Just got back from Sacramento and they were building units for as far as I could see. Same thing in many markets.
Go back and read articles from 2006. They said housing prices were fine because we were lacking supply and had underbuilt for years. Then suddenly we had too many houses. Affordability matters appreciation expectations matter. Credit matters. Employment matters.
People will always sell. They can only hold off so long.
I was around in 2006. We didn’t have too many houses then, we had people granted credit on dubious applications, ARMs bundled up as AAA credit. That’s not going to repeat. And if it does, it’ll be nationwide all at once, rather than market-by-market like last time.
Certainly if there is a major jobs crash, then people cannot afford their mortgage. But the government doesn’t like this and they’ll step in again like they always do.
Yes, I was also around in 2006. That seems irrelevant as there is adequate data available regardless of when you were born.
> It’s just not the same market as homes.
No, it is, at least when people have to make hard choices. There is no law that says each family gets a SFH to themselves. Sure, they may want that, but when SFH becomes unobtainable people make those hard choices.
If you have more homes than you have willing and able buyers, you have too many homes. Family formation can be delayed(i.e. live with relatives longer) or families can choose multifamily. I don't recall a mass epidemic of homelessness after 2008 left homes empty, so it seems to me that we have enough places to live, even if those places are not the dwelling of their dreams. I understand there are statistics that say otherwise, and similar statistics were around in 2006 and proved to be wrong, so I have to question the recent statistics.
> That’s not going to repeat.
I didn't say that. We may see a 2008 style financial crash driven by commercial real estate, but I doubt even that will happen. What will likely happen is that the folks who think prices only go up will be surprised as the pool of buyers opts out of the SFH market while attrition slowly lowers prices. This process may even snowball in some markets as people "race for the exits" when they realize home prices are losing support.
People are indeed holding on their low rate mortgage and that is the only reason why the prices are currently so high (artificially low supply). This will eventually end. People need to move for job (return to the office anyone?), retirement or other reasons. Some people will lose their job and simply be unable to afford their mortgage. It is only a matter of time before it starts crumbling and the floodgates open.
The other side of the coin is that in a perfect market, the obvious arbitrage is to simply rent and invest your money in better performing assets. (we could discuss how in America most people buy blindly without any considerations for the underlying numbers).
Finally in every cycle, housing always took multiple months/years to adjust to the conditions. This is due to a slow moving and illiquid market. Owners think they can still get that "pandemic" 1m$ for a fixer upper while the rates went up a couple %. This price anchoring and discovery takes time. You can see this currently happening all over the US. Prices are slowly declining.
The next 10 years are going to be extremely interesting. Especially if we don't increase immigration, at least for the transition
