. Even though we spent years teaching him about finances. Good luck housing market!

      • Einhal says:

        Why shouldn’t he be spending all of his money? Our policy leaders, mainly early Gen X through Boomers, have set a policy of destroying the currency to pay for current desires.

        If there is no incentive to save for the future because the future is bleak, people will respond appropriately.

        • JamesO says:

          the ‘future’ has always been bleak if you want it to be … once you start feeling sorry for yourself you quit.
          natural selection at work.

        • Einhal says:

          JamesO, thinks are much worse than they used to be.

      • elbowwilham says:

        Most millennials are in their 30s now and not having kids. Demographics shows the largest amount of older single women in history. We are heading for a demographic cliff, but not as bad as Europe and Asia.

        • Sams says:

          The demographic cliff is a problem to exponentioal growth economics. To people and environment a decreasing population may not be bad.

        • Mr. House says:

          Invest in cats and pysch meds ;)

        • Victoria says:

          Perfect timing for the global warming Apocalypse! Why save when there won’t be much to buy/enjoy 10, 20 years from now? Many things will be ending quite hmm.. abruptly.

  6. Happy Jack says:

    I’m in the #4 camp. I cashed out in Livermore, Calif. (Bay Area) in summer 2021 and moved to Phoenix to rent/wait out the crash.

  7. Halibut says:

    I think #2 (owner dies) is very significant considering the prevailing demographics.

    Millennials are a smaller group than the boomers they are replacing.

    Seems like it would imply a housing surplus going forward.

    • RedRaider says:

      Demographically, the boomers are an interesting case. They deferred marriage but not home purchases. So the boomers started out as single home owners. When they married that left them with 1 extra home.

      I’m sure many boomers sold that 1 extra home right away. But others probably held on to it. How large are these two groups? Is there perhaps a sizable shadow inventory that gets resolved upon death when the kids inherit the extra home? That time would be rapidly approaching.

      • Pea Sea says:

        Vanishingly few held on to extra houses for thirty or forty years. Come on.

        • Nissanfan says:

          Seriously doubt those are even relevant numbers. More like outliers. There was dot com bubble crash, 2008 crash that affected boomers and their wealth. Unless they forgot about owning those houses, they would sell those first.

    • MoreCreativeMatt says:

      Also, they’re much more forced sellers.

      If they’re still alive they need the money to pay for long-term care or just want it to spend while they’re still alive. Pulling it off the market and waiting another year isn’t an option. If they’re dead it’s probably to settle an estate and usually heirs just want the thing sold so they can get their money. Yeah, they can get in fights that delay this, but ultimately people tend to want the money.

      In both cases, they don’t care about ruining the comps or getting the highest tick. If you’re a typical broke millennial you’ll take $800k split four ways in hand now even if it would’ve sold for $1m last year.

      • sufferinsucatash says:

        That’s true, but I think you may be thinking about the youngest silent generation dying off.

        That is what I saw anyway, the youngest of the silent generation and some of the oldest boomers kids selling their homes.

        Just clean them out and sell them. They do not even talk to the neighbors, whom their parents knew for 30 years! So cold.

    • rojogrande says:

      By 2021, millennials surpassed boomers as the largest living generation. In 2021, Get Z was already larger than Gen X.

    • Seen it all before, Bob says:

      Being a late Boomer with friends who are Boomers, I don’t think they are ready to die yet. Most are very healthy and active. 70 is the new 50. I did a quick check in the Sunday Obits and most of the people listed were born in the late 1920s up to the mid 1930’s. These were Silent Generation.

      It may be another 10-20 years before the peak Boomer die-off happens. I hope.

      • Wolf Richter says:

        It’s funny, people are confusing boomers with prior generations.

        • VintageVNvet says:

          It IS funny, as in strange.
          I for one, being a ”war baby” (as we born during WW2 are or were called ) see a lot of confusion re: exactly or even approximately the birth dates of any of these groups except for the ”boomers.”
          That one, 1946-64, seems clear enough, but there appears to be a lot of difference of opinion about all the others since then.
          Is there any solid or official agreement on these?

      • Escierto says:

        I am 68 and I run five miles every day. I have no health problems of any kind and take no medications. Nevertheless 70 is NOT the new 50.

        • Seen it all before, Bob says:

          But, But….. My employer said to wait to retire. 70 is the new 50! :-)

          Great job with staying in shape! That is hard to do if you are Zooming all day at a desk.

        • VintageVNvet says:

          Actually ES, it IS for some folks, far damn shore…
          NOT ALL equally surely, but some folks are really just ”hitting their best stride” at age 70 these days…
          From years of research and following up with deeper dives, it mostly appears to boil down to diet and exercise.
          While a GOOD CLEAN diet is definitely a challenge for many, especially if they have either the dough/bread to buy any foods they want or OTOH ”think” they are too poor to buy decent food,,, fact is that the lower on the food chain one eats regularly, the better…
          Exercise is similarly challenging but IMHO after SO many years, one CAN get all the exercise needed with almost NO expense and perhaps if that exercise is focused on growing as much as possible at home,,, so much the better…
          Again IMO, everyone who CAN,, should be doing their best to spend the TIME needed to grow as much of their own food as poison free as possible…
          Growing food at home can be done almost everywhere these days, with various food plants readily available for ”container growing” at almost every/any location,,, and with heritage or similar open pollinated varieties ( that will grow from seeds again and again ) now readily available from Seed Savers and other similar non profits, there is no reason not to do so.

  8. josap says:

    The churn is gone. This makes sense to me, a lot of sense.

    People aren’t looking to move up/over/down due to low rates. There are no longer 10/30/50 people showing up the first day a house hits the market or at any open house. Activity breeds activity.

    FOMO is over. Buy in some smaller local due to WFH is over.

    Markets will settle down to whatever is normal for the area. Listings will sit for the normal amount of days 30/60/90 per location and type of home.

    We aren’t used to normal. We are used to free money frenzy. We got used to the stress of rushing out to buy a house right this minute, before prices went up another 10%. Prices aren’t going up, in places they are going down.

    I have no idea what happens next. Well, I think I have ideas, but they are probably wrong.

    • Jon says:

      There is nothing wrong with high rates
      The main issue is the home prices are still too high

      When the prices fall down enough you’d see many people trying to buy homes or trade up

      • greg says:

        Ditto Jon. I paid 12 3/4 %, price reasonable in the 80s. Worked a lot and got it done. Yes, I understand times are very different.

      • Gray says:

        SFH Home prices are too high because of WFH and people put their commute savings into the house driving prices to the Moon. Also not uncommon for remote tech workers to be overemployed, working 2 jobs doing nothing because the tech companies were hoarding labor. Lots of misallocations in the latest Mania.

      • Seen it all before, Bob says:

        I’ve always thought the best time to buy a house is when rates are very high and house prices have settled to a low. The late 80’s at 15% mortgage rates were the best.

        You could just refi every 2 years as rates fell and watch your house equity grow.

        We might see that again If inflation gets bad enough.

  9. w.c.l. says:

    “They’re going to have to find another job”. I wonder if any of these folks put something aside when times were good?

    • John says:

      There were realtors in my office that just got crushed in the 2008 downturn. I remember one that had just bought the new Escalade along with the big house and to do so did not pay any quarterly taxes for at least two quarters. The person said they were banking on two escrows closing to pay the taxes! Both deals fell out and it was just crushing. Just like Wolf said the volume or churn was what may Realtors bank on and base there lifestyle around, never thinking it will end.

      • josap says:

        I’ve recently met two very young RE agents who think this churn will keep churning. They are buying all the toys, big house, etc. One has wealthy parents and will get bailed out of his mess. The other I don’t know any other financial circumstances.

        Remember, todays 21 to 24 yr olds were around 10 when the last crash happened.

        • Augustus Frost says:

          This mentality exists because most Americans don’t believe they will financially fail.

          I’m not referring to filing for bankruptcy or a temporary “spot of bother”, I’m referring to (the prospect of) an actual substantial decline in living standards or real poverty.

          Considering the way most people seem to spend their money, it doesn’t register with them.

          My sister and her husband filed for bankruptcy in 2010 or 2011 with a paid off house and $100K in credit card debt. Living in FL, they kept the house and didn’t experience any decline in living standards.

          Her husband has a remote job now outside of the country. They have a decent income but not significant savings for someone approaching retirement. They also sold their house pre-pandemic where in the current market, they wouldn’t be able to buy again without some mortgage.

        • sufferinsucatash says:

          Wait, I didn’t think 20-29 year olds moved out of their parents home until the 30th bday?!

          That is what I’ve been seeing. They just are not very motivated or responsible. I don’t blame them, not sure why the young are this way.

          They’ll get it together sometime! We will see the little lights turn on behind their eyes and start thinking. :)

          Ok last comment for today! I need lunch

      • ru82 says:

        I have two friends who in the 2008 bubble too. One started buidling spec houses and went bankrupt. He had a couple of empty houses sitting there for months and finally could not pay the bills. The other friend was a realtor. He had bought 3 houses as rentals. He panicked in 2009 when a couple of his renters lost their jobs and he sold the houses.

        The Realtor regrets that decision today but would he have really stayed the course as a landlord?

        • Nissanfan says:

          Making money on renting a single family house is almost unheard off, especially with increasing property taxes. Breaking even is probably best case scenario. Now if you put that money into stock at that time, the return would be much much higher. The realtor has rose colored glasses.

      • Swamp Creature says:


        Do me a favor and tell those two Realtors that the Swamp “Doesn’t give a f$ck about their problems”. And try posting something more informative on this Website.

  10. JLo says:

    One additional subset of people that I would love to hear your comments about, Wolf, are homeowners who would be selling, but because they have a low interest rate locked in, are opting to rent instead. Would this not restrict supply to some extent, at least temporarily? Asking in earnest as my hubby and I would like to buy our first home (likely will be in Portland, OR as we can’t afford anywhere else on the west coast) and are trying to figure out the best time to do so as much as possible. Currently, we are renters in SF.

    • Propheticus says:


      Not to preempt Wolf, but I am a homeowner carrying no mortgage. My house has been paid off for years. I would rather sell my home as opposed to renting it out and here’s why:

      If and when another crisis occurs, and it will, renter’s moratoriums will be reinstated. Because of that possibility, I will not rent my home out, nor will I ever own rental property.

      Although I want to sell my home, even in this market, I have decided against it and I will stay put. My decision is based on this very simple chart that you can find here:

      Refer to the chart with title: Owner’s Equivalent Rent of Residence (red line) and Case-Shiller NHPI (Purple Line). Notice how, as of the past year, the slope of the OERR has increased. I’m assuming this trajectory will continue. Also, take note that during housing bust 1, the slope of the OERR never leveled off, never declined, but remained positive, even as home prices were declining. For these reasons, I will not sell and rent.

      Simply put, as a homeowner with 100% equity, and who would like to sell, I have decided against it because I believe rents will continue to rise and I don’t know how long it will take for housing prices to correct or to what extent. It just doesn’t make financial sense for me so I’m staying put.

      I’ve lived in the Portland metro area for 30 years now, so a little unsolicited advice, if you will. Your property taxes will go up by 3%, each year, so long as the assessed value of your home is greater than the real market value (RMV). The RMV has always been substantially higher than assessed value. That could change, but doubtful. This means that if the RMV goes down but is still higher than assessed, your taxes still go up by 3%, annually. This 3% annual increase is statewide and capped.

      Now, with regards to county, city and other taxing districts, I recommend staying the hell out of Multnomah county and the Portland city limits. Property tax hell, if you will, local taxes stacked on top of the 3% annual statewide tax. Oh, and by the way, I also live under another taxing authority know as Metro, unique to the Portland metro area, I believe. So, if possible, stay the hell out of the metro urban growth boundary. The urban growth boundary expands every year. My home is subject to 17 taxing districts in all.

      Hope this helps.

      Good luck to you and your husband.

      • Johnny says:

        Jlo asked about people with 3% mortgages. If you own a house free and clear it’s more compelling to sell but if you have dirt cheap debt attached to it which is at a much lower cost than inflation the argument to sell loses some water. I know quite a few people that are keeping their houses with cheap mortgages and renting them out while they go and buy another house or move in with their family. Or sometimes even rent. Most people realize it’s not smart to sell an asset if they are lucky enough to have very cheap debt attached to it. Prices will go up and down but their mortgage is fixed for a period that will surpass multiple real estate price cycles. So they have very little incentive to sell.

      • JLo says:

        Thanks for your reply. I appreciate it! I will check out the graph you linked. I also appreciate the take of someone who lives in the Portland Metro area. Question for you – if you are worried about a moratorium on rents during a crisis, if you sell your home and are a renter yourself, would you not benefit from the moratorium during the impending crisis as a renter? I do understand the reason why you would be nervous to rent out your own home because of this though and, of course, there are many other reasons not to sell a house that you own outright.

        Wanted to also add a bit about property taxes in Oregon as I, bizarrely, find understanding them incredibly interesting and have dove into Multnomah Country property taxes with abandon. Oregon is especially unique and complicated. You probably already know this and were simplifying, but just wanted to point out that, in Oregon (the whole state and not just Multnomah County), your MAV increases 3% per year, but your property taxes can actually *increase more than that per year* based on the various bonds voted on by the local populace. Ultimately, how Oregon does it is decidedly not at all fair, but I am aware, and it is one of the first things I look at when a property intrigues me. You might find this article by The Oregonian interesting: but you can also look up any property’s taxes via county records online and see if they are, what I call, “under water” by multiplying the RMV by the change property ratio for a given year (currently .449). The change property ratio is used to figure property taxes on brand new construction as it obviously didn’t exist in 1995 which is the base year to figure Oregon property taxes. Figuring out what the property taxes would be if the same house were a brand new construction assists me in understanding if a given property is a “winner” or a “loser”, and I also find it useful when considering how much remodeling a particular property might need to become “livable” as remodels increase the MAV as well.

      • Propheticus says:


        Regarding the link to the Wolfstreet article in my post above, please do take the time to read the entire article, not just the chart that I mentioned in my previous post.

        “Question for you – if you are worried about a moratorium on rents during a crisis, if you sell your home and are a renter yourself, would you not benefit from the moratorium during the impending crisis as a renter?”

        Benefit? How so? Financially speaking? No, rent forbearance would not be beneficial to me in any form.

        Having read your reply, you are definitely on top of your game with regards to Oregon property taxes. Just to clarify, your property taxes will go up, YOY, at a minimum of 3%, so long as the RMV is greater than the tax-assessed value. And you’re correct again when noting the YOY increase could be higher. For example, voters could approve an ISD bond proposal.

        Even during Housing Bust 1, my property taxes went up each and every year because the RMV was always greater than the tax-assessed value. Over the course of my “home ownership” (yeah right) the largest YOY tax increase has, thus far, been 18%.

        And you are correct when you say that the Portland metro area is the least expensive relative to the Bay Area, LA, San Diego, and Seattle. I refer to Portland the west coast cheap seats.

        Just to reiterate, I’m staying put. I don’t see how it makes sense to sell and then rent or sell and then buy something else. But I really would like to sell, just for the sake of change. Still working on a gameplan.

      • sufferinsucatash says:

        Do you guys call grocery bags “Sacks”?

        I heard this the other day from some portlanders here visiting Raleigh.

        My brain was burning “Sacks?! No no, they are grocery bags!!”


        • Propheticus says:

          Yes, they really are called “sacks.” LOL!

          Traveler’s Tip: If you ever visit Portland during the rainy season, don’t carry an umbrella!

  11. Veit says:

    (+1 – 1 = 0). Thank you! Finally someone has figured out the net zero impact of frozen sales. For months real estate people touted: Nobody will sell, hence no inventory, hence prices will go up. Nobody called them out on it….

    • andy says:

      It’s similar to the “money on the sidelines” myth “waiting to enter” the stock market.

      • Halibut says:

        Why do you call that a myth? Many people (like myself) are 100% cash (treasuries and such) and fully intend to enter the market when it falls to/below fair value.

        Lots of other folks right here in WolfLand have said as much themselves.

        We ain’t mythical creatures.

        • Escierto says:

          When you return to the stock market and buy, the sellers will then have the cash you paid for their stocks. The cash is still there, just in different hands.

  12. Dick says:


    Comps. I dont care about rates just price which largely is a function thereof. ok, so a small subset of the overall market is ‘participating’ Transactions go down but what about the trend.

  13. Bobber says:

    With so many people locked into 3% mortgages, a huge part of the market is gone, as Wolf said.

    So what is left?

    On the sellers side, you have all the situations Wolf mentioned, which is a lot of people. On the buyer’s side, you basically have first-time homeowners, who likely struggle with affordability issues and have the realistic option of renting a nice apartment for a few more years.

    Motivated sellers on one side; wannabe home owners struggling with affordability issues and options on the side.

    Doesn’t look good for residential RE prices.

    When I look at the current RE listings, I’m amazed at the number of sellers who bought their homes only one or two years ago. I sense panic there. They know what’s about to happen.

    • Vlad the Impaler says:

      It is quite amusing to see many sellers still listing their properties at peak prices… It’s going to take some price to find the equilibrium

    • QQQBall says:

      you omitted the geo-arb buyers. They are less price sensitive going from a HCL area to LCL area. Plus, people do not want to move twice; first to rental housing and then after buying a home.

      • Pea Sea says:

        Until, after a few months of HCL buyers going to that LCL area, the LCL area becomes a MCL or worse. Much of that low-hanging fruit is gone now, after two years of insane pandemic money-printing and rate repression combined with “permanent” WFH opened up the geo-arb trade. The trade got crowded…go figure.

        There are still LCL areas, of course, but the number of them that any HCL buyer would actually want to move to is getting smaller.

    • Seen it all before, Bob says:

      I might be panicking if I bought a house in the last 2-3 years as an investment and not a primary long-term home (10-15 years). Proportionally to all home owners, I don’t think there are that many.

      If you purchased a house before 4 years ago, you are likely doing very well with at least 30% equity and a sub 3% refi rate. Why would you sell? Other than Wolf’s excellent reasons above.

  14. William Leake says:

    “11 million homes that are vacant year-round” seems strange. Okay maybe waiting for prices to go up, but the costs seem high: property tax, some maintenance, lawncare, HOA (if HOA), squatter-theft risk, fire risk, increased insurance. So why are so many homes vacant year-round?

    • ru82 says:

      I am glad Wolf brings up the empty house number as it is a variable that could swing prices short term. But where are those empty houses. I am thinking it is very regional but I could be wrong. Probably most are in vacation areas?

      I remember vacationing to Miami area last year. I was there for a 10 days. I noticed most the 10 to 20 story condos around me had hurricane shields drawn down. I would almost say 40%. Nobody was in those condos the whole time. I am guessing those could be lot of the empty units?

      • Wolf Richter says:

        “But where are those empty houses.”

        I can give you addresses. I’m surrounded by empty condos (there are hardly any single-family houses in my hood in San Francisco), including a building down the street that was completed a few years, sold all condos before it was completed, and is showing nearly no signs of life, except for the occasional folks getting out of an Uber with luggage once every now and then… this is a fairly large building, and I have direct view of the entrance.

      • William Leake says:

        The key phrase is “vacant year-round”. I would assume vacation homes are occupied when owners are on vacation, but maybe not. Probably a lot are condos since they require less maintenance than a single family dwelling. It seems odd to buy a house or condo and never use it.

    • Flea says:

      Chinese,Mexican, and Canadian owners. Plus every other global national with money even Russian ogliarchs . M only talks

      • Flea says:


      • Escierto says:

        Bingo! I don’t know how many times we have to go through this. My condo complex is a ghost town – 105 units and at least a quarter of them are vacant. Mexicans love to park their money in San Antonio.

      • Zanskar says:

        @Wolf great article. Your list is well thought out. Adding to the conversation I’d like to address a more fluid sources that could cause a rapid decline in prices: Institutional Investors and Individual investors. According to “Institutional investors purchased 13.2 percent of all properties sold in 2021, according to a 2022 report by the National Association of Realtors (NAR). Perhaps more concerning is the fact that they bought those homes for 26 percent lower than the state median prices during that period.”
        While these institutional bought low, those investors are just that, investors. They are not homeowners. Investors (13% of the market) will soon get cold feet not wanting to absorb losses when they could be making 5% annually investing in low risk CDs or money markets. The benefit of owning investor property is: asset appreciation, ~5% income, depreciation, tax deductions. If prices continue to drop accelerated losses will only be sustainable for so long. It seems to me that this source will be the first to sell thus adding significant supply back into the market. It seems to me that we’ll see a downward spiral as real estate price decline accelerates. Additionally, multi-family properties that were purchased 3 to 5 years ago will require refinancing at much higher rates and thus placing those investors upside down in their investments. There were a lot of first-time investors in both residential and multifamily who came into the market starting in 2020 who will soon need to refinance since commercial real estate financing is generally only 3, 5, and 7 years. There are a lot of institutional investors who will need to immediately write down their losses as they won’t be able to hold them on their books. Institutional investors will need to answer to their investors / boards and thus will take the right-off. It seems that we’re going to have at least the investor portion of real estate come to market over the next 1 – 3 years as both the commercial and residential side come to market thus putting continued downward pressure on the market. We just don’t know how and when The Fed will interject. They always do.

  15. The Bob who cried Wolf says:

    A month ago I met with a customer who inherited a house and doesn’t plan on putting it on the market but instead will turn it into a rental. Another customer bought a new place to move to but said that at 2.85% he never plans on selling his old place and will be turning it into a rental. A year ago another customer bought a run down vacant place and has turned it into a rental. In my neck of the woods (San Diego) investors are buying up anything that has potential to become a multiple ADU property and outbidding the flippers. SFR’s for sale to the happy homeowner in San Diego are not as many anymore, and the notion that lots of houses are being made is simply not true in this area. We’re surrounded by the ocean, Camp Pendleton, mountains and Mexico. Urban infill is the name of the game here and most of that infill is multifamily and ADU’s for rent, not for sale. These numbers and notions may be true elsewhere, but they aren’t here. Those of us who say this are immediately shut down but that doesn’t mean that what we’re seeing and commenting on here isn’t true. I’m not sure about the rest of Southern California, but there’s an incredibly short supply of inventory here (new sales are outpacing new listings among other things). At the end of 2022, days on market was up there but has since dropped to 5-14 days more or less for anything priced right and desirable. Junk is sitting 30-60 days and absolute junk is sitting a long time. Just saying what I’m seeing (and to clarify, I’m NOT saying that we’re in a hot frothy market with never ending record setting house prices or other stuff the red meat lovers like to attack).
    There’s others saying this same thing in the comments section. We’re going to need a support group with how we get bludgeoned.

    • Wolf Richter says:

      What you don’t get is that they ARE putting it on the market — the rental market, and there is arbitrage between the two, it’s the same house, for crying out loud, buy or rent… that’s the arbitrage. Anyone renting that house is one buyer less in the sales market, and reduces demand further in the sales market. Think this through a little. That’s exactly what we’re seeing now. You’re citing one reason why DEMAND is so low in the sales market and why sales in San Diego have plunged by 33% yoy, and why the median price has dropped 11% yoy.

      • William Leake says:

        While what you say may reduce demand somewhat, most renters do not have the financial means to buy a house, or simply do not want to own a house. I suggest the rental market and the house-buyer markets are pretty much mutually exclusive, although there is certainly some bleedthrough. I have not seen too many listings (in California) that say “House for Sale OR for Rent”, but of course some probably exist. I am prepared to be enlightened.

        • andy says:

          Well, Wolf did say above – “think this through a little”.

        • blahblahbloo says:

          There have been a lot of other posts on this blog about ~5% brokered CDs, etc.

          Say there are two identical or very similar houses in Southern California (and Southern California is big enough for this to be the case), one for sale for $1.5M, and the other for rent for $6000 per month.

          If I have $1.5M, I can either buy the for-sale house and then pay 1% property tax per year ($15k per year expense), or I can buy some brokered CDs at 5% ($75k income per year) and move into the rental ($72k per year expense). I come out ahead almost $20k per year renting, I avoid the risk of falling prices, and I haven’t even included other costs of homeownership, like maintenance, or the fact that homeowners insurance premiums are higher than renters insurance.

          And on top of that, the $1.5M house probably doesn’t even fetch $6k in the rental market.

        • crazytown says:

          You are wrong. Plenty of renters who want a house and have the means to buy, but don’t for a host of reasons.

        • Wolf Richter says:

          William Leake,

          It seems you don’t understand a big portion of the rental market: mid- to high-end rentals. And that’s where the money is. Landlords understand it, builders understand it, and that’s where nearly all the money has been going for years. And that’s what EVERYONE is now building.

          For many people with plenty of money, it’s a lifestyle choice.

          Build-to-rent, where they build entire subdivisions with houses designed for rentals, is the biggest thing for homebuilders right now, they’re all doing it, and they understand the market. These are NOT cheap houses. They’re NOT for people who cannot afford to buy. They’re nice houses for people with relatively high incomes who just don’t want to buy because they like the hassle-free flexibility of renting.

          Then look at the rental markets in NY City, San Francisco, Boston, LA, San Diego, etc.: lots of dollars:

          Median asking rents for 2-bedroom apartments. This is “median,” the rent in the middle, not “higher end” or “luxury” (Data from Zumper National Rent Report):

          New York, NY: $3,820
          San Francisco, CA: $4,000
          Jersey City, NJ: $3,330
          Boston, MA: $3,200
          Miami, FL: $3,500
          San Jose, CA: $3,270
          Los Angeles, CA: $3,300
          San Diego, CA: $3,100
          Washington, DC: $3,200
          Arlington, VA: $2,990

          Higher-end rentals in Manhattan cost $10,000+, in San Francisco, it’s $6,000+. These are for people who make lots of money. Renting for them is a lifestyle choice. You’ve got to understand that, or else you’ll never understand the housing market. Landlords understand it, builders understand it, and that’s where nearly all the money now goes (is there going to be a glut? sure, but that’s how it is).

        • blahblahbloo says:

          The reason you don’t see “House for Sale OR for Rent” is because the processes of buying or renting are different enough that both sellers/landlords and buyers/tenants need to decide which one they’re doing before they pick a particular house, not because the two markets are completely unrelated.

          If you own a house, you just need rough numbers to decide between selling or renting it out, so comp sales or comp rentals. You can go with something automated like what Zillow and Redfin provide or look at comps yourself. Then rough future estimates of other carrying costs are easy to come up with as well. Once you decide between selling or renting, the process of prepping the home for customers to see is different. Prospective tenants will not do a home inspection, for example.

          Same on the other side. Zillow and Redfin can give you cost estimates that are close enough to decide between buying and renting. If you want to *buy* a house, you need a mortgage preapproval, or you need to have your liquid proceeds for a cash offer consolidated in a way where you can present a statement of funds as a substitute. For renting, you just need a credit check. It will affect your search criteria as well (our lovely little Johnny just turned 3, so maybe the local high school’s rating is not too relevant for our rental).

        • SilentC says:

          I could pay cash for my current rental. There’s just such a juicy arb with rents so cheap why would I want to buy? I agree it’s that way for a majority of people but I think it’s becoming more common, I know lawyers and investment bankers who are renting because of the arb.

        • William Leake says:

          To all the replies below to my comment, please note I did write “or simply do not want to own a house.” I am actually in this category.

          I wonder if there are numbers on Wolf’s “build to rent houses” as a percent of all new houses built, say over the last year. I would guess it is a rather small percentage. If it is a high or moderately high percentage, it might explain some of the weird things happening in the housing market.

        • sufferinsucatash says:

          The renting luxury lifestyle is really fun.

          Then going to owning is ALOT of bills.

          So what Wolf is saying is true. A lot of people choose the easier and funner lifestyle.

          until they realize they are just spinning their wheels in life and want to own a home.

        • bulfinch says:

          That’s a hasty generalization. Three different people I know that bought over the last six years rented hovels beneath their means in order to save fairly prodigious sums by way of self-induced poverty effect. One guy sold his place here in Austin & lived with his parents for 5 years (surprisingly, this did not seem to stunt his dating prospects) sinking the money he made into an ultimately failed business.

          A lot of people rent strategically because they remembered HB1 and even though HB2 made some winners, the casino atmosphere makes some of us wanna die so much we’d rather sit things out for as many hands as we can.

      • Juliab says:

        Here is a detail, if there is a deep recession that brings unemployment many of these many people with 3 percent 30 year mortgages may lose their jobs and then be forced to sell urgently. And no one knows what will happen tomorrow, let alone what may happen in 5, 10, 20, 30 years. For me, a mortgage with such a long term is a super risky venture.

        • Augustus Frost says:

          Forced selling, that’s supposed to never happen. Apparently, most people’s lives are so predictable and they are so economically stable instead of being mostly broke.

          Or so I keep hearing.

        • Cas127 says:

          Agreed, there is always going to be some degree of forced selling and with unZIRP just underway, the hit to labor markets (likely biggest driver of forced selling) is only just starting.

          Ditto for aging population (Boomers now 59 to 77 yrs old…with peak cohort 68) – aging likely second (or first) rationale for motivated/forced selling.

        • grimp says:

          As far as those 3%/30 folks go, how many of them do you think purchased cheap in 2010-2019, then took a huge cash out refi (or series of them) as their home increased in price?
          So rather than “sitting pretty” some of those folks *could* be vulnerable to being upside down, struggling to afford their mortgage payment, etc. (It did happen in 2008. You never knew that your neighbor with all the toys was living on serial cashout refis – until the ability to refi stopped)

        • MM says:


          Actually, its pretty risky for the lender of such long term debt.

          Think about the duration risk: would you want to *buy* 30YR treasuries right now? Of course not.

          In a period of inflation & rising rates, holding long-term debt with a low fixed rate is a winning trade imo.

        • Juliab says:


          US 30 year fixed mortgages are guaranteed by you the taxpayers not the banks. That is, the risk is at the expense of the American citizen. But if the owner of such a mortgage is fired, gets sick or something unpleasant happens to him during these 30 years, understand that the risk is entirely at his expense

        • MM says:


          No disagreement from me – however I’d argue that anyone taking on homeownership should have funds set aside for emergencies and shouldn’t be living paycheck to paycheck.

          Why should I pay off my 5% and profit off the spread?

          You’re right that folks who don’t have emergency funds set aside will be in a tough spot in the event of a job loss etc.

        • MM says:

          That should be:

          Why should I pay off my sub-3% mortgage early, when I can ladder CDs yielding above 5% and profit off the spread?

        • Juliab says:

          I kind of agree with you that people should have a buffer when taking out a loan, but how many people do you think with FOMO and this bidding had a buffer for the tough times. I don’t think there were many. I think most bought on the edge of possibilities

  16. Varughese says:

    Would the bailing put of bank deposits by FED usher in another rally in the stock market? Market things so.

  17. HollywoodDog says:

    Have the banks ever offered any kind of mechanism by which one can “transfer” the 3% mortgage to a different property? I’d certainly give moving much more thought if there was a way to take my existing mortgage rate with me…

    • phleep says:

      Of such things, financial innovation is made. Value is unlocked. Might be a zillion-dollar idea.

      • blahblahbloo says:

        Yes, the idea is just missing the small little detail of “what’s in it for the bank.” If you’re paying 3%, they would like their principal back, please.

        • HollywoodDog says:

          Ah, right. So the innovation would have to come from outside the banks. And the transfer fees would have to be substantial. Still, there’s a start up for everything. Or was…

        • Cas127 says:

          How would this work when lenders have to pay 4%-5% today to get the money you want them to keep lending you at 3%?

          Banks/lenders are just middlemen between depositors/lenders and borrowers.

    • Vlad the Impaler says:

      I don’t think that would make financial sense since your bank can now earn a higher interest with the cash that they lended to you earlier.

      • Venkarel says:

        Banks make money on fees as well, there is definitely value here to be captured. Case #1, no transfer of mortgage, no sale and no purchase of houses (to transfer the mortgage to a new home you would have to purchase it and I assume sell the old house) = $0 additional dollars for anyone (over the mortgage interest). Case #2 – A transfer of 3% mortgage that is accompanied by a sale and purchase of a home. Realtors get paid, title gets paid, notaries get paid, inspectors get paid, banks get paid, etc.

        • Augustus Frost says:

          Transferring a 3% mortgage to a new loan at today market rates automatically means the mortgage is worth substantially below par. No way the fees make up the difference.

          If it was such a great idea, it would be a common option. Obviously, it isn’t.

    • kramartini says:

      Is it possible for a homeowner to go into the secondary market and buy his or her specific mortgage at below par, but above market price? This could help facilitate the sale of a home.

      As things currently stand, both homeowners and mortgage owners will make a profit if a house sells–the owner from the sale of an appreciated home and the mortgage owner from the payoff at par of a mortgage that is currently worth less than par.

      The problem is that the homeowner controls the sales decision while the mortgage owner receives a substantial benefit, and thus certain economically beneficial sales will not take place. Since mortgage holders would rather have their money back if they can reinvest at a higher rate, they would likely be willing to accept a bid for the mortgage that is less than par, but high enough to make it profitable to sell the mortgage and reinvest at current rates.

      Someone needs to figure out how to facilitate home sales that involve purchasing 3% mortgages at a market premium rather than paying them off at par. Both home sellers and mortgage holders would benefit from this.

      • Augustus Frost says:

        Most US residential mortgages are securitized. No practical way to allow the borrowers buy the mortgage back on their property.

        It’s theoretically possible to do that with any bank retained mortgages. Not sure accounting rules give any lender an incentive to do it. Recognizing these losses would probably also negatively impact meeting earnings targets and someone’s performance bonus.

        • Cas127 says:

          It would be interesting to learn what percentage of residential mortgages are originating bank held vs securitized, today vs., say 1983.

          My guess is that many, many, many fewer rez mtgs are originator held (wikipedia entry – moral hazard…)

    • Longtime Listner says:

      The rate is the price of money, not a bonus you are entitled to

    • ru82 says:

      @HollywoodDog – Banks never wanted to make 3% mortgages. That is why the GSEs bought/backed 98% of all under 4% pre-covid loans since 2010 because banks did not want to hold a 3% artificially low rate mortgage for 30 years. The risk/reward was not there. Look what has happened to all those MBS value once interest rates when up.. The regional banks are hurting who bought MBS and those are guaranteed. No worry about foreclosures. But if they held the home mortgages, not only would they be getting killed on the interest rate hike, they would have to be worrying about home loans on their books going into default. Just think if they also held all the home loans too.

      Now with higher mortgage rates, banks may actually hold onto the loans.

      For such a program to happen, it would need to approved they the GSEs. since in a round about way, they own more than 50% of all outstanding home loans.

      I think what possible outcome that could happen if we have a bad recession is what happened during COVID. All government backed (GSE) loans will be able to go into forbearance until a recession is over. This will help prevent any housing crash. Just my opinion

      • HollywoodDog says:

        Thanks for explanation of the mechanisms involved. This is just one of the reasons I’m not a banker!

    • El Katz says:

      A zillion years ago, they had what was called an “assumable mortgage”. Not a new idea, just not the best deal for the bank/mortgage company.

    • va says:

      VA loans allow that.

    • sufferinsucatash says:

      A 3% interest rate is helpful. however, one’s life’s choices should not make it the most amazing thing ever. Especially not a real advantage in society. Because it really is not, in the grand scheme much of anything.

  18. THEWILLMAN says:

    There are so many people who live on the churn.

    There are 1.5mm realtors. That is 1/100th of all jobs alone. Plus mortgage brokers, plus a lot of the construction industry, plus home furnishings (everything from appliances to mattresses to bathroom tile), landscaping, home inspection/appraisal, etc. etc.

    We’re over here talking about how much impact 10k jobs here and there and tech will impact the economy when we’re on the precipice of millions having the rug pulled out from under them.

    • Harry Houndstooth says:


      I am counting on it.

    • Cas127 says:

      “having the rug pulled out from under them.”

      You mean like the tens of millions of USD savers for the last 20 years, who had their interest revenue expropriated by the Fed, so that phony, doomed demand could be ginned up to triple housing prices, even as American intl competitiveness rotted away?

    • grimp says:

      still mostly running full tilt on the backlog, but the backlog is shrinking.

    • sufferinsucatash says:

      That rug really tied the room together, Mannn!

    • Swamp Creature says:

      These people are mostly blood suckers, living off the productive work of others.

  19. Brendan says:

    This may be reflected in the vacant homes mentioned here, but in our region many of the homes bought just before and during pandemic were 2nd and 3rd homes of upper middle income earners from NYC, DC, and Boston, rationalized by expanding stock portfolios. As inflation becomes more deeply entrenched and rates go or stay higher and institutional stock market participants sober up, many of these 2nd and 3rd home owners will list. And of course, people who bought with ARMs or have other variable rate debt, esp those at the lower end of the income range, will lose their homes to foreclosure. And finally, the builders, small and large, who entered the fray during the big run up, will be forced to sell at lower prices. Inventory will increase. I’m seeing newly constructed homes that were initially listed at $1.2 mil dropping to $1, and below already. The unwinding has begun.

  20. Chris says:

    I’ve heard the low interest rate mortgage referred to as golden handcuffs. Not sure if this is a real thing or something someone was trying push.

    • Wolf Richter says:

      I called it the “3% jail” in this article. At least you get to sleep in the jail. Handcuffs are too restrictive.

      • LongtimeListener says:

        Prepaid for appreciation you most likely will never realize to borrow money you could never afford when rates are at more natural levels.

  21. Scott says:

    Is there much supply potential from owners of multiple homes (vacation home) potentially selling one of their homes?

  22. Longstreet says:

    The Fed broke this market.
    They injected a fake interest rate environment…..and now the ramifications.
    Real Estate brokers will be slowly going out of business.
    And now the stock market is becoming a seesaw, whip saw rerun….as people wait for the next “sound bite” from a Fed person or Congressman.

    • Longstreet says:

      Not to mention the convoluted bond market, inverted yield curve, gyrating 2 and 10 year notes.
      Remarkable that traders complain of a lack of liquidity in a market that big.
      People and traders can read economics….no one can guess the next sound bite, policy decision.

    • grimp says:

      be fair, give some “credit” to the reckless irresponsible multi trillion fiscal stimulus

  23. Tight Purse says:

    @Wolf Somewhere else I read an additional argument in support of the shrinking market hypothesis: the demand was very much pulled forward by those sub-3% mortgage rates.

    • Wolf Richter says:

      Yes, that’s an additional factor. And now they’re locked in too and off the market as buyers and sellers for years to come.

    • random guy 62 says:

      I consider myself an example of this. The low interest rates of 2020 sent us house shopping when we really weren’t in the market before. It worked out well for us, entirely by luck.

      In the brief period of mid-2020 where low rates met “normal” prices, it was like houses were on clearance sale.

      • bulfinch says:

        Don’t know where you bought, but prices haven’t been normal in nearly ten years.

        • Random guy 62 says:

          My little rust belt town has been shrinking for years. A few manufacturers still hanging on and we are one of them. Otherwise our economy is propped up by growing corn.

          Houses are still tethered to reality here. I realize that isn’t the case for probably the majority of the American population living in bigger cities though.

          We bought our house at about 50% of today’s replacement cost. Not out of the ordinary around here. The prior owners did a lot of renovation and lost their butts on it.

  24. Dan says:

    @ Wolf: How about the financial industry creates an innovation in this instance and introduces “transferable mortgages”? E.g. a current homeowner which a 500k mortgage sells his home and buys another home while transferring the current mortgage onto the new home (obviously the collateral has to be similar). The terms stay the same and no need for taking out a new mortgage at 6+%.

    • Wolf Richter says:

      You’re forgetting that the financial industry would lose a HUGE amount of money by transferring 3% mortgages when their cost of new money is 5%, and when they could write 6.5% mortgages instead. Banks are not a charity.

      Maybe you can start a SoftBank-funded startup in Silicon Valley that offers this service, and after it blows through $1 billion in investor cash, it lays everyone off and shuts down. OK, you can pay me 10% of your VC funding as reward for having given you this awesome pitch for the next unicorn.

      • Brendan says:

        Where’s my checkbook?!? 😂

      • Dick says:

        I can attest to this. I know someone who got in at the absolute bottom of the rates with a 30yr at like ~2.Something. That mortgage is non-transferable, not even to their heirs. It says it in the fine print.

      • Dan says:

        I get your points, makes sense, nonetheless I’d like to elaborate:

        1) Doesn’t a bank hedge interest rates when they offer a mortgage to “lock in” their interest income (spread)? So in a way they should be indifferent as at the onset of the mortgage, they don’t know if the future interest rates are going to be higher or lower.

        2) Is the cost of new money really 5%? You pointed out yourself that to this day, most banks pay 0% interest on deposits. So 5% only applies if they get the money from the Fed or via capital markets.

        • Wolf Richter says:

          #1 is illogical in its own terms. Think about it.

          #2. to attract new deposits, to make new loans, most banks are now ACTUALLY offering much higher rates than 0%. Funds are fleeing at 0%. Did you miss all this? There are only a few banks left that are flooded with 0% deposits. To borrow at the Fed, banks pay 5.0%; to borrow from other sources banks pay 4.6% and similar. That 0% money for most banks is all tied up in loans and securities, and now those depositors have been shifting their money out, and banks have trouble coming up with cash to pay them, and they have to borrow at 4.6% to 5% to pay off the depositors pulling their money out. Hence the banking crisis.

    • El Katz says:

      Back in the dark ages (probably 70’s and 80’s) there were such things as assumable mortgages. You took up the remaining term at the stated interest rate, plus a point or two as a one time cost.

      However, with the run up in real estate prices, that might not be a *deal* for the buyer as the amount required to close (equity+mortgage balance+points) might not be feasible for someone in short pants.

      A seller can always choose to buy down a mortgage for the prospective buyer in the form of prepaid interest for a period of time…. but the banks have zero incentive to offer such a product.

      • rojogrande says:

        Yep. My father assumed one in late 1979.

      • SpencerG says:

        Yeah I had one of those in the early 90s. A teacher got a 9% assumable mortgage in 1988 but then couldn’t sell the house due to local conditions in 1991… which is when I returned from the first Gulf War with a few thousand in the bank since it is hard to spend your paychecks when you are floating around on a ship for nine months.

        I had it for ten more years. I may have refinanced it at some point… I can’t recall.

        My first tenants were great… teacher and family. My second tenants were great (Navy family). My third tenants (Navy family) did so much damage that I had to sell the house to afford the repairs. I remember walking up on the house after I evicted them and nailed to the door was a sign that said “Johnson’s Petting Zoo.”

        LOL… the adventures that I have had in this life.

      • Swamp Creature says:

        My first mortgage I took out in 1979 was advertised as “assumable”. The Loan officer lied. The mortgage was assumable all right, but at the going market interest rate. Not the rate I got. These people were scum. The company Perpetual Federal Savings in Loan went bankrupt in the earlry 1990s.

    • Seen it all before, Bob says:


      That is an interesting idea. However, what is in it for the banks to do this?
      Since the US GSE’s own most of the mortgages, they might do this to get the churn going again.

      What could happen is:

      1) The longer the banks and government own these sub-3% loans, the more money they are losing. They could be getting 6%-7% elsewhere and instead, they are collecting only 3% from the “deadbeat” homeowners for possibly 30 years.

      2) If I were a bank or a GSE, I might incentivize homeowners to either pay off their loans or sell to pay off the loan. What would you do if your mortgage lender offered you $20K to sell your house now? It may be a win-win for the banks and the homeowners. Homeowners get cash to move and banks get rid of their loser loans.

      • Seen it all before, Bob says:

        I was curious to see how much lenders were “losing” by holding a 3% mortgage if they could be receiving 7%. This is a 4% spread.

        From the Investopedia amortization calculator, for a 500K loan with a spread of 4% here is how much money the lender is losing holding a 3% loan vs a 7% loan.

        Years Lender loss
        1- $19,840
        2- $39,321
        3- $58,428
        4- $77,147
        5- $95,462

        7- $130,811

        10- $180,369

        Historically, people have sold and moved every 7-10 years. It may be longer now when people have and hold 3% mortgages.

        If rates stay around 7% (This is below the historical average mortgage rate), the lenders will likely see “losses” of $130K-$180K per 500K mortgage if the homeowner holds the loan for 7-10 years.

        If I were a lender, I’d be tempted to pay $50K to a homeowner to sell their houses to get out of these loans so I could loan out the money for 7% loans.

        However, since most home loans are through GSE’s, the government is not likely to hand out 50K per loan. They may declare this to be “unfair” to non-homeowners and reset the 3% loans to the going 7% rate. They are more likely to ignore the problem and treat it as a silent handout to current homeowners.

        That’s what lenders did in the 1980’s during the 15+% mortgage rate days. My parents had a 6% mortgage during this time and they didn’t want to sell or pay it off when Treasuries were paying 18%. They eventually paid off their loan in the late 1990’s when saving rates were around or below 6% again.

  25. Bubbajohnson says:

    0% down moves you in, no credit check, low interest payment, claim covid and the landlord can t evict you.

    Brought to you by the US Govern ment.

    • Bubbajohnson says:

      Almost forgot
      Have seller pay for pre paids and you walk out of closing with a check made out to YOU.

    • Wolf Richter says:


      You’re mixing up buying (“0% down, low interest payment”) and renting (“Landlord evict”). At a minimum, you should try to not to mix up these two in the same sentence. And then you blame the government for the fact that you mixed up the two?

      • Bubbajohnson says:

        Sorry Mr. Wolf and love being at this site. Govern ment has made me a bit crazy and FED up.

      • Pea Sea says:

        To be fair, it’s possible that the “Govern ment” taught him both economics and spelling.

  26. JF says:

    Helpful article. Just had a thought for consideration.

    Imagine a market has 1,000 active buyers looking and 500 homes for sale. If 1,000 additional homeowners with low rates decide to list their homes, yes there would be a +1 / -1 = 0 change in net inventory, BUT…

    There would now be 2,000 potential buyers to 1,500 listings. Potential buyers per listing falls which puts downward pressure on prices. Still only 500 net inventory but likely lower pricing?

    • Bobber says:

      Excellent point.

      The drop in transaction volume creates interesting dynamics.

      As you say, the ratio of buyers-to-listings decreases, and this means less interest and bidding per home, as well as more time on market.

      In addition, the mix of the transactions changes with the low volume. Move up buyers/sellers were largely price insensitive because they were both buyers and sellers. With these people out of the mix (locked into 3% mortgages), major support is housing prices is gone. The remaining mix is much more price sensitive.

      Also, regarding transaction mix, the remaining buyers are first-time home buyers. They want the low to moderately priced homes, not the luxury homes, so expect high end homes to drop very fast in this low transaction market.

      These are points most people do not recognize, and the pace of price declines across the board might surprise a lot of people.

    • Expat says:

      That is an interesting point. I have a masters in economics but can’t recall ever discussing that nuance of supply and demand. A delta of 500 buyers is huge when there is one seller. The larger the market, the more marginal the effect of 500 more buyers than sellers. But I think you would be lynched by economists if you suggested that prices would go down! The models would break. I am not convinced that your theory would work in reality either. Gotta reflect on this.

      • JF says:

        Might it relate to the relative increase in sellers is greater than the relative increase in buyers? Something to do with the supply curve shifting a greater % than the demand curve from starting point?

        • Expat says:

          Intuitively it seems right, but I can’t think of a model or economics system that would handle that. Maybe Kahneman or Thaler could work this out, but classical or neo-classical models would not change the supply-demand balance just based on the overall size of the market.

          At best, you would get close to a balanced market (nearly in equilibrium) if, for example, there were one billion sellers and 999,999,500 buyers.

          I am not saying you are necessarily wrong, but I think the shift (from a rising to a falling market) depends on other factors in that case. Ceteris paribus, frictionless planes and all that.

  27. Zaridin says:

    “Homeowner dies or moves into care facility, and the home gets put on the market. Lot of that going around now.”

    As I understand the demographics, this will only hurt inventories going forward as Boomers exit stage left, and the (far fewer in number) millennials – who aren’t rolling in money like Boomers were at the same ages – try to buy homes. I’d have to go back in my playlist to pinpoint exactly which guest on a sister site gave the interview where they explained the looking inventory glut, but it sounded like we’re just now seeing the iceberg…collision and disaster are still a few years away.

    Apologies for the mixed metaphors…I’m only on my fifth cup of coffee.

  28. kramartini says:

    At the SXSW conference two weeks ago, a panel of real estate professionals talked about the future of housing. One noteworthy comment was from a homebuilder who stated that his company was focusing on the entry-level of the market and will not be building as many upscale homes.

    This is consistent with the 3 percenters not wanting to trade up from their starter homes and thereby lose their low mortgage rates. This effect is less likely to affect those at the top of the market, since empty-nesters who want to trade down are typically older and more likely to have paid off their homes. Thus, even though the overall supply-demand balance has not been affected by the 3% mortgage zombies, there has been an effect of tighter supply at the low end relative to the high end. The homebuilders are focusing on alleviating the tight supply at the low end.

    Also noteworthy is that no one on the panel of real estate industry “experts” mentioned the Fed’s purchase of 30% of MBS between March 2020 and March 2022 as a cause of the run up in prices. I wonder if no one saw the 800-pound gorilla in the room or if they just didn’t want to talk about it…

    • CSH says:

      That’s very interesting about smaller houses because I was wondering when this market would get notice again. The reality is that the McMansion era is receding for many reasons and yet there are a lot of people who want to live in homes rather than apartments. Of course, given the way things have been going, it will probably be years before a lot of housing is in demand again. But when that day comes, I suspect smaller houses will be the norm.

      • Bobber says:

        Yes. There is a retirement crisis and period of austerity coming. Paying for excess home footage is not a good idea. It comes with increased heating/air conditioning cost, increased furnishing cost, increased RE tax cost, all with more limited potential for price growth.

        At the end of the day, people think a large home is going to improve their life, even though the benefits are marginal at best. Even if you have kids, families don’t need a ton of space. The young ones don’t know the difference, and the teenagers get spoiled. Plus, you’ll never see them in a large house. They’ll find lots of places to support their reclusive tendencies.

    • Augustus Frost says:

      I bought a “starter home” with my mother for her to live in back in 2006 @ $138K. This is in an ATL exurb where housing is roughly the national average. Recently these “starter homes” have sold for about $330K.

      With the minimal downpayments so many first-time home buyers can make, a noticeable pct. can’t afford it. Maybe most.

      At this price, the “all in” monthly cost to live in it with 5% down @6.75% is over $2500/month. It was $900/month before we sold it in 2017 @4 7/8% on an $83K mortgage.

      It’s going to take a lot more than gimmicks to restore actual affordability.

  29. Xavier Caveat says:

    There are many communities particularly in vacation towns where AirBnB might be 25% of all housing stock, and its less in big cities, but sizable.

    I think San Diego has around 10,000 of them.

    Not many of these would-be Hilton type put roots down, nor paid cash for their pied-à-terres for the most part, they bought them with almost nothing down.

  30. dearieme says:

    In the US would the 3% homeowner be allowed by his mortgage company to rent out his house if his job should take him elsewhere?

    (In Britain you have to ask but are often given “consent to let” with the terms of the mortgage loan otherwise unchanged.)

    • cresus says:

      Yes. Happens all the time. And banks will not even verify when that homeowner bought as a primary residence for 1 month and then rented it out almost immediately: that’s the path of many would be landlords at their beginning. It’s also mostly legal, and clearly encouraged in some western countries like France. In the US those mortgages are sold immediately and nobody cares (although they should)

      • Pea Sea says:

        Yes, from what I understand (just anecdotal and hearsay, mind you) this is a fairly common form of mortgage fraud. Very little enforcement.

        Same thing happened from time to time in the early 2010s with the “First Look” program, which was meant to give owner-occupants a brief window of exclusivity on bidding on foreclosed HUD houses. Nobody seemed to be checking to see whether the owner was actually occupying.

    • Sean Shasta says:

      To my knowledge, in the US, the homeowner does not need any permission from the mortgage company to rent out his/her house and can do so at any time and for any reason.

      Of course, the property tax may increase due to the “homestead exemption” (owner-occupied) being removed from the property when it is rented out. But that is a very different issue.

    • blahblahbloo says:

      Sometimes permission is required, but this is generally allowed.

    • jon says:

      No permission needed in USA to rent your home

    • Seen it all before, Bob says:

      I’ve been told that if you purchase a house as a second home or with the intent to rent it, the mortgage rate is typically higher.

      If you have a low mortgage on a primary home and buy and move into a new primary home, I don’t think your mortgage lender for the first home checks if you decide to then rent the first home. Is this correct? Or can the bank call your current first home mortgage? I don’t think my mortgage contract has any restrictions on my mortgage as far as renting my house even though I have a lower primary home mortgage rate.

      • Corey says:

        The last time I bought a residential property (2014), the deed of trust contained an occupancy provision which required that I would occupy the property within 60 days and for a minimum of one year. My understanding at the time was that only the good-faith *intent* to do this was required. If my circumstances changed and I had to relocate and rent out the house, it would not violate the terms of the mortgage. Your mortgage may contain a similar provision. And to my knowledge, no one ever verified that I lived in the house. I doubt the bank/servicer would ever care as long as the mortgage is being paid.

  31. Rob says:

    “…the total market is a lot smaller now, and will be for years to come.”

    I agree overall, but at some point in the near future employment is going to roll over and people will start losing their jobs, killing consumption, causing more unemployment, etc. That low-rate viruous job cycle will turn vicious, and high-rate employment equilibrium is a long way off after so many years of cheap-money partying.

    Those lost jobs will certainly affect the housing market, and defaults and foreclosures will ramp, as they always do during recessions. Can’t keep your 3% mortgage if you can’t find work to pay the monthly nut.

    Also adding to that inventory will be all the speculators just walking away as home prices continue to slide as things get worse. Anyone that bought expecting capital appreciation, or continued income from STR and/or LTR, with razor thin cap rates, are going to bail too.

  32. cresus says:

    This downturn has lots of room to go. Renting may be a lifestyle option for high earners, but also it’s good timing for those with an investing mind. Now is a time for renting, NO question about it. When people get depressed and do not want to hear about real estate, THEN will be the time to switch. IN the meantime, rent. Those homeowners who bought well (2009-2012/13, and late 2018) may want to sit on their 3% mortgage: a fantastic hedge if inflation picks up while enjoying low payments.

    • Expat says:

      There are many times when renting is better for a variety of reasons. It often costs less than owning. It doesn’t require capital. One-stop shop for repairs; just call the owner. Not as much of an albatross as an owned property.

      I did not own a property until I was 45. I never regretted it. Frankly, owning a house turned out to be a big pain in the ass. And if I don’t sell within fifteen years, I am fairly sure the value is dropping to near zero.

  33. gametv says:

    I think that there is another potential area that is not really mentioned in this article. The impact of work from home. It has the potential to spread out people. No longer does an employee need to be located close to their work. I think this is part of the reason the Bay Area is leading prices down.

    If you think about it, the real impact of spreading people out is that there will be more land available to be built in the locations people are moving into. I think that the initial impact of WFH was to increase prices in areas like Boise where people from the Bay Area could afford a much more expensive home and drove prices up. The second thing that happens is that lots of new homes get built, because the profit margins are good. If you look at Boise on Zillow, you see tons of new homes for sale. Then eventually, prices in Boise will revert to a little bit higher than historical norms, but they will not ever be similar to the Bay Area, because there is always a ton of land that can be built that will deflate prices down to replacement cost.

    But the net impact on areas like San Francisco will be much lower prices on homes as net migration leaves the area and high paying jobs leave the area.

    If you are an in-demand worker and can get a premium salary, but live in Boise, you can live like a king.

    • Putter says:

      Boise is the most overpriced city.

    • jon says:

      Most ( if not all )of the companies are now calling remote workers back to office.

    • Seneca's Cliff says:

      I remember coming home from college in 1984 on the train from the east coast to Portland. Mt St Helens blew just as we passed Denver. The old pioneer route from Salt Lake City to Denver was empty ( no longer an Amtrak route) because no one wanted to ride in to the volcanic wasteland. I was the only Passenger and no one else got on until Boise. At the Boise stop a young woman got on and joined me in the bar car ( we thought it was the end of the world so they were serving us drinks even though we were underage.) I asked her why she was risking a trip in to the Volcanic Wasteland where day had turned to night and inches of ash covered everything. She replied, ” it still beats Boise.”

  34. sufferinsucatash says:

    Cool article! I had just read over at biz insider how the commercial real estate market is going to be hurting for the foreseeable future. Landlords are defaulting to Lenders. Lenders do not know how to sell these large properties, so they try to deal with landlords. All the while the fed is QTing, oh boy rollercoaster fans this is the fun part!

  35. ru82 says:

    I have noticed several of my friends say their companies are preparing for a recession. They are tighter on travel and hiring and expenditures. No layoffs though.

    But then I laugh and say, you mean the recession that is always 6 months away?

    We need to have unemployment rise for a recession to occur? Out of work people are the ones who really cut down their discretionary spending the most. ;)

  36. TerraHawk says:

    I have been working with a RE agent in the PNW for 5 years. His last contacts have been increasingly desperate. He told me there is only
    one listed house for every ten agents. And it’s the spring selling season.

    • sufferinsucatash says:

      A ton just went on sale in the Raleigh market. Zillow is blowing my inbox open. Going to hire an out of work techie to fix the hinges! Lol

    • Swamp Creature says:

      Around here there are 50 Realtors for every listing. RE agents will be pumping gas if they are lucky get a job at all. OOOOps, I forgot, except for the corrupt state of New Jersey, most people use self- service. Maybe they look at a car wash.

  37. Iz23 says:

    Something that is not being talked about is the student loan payment pause. I wonder how many people with 3% mortgages have student loans that they have not been making payments on for the last 3 years. Because most people live check to check, that may cause mortgage delinquencies. It could also cause people to sell if the pause ends this year.

  38. AMB says:

    Here in Boise, there has been a clear shift if you follow realtor social media accounts. The posts have changed from “Sold,” Open House,” “Sold,” “Offer Accepted,” to a lot of fluff – filler material which I assume is to distract from the decrease in activity. After touring a few properties for sale in January, my boyfriend and I (moving in together) decided to rent. We couldn’t stomach the idea of paying half of a million dollars for a dark, dungeon-y home on a tiny lot that smelled like a litterbox and needed a new roof stat.

    The run-up in Boise has been / was astounding. The townhouse next door to the rental we ended up in is going on the market this weekend. $889,000. No yard, no view, no setback. 2000 square feet. But hey, it has real hardwood floors, none of that luxury vinyl! ;) I’ll monitor the open house traffic this weekend from my windows (that look directly into their windows).

  39. nick says:

    Treasury yields are down and stock market bubble is inflating, which likely will fuel the housing bubble, too. No relief from inflation in sight.

    • Bubbajohnson says:

      A long way to go. Carter / Reagan part 2 may take decades to unfold.

    • jon says:

      Home prices still going down. Wait for few quarters, it’d be down YoY in all location.
      I read in CNBC, buyers want to buy but sellers are not out there even for Spring.

    • Wolf Richter says:

      Huge jumps in yields this week and today from 1 month through 2 years (2 yrs: +34 basis points this week). The rest went up too this week, but today, the 10-year dipped 2 basis points (still up 23 basis points for the week).

      • nick says:

        2 Years yield is down from 5 pct to 4 pct after plunging rapidly to 3.55, while federal funds rate is 5 percent. Something is fishy.

        • Wolf Richter says:

          “fishy”?? LOL. As described here in many articles, starting on around March 9, a bank panic spread and depositors yanked their uninsured deposits out of banks and bought Treasuries with it, and that huge buying pressure of Treasuries drove up Treasury prices, which pushed down yields by definition. The bank panic is now settling down, and the buying pressure on Treasuries has backed off some, and yields have come up from March 24 lows.

        • nick says:

          I hope you are right, and the yields climb soon.

    • MM says:

      Treasury yields down but CD yields are up. 6-24 month durations are now yielding 5+%.

      Need to make a lot more than 5% on stocks to justify the risk.

  40. Cas127 says:


    Yeoman work on this post…a lot of meaty items that could each support a post on its own.

    For instance…how many/what pct SFH are fully paid off – so no mortgage and thus no 3% handcuff.

    Circa 2012, I think about 33% SFH (25 million out of 75 SFH total) were mtg free…which is a pretty hefty chunk that I don’t think would have radically decreased since 2012).

    (One caveat…75 million SFH implies 55 million renter households, which I’ve never really been able to confirm via internet sources…which suggest maybe 10-15 million fewer renter households…an unreconciled discrepancy that always bothered me. Perhaps your army of analysts can pin down exact numbers.)

  41. Gattopardo says:

    OK, so maybe I can reconcile Wolf’s supply/demand theory with the numerous “not in my area” and “but but but, multiple offers” anecdotes.


    TRUE. Consider that if before this decline in prices there were 5 buyers for every house for sale, and now we’ve lost say 2 buyers because of affordability (rates/prices) or whatever, and 2 would-be sellers because of mortgage jail or whatever….. we still have 3 buyers for every house for sale. I believe that is the case in many areas.

    Note: that doesn’t mean prices haven’t fallen, and won’t fall. NO. It merely means that a proportional imbalance of buyers and sellers remains. If/when prices take a real beating, that imbalance may be even greater….just as it was in 2013, which in San Diego was close to the bottom in prices but the demand was cranking (and before you RE bulls chime in, prices did NOT go up despite that demand).

    Anecdote time. Cardiff By The Sea (SD). Previous high sale about a year ago was $6.75m (vs ask of $5.5, I believe). A few months before that, the high mark was $5.25m, and was a slightly inferior property. A month ago, a new high sale of $8.1m. I know what you’re thinking, “it must be a way better property”. Mmmm, no. The folks I’ve discussed this with actually prefer the $6.75m. So what does this mean? NOTHING. Some clown overpaid for the $6.75m, and another clown REALLY overpaid for the $8.1m!

    • Homeowner in CA says:

      A property is worth what someone is willing to pay for it. The RE market pricing isnt something you calculate on a spreadsheet. I have a house that I am willing to sell for 2M. If nobody pays that much I don’t sell. Simple. There is no forced selling in todays market. we no longer have owners en masse that must sell because they can’t afford the house they live in. Most houses feel like a goldmine with locked in low rates and enormous equity. Sry but the truth hurts.

  42. tannin says:

    Canadians do not, for residential, ever do 30 yr mtgs, very typically we do a five year fixed rate mtg, and those are available from 4.5 to 5.5%. Why wouldn’t Americans choose a shorter term mtg, whether 5yr or7 or 10 yr, with a lower interest rate than the 30yr ?
    Never understood why the U.S. standard residential mtg was for 30 yrs……in a country where people are so mobile ?

    • Zanskar says:

      Looks what’s happening in Scandinavian countries right now. Real estate prices are rapidly declining because homeowners all have adjustable mortgages. Canadians are only a little better off than The Scandinavians. At least here in the United States most people are take 30-year mortgages and thus can sit out a volatile interest rate market. You on the other hand are much closer to the volatility and thus have higher inherent risk. We can always refinance at a lower rate. You might be able to refinance at a lower rate. Watch what’s about to happen to our commercial real estate market. Commercial real estate loans are typically 3, 5 and 7 years. There’s a ton of commercial real estate that needs to be refinanced right now at much higher rates and thus investors will be upside down. Commercial is about to get hit really hard with expensive financing added on top of already high vacancy rates. I would assume there will be some contagion spilling over into the residential market.

  43. FastEddie says:


    Another excellent article about a thoroughly misunderstood topic.

    I remember an old saying, “You can re-negotiate the loan but you can’t re-negotiate the purchase price”. Fundamentally, the buyers who purchased recently ( the last 18 to 30 months depending on the city based on the charts in the 3/28 “Most Splendid Housing Bubble” article) and have a 3% interest rate are now chained to their purchase with current interest rates at 6.5%+.

    Put simply – the VAST majority of houses purchased are priced on the monthly payment. Buyers with that AMAZING 3% mortgage rate can’t get what they paid as the monthly payment is up 40%. Of course, if a buyer put 20%+ down, the buyer can probably get out now, although with the loss of the down payment.

    As prices decline and the market slows, this problem will get worse. Fewer and fewer recent purchasers (and “recent” may end up being 5 to 7 years ago) will be able to sell and break even. The supposed equity that many of these purchasers think they have will prove illusory.

    The high price / low interest rate combination is a poisoned chalice. The owner in this situation is stuck until selling price + equity equals the mortgage. So these purchasers are not only out of the market in the short term, they’re out of the market for the foreseeable future.

  44. Expat says:

    The insanity and delusional thinking is trans-Atlantic. Developers want to buy our house for the land so they can put up an apartment building. They offer us €X and justify it by saying we could buy a similar home in the area for that price. Perhaps. But why would I sell a house I like, go through the trauma of a move for no profit and the same accommodations? One developer actually got angry that I was not willing to sell at the market price!

    So my house is for sale theoretically but only if I a nearly identical one in the neighborhood. At least according to brokers and developers! In reality, as Wolf says, no new supply and no new demand whether I stay or sell.

  45. harry hv says:

    Australia’s answer to falling property prices is immigration. Politics on both sides is totally owned by the property industry. They will instruct the government of the day how many migrants are required to prop up prices. Our new Labor govt will bring in half a million foreign workers in the next 12 months, with some bogus justification about special skills required.

    Bet the same thing will happen in North America, prepare yourselves for an invasion of migrants and a new property boom.

  46. Shiloh1 says:

    Change. One funeral at a time.
    – Max Planck

  47. Nemo300BLK says:

    I live in a rural red county that has been building custom owner-financed homes as fast as possible since 2017, and the building is still booming. I recently finished a second garage with an apartment upstairs on a lake lot, and the subs are all wide-open. It has taken me over two months to get a quality sub to do $5k of work in the old home before I list it next week.

  48. Swamp Creature says:

    We just did a Refi the other day. People are getting less than 6% rate and jumping off the sidelines.

  49. Spiff says:

    “How 3% Mortgages Altered the Housing Market for Years to Come”
    You might consider writing more on the topic of how 3% mortgages altered the profitability and solvency of the banking sector for years to come. Or at least until this “pivot” happens that everyone was so sure would have happened by now.

  50. Hillel says:

    Hi Wolf. I’m one of those buyers that has a <3% mortgage. We bought in southeast Florida in June, 2020 and got a 2.89% 15 year loan. The market value of our house skyrocketed and is up about 40%. The higher value doesn't help us much since everything around here is also way up. We are saving money because rents also skyrocketed and our mortgage payment is flat of course.

  51. Bs ini says:

    Mainline Philadelphia near Paoli Station one of the suburbs of Philadelphia but maybe 1.2 hrs by train to downtown. Street my daughter lives on 19396 zip code has a home just went on market for 600k with 50 showings booked first day. Priced to sell its under zillow estimates. Built in 1957 but remodeled . 4 br 2 ba nothing special nice home 2100 sq Ft. The couple has 3 kids wants more so are upsizing . They don’t have Mtg (35 year old couple) and the Dads mom is kicking in 800k family mtg for them to upgrade so they will have about 1.4 MM. my point is there is no inventory for the reasons Wolf mentioned but homes on occasion do sell and folks do buy for a variety of reasons.

  52. SpencerG says:

    “I’ve met 1 honest, competent Realtor in my entire personal life”

    How nice! You met my mother.

    But I take you larger point as well… when she retired the average IQ of the profession dropped considerably.

    • Swamp Creature says:


      I’m batting 1 for 50. Not a very good batting average.

  53. Ian says:

    I expect that flippers are also largely gone now as well and they seemed to form a pretty large part of the rural market from 2020 – 2022. Not so many laminate flooring/light grey walls/white kitchen houses for sale now. Thankfully.

  54. Swamp Creature says:

    I see a major credit crunch coming to a neighborhood near you. Banks will stop making loans period until they can get their financial house in order.

    There will be a movement towards sellers taking back a second mortgage (becoming the bank) on a house to allow a buyer to buy when the buyer has no ability to get a loan.

    • Seen it all before, Bob says:

      Since the GSEs hold the majority of the loans, and not the banks, I think the US government will have to make the decision not to lend to home buyers.

      The GSE buy the loans from banks and lenders and have imposed some restrictions and added some fees while raising the conforming loan amount at the same time. Mixed messages.

  55. Joyce says:

    #3 inventory constraint is interesting to me. Maybe liberalizing capital gains for investors would encourage some to put their homes on the market.

    • Wolf Richter says:

      The LAST thing we need in this country is more subsidies for RE investors. They’re already chockfull with subsidies, including on some capital gains.

  56. AverageCommenter says:

    People got the overpriced home that they wanted with a 3% interest rate. They just glued themselves to the ground for many years coupled with inflated property tax assessments. However, the falling dollar will make that inflated price you won the bidding war on seem more palatable as that mortgage payment is locked in. A 30-yr mortgage for $2,800/mo in 2022 is gonna seem like nothing for that same homeowner in 2037 as $2,800 will buy my much less stuff. Hopefully that neighborhood of your dreams hasn’t gone to hell by then LMAO. Guess if you want a change of scenery you can always just rent out that 3% mortgage home for a year or two and go rent somewhere else for a year or two and then back you go to glued home #1.

Comments are closed.