This is partly about interest rates. People are locked into 3% mortgage rates and can't justify walking away from that to get a mortgage with a 6%+ rate.
As an elementary teacher, my spin on this same take was that you couldn't tell people things with much success, but there were two ways to break through: stories and games. If you could get your message across in story form or have kids discover it through a gamified (or experiential) setting, that generally worked.
Yes, but they did qualify it, by specifying they're referring to recent mortgages, and especially low down payment mortgages. Furthermore, the specified cities with a large military presence where many people buy homes with government-backed mortgages are especially impacted, which has historically been a very politically sensitive group.
> Although it's not unusual for new homeowners to be underwater for a brief period, especially if they buy during the summer when prices are elevated, "It is much more pronounced this year than it normally is because prices are starting to cool," said Andy Walden, Black Knight's president of enterprise research. The portion of underwater borrowers tripled in October, he noted
I agree that the over-all situation is probably not very dire yet, but I do see a path where the rapid rise in home prices in the last few years combined with a now rapid rise in rates creates a situation where people can't or won't sell. Buyers can afford less today since the rates are higher. Anyone who saw the last few years saw the "price" of their property skyrocket (whether realized or unrealized gains). Until people forget about these high valuations, very few people are going to be willing to sell their house at a lower price (people psychologically don't like to "discount" below what they think is fair, and 35% lower is not fair, economy be damned). Anyone who recently entered a mortgage will be underwater, and likely unable to sell.
For example, I live in SF, where the average home price is (rounded) about $1M. In 2021, that was just about $5k a month in mortgage payments, which is probably what a DINK household in SF can afford. Today, a $5k/month gets you roughly $650k of house - 65% of a year ago! Anyone who bought recently, or saw a house similar to theirs sell (eg. their neighbor) is going to have trouble agreeing to sell their house for 65% of what they could have a year ago. BUT the same buyers aren't going to be able to afford the almost $8k needed to buy a $1M home today.
The only way out of this "rut" without the fed lowering rates is going to be slowly waiting for the market to forget or wait for salary inflation to eat away at the extra monthly costs.
There are always forced sellers. Foreclosures, inheritance, construction companies with thin margins. The best time to buy if you have cash on hand is from forced sellers at the peak of the panic.
People buying with VA loans in military cities are actually particularly well-protected, as you almost never need to sell when you leave. The constant influx of new residents, combined with the fact that UCMJ requires them to pay their rent and they can't be laid off, makes it a great rental market.
It's difficult to be underwater when the curve looks like this. It would mean just buying extremely recently. Give it time. This recent jump was unprecedented.
Q2 2020 322k
Q3 2022 456k
34% in two years
Closest analog is the jump before total meltdown in the 2008 housing crisis.
Q3 2003 192k
Q1 2007 257k
28.9% in four years
This entire move was pretty much retraced in the following
two years. Imagine the carnage if the most recent move retraced similarly.
Nominal terms may not be the best way to look at it.
Here's a more intuitive visualization[1] of just how ridiculous the situation is.
The at-a-glance takeaway is that those who bought anytime from 2021 and today are, on average, almost certainly holding an illiquid bag that's even more overvalued than the inflation-adjusted peak of the housing bubble leading into the GFC.
The original Black Knight press release[2] cited by the article highlights:
> Of all homes purchased with a mortgage in 2022, 8% are now at least marginally underwater and nearly 40% have less than 10% equity stakes in their home, a situation most concentrated among FHA/VA loans
> More than 25% of 2022 FHA/VA purchase mortgage holders have now dipped into negative equity, with 80% having less than 10% equity
In other words, low income and veteran home buyers. What I'd like to know is what percentage of these homes were financed with adjustable-rate mortgages...based on the implied trend, those people are liable to be sucking hind tit sooner than later.
As for those with fixed-rate mortgages that are able to continue making payments, being underwater just means less future business for Black Knight...soon to be ICE's problem if/when the acquisition closes next year.
> What I'd like to know is what percentage of these homes were financed with adjustable-rate mortgages...
I bought a house in the last couple of years and then refinanced it a couple of times. I can say the interest rate spread between an ARM and fixed was not very much over the last 5 years. So I'd assume not many were issued.
i don't know about ARMs but I worked at a WeWork for a bit next to a mortgage lender and they were talking people into getting mortgages against their 401(k)s...
In my country (New Zealand), you can withdraw all except NZ$1000 from your retirement savings (usually only available at 65), if you are a first home buyer, to help you get into the market.
In the US you can borrow against something like $50k of it, but you do need a payment plan (with interest) IIRC. And you have account minimums and its only for certain purposes... etc. Thankfully our 401ks are safe from this for now.
This is fantastic. So many times we try to address symptoms like opioid abuse and poverty instead of attacking root causes like a lack of opportunity and jobs. It's fun to see how infrastructure improvement like this can change lives.
This is just not true man. I want it to be true. It looks good on paper. But let me tell you... People will waste their lives on drugs, alcohol, sex and all number of vices whether there's a good job available or not. Happily. And they'll spit in your face, lie, cheat & steal all while telling you everything you want to hear. Some people just suck, and there will always be this group of people, opportunity & prosperity be damned.
I understand that you may have strong personal feelings about individuals who use drugs but I would encourage you to not make claims based exclusively on those.
There will, indeed, always be those people. But there will also be people who want to make good lives for themselves and their families, if they can only see a way to do that.
