Mortgages Stuck Around 7% Force Rapid Rethink of American Dream
bloomberg.com
bloomberg.com
https://www.rocketmortgage.com/learn/historical-mortgage-rat....
I swear to god I've seen these entire threads verbatim on Canadian subreddits over the past few years as the prices keep rising, rising, rising and no one, not politicians, not central bankers, not construction companies seem to be able to solve the problem.
I don't know what's going to happen but it's far too late for us and it's probably too late for you.
Things are going to keep getting more and more expensive while some people online are going to swear up and down that they're not and the economy will grind to a halt because people literally can't afford to go to work.
I would argue that the same blue collar job might've been reduced as a percentage of global output, which means the value creation is lower, and thus, the 12x salary for a house might be justified.
It is a blue collar government job. Like most government jobs, one could easily argue that the "value created" was zero then and is zero now. In any event, the job remains the same, and salary has risen (more or less) with the official rate of inflation. There is no reasonable argument to be made that the same house that this government worker could buy 40 years ago for 2 years salary should now be worth 24 years salary.
The demand part of the supply/demand curve on houses is set by monthly payment, not purchase price. Interest rates change the relationship between the two.
I should include that on his salary he was also raising two children, could afford for us to see the doctor/dentist on a regular basis, owned a car outright while my mother stayed home to raise the kids.
The American Dream was always aspirational and took grit and effort and was never attainable for 15-30% of the country due to their skin color or ethnic origins until precedent against redlining took hold by the 1980s.
IMO, I'm fine with us keeping high interest rates if it forces a rebalancing of prices long term.
It's not like low interest rates would help affordability anyhow, as it's only us white collar workers in high paying fields like Tech, Finance, etc that have the dry powder to execute on purchases.
House prices are still sticky and high interest rates haven't rebalanced anything.
Houses are 50%+ less affordable on a month-to-month basis, and housing prices are stable or increasing. If you use critical thinking, it's obvious that inflation is still present and interest rates are masking the inflation. If rates decrease even slightly (Which will ultimately be required due to the ticking time bomb of the government defaulting on the debt and banking system collapse) prices are going to skyrocket.
The real problem is that we printed trillions of dollars. That has to come from somewhere no matter how much you fiddle with the interest rates. And that "somewhere" is directly out of the pockets of the middle class.
With inflation, layoffs, and lack of union representation, I suspect software engineering median salaries outside major hubs to stagnate rapidly.
Granted, even minimum down is out of reach for too many people, but I feel like "if only we could afford the down payment, we could definitely afford the mortgage..." is a relatively common lament. And sometimes those lamenters don't realize you can/should put down 5% instead of 5-20%, circumstances permitting.
So people losing some "paper" savings is a price to pay so other people can also own.
But in reality, when homeowners struggle and sell their homes is mostly large real-estate funds that buy them. So it's possible that homes losing their value means owners lose savings but newcomers still can't enter the home ownership virtuous cycle.
Punishing millions of people who just sought housing security because, for reasons beyond their control, the Fed decided to cut rates after the GFC and keep them low for 15 years is just not tenable.
Fortunately, in the UK at least, it looks like (nominal) house prices will remain stagnant until real earnings catch up with rates. A better all round solution.
In the US market this may be tolerable because you have full-term mortgages, so people can just stay put even if they're pushed in to negative equity.
In the UK it's death. Here mortgages typically last for 2-5 years. Homeowners would be pushed in to negative equity and be unable to remortgage.
if a house is cheap, but is still valuable (as new owners _want_ to buy because it's worth it while it's cheap), then this means it's a mis-pricing. And mis-pricing means that any investing entity will want to buy as well. In aggregate, this _should_ push the price back to the correct equilibrium.
Therefore, housing being expensive today is a reflection of how many people value it high. It might also indicate that the reason it was cheap before was a mispricing, and those who got in early was merely lucky.
https://www.schroders.com/en-gb/uk/individual/insights/what-...
4-6x from the 70s to the 90s, now 9x and growing rapidly.
https://www.newser.com/story/225645/average-size-of-us-homes...
We waited a bit and it quickly got to the point where our mortgage payment would double if we sold and bought an equivalent home to what we have today (and we'd ideally want to upgrade a bit, we bought this intending it to be an affordable starter home).
In the UK we have stamp duty which means that if I sell and rebuy the exact same house next door I would lose tens of thousands in taxes, on top of all of the (unavoidable) costs like surveys, estate agents etc.
In both the US and UK if you can't port your mortgage to a new home then you take a gigantic financial hit to move into the same house next door because your rates go from e.g. 2% to 6% overnight, doubling your mortgage payments.
We should definitely build more, but stuff like this also needs to be addressed, no-one is going to downsize if they end up losing most of the money.
https://www.forbes.com/sites/johnwake/2023/03/31/us-has-3rd-...
your bank "owns" the place, but you gain the economic and utilitarian benefits of the place (after all, you get to live in it, or rent it out and receive income). It's not exactly the same as the bank owning it.
I was very confused.
Maybe the American Dream was dead in 1925. Maybe it was dead by 2005. Maybe it wasn't dead at all, or maybe it never existed to begin with! Real, illusion, dead, alive. Whatever it is, it sure as shit means something more than owning a single-family house.
I wish the media discourse would stop abusing the term.
I still agree with you. Stop abusing the terms.
Just for comparison: I live just outside of Boston. My property taxes for my house are roughly the same as my parents in NH. Even though my house is worth 5x as much.
> In most states property taxes are somewhat fixed at the time of acquisition.
Despite calling it a dream, in America, historically home ownership for the middle class was a given.
America has just caught up to the rest of the world.
AFAIK this is more a phenomenon of Western urban areas than the world in general. Even in very poor countries home ownership is normal (and for men it can be a de facto requirement for getting married).
but last time the world didnt have the new sources of oil that exists today, and the technology level back then was also lower - leading to lower productivity.
Long term interest is related to growth, and higher interest is indicative of growth.
Why would anyone loan out trillions of dollars at 3% (that also includes the risk of default).
The same money in an index fund produces 7% over the long term
Even at a 7% rate mortgages appear to be be less liquid, more risky, and will underperform the market.
Mortgages exist probably only because the govt backs them (aka, taxpayers are on the hook) and allows banks to keep charging bogus paper filing fees on top of it. Banks offer mortgages to charge a 1K "origination" fee ... or whatever it is called.
Checkout this post about mortgages for more details: https://news.ycombinator.com/item?id=40403221
the originator of these mortgage loans want a consistent income from the interest payments, even if it's lower than buying equities. These equities that earn a theoretical 7% is only good in the long run, such as 10-20 years. It might not return anything in particular years, or negative returns in others.
If you needed a fixed income stream (eg., an insurance, or an annuities provider like pension funds), you will not want to bet it all on equities. Mortgages, which are collateralized, means you have a buffer for losses if the defaults do happen.