Home Prices Fell in February for First Time in 11 Years
wsj.com
wsj.com
Currently the nationwide days-on-market is still way below long-term historical norms and even below recent history. https://fred.stlouisfed.org/series/MEDDAYONMARUS
They have a much better idea of what's available and what's a good match for what they want.
[edit] No supply + high demand = prices go up. Higher interest rates only help at the margins because it doesn't actually change the demand factor which is that the humans in America need a place to live, and the more they make, the more they can afford to pay. And it certainly doesn't change the supply factor!
[1] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage
[2] https://www.cnbc.com/2021/09/14/america-is-short-more-than-5...
https://www.zillow.com/research/most-popular-city-2022-31925...
This is about 1 mile from where I live in Overland Park, KS. PV is all single family homes with near zero apartments. Of course the city is trying to re-zone to put in higher density housing, and the population is vehemently opposed to it; I don't blame them. People move there for that reason. Higher density leads to more crime and other frustrations. People learned their lesson from the pandemic.
Poverty and general desperation leads to higher crime rates as people resort illegal means to get by. And that's what happens when there is not enough housing for people.
In the United States, we have a whole bunch of terrible housing policies, so maybe people are conflating density for poverty. But you can find many examples across Europe and Asia where there is little correlation between density and crime.
- "I want affordable housing!"
- "Hm, ok, how about we build new houses in the places people want to live, increasing supply to meet demand"
- "NOT LIKE THAT"
It's just like the "no take only throw" dog meme.
If you don't want to live next to other people, buy the land around you. If you can't afford the land around you, move further away. There's no reason your tastes should dictate what I can do with my property. I'm sorry, I thought this was America.
I wonder if there's been a material shift in who is making offers that won't revert to 90s behavior. Specifically, investment firms specializing in single family housing, who might have more incentives to make a lot of lowball offers and not worry too much whether they win or lose a specific bid.
Obviously you have imitators like Zillow trying to edge in as well, and step back after taking heavy losses, so its hard to say for sure where the new equilibrim will end up at.
I dont think I have seen good data that includes or calls out "investors" rather than "investment firms" I suspect that a lot of property ends up in the hands of individuals be it a vacation home, rental, air BB or flip.
As soon as interest rates started rising, conditions went from what you describe, to, in a lot of cases, houses sitting weeks or months on the market. They go through, sometimes, multiple prices drops before going under contract.
I'm speaking specifically of homes that are in the range of those I'm considering purchasing, so maybe it doesn't apply to the overall market. For me, though, it is now much more of a buyer's market than it was a year ago.
Getting into spring, I could see more people start looking again, with some pent-up demand not met from last year.
Inventory is gone. Not low. Gone. In the 45 mile radius we are looking in for an area with a pop of ~100,000, at houses under $350k (90% of listings)...there are weeks with ZERO listings.
This has lead to an insane situation where offers end up way over asking but there are so few comps that virtually all FHA is back out, not because of issues with the offer but because the appraisal issue: no house actually apprises near the price it goes for.
If you take a look at Zillow, most houses that sold last in 2019 after a renovation, with zero changes since, are listing at $330k. This has crunched the rental market as one would expect. Rental prices, in absolutely a low cost of living area have multiplied overnight from ~$700 to $1500+. I know most in this area are absolutely not paid like us so I'm pretty sure the area is about to hit a wall. One might expect a market to limit itself as homes that cost too much wont sell..but the other side of it is that I think we are getting to a flexible point of 'well everyone needs a home', I mean...is this a housing bubble coming? When that bubble pops, what happens to all the people with $350K loans on houses that are back down $200K?
I've never believed in doing something just because everyone else thinks its the default thing to do. Putting 1.5M to 2M into a small average house didn't make sense to me when that is enough money to retire in many different beautiful places in the world.
So I left. Switched jobs and started working remotely. I now live in a MCOL area and things are about 30% cheaper than the Bay Area. Better schools. Nicer environment. More diversity (including economic diversity). More access to activities (like gymnastics) for my kids at a reasonable price. More free time.
I make a little less money in cash. And a lot less money in equity. But all in all its a better life.
I hope more people open their eyes and realize these tech hotspots are actually hell.
Wouldn’t that make the other currently nice places hell again :^)
Anecdotally, I follow many smaller markets in the Midwest and the South (plus Chicago). I wouldn't call it a buyer's market anywhere. But I'm not seeing anything like this.
I also have a few friends shopping on the East coast - and they're in a similar situation. It's not a buyer's market. But also not crazy.
My understanding was that The Bay, SoCal, and Seattle had massively slowed down. So I'm just wondering where this could be - or if things have recently turned around a lot.
Maybe my info is just bad...
So at least here in Cupertino, things are still nuts.
Default is different, it's an inability to pay debts. They have no problem printing more dollars and paying debts.
Stress makes people have a harder time filtering and looking at the long term.
Well, Realtors are incentivized to portray the market hotter than it actually is.
I could see them telling buyers that the market is hotter than it is. But even that might backfire, if they make qualified buyers think that they can't afford to buy in the current market.
The assumption is, since almost no one can afford a house, prices MUST fall. Here's the thing no one gets: the "almost" part is very important. If, in a city of 100,000 people, only the richest 100 can afford (less than 1% of the population) a house but there's only 10 houses on the market, then prices can still continue to skyrocket.
Overall demand does not need to be super high for prices to go up. It's Demand relative to supply that matters. And in markets where supply is really really tiny then demand doesn't need to be very high in order to outstrip supply.
We delayed buying a house to have a bit more in savings? House prices skyrocket, our friends who leveraged the crap out of themselves look genius.
We wait to buy a car to have a bit more in savings / wait for the used market to come down? The used market goes up, our friends who bought new cars look like geniuses.
There's part of me that keeps waiting for a correction, esp. in the housing market, both so that houses come back into our budget range, but also maybe because there's part of me that feels vindictive about the fact that everyone who, to my sensibilities, seems to be acting recklessly are making out better than we are.
Some of that is reasonable, I suspect: we're very financially conservative relative to our peer group, which means we're going to miss out on some opportunities, and I don't want to be "proven right" in saving for a rainy day by everyone else having economic hardship, but I do feel rather confused about how we're "supposed" to behave in this market.
We're also remarkably well off, as is our peer group, which will obviously skew the data radically, but it also scares the crap out of me: if these are the thoughts we're having with a household income just barely under $200k this young, what is everyone else thinking?
Financial decisions are not so black and white. IMO only basic rules apply: live below your means, save more than you spend, avoid debt, etc. Any advice beyond that is a crapshoot.
Edit: At least this has been my experience. Have people found otherwise themselves?
In 08, the poor labor market meant that many people had to sell. That caused prices to drop.
We aren't at that point yet this time, and I don't think anyone knows whether or not we are headed for a seriously rocky job market.
Sellers now with a 2.75% fixed-30 mortgage could trade down a significant amount in housing cost and end up with worse cashflow if they take on a new mortgage at 5+%.
> 2019 it has to crash sometime
> 2022 ok now is the time for home prices to call
> 2027 it must crash!
The reality is that home prices are buoyed by a number of systemic factors that cause supply to be constrained. Prices will go down in total value due to interest rate rises. Homes will not be more affordable.
As somebody with the cash, I'd settle for even seeing this much. So far it's been high interest rates with the same high prices (in much if the Northeast).
Supply: low and expensive new builds, heavy rate lockin.
Demand: muted due to higher rates, but sometimes people gotta move. So a slight haircut, but in many areas most likely less haircut than supply constraint.
We are seeing some sifting in the market but I personally believe sales volume is driven by supply lockin, meaning its still a seller's market.
Move rates are roughly 9-10% a year. I bet we see that a lot lower for this quarter and next few quarters.
Previous owner died, someone bought it and cleaned it up to flip it. It actually looks very nice.
No one is buying it though.
In Austin prices are def. down ~ 8%, after this hike and sustained layoffs I am betting it will shed another 8 by the end of summer...
In our area, age on the market is increasing and I think the average for some areas is over 60 days, which is an indicator for a buyers' market.
- how many buyers are investors from private equity or foreign investors vs residents (who intend to live in the property)?
- What is the true population including undocumented people? this will be off by 30-50% in some areas
- What is the true vacancy rate? In my area there are many houses sitting vacant. I’m assuming they are investments or tax dodges
It baffles me at how critical the housing market is and that no one takes responsibility to understand what is affecting prices. We just accept prices as a force of nature.
I can only hope that multiple home ownership and AirBnB's externalized costs get regulated and taxed out of existence. There are a lot of young people with much less money than us tech workers who are barely scraping by and will never be able to own their own home or even afford starting a family if these trends continue.
When there are millions of Americans who literally can't afford rent living on the street or in their cars, owning even a single "investment property" or vacation home or AirBnB is repugnant.
The solution is abundance not scarcity.
It's not who profits from bad economic policy but who pushes for it. It's not always the same set of people.
Easy money == can multiply consumption == eventual consumption of all supply == eventual starvation of options == competition for options (rapid price increases) == eventual topping out at a higher equilibrium == trying to get easier money, etc.
The cheaper the money, the more options get ‘consumed’.
Making more options works, to a point, but people find a way to leverage if they can to consume those too.
Eventually, the ability to leverage more ends. Often this causes a corresponding crash, as a lot of the drive to go higher is driven by the trajectory of ever increasing prices. When the trajectory changes, the math inverts, and now it becomes scary risky to buy instead of scary risky NOT to.
Highly liquid markets mean that value of one kind can be translated into value of another kind easily. Every time money changes hands, there's an almost unavoidable difference in the pricing each party does for the transaction (an example is the company of migrant workers offering to mow your lawn; each dollar is likely worth more to them than to you, so you can play with the margins to save a buck and they'll probably still take it). This leads to an asymmetry that creates an imbalanced power dynamic.
Put another way, liquidity allows the projection of this power imbalance. For each dollar you have, you can externalize so much of your costs. This is something you almost don't have to decide to do; because markets represent aggregated pricing power, you can take advantage of it simply by buying goods or services.
If you aggregate this projection over a large and highly liquid market, what you have is a massive shifting of externalized costs from the haves to the have nots. Insert picture of a fish eating a fish eating a fish here.
From this perspective, it seems as though the system as a whole is given to a collapsing instability, from first principles. I believe that what we've seen in terms of periodic financial crisis is an expression of this system being propped up by the actors at the "heavy end", despite it's inherent tendency towards catastrophic failure.
Which is why I'm always a little curious when folks start talking about credit collapsing like it would be the worst thing in the world - a global cooling of liquidity could very well be the thing that saves us, by cajoling the system into playing fair at scale.
I think landlords provide a necessary service in many circumstances, but these should be carved out in a way that separates them from speculative real estate investing. I think I agree with the idea that individuals that own more that 2 homes should be heavily taxed as a disincentive.
We also need major efforts to increase housing supply. I'm not seeing this in cities like SF or NY, but whenever I visit family in Texas or Indiana, it seems like they're building as fast as they can.
Can housing be affordable and a “key driver of upward economic mobility” at the same time? I guess if housing prices are flat at least you are getting equity for your money.
There will always be the need for landlords in some circumstances. Not everyone wants to own a home and sometimes life dictates the need for flexibility. Where do you draw the line? I'm not sure what to think of it, but the idea of owning investments isn't going to dissolve any time soon and physical assets (homes) are one investment vehicle.
Coming from a person who has rented for a long time, currently owns one home and does not rent.
John Paul Stevens on Prop 13[1]:
In comments from the bench, Blackmun called California’s tax system “distasteful, unwise and not likely to be copied by others.”
Justice John Paul Stevens, the lone dissenter, called the state’s longtime homeowners “squires” who voted themselves “a tremendous windfall” at the expense of young people and new residents.
“Simply put,” he said, “those who invested in California real estate in the 1970s are among the most fortunate capitalists in the world.”
[1] https://www.latimes.com/archives/la-xpm-1992-06-19-mn-704-st...
Landlords do not need to be private individuals :)
> but the idea of owning investments isn't going to dissolve any time soon and physical assets (homes) are one investment vehicle.
Singapore, a country that scores higher in the Capitalism Index than the US, has no private landlords and all land is goverment owned. You buy your house from the goverment for non market rates, and if you wanna sell it or move elsewhere, you sell it for the price at that point.
It is no longer an investment, and people have more space, smaller rents and an easier way to go through the housing ladder (from starter home -> family home -> retirement home) than in almost any US metro.
Another alternative is Vienna. The Austrian capital has ton of communally owned houses. This means everyone in the block, owns the whole block, therefore the prices are not market prices but fair prices. Despite this houses representing only 40% of the total market, by having a non market offering of housing prices, this cools down market prices and they have some of the most affordable private owned houses in European capitals.
A third alternative is UK 1950's scheme of council housing. A percentage of every new build is done by the goverment and they allocate those houses with reduced rents to its owners. The differece with the modern "social housing" is that is not a block in the ghetto for poor people, but a mixture of houses for everyone in the council to apply. For example The Barbican, a now iconic buulding, was built by the council for high skill workers, lawyers, CEOs etc (with an average rent that would be too high for minimum wage renters). Despite this target audience, they froze rent for 5 years to help families grow and settle into those homes.
There are a million better ways to supply housing than private landlords and letting companies buy entire blocks as investment vehicles.
Everyone has one pet peeve or the other that is predicated on a false belief: that the amount of housing is limited.
If Airbnb people will buy everything, you could build one million units vertically and sell them for $750k each and you would have almost a trillion dollars to build homes for others. Just farm those people for money.
You and everyone else, pal.
See, you’re looking in places you can’t afford. Move somewhere you can afford. Sure it won’t be as “cool”. But millions of people live in those uncool places and do just fine.
Idk, I know of a ton of RE investors who would love prices to go down, precisely so that they can pick up more properties. And even if the town you're operating in outright bans AirBnBs, there are ways to pivot into other short-term rentals like furnished 3-month rentals for traveling nurse.
How does the Fed lose the ability to increase (or decrease) interest rates? I was under the impression that (ignoring the consequences of doing so), they can set them as they please.
There it is!
This is a leveraged bet on that region’s tourism. The local government approving a single large hotel would likely crater the market.
A whole bunch of these Airbnb based re “investors” also don’t account for home prices going down in there models so will likely get very underwater very fast.
I’m surprised it hasn’t happened yet and think this spring real estate season will be very enlightening.
If their cash flows remain positive, that’s just an accounting curiosity. The core bet is on tourism cash flows to Airbnbs in that area exceeding the cost of financing the properties.
Not based on tourism. The region is Boise ID. This is a leveraged bet based on immigration patterns. The number of people moving to ID has been massive, over the last 5 years.
Their explanation was that since 2008 housing has been built in the USA at half the rate needed to house everyone. Our population is still growing, and there are fewer units per person every year. Additionally, the interest rate makes construction loans more trouble the same way it makes buying an existing property more trouble, so there isn't any relief in sight.
If thats true, and it is coming from blackrock, then it could still be reasonable to buy more property.
Here's a clip of the filing I'm referring to https://twitter.com/quantian1/status/1595502336205639681
There is transient supply constraint as people on the margin won't move either due to higher rates.
When dealing with inflation, sometimes when rates go up, they stay there for an extended period.
I hope for my childrens' sakes that there will be a massive boom in medium/high density housing construction over the next few decades, that brings house prices and rents to all-time lows. But this will never happen because homeowner-voters will never allow their personal nest egg to be threatened.
There is concern that lower rent places will allow lower income individuals to reside in these communities, and that will lead to undesirable conditions like crime, despite the fact that if rent were lower than a person of a given income level would have more cash in pocket and thus be less inclined to things like crime, and nearby affordable housing means local businesses could find people to work for lower wages, lowering the cost of living for everybody.
If people invested in making their communities desirable places to live, genuinely increasing the value of their real estate, rather than relying on scarcity to increase the value of their house, everyone would be better off.
It would appease pretty much everyone: struggling downtowns with existing infrastructure can start to revitalize, former commercial landlords start seeing revenue again, and NIMBYs dont have to worry about new neighbors
Source: https://www.energy.gov/eere/vehicles/fact-915-march-7-2016-a...
All in all, I'm getting big 2008 vibes with the bank failures and now the housing market turning. By the fall we might be right back into a similar crisis too, the banks are holding billions in assets that are no longer worth what they claim they're worth.
So in a few markets with oversupply, there might be a bubble pop, but in many areas with strong economies there's not much to pop.
Vacation homes or other areas with highly variable supply seem more likely to pop, but in the economic power houses of the economy we are still undersupplied and this it self has been a huge limiter on national GDP, by denying people access to higher paying jobs.
While this has been going on for longer in California, and the need is far deeper than most areas, it is a national problem now too.
Not even close to enough. California is a good million units short of where it needs to be. Socal needs to convert the endless supply of ranch houses into 2 and 3 flats.
He's going to fall far far short of this goal, because he ignored it for the first years of his governorship, and is only making small moves now, but people trying to accomplish this goal are glad that he's starting to make these small moves.
However, any change will take multiple years to start having effect, and at least 5-10 years to actually solve, so even if he does all the right stuff, Newsom won't be able to say he solved until he's out of office.
No, but they tend to stay up when they get there. I have only seen them go down once in my life in a town where the major employer left and about 1/4 of the town was economically impacted.
It is not easy for many people to come up with a down-payment for a house. I know that there are programs to help people, but generally, renting is the only option for many people no matter how much the price of houses goes down (within reason).
So people with money can just snap up cheap houses if the prices fall or sit on their money for now and collect rents if interest rates skyrocket.
Second, the critical aspect making 2008 so bad was the contagion effect throughout financial markets - MBS were so pervasive that suddenly no one knew if their bank's assets were worth anything at all. Uncertainty is the worst for financial markets - they tend to assume the worst which can lead to credit just seizing up. That was a trigger for some of the worst of the economic damage. Despite the recent turbulence for banks, the situation isn't comparable. There banks were holding some of the most widely traded assets, generally considered extremely safe - they simply had too long of a time horizon (which is still poor risk management). No one is worrying that the banks' assets might actually be totally worthless and, with the support signals coming from the Fed and FDIC, it's doubtful the crisis of confidence blows up the way 2008 did.
Why do you expect this time to be different?
I guess it's a race between "rent-seeking folks who own investment properties" and "people who actually want to live and work in a community." Should be an interesting battle -- while the rent-seekers surely have the most lobbying power, literally everyone needs a home.
There's room to squeeze people a lot further than they're already squeezed.
You should consider a career writing dystopian science fiction. This is pretty brilliant material.
I suspect people who actually live in homes aren't as attached to rising house prices as politicians think. Personally I'd happily buy a house for $500,000 and drop the price to near-zero if it meant I didn't have to pay $10,000 a year in property taxes. At some point it's not about "building equity," it's about having a place to live that you control, where the rent won't skyrocket 20% per year, where you can raise a family or own a dog or install a patio or whatever.
Apartment REITs are already 30%ish below their 52w highs https://www.google.com/finance/quote/RESI:NYSEARCA?window=1Y... so it seems like the market has anticipated that move and priced their yields in line with risk-free interest one can get on Treasuries.
If I had property I'd be holding onto those sweet sweet negative real interest mortgages for dear life.
By need I mean people who have a kid and are about to have their second or third but live in a one bedroom or some other situation that makes buying a larger home more important that someone like me who would just like to buy a home but doesnt really have any motivating factors other than home ownership == good.
Worst scenario is inheritors will prefer to let the house rot rather than sell, like how it is today.
I wonder how strong the correlation is with actual house buying, prices, etc.
But what about mortgages ending up underwater? Well, that's life. And if home prices were low enough, it wouldn't be a concern. I don't expect to turn a profit on the above items. I buy them for their intrinsic utility, not as a speculative instrument, an investment vehicle, or a way to finance my future retirement. So should it be with housing. If you want to save for retirement, open a 401K, a Roth IRA, and a non registered account. Small time landlords are okay. There is a market need for rental units. But corporate landlords need to be broken up.
What does not depreciate however is that pesky patch of dirt under your home. That goes up and up in value because folks want to own a piece of this great blue ball and the value on that desire only goes up as population and standard of living increases.
...which is why a land value tax is a great idea
If you take $100,000 depreciation and sell, the $100,000 is knocked off the basis when calculating capita gains.
If so, why not let the market calculate that depreciation or appreciation? What's the point of second-order accounting when you can just expose the asset on a free market?
Even in the United States the structure depreciates. You can go to any county assessment site and see how the assessed value of a property (structure + land) changes over the years. What you'll notice is that the structure goes down a little, and land goes up a little.
The main issue with United States, unlike Japan, is a culture of investing in real estate. As long as that's true nothing will change.
It does not and is considered to have an unlimited useful life. Source: IRS.gov
Also you need to consider the lifetime of materials VS the inflated cost of new materials and labor to built an equivalent today.
I mean houses built several decades ago are cheaper than new ones. It’s just that overall growth in prices more than completely offsets that.
Anyway unlike all of those things you mentioned there are usually no objective reasons for homes to depreciate to zero (you’d need renovation prices to be higher than the cost for building a new house, which does in fact happen sometimes).
Also houses are most often built on land which can’t be a depreciating asset and Japanese homebuyers have different preferences due to certain (possibly irrational reasons).
Digital or conceptual artifacts are not subject to the effects of physics and entropy, so do not naturally decay. The text of Moby Dick today is the exact same as it was 100 years ago.
A "home" is a combination of those: a physical building sitting on a legally enshrined plot of allocated land. The former depreciates while the latter naturally appreciates.
Given the Fed's stated intent with interest rates is demand destruction: raise interest rates, make mortgages more costly, which (to them) hopefully causes some people to not pursue mortgages, and ultimately not buy houses. This would lower the price of homes (less demand) and there would presumably be some new equilibrium.
But people gotta live somewhere, and if they're not buying homes, then there's a chance they're renting instead. So if there are more renters than before, I'm not going to hold my breath on rent going down.
Although,
> “Surprisingly, we are finding that the buyers are still out there,” despite the increased mortgage rates
IMO, the housing crisis is a lack of supply. Fixing it will require more homes.
People can continue to live with their parents. In many cultures multiple generations live under a single roof. You may not want to do that, but it can be done.
None of this is to say that I think people should be forced to live with their parents or that it's a solution, I'm just saying if you were looking at this from the perspective of destroying demand to right the ship then it's not impossible that it creates a situation where a lot of people find a way to make it work in the short term, which might in itself be enough to create a drop in asking prices/rent.
Even then, the problem isn't even remotely a lack of homes, it's a glut of poverty profiteers in the form of landlords, but good luck getting a political class that's on the take to fix that the just way (by taxing rentals enough that it's no longer palatable).
Fannie Mae says, for example, that we are lacking 3.8 million homes for people to live in[0]. That's a serious undersupply! Build more houses! The NYTimes is on the case, too[1].
Conversion of homes into rental units is definitely a big part of the problem, but there are numbers on that, too. Turns out there are more vacant homes than Fannie Mae said the undersupply is, 17 million by one reckoning[2]! Not all of those are vacant due to landlords being involved, but a lot are.
0. https://www.fanniemae.com/research-and-insights/perspectives...
1. https://www.nytimes.com/2021/02/26/upshot/where-have-all-the...
2. https://ggwash.org/view/73234/vacant-houses-wont-solve-our-h...
But in the long run, it is based on your alternatives. If prices are falling, that means lots of people are able to get mortgages more cheaply. More people getting mortgages means less people renting... which means less demand, and lower rental prices.
If a landlord is locked into a 30 year mortgage at one rate, and feels that the "have" to rent a certain price, that doesn't mean that this landlord will be able to find someone willing to pay that price.
It is for this reason that what you can afford is key. So land prices respond to the amount of disposable income that the potential buyers have. You are right that the affordability on the mortgage side includes interest rates, and it is possible for price changes to purely be making up the difference there.
But it could also be a broader phenomenon. If rental prices are falling, it is an indication that prospective buyers and tenants have less ability to afford that land, or that the location provides less value. Either way, a bad sign. But since land is so essential, it responds in such a way that no matter how prosperous a society becomes, it will always adjust to make itself about as difficult to obtain as always. The number of labor hours needed to buy a computer has fallen dramatically. But land values just kind of keep pace with the progress (or regression) of civilization.
People who have ownership over the natural world thus get to claim a growing share of the progress of civilization, purely by owning. Even if they only perform idle speculation.
Silly question but the fact that their mortgage expenses are fixed works to their benefit unless they bought at the peak, right?
Talking specifically about the big US city I live in - most landlords who already owned property since forever still jacked their prices up many hundreds of dollars in the past couple years because the market would bear it, not necessarily because they needed it to cover costs.
I'd imagine that the renters paying the largest rent (a few thousand, let's say) would be the likeliest defectors to buying a house. So buyers in the the top end of the market collapse, and those landlords begrudgingly start lowering prices - they can still make a profit. Maybe the low end stays the same.
I have zero understanding of the economics involved here, just pontificating.
The article is about the US but if it's interesting, there are quite a few countries around the world where variable rate mortgages (for example following Euribor) are the default, so in this environment their payments would've actually gone up (with higher interest rates), at the same time as the property value would go down.
That seems so reckless. Why would anyone risk the largest part of their budget spiraling out of control at the whim of the market?
From another perspective, 25 year fixed mortgages seem like a subsidy to homebuyers that protects them from the market. Who ends up paying the losses on a low rate 25 year fixed mortgage when central bank rates go up?
Apartment rents fall as new supply hits market https://news.ycombinator.com/item?id=34976493
Landlords won't willingly drop their asking rate, and in most cases wouldn't be able to do so as their mortgage is separate from the market value of the property, but that cuts both ways - the market doesn't care about the landlord's mortgage any more than it cares about your ability to make rent in a month. The asking rates for rent will drop when landlords are forced into it or repossessed.
What indicators do you see to make this look likely? It seems to me that if you take home ownership off the table, you increase the number of renters which in turn increases demand. Rising rent seems inevitable at least in the short term. People gotta live somewhere and increased interest rates means less new construction of newer rentable properties - not like the US is any good at building affordable housing anyway.
This is actually blatantly illegal price-fixing, but in the US we have effectively no regulation of how business behave. Because essentially every landlord (most of which are large corporate landlords) in my metro area use this or similar systems, there is no real alternative, so even if I wanted to suck it up and deal with the stress of moving, there is no upside.
Renting is a scam in the US, buying a house isn't a scam, but it's ridiculously overpriced currently. Housing in the US is super-fucked currently.
[1]: https://www.propublica.org/article/yieldstar-rent-increase-r...
Price decreases: More people can buy homes and exit the renters market. Rent, in theory, should flatten/decrease. This may not be the case because as we've seen in the past couple years, corporate landlords are raising and holding rents in sync.
Supply decreases: Lower supply, same demand, rents go up
Demand decreases: Lower demand for real-estate should decrease prices as fewer sellers can sell at the price they bought at or at whatever price point they feel their homes are worth. This could take a long time to play out though. Lots of options for owners to hold-out on selling til a better market and many have very good interest rates on their homes with very little reason to move, especially for a much more expensive monthly payment. Anyways lower demand should in theory equate to increased supply, which should lower prices on homes and on rents. With the caveat again of the corporate landlord cartel.
Rent is based simply on what people that want to live in a property are willing/able to pay. Again, if there's a big change in what people can afford (lots of unemployment would drive down, inflation of wages would drive up) then rents will change. Otherwise they won't.
In the end, the price of a house going down as interest rates go up just means that the bank is getting more of the monthly payment.
Falling home prices will cause falling rent prices, all else being equal. However, rising mortgage costs from higher interest rates will cause rising rent prices (also via substitution). Rising mortgage costs will directly cause home prices to fall, so the effect on rents will be somewhat mitigated. How much of the home price decrease that comes from mortgage costs versus other effects will determine what happens to rent prices.
As you say, if most of the decrease on home prices is caused by rises in interest rates, then it likely that rents will increase rather than decrease even if the direct effect of lower home prices would be to lower rents.
The only way to reduce rents, is to have more (affordable) housing being built.
The claim is that all of those things could be afford on a single income. The chart doesn't look at individual income, but uses "family income" in both cases, hand-waving away protests by saying two-income homes were already common in 1953. That is debatable, and the tweet offers no evidence or basis for comparison, but again, does not address the claim of the original image, which involves a single income.
Smugly pre-declaring that you've made a case you haven't made, and gently mocking people trying to point out your error, it's not a good look.
Also we have the data:
- Median income[1]: 1984 v 2023 = 55k V 71k = 1.29
- Median home price[2]: 1984 v 2023 = 80k v 468k = 5.85
- Case-Shiller[3]: 1987 v 2023 = 63 v 294 = 4.66
Make those numbers sound like everything's stayed the same.
[1]: https://fred.stlouisfed.org/series/MEHOINUSA672N
Letting the housing shortage/bubble spiral out of hand was a mistake we’ll be regretting for a long time.
60%. That how much higher my monthly payment would be at today’s interest rates than when I took a small equity loan at the bottom of rates a few years back
I don't know who can afford US$1.2+ million houses (not me), but they seem to be quite active and prices are not wavering, thus causing many houses that I thought were affordable to go up in price.
Interest rates go up then home prices fall. Interest goes low then home prices rize.
People borrow what they can afford to pay in mortage which drives home prices.
Which is a simplified generalisation which does not take into account job market, government policies and incentives and economic booms.
Case-Shiller Index: The same house being tracked through subsequent sales over time.
1990s: 70-100
2010s: 140-212
2020s: 200-300-???
https://fred.stlouisfed.org/series/CSUSHPINSA
Make of it what you will, but we're 50% above even the start of the decade!
Out of all the Februaries in the previous years, this february is a february that monthly price increase is negative.
"Worst February in a decade" might not be meaningful for grocery store sales, but it makes sense for home sales.