Wolf Richter on HoweStreet.com Radio
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I wonder how much current demand is inflated by down payment assistance.
Some people are taking out 3.5% down FHA mortgages, then getting down payment assistance for small down payment from local programs. They often pay full price and put all the closing costs onto the loan balance. I just saw a closing for a modestly priced house where the buyer wound up putting only $100 down.
I don’t recall such down payment assistance being offered in the last RE bust in 2008. The practice doesn’t make much sense to me, as the buyer has zero skin in the game. If the price drops just 5%, they have incentive to walk from the loan.
Howdy Bobber. During the last housing bust, a person could walk away from closing and walk out the door with a check. Meaning, buy a home, sign your name, and $$ to you at closing… MADNESS
Bobber, Bubba has it right. People walked away with checks, and some owned five plus. Rented them, never paid a penny on the mortgage. Here in Florida until the judges essentially wiped out all the defenses to to a foreclosure (see, e.g., the Rocket Docket stories), it took 800+ days to finish a first mortgage foreclosure.
2008 there was a federal $7500 down-payment assistance (had to be paid back) and then in 2009 it was $8,000 and didn’t have to be paid back. Keep in mind with state down-payment assistance programs a person still has to have good credit and debt-to-income ratios and income caps are very tight to fit into the box to qualify. Depending on the state, many of the down-payment assistance loans also carry small amounts of interest (~2%). And don’t forget, a VA loan can be got with 0% down, 100% financed.
I think the price rises of recent years could be partly attributable to the zero down situations. If you put zero down and can tack costs onto the back end of the loan, you really don’t care what you pay for home. You are incentivized to pay whatever it takes to get the home and stay ahead of other offers. If the RE market drops, you simply walk, whether it be next year or five years from now.
At today’s interest rates of 7.5% or higher, there are few people who would want to buy a home, but these buyers have no skin in the game and can continue to play this “heads I win, tails taxpayers lose” game.
These situations may be propping up the lower end of the housing market.
Can you still buy a home with no money down?
There was also a $10,000 FIT credit for first time buyers if they bought a home and lived in it for a minimum of 2 years.
Zillow is offering 1% down mortgages.
1. current demand is DOWN by 25% from the same time in 2018 and 2019. So not “inflated,” LOL.
2. You can get down-payment assistance from anywhere. Zillow has a button for it right on the page when you look at a specific home. I see billboard ads for them, offered by some financial institutions. Etc. This has been going on for a long time.
Most downpayment help comes from the seller in the form of paying closing costs for buyers. I gave credits to sellers on almost all the homes I built and sold in Texas over the past few years. I just raised the price to compensate.
It’s scary that buyers of $300-400,000 properties don’t even have $10,000 cash. This, together with 7%+ mortgages was my reason to stop building for now, even though the market is still strong.
Regarding 2008 vs. now comments, home sales went from around 5 Mil annually in the early 2,000’s to 7.5 Mil in 2008. A huge portion of that increase was due to small “investor” speculation that was more like gambling. Then add massive mortgage fraud by buyers, mortgage brokers, banks and, worst of all, Wall Street. It was gasoline on the fire. Watch the movie “The Big Short”. It’s totally accurate.
We’re back to around 4 Mil home sales a year without the fraud issue that existed before. It’s a healthy number that will continue until some purple swan event affects the market. Until then, buyers are backing up like rush hour traffic.
It is a last gasp to get low income people into a house. Just like in 2007.
If it doesn’t work out, the taxpayers are on the hook this time instead of the banks.
If wage inflation doesn’t rise fast enough to cover this with inflation, I suspect their will be a mortgage forgiveness program implemented. Or maybe BlackRock will happily take the house and forgive the 3% down from homeowners just like in 2009-2010.
The questions are:
1) Will demandrop and housing prices fall? The Millennials and Gen Z are still like piranha’s with their FOMO attitude.
2) Will wages fall instead of rise with inflation. If they rise, people can hang on and keep buying. A job loss recession will cause massive housing price drops.
3) Will supply increase with 80% of the people holding loans at 3%? Sadly, I think death, divorce, and job loss would cause people to sell. Happily with modern medicine and low unemployment, this won’t happen quickly.
Sadly, my neighbor across the street passed away 2 days ago. He was single and under 50.
Over the last few years, he was building an off-the-grid house and using refi’s and seconds on his current house to build it.
Here is where a death may cause a ripple effect. A nice house mortgaged to the hilt to pay for a half built house. 2 houses will be on the market soon.
A down-payment assistance program isn’t easy to get if one is lower income. A borrower still has to have good credit and meet debt-income thresholds which are a lot more stringent than they were in 2007.
Check out a new FHA mortgage with 0 down and I don’t remember exactly, but the debt to income was like 40-50%. This was being marketed to latinos, in spanish, by a realtor in texas.
Debt to income can be deceiving…. is it 40% of NET income or 40% of GROSS? Big diff.
My ratio was 25 or 33%…. depending on which figure was used.
“Or maybe BlackRock will happily take the house and forgive the 3% down from homeowners just like in 2009-2010.”
Dude, BlackRock is not in the single fam housing business, and never was. Maybe you’re thinking BlackSTONE? Eventually I will get tired of correcting people on this, but not yet.
You don’t have to correct anybody, blackr.. or blacks.., it’s the same blackhearted bunch.
Gattopardo,
You are correct. Too much blackness in my thoughts and mind.
Blackstone.
Fun fact, Blackrock was started within Blackstone, but was quickly spun out by Fink.
To the extent that Millennials and Gen Z are doing that, blame their Boomer and Gen X parents for telling them “Over time, stocks and housing are great investments”
“It is a last gasp to get low income people into a house. Just like in 2007.”
It’s absolutely nothing like 2007.
It couldn’t not be more different.
Getting a loan today is much, much harder than in 2005-2007.
I see home prices putting in a bottom in January 2024. With a normal 30 day closing that would push the bottom of the housing market out to February 2024. I’d be an avid buyer next year in January.
What are you basing that on?
This would take couple of years to play out like last time which took 5 years.
Get your pop corn and enjoy the show.
You need better sources of information if you think 2007/08 was because of trying to get low income people into a house.
Seriously.
Some of the hardest hit areas were high end homes, not areas where low income people would buy houses.
Why use sources of information that take advantage of you?
Exactly my thoughts. Sure the monthly incomes of buyers are highly verified now, but what happens when the unemployment rate goes up and incomes go down? Even for those who bought a few years ago and locked in a 3.5% mortgage, they haven’t really paid Jack squat against the overall mortgage balance, and if housing prices go down considerably, and they are upside down, they have no incentive to stick it out.
Unemployment is still at historic lows.
The award rate on O/N RRPs is 5.30% for $1,574.065 on 9/1/23. That’s money that the FED has sterilized. This puts upward pressure on interest rates.
3mo T-Bills yield 5.32%. Thus, funds will come out of the O/N RRP.
There is a huge surplus of savings over real investment outlets.
Typo? 3mo T-bill yield closed at 5.52% on Friday, not 5.32%. But yes, money market fund have been moving their cash from RRPs to T-bills.
That’s a $734b drawdown since 4/24. If that’s what it takes to fund the Treasury’s tsunami, then interest rates would have risen further without that funding source?
Wolf,
It’s my understanding (and I may be wrong) that all the money flowing into T-bills can then be lent out by the Federal Reserve to its member banks, thus helping those banks. So in an inverse way the high rates are helping the banks? Sounds strange if true.
What kind of word salad is this? Everything is jumbled together. It’s complete nonsense. I don’t even know how to respond to it, the whole thing is nonsense.
T-bills are issued and sold by the Treasury Department, not the Federal Reserve, and the money is used to finance the U.S. Government’s operations. It is not lent out to banks.
Across from me there is literal village of brand new homes built by a major builder. They are all complete now with spiffy lawns and shined up door knobs. But so far no takers. This is a subdivision near Intel’s most important fabs and offices that just announced an expansion. The trades are hiring full tilt and bringing in the travelers. 2 years ago anything being built was sold before construction started and the lookers milling around were thick on the ground. Now it is tumbleweeds and crickets. Have no doubt the 7.5% interest rates make a big difference.
Must be Phoenix, not Ohio.
Hillsboro Oregon.
Intels largest concentration of Employees and home of its research fabs. Everything is pioneered in Oregon first, then it is copied exactly in Arizona, Ohio, Ireland and Israel.
I know that’s rough on the builders. But as a GenX guy born in 1965, my sympathies lie much more with younger members of my cohort AND the generations following. Home prices have GOT TO COME DOWN, otherwise these younger folks won’t ever get a fair shot at what I enjoy. A lot of folks in their late fifties might be tempted to sneer and blather some version of “kids these days….” but not me. We all live in this country, and we’re all in the same boat. I will never take comfort in being in the part of the boat that hasn’t sprung a leak yet; that’s just foolish!
Home prices will come crashing down when the younger people go on buyers’ strike. As long as they trample all over each other and shove each other out of the way and outbid each other on homes sight-unseen, prices aren’t going to come down.
Thankfully, many have already gone on buyers’ strike, sort of encouraged by the Fed to do so.
When boomers and Gen Xers went on buyers’ strike starting in 2005, home prices eventually crashed 50% in many markets. It takes years, and it takes discipline, and younger people should spread the word amongst each other and go on strike and stay on strike, and let older people sell their homes to Santa Claus.
No one went on strike volunteerly in 2005. The massive job loses and economic downturn caused involuntary strike. Same is needed this time for the strike to happen.
LOL. 90% of the workers didn’t lose their jobs. They didn’t buy homes because they didn’t want to lose a ton of money quickly as home prices were coming down hard. It was a terrible time to buy. Everyone knew that. People stopped looking. That’s what a buyer’s strike looked like — despite very low mortgage rates. By 2011/2012, it became a good time to buy.
Anecdotally, having lived through Housing Bust 1 while working in Tech, there was extreme pessimism in the air.
Everyone knew many who were laid off. Co-workers were being told to walk away from their underwater houses by friends and family because the market wasn’t done dropping. The tech company I worked for cut everyone’s salary by 15% and still had some layoffs. My house was underwater for about 6 months. Though I didn’t really care since I was busy working and raising 2 kids in a house that worked for us.
MSM reported high unemployment rates and foreclosure rates nightly. I remember it being dark times.
Speculation in housing was almost completely removed except for large investment groups acquiring foreclosed houses from my co-workers who had walked away. For workers like me, fear of buying dominated.
People voted for Hope and Change.
I don’t see the pessimism yet. I am cautious but not pessimistic.
On the bright side, I had a few tenured public teacher friends who weren’t afraid of losing their jobs.
They were finally able to afford a house in Silicon Valley. They bought near the bottom and are worth millions now. On paper. They continue to live comfortably on a teacher salary.
My coworkers who hung on and didn’t walk away are doing fine now.
Co-workers who foreclosed in 2010 had to rent and wait for 7 years. They missed out when they bought again for much more in 2017-2019.
I’m planning to strike for three years as a start… unless the right opportunity arises. But shoots I swear I can still hear the tramplings of sight unseen bidding still… maybe just PTSD. I have noticed the many many sight unseen investment homes bought these past two years need paint… railings replaced, jungle yards cut down, basic maintenance has just been ignored. The tenants who are mostly temporary construction workers don’t care for the house… Houses need the condom of paint and surface maintenance to protect the deeper structures from the things that eat/rot wood in the tropics. If the exteriors and yards are any litmus test of how these homeowners didn’t anticipate 500/month yard care 50k in paint every 8 years, etc … I wonder if the lack of “appreciation of investment” (not 20% YOY) will bring some sense to the pricing on some of these termite infested dumps. But with all that asset money still sloshing around… I feel like I am going to wait a long time before my striking from buying could have any return. Thanks for the inspiration though wolf.
Major builders will sometimes release homes for closings in groups. They build them, they sit, the neighborhood is completed, and they all close nearly simultaneously. Makes it easier for the trades to park, no one complains about the dirt and noise, and the builder is out and on to the next group.
Pulte is only releasing at a very slow pace to balance high demand with the labor-constrained building schedule. It’s the only gamein town with no resale inventory. In Charleston, SC, they are raising prices each month.
Pulte is ____. They release slowly because their release/selling process makes naive buyers bid against each other.
Real estate is a dicey business. I’m reminded of Olympia & York of Toronto, which built many skyscrapers in Canada’s largest city only to run into financial problems with Canary Wharf in London. When you’re in real estate, you’re leveraged, and general financial panics can wreck you real fast.
That was back when the born in Canada real Canadian’s money moved the real estate market. The Reichman’s were several decades too early.
Open house at my neighbors right now. Jen is there all alone with her brand new Range Rover parked out front. It’s just a gulley. Or my new favorite “some softening”
In Omaha a 50 year old house never updated and trashed by neighbor with dementia paid 300k for a house that might sell for 360k in good shape ,neighbor behind me sold house for 500 k all furnishings included beautiful home . But wAy overpriced for this neighborhood
Interest rates should start to fall between March and June next year. June at the latest. I wouldn’t be a seller I’d be a buyer. With the standard 30 day closing the residential real estate market in America should put in a bottom in February 2024.
Ok.
Wolf, can brokerage companies skew data by making up false data?
I’ve seen multiple sales data in Redfin in LA in which the house was not listed but marked as recently sold based on “public records”. But the public records doesn’t show any sales. Is this legal? Where is it pulling off data? It doesn’t look like a manual input.
Here is one example:
https://redf.in/2D1xgP
Pulled public records from county:
https://portal.assessor.lacounty.gov/parceldetail/2116016110
Just glancing at it, seems you’re just too impatient.
Redfin said: “LAST SOLD ON AUG 23, 2023 FOR $859,000”
So that was last week, which is when brokers closed the deal. It takes a while before the sale is entered into public record. If you check back in a month, you will likely see.
I sold my condo 22 years ago without ever listing it. I sold it directly, without broker. The deal closed and after a while it showed up in the public records. There are lots of homes that marketed privately by brokers, without listing them, especially at the high end. They show up as sold when they sell, but never showed up as listed (these are called pocket listings).
I wonder when RE technology and efficient competition will squeeze the 6% agent fees, as well as the mortgage fees.
They already have. In many places, the fee is 4% or 5%.
I just listed a house in central Florida and was able to negotiate down from 6% to 5% just by asking.
Howdy Dirty Work…. Some folks would list their property in the local MLS and offer the selling agent a 2.5 % commission. The owner is basically the listing agent and no commission needs to be paid to yourself….. If a seller trusts his or hers judgement while selling their own home???
Redfin and others are already working with much smaller fees.
It is already happening.
You need to look around.
Plethora of discounted brokerage around.
Anecdotally, I use my credit card to buy groceries, and get back points. I get deals like spend $100, and get back $25 in points.
Gone were the days when using a credit card meant someone was in dire straits. Credit cards are easier to reverse fraud transactions. Much safer.
Thank you for your fair and balanced perspective on urban density. I agree that people should be allowed to choose what kind of neighborhoods they prefer. For some, high density is a disaster. For some, who must commute to work, low-density, green suburban neighborhoods are expensive and unworkable. In a democracy, people should be allowed to choose.
Chart Notes
Average hourly earnings are for production and nonsupervisory workers, not all workers. The data series for all workers does not go back far enough.
The most recent Case-Shiller data is for May 2023. The other numbers are through July.
Case-Shiller measure repeat sales of the same home over time. It is the most accurate measure because median and average prices do not factor amenities, the number of rooms, or quality of construction.
“The most recent Case-Shiller data is for May 2023.”
BS. the most recent CS data (released Aug 29) is for “June,” which is a three-month moving average of April, May, and June. Here are the all the charts and details of the most recent CS for “June.”
https://wolfstreet.com/2023/08/29/the-most-splendid-housing-bubbles-in-america-august-update-4th-yoy-price-drop-overall-10-of-20-cities-with-yoy-drops-selling-season-begins-to-fade/
Sure hope you’re wrong about self driving cars. I love to drive it’s one of the only things i’m good at. I have a class A license with all the endorsements except haz-mat, that endorsement is way to expensive to keep for farm boy use. I do agree that a lot of people can’t drive.