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Spritz explains coming residential housing crash?

The average apartment rent in the US is now over $2,000/month. That’s up over 30% in many markets since 2019. https://www.rent.com/research/average-rent-price-report/


Sadly the monthly cost of owning has more than doubled in the same time.

  • Home prices have increased from an average of $313,000 to $479,000 in late 2022. Currently, the average price has begun to fall, now at about $440,000. https://fred.stlouisfed.org/series/MSPUS

  • Interest rates have exploded, causing first-time buyers to see 8% mortgages.

  • The monthly cost to own an average home is now $4,000.


The average American household makes about $6,000/month (approx. $76,000/yr). Most folks aren’t in a position to spend two-thirds of their income on housing. The general rule is to keep housing costs below 30% of income. Owning the average home has become a non-starter for the average American family.


Will this untenable situation last? At the moment, owners aren’t selling. Nobody with a 2% or 3% mortgage wants to trade their house and pay 8% for a new place. Conversely, few people can afford to buy. So while prices have fallen slightly, they’re hovering in place.


Can a major price drop happen like 2008. You bet. How so?

  • In the past 36 months almost 1 in 5 homes bought was purchased by an investor (who is renting the residence out).

  • About half were small investors (1-10 homes), a third medium-sized (11-100 homes) & the rest large institutions. What these buyers all have in common is they bought with the advantage of cheap interest-only loans (2-3% rates).

  • Unlike owner-occupied homes, these loans mature and need to be repaid in 3-7 years. When they come due, many of these investors will need to refinance at rates North of 8%.

  • That won’t work. The rents won’t support the higher interest costs. When that shit hits the fan, large numbers of owners will be forced to sell or face foreclosure (which will also force an eventual sale). Either way that could likely force a large number of homes to come on the market, Might that trigger a free fall in home prices? Not unlikely.


How to take advantage of that (if you're a first time buyer)?

  • Now might be a risky time to purchase a home given there is a reasonable probability of a major home price drop.

  • Better to wait, rent, and if prices crater be prepared to buy a house at a vastly reduced price? That scenario hypothetically would be a superior investment.

  • Note: the percentage of investor-owned homes vary widely by location. Will housing prices fall uniformly in a housing crash? That's hard to predict. Probably not.


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