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I think defaults and foreclosures will increase significantly and find a new higher steady state (as apposed to spike), inventory will increase, transactions will decrease and prices will drop (at least in real terms) but not necessarily drastically.

Increased demand was created by a variety of things (something like a perfect storm) including government encouraged looser lending standards & greater loan variety (less down, variable rates, etc.). I don't see this looser lending standards / increased variety changing. So I don't see this factor, which results in higher rate of home ownership, as a spike but rather obtaining a new higher level. Again one in which a higher number of foreclosures also exists.

Interest rates climbing is certainly a negative for housing prices but the real factor is affordability not just rates. Higher monthly payments decreases affordability, higher income increases it. To the extent that we are not in a recession people will hold onto their homes.

Prices are sticky. People want to get what their neighbor got for their home and preferably more (because of course for "insert reason" my house is worth more). They tend to not sell rather than lower price and / or not lower price to the clearing price but rather what the clearing price was a couple months ago. Likewise landlords will tend to hold rather than realize a loss / pay taxes / get less than they could have gotten 3 months ago.

That is of course unless they don't have a choice. In a recession more people don't have a choice so prices are less sticky and tend to decline quicker.

On the demand side their will of course be overproduction issues (due to long lead times) and possibly multiple home owners going back to one home. However, I suspect the builders are more prepared for this risk than the past (higher proportion of homes built by corporations, increased experience and professionalism in decisionmaking) and am unsure wether the increased incidence of multiple home ownership will decline significantly. I just don't know how big a factor this will be nor feel confident in any postion I might take.

There are other factors leading to the perfect storm (multiple home ownership, stock market wiplash, etc.) but again I'm not sure if they were as important nor wether they are changing significantly for the worse.

All in all I feel if we go into recession housing prices will drop significantly countrywide for the first time in history. If we don't they will probably just stagnate / decline slightly in real terms until we either grow out of it or a recession hits.

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