The current housing market is showing some concerning trends:
House Hacking and Leverage: The term “house hacking” may sound catchy, but it essentially boils down to taking on a substantial amount of leverage with just a 5% down payment and rolling up equity to expand that leverage. This approach reflects the level of greed prevalent in this economic cycle. Many individuals are focusing on the paper value of their assets while excluding their debt, which is largely illiquid, especially in a slowing market. It’s a strategy that can make them seem more financially impressive than they truly are. The big question is whether this highly leveraged model can withstand high interest rates over an extended period.
Decreasing Real Estate Investments: Real estate investors in the U.S. made 45% fewer purchases in the second quarter compared to the previous year. This is the most significant drop since the 2008 financial crisis, indicating a shift in the real estate market.
Mortgage Payment Escalation: The monthly mortgage payments are increasing substantially with rising loan amounts. For instance, at a 7.5% interest rate, the median payment on a new house can reach a record $2,800 per month. This doesn’t even include taxes, insurance, and fees. It’s becoming clear that home ownership is becoming a luxury, and affordability is a growing concern.
All these factors combined suggest that home ownership rates are likely to decline as buying a house becomes less attainable for many, underlining the challenges in the current housing market.
Sources:
House hacking is just the catchy phrase for we took an absurd amount of leverage on 5% dp’s and rolled up equity to expand our leverage
The greed this cycle is so out in the open. pic.twitter.com/zP0NKqhp0b
— Don Johnson (@DonMiami3) September 18, 2023
Purchases by real estate investors in the US decreased 45% in the second quarter compared to last year.
This is the biggest drop since 2008,
— unusual_whales (@unusual_whales) September 18, 2023
Monthly Mortgage Payment by Loan Amount:
1. $200,000: $1,400
2. $300,000: $2,100
3. $400,000: $2,800
4. $500,000: $3,500
5. $600,000: $4,200
6. $700,000: $4,900
7. $800,000: $5,600
8. $900,000: $6,300
9. $1,000,000: $7,000
10. $1,100,000: $7,700The above mortgage payments…
— The Kobeissi Letter (@KobeissiLetter) September 18, 2023