Why do buyers lose their minds in a hot Market?

It's interesting that buyers tend to absolutely lose their minds in a hot market. Making very aggressive offers, waving all sorts of contingencies, etc.

Real estate markets won't effectively go to zero. So if you're an individual that has decided you prefer home ownership over renting, why not get out there and get moving when the market's down 10, 15, 20% and everybody's telling you not to buy? No one can predict a top or a bottom, however, my preference is always to buy real estate in a falling market, if you have the opportunity.

I bought one house in Florida in 2011 when people were sending their keys back to the bank. Interestingly, I remember I was mostly bidding against investors, not primary homeowners at the time. They knew something civilians didn't. Wish I would have bought more than two. At the time most people in Florida and New York City were very bearish on real estate, not too many people were advocating purchasing a home in either New York or Florida (see Streeteasy threads for reference).

I think Miami, Palm Beach County or any hot suburb would be the last place I'd want to buy right now or over the previous 6 months.

The New York Times: Burned by Hot Housing Market, Some Buyers Back Off.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
It's interesting that buyers tend to absolutely lose their minds in a hot market. Making very aggressive offers, waving all sorts of contingencies, etc.

Real estate markets won't effectively go to zero. So if you're an individual that has decided you prefer home ownership over renting, why not get out there and get moving when the market's down 10, 15, 20% and everybody's telling you not to buy? No one can predict a top or a bottom, however, my preference is always to buy real estate in a falling market, if you have the opportunity.

I bought one house in Florida in 2011 when people were sending their keys back to the bank. Interestingly, I remember I was mostly bidding against investors, not primary homeowners at the time. They knew something civilians didn't. Wish I would have bought more than two. At the time most people in Florida and New York City were very bearish on real estate, not too many people were advocating purchasing a home in either New York or Florida (see Streeteasy threads for reference).

I think Miami, Palm Beach County or any hot suburb would be the last place I'd want to buy right now or over the previous 6 months.

The New York Times: Burned by Hot Housing Market, Some Buyers Back Off.
Agreed. Whats not taken into account are humans and their situations, kids, the wife, hte husband, temp living in undesired quarters/location until home is found, etc..life hits you hard when a new home space is needed in times like these. I have spoken to a few friends in similar situations who have a real need to buy and explained the emotional toll they are living on a hourly/daily basis. This can def drive emotions/decisions
 

David Goldsmith

All Powerful Moderator
Staff member
Real Estate is the only thing no one wants to buy when it's on sale. On Black Friday they put big screen TVs on sale for 25% off and people have fist fights in the aisles.
But if Real Estate gets marked down like that no one wants to touch it.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
Real Estate is the only thing no one wants to buy when it's on sale. On Black Friday they put big screen TVs on sale for 25% off and people have fist fights in the aisles.
But if Real Estate gets marked down like that no one wants to touch it.
humans and urgency are crazy things to watch when its in motion
 

David Goldsmith

All Powerful Moderator
Staff member

Pressure on home shoppers eases as bidding wars hit 2021 low​

Activity peaked in April when almost 75% of offers faced competing bids​

Home shoppers can take a breath: Competition for listings is lower than it has been at any point this year.
Last month, 58.8 percent of home offers written by Redfin agents dealt with competing bids, according to a market report from the company. That is the lowest since December 2020, when 53.7 percent of offers were in bidding wars.

The figure represents a massive drop from April, when 74.3 percent of offers drew bidding wars, a high point for the past year. It was also slightly lower than last August, when 59.4 percent of offers faced rival bids. Last month, the number was 62.1 percent.

Seasonal changes could be factoring into the cooling market. Fewer people tend to put in offers for homes at the beginning of the fall when the school year is kicking off and families are getting settled.

Prices are also beginning to show signs of stabilizing, despite a persistent gap between the supply and demand of new homes. The market hasn’t cooled off completely, but there are signs of intensity receding among buyers.
In some metropolitan areas, however, competition remains as fierce as ever. Raleigh, North Carolina, had the highest Redfin bidding war rate last month, at 86.7 percent. The San Francisco/San Jose metro was second at 70.7 percent. Both markets saw increases in the rate from July, although the Bay Area’s rate was lower than at this time last year.

In Los Angeles, the bidding war rate was 62.8 percent, down from 67.5 percent in July. New York City’s was 56.4 percent, up from 50 percent the previous month. The rate was 53.1 percent in Miami, also up from 50 percent. And Chicago’s bidding war rate was 45.5 percent, down from 52.9 percent.
Of the markets analyzed, the one with the lowest bidding war rate was Oklahoma City, at just 35.7 percent.
 

David Goldsmith

All Powerful Moderator
Staff member
We are starting to see Housing Expert's opinions coalesce towards predictions of a Big Chill coming.

House Prices: 7 Years in Purgatory​

10%+ Nominal Price Declines Now Seem Likely​


CalculatedRisk by Bill McBride
5 hr ago
19

Earlier this year, I argued the most likely path for house prices was for nominal prices to “stall”, and for real prices (inflation adjusted) to decline over several years. The arguments for a stall included historically low inventory levels, mostly solid lending over the last decade, and that house prices tend to be sticky downwards.
As I noted, homeowners resist selling for less than the recent sale prices of similar homes in their neighborhood. However, there are always the homeowners that need to sell (death, divorce, moving for employment, etc.), and sometimes these homes will sell for less than previous sales. Note that house prices were not sticky downwards during the housing bust due to the all the forced sales.
However, even in normal times, house prices are not sticky downwards in real terms as this graph shows.


In the July Case-Shiller report, real prices were only up 5.4% year-over-year (YoY) and will likely be down YoY in real terms later this year.
However, we are already seeing nominal house price declines on a national basis. The Black Knight index (median price of a repeat sales index) was off almost 2% in August, and the CoreLogic repeat sales index for August (a three-month weighted average and not seasonally adjusted, NSA) was off close to 1% in August. And my estimate is the nominal Case-Shiller national index will be off almost 1% in August compared to the peak in June.
Here is a table of previous nominal and real house price declines. The first two (1979 and 1989) would fit the “stall” scenario with minor nominal price declines.


Although the current dynamics are similar to the 1979 peak (see: Housing: Don't Compare the Current Housing Boom to the Bubble and Bust), house prices are more out of line with fundamentals than in 1979 (price-to-income, price-to-rent, real prices). For example, here is a graph of price-to-median household income:


This graph uses the Case-Shiller national index, and median household income from the Census Bureau (2022 estimate as a 5% increase from 2021). This suggests house prices need to decline relative to incomes. This could be a decline in nominal prices or an increase in income over several years (or a combination of both).

House Prices Can Take Many Paths

It seems likely that house prices will decline around 25% in real terms over the next 5 to 7 years (more or less). This decline could be mostly due to inflation or include some nominal price declines. Here is a graph of how long it took prices to recover in real terms. (See: House Price Declines: How Long for Real Prices to Recover?)
The real return following the ‘79 peak was 6.5 years. It took 11 years for real prices to reach the previous peak following the peak in ‘89. And it took 14.5 years to return to the real peak reached during the housing bubble.
Hence the title to this post: House Prices: 7 Years in Purgatory (it could take shorter or longer, especially since the next Housing and Demographics: The Next Big Shift will likely start at the end of this decade).


10%+ Nominal Price Declines Now Seem Likely

Since national house prices increased very quickly during the pandemic - up over 40% - it seems likely that some of the usual “stickiness” will not apply. I think the most likely scenario now is nominal house prices declining 10% or more from the peak, and real house prices declining 25% or so over the next 5 to 7 years.
This suggests some significant double digit regional price declines. However, I don’t expect cascading price declines this time since lending standards have been reasonably solid (and we won’t see a huge surge in distressed sales). During the housing bust, nominal prices fell 62% in Las Vegas, 56% in Phoenix, and 51% in Miami - I don’t expect anything close to that level of price decline this time.
The good news for the homebuilders is housing starts and new home sales will likely bottom much earlier than real house prices (that is the usual pattern).
 

David Goldsmith

All Powerful Moderator
Staff member

US home prices falling 15% looks “conservative”: KPMG​

Case-Shiller Index notched record price drop in August in ongoing correction​

An economist is predicting home prices could decline much more than anticipated as the housing bubble begins to pop.
A 15 percent drop in home prices for next year is “very conservative,” KPMG chief economist Diane Swonk told Fortune. Swonk’s forecast comes as the market’s correction from the pandemic-era frenzy has come into focus in recent months.

“Once you start the process of prices falling nationally, there is a self-fulfilling momentum to it because no one wants to catch a falling knife,” Swonk told the outlet.

The economist said the market was a “pandemic-induced bubble,” inflated by those relocating as they work from home. Rapidly spiking mortgage rates are contributing to the pop, sidelining would-be buyers and persuading would-be sellers to keep their lower locked rate.
Price growth hit a record slowdown in August, according to the Case-Shiller Index. Data showed a drop in year-over-year price growth for the second straight month and a 13 percent annual rise, compared to July’s 15.6 percent annual gain. The 2.6 percentage point decline was the sharpest month-to-month fall in the index’s 35-year history.

The Federal Reserve’s plans to combat inflation with general interest rate hikes have sent mortgage rates to historic highs and flattened demand.

While a national price drop of more than 15 percent would be one of the biggest declines in history, Federal Reserve chairman Jerome Powell has pushed back on concerns the market is going to look like 2008 all over again.
“From a financial stability standpoint, we didn’t see in this cycle the kinds of poor underwriting credit that we saw before the Great Financial Crisis,” Powell said this month.
 
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