New Home Prices Are Starting to Drop
fortune.com
fortune.com
Fascinating piece, thanks for sharing.
They need to drop. They need to be decoupled from wealth and investment.
Multi-family units need to be built, not more mcmansions.
Aside from price per square foot, a single family dwelling has room for a single family. That same space could be built upwards for multiple families, but NIMBYS stop it every single time.
Just like the post about Marc the other day they cry about quality of life and property values.
We have people far more worried about the value of their housing 'investment' than people having homes, then they cry about the homeless people and the problems they bring.
Poor people have been priced out of every single place (you mention cheap houses but hardly the case- many millenials have given up on ever owning a house), so what's the only option left, renting until you cant work anymore?
Something has got to give.
For the rest of the rant - price/income ratio didn't grow THAT much - before COVID spike that is evidently not caused primarily by NIMBYs, NIMBYism existed far longer than that: https://www.longtermtrends.net/home-price-median-annual-inco.... Those who gave up on buying a house should move out of mismanaged coastal cities (I can afford them and yet I certainly wish I did!)
Also those prices are only for existing condos and houses
For your second link here's a fact- house prices have skyrocketed for decades now while minimum wage has remained the same 7.25/hr for the same time if not longer.
The very link you used shows a huge spike from 5.1 up to 8+ and those are all historic highs.
Your data doesn't match your argument.
2) No, housing prices have not skyrocketed for decades. It' simply not true, much less a fact. Aside from housing bubble and COVID mismanagement, they were flat-ish for decades in relation to income, only growing slowly.
3) Are you saying the recent "huge spike" over the last few years is caused by single family housing being preferred to multi-family construction? To me it clearly isn't.
Even with the downturn in prices, prices are high enough that building new homes is very profitable, and we want lots of people to do it. But even if it is theoretically profitable, if stuff takes too long to sell builders can become bankrupt anyways. And if builders go bankrupt, the number of starts will go down very quickly. And then just like 2008 caused the 2022 crisis, the 2022 crisis may cause the same problem to repeat in a decade or two.
As Lord Farquad put it: "It's a sacrifice I'm willing to make". Bring it on!
Now I just have to decide, do I buy a house in 11 months when my lease is up, or do I hope for an extended crash and buy in 23 months?
We currently see the interest rates go up rather quickly. This has a great effect on your monthly mortgage payments, and (at least here) the amount of money the bank is willing to lend you.
While the EU had interest rates close to zero percent for the past decade, buying an expensive house was not a problem: your monthly payments for interest were almost zero. With the interest rate climbing, the number of people that still can buy this expensive house reduces significantly. And so the prices of the houses start dropping as well.
Of course, as long as you are happy with your house and all is well there is no problem. But when you get unemployed, decide to get divorced or otherwise have to sell your house but the bank still owns it, you have an issue. Where you bought it for 600.000, you now get 400.000 - and the bank really wants the 200.000 back...
There's a big difference between the banks are getting a bigger piece of the housing cost cake, and housing is now available to a group of people it wasn't available to a year ago
Plus, it's quite likely that buyers can refinance later.
Nothing's guaranteed of course, but I'd rather buy a home now than a year ago, even if the same monthly payment gets me the same house
Back when interest rate were >6%, 80%+ of your first 5 years of payments went entirely to interest.
- prices dropping is a good thing
- nimby are the real evil
- we should promote the idea of housing as utility not a store of wealth
- but govt encourages housing as wealth via subsidies and tax breaks
- poc should be allowed to build inter-generational wealth via housing. This shouldn't be suddenly cancelled.
- we should be building more public housing like germany and france.
- some random side convo about gentrification
- another side convo about suburban housing = bad. we should all live in tightly packed cities with no cars.
Rinse and repeat.
- people who have their fortunes tied to housing vs new entrants
- boomers/silent gen vs millennials
- white vs poc
- working poor vs gentrifiers
If you bought homes as an investment, pricing out families, turning entire neighborhoods into Airbnbs, and destroying their culture you have my sympathies /S.
The people who were priced out and who never had any possibility of retirement are not going to sympathize. Maybe homeowners will decide to fight with them, not against them.
This is only true in the most expensive metro areas - nobody forces anybody to live there except for rare combinations like NYC + investment banking, which also tend to be very well compensated. There are plenty of low profile metros with tons of amenities and reasonable housing markets (especially now as home prices will come back from orbit and after some time, rents along with them).
My fiance and I bought 3-4 months ago and mortgage + taxes is approximately 13% of our take home pay. We make good money but nothing astronomical (no FAANG salaries for sure, for either of us) and by every reasonable metric we make 2-2.5x what we need to in order to afford this house without dumping our entire lives into it.
This is true in all metro areas. Mortgage lenders are actually having to loosen the "percentage of cash flow one spends on a mortgage" requirements because without spending a third if your income you can't buy into the market. I live in a famously inexpensive housing market and a house that sold for $300k last year is now going for $450k.
This is not just NYC and SF, it's the same story in Austin, Seattle, Atlanta, Columbus, Minneapolis, Dever.
Nobody forces you to live where the jobs in your field are, got it. I cannot understand how people assume that everyone just has the mobility to just pick up their entire lives (like they don't have friends and family), sell their house (which is taking a loss now), move and be able to find a job anywhere.
Like good lord not everyone works in a field where you can work remotely from a cabin in the woods. Some people do actually have to be on-prem. So many people in this thread are vastly overestimating the agency people in real life have to participate (or not) in the systems that surround them. If the SWE job market ever cools off I feel like the tone is going to shift dramatically.
And just because home prices drop a fraction of a percent doesn't mean you're suddenly taking a six figure loss if you sell and move, especially if like your example the price has increased 50% in the last year.
This may be true for some human being in America (almost certainly is, in fact, given the size of the country) but on the whole no one is taking a loss yet [0]
* "It's great that housing prices are dropping (which makes it more difficult than it already is to move)"
* "If you can't afford a mortgage just move"
> If the SWE job market ever cools off
So far it's only the SWE market cooling. Friends in health, education, logistics are beating back recruiters. These are occupations that have been underserved for decades and only worked as long as they have because of solid pensions. But now those retirements are coming due and no one has built the staffing pipeline. Management watched the average employee age increase every year until it was equal to retirement age and here we are. SWE market is extremely young and doesn't have nearly the same recruitment problem.
Metros are metros for a reason. People dont choose to live in a tiny expensive house because they are too stupid to move elsewhere. They are there because that is the best option available to them.
I disagree with your premise that the millions of people living in expensive cities live there because they are too stupid to make smarter decisions unlike you.
I never said anyone was stupid. There are plenty of valid reasons to live in one specific area, family/spouse/kids being a great example.
So yayy! We designed a system where having shelter requires leveraging yourself to the chin in an asset market (if you're renting you just happen to not be playing, but your landlord is) and then putting the blame on the people who didn't have any other option.
Considering the price drop, the new home will be equal, in value, to the one they originally bought for 100k.
This does not include transaction prices (which can be high, of course), but they incur regardless.
Problem is that people were panic buying at inflated prices, because they thought prices would go up further in the future and had to move fast. But they get in over their head, and a slight disruption (life events happen) can cause them to miss payments. Now they are forced to sell or abandon the house, and the bank is forced to take a loss (if in the case of a short sell). And if someone is already losing their house, they aren't going to be doing much maintenance on it so the house ends up in poorer quality even if the current owner doesn't specifically try to sabotage the house. So now you end up with a bunch of houses on the market that aren't really move-in ready, so investors sweep them up limiting the supply, and cause the cycle to bounce all over again.
All homes: https://fred.stlouisfed.org/series/ASPUS
New Homes: https://fred.stlouisfed.org/series/MSPNHSUS
The average person owns a home for less than a decade.
If you bought a home and had to sell, but lost money, congratulations you were an unofficial renter. You lick your wounds and lean into the next financial scheme.
Its not a good feeling not knowing how long you are going to be stuck in the home. Hope you don't want to move due to things like having kids or getting a new job while you are upside down.
And if they see a correction now they may drop below their 2008 peak.
Property taxes
? It literally is just that. As inflation increases the value of a loan decreases. EG. The value of your money today is worth more than the value of your money tomorrow. So you pay your loan at a fixed rate over time with money that is worth less and less. Inflation eats loans. The dumbest thing you can do is pay off a loan with todays dollars during high inflation. People that win in inflation hold massive cheap debt on real assets. [their loan devalues to nothing AND their assets increase in value]
A 4-8% discount multiplied by 5:1 (or 33:1 leverage) is ENORMOUS. It dwarfs an extra 5-10% monthly expense for a year or two or three.
Especially considering R/E capital gains are mostly tax free.
In Canada, if you refinance before your mortgage term end it's typically to pay 3 months of interest as penalty or the difference between your new rate and the old rate until the term ends.
It's pretty damn punitive.
They only exist in the US and Denmark: https://www.thediff.co/p/the-30-year-mortgage-is-an-intrinsi...
And they only exist because of A LOT of government intervention.
If interest rates don't continue to only go down - I imagine you'll see them disappear in the US and Denmark.
US & EU banks mostly make their mortgage profits from constantly refinancing at ever lower rates.
But banks don’t profit off the interest rate on mortgages. It’s mostly origination fees. Mortgages are sold off immediately. They don’t hold onto them.
Nonetheless, I’ll take the lower principal of a lower priced house than an over-priced house with a lower interest rate … lower taxes and possibility to refinance at lower rates.
This is what everyone said after the financial crisis. 3 years after rates moved up from 0% (~2018) - the 30-year mortgage rate hit an all-time low (~2021).
I'm not sure how you can be so confident they're never going lower this time. And I'm completely lost how you can be confident they won't be lower than they are now within a couple of years...
In every country in advanced world??
I bought my first home at end of the last recession (price at floor for my market) and maximized my leverage (little down) AND got low rates. So I did great and assuming you did the same it probably worked out the same for you. But the high rates now make the math a bit more complicated. And, I don’t know if I’d assume the same level of appreciation I did back then. At that time, the recession was a few years in and it felt like that bulls were awakening so I was very confident in my purchase. Right now, it’s early in the recession, we don’t even know how long/far prices will decline, and rates are pretty high and most assets feel inflated. So, I wouldn’t feel very confident about it right now. I’d actually recommend most people just do lowish down, hope for a refi opportunity in a couple years, but make sure you have some cash for repairs/maintenance/rainy days as well.
In any case, how much does a home price have to come down to offset interest rates climbing? It’s a lot. Probably something like 20% (I can’t do the math rn)
Generally speaking it's a rule of 10x in purchasing power (not price, clearly, because we haven't seen the corresponding price correction yet).
So 1% increasing in mortgage rate should be 10% decreasing in purchasing power, just based on the math. And yes I believe there has been a 2% increase in average mortgage rate (3% -> 5%) so 20% sounds right.
We ended up putting ~10% down on a house. The PMI for that was ~$70/mo. We refinanced a year later and the home value increased that we were able to get rid of the PMI after only a year. I would have missed out on the lowest interest rates ever really seen and bought with house prices getting even higher over $840 in insurance on a several hundred thousand dollar purchase.
I would suggest you don't assume you need to avoid PMI. For me, if I would have waited it would have cost me >$100k waiting to avoid "throwing away" $840. Obviously, every market is different, every buyer is different, the financial world is different now than a few years ago, your mileage may vary, I am not a lawyer, etc. Just saying, look at some actual terms before deciding.
That's the whole point of my comment, it isn't always better. I could have avoided any PMI by waiting a bit longer to amass more savings to have a larger down payment. But in doing so I would have avoided <$1,000 in PMI payments but increased the cost of the house by >$100k. It was definitely the better move to just pay the PMI in this case than to try and avoid it.
I'd gladly pay $1,000 to make something >$100,000 cheaper in the end.
Without all the cash up front, a low-priced house is actually harder to buy than a house you cannot afford. One of the banks literally told me, I qualify for a 5% down payment on a $750k house (roughly $4k/mo payment), but they wouldn't touch a $110k house with 20% down.
Also, being able to buy a house you cannot afford may go away as well if lending parameters become more restrictive, which is typical in a downmarket.
With the Fed raising interest rates, this is a fairly predictable happening. Higher rates means more expensive houses get put out of reach of the consumer, it trickles down from there.