Already have an account? log in
This article is FREE for you
Create a free account and join institutional investors, analysts and strategists from the world's largest banks
By submitting your email address you agree to receive communication by email
Build It And They Will Buy. For Now, Anyway
US housing starts are resilient in the face of surging mortgage rates. And that shouldn't surprise a
OR, subscribe now for unlimited access
By submitting your email address you agree to receive communication by email
By submitting your email address you agree to receive communication by email
Your 2 observations are dead on. I have one Millenial (just barely a millennial) that falls into category 1. I also have a Gen Z (an older version) that falls into category 2. The Gen Z has read “The Millionaire Next Door” more than once. I wish the Millennial would give up Uber Eats and HBO plus- but it isn’t my life.
I just keep telling them to look at history and note that $100 invested in the SP 500 in 1970, on average and assuming you reinvested dividends, and adjusted for inflation grew by 6.7% per year (about 10,9% before factoring in inflation) resulting in an investment balance of $2,860 in 2022.
This just might not be the best year to buy- that is the punchline.
They live in big California cities. The other idea to make a home purchase happen is to find something with “hidden” value”. Maybe a condo comes with 2 parking spaces-and if you only need one (rent the other one) or a SFH with an opportunity for a lock-off.
The rent vs. buy calculation most times favors the buy, if you have 5 + years you think you will occupy the house. Right now in many markets, that probably is not the case. What will change this? LIkely a period where prices lag incomes for some time. I would bet we are on the cusp of that right now. Note, this can happen slowly, but unless something changes that would be my bet. Also note, this is not a forecast for a housing market bust.
Folks. Housing is going down. The question is when and by how much. I personally think we’re at the beginning of 06 right now when investors could still justify spending 70% over asking with all cash, even though the market had already peaked.
Take Los Angeles for instance (the frothiest of them all). It’s entire market exists in bubble and pop cycles. It peaked in 89. Bottomed in 95. 25% drawdown. Then peaked in 06. Bottomed in 2011. 40% drawdown. It recovered back to its 2006 numbers — in 2017. Currently, the norm is 1100 square foot starter homes (not flipped) listing at 995k and selling for 1.5 million. (And what’s really mysterious is how open houses have almost NO traffic, and houses get 3 offers instead of 55, yet the final bid up is the most aggressive it has ever been.)
Want some really scary numbers. Check out the previous peak to trough drawdowns in Miami, Phoenix, Vegas. -50%. -54%. -61%.
And consider this data point: Every time the housing market has had a double digit annual price increases after being at an all time high — that was the top.
Where did this occur in 2021? EVERY city in the entire country. (Phoenix had an annual price increase last year of 33%.)
Now, perhaps it’s different, and Goldman (who told us inflation would be under 2% in 2021), has no vested interest this time around. Or maybe DJ D-Sol has himself loaded up on some AirBNBs.
I thought I lived in a 3rd tier city, but based on these anecdotes I’m guessing not. Lot of price drops where I am.