With rates climbing, I think I saw 3.25-3.5% treasury rates on 5-10 yr treasuries. Some people seem happy to invest in them. Others are going full speed into TIPS.
Some of this is confusing to me. Starting with 3%+ treasury rates. If you are going to lock in that for 5-10 years, I assume those people are expecting inflation to go back down otherwise they are locking in negative real returns.
People running towards TIPs, I assume are expecting high inflation and are hoping to tread water and are ok with a 0% real return.
The stock market is definitely down and could go down further but at the same time it certainly is a better buy than it was before.
Mortgage rates are 5% (15 yr), 6% (30 yr fixed). Not bad historically but certainly higher than what people have been getting the last few years and coupled with very high housing prices, will make things tougher for house buyers.
Gold is up slightly this year (1.75%), an energy ETF like IXC is up 20% although it has crashed down nearly 20% in the last week.
As an investor Iâm pretty confused. Iâm thankful I had a decent amount of cash, some gold and some energy stocks/etfs but the stock loss has been painful. Looking forward, so far Iâm mostly doing nothing but occasionally buying BRK & Google on the way down.
I can certainly see housing correcting at some point. I think some issues are due to people realizing you can profiteer by creating shortages even if they donât exist although Iâm not saying there arenât some legitimate issues in some areas but I think Iâve heard âsupply chain issuesâ as an excuse on a few too many items lately.
Seems like one of the more confusing times to invest in my 30+ years of investing.
I can certainly see housing correcting at some point. I think some issues are due to people realizing you can profiteer by creating shortages even if they donât existâŚ
Could you please provide an example of manufactured shortages in the housing market?
Housing has been unrealistically high since I got bought my home in 1977. The housing market in SoCal hasnât been sane since 1975.
As a friend once said, heâs waiting to buy on the dip. I replied, thereâs going to be a dip, letâs say 20%, but will it dip from 50% higher than now?
Timing the market is hard to do on a regular basis.
"Housing has been unrealistically high since I got bought my home in 1977. The housing market in SoCal hasnât been sane since 1975.
As a friend once said, heâs waiting to buy on the dip. I replied, thereâs going to be a dip, letâs say 20%, but will it dip from 50% higher than now?
Timing the market is hard to do on a regular basis"
pay your money and take your chances.
With new mortgage loans over 6%, for many homes are no longer âaffordableâ at current prices.
In addition, new home construction is downâŚand those being built are seeing prices increases due to material increases in lumber, labor, appliances, etc
At least 10% of homes were bought up by gigantic aggregators who bought them mainly to rent out at high monthly rental rates.
SoâŚwhere will housing prices go? Your guess is as good as mine, but I think with high mortgage rates, prices have to come down to attract buyers. Not everyone is a âcash buyerâ. There will be fewer and fewer cash buyers going forward.
In addition, usually new housing is located further and further from work locations. the commutes get longer. With high gas prices, many may rethink moving to the far suburbs to find an âaffordable homeâ if they canât afford the gas to commute to work 30-40-50 miles away. a lot of the new housing in DFW is miles and miles from âanywhereâ.
At least 10% of homes were bought up by gigantic aggregators who bought them mainly to rent out at high monthly rental rates.
Again, got any actual data to back that statement up? Because, again, the homeownership data https://fred.stlouisfed.org/series/RSAHORUSQ156S doesnât support it. Even if the spike in Q2 & Q3 of 2020 is accurate (and given that there was a pandemic going on that hampered a lot of the regular data gathering, the accuracy is questionable), the peak was at 68.1% and the current level is 65.4%, so thatâs only a decrease of 2.7% And that 65.4% is 2.3% higher than the bottom of 63.1% that was reached in 2015 Q2. So, on average, since 2015, individual homeowners have been purchasing enough houses to increase their rate of homeownership, which goes against âaggregatorsâ buying up 10% of the housing.
SoâŚwhere will housing prices go? Your guess is as good as mine, but I think with high mortgage rates, prices have to come down to attract buyers. Not everyone is a âcash buyerâ. There will be fewer and fewer cash buyers going forward.
It doesnât take cash buyers. Many fewer people are listing their houses for sale compared to pre-pandemic https://fred.stlouisfed.org/series/ACTLISCOUUS Current active inventory listing is about 1/3 of what it was during the same months pre-pandemic. Unless demand also drops by 2/3, prices are still going to keep going up. And given that the number of weddings in 2022 (2.5MM) is expected to be the highest number since 1984, I would have doubts that demand is going to drop that significantly.
Of course, all real estate is local, and prices in a particular market are very dependent on factors specific to that market. Especially in some of the more insane markets, I would not be surprised to see drops in prices from the highs that recent frenzies drove them to. But drops from those highs doesnât mean that the prices will drop below where they were in, say, 2018 or 2019.
Really? Got any actual data to back that statement up?
This is not necessarily data, but it could be indication. 4x8 7/16" OSB sheets were selling at a peak of $47.75 on 3/22/22, they are now selling for $24.05. Pre-pandemic they were around $9 a sheet. 2x4 pre-cuts peaked out at $7.98 on 3/11/22. They are now selling for $4.73. Pre-pandemic they were under $2. Lumber futures peaked out on 3/3/22 at $1,313, the last closing price on Friday was $570. I know there are a lot of moving parts involved here, but Iâm pretty sure demand is one of the biggest drivers.
This is not necessarily data, but it could be indication. 4x8 7/16" OSB sheets were selling at a peak of $47.75 on 3/22/22, they are now selling for $24.05. Pre-pandemic they were around $9 a sheet. 2x4 pre-cuts peaked out at $7.98 on 3/11/22. They are now selling for $4.73.
Youâre right - itâs not actual data. That said, 2x4s were over $8 in March, 2021 in my area, and have only dropped to $5.25 recently. That said, they were even higher in 2021 - around $9.75 during the spring/summer of 2021 and then dropped to under $4 during the fall/winter of 2021/22. Yet, the data on housing construction doesnât show any slowdowns in 2021. So Iâm not seeing what just looking at the price of lumber in isolation actually indicates for construction of houses.
Iâm pretty sure demand is one of the biggest drivers.
Sorry, trying to analyze demand based just on prices is missing a huge factor: supply. During the pandemic mills shut down, and with labor shortages and supply chain issues, they have had a difficult time getting back up to ânormalâ levels of production until recently. Even now, they donât have huge incentives to increase production enough to drive prices back down, especially if they think there will be a recession coming.
I would also point out that there was extra demand during the pandemic, as people were staying home and ended up working on projects around the house. As prices went higher, combined with people going back to offices, that incremental demand slowed down.
Sorry, trying to analyze demand based just on prices is missing a huge factor: supply.
Yes, I certainly agree with your statement and if I implied otherwise, bad on me. Thatâs why I wrote that the pricing was just possibly an indication and I was pretty sure demand was one of the biggest drivers.
I would also point out that there was extra demand during the pandemic, as people were staying home and ended up working on projects around the house. As prices went higher, combined with people going back to offices, that incremental demand slowed down.
Absolutely would agree. But I do think that new construction has turned and is starting to drop. Not making any matter of fact statement. Just my opinion.
Seems to be a different view here. I just skimmed the article. Maybe I missed something.
âUS Housing Starts Fall from 16-Year High
Housing starts in the US sank 14.4% mom in May of 2022, the most since April 2020, as the housing market is facing high pressure from rising inflation and mortgage rates, which coupled with elevated building material costs and supply constraints weigh on consumersâ affordability. The annual rate of ⌠more
2022-06-16â
But I do think that new construction has turned and is starting to drop. Not making any matter of fact statement. Just my opinion.
It may have. Since it has been in a frenzy, I wouldnât be surprised if it started regressing to the mean. That said, I havenât seen any actual data that shows that slow downs in construction have started yet - which is what I asked for, since the data I posted shows that construction is still going strong.
And I would also point out that slow downs from a historically high level can still be significantly above previous levels. So âslow downâ doesnât always mean âcrashâ, even though many seem to use the terms interchangeably. And even when a slow down does start, it will take a year or more to work itâs way through the market - since most houses take at least that long from building permit to closing.
Maybe. When you look at the data https://fred.stlouisfed.org/series/HOUSTNSA housing starts are actually very volatile from month to month, so huge drops and increases are pretty typical. And that part in the headline that says from 16-Year High shows that starts in prior months were extremely high, meaning that âconstructionâ (which was what the original question was about) will still be going strong for a year or more.
I suppose that builders could stop construction if they think it will cut their losses. Depending on how much they have into the project, that might work. But in many places, developable lots (which you need before you pull a permit, much less actually start construction) are so expensive that they often represent a very high percentage of the cost for many months into the build. So itâs not clear that stopping construction will actually cut losses a lot for many builders.
I probably wasnât too clue on my original message but I meant creating shortages in things other than housing. While I think there are a number of true shortages, it is easy for a place to raise prices and say âdue to inflation, shortage, etc.â when it isnât true.
And yeah, there are a lot of investors/speculators/etc. in housing right now. I lived through that in 2003-2011 in Arizona. Once a few cracks occurred prices dropped like a rock, I donât expect the same this time but once some realize they canât buy a house and then flip it for a nice profit a month later with doing little to nothing to the house, they will sell quickly.
Investing is always complicated but if you are in your 20s/30s then it is easy to just throw it into the market and ignore it for a few decades. The closer you get to retirement the more you have so losses seem bigger and clearly your time frame is getting shorter.
The problem with a ton of new building is that you end up with a lot of poor quality housing. Builders back in the previous peak in AZ couldnât find enough quality carpenters, roofers, etc. and some hired almost anyone they could find off the street and the final product certainly suffered.
I remember when we added an all season room on the back of our house the contractor had to fire several workers because they couldnât read 3/8 on a tape measureâŚ