It's sickening that this is always marketed as bad news, even though we've been in a bubble for the past 20 years. The bad news is that we decided that owning a house is a retirement plan instead of giving people proper retirement plans. Somehow every non-homeowner has to be a policy slave to the passive income of some wealthy person. And we defend it by claiming that old people who are worth enough money not to work are not wealthy, as if we care about old people. We only care about old people as model "savers" who can be used to morally justify policies that directly and overwhelmingly benefit the very wealthy to the obscenely wealthy.
And also, there's a problem with revolving credit (i.e. a 2-year mortgage), such as Australia or Britain, or anything that is floating along with some interest rate. But these are a) intentional problems that the people making the loans hope will make them rich, and b) problems with pricing, because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
> people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time. Somehow every non-homeowner has to be a policy slave to the passive income of some wealthy person.
I agree that we have made houses too central to net-worth, but most homeowners are not wealthy. They are typically paying a significant amount of "rent" in the form of interest on the borrowed capital used to purchase their houses. I'm not saying it's the same as the non-tax-deductible rent paid by renters, but it's a very different situation than an inherited house in a very expensive area that is owned outright.
> people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
As someone who built significant portions of my house with my own hands in my spare time, I can assure you that individuals artisanally and incrementally building their homes is not a scalable approach to housing. We should instead be building houses like we build modular flat-pack furniture, with major components built in controlled factory settings, and final assembly on site. The way I did it (GC doing the heavy structural work, my doing the finishing work) itself isn't scalable.
Yes it saved me money, but the amount of knowledge I had to build in order to effectively complete it isn't realistic for most people, who very reasonably aren't interested in the understanding all the different ways to do flooring underlayments.
Trade carpenter here. IMO biggest problem for folks who banzai DIY home construction projects with no prior experience is the financials behind YouTube content producers. Their need to make engaging content unfortunately necessarily means dead simple tasks end up being presented as significantly more complex than they are in practice. I do agree that DIY construction is poorly suited for the lone individual though. Having a group of friends/family get together to bang out a construction project is a much better strategy.
Houses are routinely constructed in the "flat pack" style you reference. Modular homes have been a thing since at least the 50s (we see you over there Lustron). Weirdly "manufactured housing" performs poorly when compared to traditional stick built construction methods. There is this impression in the market that manufactured housing is in some way inferior. Based on my experience in the industry I'd personally take a modular over anything stick built any day of the week. Modules are built truck enough to shrug off getting hauled OTR for hundreds of miles and then get hoisted into position with a crane. No way in hell stick built anything is going to take that level of abuse and remain intact.
I deeply question the idea that it's reasonable for an adult human in the world to have no curiosity about, or experience with, how their home is constructed. While I have certainly paid my bills off the backs of folks who simply could not come to grips with whatever project was at hand I much prefer to see folks able to do for themselves and thereby avoid my markup.
You might be interested in Walter Segal's ideas of building houses as assemblies from materials in their available dimensions so the parts are easy to reuse or modify. I find his ideas both compelling and a bit too idealistic or from another era. In the winter I have an architect friend who I talk to and hope to get his views on the pros and cons this year.
https://theprepared.org/features-feed/segal-method
The building by hand thing is a bit of distraction to be honest. In the UK we already know we can build 'ok' housing for £2k per sqm, all in. Land is a minimum of /Half/ the cost of a new build house, and frankly that is probably on the outskirts of some run down town in the midlands or something. Build in a populous, prosperous city and well you can imagine what portion of a £800k 50Sqm apartment is building cost, maybe 10% or so.
It's the land with building permission which is scarce and insanely expensive. If you have a house in an area then you are motivated to block/object to all planning applications locally. Including lobbying your MP, campaigning and so on.
Houses do come as flat pack. You just fail to realize what a miracle the 2x4 is, and all the other standard parts. Walls could come as a unit, but that makes shipping harder and since people (for good reason) don't like identical houses there isn't even any savings possible doing it in a factory.
I did some tech work for the Amish (seriously) where I used to live, and their model of a community coming together and building a house or barn or whatever seemed to work well for them. I agree that the work I've had to do to make my home my own has been a significant challenge once children appeared, and that many people simple wouldn't have have the bandwidth in one way or another. However, I do wonder if that's a consequence of a lifestyle choice and if there aren't better ways to approach these problems.
>I can assure you that individuals artisanally and incrementally building their homes is not a scalable approach to housing.
I think they were saying that the time and hours taken is not commensurate with the purchase cost, not proposing it as an actual solution. That said I think they are still very wrong.
If you were to build a modern house from scratch, you're taking enormous amount of time. Imagine felling the the timber and Milling it alone would take years. Ignoring the material side of things, most of what you're paying for is the knowledge and experience of the laborers. It takes a lot of time to learn each trade and how to build properly. It also takes a fair amount of work to learn the the regulations and comply with the certifications for each task
> I'm not saying it's the same as the non-tax-deductible rent paid by renters,
With the standard deduction being as high as it is, most people don’t pay enough in interest to itemize to take advantage of the mortgage interest deduction.
While no politician would dare touch the mortgage interest deduction, most progressive economists think that it is hand out to the rich and we should get rid of it.
While the Trump era tax cuts and increasing the standard deduction didn’t get rid of the mortgage deduction, it was one thing that was right about the law.
I'm thinking that the only viable solution to the log jam in construction is to have a structural engineering AI help people build homes and guide construction and renovation.
If the AI says it's safe, the local inspectors will have to agree.
> The bad news is that we decided that owning a house is a retirement plan instead of giving people proper retirement plans.
I've pondered on this a lot. Houses have been treated as "nest-eggs", which is really a fancy term for a fallback plan, for quite some time. The housing market really only got out of control after the 80's which coincides with when mortgage packages started getting sold on the stock market. To me, that, city zoning, corporate SFH buying, and state governments that have economic policies that embrace/grow inflation seem to be the actual problem.
I still think it's worth while to have house equity as a way to securely store money, but the government has to protect the housing market conservatively to make that work. Just like anything else the market is a system of incentives.
A big problem is that homeowners understand that for the value of their "nest-egg" to appreciate, this implicitly relies on housing scarcity, and this influences the outcome of elections, which influences the outcome of government housing policy.
As home valuations become more important and critical to the wellbeing of the "middle class", any policy that would even indirectly hinder valuations comes under great criticism.
There were a number of issues in my recent municipal council election, but I cannot help but notice that the candidates suggesting to build rental housing everywhere, which would have empowered renters and hurt homeowning minor landlords that benefit from high rents, lost, and those that won suggested the status quo that would protect detached home areas, with their main housing policy suggestion being around faster renovation permitting, useful of course for those minor home owning landlords wanting to create a secondary suite to get a renter to pay off their massive mortgages.
It's worth considering that money that isn't going to mandatory-contribution retirement schemes (as in many union jobs, or government retirement schemes) is freed up to put in one's own retirement account... or to use to buy better housing (in a better school district, say) than one would otherwise be able.
Get a few defectors who choose to do this and suddenly the housing you can get without sacrificing money that should be going into a retirement account is worse than it would have been if no-one had that option, so it gets more and more tempting/necessary to do it.
Perhaps also single family zoning started to make its effects clear in the 80's.
Personally I'd prefer to live in a nice townhouse in a dense neighborhood but that's hard to pull off (location wise not many options, and price wise there's just not enough available to make the nice ones comparable to a single family house)
Inflation adjusted house per square foot has been quite stable for almost 100 years. Houses are now a lot bigger, making the inflation adjusted prices increase. If you factor in shrinking household size, then square foot per person as increased dramatically over the past 50 years. Finally, if you include house quality (fire retardant, electrical improvements, thermal improvements, etc.), then house benefit per dollar has vastly grown over 50 years.
Not sure where you get the "out of control in the 80s" unless you ignore all other relevant variables (like size, quality, efficiency) that also changed.
To read this stuff and see Census data (and others) demonstrating it, google for historical house price per square foot inflation adjusted, and read articles and look at data.
> I've pondered on this a lot. Houses have been treated as "nest-eggs"
There is a nasty policy trap here, in that reducing the investment value of houses can mean (as a federal government) you are expecting pain down the road caring for people with insufficient retirement savings.
Something else happened about that time and it boggles my mind that it’s practically never mentioned when it comes to home prices: https://cis.org/node/11952
We’re letting in far more immigrants than homes being built - of course home prices are going to soar.
- we stop building more houses. That's what happened in 2008, and is one of the major causes of the current crisis
- it discourages turnover. IOW, people who should move for work/personal reasons don't because they're underwater or because selling would mean they lose the really nice rate they're currently locked in to. And without turnover, it becomes hard / expensive for people to buy.
The latter issue is a stupid technical reason. The second issue could be solved by transferrable mortgages.
I am a huge proponent of normalizing work from home / remote work for this reason. Arbitrary, economically forced turnover (i.e., location requirements from corporations) is very disruptive for human life and childhood development. As a kid, I averaged one move per year due to job availability being tied to location of said job. If housing turnover was primarily a matter of personal preference, not economic necessity, the world would be a more stable, healthier place.
Transferable mortgages would be great or even just carry mortgages - if you are in a 300k house on a 3% mortgage you should be able to swap house (assuming all approvals and stuff) to another 300k house and keep the mortgage.
Might cause rates to rise a bit but probably worth it.
I don't understand how high prices good news for anyone except people who own multiple houses. Your home is not a luxury. If you're selling it in an inflated market you're also buying in an inflated market, unless you want to throw your money away renting.
It's bad news if you own a home and the market falls and you need to sell.
Otherwise it's some opportunity cost (arguably) but you can continue paying your mortgage payments to stay in your house, and if you hold long enough it'll likely recover.
This is different from the last major crash because that time house prices AND mortgage rates both dropped so you could easily feel "trapped" in your underwater house.
> And also, there's a problem with revolving credit (i.e. a 2-year mortgage), such as Australia or Britain, or anything that is floating along with some interest rate. But these are a) intentional problems that the people making the loans hope will make them rich, and
The 30 year fixed US mortgage is responsible for a lot of the higher prices in US. Future taxpayers or users of the USD pick up a lot of the interest rate risk on behalf of present day borrowers. Evidently, given the continued resilience of the USD, market participants are very okay with this.
> b) problems with pricing, because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
This is a highly dubious claim for which I would need to see proof. The actual building of a house in the US is down to 100 days by a well operated tract builder. The outsize portion of the cost is in the land.
> The actual building of a house in the US is down to 100 days by a well operated tract builder.
So I think one person should be able to manage it in less than 30 years, periodically calling in skilled help. If you're a Walter Segal fan, you can probably do it a lot faster.
> The outsize portion of the cost is in the land.
It is. I think that's a problem because land value is always speculative, so everything can be written off as land value. Why is that land worth that much? Because that's what was paid for it.
I find the bad news angle weird too. If our home were to lose half of it's value it wouldn't really change anything except our ability to move in the near future. That's assuming I keep my job during this time of course.
Well, it depends on how you financed. If you paid a large part of your mortgage already, or needed a small one to begin with, you can still move, bacause all houses will get cheaper.
If you sit on a large mortgage, though, you better don't move and have a long-running fixed interest rate.
> That's assuming I keep my job during this time of course.
Sure, but that's the other jaw of the trap we've built for ourselves. The knock-on effects of large-scale drops in home values are highly likely to induce major economic disruption on a national scale, which makes losing that job all too likely.
Does everything in world have to be sickening, or appalling or catastrophic. Is it really so sickening that someone in the world had the audacity to frame something in a way you disagree with? Can't you just say "I disagree with this"?
I say this as someone who thinks it is very much a good thing that house prices are coming down, and the more the better.
I only say sickening because it makes me nauseous. You may have another physical reaction, and you're entitled to it.
> Is it really so sickening that someone in the world had the audacity to frame something in a way you disagree with?
It's sickening because it's a manipulation intended to bolster house price growth. When housing is too expensive, some children literally don't eat. Is that sickening?
> Can't you just say "I disagree with this"?
I feel like I got that across. If you're complaining about getting a little extra, it's low on the list of things that bother me.
> even though we've been in a bubble for the past 20 years
what is a "bubble", to you? the last 20 years includes one of the greatest housing crashes of all time, and a period of some of the cheapest housing costs we've ever seen.
> the last 20 years includes one of the greatest housing crashes of all time,
We can call it a housing pause at this point, because all of that money was put back into houses. I think it is unbelievably important to remember as a baseline that world housing prices tracked inflation for 400 years. In the US they tracked inflation, there was a bump up with government housing subsidy right after WWII, then it continued to track inflation until the dot com bubble burst
After which there was hockey stick price growth, a crash, massive government intervention and transfer payments to the wealthy, mass evictions of people who couldn't pay after their ARMs moved, massive buy-ups of that property by large investors and funds, and the restoration of hockey stick price growth.
> a period of some of the cheapest housing costs we've ever seen.
Where? Are there any places that fell back to the 380 year trend line, or are there places that are reasonable compared to their price in 2006 considering inflation. We're still in a period of the most expensive housing costs ever. They've grown to precisely what they need to be to take away any disposable income, along with education and healthcare. They're completely detached from physical considerations, they're simple financial instruments. And property owners have tricked people into thinking that it's a supply problem.
Prices did fall after the 2008 crash, but only back to where they were around 2003: https://fred.stlouisfed.org/series/CSUSHPINSA. Of course there may have been more of a drop in particular locations.
This may not be a functioning program in the next 30-50 years, or will have extended the minimum ages for payout that they won't be viable.
2,3,4.
All examples of the replacements for traditional Pension programs, which are what we should have. Putting the onus to not only save hard, but to invest wisely in the time horizons necessary for something like retirement in the market is, in my opinion, not workable and combined with the complete lack of education around money management in public schools makes it, again imho, just down right cruel.
I'd like to see the return of heavily regulated pension programs and unions for many, if not most professions.
Well you want prices to go down because supply is going up. If the supply is the same and prices go down it doesnt mean it is more affordable - it is precisely because it is LESS affordable!
In the US, there is Social Security which one could argue could be higher but it's there.
And lot of people were happy with the shift away from defined benefit pension plans that were essentially a transparent way to get a retirement supplement for having worked for GM for 30 years. A lot of people wanted to have greater control of their retirement savings in a way that wasn't tied to long tenure with an employer.
Maybe because the long tenure with an employer went away in the 70's when we started off-shoring everything?
I don't think people want control of their retirement savings, they just want a retirement savings. (And you're lucky if Social Security even covers health insurance costs - forget about covering your property taxes, grocery bill, utilities, etc.)
> because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
The problem isn't the building costs - it's the land costs.
Construction workers are relatively low paid, and profits on home building aren't outrageous.
DIY housing doesn't really solve any problems - and is a ridiculous proposal to the average person.
> It's sickening that this is always marketed as bad news, even though we've been in a bubble for the past 20 years.
Everything is marketed as bad news. Bad news sells. The bubble was itself a favorite target.
And FWIW, we're seeing the same thing happen currently with the freakout about inflation. Understood correctly, inflation is just a gauge transform; it doesn't "do" anything on balance. Sure, it moves money around a little because some signals are delayed more than others. But to the extent it does it works to the benefit of almost everyone complaining about it. Everyone with significant debt (mortgages for the folks here, credit cards for the proles, corporate loans for the people folks here want to be) experiences inflation as a reduction in net money owed. It's a good thing for us, on balance. Yet... freakout anyway. Because bad news sells.
I am just not sure about this. There are more Millennials than Gen X, and Millennials are in their prime family-building and house-buying years. At the same time, in the aftermath of the Great Recession, not much new housing was built. The intersection of those two trends might mean demand exceeds supply purely mathematically. Especially if people who locked in mortgages at lower rates are reluctant to sell as a result, furthering lowering supply.
Certainly prices may come down in some locations as interest rates go up if there aren't enough cash buyers, but will it be enough to counteract the imbalance of demand and supply? I think it's an open question.
My 30-year mortgage is locked in at 2.875%. My overall mortgage payments would go up 60% if I took out a new loan for the same amount at 7%.
On one hand, this means that prices need to come down to get houses into peoples' price ranges. On the other hand, if the market is down, there's no way in hell that I'm selling my house. A loan at 2.875% is almost like having free money, so even if I need to move, I'd prefer to rent out my house than sell it.
It's unclear if we will see low prices, but fewer sellers, or high prices, but fewer buyers. What's clear though is that this is going to be a low liquidity housing market without a lot of transactions.
> A loan at 2.875% is almost like having free money, so even if I need to move, I'd prefer to rent out my house than sell it.
I've watched a lot of friends go through this thought process recently. Locally, the thought process grinds to a halt when they see the exorbitant prices that property management firms are charging for new customers these days. Apparently there's a huge spike in the number of people trying to become landlords because they don't want to give up their low mortgage rates, like you. Property management firms are taking advantage of this.
I also see a lot of people changing their minds when they do the math on the size of down payment they'd need and the monthly cost of a 7% mortgage on the types of houses they want to move to. There's a reason people talk about starter homes and trading up as opposed to accumulating additional properties every time they move to a nicer house.
OTOH, I know a number of well compensated software engineers who were trying to pour their money into real estate investments. All of them are very firmly paused on buying new properties at the moment.
The problem is that due to inflation, the cost of living has sky rocketed too, at least in a lot of countries.
This means your mortgage repayments aren't the only thing that has increased, so has absolutely everything else in your life. Look at Australia for example, they're predicting the already ridiculously high food prices to go even higher, up to 7-10% due to major flooding events this year.
So your analysis kind of works, but it's not factoring in whether people feel ok about paying > $200k (AUD) or more for a house which isn't worth that much anymore (prices are going down already, many many people bought at the height of a bubble, due to FOMO), then having absolutely no money to do anything with their house to improve it (building costs are astronomical) and having no money for leisure or holidays, then you have high energy and school fees to add to all of that.
In my opinion, this is what will start to drive more people to sell. It's not just the house prices, but it's the burden of being tied to such huge debt.
Also money isn't so cheap right now, so it will slow down property speculation. Many people also bought houses thinking that if they don't like being so heavily leveraged they will just sell their property at a net gain. Not at a loss, this I think is starting to scare people.
I'd say we'll see a lot of people at least consider downsizing in the near future.
I think 30-year fixed mortgages are somewhat of an American phenomenon (perhaps due to the luxury of having the global reserve currency). They are not generally available in Canada or UK, where 5-year fixed rates are the norm.
> On the other hand, if the market is down, there's no way in hell that I'm selling my house.
As long as you are occupying a residence, it would not effect nationwide or region-wide supply and demand, right? You selling would be offset by you buying.
Deaths, divorces, immigration, births, and of course, new construction is what would shift supply and demand curves, on average.
Says someone who probably has never been a landlord. I would rather poke both of my eyes out while getting a rectal exam than ever be a landlord again.
So if you are a first time home-buyer who needs a loan to purchase a home you are going to get shafted on interest rates, but if you already own real estate you can either buy stuff cash or sell a property and defer capital gains to buy a new one. I struggle to see how raising interest rates helps the class that is most reliant on loans to even enter the market.
I locked in February on a 180-day lock: 3.25%. There were some documentation issues that I had to rely on a third-party (the IRS) to resolve, so I had to start looking elsewhere. Rocket Mortgage was able to lock me at 5.25% (around April/May) - this would cost me an additional $400 each month. (Fortunately the original lender was able to make to adjust what they were asking for - it wasn't a matter of not closing the loan, but it meant they had to hold it rather than selling it while the IRS gets their act together)
Millennial here. In the last 18 months I've substantially increased the % of net worth I'm comfortable allocating to a home, reflected in both purchase price and remodeling costs:
- it's not clear that pandemic-era is over, whether that be new Covid strains or other mutant viruses (not to mention global thermonuclear war)
- work from home requires much more space to do well + i'm home more often to enjoy the rest of the house
- most of my close friends work from home which means they can come and visit much more often
- due to Covid, parents are afraid of nursing homes + kids taking longer to leave the nest = intergenerational living is back on the radar
- life is short, a little bit of post-Covid YOLO
I'm not sure how widespread the sentiment is but if enough people feel this way it could make an impact.
> in the last 18 months I've substantially increased the % of net worth I'm comfortable allocating to a home, reflected in both purchase price
And in the past 18 months, the changes to interest rates mean that your budget on a standard 30 year fixed has shrunk by 40%. That is, the same payments will get you 40% less house at 20% down. To make up for that, you would have to increase both your down payment and monthly rates by 66% to afford the same dollar value as a year ago.
Not saying you are right or wrong, but you seem to be over indexing for Covid. Most people seem to have moved on finally, and even the last bastion WFH will come under pressure with the bad economy.
> due to Covid, parents are afraid of nursing homes
All good apart from this, its clear you don't actually have kids - interest in kindergartens didn't drop a zilch (given, where I live - Geneva, Switzerland and around, plus at home country in EU). We properly don't care about covid anymore, had it at least 4 times, last 3 times even mild flu would be much worse experience.
Sure if you are a proper germ freak or some qanon-like paranoid nut you would base your decisions on this... but if you are just another sane parent, you just drop your kids there and hope for the best. Same as with any other sickness that kids do catch often that's looming out there.
> Certainly prices may come down in some locations as interest rates go up if there aren't enough cash buyers
The interest rates make a huge difference here...a hypothetical buyer who could afford $5000/month in payments would qualify for a $1.22 million mortgage at 2.75% interest, whereas that same payment at 7% would only cover a $750k mortgage.
Cash buyers are generally about 25% of the market, which is a good chunk, but not enough to prop up prices if the other 75% of buyers they're competing with have had their purchasing power drop by 40% in the past 6 months.
> Cash buyers are generally about 25% of the market
Cash buyers often finance the property they buy. All a "cash buyer" means is that the deal is not contingent on financing, either contractually or as a practical matter. That is, they can guarantee the sale goes through with cash.
> Cash buyers are generally about 25% of the market, which is a good chunk, but not enough to prop up prices if the other 75% of buyers they're competing with have had their purchasing power drop by 40% in the past 6 months.
In aggregate in the U.S., but this and much other commentary in this thread doesn't consider enough the vast variation in local markets. There are spots where there's a higher percentage of cash buyers due to wealthier people living there, a larger contingent of foreign buyers, or people who sold homes in very expensive areas to buy in slightly-less-expensive areas. I'm seeing this where I am, where people are moving from the city (where a 1 BR apartment is easily over 1M, a 2 is 1.5-2M, etc.) to the suburbs, where an 800K house is considered pocket change.
Not to mention some people have access to "cash" without having it. Some mortgage brokers, even from large banks, can arrange to let you use collateral to help guarantee a closing within a short time (eg. 30 days) letting you waive the finance contingency.
In a given real estate transaction, someone waiving financing contingency is going to fall in to the category of "cash buyer", and it might not be obvious that the cash shown in the holdings (if it is even shown to the seller as proof of funds) came from a loan.
You’re probably better off buying at 7% than at 2.75% if housing prices are adjusted. You get the house for less, more room for profit when you sell. Also, if you’re force to sell, it’s better to do this on a loan of 750k rather than 1m.
FWIW, those numbers are off because of escrow and taxes. 1.22MM house means AT LEAST 30k in property taxes a year, which mean's they'll end up at >~7.5k a payment, which means they'll need to buy a smaller house.
People sitting on 2% mortgages are not going to move. There's a lot of housing inventory that's locked away now [1].
We're going to enter a lower supply, lower demand market. The prices might not move much.
[1] Maybe downsizing Boomers will balance this. I'm not aware of any measures of this trend, though. And a lot of Boomers just sold/downsized to take advantage of the high prices.
Yeah, but some people switch to adjustable rate or balloon mortgages when they can't afford fixed. This is what I did when I bought my first house in 1988, with fixed rates over 10%.
I welcome a slump. I doubt it will be as big as I hope. My first home cost me ~2x my
new grad salary. Today homes cost 5+x a new grad salary. And it isn't because Millennials are buying up the market. Investors are buying up the market and making it impossible for run-of-the-mill families to own a home. I hope those investors lose a lot of money. It needs to hurt bad enough to settle into long term memory and discourage such behavior for generations to come.
I was house shopping this year but had to wait as I moved for a new job. In January I was quoted $>1M of buying power (without my partner). Now I’m quoted <$700k. I’m not buying anything soon.
My father is looking at moving to a new condo for retirement but was hesitant about HOA fees. This year he spent $50k to replace all the windows in his current home to prep for sale. That $50k in maintenance would cover $300mo in equivalent hoa fees, and that’s not considering every other maintenance cost he’s spent. The math just doesn’t justify home ownership from a financial perspective - if your home value isn’t skyrocketing.
I’ll be a renter for a while it seems. Maybe that’s ok.
As a side note it's often not worth maintenance in prep for sale, unless it takes it from uninhabitable to habitable (or more precisely unmortgageable to mortgageable).
The $50k you spend on windows would often only recoup $45k or even less, people vastly underestimate the costs of many things (but not all, foundation problems people always overestimate).
The saddest story I read about was someone who was told that putting $20k of new windows would let them sell for $40k more; and they did, and the buyer bulldozed the house to build a new one.
The value in home ownership is in reliability of housing. With a family, I seriously value knowing that I'm not likely to have my home pulled out from under me by the landlord for a higher and better use.
Ya, this is not like 2008 where interest rates were low AND housing prices collapsed, which actually did make houses more affordable. This happened because the recession was specifically about real estate and the bad mortgage loans blowing up. Since this is not happening now, even if housing prices stagnate or go down a bit, unless you are paying with cash, things are not going to be more affordable since rates are up.
I wish the "it's all supply side" meme would go away. With Western countries importing millions upon millions of people from other countries--and sometimes, implicitly importing them with wide-open borders like the US--the demand side is at least as much at fault. Western country birth rates are already near replacement levels; we shouldn't have to be building more housing in the first place!
> Millennials are in their prime family-building and house-buying years.
They have less earnings and savings than the previous generation as compared to the price of homes at the same time in their lives. While government intervention in the USA has adjusted the requirements to get a loan approved, it will not be enough to keep up with rising interest rates. Prices have to come down for millennials to make purchases. This will cause a "house-price" slump.
Traditional institutions, like home ownership, marriage, and religion, are fading in their appeal.
In the case of home ownership, the benefits depend quite a lot on the number of years the property will be owned. I'm not sure what the numbers are now, but when I bought and later sold my house, I determined that 6-7 years was the minimum duration that made home ownership better than just renting.
People change jobs more frequently now than in the past, and consequently they tend to move around more often. That makes investing in a home more risky, as it's really unclear if one will still want to be in that home/location in 5 years. Renting, by comparison, is less risky. It may be less economical over the long run, but not if you would find yourself moving every small few years.
Also, the remote work thing is not going to decrease; if anything, it will increase, reducing location pressure (and consequently reducing the value (or rate of increase in value) of homes in certain areas). That implies even more risk for homeowners in those areas, as they cannot rely on ever-increasing values.
"Traditional institutions, like home ownership, marriage, and religion, are fading in their appeal."
I think you might be reversing cause and effect. Millennials are less wealthy, and thus less able to purchase homes, get married. Traditional religious affiliation is declining, but it's debatable to what degree religious impulses have declined and to what degree they have simply found new forms of expression (e.g. into astrology, QAnon-style "theories", "General Artificial Intelligence", spiritualized ecology, etc.)
"People change jobs more frequently now than in the past, and consequently they tend to move around more often."
This is a false statement. The decline of residential mobility and its impact on labor market dynamism is a hot topic in U.S. economics research today.
Home ownership is fading in appeal due to price, not because of social changes. Most people do not want to live in a concrete cave stacked side by side and underneath other concrete caves. They want space to go outside and enjoy themselves and do what they want to do. People change jobs more frequently but they usually stay in the same metropolitan area and if a job is worth enough to get them to move, the job usually comes with relocation benefits.
It sounds like true freedom is the life of an itinerant drifter - no ownership of anything and no social connections to tie you down; a bit ironic it would seem to me.
Agreed. Prices might fall relative to the wackiness of Covid peaks that were hit in the past year or so, but the long term trend will be for prices to outpace inflation unless a building spree hits due to demographic changes.
A bright light I'm seeing is that material costs have largely fallen back to pre-covid levels. There are a few bits that are expensive or hard to obtain (windows), and the labor market is still aging. But still, the cost to build in many areas has fallen dramatically.
This demand effect is certainly real, but is going to be weighed against the higher rates effect. A lot of the increase in prices was purely mathematically driven by the falling interest rates. The monthly payment if you get a mortgage has now doubled for most people. There's no way that's sustainable, especially as most first time buyers were already stretcing to their limit. All it takes is a belief that prices might fall to put off buyers a year or two and balance the demand side of the equation enough for prices to fall. House prices typically fall slowly though, as sellers are reluctant to sell at first and buyers just start waiting. Seems we are already seeing that impact on transaction volumes drying up.
Wait, we are in the aftermath of a recession? From where I am standing we are in the thick of it with a long road ahead of very uncomfortable economic pressures restricting personal upward mobility. What person is looking at a 20% increase in living costs, high interest rates, and houses that were priced for low interest and more money in people's pockets?
Reality is people can't afford the pre-recession prices, so they will rent and ride it out for a while longer which will put downward pressure on people trying to sell and the market will meet the demand that way.
Or institutional buyers will just continue absorbing housing stock as it goes on the market, and converting it into rental units. Squeezing more people out of ownership and into permanent rental.
I do wonder how many people can afford that vacation home without making use of Airbnb (or other vacation rental type system) to help with the payments...
If millennials were as wealthy as earlier generations at the same age, I think you'd be right. But millennials hold about half the fraction of national wealth that the baby boom generation did at the same age.
> in the aftermath of the Great Recession, not much new housing was built.
Notably due to the Great Recession aligning with record high (at the time) food commodity prices, which saw farmers outcompeting home buyers for development lands.
Food commodities have completely smashed those records over the past year or two and if that continues we will no doubt have farmers willing to bet big, which again will constrain housing development.
What will be interesting is if we are able to get our food supply issues under control. Food prices have been known to drop like a rock before.
I’m slightly surprised by this comment. The main story I see online is more like ‘the places that people [with reasonable amounts of money to spend on property] want to live are in or near the centres of large cities and land-use policies in those cities mean that it is very difficult for developers to build significant amounts of property, so it mostly doesn’t get built’. Obviously there aren’t farmers rushing to convert car-parks in San Francisco into wheat fields.
But perhaps what I’ve read is just wrong or biased towards the kind of wealthier youngish people who want to live near the centres of these big cities and can already afford to rent there.
Sort of, the bigger problem in the US is that the US market is short something like 6 million houses due to zoning rules.
Volume is going to dry up significantly, and prices will go down a little bit - but there won't be a deluge of forced sellers like there were in 2008 because most people are on long-term fixed-rate loans. The majority of sellers will be divorcees and estates, as individuals chill in their 2.625% APR 30y fixed's - or own their homes outright.
Unlike 2008 we're not coming off a deluge of building, quite the opposite - and unlike 2008, most people don't have 5 houses on variable rate debt.
tl;dr: Prices will go down a bit, but the market is so short housing, it won't really matter.
Longer term anyone who buys at 7% APR will just refi down when rates drop - and probably cash-out refi at that.
Another big factor here is that the boomers are starting to die off. The oldest of that generation is 77 now and 80% of them are homeowners, so the next 20-30 years are going to see quite a lot of wealth (including homes) pass from boomers to their GenX and Millenial children.
Hopefully this discourages investment firms from buying up housing stock[1]. To me the long-term danger for housing affordability seems to be that individuals will be priced out by institutional money.
If interest rates are up then you want a comparably higher yield (ie rent as % of purchase price) on the property (otherwise you could just earn interest on the money directly) and so that’s either a lower sale price or a higher rent. The rents you take in will mostly be determined by the market and it likely wouldn’t be a good investment to buy a house to rent it if market rents suggest you’d make a lower yield than buying similarly risky bonds.
It’s a bit of a different story if you’re just buying the property on the expectation that its value will go up better than other assets. There are reasons to expect that might happen (old people typically own more property and vote more than young people and they tend to care a lot about the value of their property going down so governments often have policies to try to ‘help people buy homes’ which allow people to afford higher prices which helps to keep the prices high) but it does seem that something has to give eventually (and eg it seems like there has been a bit of a change in Californian housing policy recently).
Generally I would expect an institutional investor to be more sensitive to things like interest rates and price when making purchasing decisions than a potential owner-occupier who has to live somewhere and may be more sentimental about certain things investors don’t care about.
One thing we always collectively fail at addressing is how to classify housing in a special category of goods, where simple free-market rules don't apply. Things like rent-control are in this direction, yet we never articulate what the goals are and the compromises we're willing to make.
Allowing the next generations a good start in life means that everyone that wanted houses to be a great investment need to take a loss, there's simply no way around this and we should collectively accept this.
I'd also be for completely different taxation levels depending on if this is your first, second or third home (properly handling even if first buying before selling within x months, so you only have a single home), if you're a company, if you're a foreign citizen that merely wants to snatch some random safe property.
Some problems really need a complex, evolving and carefully weighed solution, and housing really has been shamefully abused so that the haves screw other the not-yet-haves.
Taking a bath on a home sale isn't the only solution. Make it easier for people to build houses. The majority of old houses were built by the first owner. They bought land and built a house the way they wanted not following thousands of regulations dictating how a home must be built. If you build a shitty house, well, good luck selling it. If it falls down thats your own damn fault. All of the ways we have learned over time that houses can be built better should just be shared knowledge and recommendations for somebody wanting to build a house. Every requirement a builder must follow means it costs more to build and less people are capable of following all the rules. Where I live if you build something that doesn't follow code you get fined for every infraction. That's a disincentive for people to build.
Remove costly regulations and you get more houses.
If you know anything about building a house you'll know that; 1) not everything shitty is visible, and 2) not everything shitty can be understood by homeowners, otherwise we'd need no codes/minimums (we'd all be perfect architects/building scientists/craftspeople).
I could get behind removing almost all zoning, but code is just sensible.
> Taking a bath on a home sale isn't the only solution. Make it easier for people to build houses. The majority of old houses were built by the first owner. They bought land and built a house the way they wanted not following thousands of regulations dictating how a home must be built. If you build a shitty house, well, good luck selling it. If it falls down thats your own damn fault. All of the ways we have learned over time that houses can be built better should just be shared knowledge and recommendations for somebody wanting to build a house. Every requirement a builder must follow means it costs more to build and less people are capable of following all the rules. Where I live if you build something that doesn't follow code you get fined for every infraction. That's a disincentive for people to build.
> Remove costly regulations and you get more houses.
There's a YouTube channel.. our little homestead I think is the name.
They built separate studio apartments for each of their kids on the same lot.
They used earth bags and the costs for one was 5k, the other 8k and they're pretty amazing for being something sturdy and safe to live in, and being made of dirt and mud I think they're probably fire proof too.
This is what I want to do.
I'd also like to help other's do that through a collective or something where everyone builds their own home and helps others build theirs.
"House-Price" is a terrible metric that only house sellers really care about. Everyone else is more concerned with monthly total housing costs. If house prices stayed the same and interest rates increased 2-3x that means monthly payments for new mortgages also increase. Buyers are unable or unwilling to pay the higher monthly cost so they bid less and the price comes down but their total monthly payment does not decrease.
In some sense this is a transfer of wealth from home owners/sellers to banks/lenders and hopeful and prospective first time buyers see no benefit, aside from maybe smaller down payments.
When you’re talking about the price of the most expensive purchase most people will ever make, it seems like house owners (around 2/3 of American households) would be quite interested in the topic.
First-time buyers benefit from both the decrease in down payments and the easier ability to pay down principal as nominal salary grows and/or if interest rates fall during the mortgage term.
Sure, but I think the point is that a perspective home buyer ultimately rationalizes the cost with monthly payments. It is harder to wrap your mind around paying, lets just say, $500,000 over 30 years as compared to paying $1,300 monthly. When your considering purchasing a home and how that relates to your budgeting, a flat $500,000 over 30 years is meaningless compared to, okay, this is how much money will be going out of my bank account each month.
When I buy a car, I don't think of it in terms of $20,000 over 5 years. I think of it in terms of $350/month over 5 years.
At least in CA your property tax is, roughly speaking, based on the last sold price. The lower the price the higher percentage of it is covered by your savings.
Bring it on. As a first time buyer, I don't even care about prices going down as much as I care about being able to actually buy a home that I want without feeling like it's a blind gamble.
I want to be able to look at a listing, talk to the realtor, have a scheduled showing, and put in an offer at list price with inspection/appraisal contingencies. You know, like how normal life was forever until the last 5 years.
As a current homeowner in a state that only tempers rising property taxes I would very much like the assessed value of my house to drop as I like my neighborhood!
Of course if it doesn't and I get priced out then I get to pay off my mortgage and find a new place to live with a nice little cash bonus!
I also like the idea of deferred property taxes... that is, you can choose to limit the rate increases and pay the difference at the time of sale. This way you can stay in your neighborhood but you don't get a giant cash bonus for your role in creating inefficiencies in the housing market.
wouldn't this basically be a state operated reverse mortgage? A financial instrument like that available under 62 would be interesting because as it is now it really feels like a "heads I win, tails you lose" situation. Any policy change that lowers prices gets a bunch of people upset about losing value and anything that raises them gets a bunch of people upset about having to pay taxes commensurate with the value they gained.
That said I could see how this would create a mini prop 13 situation where people don't want to move because they would have to eat a big jump in property taxes.
5 years? The norm here has been 10-20 bids on a house, with an all-cash offer from foreign investors behind a faceless LLC, for like 30 years. Where are you living?
>5 years? The norm here has been 10-20 bids on a house, with an all-cash offer from foreign investors behind a faceless LLC, for like 30 years. Where are you living?
In the major metros, sure. But I'm talking about 3rd tier city suburbs.
Every area is different, some places the norm is to price the house low and then take the highest offer, other places price the house high and then take the highest offer (that will be below the asking price).
Arguably if the house doesn't sit on the market for about 3 months it was priced too low, and if it sits longer it was priced too high (this can also depend on if it is empty or inhabited at the time).
I don't even see a reason for a recession yet. We are forcing this slump on ourselves for no reason. If some aspect of the economy is fundamentally rotten then of course a recession is imminent. However, there is nothing like that now. Very low unemployment, a genuine reason for inflation (supply chain issues), low supply coupled with a very sudden need for more space causing housing price jumps. The only issue is excess cash in the market because of government stimulus. That could have contributed to the excess jump in stock market which also led to the home price increases. However this doesn't mean we should be in a recession.
Ok, now the interest rates are going up to counter the inflation. I am not convinced it will dent anything other than home and car prices. In this scenario, is a full blown recession actually going to happen if so why?
> I am not convinced it will dent anything other than home and car prices.
It will. All corporations will see their debt servicing cost go up. A lot. They'll start the layoffs. How many posts on HN are about layoffs at this and that well-known tech company?
Once people fear for their job, they'll start being more cautious with their spending. Less demand means prices will go down.
At least that's how the Fed thinks. They are trying to destroy demand. They know they can't increase supply (obviously), so they are going after the demand. If 3.75% is not enough (spoiler alert, it won't be enough), they'll go to 4.5%. And then to 5%. If it's still not enough (spoiler alert, ... it won't be enough), they'll go higher.
You may not be convinced, and it looks like a lot of people are unconvinced, but the Fed means business. All the members of the Fed know history, and know that in the '70s the Fed lacked the backbone to keep the rates high enough long enough to beat the inflation. They were trying to have both low inflation and some semblance of growth. They got neither. Stagflation for a whole decade.
People who forget history repeat it. Powell will not let history repeat on his watch.
Powell does whatever the popular narrative tells him to and he’s been that way since he took office. The idea that he’s fundamentally a hawk at his core is totally absurd. If that were the case he’d have enacted tougher policies a year earlier when many economists were saying he should and that there was absolutely no reason for the fed to be buying tens of billions in mortgages during a housing shortage with record low unemployment.
Now because he’s lost credibility and everyone thinks he’s a joke he’s acting tough. But in reality he is totally reliant on cpi data. As soon as that comes in (nobody knows when many have been eager to call a top for several months and continually getting burned) the narrative will shift for the fed to slow down or cause a major recession and believe me they will. The sad reality is that this fed is not made of rigorous economists who have some read that nobody else does. They have absolutely no idea what they’re doing or what their policies will or won’t do down the road. So the best they can do is try and preserve market order by giving the appearance of having control and keeping stability.
It’s like dominoes- cpi data moves rates which move the stock market. It’s all one trade.
Great points but imagine how much their eyes will pop once the budgets or spending reports come out and congress finds out how much they’re spending on interest payments on their debt.
I’ll do the math for you: 4%/yr of 31T means they’ll be paying 1.24T in interest expenses per year. Of the 4.9T in tax revenue, 1.24T of it or 25% of it is burned on interest payments on the national debt.[1]
From a totally armchair perspective, the large of quantitative easing to cover various covid-related situations in combination with the supply chain issues also caused by covid have resulted in The inflation figures we've been seeing the last three quarters.
This level of inflation isn't sustainable, therefore interest rates are increased to reduce average Joe's disposable income so they're not buying as much stuff and / or being more careful with their spending and / or just can't afford as much alongside their mortgage or rent increases, which, in theory, should lead to inflation dropping.
The scale and chosen areas of belt tightening by the proletariat, will cause an equivalent scale of business insolvency and employee shedding in those areas, which will add momentum to the already running scenario.
By most indicators the US is already in a recession, and the Fed is (controversially to some) still talking an aggressive game when it comes to rate hikes, so I'd confirm the inevitability of a recession.
I think it's possible that those who wield the power would like a recession because it can allow further concentration of power by increasing the wealth gap; provide an opportunity for those like Black Rock to increase their portfolio of real estate once mortgages start defaulting. It's also a reminder to the covid quitters to "get the fuck back to work" (ironic for when jobs are being shed rather than created, but creates that thirst for becoming employed, which has its own societal momentum, and serves business owners well).
Also, the way debt works, and the way stock market valuations work, and the level of debt that seems to be in the system, a little bit of fear goes a long recession.
Readit News
And also, there's a problem with revolving credit (i.e. a 2-year mortgage), such as Australia or Britain, or anything that is floating along with some interest rate. But these are a) intentional problems that the people making the loans hope will make them rich, and b) problems with pricing, because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
I agree that we have made houses too central to net-worth, but most homeowners are not wealthy. They are typically paying a significant amount of "rent" in the form of interest on the borrowed capital used to purchase their houses. I'm not saying it's the same as the non-tax-deductible rent paid by renters, but it's a very different situation than an inherited house in a very expensive area that is owned outright.
> people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
As someone who built significant portions of my house with my own hands in my spare time, I can assure you that individuals artisanally and incrementally building their homes is not a scalable approach to housing. We should instead be building houses like we build modular flat-pack furniture, with major components built in controlled factory settings, and final assembly on site. The way I did it (GC doing the heavy structural work, my doing the finishing work) itself isn't scalable.
Yes it saved me money, but the amount of knowledge I had to build in order to effectively complete it isn't realistic for most people, who very reasonably aren't interested in the understanding all the different ways to do flooring underlayments.
Houses are routinely constructed in the "flat pack" style you reference. Modular homes have been a thing since at least the 50s (we see you over there Lustron). Weirdly "manufactured housing" performs poorly when compared to traditional stick built construction methods. There is this impression in the market that manufactured housing is in some way inferior. Based on my experience in the industry I'd personally take a modular over anything stick built any day of the week. Modules are built truck enough to shrug off getting hauled OTR for hundreds of miles and then get hoisted into position with a crane. No way in hell stick built anything is going to take that level of abuse and remain intact.
I deeply question the idea that it's reasonable for an adult human in the world to have no curiosity about, or experience with, how their home is constructed. While I have certainly paid my bills off the backs of folks who simply could not come to grips with whatever project was at hand I much prefer to see folks able to do for themselves and thereby avoid my markup.
It's the land with building permission which is scarce and insanely expensive. If you have a house in an area then you are motivated to block/object to all planning applications locally. Including lobbying your MP, campaigning and so on.
I think they were saying that the time and hours taken is not commensurate with the purchase cost, not proposing it as an actual solution. That said I think they are still very wrong.
If you were to build a modern house from scratch, you're taking enormous amount of time. Imagine felling the the timber and Milling it alone would take years. Ignoring the material side of things, most of what you're paying for is the knowledge and experience of the laborers. It takes a lot of time to learn each trade and how to build properly. It also takes a fair amount of work to learn the the regulations and comply with the certifications for each task
With the standard deduction being as high as it is, most people don’t pay enough in interest to itemize to take advantage of the mortgage interest deduction.
While no politician would dare touch the mortgage interest deduction, most progressive economists think that it is hand out to the rich and we should get rid of it.
While the Trump era tax cuts and increasing the standard deduction didn’t get rid of the mortgage deduction, it was one thing that was right about the law.
https://smartasset.com/taxes/how-did-the-trump-tax-bill-affe...
If the AI says it's safe, the local inspectors will have to agree.
I'm so sick of the way things are done currently.
I've pondered on this a lot. Houses have been treated as "nest-eggs", which is really a fancy term for a fallback plan, for quite some time. The housing market really only got out of control after the 80's which coincides with when mortgage packages started getting sold on the stock market. To me, that, city zoning, corporate SFH buying, and state governments that have economic policies that embrace/grow inflation seem to be the actual problem.
I still think it's worth while to have house equity as a way to securely store money, but the government has to protect the housing market conservatively to make that work. Just like anything else the market is a system of incentives.
As home valuations become more important and critical to the wellbeing of the "middle class", any policy that would even indirectly hinder valuations comes under great criticism.
There were a number of issues in my recent municipal council election, but I cannot help but notice that the candidates suggesting to build rental housing everywhere, which would have empowered renters and hurt homeowning minor landlords that benefit from high rents, lost, and those that won suggested the status quo that would protect detached home areas, with their main housing policy suggestion being around faster renovation permitting, useful of course for those minor home owning landlords wanting to create a secondary suite to get a renter to pay off their massive mortgages.
Get a few defectors who choose to do this and suddenly the housing you can get without sacrificing money that should be going into a retirement account is worse than it would have been if no-one had that option, so it gets more and more tempting/necessary to do it.
Personally I'd prefer to live in a nice townhouse in a dense neighborhood but that's hard to pull off (location wise not many options, and price wise there's just not enough available to make the nice ones comparable to a single family house)
Not sure where you get the "out of control in the 80s" unless you ignore all other relevant variables (like size, quality, efficiency) that also changed.
To read this stuff and see Census data (and others) demonstrating it, google for historical house price per square foot inflation adjusted, and read articles and look at data.
There is a nasty policy trap here, in that reducing the investment value of houses can mean (as a federal government) you are expecting pain down the road caring for people with insufficient retirement savings.
We’re letting in far more immigrants than homes being built - of course home prices are going to soar.
> when mortgage packages started getting sold on the stock market
That doesn't cause prices to go up. What it does do is make prices more accurate by reducing transaction friction.
- we stop building more houses. That's what happened in 2008, and is one of the major causes of the current crisis
- it discourages turnover. IOW, people who should move for work/personal reasons don't because they're underwater or because selling would mean they lose the really nice rate they're currently locked in to. And without turnover, it becomes hard / expensive for people to buy.
The latter issue is a stupid technical reason. The second issue could be solved by transferrable mortgages.
This will most assuredly happen. Too many people have a financial interest in keeping housing prices inflated.
Might cause rates to rise a bit but probably worth it.
It's good news for people who want to buy a home and have been waiting for prices to fall.
People who read the Economist probably fall in the former category by demographics.
If you sell it (quickly).
I happened to buy in 2007. House prices fell. But...
I sold in 2020. Overall 38.5% price appreciation in 13 years. (Inflation over that time period was roughly 25%.)
Otherwise it's some opportunity cost (arguably) but you can continue paying your mortgage payments to stay in your house, and if you hold long enough it'll likely recover.
This is different from the last major crash because that time house prices AND mortgage rates both dropped so you could easily feel "trapped" in your underwater house.
>> It's good news for people who want to buy a home and have been waiting for prices to fall.
It is bad news also if the market falls, you buy, and then it falls even more.
The problem is the entire system where you are making a 30yr investment just so your family can get a good school district.
The 30 year fixed US mortgage is responsible for a lot of the higher prices in US. Future taxpayers or users of the USD pick up a lot of the interest rate risk on behalf of present day borrowers. Evidently, given the continued resilience of the USD, market participants are very okay with this.
> b) problems with pricing, because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
This is a highly dubious claim for which I would need to see proof. The actual building of a house in the US is down to 100 days by a well operated tract builder. The outsize portion of the cost is in the land.
So I think one person should be able to manage it in less than 30 years, periodically calling in skilled help. If you're a Walter Segal fan, you can probably do it a lot faster.
> The outsize portion of the cost is in the land.
It is. I think that's a problem because land value is always speculative, so everything can be written off as land value. Why is that land worth that much? Because that's what was paid for it.
If you sit on a large mortgage, though, you better don't move and have a long-running fixed interest rate.
Sure, but that's the other jaw of the trap we've built for ourselves. The knock-on effects of large-scale drops in home values are highly likely to induce major economic disruption on a national scale, which makes losing that job all too likely.
I say this as someone who thinks it is very much a good thing that house prices are coming down, and the more the better.
> Is it really so sickening that someone in the world had the audacity to frame something in a way you disagree with?
It's sickening because it's a manipulation intended to bolster house price growth. When housing is too expensive, some children literally don't eat. Is that sickening?
> Can't you just say "I disagree with this"?
I feel like I got that across. If you're complaining about getting a little extra, it's low on the list of things that bother me.
> even though we've been in a bubble for the past 20 years
what is a "bubble", to you? the last 20 years includes one of the greatest housing crashes of all time, and a period of some of the cheapest housing costs we've ever seen.
We can call it a housing pause at this point, because all of that money was put back into houses. I think it is unbelievably important to remember as a baseline that world housing prices tracked inflation for 400 years. In the US they tracked inflation, there was a bump up with government housing subsidy right after WWII, then it continued to track inflation until the dot com bubble burst
After which there was hockey stick price growth, a crash, massive government intervention and transfer payments to the wealthy, mass evictions of people who couldn't pay after their ARMs moved, massive buy-ups of that property by large investors and funds, and the restoration of hockey stick price growth.
> a period of some of the cheapest housing costs we've ever seen.
Where? Are there any places that fell back to the 380 year trend line, or are there places that are reasonable compared to their price in 2006 considering inflation. We're still in a period of the most expensive housing costs ever. They've grown to precisely what they need to be to take away any disposable income, along with education and healthcare. They're completely detached from physical considerations, they're simple financial instruments. And property owners have tricked people into thinking that it's a supply problem.
1. social security
2. 401ks
3. IRAs of various types
4. simply buy & hold stocks
These are already in place.
This may not be a functioning program in the next 30-50 years, or will have extended the minimum ages for payout that they won't be viable.
2,3,4.
All examples of the replacements for traditional Pension programs, which are what we should have. Putting the onus to not only save hard, but to invest wisely in the time horizons necessary for something like retirement in the market is, in my opinion, not workable and combined with the complete lack of education around money management in public schools makes it, again imho, just down right cruel.
I'd like to see the return of heavily regulated pension programs and unions for many, if not most professions.
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In the US, there is Social Security which one could argue could be higher but it's there.
And lot of people were happy with the shift away from defined benefit pension plans that were essentially a transparent way to get a retirement supplement for having worked for GM for 30 years. A lot of people wanted to have greater control of their retirement savings in a way that wasn't tied to long tenure with an employer.
I don't think people want control of their retirement savings, they just want a retirement savings. (And you're lucky if Social Security even covers health insurance costs - forget about covering your property taxes, grocery bill, utilities, etc.)
The problem isn't the building costs - it's the land costs.
Construction workers are relatively low paid, and profits on home building aren't outrageous.
DIY housing doesn't really solve any problems - and is a ridiculous proposal to the average person.
Dead Comment
Everything is marketed as bad news. Bad news sells. The bubble was itself a favorite target.
And FWIW, we're seeing the same thing happen currently with the freakout about inflation. Understood correctly, inflation is just a gauge transform; it doesn't "do" anything on balance. Sure, it moves money around a little because some signals are delayed more than others. But to the extent it does it works to the benefit of almost everyone complaining about it. Everyone with significant debt (mortgages for the folks here, credit cards for the proles, corporate loans for the people folks here want to be) experiences inflation as a reduction in net money owed. It's a good thing for us, on balance. Yet... freakout anyway. Because bad news sells.
Certainly prices may come down in some locations as interest rates go up if there aren't enough cash buyers, but will it be enough to counteract the imbalance of demand and supply? I think it's an open question.
On one hand, this means that prices need to come down to get houses into peoples' price ranges. On the other hand, if the market is down, there's no way in hell that I'm selling my house. A loan at 2.875% is almost like having free money, so even if I need to move, I'd prefer to rent out my house than sell it.
It's unclear if we will see low prices, but fewer sellers, or high prices, but fewer buyers. What's clear though is that this is going to be a low liquidity housing market without a lot of transactions.
I've watched a lot of friends go through this thought process recently. Locally, the thought process grinds to a halt when they see the exorbitant prices that property management firms are charging for new customers these days. Apparently there's a huge spike in the number of people trying to become landlords because they don't want to give up their low mortgage rates, like you. Property management firms are taking advantage of this.
I also see a lot of people changing their minds when they do the math on the size of down payment they'd need and the monthly cost of a 7% mortgage on the types of houses they want to move to. There's a reason people talk about starter homes and trading up as opposed to accumulating additional properties every time they move to a nicer house.
OTOH, I know a number of well compensated software engineers who were trying to pour their money into real estate investments. All of them are very firmly paused on buying new properties at the moment.
This means your mortgage repayments aren't the only thing that has increased, so has absolutely everything else in your life. Look at Australia for example, they're predicting the already ridiculously high food prices to go even higher, up to 7-10% due to major flooding events this year.
So your analysis kind of works, but it's not factoring in whether people feel ok about paying > $200k (AUD) or more for a house which isn't worth that much anymore (prices are going down already, many many people bought at the height of a bubble, due to FOMO), then having absolutely no money to do anything with their house to improve it (building costs are astronomical) and having no money for leisure or holidays, then you have high energy and school fees to add to all of that.
In my opinion, this is what will start to drive more people to sell. It's not just the house prices, but it's the burden of being tied to such huge debt.
Also money isn't so cheap right now, so it will slow down property speculation. Many people also bought houses thinking that if they don't like being so heavily leveraged they will just sell their property at a net gain. Not at a loss, this I think is starting to scare people.
I'd say we'll see a lot of people at least consider downsizing in the near future.
As long as you are occupying a residence, it would not effect nationwide or region-wide supply and demand, right? You selling would be offset by you buying.
Deaths, divorces, immigration, births, and of course, new construction is what would shift supply and demand curves, on average.
Says someone who probably has never been a landlord. I would rather poke both of my eyes out while getting a rectal exam than ever be a landlord again.
- it's not clear that pandemic-era is over, whether that be new Covid strains or other mutant viruses (not to mention global thermonuclear war)
- work from home requires much more space to do well + i'm home more often to enjoy the rest of the house
- most of my close friends work from home which means they can come and visit much more often
- due to Covid, parents are afraid of nursing homes + kids taking longer to leave the nest = intergenerational living is back on the radar
- life is short, a little bit of post-Covid YOLO
I'm not sure how widespread the sentiment is but if enough people feel this way it could make an impact.
And in the past 18 months, the changes to interest rates mean that your budget on a standard 30 year fixed has shrunk by 40%. That is, the same payments will get you 40% less house at 20% down. To make up for that, you would have to increase both your down payment and monthly rates by 66% to afford the same dollar value as a year ago.
All good apart from this, its clear you don't actually have kids - interest in kindergartens didn't drop a zilch (given, where I live - Geneva, Switzerland and around, plus at home country in EU). We properly don't care about covid anymore, had it at least 4 times, last 3 times even mild flu would be much worse experience.
Sure if you are a proper germ freak or some qanon-like paranoid nut you would base your decisions on this... but if you are just another sane parent, you just drop your kids there and hope for the best. Same as with any other sickness that kids do catch often that's looming out there.
The interest rates make a huge difference here...a hypothetical buyer who could afford $5000/month in payments would qualify for a $1.22 million mortgage at 2.75% interest, whereas that same payment at 7% would only cover a $750k mortgage.
Cash buyers are generally about 25% of the market, which is a good chunk, but not enough to prop up prices if the other 75% of buyers they're competing with have had their purchasing power drop by 40% in the past 6 months.
Cash buyers often finance the property they buy. All a "cash buyer" means is that the deal is not contingent on financing, either contractually or as a practical matter. That is, they can guarantee the sale goes through with cash.
In aggregate in the U.S., but this and much other commentary in this thread doesn't consider enough the vast variation in local markets. There are spots where there's a higher percentage of cash buyers due to wealthier people living there, a larger contingent of foreign buyers, or people who sold homes in very expensive areas to buy in slightly-less-expensive areas. I'm seeing this where I am, where people are moving from the city (where a 1 BR apartment is easily over 1M, a 2 is 1.5-2M, etc.) to the suburbs, where an 800K house is considered pocket change.
Not to mention some people have access to "cash" without having it. Some mortgage brokers, even from large banks, can arrange to let you use collateral to help guarantee a closing within a short time (eg. 30 days) letting you waive the finance contingency.
In a given real estate transaction, someone waiving financing contingency is going to fall in to the category of "cash buyer", and it might not be obvious that the cash shown in the holdings (if it is even shown to the seller as proof of funds) came from a loan.
Are cash buyers really 25% of the market in the US?
People sitting on 2% mortgages are not going to move. There's a lot of housing inventory that's locked away now [1].
We're going to enter a lower supply, lower demand market. The prices might not move much.
[1] Maybe downsizing Boomers will balance this. I'm not aware of any measures of this trend, though. And a lot of Boomers just sold/downsized to take advantage of the high prices.
Quite a few major countries are going to struggle though. The US may have a bigger Millennial cohort, but if we say Gen Xers are 42-55 and Millennials are 26-41, the population pyramids for many large economies make for grim reading. Consider Italy (adjust ages for being 4 years ago): https://commons.wikimedia.org/wiki/File:Italy_population_pyr... .. or, to a lesser extent, China: https://commons.wikimedia.org/wiki/File:China_population_pyr...
I was house shopping this year but had to wait as I moved for a new job. In January I was quoted $>1M of buying power (without my partner). Now I’m quoted <$700k. I’m not buying anything soon.
My father is looking at moving to a new condo for retirement but was hesitant about HOA fees. This year he spent $50k to replace all the windows in his current home to prep for sale. That $50k in maintenance would cover $300mo in equivalent hoa fees, and that’s not considering every other maintenance cost he’s spent. The math just doesn’t justify home ownership from a financial perspective - if your home value isn’t skyrocketing.
I’ll be a renter for a while it seems. Maybe that’s ok.
The $50k you spend on windows would often only recoup $45k or even less, people vastly underestimate the costs of many things (but not all, foundation problems people always overestimate).
The saddest story I read about was someone who was told that putting $20k of new windows would let them sell for $40k more; and they did, and the buyer bulldozed the house to build a new one.
At the same time, real prices (what is paid to existing homeowners, adjusted for inflation) will decrease due to higher interest rates.
As corrolaries: Real mortgage payments will increase, and property tax revenue will decrease.
So, the banks win, schools, local governments and individuals lose--nothing new there.
They have less earnings and savings than the previous generation as compared to the price of homes at the same time in their lives. While government intervention in the USA has adjusted the requirements to get a loan approved, it will not be enough to keep up with rising interest rates. Prices have to come down for millennials to make purchases. This will cause a "house-price" slump.
In the case of home ownership, the benefits depend quite a lot on the number of years the property will be owned. I'm not sure what the numbers are now, but when I bought and later sold my house, I determined that 6-7 years was the minimum duration that made home ownership better than just renting.
People change jobs more frequently now than in the past, and consequently they tend to move around more often. That makes investing in a home more risky, as it's really unclear if one will still want to be in that home/location in 5 years. Renting, by comparison, is less risky. It may be less economical over the long run, but not if you would find yourself moving every small few years.
Also, the remote work thing is not going to decrease; if anything, it will increase, reducing location pressure (and consequently reducing the value (or rate of increase in value) of homes in certain areas). That implies even more risk for homeowners in those areas, as they cannot rely on ever-increasing values.
I think you might be reversing cause and effect. Millennials are less wealthy, and thus less able to purchase homes, get married. Traditional religious affiliation is declining, but it's debatable to what degree religious impulses have declined and to what degree they have simply found new forms of expression (e.g. into astrology, QAnon-style "theories", "General Artificial Intelligence", spiritualized ecology, etc.)
"People change jobs more frequently now than in the past, and consequently they tend to move around more often."
This is a false statement. The decline of residential mobility and its impact on labor market dynamism is a hot topic in U.S. economics research today.
https://www.npr.org/2017/08/04/541675186/fewer-americans-are...https://workofthefuture.mit.edu/wp-content/uploads/2020/09/2...
https://www.rubyhome.com/blog/moving-stats/
Pretty sure that’s wrong. Tenure in job is near an all time high in America. Boomers were the job hoppers.
A bright light I'm seeing is that material costs have largely fallen back to pre-covid levels. There are a few bits that are expensive or hard to obtain (windows), and the labor market is still aging. But still, the cost to build in many areas has fallen dramatically.
Reality is people can't afford the pre-recession prices, so they will rent and ride it out for a while longer which will put downward pressure on people trying to sell and the market will meet the demand that way.
Many factors to supply imbalance. Look at the increase in the amount of Airbnbs since 2010.
People might be reluctant to sell, but they might need to when they can't rent, Airbnb, or lose their job.
Notably due to the Great Recession aligning with record high (at the time) food commodity prices, which saw farmers outcompeting home buyers for development lands.
Food commodities have completely smashed those records over the past year or two and if that continues we will no doubt have farmers willing to bet big, which again will constrain housing development.
What will be interesting is if we are able to get our food supply issues under control. Food prices have been known to drop like a rock before.
But perhaps what I’ve read is just wrong or biased towards the kind of wealthier youngish people who want to live near the centres of these big cities and can already afford to rent there.
Prices will be pushed downwards by rising interest rates.
Prices will be pushed upwards by a genuine housing shortage in the US.
Which force will prevail? No one knows. We will find out.
Volume is going to dry up significantly, and prices will go down a little bit - but there won't be a deluge of forced sellers like there were in 2008 because most people are on long-term fixed-rate loans. The majority of sellers will be divorcees and estates, as individuals chill in their 2.625% APR 30y fixed's - or own their homes outright.
Unlike 2008 we're not coming off a deluge of building, quite the opposite - and unlike 2008, most people don't have 5 houses on variable rate debt.
tl;dr: Prices will go down a bit, but the market is so short housing, it won't really matter.
Longer term anyone who buys at 7% APR will just refi down when rates drop - and probably cash-out refi at that.
Assisted living does not come cheap.
Are you from California?
This one's older (from 2020) but digs into details by area of the country: https://eyeonhousing.org/2020/01/a-decade-of-home-building-t...
[1] https://www.wsj.com/articles/blackstone-bets-6-billion-on-bu...
It’s a bit of a different story if you’re just buying the property on the expectation that its value will go up better than other assets. There are reasons to expect that might happen (old people typically own more property and vote more than young people and they tend to care a lot about the value of their property going down so governments often have policies to try to ‘help people buy homes’ which allow people to afford higher prices which helps to keep the prices high) but it does seem that something has to give eventually (and eg it seems like there has been a bit of a change in Californian housing policy recently).
Generally I would expect an institutional investor to be more sensitive to things like interest rates and price when making purchasing decisions than a potential owner-occupier who has to live somewhere and may be more sentimental about certain things investors don’t care about.
Investment firms keep liquid cash precisely for this reason, just in case a fire sale pops up and they can move quickly.
Allowing the next generations a good start in life means that everyone that wanted houses to be a great investment need to take a loss, there's simply no way around this and we should collectively accept this.
I'd also be for completely different taxation levels depending on if this is your first, second or third home (properly handling even if first buying before selling within x months, so you only have a single home), if you're a company, if you're a foreign citizen that merely wants to snatch some random safe property.
Some problems really need a complex, evolving and carefully weighed solution, and housing really has been shamefully abused so that the haves screw other the not-yet-haves.
Remove costly regulations and you get more houses.
I could get behind removing almost all zoning, but code is just sensible.
> Remove costly regulations and you get more houses.
There's a YouTube channel.. our little homestead I think is the name.
They built separate studio apartments for each of their kids on the same lot.
They used earth bags and the costs for one was 5k, the other 8k and they're pretty amazing for being something sturdy and safe to live in, and being made of dirt and mud I think they're probably fire proof too.
This is what I want to do.
I'd also like to help other's do that through a collective or something where everyone builds their own home and helps others build theirs.
In some sense this is a transfer of wealth from home owners/sellers to banks/lenders and hopeful and prospective first time buyers see no benefit, aside from maybe smaller down payments.
First-time buyers benefit from both the decrease in down payments and the easier ability to pay down principal as nominal salary grows and/or if interest rates fall during the mortgage term.
When I buy a car, I don't think of it in terms of $20,000 over 5 years. I think of it in terms of $350/month over 5 years.
A house going down 10% on a normal mortgage is a 50% loss to the buyer (half the 20% down).
I want to be able to look at a listing, talk to the realtor, have a scheduled showing, and put in an offer at list price with inspection/appraisal contingencies. You know, like how normal life was forever until the last 5 years.
Of course if it doesn't and I get priced out then I get to pay off my mortgage and find a new place to live with a nice little cash bonus!
I also like the idea of deferred property taxes... that is, you can choose to limit the rate increases and pay the difference at the time of sale. This way you can stay in your neighborhood but you don't get a giant cash bonus for your role in creating inefficiencies in the housing market.
That said I could see how this would create a mini prop 13 situation where people don't want to move because they would have to eat a big jump in property taxes.
In the major metros, sure. But I'm talking about 3rd tier city suburbs.
Arguably if the house doesn't sit on the market for about 3 months it was priced too low, and if it sits longer it was priced too high (this can also depend on if it is empty or inhabited at the time).
Some agents price a bit above market, and hope for one offer.
Some price below in hopes of creating bidding wars, and/or getting people to waive inspections/contingencies on a questionable house.
In most “active” markets, houses went pending almost immediately, regardless of price. It was fueled by low rates, easy access to capital, and FOMO.
Ok, now the interest rates are going up to counter the inflation. I am not convinced it will dent anything other than home and car prices. In this scenario, is a full blown recession actually going to happen if so why?
It will. All corporations will see their debt servicing cost go up. A lot. They'll start the layoffs. How many posts on HN are about layoffs at this and that well-known tech company?
Once people fear for their job, they'll start being more cautious with their spending. Less demand means prices will go down.
At least that's how the Fed thinks. They are trying to destroy demand. They know they can't increase supply (obviously), so they are going after the demand. If 3.75% is not enough (spoiler alert, it won't be enough), they'll go to 4.5%. And then to 5%. If it's still not enough (spoiler alert, ... it won't be enough), they'll go higher.
You may not be convinced, and it looks like a lot of people are unconvinced, but the Fed means business. All the members of the Fed know history, and know that in the '70s the Fed lacked the backbone to keep the rates high enough long enough to beat the inflation. They were trying to have both low inflation and some semblance of growth. They got neither. Stagflation for a whole decade.
People who forget history repeat it. Powell will not let history repeat on his watch.
Now because he’s lost credibility and everyone thinks he’s a joke he’s acting tough. But in reality he is totally reliant on cpi data. As soon as that comes in (nobody knows when many have been eager to call a top for several months and continually getting burned) the narrative will shift for the fed to slow down or cause a major recession and believe me they will. The sad reality is that this fed is not made of rigorous economists who have some read that nobody else does. They have absolutely no idea what they’re doing or what their policies will or won’t do down the road. So the best they can do is try and preserve market order by giving the appearance of having control and keeping stability.
It’s like dominoes- cpi data moves rates which move the stock market. It’s all one trade.
I’ll do the math for you: 4%/yr of 31T means they’ll be paying 1.24T in interest expenses per year. Of the 4.9T in tax revenue, 1.24T of it or 25% of it is burned on interest payments on the national debt.[1]
Source: usdebtclock.org
This level of inflation isn't sustainable, therefore interest rates are increased to reduce average Joe's disposable income so they're not buying as much stuff and / or being more careful with their spending and / or just can't afford as much alongside their mortgage or rent increases, which, in theory, should lead to inflation dropping.
The scale and chosen areas of belt tightening by the proletariat, will cause an equivalent scale of business insolvency and employee shedding in those areas, which will add momentum to the already running scenario.
By most indicators the US is already in a recession, and the Fed is (controversially to some) still talking an aggressive game when it comes to rate hikes, so I'd confirm the inevitability of a recession.
I think it's possible that those who wield the power would like a recession because it can allow further concentration of power by increasing the wealth gap; provide an opportunity for those like Black Rock to increase their portfolio of real estate once mortgages start defaulting. It's also a reminder to the covid quitters to "get the fuck back to work" (ironic for when jobs are being shed rather than created, but creates that thirst for becoming employed, which has its own societal momentum, and serves business owners well).
Also, the way debt works, and the way stock market valuations work, and the level of debt that seems to be in the system, a little bit of fear goes a long recession.