US home prices surge 17% in May, fastest in 17 years
abcnews.go.com
abcnews.go.com
This article is garbled, as far as I can tell. What I think they're saying is that from May 2020 to May 2021, prices rose by 17%. So that wouldn't be on top of the 15% from April 2020 to April 2021, it would be overlapping with most of it. It also wouldn't be a "May increase" but a yearly increase.
They're talking about it as if it were a monthly price rise (or an annualized monthly price rise to be generous to the author), but if it were, what does "a year earlier" have to do with it?
The worst possible interpretation is that the headline is saying that prices rose 17% faster this May as compared to last May (e.g. prices rose 0.6% last May but 0.7% this May) but that wouldn't be a story.
edit: also, wasn't May 2020 around peak covid terror time? I can't imagine people were looking to make long term investments.
I like millions of parents spent a few hundred dollars on backpacks, shoes, pencils and lunchboxes this week for back to school. Won't be doing that again until next year.
The closest reset (when stores update their prices/products they carry) to November this very crappy wine I sometimes buy, goes from $6 a bottle to $3.89-- presumably to captures sales for holiday get togethers where people are looking for quantity and not quality. It stays at that 3.89 until after New Years.
I don't know what the cycle is for housing-- but I suspect under normal circumstances sales would be highest about an escrow-long time before summer vacation so moving would be least impactful on kids.
e: its rolling 12, which is what I meant, but yeah.. words matter :)
Yes, but that's when people started to want places outside of big cities.
I bought my current house in May 2020. We got a ton for our old house due to people starting to move to the burbs, but still paid a good price (relative to today) for our current house. We thought we did pretty well in the grand scheme of things.
https://www.cnbc.com/2021/07/26/housing-boom-is-over-as-new-...
They're not directly comparable.
positive spin: use prices
Sales tend to be much more volatile and cyclical than prices, so it's easy to find a negative data point
- Eviction moratorium
- Low interest rates
- Millennials at prime age for purchasing homes
- Inflation from QE
- Institutional investors purchasing property
- Limited new supply from construction
As a prospective home buyer, it's hard for me to see enough of these factors changing within the next couple of years to make home prices more sensible.
I feel like my choices are to (A) bite the bullet and accept that I missed out on better times for buying or (B) wait 3-5 years in the hopes that things turn around.
Our thought-process was that we would only purchase if we could:
- Plan to live there for 5-10 years
- Plan finances to be able to weather a recession and housing bust within the next 1-3 years (related to the first requirement)
- Plan to live in a place which would have been tolerable Pre-COVID
This is a hard set of requirements for most people but fortunately we are in a good financial situation to be able to meet them.
Pre-COVID: Both of us are remote now (with me having been remote for 3 years prior to COVID). Her commute would not be bad if she had to go to the office. It's not common for technical sales to be in offices, so I am not seriously impacting my career options.
Live there for 5-10 years: We moved back to be near her aging parents. We don't plan on moving _away_ from them and like the area. The area is great for both of our careers and has fantastic schools.
Recession weathering: We had enough available to put down a sizable (50%+) down payment so our monthly mortgage is do-able on 1 income.
The net/net is that I'd hate to be a person who wasn't in a well-paying career who hasn't been fiendishly saving for many years.
This is a big one, particularly since its effect is concentrated in high-priced geographies. Lack of foreclosure supply is a reduction in supply. Curious to see how that shifts at the end of this month as well as in March next year.
My general feeling is that if we hit 50% inflation due to COVID19, we're about right. Economists would disagree with me, but I think the alternative is a deep structural wound to our economy.
My estimate was that 50% inflation as a one-time is about what it would take to:
- Take drastic actions to bring the pandemic under control
- Not drive debt-loaded businesses under
- Not drive people out of mortgages
This was at the very start of the pandemic. It's harmful, but I still haven't figured out a lower-harm alternative. The longer we delay, the more costs wrack up. I suspect at some point, the above will be too expensive too.
Also: Inflation means everything goes up, including wages. We're seeing that right now. Both savings and debts get wiped out.
:shrug:
There are explanations though... go into the 220k house and smell the 10 years of cigarettes... or the 40 chicken coop across the street.
If you pay it once when you buy the home, there is something similar, called a transfer tax. This is set by the local government(city or county). I think most places don't have a transfer tax.
If it's an annual tax then it's property tax. This is specific to the State/County/City/Neighborhood.
e.g. in this case, prices increased in May by 2% percent, such that they ended up 17% higher than May 2020. Yet the title is prices surged 17% in May.
It's obvious it should be read differently than your intuition says only if you follow the market. And it's surprising how many people I come across citing this figure who're unaware of the difference and the correct way to interpret this misleading statement.
At 17% it becomes more obvious than years with 3% growth, but still.
Further, even if they had clearly stated something like "May's RE prices see 17% growth in one year", it can still be a bit misleading. It's easy to imagine a price-curve where a rolling 12-month period can see increasing yoy-growth, even though the market is in decline the last months. And I've seen RE-driven news pieces abuse it in the past stating 'record high prices' based on this yoy growth figure, even though the past few months the market was dropping.
There's been a number of studies that show that RE has been strongly driven by market opinion/expectations, not just a simple 'demand for housing'. In fact, to 'overbid' means essentially to get comparatively fewer square feet per dollar. As in, overbidding means reducing the feet per dollar you buy. For people who demand housing (square feet), it's interesting that RE pushes people to accept less housing for more money. And it's in part because of a collective craze as people believe prices will keep going up. Interestingly there's more RE per person than ever before. Construction has been outpacing population growth, there's fewer people per home because of this, and homes are getting bigger every year. There's some indications (of course low interest rates are the primary factor) that the RE price craze is causing a bit of a self fulfilling prophecy, and I find that the news is actively contributing to it, looking to publish the most incendiary selections of data.
Anyway bit of a rant for just a news article title, but everytime a big paper publishes a piece like this it's always part of the talk at the coffee corner the next day and in my country (Netherlands) there's clear links between the articles/journalists and the largest RE agent association that has 80% of the market. They're always pushing a narrative.
> The Federal Reserve's easy money policies have also kept mortgage rates near historic lows, pushing up demand for housing
That said, I agree with your sentiment more than the article's reductionist view that the low rates simply "pushed up demand."
>As of 30 October 2019 the target range for the Federal Funds Rate is 1.50–1.75%.[10] This reduction represented the third of the current sequence of rate decreases: the first occurred in July 2019. As of March 15, 2020 the target range for Federal Funds Rate is 0.00–0.25%,[11] a full percentage point drop less than two weeks after being lowered to 1.00–1.25%.[12]
>The last full cycle of rate increases occurred between June 2004 and June 2006 as rates steadily rose from 1.00% to 5.25%. The target rate remained at 5.25% for over a year, until the Federal Reserve began lowering rates in September 2007. The last cycle of easing monetary policy through the rate was conducted from September 2007 to December 2008 as the target rate fell from 5.25% to a range of 0.00–0.25%. Between December 2008 and December 2015 the target rate remained at 0.00–0.25%, the lowest rate in the Federal Reserve's history, as a reaction to the Financial crisis of 2007–2008 and its aftermath
https://en.wikipedia.org/wiki/Federal_funds_rate
Also, everything being equal, lower rates will _always_ increase demand.
Heard from a friends dad, he bought a 1.2 million house in the early 80’s. He had a $10,000 a month mortgage.
Can you imagine? Obviously early 80’s rates were incredibly high, but that’s what high interest rates can do to mortgage payments.
Haven't had rising interest rates in over a quarter century
If fed rates ever go back to 5%, which they haven't been since the 90's, then mortgage rates would go to 7 or 8 percent.
it's the monthly payments not the price of the house, and if rates go up because the Fed has to chase inflation, then those monthly payments go up, and affordability goes down.
If people's income have been increasing,they will be able to afford slightly higher monthly payments but it's all going to be eaten by interest.
So if history does repeat, home prices will keep skyrocketing for 3 more years before another economic crisis? Or will it be different this time around?
The demand isn't only for SFHs though. People are willing to rent/buy condos, and existing homeowners are refusing to allow them to be built. How is that not NIMBYism?
I couldn't agree more. I'm surprised by how US-centric the housing view of many of my Americans is ("well housing can go to infinite levels and I'll just have to suck it up and accept a life of debt slavery...")
I know one guy who just bought a (small, old) place in Italy an hour east of Rome for $10k. Not the exact location that I'd choose, but at some point I'll just live elsewhere too. The US doesn't limit the exfil of legitimately acquired and taxed money in your bank account and it's a big world out there.
Could I have made more by holding? Yes, obviously. Do I regret my decision? No, I made way more than I ever expected to on that investment, funded a down payment on a house, and diversified the remainder into other holdings (which indirectly still includes some AAPL and other tech stocks).
Pigs get fat, hogs get slaughtered. Set your goals, and stick to them. When you achieve what you want, it doesn't make sense to regret that you didn't get more.
Basically, it's easy to see what magically perfect decisions you should have made in hindsight and feel a lot of painful regret. But it's silly! Because of course we never have perfect information, and it is inevitable that we will suboptimal choices. So lighten up on yourself. :-)
You can, of course, do the same with publicly traded equities, and it is much easier nowadays than 10 and 20 years ago, so the calculations may have changed. But you still do not have to worry about margin calls or other risks when buying land on margin. Plus the 1031 exchange tax benefit.
[1] https://www.housingwire.com/articles/49443-the-average-down-...
And there are still neighborhoods that are in decline. Opportunity to get in before they gentrify? Maybe, but it's a gamble.
That said, it's probably not a driving sentiment, rather, just the basic overall impetus of inflation and low rates.
It could be that there are whispers of increasing rates and everyone is looking to lock in.
That said, in around 2006, this was the feeling as well. The major crash. And as soon as things were getting frothy again - COVID and major turmoil.
Finally, it should be noted, that there are external factors driving inflation, if even some of it is temporary, which is cost of transport, and supply chain issues in China, and of course, tarriffs.
That said, Fed probably needs to raise rates.
Of course the loan itself is worth less to the bank during inflationary times. You make more money, your payment stays the same, and real estate prices will rise somewhat, but it's not as simple as you make it seem. I'd be worried if I were planning to sell within the next few years.
BlackRock owns around $60 billion in real estate assets. The value of the housing market in the United States is more like $36 trillion.
They're only a good hedge against inflation if there aren't enough of them.
All the other stuff, like low interest rates in mortgages, just accelerates the underlying cause of the price jumps.
It's an interesting premise, I'd love to see more data on this. It's a very common claim but at least on a macro level there's a lot of indicators that would make me assume otherwise.
Typically if there isn't enough, you'd expect that the general trend has been that the availability per person is decreasing over time.
Availability can be measured in a few ways:
- Number of persons per home - Number of square feet per home
Ceteris paribus, if either are going respectively down and up, you'd see increasing availability and would assume decreasing scarcity.
The number of persons per home has been decreasing for 150 years, and dropped from 3.4 to 2.5 (-30%) in the past 60 years.
The number of square feet per home has more than doubled in that time. In other words, we have 30% fewer people and 100% more space. The square foot per person has increased by 270% in the past 60 years.
Of course you can still not have enough if demand has grown much faster. But instead I think there's good indications (and plenty of studies) that price increases are mostly being driven by low interest rates and a culture around seeing homes as a speculative asset instead of just a home that happens to have some of your capital locked up in it.
[0] https://fee.org/media/15199/housing1.png?width=600&height=38...
1) Real-estate is a long-term positive return investment
2) The USG will do anything in it's power to keep that premise #1 valid (QE, low/negative interest rates, etc)
3) You can use real-estate equity as part of leverage to buy more real-estate.
4) Foreign investment is allowed, so the system isn't a closed loop
It's a bubble and will keep inflating until it pops.
There is not infinite demand even when housing is a guaranteed positive investment, because there's limited money and capital.
We have let people think that housing is always a positive return investment, instead of a bank account. And to do that, we have limited home building in the in-demand areas.
The actual way this is enforced is by home owners restricting development in their neighborhoods, a trend that is likely to continue.
Read the prospectus' of the private equity investments in residential housing and you'll see they are saying the same thing.
The downturn in home building is decades long. And the 2008 cycle reduces the construction workforce even more, and it never recovered.