Quote:
Originally Posted by supafamous
I don't think the current prices are "sound", I think they're just a natural outcome of a very, very bad supply-demand problem. What's happened is exactly what happens when supply is constrained and the other externalities like foreign investors or people owning multiple homes etc are mostly distractions - they're easier problems to tackle but they don't really change anything and that's been the case ever since people started complaining about housing prices in the..................1950's.
Westopher explained it much better than I did - that it's an affordability problem. It's not the price of the house itself but how much it costs in total.
Example:
One year ago I could buy a $1m place at 1.2% interest - at 20% down ($200k) my payments would have been $2600/mo.
Today that $1m place with a 20% downpayment goes for $3500/mo at 3.45% (today's rate) so the cost of the house has actually increased ~25%.
For that house (haha, no, just a 2 bed condo folks) to have a $2600/mo payment would require it to drop in price to $800k (with the same downpayment, a $600k mortgage) - a 20% decrease in price.
At current interest rates the market would need to drop 20% in price just to stay level with what it was a year ago in terms of affordability. If the market does drop 20% it's a case of "nothing has changed" because people are still stuck spending as much as they can on housing (until they forced to spend even more).
Look at it another way: It's basically took a 25% increase in housing costs in the last 6 months to cause the market to almost grind to a halt. A house is the biggest purchase in someone's life so it should be fairly price sensitive yet it takes a huge increase to get people to bail - that says a lot about how desperate people are for a house.
People aren't paying a lot for houses b/c money is cheap, they're paying a lot of money b/c they're desperate.
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Sorry, your right. We should be talking about sales volumes when addressing about whether demand is artificially propped up or not.
In Jan 2022, sales volume were +25.3% above 10 year averages for Januarys. The previous month, Dec 2021, it was +33% of 10year average for Decembers. November was also +33% above, etc. Those are the unsustainable demand numbers I was talking about.
We will see what those # of transactions rates will become 2/3 years from now. If there is healthy demand supported by fundamentals, then the sales volume will not decrease right?