What is going to happen to the housing market?
April 1, 2020 8:53 AM   Subscribe

We were hoping to buy a home in the next year or two. What might happen?

I know rates have gone down. I know that a lot of things related to house buying are frozen (inspections, movers, etc.). I know that employment is going to be more precarious so less people will be willing to risk buying. But what might happen that would better prepare us? If it matters we live in a very competitive housing market where people overbid and places go in days.
posted by k8t to Work & Money (19 answers total) 9 users marked this as a favorite
I'm not a financial advisor or a realtor. These are just my opinions as someone generally interested in real estate.

Rates have gone down, but not drastically - roughly 0.5%-0.75%. The difference in rate can motivate a refinance (I'm contemplating one right now), but I don't think it should be a differentiating factor for a purchase. If you could afford a house before, then you're in a better place now. If you couldn't afford a house before and now think you can with decreased rates, I'd suggest your finances are not as good as you think.

People have continual needs for housing and the ability to move. Of all things to worry about, I don't worry particularly much about the housing market mechanics changing in the long term. Housing demand will probably decrease commensurate with the general economic decline. However, I don't expect significantly - the people most affected by this pandemic (manual laborers, service, and retail workers) aren't generally buying homes anyway. Further, in a highly competitive market, I can see many people acknowledging that this pandemic will eventually end and the economy will recover and hence, will be willing to pay roughly similar prices now as in the future. As a corollary, note that stock prices have declined, but haven't declined commensurate with projections for GDP decline. This roughly makes sense, the recovery prospects are already priced into the market price of stock, just as they will be for houses.

What can you do about this? I propose nothing. Your biggest consideration is to ensure you have a down payment in a year or two. It might be worth switching your down payment funds to less risky assets since you know you'll be spending it.
posted by saeculorum at 9:09 AM on April 1, 2020 [6 favorites]

I’m in the same boat - recently placed an offer (and was outbid), still looking. Ready to purchase whenever the “right” house comes up.

The biggest change, according to my realtor, is that the collapsed stock market has screwed over people trying to buy. Their liquidity was tied up in stocks. This has eased a lot of buying pressure - realtor just had an accepted offer at asking price - totally unheard of in years.

I think housing prices might fall down a bit, who knows, maybe 10% or so. Not much though. With the low interest rates, a $400k loan will still have principle and interest below $1800 a month. (That’s ignoring downpayment - assuming 20% down means a $500k house).

So I spend $1800 a month to rent an apartment, or I could spend $1800 a month on a freaking house. It’s a no-brainer. Even if housing prices decline a bit.

So, those are my and my realtor’s thoughts. We’re still ready to move on the right house.
posted by chuntered inelegantly from a sedentary position at 9:23 AM on April 1, 2020 [2 favorites]

I mean, the only right answer here is "nobody knows." Nobody knows how long this will last, how bad it will get, how destroyed the economy will be for how long. If you're hoping to buy a home in the next year or two, wait a year (or two). Hang onto your money. Prices are not going to shoot up, that's for sure.
posted by rikschell at 9:42 AM on April 1, 2020 [15 favorites]

I think it is tied significantly into the vague term consumer confidence. If people think the economy is back on track, they will start buying again. If not, housing prices could languish or fall. Also dependent on the seller and how badly they need to sell. Did they lose income? Etc.
posted by AugustWest at 10:11 AM on April 1, 2020

rikschell has it. Nobody knows. A couple of points:

Anywhere I can think of as a "highly competitive housing market" also has a substantial AirBnB market, where a bunch of units are being operated as dedicated AirBnB units. I would expect a decent chunk of these are on the way back into the housing market, which should push prices down.

There are also a large cohort of boomers who are on the cusp of retirement, but whose stock portfolios (or small businesses) are a lot less valuable today than they were last month. I would expect some of them to try and tap into their housing equity once the real estate markets start moving again, and downsize. That said, I would also expect that the prospect of selling and moving into a senior's home is a lot less appealing now that virtually everywhere has a local COVID-19 horror story.
posted by Homeboy Trouble at 10:26 AM on April 1, 2020 [7 favorites]

Housing prices and availability are often lagging indicators that respond more-slowly to changes in the broader financial markets than things like stock prices. House prices are less volatile because it takes a while to plan for buying a house and build up a down payment, etc. Individual markets vary quite a bit, too, based on housing stock, employment, and many other factors.

For interesting resources, the Consumer Financial Protection Bureau shares data on:
- Consumer Credit Trends: Mortgages for new loan origination activity over time, lagging 6 months as data is finalized
- Mortgage Performance Trends for loan numbers and delinquency rates even down to per-county info

The CFPB also has a guide for Buying a House which talks about the steps and has advice on both practical and legal aspects.
posted by bookdragoness at 10:26 AM on April 1, 2020 [1 favorite]

So I spend $1800 a month to rent an apartment, or I could spend $1800 a month on a freaking house. It’s a no-brainer. Even if housing prices decline a bit.

If you live in a magical land where there are neither property taxes nor maintenance costs.

"Nobody knows" is, I think, most of the right answer here. There probably are a lot of slow-witted people who kept their down payment money in the stock market up to the last second because "it's doing so well!" and are now facing big losses. How quickly the market recovers will obviously affect their ability to buy. While plainly this crisis falls hardest on the poor, many middle-class people will be facing some other form of financial blow that may have the same effect, or their confidence in the future may be badly bruised, causing them to be more cautious in their willingness to commit to a mortgage. So I would tentatively predict downwards pressure on prices once it's even possible to look again. But this is the kind of wild scenario where it's hard to predict anything with too great a degree of confidence. So far--thanks to those much decried regulations and regulators, as well as prompt interventions--we haven't seen too many catastrophes in the broader financial system as we did in 2008 that affected the banks' ability to lend directly.
posted by praemunire at 10:46 AM on April 1, 2020 [9 favorites]

Lots of talk about down payments and rates, but do we expect another wave of foreclosures and walk-away mortgages if unemployment spikes and stays that way?
posted by JoeZydeco at 11:02 AM on April 1, 2020 [4 favorites]

My wild guess is that there will be an acceleration of flight by the wealthy to places both semi-rural and somewhat immune to climate change (though nowhere truly will be).
So pressure will mount in "america's best small cities and towns" and places that won't roast 9 months of the year.
So if you plan to go to one of those paces, the market will remain strong. A recession will increase inventory in other places, so areas hit early will likely see the market drop.

Those are guesses.
posted by OHenryPacey at 11:04 AM on April 1, 2020 [3 favorites]

Tightened lending standards (again, thanks to those meddling regulators) should mean lower foreclosure rates than in 2007-09, given the same degree of unemployment. But of course that depends on unemployment rates and persistence amongst homeowners, which...who even knows. Also, private equity has moved into the market for foreclosed houses, meaning it's harder to buy one at a discount.
posted by praemunire at 11:16 AM on April 1, 2020 [1 favorite]

So I spend $1800 a month to rent an apartment, or I could spend $1800 a month on a freaking house. It’s a no-brainer. Even if housing prices decline a bit.

On average it's cost me $300-500/mo over the cost of the mortgage to maintain houses I've owned. Some of that was voluntary upgrades and some wasn't but I'd say you could spend a LOT more if you did any major renovations or have a large yard, pool, fireplaces, air conditioning etc etc. I kinda wish I'd just stayed a renter for life sometimes.
posted by fshgrl at 11:20 AM on April 1, 2020 [9 favorites]

Sorry, I should have been clearer. My rent is $1800 a month. My (public) parking pass is $300 a month. I live in a magical cheap apartment that in any other neighborhood would be $2500 per month. Side effects of magical cheap apartment and public parking include my car suffering an average of $100 per month damages, having been physically assaulted on my doorstep (as have others, we've had 2 stabbings and 1 shooting on our front door), and constant human feces everywhere, including last month when someone projectile shat all over my car (which was actually impressive.)

So I'm atually around $2200 per month, plus the emotional toll of this neighborhood. I agree with statements about rich flight - I want to flee to a house with a yard, myself. I think that condos are a TERRIBLE investment right now, because density is currently scary and will take a while to recover faith in dense neighborhoods. Houses with yards will probably weather this economic storm.

TLDR; I think condos are a bad idea at the moment. I think houses will be fine.
posted by chuntered inelegantly from a sedentary position at 12:22 PM on April 1, 2020 [2 favorites]

I myself doubt that "fear of density" will long outlast an effective treatment/vaccine for COVID-19 (invoke whichever deity you please that this be soon). It has much counteracting appeal and, before this is over, I doubt a lack of density will have served to protect many (indeed, in all honesty, right now I'm happier in NYC than I would be in a place that has 3 ICU beds and 1 vent). I mean, I hope you're right; perhaps then I could afford an NYC apartment I'd want to buy after all! But I think most of the people saying nasty things about density right now aren't city-dwellers already and "density" is just another word for, you know, POC presence for them. I don't think many people now cowering in (non-palatial) second houses in the Hudson Valley or wherever are going to change their minds and stay there forever.
posted by praemunire at 12:54 PM on April 1, 2020 [5 favorites]

My personal suspicion is that the very wealthy individuals and Bain Capital type companies will use any significant decrease in house prices to scoop up houses that will be attractive rental units, similar to the 2008 housing crash. This will help keep prices on the desirable units up and means you'll be competing with giant amounts of money for them.
posted by Candleman at 1:03 PM on April 1, 2020 [7 favorites]

praemunire - could be true, in fact, now could be a great time to buy condos. My realtor has sold both condos and houses in the past week, and she says condos are a massively buyers market at the moment. Potentially even under asking price (!!!). And definitely no more as-is / ignoring appraisal values, etc.

I am personally skeptical because I think the impending economic collapse will be devastating, and the homeless, mental health, and drug crisis is about to get much worse.
posted by chuntered inelegantly from a sedentary position at 2:47 PM on April 1, 2020

Two things.

If you are ever upgrading, then cheaper houses mean that the difference between what you are currently paying and what you will be paying reduces. I'm not sure I understand how that applies to renting vs buying but it's clear how it applies to selling and buying. If this is not the last house you buy, it could mean that your house is not worth what you paid for it when you sell, but also that the house you're buying is cheap enough to cover more than the loss.

Secondly, one thought that stuck with me is that what you pay in rent is the most you will pay for housing. What you pay in a mortgage is the least you will pay.

Now there are things to think about here - the mortgage payment for a repayment mortgage is partially 'rent', in this case interest, that is no longer your money, and partly capital that you can recover when you sell, which you might view as savings that you are obligated to make; but painting the woodwork, fixing the roof and replacing the boiler are things that are all covered when you're renting as part of your monthly payment and they all come out of your own pocket when you own a house. Make your own judgement about whether this balances out, but what is clear is that you've signed up to paying off the capital and you absolutely need to find the cashflow to cover that - even if one day it will end up back in your pocket.
posted by How much is that froggie in the window at 9:57 PM on April 1, 2020 [2 favorites]

I can't imagine a scenario in which prices rise significantly, so I don't see any harm in waiting.
posted by flimflam at 10:12 PM on April 1, 2020 [1 favorite]

I can't imagine a scenario in which prices rise significantly, so I don't see any harm in waiting.

I can. Like someone upthread mentioned, there are tons of companies that specialize in buying up single family housing for rentals, and they are way better capitalized with access to more debt, and are going to buy hundreds if not hundreds of thousands of single family homes in any downturn. Every mega corporation has a real estate arm and if the returns are right, could spin up subsidiaries to compete in the home rental business.
posted by The_Vegetables at 11:43 AM on April 2, 2020 [1 favorite]

Here’s some data on March 25-31 in Portland, Oregon.

Key takeaway: Housing is still going at 102% asking price, indicating a sellers market. Prices are currently rising.
posted by chuntered inelegantly from a sedentary position at 4:32 PM on April 4, 2020

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