Is Housing Starting to Crash?

I really enjoyed this piece by Nick. The housing market has been frozen solid for years given higher interest rates, high home prices and household income that has lagged relative to those home price increases. The math increasingly doesn't work.

As he noted in his post, real estate is local. Each market is different. But the point below is important and would be welcome.

"The main reason why home prices can continue to decline is that homeowners have record levels of home equity: And a good portion of this home equity was created in the last few years. As a result, homeowners won’t feel the sting of home price declines as badly as they normally would. We can prove this with a simple example.

Imagine you bought a house for $100,000 (and all houses cost $100,000). Now imagine that all home prices doubled to $200,000. Have you gained anything? Relative to non-homeowners, you have. But relative to other homeowners, you are no different. If you sold your $200,000 house and bought another one, it would cost you $200,000. Nothing gained, nothing lost.

Now imagine that all home prices then dropped to $175,000. Have you lost anything? Relative to homeowners, you haven’t. You sell your $175,000 house and buy another one for the same price."

This is a simplified version of what happened to U.S. homeowners over the past few years. They gained a lot of home equity (on paper) that hasn’t translated into any real difference in their lives. So, if that home equity were to decline somewhat (in aggregate), there would be very little impact on them. Outside of imagining what they could’ve had (aka selling at the top), they haven’t lost much.

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Source: ofdollarsanddata