Rate, price drops won't substantially improve affordability
zillow.com
zillow.com
Supply must meet demand, but the fundamentals make it impossible.
And I tend to wonder if they are correct in terms of price drops, at least in some markets. We seem to be gradually falling off the peak of the market in Miami/Ft. Lauderdale. Between people being pessamistic about the economy, RTO to jobs in the northeast, and foreign nationals leaving the country, demand is decreasing and so prices are dropping. They seem to be slowly heading for historical averages after peaks in 2022, and houses that don't drop their price from 2022-24 peaks are not selling. It feels very much like 2008 right now, and I'm really hoping we see some improvement in the next few years.
At the end of the day, I'm guessing that most people price housing as mortgage + insurance. If insurance costs go up, the price of the underlying property has to go down in order to meet a monthly payment target. So some of that is probably already going on.
> Florida currently has the most expensive insurance premiums in the nation. According to data by Insurify, a national insurance data collection group, Florida's projected cost of property insurance averages about $11,000 a year.
> ValuePenguin’s study shows Florida’s property insurance has increased 72% in the last five years, with the number of homeowners who can’t get coverage through private insurers going up 400%.
The US is currently spending ~$1T/year on climate costs.
https://www.cfpublic.org/housing-homelessness/2025-01-10/cen...
https://www.newsweek.com/map-reveals-scale-florida-property-...
https://www.bloomberg.com/news/articles/2025-06-17/us-spendi... | https://archive.today/EBmaI
https://www.theguardian.com/environment/2023/oct/09/climate-...
I would go as far as to say it's actually mortgage + insurance + taxes in most states. Very likely to be paying anywhere from $5,000 to $10,000 in county + school taxes per year which by itself is enough to make the home suddenly unaffordable even if you bought it 10 years ago at a great price and rate.
I'm a little tired of conflating "major metro area" with SF and Manhattan, but I dig. I'd love to own a home in either of those places. It's a surreal thought but very appealing.
If a mortgage payment is $1800 of interest and $700 of principal at 7%, a buyer is in the same position if rates go down to 3% and the payment is $1400 in interest and $1100 of principal (numbers are made up, I don’t have time to calculate the exact values). In the 2nd case, the home price would be higher and the lower rate would mean reduced financing costs, with the same TCO in the end.
Bonds work the same way, as the yield goes up above what the bond was issued at, the face value of the bond decreases, only the housing market has limited supply so prices didn’t go down when rates went up.
If yields go down, the face value of the bond goes up, just like with houses.
The only thing that will lower housing values is more supply.
Bonds do not work like houses. Typically bonds pay out a fixed coupon rate and then 100 at the end of the term (fingers crossed).
Grandparent is alleging that in a lower-rate environment sellers will raise prices until buyers' monthly payments are about the same as they are in this high-rate environment.
Didn't we see exactly this scenario play out in 2001-2005 and again during Covid?
> Heading into 2020, affordability was increasing—even in the face of rising home prices—as buyers benefitted from historically low interest rates and steady income growth.
> The national HOAM index fell from 101.94 in February 2021 to 98.22 in March 2021, indicating homes were no longer affordable for the median-income household.
Rates dropped which caused a demand-side surge (because more people could afford the mortgage) which quickly turned into a market dynamic that caused home prices to increase beyond median affordability.
https://www.atlantafed.org/economy-matters/community-and-eco...
The buyer is paying the same TCO in the end so they’ll accept the higher ask from the sellers due to limited supply and the TCO being equal. The Fed is about to start cutting rates so you can watch this happen in real time over the next few years.
Bonds work that way if you hold them to maturity, but the face value is continuously being repriced as rates fluctuate. You don’t have to sell, but that’s how bond pricing works.
Traditionally the face value of bonds is fixed. The sale price is continuously repriced as rates fluctuate.
Of course lower interest rates tend to push prices up, everything else being equal. The claim was that prices will rise so fast that buyers will be worse off with lower interest rates. That's not necessarily true. It might be true. Sometimes it's true.
I'm honestly a little tired of answering objections from infallible people who haven't quite read the thread or don't quite know what they're talking about.
Home prices move inverse to interest rates, so I'm not sure how useful this analysis is.
Prices absolutely will go up when rates fall though, that part still holds true with limited supply.
This leads to the fun conclusion that raising interest rates might actually make inflation worse. Rent/rent equivalent is already 30% of CPI, so increases in housing costs have a big effect on overall inflation.
The problem is there's so much FOMO in housing, because of the 7-9% yearly appreciation, that it causes people to keep piling in assuming whatever they buy at, they'll also average 7-9% eventually, in a positive feedback loop.
When we build enough so we stop seeing that kind of appreciation, people will stop treating housing as a speculative investment asset they're going to be imminently priced out of, as they could always buy in the future when it's roughly the same price.
If the pool of people able to spend more on a home increases, and the pool of houses remains the same, then there is only one direction anything goes.
FWIW, real-life experience matches the article. Current interest rates shave off about $100k+ in affordability. Explaining where the interest rates need to be for most regions for affordability is an easy way to show the situation. I do agree that a major economic downturn would need to happen and unemployment would need to rise to change things. However, these numbers are always manipulated which keeps us on a trajectory that is hard to reconcile with reality for most.
Is it nice if an 18 year old working at McDonalds can afford a home? Certainly.
But there's a world of difference between him being priced out of the market and a full-time well-compensated employee of a large company being priced out.
(Basically, going with mean/median household income may not be the best metric - rate and price drops WILL help but won't be "enough". And the "costal cities" mentioned should just be abandoned; there's no hope and nothing will make them affordable. Instead, all sorts of "subsidies to rich people" should be stopped; once those cities have nobody willing (illegal or no) to do the "grunt work" they'll figure out how to fix the problem. As it is, "affordable housing" is usually just subsidizing the rich people so they can have employees to make their food, etc on the cheap.)
This will basically never happen because the reason why they're expensive is that they're desirable. Supply and demand. Expecting otherwise makes as much sense as "Nobody goes there anymore. It's too crowded"
>Instead, all sorts of "subsidies to rich people" should be stopped
examples? If you're talking about "affordable housing" programs, aren't those usually means tested?
So it's entirely fair to say that we should be figuring out how to decouple jobs from these costal cities. Lots of people wouldn't live in NYC if Wall Street was out in Topeka, Kansas instead.
Yes, veblen goods exist, but given that coastal cities also happen to be the most populous cities, and such cities have underbuilt their housing supply for decades, it's pretty obvious that the current housing crisis phenomena is simple supply and demand.
>Lots of people wouldn't live in NYC if Wall Street was out in Topeka, Kansas instead.
What's preventing Topeka, Kansas from becoming NIMBY and choking off housing supply after it becomes a desirable place to live? After all, silicon valley isn't in new york, it was in California.
I might consider the mortgage interest tax deduction to be a subsidy to the rich, considering how much you have to be making to buy a house and how much interest you need to be paying to make it worth itemizing your deductions.
Because someone needs to work there. So just as Walmart employees being eligible for EBT allows Walmart to pay employees less so does affordable housing indirectly subsidize the city.
Without those artificial bandages on the problem, the costal expensive cities would run into a crisis - everyone is a Google or Apple employee, and there's nobody to do any work for under $100/hr. Either they'd have to pay baristas $100/hr, or they'd have to go without, or build a high-speed commuter rail that could bring them in from Bakersfield where prices were reasonable.
(By abandoned I mean "stop trying to fix it" and just let the prices go insane.)
1. How is giving food stamps to walmart employees a subsidy for walmart? Are those people suddenly not going to consume food if they quit walmart? If not, what difference does it make whether they're employed by walmart or not? If the person was not working at walmart and was instead washing windshields at intersections, does that mean that drivers are being subsidized by the EBT?
2. This feels suspiciously like an acceleration argument, ie. "welfare is just a tool of the bourgeois to keep the proletariat from rebelling. We should get rid of it so the proletariat gets angry and starts a revolution!"
>Without those artificial bandages on the problem, the costal expensive cities would run into a crisis - everyone is a Google or Apple employee, and there's nobody to do any work for under $100/hr. Either they'd have to pay baristas $100/hr, or they'd have to go without, or build a high-speed commuter rail that could bring them in from Bakersfield where prices were reasonable.
...or they spend 3 hours commuting instead
https://www.nytimes.com/2017/08/17/business/economy/san-fran...
If you consider the purpose of a having a job is to pay the bills and buy food, then you're allowing Walmart to not hold up their end of the bargain and then use tax money to fill in the gap.
I can already predict your counterargument, because it's one I see a lot on Hacker News. You'll claim "Well that's the wage the worker agreed to", but that's a highly naive point of view. It ignores the fact that workers at the bottom of the economic ladder have zero leverage. They have to take what they can get. Walmart is abusing that position to pay as little as possible while our tax dollars are picking up the slack.
No, that doesn't follow. The "purpose" of running a restaurant is to make money from serving your clients, but if your restaurant sucks and you can't make the numbers work out, you can't blame your customers for "holding up their end of the bargain".
>and then use tax money to fill in the gap.
Being employed reduces the amount of money the state has to subsidize compared to the counterfactual where the person is unemployed, so with that framing, walmart is actually helping the state out.
> It ignores the fact that workers at the bottom of the economic ladder have zero leverage. They have to take what they can get.
They have zero leverage because the supply/demand for their labor is not in their favor. If you characetrize this imbalance as "abuse", does the opposite hold? Are the AI researchers "abusing" poor Zuckerberg, who has to pay 9 figures for white collar employees that usually cost 6 figures? Since we're in a thread about housing prices, are all the boomer home owners "abusing" the poor millennial/gen-z home buyers, by charging 7 figure sums (the market price) for homes that they bought for 5 figures a few decades ago?
In the dumbest ways possible and usually not continuously. One of my recurring points of advice to founders in New York is to use your year of no income to score a stabilised apartment. More directly, affordable housing is usually used to justify broader construction restrictions. This is why the largest landowning families in New York and San Francisco tend to support them.
Other than that, the OBBBA tax cuts, mortgage interest deduction, carried interest deduction and conservation easements should each count as subsidies for the rich.
Does this actually work? Aren't the waiting lists years long? Otherwise you don't really need to be a founder to score a rent stabilized apartment. 4 years as a broke college student should be plenty.
Yes. I didn’t get it, but a founder I worked with did.
Sometimes one gets lucky. And sometimes you spend more than a year broke as a founder. There are also all kinds of head-of-the-line options depending on your race, parents’ college status, et cetera.
> 4 years as a broke college student should be plenty
You typically have to be a resident to apply. I think they may also explicitly ask about college enrolment.
The trick is you need to have enough money to still afford the reduced mortgage.
Basically a perfect fit for a founder with reduce salary, grad intern, or similar.
It's almost as if these are the people that designed and voted for these programs
In a functioning economy, that would have zero bearing on this calculation. Your compensation should be based on your value, not the economies of scale of the corporation you happened to get yourself into.
I mean, the only difference is between who you consider worthy of having a household. Only "well-compensated employee" like us? Or also people working as fast food cooks and helpers?
But there are degrees of unaffordability.
A person who working full time in a legal job? Yes they should be able to afford housing. As much as people look down on McDonal employees, these are full time paid jobs. And people working them need to live somewhere.
People buy the mortgage they can afford, so low rates can raise home prices. This is 5x-10x leveraged, so it really moves prices.
Home builders borrow to build, so higher rates hurt on the supply side.
Currently, because people refinanced into 3% long-term mortgages, some people are stuck because they can't afford to move. This also hurts broader market dynamism because people aren't relocating as much. Same with job uncertainty. People aren't changing jobs because they're worried, but this is leaving companies with mismatched labor.
And that's just rates. There's also supply.
Mortgage rates should have never been 3%. The Fed targets 2% inflation, so loaning 10-to-30-year money at a real rate of 1% is silly. It really is free money. The problem is mortgage rates are linked to the 10y treasury yield, and that was moving for macro reserve currency reasons.
Loans for home builders could be subsidized, but NIMBY policies are a larger issue.
I don't know what to do about people locked into low mortgage rates. It's actually a Silicon Valley Bank situation, but at an individual level. If you can wait for the loan to mature (10y might be enough), you come out ahead, but if you have to sell early, you take a loss. We can't go back to free money, portable mortgages disadvantage new buyers, and people really don't want to realize these losses.
If mortgage rates had been around 6-7% as they historically have been, prices would have stayed a lot more reasonable.
It's not like there's an employment boom happening here. We're right outside of Annapolis, which is a small city focused on the Naval Academy. Which is stable but hardly growing employment. A couple of the anchor employers (AT&T, Rockwell Collins) have been downsizing. We're an hour away from DC, and 45 minutes from Baltimore. Where the heck do these people work? Where is all the money coming from? It doesn't make any sense.
Baltimore and DC can be commuted to from that area. DC would be rough if you don’t take the metro from somewhere. Not a great drive but I know a lot of people who did/do it.
I live north east of the Baltimore beltway and recently started a new job between BWI and Arundel Mills, about an hour with no traffic, but I work remotely half the week.
There are an absolute ton of jobs in your area. It’s much more sparse north of 695. Basically APG.
And it’s not population growth. Columbia grew just 5% from 2010-2020. Anne Arundel has grown less than 1% annually for more than two decades.
IIUC the age of the mean home buyer is 56! (T_T)
I moved from Florida to a small rust belt city after being out of work for an extended time. I desperately had tried to avoid moving, but honestly I was pretty enamored by the idea of low rent
I have been thoroughly disappointed. Especially seeing the rates people are trying to rent fucking shared rooms for.
I don’t get it though. A lot of these apartments are far beyond average wages. Even if I could afford it,
So had the same question as you. Who the hell is living in these. I certainly know many who could afford to, but they have much better options.
If I can pay $2000 a month to live in a rotting rust belt city, I can probably afford to go somewhere much nicer with a much better market at the same price.
I asked my girlfriend about it, as she’s lived here her whole life and she expressed that the only person she know who’s lived at one of these apartments was an ex who was a trust fund baby. But there cant be enough of them that they’re tilting the market.
This isn’t rocket surgery, it’s Econ 101.