how did the housing market get so inflated, and is it different from what happened in 2008?
In: 71
To Add – Foreign Investors:
This is the Chinese in particular but there are others. The Chinese who are fortunately to make it into the upper middle class are very eager to get money invested outside of China and this means buying property.
[https://www.fortunebuilders.com/one-third-of-vancouvers-real-estate-market-is-owned-by-chinese-buyers/](https://www.fortunebuilders.com/one-third-of-vancouvers-real-estate-market-is-owned-by-chinese-buyers/)
In a lot of towns in West Michigan near the beach, wealthy people or companies with money are going in And buying up homes in cash well over asking, just to turn them into rentals and lowering inventory for people actually wanting to live there. And it’s jacking up the values of all the homes in the area, making it even harder. Just one example.
Why the quotations for “afford”? Thought you said people have money now while they didn’t in 2008?
Also curious for your take on buying vs renting. ELI5. I’m an older renter by choice, and part of it is I don’t want to buy a property without a substantial down payment. Won’t be 20% or anything but even 10% on a 500000 house is 50K minimum (I live in a HCOL—500K is a 800sq foot condo). I also don’t want to be house poor-if actually want to furnish and decorate a home if I bought a house/condo.
But I often get advice from folks basically pleading for me to buy and to “stop throwing away money” and saying you “don’t really need that much up front” as a first time buyer so I’m a bit confused.
In 2008, demand for mortgage backed securities (think 1000’s of mortgages bundled so that it acts like a bond, earning interest payments) that banks were giving mortgages out to basically anybody. They would even gives ones without verification of assets or income (in return for a higher interest rate). And with mimimal down payments. So lots of people who had no business buying a house, or buying such an expensive one, did so. Many believed they could simply hang on and sell for a profit before the home was foreclosed on. For a time, that worked. Them market peaked and it didn’t work. Homes went into foreclosure, glut of empty homes causes prices to fall, people underwater didn’t want to pay more for a house than it was worth and just turned in keys to their lender, it created a downward spiral of homes flooding the market. Additionally, because of the games Wall St. was playing, the mortgage backed securities began failing and triggered payouts on other investments that brought liquidity to a halt. Without money to lend out, those empty homes couldn’t be sold to buyers needing mortgages. Further price drops…
This time, it’s simply higher demand than there is supply. Due to COVID, buyers moved up plans to buy or upgrade because they needed/wanted more space. But older homeowners didn’t want to sell because they didn’t want strangers in their home, didn’t want to travel to FL or AZ, have adult kids move back home.
Additionally, low interest rates gave people more buying power — a $450k loan at 3% is same monthly payment as $350k loan at 5%.
And there are long term lag in housing built coming out of 2008, which is a bigger issue as large, younger generations hit home buying age.
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