Good. Housing prices are insane at the moment. Housing speculation is making it unreasonable for many people to go and buy a home. It is seriously uncanny that housing has turned into speculation rather than a place to live
On the one hand it is fundamentally incompatible with making housing affordable and having "housing as a human right". But still, hundreds of millions of people planning their entire lives around this existing model will have a really painful time if there is some kind of sudden shift in this social contract.
That said a driver for housing has been that over time we have had more people with bigger houses. So it has long been a demographic concern that as the Baby Boom retires, and goes to downgrade, we could wind up with a glut on the market. On top of that telecommute has opened up a significant move away from expensive urban areas like San Francisco. Both together mean that some housing markets have nothing to keep them from a severe fall. And if there is a crash, speculators trying to cover their shirts are likely to need to sell housing elsewhere, and the result could be a cascading problem.
Back then deducting your interest from your taxes was very important. The middle class could hardly afford to live in a tiny apartment, but the interest tax deduction meant they could afford to live in a good sized house. Back then you bought a house with the understanding that in 30 years it would be paid for - right about the time you were ready to retire, and then you lived rent free for the rest of your life (nobody considered nursing home expenses).
Today housing as an investment to most people mean do a cash out refinance every few years so they can live beyond their means, then sell to some bigger sucker when they are done.
If you think of housing as the first type of investment it can still be good in some cases. You need less money when you are retired and can live a long life in the place where you made your memories.
Of course when talking about investing in housing it must be repeated "location location location". For some of you your location (and in particular change of location over time!) means buying a a bad investment. For others your location means buying is great. You have to figure this out for yourself.
60 years ago had much higher inflation as well. People are scoffing at 6% inflation during this dramatic COVID19 period... but 1974 had 11% inflation, and 1980 had 13.50% inflation.
Under such a market, you had to have higher interest rates. After all, 10% interest rates would _LOSE_ money under real terms in 1974, 1979 and 1980 (all three years famous for having "double-digit" inflation rates).
When banks are charging maybe 15% or 20% for mortgages, housing prices necessarily have to plummet to make those houses affordable to the masses.
Because 1991 is well remembered for...inflation.
Though a house as a real good. Is an investment against inflation which is sometimes more important than others.
Because of how mortgages are amortized, the deduction's value to the taxpayer doesn't vary directly with the interest rate, but with the total value of the mortgage. Your payments are always going to be mostly interest in the first few years, transitioning over to principal in the later years.
Not important today when basically nobody qualifies for the deduction.
House owners are fine with this arrangement, as they get all the benefits and bear none of the costs inherent with excessive land regulations. Non-owners get screwed.
I would propose that outcomes would be significantly better if we stuck to deregulating land use and construction as much as possible and let what people are willing to pay for it dictate construction and land use.
I don't understand. Do you think that politicians wake up and do regulatory capture for fun?
When I say housing as America's primary investment asset is a problem I mean that it is primary driver in how houses are priced. You don't, for example, have the same attitude when it comes to cars. It's understood that cars are a depreciating asset. Imagine the inverse - which you see in some assets like super cars. Can you imagine if people lobbied to have Toyota stop producing Priuses because they did not want to value of their own Prius to go down? You would have government blocking the development of factories in the same way NIMBYs do today.
You don't have this problem in places where housing is not asset, for example Japan (who has already kind of learned this lesson with their own housing bubble). At the end of the day, when an entire generation of people have their entire net worth tied up in their houses, of course they are going to do everything to protect it. Regulatory capture are down stream effects of that - people wouldn't burn political capital on regulatory capture if they weren't gaining anything from it.
Saying de-regulation of land use is a solution completely ignores this reality. Forget deregulation, the bay area has been trying to get areas simply rezoned for multi-family housing. The same people who stand in the way of rezoning, will also stand in the way of deregulation. And those same people are primarily motivated to protect their investment. You must look at the whole picture.
Houses are still assets in Japan, but they are much cheaper because of Japan's very loose zoning regulations.
If we want to address this in the West, practically speaking higher levels of government need to override local government zoning regulations (ie. governments less beholden to the interests of the local few at the expense of everyone else)
Housing prices do not have to go up for them to be a good investment for the person living in the house. If a homeowner can sell the house for the same price they got in at, then they have lived rent free. Even if they lose the interest on their mortgage, that's still likely to be a better deal than renting.
My three options seem to be:
1. Live with the small house (and awesomely small principal) we have, at least until the bubble bursts 2. Suck it up and pay a ton of money 3. Move far from Seattle.
I'd actually love option 3, but with established relationships in the area, it's not a great option socially for the family.
Sure this is technically option 2, but it's not as terrible if you compare to people that are buying now without having equity grown for years to help purchase.
Unless Seattle stops being attractive to people with high incomes, you have nothing to worry about. Use your current home’s equity to get the house you want.
The situation mainly sucks for people who jump on the equity ladder later than those who jumped on earlier. But that is how our society is structured, and I do not see a reason for that to change soon.
The real problem, is that people are getting shitty jobs and careers and expecting that will cover the lifestyle they want. And are also completely and utterly financially illiterate.
source: California licensed urban planners
you are not wrong about service-level jobs, but you are missing a lot on the availability topic. pre-built conclusions wont help in developing solutions to an undeniable problem of housing
The downpayment is indeed a hurdle to get into ownership. There are times/banks which will allow a much lower downpayment, though that has its risks.
> let alone the cost of taxes, upkeep and maintenance
The renter is of course paying for all of those, as the landlord is passing on all the costs and making a profit on top.