A global house-price slump is coming?
economist.com
economist.com
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.
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.
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.
Most people cannot do this though, because the conditions that lead to housing market crashes also result in huge numbers of layoffs. What that means is that not only do people find themselves "underwater" but also unemployed, which means they either can no longer afford their mortgage payments, or sell at a (often huge) loss and start renting and/or relocate.
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%.)
And in the age of increased nomadic living, emigration to low CoL countries and multi-generational households, there might not be much of a replacement to buy or begin to expense.
Just explaining, not advocating for selling one’s home to retire.
There are more than enough actual houses in the US. We aren’t short on space. It’s location and current needs based on time in their life and available assets, etc.
(same in the case of owner death/divorce, where you need need to liquidate)
Non recourse means they dont pursue you for the difference. It doesnt mean your credit isnt completely ruined for the next 7 years. It would be impossible to get another home (and in many cases to lease another apartment) with a walk-away from debt.
Once the kids are out of the house and you retire you can dump the expensive house in commuting range of a high-wage city in the excellent school district, buy one half as expensive somewhere with worse schools and farther from jobs, and pocket the rest of the money.
You're not always throwing your money away when you're renting; I'm pretty sure that housing prices are rising faster than rents, due to a culture of housing speculation.
You are paying for a service (somewhere to live). Unless you can afford to buy outright then you’re either “throwing money away” renting or on interest payments.
Of course, the situation is more complicated in areas like the SF Bay and Seattle. Housing prices vs rent basically assume 5% year over year growth forever, so if you think housing prices will be flat, it's economically advantageous to rent
There's a good calculator without a ton of BS here on this old page: https://michaelbluejay.com/house/rentvsbuy.html
sure you'll be paying less, but you'll also be buying a lot of risk. You don't own anything until it's fully paid, and if the interest rates skyrocket good luck with bankruptcy
What kind of lunatic doesn't get a fixed-rate mortgage?
To put things in perspective, my parents had a mortgage of $600/month in 1978. It wasn’t too much of stretch for them then. But it did sting. They were a teacher and a factory worker. By the time they paid the house off in 2008, $700 by then was laughably small.
I wouldn’t go that far. I don’t know what my parents made in 1968 or for that matter 2008. But from the time period I mentioned 1978 - 2008, if their income just kept up with inflation, it would have gone up by 650% according to the official CPI calculator (https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=1968...).
Well actually, they retired in 2002 at 55 and 57 respectively - from teaching and factory work - and have been retired since then.
They’ve taken two 5 month long cross country trips and have only slowed down their shorter road trips in the last couple of years because they were worried about Covid
If your parents started working in '78 they have likely had a nearly miraculous wealth transfer from owning a home in a world with declining real interest rates. As you noted, their income rose 650% due to inflation - and their housing cost was likely fixed.
About the same.
If one of those moves happens and the markets down, things get interesting. Especially when someone is upside down.
Either way, transaction costs tend to eat up any potential gains unless one is really lucky or you stay a long time, which is hard to do during high change times.
If, in the future, I can find a place in a good location/part of town, with plenty of room, and is convenient to earning income, etc. and that doesn’t require me to get loan payments at some crazy multiple of my income, then yeah I’ll probably buy.
But that hasn’t been a thing in the Bay Area since about ‘15 or so. And with everyone running for the rural areas for a multitude of reasons and remote work becoming the norm, the rental markets are crashing hard here.
Even before COVID however, housing prices had started to flatline or decrease as even with historic low interest rates, payments were very high, and even with increasingly risky financing, very few people could afford them.
Even if you go by historical norms of prices housing rising with inflation and you consider selling costs of 10% (a bit high of estimate), you only have to be in a house 5 years to come out ahead.
> If, in the future, I can find a place in a good location/part of town, with plenty of room, and is convenient to earning income, etc. and that doesn’t require me to get loan payments at some crazy multiple of my income, then yeah I’ll probably buy.
I’ve been in the same metro area since 1996. My last job was 30 minutes away. My current job’s headquarters is on the opposite coast and the official location of my division is on the same coast but about 15 hours away by car. I doubt I will ever work in an office again.
> But that hasn’t been a thing in the Bay Area since about ‘15 or so
There is a whole big old United States outside of the Bay Area.
I wish you luck, I hope that is true!
I ran the math when I rented in SF. I was paying about half of what my place would cost to own.
Even with housing doubling in price, the returns from the market were 3x (though not leveraged).
Assuming 20% down and the cumulative monthly difference, maintenance, transaction costs, and what equity I would have gotten back, I pretty much broke even to owning.
Kinda true kinda not.
When we moved into an apartment in 2012, rent was $1200. By the time we left in 2016, rent was $1700. Our mortgage was $2200 including PMI, taxes and insurance for a house we had a built. By 2020, rent at the same apartment was $2400. Our house is three times the size.
The rent you are paying now is the least you will ever pay where you live. Besides changes in property taxes, our mortgage is the most we will ever pay.
> Still, rents rose by double-digit percentages in all size categories in July compared to a year ago, with monthly rents for studios up 14.3% to $1,555; one-bedrooms, up 12.2% to $1,745; and two-bedrooms, up 11.7% to $2,103.
> The South and Northeast have seen the largest rent increases. Miami, where rents were up 26.2% from a year ago, saw the biggest increase among the 50 largest US cities for the 10th-straight month. Miami was followed by New York, Boston, Chicago, and Orlando.
https://ipropertymanagement.com/research/average-rent-by-yea...
If not in the principle building (mortgage payments are commonly less than rent and 20+% goes to principle year 1 - assuming 0 price increase over your term).
But also in the US + state tax code and credits - first with "homestead exemptions" - but especially if you make over $100k (yes, roughly 2x median household income, but applies broadly to hacker news and it's a home worth the "average"city price as you get to deduct the property tax and the mortgage interest (so rough savings of 25% on the remaining 80% year 1). For icing on top, you also get credits on energy efficient upgrades.
but I'm living in a 1BR apartment that comes with a garage parking spot, an ideal setup for me personally. a mortgage for an entry level home in the same neighborhood is comparable to my rent, but it would be a strict downgrade to my QOL, as I don't actually benefit from the extra sqft and would have to put in more work to maintain it. obviously a house with a garage would be much more expensive. I've looked at 1BR condos, but the condo fee generally means it takes much longer to break even vs renting a similar property.
In Atlanta, I was renting in a 1br condo for 7 years; when rent went up 15% in one year, it was free (after principal subtraction) for me to buy/move to a 2br in the same building in 2017. (Even more advantageous as a friend moved in). By 2019 comparable rents for a 2br were 2x my total payments.
Even at the maximum rate it’s allowed to go up, it would take 5 years for that to change. But that isn’t happening, because California prices dropped 30% yoy already, and it isn’t stopping there anytime soon.
Landlords haven’t had positive cash flow on a property in California in at least 5 years (based on ‘purchase now’ numbers).
What you are talking about is the ‘sane market’ behavior, but that hasn’t happened anywhere in the country (near as I can tell, from real estate investor friends) for years.
Hold onto your butts.
On a more abstract note, deflation is terrible for an economy. In a healthy economy you want people to be building things. It creates jobs, lifts people out of poverty, and so on. Deflation causes people to hoard cash and stop working and investing.
>> 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.
Also, you're going to be investing in your children for a good 20 years, so it's not that irrational to make a 30yr investment in a house to get them into a good school district.
A good school district can be nice (if you'll have kids and if you'll send them to that public school) but the primary reason to have a home is have a place to live where the costs are predictable over the long term, unlike renting.
It’s also shorthand for a bunch of other things that boil down to “things are being managed decently well”.
If you know you’re buying the house they’ll carry you out of to the last 6 feet you’ll own, then you can be much more flexible.
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.
90% of people will not get past laying a concrete foundation.
Mainly because it's a good idea to leave certain parts to the pros. Anyone can do framing or hang drywall. Roofs are as simple as you design them to be. It's the areas where your house 'interfaces' with the rest of the world where you'll need the most help, but a lot of those situations can be set up so you can do the majority of the labor (and the tools available now make it easier than ever).
The USA has enough cheap and cheerful (aka "shit") housing already. The last thing we need are people with no building skills building crappy stud framed square boxes. If they have to build, let it be more quirky and individual, and if they don't, lets try to keep pushing building standards forwards, not backwards towards the level that Jill & Joe Everyman will likely (not necessarily, just likely) operate at.
I could take a random sample of 10 HN users, ask them to frame and drywall a house, and the result would have to be condemned. Please don't kid yourself.
Like you said, it's not the hardest thing in the world, but it's not something that just anybody can do.
There’s bound to be companies out there that do the same with houses. I think the Scandinavians are meant to have quite a lot of flat pack housing.
All of these actions either accrue more debt for the federal government, which usually means higher taxes in the future, or increase money supply, which means reduced purchasing power for users of the currency, which also includes taxpayers.
I write usually in the paragraph above because if the debt or issuance of new money results in commensurate economic growth, then it would not reduce purchasing power, but I am of the opinion that a large part of the economic growth equation is birthrates and proportion of working age population, which has been in decline for a long time. The effects were tempered due to automation/immigration and productivity enhancements in general, but I do not think that has been able to keep up with declines in birth rate for a while now.
Fannie and Freddie are not end holders of your mortgage. They sell it ahead and because they’re govt entities, they actually pay less for offloading that risk off their balance sheet than a typical bank would. As you say, they are guarantors. This means you as a taxpayer are on the hook only during events of default which happen once a decade if that. 2008 was a massive one off.
Gnma loans are sub prime as you’d know but they’re also just guarantors. They’re not literally lending money.
The cost of these guarantees is typically very very low compared to the size of the US govt. FNMA is like a $47 billion company. And that is with full conservatorship. It’ll likely expand in size as the public takes on more risk. But it’ll still be very small.
Your second paragraph is also like 95% correct. I’m not sure what you mean by increased money supply in the future. Increasing debt is increased money supply in the present, not in the future. Econ 101 would tell you it means reduced purchasing power but that doesn’t account for how much the US dominates the world. There are several untapped sources of low labor and costs around the planet. This is currently a non issue unless we suffer a double whammy of continuous high rates and the discarding of the $$$ as the worlds leading exchange currency.
The last paragraph I understand but disagree with. Economic growth imo is driven by loose monetary policy and almost nothing else. Human ingenuity or labor capital continues to be as high as it ever was in the highest echelons of research, finance, industry etc (compared to the revenue being produced). But that’s just my opinion. It is likely someone has studied this but I’m too lazy to search and then find a study where I find immediate issues with the way it is structured right in the abstract.
I phrased that poorly. I should have written now and in the future (the future because I am assuming bailouts will happen regularly until a total collapse). When the government enables socialization of losses and privatization of profits, that lets people today realize a lot of the potential gains from the future. For example, land that costs x years of work can now cost 2x or 3x years of work.
>Econ 101 would tell you it means reduced purchasing power but that doesn’t account for how much the US dominates the world. There are several untapped sources of low labor and costs around the planet.
I think there is a lessening of the domination, specifically with competition from China.
>This is currently a non issue unless we suffer a double whammy of continuous high rates and the discarding of the $$$ as the worlds leading exchange currency.
Yes, the US is still in a relatively good position, but what has occurred is a fracturing in the trajectories of the US population itself. If you are top 10%, life is awesome and looks okay going forward. Next 10%, you have a chance of moving into the top. Next 10%, you are treading water and with some luck might move up. Bottom 70% has stagnant futures or looking at declines (relative to their recent past).
>Human ingenuity or labor capital continues to be as high as it ever was in the highest echelons of research, finance, industry etc (compared to the revenue being produced).
Yes, but the distribution of gains from the ingenuity will be less equal.
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.
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)
Trees on streets help, too.
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.
IDK what the solution is that doesn't completely fuck a generation or three, one way or another. Of course the best answer would have been to never get into this situation in the first place, but here we are.
We also need to start building different kinds of homes. More "starter homes", fewer McMansions in the suburbs and luxury condo apartments in the cities.
Sadly, investors that own the undeveloped property, construction companies — they want the big margins and so build expensive homes. (Which the rest of us buy because that's what's available — a bit like a car dealership lot these days where their entire inventory are the expensive, top-of-the-line models.)
If you want a real answer, look at the population now vs. the population in 1995, and the number of housing units now vs. 1995, you’ll see that housing has not kept pace. The prices are a form of equilibrium. Because increasing supply in many locations is physically impossible, prices are unlikely to drop much. Another input people don’t want to talk about much is the price of energy, and the cost of skilled labor which has skyrocketed. The cost of building things is simply more expensive.
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.
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.
Something's got to pay for all that increase in government spending. With all the government spending and government pensions and all the people on the government payroll, sometimes I'm surprised the economy isn't a complete basket case.
There's no such thing as a free lunch. Government spending always gets sucked out of the economy one way or another. Ultimately, everyone pays for it with a lower standard of living, directly or indirectly.
As for the government financed by debt spending, the cost to you is inflation.
In general, candidates that promise to do things that benefit people who are not their constituency don't get elected. Personally, I want to live in an area where most of the residents own their own property rather than renting it. Why? Because people who own their own property are more invested (literally) in maintaining it than renters.
I live in an area with recent massive flooding (in areas that are not historically flood zones). Lots of people are outside fixing their own properties but also hiring people to fix the problems, both functional and aesthetic. If they were all rental properties, the motivation of the landowner to fix the aesthetics would not exist until the current renter left.
The problems in real estate are not primarily property ownership vs rental, but the financialization of the real estate market.
There are even semi-rational reasons for doing so: many Americans consider themselves "temporarily embarrassed millionaires," and vote in the interest of their hypothetical, wealthy future self rather than their current self.
I think people are a bit smarter than we give them credit for n
For the state as a whole, sure; I think people can see the problem with that. If you let people vote for an 0% tax for just their town, with the rest of the state staying the same, it'd be a different story.
https://en.wikipedia.org/wiki/1978_California_Proposition_13
The winning party (ABC, which had all of their candidates claim seats) did not have majority support, they were just one of the only parties that wasn't campaigning heavily on building more affordable housing (8 other parties committed to affordable housing likely split the vote)
So the homeowners largely supported them, and that class of people are also more likely to have time to research the confusing election.
ABC's mayoral candidate had the highest voter support of any of their candidates, and it was still only 86,000 of 172,000 voters.
I think the percentage of adults renting vs. owning their home in Vancouver is about 50/50, but I can't imagine how people who didn't already enter wealth through real estate appreciation could afford to buy a home here now. If prices don't fall, I would never be able to buy a home here.
> 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.
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.
Also, how did your mortgage cost go up 5x? That sounds almost nonsensical, unless there's some really rare thing you chose.
To build or to buy?
Only rich people build new houses, typically selling older house to the poors. Lately tho they keep old one to rent out, hence no actual new supply.
We’re letting in far more immigrants than homes being built - of course home prices are going to soar.
As person who migrated couple of times it really hurts to come help local economy, pay significantly more taxes and then get accused. For one - my parents will never be able to lend me $100-300k for a deposit. Tons of migrants also have to support extended families back home.
I will say it's a bit more complicated in the US considering how many immigrants are involved in actually building homes, but I very much doubt it makes up for the literal millions of people coming in every year. Are there any (first world) countries that have housing costs going up at a large rate that doesn't have large population growth from immigration?
One could even say - you get migrants in and then force them in conditions equal to prison cells...
It's not hard to see that if we're adding a little more than 1 million housing units a year and our population is going up significantly more than that due to immigrants and their children that we're going to have an issue.
> 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.
Because it's certainly true that there have been real (not just nominal) housing cost increases, but my understanding is the increase is much less extreme if you compare apples to apples.
Americans have just decided to consume a lot more square-footage of living space than they used to, is a large part of the story outside of tightly constrained markets.
- 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.
Some people will go in daily, but the days of thousands of Union workers in a factory are gone. It will be hundreds.
Might cause rates to rise a bit but probably worth it.
You will never get 3% mortgages to follow you through any refinance - if people like the ability to lower by refinancing, the cost is that if you refinance under a worse time you get higher rates. If you want the ability to lock in a 3% loan no matter what changes you make, you will have to pay a premium, so you would not get the 3% to begin with.
But changing term lengths is pretty easy.
https://www.mortgagecalculator.org/helpful-advice/how-many-y...
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.
I'll be honest, I don't believe you. I guess go ahead with it if that's what you want. It definitely lowers the quality of the discussion
And soon everything is literally life and death and everything gets maxed to 11.
In this specific case I'm also incredibly frustrated by the negative language used in these articles. I see the same thing all the time here in New Zealand, despite house prices being completely out of reach of nearly everyone and most young people wondering if they will ever own a house.
I guess it's just natural for those who only see housing as a 'market' to be exploited.
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.
The Architects' Journal Special Issue: The Segal Method: http://www.ianwhite.info/THE_SEGAL_METHOD.pdf
http://www.segalbuildings.me.uk/
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edit: It took me a little while to find Segal's followers' books, so I might as well list the ones I own here if anybody else is interested. They contain updated, insulated interpretations of Segal's process, and experimentation with alternative materials.
The Self-Build Book: How to Enjoy Designing and Building Your Own Home by Jon Broome and Brian Richardson
Out of the Woods by Pat Borer and Cindy Harris
The Whole House Book: Ecological Building Design & Materials by Pat Borer and Cindy Harris
The Green Self-Build Book: How to Design and Build Your Own Eco Home by Jon Broome
Regulations should define the desired goals, not how they’re reached.
We keep digging up long forgotten civilizations to find their post beam foundations in tact.
My best guess is rot. However, if you do it right there is no risk.
Out of the Woods is familiar for some reason, I know my dad wanted to build a house himself at one point. Maybe that was on the bookshelf when I was younger? I'll have to talk to him about this.
I imagine a design that has variations for different geographical regions of the country to account for material availability, local needs and codes. Optimized for ease of construction, cost, etc.
Perhaps it could get some sort of blessing from various municipalities so that building permits are either waived or fast-tracked.
Perhaps construction workers could learn or train to construct these homes such that experienced contractors can rotate across a number of builds in an area — total time for construction of one home perhaps close to 3 or 4 months.
And even though the styles are a bit dated... the internal designs are often better thought out than today's homes.
http://www.searsarchives.com/homes/bydate.htm
https://www.blawenburgtales.com/post/52-blawenburg-s-sears-h...
This isn't completely off - you can find similar houses today (not quite the variety that Sears had in its heyday... but they're still there)
https://www.menards.com/main/building-materials/the-project-...
> This plan is drawn to meet the National IBC (International Building Code), but it may not completely comply with state, city, county or municipality code requirements. It's recommended to consult with your local building official prior to purchasing the plan. If needed, this plan can be modified to comply with any state, city, county or municipality code requirements. Modification fee may apply. Plans ordered in an electronic PDF format are not refundable due to the licenses issued to the purchaser for the rights to build the Plan. *State of Illinois residents: Please consult with your local permitting officiant prior to ordering plan.
An "open source floor plan", beyond a floor plan, gets into liability.
With that, I wonder if using their materials and services saves any construction money. (Should save maintenance money, I think.)
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 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
Here’s a house in materials form - it’s still $120k.
https://www.menards.com/main/building-materials/books-buildi...
Alternatively, you can get a new prefabricated home built and delivered for about 100K or less.
I think a lot of cities have zoning regulations against doing that, but it's common in the country and counties.
Where I think you do have a point is the land. That's often the expensive part. It's not as wild as Bitcoin, but it certainly does follow the market.
A typical 1700 sq ft in the peninsula is 1.5-3million.
Materials costs for construction are at most 3-10% of that. So a couple hundred grand.
That said steel houses have been tried and have few downsides - echo, blocks RF and hard to modify.
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 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.
I've long thought (and would pay for) a skilled tradesman offering to do a job at double their usual hourly rate - with the condition I (the homeowner) works as their assistant being taught on the job would be a nice niche business for someone with the skills and network.
I'd have paid handsomely for a plumber to come teach me how to sweat pipes in a day or two and all the weird little gotchyas vs. me figuring it out by trial and error. There are other projects I'd love to start but get cold feet about the last 20% so I don't quite ever get there. I would rate myself as near the top of my network in terms of "handy" skills, but still lacking in direct experience.
I know how much of a PITA the average homeowner is, but man I'd love to be able to apprentice next to skilled pros doing work on my own home. Having someone to both teach and act as a safetynet if the project starts going sideways would be highly compelling to me.
Why isn't it reasonable? Plenty of people have no curiosity or experience with how medications are manufactured or how sewage systems work, and those are no less fundamental to our modern lives than how a house is built.
> I much prefer to see folks able to do for themselves and thereby avoid my markup.
If they are hiring you to do it, doesn't that indicate that they prefer your mark-up over learning how to do it themselves?
One would have to be out of their mind to hire someone who is untrained and high out of their mind to build a house (or anything else for that matter).
For starters, you wouldn't let them anywhere near power tools because they are a bad accident just waiting to happen. Secondly the quality of the work would tend to be horrendous.
> Some folks weren't raised to work and are apparently very comfortable with a level of helplessness that I can't fathom.
I'm a big advocate of trade schools as an alternative to college, and think we should take steps to bring societal recognition and pride to the trades as found in places like Northern Europe. And certainly a basic set of mechanical skills is very helpful to anyone and should be encouraged.
That said, if you pick the right set of filters to look through, anyone can look helpless in a way that is unfathomable to someone else, so to judge anyone on such a basis is at the least misinformed.
Tell me you've never worked in the trades without telling me you never worked in the trades.
"That said, if you pick the right set of filters to look through, anyone can look helpless in a way that is unfathomable to someone else, so to judge anyone on such a basis is at the least misinformed."
Postmodernist navel-gazing aside it isn't unreasonable to expect grown-ass adults to be able to handle maintenance and repairs on their home.
1. Unless you're screwing around with systems work (plumbing, electrical, hvac) there's nothing particularly complicated about the work and honestly even plumbing and electrical work are dead fucking simple compared to wrangling a codebase.
2. The majority of folks were able to clear this low-ass bar 20 years ago.
3. The US is missing two full generations of skilled trades, the odds of being able to attract a talented craftsman to your project are slim and the majority of folks can't afford one when the find them. The aphorism "If you want it done right do it yourself." has never been more true than it is now.
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.
Between site prep, utility hookup, permits, and plans - there's probably close to a $30k fixed cost to build a 600 sqft house.
If the lot also costs $15k (usually $60k+) - you're looking at a $45k - $90k fixed cost.
Every house has at least one kitchen - you can build these for much cheaper - but the types of kitchens buyers of new houses expect cost at least $60k. Same for a bathroom - but you're looking at $20k.
Assuming the rest of the house costs $100 sqft - a new 500 sqft house is going to cost $50k + $60k + $20k + $45-90k = $175-225k. You want a ~20% margin - so this becomes $210k-$270k. At this point - why are you building a 500 sqft home? You bump it up to a 2bd + 2ba 1400 sqft home, and you run into the same problem. There's no buyers at the price you can build - so you build a McMansion instead.
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.
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.
SS is a defined benefit program. Its insolvency is a problem with all such systems, including the ones you advocate for.
Emphasis on the word should. Humans are bad at managing huge amounts of money.
I don't see any particular reason why they would. Lots of individuals do much better with their investments than bureaucrats do. Also, there are many "fire and forget" index funds available for those with little investment skill.
Quite simply, the guise of individual exceptionalism and the illusion of financial control was used to justify the shift away from pensions, which shareholders took profit from what would’ve been pension contributions, and compounded by stagnant wages, a substantial amount of workers were left with nothing.
https://www.aarp.org/retirement/retirement-savings/info-2019... (“Nearly Half of Americans 55+ Have No Retirement Savings”)
(Sarcasm to be clear, though I think something between a full pension and entirely on the worker is what we need). Defined benefit is too easy to abuse and defined contribution has weaknesses, too.
Which never were given to many people (so SS was the biggest source of income, even then), were insolvent, and make little sense for the mobility of a modern job market. I'd much rather get paid more, put that money into multiple places and plans I control, so if my company folds, I am not left with nothing.
And the historical evidence is that pensions were not what people now assume they were.
https://eh.net/encyclopedia/economic-history-of-retirement-i...
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.)
Maybe because people started moving around in their careers a lot more than in the 1970s when you had one job for life?
We employ far more people, at higher wages (especially for women and minorities, and certainly with higher benefits (BLS tracks total cost to employ - check the historical data) than the 1970s. So maybe that offshoring really did not move many jobs overseas. Most jobs moved to automation (the US only lost top producer of goods rank somewhat recently - except most of that production is automated now).
Also, pensions never covered many people. Far more people retiring have 401ks now than had pensions at their peak.
https://eh.net/encyclopedia/economic-history-of-retirement-i...
People "moving around in their careers" reads like a euphemism for laid off, downsized, given the pink slip.
Track all the people you run into in a week, and consider how many you think would choose to keep the job their in with the same employer for life. I don't know anyone I can think of who would choose that.
There's just too many opportunities, at all levels, to find better jobs over a 50 year span.
However, I find it hard to argue that the fix is to tie increased retirement security to very long term employment with government or individual large companies. Basically, the typical tech worker would get basically no pension under the terms of most pension agreements of the 50s-80s even if the large tech companies offered such.
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.
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.
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.
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.
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.
It’s hard to compare this stuff apples to apples, but the one constant regardless of locality is that higher rates significantly reduce buying power for people relying on mortgages.
https://www.state.nj.us/treasury/taxation/pdf/lpt/gtr/2021ta...
It also isn’t uncommon to see a big difference between the sale price and assessed value. One datapoint would be a $4M purchase that is only taxed at $2.2M the first year after the deal closed. At least in King County, the valuations do seem to “catch up more quickly” after a sale, so at +1y it might be $2.8M, at +2y it might be $3.3M, but to be paying >$30k here in taxes you’d need a >$3M assessed value home.
[1]: https://www.tax-rates.org/washington/king_county_property_ta...
In Seattle, where the housing market is considered expensive, a 1.2m house only pays $7k in property taxes
Only if it has (a) an exemption or (b) an assessment well below market value. A typical house with a $1.2 million assessment will have paid over $10k in property taxes in 2022.
[1]: https://apps.leg.wa.gov/WAC/default.aspx?cite=458-07-030
Are cash buyers really 25% of the market in the US?
My local anecdote - a few of my realtor friends said roughly 70% of all transactions in the last two years in Santa Barbara area have been cash deals. They also said currently those deals are all dried up. From what little research I've put into it, from the county assessors office it looks like 2.5k homes were sold last year in the area. Now think about this, we had an overwhelming number of people from LA and SF flee to Santa Barbara during the pandemic. How many of those people had temporarily won the stock option start-up lottery, ie. any tech bubble employee - zoom, pelaton, doordash, etc, or had a house that had spiked in value willing and was willing to swap homes. It doesn't take much when housing supply is at historic low and temporary bubble demand skyrocketed to throw the market all out of whack. Personally, I know at least 10 people that traded their zoom stock for all cash housing deals here in SB at the right time. Now that stock is worth 1/8 of what is was. I imagine that this scenario played out a few hundred times just in our little town. Extrapolate that nationwide, you can see what might have contributed to massive asset valuations that quite literally, don't make sense. In the long run, it shouldn't matter, however it will be fun to watch it all play out.
Cash buying is one of those terms people don't understand. You're almost never getting a suitcase of 100's.
And if you are, you may want to follow your escrow agent as they run out the door.
Not in the sense that they didn't finance part of the purchase, as I understand it. It just means the cash is already there from the point of view of the buyer.
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.
The flip side of that is when I bought this hose from (looking it up) silent generation owner who was moving to a nursing home, there wasn't any other housing inventory in the price range and area and cost. Buying an old house and fixing it up over the years was much cheaper than buying a new house another half an hour out of town that costs 2x-3x more.
The buying a small house new house is still 2x-3x more than this old house would sell for.
Other than that this is a big house, there is no reason to sell it at this time. Additionally, the new development that is being built is targeting the most money that can be packed into a single lot... and... well, I don't want or need that.
If people want me to move out, build a nice 1-2 br 1.5 bath with a room for a home office on the quiet end of a street. I don't need a fancy kitchen. I don't need a place for fancy plates to show off in the dining room. I don't need a man cave with a bar or a three car garage... just something nice and sensible.
And yes, it is certainly a problem. Housing supply has been woefully under built for a decade or more, and that which is there is not targeting what remains of the middle aged middle class that sees a 30 year mortgage when they're 40 as absurd. The less expensive supply is often getting bought up by people speculating, as a rental property (either by a landlord or by a company).
Which brings us to "I've got a house, its paid off, going anywhere else reduces my net worth and gives me some debt that I'm unlikely going to be pay off before I retire - there is no reason to move at all."
Not to mention waiting in lines everywhere to go, and being forced to rub shoulders with lunatics when you need to commute for work or shopping.
At this stage of the game I'm ready for the 2500 sf house.
Where is this? I'd love a place where single people can afford a 3500sqft house?
Here in silicon valley it takes two tech salaries to afford a 1300sqft box.
Texas, Georgia, North Carolina, ...
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.
It's a tricky question that can really only be answered by looking at how leveraged assets in general are.
So it's a double whammy of high interest rates with the pricing from 2021. It's wild out there folks.
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.
I don't know if it's enough or not, I was making the point that that 25 percent number is in aggregate for the entire large country and there are some insane skews in local markets where the number is much higher.
But to directly answer you, if inventory is dried up, no one is listing, and the stuff that comes online is still priced like mortgage rates are 3 percent, that might kill off a large pool of buyer demand but those cash buyers are still the marginal buyers and bidding wars will ensue just the same. I'm seeing this at present.
Crashes often happen in slow motion, as this one is. It’ll take years to play out.
That's why - unfortunately - there could be no crash this time. Just a long period of stagnation and low turnover.
I think what we can say is that the boom is over, and this will impact stocks, real estate and jobs for at least a couple of years till assets become more affordable again.
What can change this is a fed pivot on interest rates, which will happen at some point when things really break (bond market, stock market) or inflation comes down a bit, but not until then, so unlike previous downturns the fed doesn't have much ammunition here as they need to look serious on inflation.
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.
Pretty sure that’s wrong. Tenure in job is near an all time high in America. Boomers were the job hoppers.
Anecdotally, most of my older relatives spent 20+ years working at the same place. Meanwhile I’ve had 4 different employers in the last decade and don’t know many young folks in tech who have stayed with a company for 5+ years. (Why would you if you can only move up in position or salary by job hopping?)
The boomers lived through 11% unemployment. It may not have been job hopping by choice.
That would be astonishing, unless you are in some really unique industry.
Perhaps if it's one of the big consulting firms, maybe. They start right out of university and then follow a career track which can easily go 15 years to partner level. And for those willing and able to live that life, I imagine they don't change jobs as often as others.
The numbers go down as the year goes.
Additionally, the median length of the tenure goes up with age. For men...
.... 2012 : 2014 : 2016 : 2018 : 2020 : 2022
25-34 3.2 3.1 2.9 2.9 2.9 2.9
35-44 5.4 5.0 5.0 5.0 5.1 5.0
45-54 8.5 8.2 8.4 8.1 8.2 7.5
55-64 10.7 10.7 10.2 10.2 10.0 10.0
.... 2012 : 2014 : 2016 : 2018 : 2020 : 2022
4.8 5.0 4.4 4.3 3.9 4.2
Not only does the recent trend show tenures declining, but it also shows home ownership declining since the peak in 2004.
So more job turnover and less home ownership does mean more likelihood of moving, whether to find new jobs or to work remotely.
.... 1982 : 2012 : 2014 : 2016 : 2018 : 2020 : 2022
25-34 2.5 3.2 3.1 2.9 2.9 2.9 2.9
35-44 4.9 5.4 5.0 5.0 5.0 5.1 5.0
45-54 8.4 8.5 8.2 8.4 8.1 8.2 7.5
55-64 11.9 10.7 10.7 10.2 10.2 10.0 10.0
> In 1983, more than 1 worker in 3 aged 35 to 44 had been with the same employer 10 years or longer and almost the same ratio of workers 45 and older had worked for the same employer 20 years or more
> Among the principal findings:
> One worker in 6 has been with his or her employer for at least 15 years. Among workers aged 45 and over, nearly one-third have been with their current employer for 20 years or more.
Comparing that with the current one https://www.bls.gov/news.release/pdf/tenure.pdf table 3
.... <12m : 13-23m : 2y : 3-4y : 5-9y : 10-14y : 15-19y : 20+y
20+ 22.3% : 5.6% : 5.1% : 18.4% : 20.6% : 10.1% : 6.7% : 11.2%
35-44 19.2% : 5.3% : 4.7% : 18.8% : 25.4% : 14.0% : 9.2% : 3.4%
45-54 12.9% : 4.0% : 3.9% : 15.4% : 21.2% : 13.2% : 10.4% : 18.9%
55-64 11.6% : 2.5% : 2.5% : 12.6% : 19.3% : 12.6% : 10.1% : 28.9%
The corresponding for 2022 would be:
> 2022, about 1 worker in 4 aged 35 to 44 has been with the same employer or longer, which is almost the same ratio as workers 45 to 54 working for the same employer for 20 years or more.
> Amount the principal findings:
> One worker in 18 has been with his or her employer for at least 15 years. Amount workers aged 45 to 45, less than one fifth has been with their current employer 20 years or more. This climbs to slightly more than one quarter for workers aged 55 or older.
Yes, this is all anecdotal, but I can't help suspect that you're doing a bit of "this is how I feel, so surely it's the way everyone else feels". :)
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...
Most of all: College. Not only does it share a lot of the practical value that the church historically provided (community, fellowship, teaching), but notably it carries a similar fear-based belief system whereby there is a lot of social pressure to attend and it is accepted that if you don't attend you will face the scorn of the economic deity; the modern day version of "you will go to hell".
The specific "higher power" may have changed with time, but the human behaviour certainly hasn't.
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.
Basically, your mortgage says you have to maintain N% down. So, if the house price drops enough, you make a balloon payment or the bank forecloses, and sells the house at auction.
Once margin calls start triggering, there's an automatic sell off of whatever asset is impacted, causing more margin calls and a feedback loop.
90% of Britain's pension funds were hours away from being zeroed out by margin calls a few weeks ago. The Bank of England intervened.
It made for some great reading. This is why the UK gov't keeps walking back the mini-budget, and the IMF is making noises usually reserved for failing dictatorships.
The US is below replacement rate on 3rd generation+ families, and would experience an aging crisis like Japan if it were not for immigration. You're 'wide open borders' statement is just a dog whistle.
I get when some small country like switzerland complains.
But what the fuck is going on with the US - you people have a giant country, all of mexico could move in and it wouldn't make a dent!
- 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.
There seems to be an implicit assumption that WFH is somehow less productive. I've not seen much evidence of this personally. It certainly makes management harder but it's a small price to pay when it's saving a bunch of travel costs for the employee and office costs for the employer
If I am understanding the parent, the point being made is this may be less of an option for many if companies revert. If there aren't many opportunities to work remotely, this will become more of a perk, like free lunches, and not something other organizations will compensate you for. Not everyone may have a choice to demand more money if the number of WFH options are very limited.
Apple and Google might be able to pull it off but run of the mill non-unicorn companies? Not convinced.
Whereas Facebook made a big announcement that they were renaming the company Meta. They asked to be called Meta.
Hiring a CFO from the banking industry did make it more difficult to get the free food, though. The cause and effect there was immediately noticeable.
With labor having less power, it's likely that the members of senior management who don't like WFH (for a multitude of reasons right and wrong) will have more sway in the conversation.
It's entirely possible that on the scale of like 30-40 years, this period will be considered a "slump" in how bad covid is, or a time when we were just not considering its effects enough. I don't think this scenario is extremely likely, but I do think our collective uncertainty about long term covid effects on society is still very very high and we should be factoring that into long-term decisions like where to live, housing ownership, etc.
The high confidence people are comfortable displaying about where we are with it is not warranted, imo. It may not be a critical day-to-day concern for most people anymore. But there's no guarantee it can't go back to that state, or with the hindsight view of covid disabilities we'll have wished we kept it as a daily concern during this time.
Plus nursing homes are probably going to remain more lethal than they have been during most of our lives. I think expecting a social change around elderly care based partially on that is astute.
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.
Yup I've made this plan a couple times now.
But sadly many were thinking "one more year and I can afford a multimillion mansion with an infinity pool"
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.
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.
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.
Maybe you prefer the city centre, but if you could build a new home in the suburbs for pennies on the dollar, it would be hard to pass up. But when building that suburban home costs just as much then there is little reason to compromise.
There is still a lot of sprawl happening, to be sure. But when competing for use, you're going to pay a lot more, which in turn drives up the cost in the city centre. Prior to 2007 when food commodities first started going nuts farmland was significantly less valuable.
Cities don't stand as islands. They exist within a much larger world.
Around here we have something like 500+ new dwelling units in the last few years, and we're pretty small. Other areas all over the country have been building like mad.
See: https://fred.stlouisfed.org/series/HOUST
The sudden drop due to covid caused a shock throughout the housing market that hasn't been absorbed even now.
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...
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.
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.
Also, if lots of people are buying and selling, even if aggregate demand is the same, it's a more liquid market. If I'm a first-time homebuyer, I'd rather play in a market of musical chairs then try to buy in a theater where only the dead and divorced get up from their seats.
If a family that would normally have sold their older two bedroom and moved to a four bedroom instead chooses to remain in the two bedroom longer, that two bedroom doesn't appear on the market, a four bedroom languishes.
And if nobody is building two bedroom houses, that can have ripple effects.
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.
All of that goes away for a percentage.
Some people get lucky with golden tenants who never cause trouble, pay on time, and even fix little things on their own.
Others get unlucky and have to deal with a neverending stream of issues, from dealing with payment issues to having to leave work in the middle of the day to handle the issue of the week.
The laws around being a landlord are also more complex than you'd expect. In many locations, you can't show up and fix things on a rental by yourself unless you're a licensed contractor. A lot of landlords ignore that and do it anyway, but if anything goes wrong then you have a target on your back as soon as the tenant engages with a lawyer. Hiring a property management company is a way to pay someone else to handle all of that and take a significant legal liability off of your shoulders.
I remember early in my career I worked with a guy who thought he was going to manage a couple rentals on the side while doing his SWE job. He ended up getting PIPed because he was missing so many meetings and had to disappear all the time to deal with the latest issues at one of his locations, or even just to try to find new tenants after the constant turnover.
On the other hand I watched my wife tell a male owner that she would not accept a rent increase and he backed down.
Overall if you only have one property, have the right skill set and personality I would say you are better off doing it yourself. If you cannot say no to a young woman then you had better let someone else take care of it for you.
You’re probably better off finding a good tenant and paying the tenant to manage themselves, paradoxically.
Rental management for the most perfect possible tenants (parents) is still a moderate annoyance and more expensive than expected. Without appreciation I’d be below zero, and even with it I’d have to do some serious work to figure out how much I’ve “made”.
i made the shift because i was tired of having to deal with every minor crisis myself, take time away from work to (for example) meet prospective tenants, get a new AC installed, handle the make-ready process, etc. i had a good long stretch with one tenant that was low-maintenance but they moved out suddenly with very little notice (add managing the lease agreement to the list of stuff i don’t like doing as a landlord) and a lot of work i had to do to clean up after them.
all things considered, i’m happy to fork over 5% each month to someone else to deal with those headaches.
Insurance can only do so much to protect against that, but the worst case scenarios are thankfully relatively rare.
I do so for a few reasons: first, I have no idea what my obligations are as a landlord and they do; second, they have a list of local tradespeople whereas I live in a different country; and thirdly, the property is an apartment and the common areas and exterior were already being managed by them.
If it doesn’t happen, it goes into a maintenance backlog that will make your head spin later, and possibly your wallet implode.
If you live there, it’s usually straightforward enough to fit it in with everything else, but can be exhausting on it’s own.
Through something major in (roof leak? AC breakage?), add it being in an area you don’t live in anymore, and gets harder.
Then, you can have tenants that aren’t absolutely perfect, and it gets even harder and more tiring. Late payments? Property damage? Neighbor complaints?
If you pick good tenants each time and nothing goes wrong, it can be great. It only takes one case of it not for things to get really unpleasant and overwhelming however.
Also, add in the Covid eviction moratoriums, which opened a whole additional can of worms for landlords - if something happens like that again, which precedent has now been set - you could spend years paying a mortgage and upkeep on a place with zero income from it.
Personally, I never rent out a place unless I know how to do an eviction in the local jurisdiction. I hope I never would have to, but not knowing how is a good recipe to lose your shirt and possibly any future gains you could ever hope to have.
I’ve known folks that had renters who seemed perfectly fine (solid full time professional jobs, etc), but left a complete trash house (literally, multiple dumpsters worth - trash to chest high), and disappeared suddenly without paying last months rent.
The underlying truth is that it takes work and management expertise + energy to maintain a house in livable condition, let alone want-to-live-in-it-condition, and that has value. Also, not everyone can, or wants to do that.
I know how to do an eviction in my local market and did one in my former life as a landlord. That is precisely why I will never be a landlord again.
Paperwork grind and cost? Nastiness/emotional side? Something else?
The eviction process in my state
- first you have to give them your own personal notice.
- if they don’t pay in 7 days. Then you go to court and file paperwork with the court
- then once the tenant gets served they have a certain amount of time to reply to the notice
- then they can make up any reason to dispute it
- then you have to wait on a court date after you win. They still have a certain amount of time to pay. If they don’t…
- then the Marshall again serves a notice
- then you have to schedule a time for the marshal to oversee the eviction.
- then you have two hours to remove everything from the house on the street while the marshal is supervising. You must have a crew of 5.
- while all this is going on, you can’t enter the house or harass the tenants in any way.
- then you have to clean the place up and fix any damage.
- then you have to find and screen new tenants.
There is a reason standard underwriting only gives you credit for 75% occupancy. The effort is not worth the money. I spent years grinding out rental property between 2002-2010 and even if the housing market hadn’t crashed, I would have been better off focusing on my career.
From 2010-2020, by concentrating on my career I tripled my compensation without having to relocate. Not bragging, it’s about that of a mid level software engineer at any BigTech company in the US (I work remotely at BigTech in the cloud consulting department). Even now if I cared to, I could put in 6 months to a year worth of practicing coding interviews and probably increase it by another $100K.
Residential real estate is not “passive income” by any stretch. I am better off just investing my income from my 9-5 in REITS if I wanted exposure to real estate.
Personally I take advantage of it and think it's not necessarily a bad thing, but wish it was more direct about what it's trying to do.
The long term fixed rate mortgage is where no wealth gets redistributed today, but rather from future taxpayers or users of the currency.
Secondary step would be to make landlord-ing less attractive by giving tenants a lot of rights, naking them hard to evict, thank kind of thing.
This would make houses less atractive as an investment asset.
Lastly you could increase property taxes, again driving down atteactivenes of hiuses to investment.
Beinging down price of houses is easy. The question is what do you do with all the people who bought a house for 500k and now its worth 250k and they are stuck
For example,
https://www.mortgagenewsdaily.com/
Reports 30 year fixed is about 7.32% and 5 year ARM is about 6.75%. A 10 year would be somewhere between that, but if I was choosing with less than a 52 basis point difference, I would go with 30 year fixed due to less downside risk of my mortgage blowing up.
At 30 year mortgages of 2% to 4%, no brainer to just go with 30 year even though you might pay a $1k more in interest every year. But you might not, and you definitely will not pay more than a $1k extra in interest since it is locked in.
If the 10/1 ARM was 5% and 30 year was 7%+, I would think about the 10/1 ARM.
Part of the problem for communities starts when not all participants live in the community - if the grocers and workers and police are “imports” from the suburbs or other areas you start to get divergent goals and WGASA starts to take hold.
Years ago my dad took an ARM at 18% because the anti-usury laws limited the maximum it could go to 20% and it turned out to drop each adjustment period after that (80s wheeee)
What does this mean? Are there usually early repayment penalties for home mortgages in Germany, or is it simply not allowed?
In the US, I have never read about not being able to pay or a penalty for paying the entire mortgage at anytime.
And yes, the prepay penalty is generally based on the interest they would lose or a few month's interest, whichever is better for the bank at the time of payment.
But also note that if you paid the extra for a 10-year, Canadian federal law says you can prepay 100% at any time after 5 years with no penalty (or virtually no penalty?). Which is part of why longer-term mortgages are markedly more expensive.
https://www.loan.com/home-loans/how-non-recourse-loan-laws-v...
My parents (we're all American) were always very careful to check that early repayment didn't come with a penalty, on mortgages and all other loans, so I assume it used to be a thing. I've always asked (following their example) and not once had the answer be "yes, there's an early-repayment fee" so maybe it's a whole lot less common than it used to be.
https://www.ecb.europa.eu/pub/financial-stability/fsr/focus/...
"The prevalence and handling of prepayment risk differs in two respects between Europe and the US. First, while in the US prepayment costs may be priced into the interest rate, in many European countries lump-sum prepayment penalties are induced by statutory requirements. Often banks impose charges on homeowners for early repayment. These fees force households to bear part of the prepayment risk and, if the fees are sufficiently high, may deter homeowners from prepayment, thereby nullifying the prepayment risk faced by banks. An exception to this is the Danish mortgage market, where long-term fixed-rate mortgage loans with an embedded option of a penalty-free prepayment are typically offered, as in the US."
Our 80/20 loan back in the countrywide heyday had a prepayment penalty on the 20 which also had a balloon. We structured our refinance to avoid the penalty.
1) raising rates and otherwise making money more expensive encourages capital to do something else with their money than speculate on real estate cheaply, which was a pretty appealing option over the last 5-6 years (let alone the last 2).
2) it's a mistake to rely on interest rates alone to address issues here. There's a whole raft of policy issues that should be brought into play here: progressive taxation by ownership volume and vacation-rental usage, better interest breaks for first-time homebuyers, encourage owner restoration and discourage investor-flippers. BUT every other way of addressing the policy is actually harder politically, since one party sees inequality as feature-not-bug and will actively fight attempts to address it (especially if it represents a win for their opposition), and the other has both a tenuous hold on power and a coalition that may not be all on board.
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.
Australian here, $200k would be a dream! You're off by a factor of ~4.6: https://www.abs.gov.au/statistics/economy/price-indexes-and-....
Over the past few years the appreciation on housing has meant that for many people their shelter, and entirely non-productive asset, has outpaced their own earnings. For anyone not on that rocket ship, good luck.
So the majority of recent buyers are servicing loans much larger than their current house is worth, and paying more interest on top of that.
I’m sure it will “go back up again”, but it doesn’t seem like there are any events in the near future which are likely to kick off another massive boom, all signals are pointing towards a property slump.
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.
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.
Assisted living does not come cheap.
Also, the grim reality is that you have to live long enough to need assisted living. A life expectancy of 78 sounds good on paper, but by the time you get to your late 60s and early 70s people in your age bracket are dropping pretty quickly.
They may try to put it off as long as possible, but it will catch up to them. And then it does not take long for the costs to consume their would-be estate.
And the irony is that it's the system their generation built for their parents.
For example in the US a male has a life expectancy of 76.22 (https://www.ssa.gov/oact/STATS/table4c6.html), but a 70 year old male has a life expectancy of 84.59 years.
But that doesn't take away from your main point about people wanting to avoid that situation.
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...
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.
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.
[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.
> 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.
I could get behind removing almost all zoning, but code is just sensible.
I have built a house. If somebody is building a house for their self they will make it as safe and sturdy as they are able. Somebody building a house to sell will cut cost wherever possible to make more profit.
I would be fine if building code was administered more like Underwriters Laboratory. Let people build however they want but give the option to certify it is up to the code at the time it was built. Not all homes would be certified but there would be more homes. Over the long run the majority of homes would be certified due to the higher value certification would carry.
Penalizing undesired behavior is much less effective than incentiving the desired behavior.
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.
But outside of that type of market, buyers are not trying to pay more for a house just because they can afford a monthly payment.
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.
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.
It makes perfect sense in a sellers market from a an agents perspective. Agents maximize number of deals, making hay while the sun shines.
Sellers maximize competition, and get to do so because it is/was a sellers market.
Of course low rates are why it was a sellers market, but this is the winning strategy in a that market.
The point I was making is that houses sold quickly regardless of how low they were priced relative to comps. It was/is a bubble through and through.
And my point is that speed is a feature of any sellers market, bubble or not.
I think it is/was a sellers market, but don't think it is a bubble that will pop.
It might go down some or sideways, but it wont be disastrous. For those that sold out of stock to buy a house, their homes could loose 30% and they would still have come out ahead.
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.
Here's one random one: https://docs.legis.wisconsin.gov/misc/lfb/informational_pape...
And many jurisdictions it doesn't matter what your house appraises at, because when yours goes up everyone else's goes up, and they allocate the property tax based on the needs (budget) of the community. So if your house was 1% of the total value in the town, it will remain 1% even if it tripled in price.
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?
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.
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
Which, in practical terms, means losing money.
By definition no. In reality not either as you have to live somewhere - it might feel like your "investment" hasn't kept up with inflation but your next house hasn't gone up either so is actually good for the average person. Of course if you have a large mortgage the investment is small anyway.
Rising rents amid flat home prices are necessarily temporary absent price controls.
At some point buying is basically arbitrage between the mortgage rate and the inflation rate.
It's a play on rental yield, i.e. rent versus price. Inflation is relevant, but more precisely considered as the cost of capital (opportunity cost of your down payment plus lost/gained yield on the difference between ownership costs and rent). Everything else is adjustments. Whether it's financed with a mortgage or cash is important, but the fundamental analysis still holds.
Unless inflation is zero, this won’t be true. Commodities will have gone up. Labor will have gone up. That fundamentally raises construction costs for new homes. For existing home prices to remain flat that requires land values to fall.
Add in real-estate transaction costs and maintenance (which are also fundamentally exposed to inflation), and yes, one will lose purchasing power in a flat housing market. Intrinsically. And relative to someone owning productive assets. (I say this as a homeowner.)
Generally, even if you lose money from inflation, property taxes, transaction costs, and maintenance, imputed rent will put you ahead in the end.
Buy a few landlording books and read through them, and then vigorously track everything that would be a "rental expense" if it were a rental property in your spreadsheet, then at anytime you can "back out" what you would have had to pay in rent assuming some % profit. Add that to rental comparables from your area and you can get quite a good idea as to the true cost of home ownership (and renting).
Or you can do a simple version of it by calculating what the IRS would allow you to deduct as depreciation and assume that's roughly the maintenance cost.
Only if you're a robot that sleeps in a closet. Otherwise you have to live somewhere during that time. And every penny spent on rent is literally just vaporized into nothing.
Someone who rents can move to a new opportunity much more easily than someone who owns, and would need to either sell or find and manage tenants.
Don't get me wrong, you spend that money on stuff you use, but the TCO is much higher than the mortgage payment.
Happened to us and our neighbors - bought end of 2005. 2015... house estimated for... about the same as we paid for it. It wasn't "steady sideways"... it was 'crash and recover'. But it's certainly happened to many folks - buy then sell years later at roughly same price.
Millennials have never known different until very recently. To them, housing wasn't something that appreciated at all. In fact, it's so common for millennials to say things like, "just waiting on another housing bust." It's like they think 2008 was come cyclical event that you just need to wait another year for.
I held a similar attitude towards housing and rented throughout my 20s because every single homeowner I knew bitched about how buying a house was a loss for them. People didn't make money on houses outside of rich coastal cities. Heck, I'm trying to unload a parent's home and they are disappointed that the house they lived in for 16 years has only appreciated by maybe $10k.
Covid was the when young people outside of NYC and Cali learned that it is smart to get into the housing market earlier, rather than later.
Many people experienced different things. Of course, the regions where most people were moving to and where most house sales occurred experienced higher land prices, but the regions where land price was stagnating or declining would have fewer sales in the first place and hence not reflect in the data, but the people there would still be experiencing it.
So you just have large numbers of people experiencing different price movements depending on where they live.
https://fred.stlouisfed.org/graph/?id=MSPNE,MSPMW,MSPS,MSPW,
You can pretty clearly see that most regions there were long periods of housing stagnation and decline, followed by quick price jumps, then back to stagnation.
And look at how wildly the NE region fluctuates. It regularly moves 10% up or down in any given year. And sometimes much more, prices moved from $403k to 566k in one year (2016->2017).
Whether you did well or not in your housing purchase comes down to luck. Yeah, in aggregate, over long enough time periods, housing does well. But your individual situation will vary dramatically.
My parents bought a house in the early 70s. They paid about 12,000 for it. That same house now is being appraised at about 210k. However, if they sold they could take that money and buy a comparable house for about 210k. Housing is a good hedge for inflation. It is a mediocre investment vehicle, unless you happen to win the live somewhere where supply is not where it needs to be lottery.
I bought my house and paid for it as quick as I could. The saving on the rent alone was worth it to me in my area vs the cost of the house.
Or as a old saying says "a bird in the hand is worth two in the bush". I am well into 7 figures on wealth instead of low to mid six figures in debt. You can play debt in that way. But it is risky and has lead many to ruin. However I traded debt for a reliable income at a fixed pace that was well above my spend level. I curb stomped all of my debt own a nice house, nice car and paid for with no debt. Debt is thief of your future potential. Debt can be used for that sort of thing but you have to use it extremely carefully. Most people dont. I was not among the gifted of picking the right things to invest in. I also know to almost the penny the potential I lost. Because hindsight is 20/20. It is nearly identical to what I have. Because I basically became the lender instead of the borrower. Debt is now a tool for me instead of a worry.
Arguably they might not be going up much more than inflation once you calculate all the various new requirements for new buildings, but it's still a problem. In absolute long terms, housing can't become completely unaffordable.
Holding value is also not necessarily a bad thing. You want a pyramid of investments. With your base being solid boring things. Then once you have those nicely going. Risk is not really that risky. It is not 'i am not going to eat today' it is 'darn lost that investment life goes on'.
It depends on the risk model you are making. My current one involves keeping a house and then using the money I would use for rent as investments. Think of whatever you are renting or your payment per month is. Now think of what could you do with that extra amount of money per month. I have had hundreds of people tell me the same thing. That there are these great investments out there where I could turn the value of a house into 1500-2000 a month with low work. Yet no one points them out. They 'are out there'.
My risk model is zero debt and no rent. Giving money to other people for borrowing is a risk model I used when I was younger. I no longer do that. It is like getting a 50% raise on the same income.
I think we could give those "young latte-sipping kids" a break..
We have a ways to go to get back to "normal" whatever you define that as.
Locally and anecdotally, I've noticed houses are sitting on the market much longer, and I'm starting to see "price lowered" emails from Zillow. We've definitely entered a cooling off and people are moving less.
We need to tax the rich to redistribute the wealth. Own more than 3 homes as a single entity? Mega taxes etc.
Typically what happens is the rich leave to a place with less taxes or where they’re not seen as the mortal enemy of X local government. Then all that tax money they otherwise were paying goes somewhere else, and the state is left with a net-negative tax inflow.
The top 1% pays over 25% of all taxes, and the top 50% pay 97% of all taxes: https://taxfoundation.org/publications/latest-federal-income...
I agree we have a problem with wealth inequality, but taxing the rich is a simple, poor solution to a complex problem.
Also if you try to dodge US taxes by renouncing your citizenship you owe a large one time payment so it doesn't work so well. So an exodus of super wealthy individuals seems unlikely.
A property tax isn't what people are talking about for a wealth tax.
I do believe that you should be able to keep accumulated wealth. We are all equals under the law. Once there is a wealth tax the definition of wealthy will be continually decreased so the government can take more. The government has an insatiable appetite for spending other people's money. It will always demand more.
More generally, if you're going to tax wealth property is the place to start.
US cities' housing value is entirely captured within the local committees' ability to block any and all construction nearby. If zoning limitations are eased then the American housing market will crash irrespective of the nature of the economy around it.
Minus some really out of the way places (Iran? Central Africa?h that’s pretty much everywhere.
As money starts to tighten up again, expect a LOT of house pricing headwinds.
Might change soon with the province overruling nimby councilors https://www.cbc.ca/news/canada/toronto/new-housing-legislati...
Now move out to more desirable places to live (say, San Diego with it's great sunshine) and you will see asset prices are blown way out of proportion. This is a very geo-specific asset class, so you will have to look relative to the geo.
Unfortunately or fortunately, it has a lot to do with the interest rates and inflation. What you will see is with the layoffs and for folks who have taken out ARMs to optimize the cost of borrowing, a lot of folks are in for a big wake up call.
I guess I'm not saying their predictions will or will not come true, just that they don't support them.
Understated from my experience. I recently had a relative going through the process of having a new build and the builder had very many excuses and delays due to scarcity of materials and costs. I was pretty sure the relative was getting scammed, or that the builder simply wouldn't be able to deliver.
They did finish that home eventually, and made a lot of progress on the development of that neighborhood. And all their issues were corroborated by what's seen in commodities circles and general supply chain issues. I think they could have gotten the resources they needed at a higher bid but they had to operate within the budget as they had collected money and credit in advance of the supply chain constriction, which would be passed down to the forecast of what the home would have cost.
The main floor on prices is the cost of new building, if that starts to drop than house prices will drop with it in the areas where building is occurring, which helps slow down the rise everywhere.
There is a ton of political will to ensuring the market keeps rising.
Significant portion of voters are invested via retirement account.
Politicians are invested via their own investments.
Rich people own public equities,
And finally, hundreds of billions of dollars of unfunded liabilities for taxpayer funded pensions are invested in the market. The worse the market performs, the higher taxes have to be to pay for all those good plated retirement benefits.
If anything, I would say the only guarantee is that on a timescale of 5+ years, government leaders will always choose to sacrifice purchasing power of currency to keep nominal asset value increasing.
Home prices can only go as high as the top bidder can afford. How many people are ready to buy the same house at the same price for twice the monthly payment?
>First, because gummed-up property markets are a drag on the jobs market. [...] the uncertainty makes people hesitant about moving
It could also mean that a huge supply of real estate makes it easy to move for everybody who doesn't own a house
>Lower house prices also hurt growth in a second way: they make already-gloomy consumers even more miserable.
Or it frees huge amounts of capital for those who buy a house when prices are low.
This is all insignificant to a coming disruptive change. China and India are incentivized to develop more efficient modes of housing. The west is cut off from that development by insisting on maintaining the status quo with zoning laws.
Even if western citizens remain in their countries, the west will lose the migrant science workers when they move to where housing doesn't take half of your income.
As a consequence, the housing market can collapse even more.
BUT, why are thousands of buildings/units empty in NYC that have been empty for years with an outrageous rent? Because among other things the owners win/lose less when the building is empty due to taxes plus many are with a noose around the neck waiting for the big sheik to come around and buy their building for a non-sense amount of money.
A version of that exists all around the country, plus builders "stopped" building new houses around a year ago, so inventory will disappear and prices will stay or even go up.
Apartment buildings are the exception for now but it's a gamble and with the high costs of everything ( now including finance ), I don't see how those prices will slump.
They'll stop being so ridiculous at best.
See Melbourne's Speculative Vacancies Report[0] for a comparison (in some years I've seen this report indicate that vacant properties in many areas are over 10%).
[0] https://www.prosper.org.au/speculative-vacancy-reports/
edit: I forget which year's report it was, but they did once find a very strong positive correlation between the rate of capital gains and empty properties. I.e. the stronger the capital gains in an area, the more likely properties were to be left empty.
There are absolutely not thousands of buildings empty in NYC. It's also worth noting that there are 3.52 million housing units in NYC. As the other reply points out, rental vacancy is lower than 4%. However half of those are either being renovated or are rented/sold but not yet occupied. Of the 3.52 million housing units in NYC a paltry 103,000 (less than 0.2%) are pied-à-terres or seasonal/short-term rentals. On the much maligned Billionaire's Row there are some 350 empty condos.
This line about "thousands of empty units" is a sort of innumerate argument made by DSA/Working Families Party types to oppose all new construction or up-zoning.
Lower interest rates and looser monetary policy, stimulus, and loan assistance all drive prices up.
Higher interest rates, tighter monetary policy, and stricter loan qualifications push prices down.
In the US, at least for now, it seems the fed is committed to tightening, which will push prices down (all else being equal).
The article is right about the effect of interest rates, they tend to push the prices up when they are low and having high interest rates will reduce demand of people who are using houses as investment assets.
This is far from marginal but also not the complete picture.
Most homeowners are living in them, and most potential home buyers are looking to do the same.
The core (and thus the long-term trends) of the supply/demand game in the housing market is directly related to demography.
Short term panic can occur, but unless people are dying _en masse_ or you wait long enough to see effect the demographic slowdown in your area, I don't think the housing market is susceptible to crash durably.
I think it would be an excellent thing if it could stabilize.
Bond markets tell a very different story. In the US, the yield curve is either inverted or flat from the 1Y treasury all the way out to the 30 year. Parts of the curve have been inverted on and off for a long time.
This is pointing to much lower rates ahead. Mortgage rates, too.
The global house-price slump, if it occurs, will happen not because of high mortgage rates, but in spite of falling mortgage rates. The driver will be job losses and financial turmoil.
It is hard to imagine a US housing slump concurrent with low mortgage rates and high inflation.
The recent asset price increases have been supported by broad inflation. I don't see how prices drop significantly without monetary deflation. If we see deflation at scale, then everything is in trouble.
OK, but how do they compare to February of 2019? According to this[0] they are still 20-25% higher than that point in time.
People don’t care about prices, they care about payments and low interest rates kept payments low and pushed prices higher.
The Fed was sucking up MBS and keeping mortgage rates artificially low for far too long. That is over and a typically 30 mortgage is now close to 7% with home affordability being at record lows.
Unless the Fed drastically changes course and rates lower, prices will absolutely come down.
> As that edifice of capital crumbles, consumers are likely to cut back on spending. Though a cooler economy is what central banks intend to bring about by raising interest rates, collapsing confidence can take on a momentum of its own.
Sounds like hitting 2 birds with one stone. Or maybe we don't need to hit one of the birds, not raise interest rates, and thus not cause the other problems mentioned?
I think as it often happens, the most likely outcome is that lower priced areas will see the brunt of the value decrease, while higher priced neighborhoods may at best see a moderate speed bump.
I wonder how much new WFH norms will reduced this impact? I suppose the concern is those working in jobs with the most need to live close to their place of work are those that are least able to move.
until now we were moving to gigantism (houses, cars, ..) (like species without predation), but now hitting the planet's limits we will reduce our dependencies
Put it this way. We know for example that a lot of homes are rented out as AirBnBs. We can safely assume that many of those were purchased for that purpose and that the purchase was funded with borrowed money. The AirBnB income and anticipated capital gains made the borrowing worthwhile. Is it still worthwhile if the cost of credit doubles and capital gains seem much less certain? It's likely that we'll see a lot of investment and speculative demand disappear leading to lower demand overall.
In other words, demand isn't just for properties as homes - it's for properties as investments as well.
[1] https://fred.stlouisfed.org/series/UNDCONTSA [2] https://en.m.wikipedia.org/wiki/Demographics_of_the_United_S...