US Housing Market is heating up. Will tapering and higher rates crash it?

Hello HODLers and investors,

As I am in the process of selling my flat in Europe in order to go to the Bay area, I was checking some housing metrics to confirm that I will not be able to afford anything on this side of the world :D.

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I am so confused on the current direction of the housing market.

On the positive side:

  • Inflation is increasing everywhere (US and Europe) and this morning data from China shows that the production price indice (PPI) is up 9.5% in August YoY. The biggest increase in the past 13 years !
  • The lack of houses being built in the US is astonishing, therefore the demand is staying constant and the supply is lower and lower.
  • There are so few houses available in the US that it caused a drop in the amount of mortgages and other type of credits to US consumers over the past month.
  • We saw a sharp increase in places further away from city centers (1hour+ commute) or even in non-metropolitan areas as teleworking is becoming the norm and another wave of COVID is on its way.

On the negative side:

  • Tapering is going to happen sooner than later, 10Y TBills have trended up and should continue to push rates higher.
  • The Higher the interest rates, the less $ a buyer can borrow and usually it put a downward pressure on housing prices
  • We reached some incredible price levels where it takes almost 10 years of median household income to buy a median home in LA (historical average is 2.6 years)!
  • Demographics in most European countries is okayish and therefore the future demand should be lower

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Latest metrics

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Least affordable metros

The rule of thumb long used by real estate agents and homebuyers is that you can afford a house if its price is equivalent to roughly 2.6 years of your household income. That ratio is based on historical nationwide averages under healthy economic conditions.

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Source

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Top 10 premiums that buyers are currently paying

  1. Boise, Idaho - 80.64%
  2. Austin, Texas - 50.72%
  3. Ogden, Utah - 49.70%
  4. Provo, Utah - 46.16%
  5. Detroit, Mich. - 45.57%
  6. Spokane, Wash. - 45.21%
  7. Salt Lake City, Utah - 42.41%
  8. Phoenix, Ariz. - 42.31%
  9. Las Vegas, Nev. - 41.88%
  10. Stockton, Calif. - 38.50%

So if I understood this correctly, this is a the % that you pay on top of the listed price to get the house !

Some buyers paid the listed price +50% to get a house in Austin, Texas at the moment.

That is CRAZY ! This is actually illegal in most European countries as you have to sell the property at the price you listed if somebody is willing to pay it (and as banking guaranteeing it if a loan is needed).

You cannot pay the listed price and offer more in order to secure the deal. Myabe some do but at least, it is not legal.

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