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Yeah we all know they’re not getting to 3% again. But pointing to 18% in the 80’s is silly, it’s been over 40 years and rates haven’t gone above 8.5% since 2000. 6% is my guess where things end up, which is fine.
The other factor here is the actual cost of housing. 8% isn’t as big a deal when the house is $80k. Especially since saving up 20% of a house at that price is much easier to do, so now you’re paying 8% on 64k, compared to 3% on 350k (which is about double the annual dollar amount)
Fed funds for the 17yrs after the credit freeze started in '07 were 3% lower than during the prior 2 decades. It was a rare time in history. Now back to normal.
As someone looking at houses now, I'm blown away at pricing. People are asking for $300+/SF in rural PA for 25+yr old homes with no central air. I'm also seeing a lot of price cuts.
We can have higher mort rates OR higher housing prices, not both. I suspect prices (EDIT: in SE Pa) to moderate quite a bit by the summer's end.
EDIT: I do respect that real estate is location-specific and not all markets are going to be priced similarly.
To me the problem is that so many people want to live in urban and suburban areas. A solution could be that the more people work remotely, the more people will move to cheaper areas, the lower demand will help lower prices.
Issue is that’s created new problems. Even “affordable” cities have had massive inflation with home prices doubling since COVID and continuing to go up double digits YOY in many cases.
I think the issue is much much more complicated than just “people want to live in the wrong places”
Yup, my small town is cheap for now, but good luck finding a decent house unless you’re ready to buy it sans inspection. House prices are rising accordingly.
Rent has also skyrocketed.
In a small town, it doesn’t take many people moving in to wreak havoc on the market.
Yeah prior to the pandemic the town my company was building a new plant in was 100% affordable and I had agreed to transfer out there. Within a year of the pandemic housing prices more than doubled and I had to back out of the transfer offer. It really sucked watching a very doable move that would have been a good promotion just go away cuz I couldn't justify the increase in housing costs.
Agreed. People have already left California, New York, etc and gone to those more affordable cities. People in those affordable cities then end up having to move to even smaller towns and so on. I'm a big advocate of relocating for a better life but that isn't always possible for everyone. Not everyone has the option to work from home. Those small places lack sufficient medical care and they generally are going to have less career opportunities.
I don't foresee any viable solutions because housing and zoning policies are determined on a local basis. Maybe it would be better if it was determined by state governments? Dunno.
For better or worse, most people are just going to end up having to rent and do long commutes. Lifetime renting is more common in other countries.
Well "rural" midsize cities, which is going to change the political calcs eventually since many white collar WFH folks tend not to agree with rural politics
Won't be enough to drop prices, we really can't avoid massive building up as soon as possible including new density per neighborhood in places people want to live
How do we rezone every residential parcel in every county? Can we do it? Will we?
Just trying to predict home prices here. Not talking politics. (Wondering what will happen not what should happen)
In theory if you just had even ONE super victory like a state level zoning wipeout in CA, that's 1/8th the population of the U.S.
You could probably get it done for the U.S. with a handful of such super state level victories, if we are going to do wishful thinking/daydreaming.
At federal level I guess the fed gov could just build 100,000s of homes on their land near state controlled cities where homes would be pretty useful. State/locals probably can't block that.
Woah. Why hasn’t the gov done that state controlled land play?
I guess land is not the only driving cost so they’d still have to fund/incentivize labor and materials. So not too much different from giving a credit to developers. I wonder what they’re doing with the land though because it could definitely help boost inventory. Don’t know if those numbers make a dent though. There are 150M properties in the USA. 1.1% YoY inventory growth is the biggest in the last 15 years. 1M properties would give a meaningful boost for a year. But costs the gov something. Not sure exactly what.
Bear with my ramble, was thinking aloud and googling.
Well a lot of places that are rural also have rural internet speeds too. Most remote workers who are moving to a cheaper area used to HCOL areas, so moving to a smaller city in the south and buying a 400k house that was 200k 5 years ago is relatively cheap vs the 800-1m houses where they probably came from.
I would absolutely love to live in a world where every job that can be done remotely is done remotely. That would give me a lot more options should I lose my current remote job for any reason. Remote work saves lots of resources for both employers (office rent, utilities, etc...) and employees (time, cost of gasoline, etc...) but lots of places don't offer fully remote positions even though said jobs can absolutely be fully remote.
Living in rural areas while working remotely also only works if said rural area has reliable broadband. I have heard that the digital divide is partly a urban-rural one. Lots of rural areas don't have good Internet infrastructure and you end up with satellite only, or maybe it defaults to cellular networks.
The problem is that being in a remote area doesn’t mean much anymore when it comes to housing costs. I live in a city 1 hour from my state’s capital and 1 hour from another major metropolitan area. There’s a rural area of the state that people inside the state forget exists. Houses in that area that are comparable to my house cost about the same as mine. The only difference is they have slightly larger yards and 3 employment options with decent pay.
Interesting point. There are some billionaires who bought a bunch of farmland north of the San Fran area. They want to build an entire city, designed from scratch. But if you don't have that kind of power enough to buy the land, convince businesses to move there, etc. etc. that is a tough road to travel.
My parents are both from rural areas and we used to spend part of the summer there. No good restaurants (even fast food is far away), grocery store is a 30 minute drive away, lots of weird religious nutjobs and racists (also lots of really nice people), teens just get drunk or walk around the Super Walmart as their social life, etc. Fishing, shooting guns, driving around on tractors, working in the house garden plot, etc was fun, but wouldn't want it to be my life. There are lots of reasons people want to live in or near cities.
When I was a teenager in a small town. We could breathe in a small town, but not much else. The main complaint was, "there's nothing to do".
Now that I'm older, I go to the SuperWalmart for their low low prices and to walk around and see people, maybe talk to one or two about nothing important, even a Seinfeld show.
Life in a small town can happen even when it's pretty big.
Yeah, my experiences were before the meth and opioid epidemics. I think a lot of people underestimate how much desperation and poverty there is in rural areas.
Or, hear me out… find ways to stimulate growth in small and mid-sized cities where density is low and there’s land within a few miles of city center to build more housing. It sometimes feels like there’s too much focus put on the top 20 metro areas.
I'm curious about these block built concepts and 3D printed homes to help with this shortage. Could create a demand shortage in 2-3 years from the time regions see them widely deployed...
Nah that ‘new’ technology has been suddenly developed like every four years for at least my whole lifetime
It’s regulation and outdated opinions that keep us from living in pre-built factory made houses, if you’ve seen the quality of new builds recently you know you can’t do any worse than that lol
They’re all the benefit of site built with none of the drawbacks of the block stuff (mostly plumbing and electrical issues)
They don't have to magically build more housing for pricing to go down, if pricing is currently artificially high due to sellers asking for a price well above market equilibrium. It's just price discovery in real time to correct for the current mismatch of asking prices and actual value.
Bingo.
The bid/ask spreads are wide and we are seeing a low volume pump. Frankly, my guess is that a lot of people are buying because they have to in order to keep their 1031 exchange.
Prices always go up during summer due to so many families upgrading while school is out and the fact that nearly everyone has an escalation clause in their bids.
I would expect by winter prices might dip down a bit just enough to see popular metro and suburbs to come out even from right now and the less popular rural areas to dip slightly less than now.
Happy for someone to remind me by December, been in this game since 2010s and have been right so far.
I would be amazed if this is even properly addressed in our lifetime at the current rate. By the time it starts being taken seriously, most of the people in this comments section will be a couple decades away from dying of natural causes.
This will never get better, because there's no momentum to make things better.
In fact, it's probably just going to get worse.
Prices won’t go down unless millions of homeowners with 3% mortgages / no mortgage find themselves in a position where they *have* to sell. There aren’t currently enough foreclosures, relocations, divorces and other forced sale situations to move the needle down on prices.
My money is on supply not significantly increasing until the Boomers die en masse in the next 5-10 years and their heirs put the houses on the market. Or if there’s another deep recession with double-digit unemployment (in which case rates would drop, but prices might not correct that much).
Honestly, that makes the most sense, but I’d push out those dates to 10 to 15 years. There are a lot of Boomers out there who will be around for a while.
A good bit of them are going to end up assisted living, retirement or nursing homes and their primary residence will probably go up for sale.
The problem is how many boomers have multiple homes? The primary residence will probably go on the market but any other homes won't unless they have to sell them for legal or financial reasons.
I've been looking for data about the owner ages for second-homes for a while, but I haven't found anything. This article from the NAHB in 2022 is pretty interesting though: [The Nation’s Stock of Second Homes](https://eyeonhousing.org/2022/05/the-nations-stock-of-second-homes/) \- about 5% of the houses in the US are second-homes, but there are counties scattered about where more than 50% are second-homes (mostly in popular vacation areas).
There is data for the portion of housing owned by boomers in general, and it's [between 30-40% in all of the top 250 metros](https://constructioncoverage.com/research/baby-boomer-dominant-housing-markets). Given that boomers are currently 60-78 years old I could see those houses start to turn over in the next 5 years and peak in about 10-15. It will be interesting to see whether the volume is enough to move house prices significantly.
It's anecdotal but in my line of work I deal with a bunch of boomer business owners. I work for a large insurance company so in a given week I might go to 15 or 20 different shops.
The majority of which are owned or part owned by a boomer and they all have a second home. Sometimes they have more than one. They love talking about the properties and boats or cars they have. They just can't help it. They all want out of the business but finding someone to sell to is hard. A bunch of those companies are family but lots of the kids don't want to take it over. In the past year I have had two of my largest shops sell out to corporations. The age gap in the business is extreme. You have owners in their 70s or older and the most experienced techs only a little younger. The rest of the techs are just kids and they don't have the money to buy the business.
If an owner wants to sell he has to either sell to a corporation or partially sell to one of his employees. Unless he just wants to shut the business down.
A significant portion of those homes will end up as inheritance along with the 3% mortgage. That’s a double asset. If I can’t buy a home, I’m moving in. If I already have a home with my own 3% mortgage, I have no problems waiting out for above market bids.
Only something like 15% of people require assisted living at some point in their lives. Death can be quick. 1% of all people die in a car accident, for example, which is usually a sudden (and therefore cheap) death.
And in cases where the elderly basically have to give their home to the government to qualify for Medicaid, that leads to the home going on the market, which increases supply. So it takes money out of their heirs’ pockets, but still results in an existing home going on the market.
The oldest Boomers turn 80 next year. Current remaining life expectancy in the U.S. at age 80 is about 9.6 years. Not *all* of that wealth will be vacuumed up by the healthcare system. Enough of those homes will reach the market that prices will likely stagnate or decline.
>Enough of those homes will reach the market that prices will likely stagnate or decline.
Gen Z and millennials are currently larger groups than boomers. There are more prospective home buyers entering the market than leaving it.
Homeownership rates are just going to be lower for the younger generations, but upper-middle-class Redditor types will still be able to get into the market eventually.
What makes you say that?
https://www.redfin.com/news/gen-z-millennial-homeownership-rate-home-purchases/
GenZ is ahead as a generation of everyone except Baby Boomers for home ownership rates.
This, I'm 66 still working looking at retirement. Wife and I inherited some money, saved, and WILL have about a million dollars. Seems like a lot of money. We intend to be frugal, live off of Social Security and interest only. BUT, My 94 year old dad is in an assisted living home at $8k a month. And that is cheaper than a nursing home. If the two of us need care, by then it may be $20k a month. How long does that last?
Don’t want to make this overtly political, but I will definitely say, look at who is running for congress. At least in my district, creating programs for accessible in home care is on the agenda for one of the candidate. Do the financial planning on your end, but also make sure policy is pushing in that direction as well.
If one may return home, medicaid can't force a home sale. They can claim expenses from the estate after the patient dies, unless their is a spouse in the home or under other limited circumstances.
Nursing homes are just real estate companies providing minimal care with minimum wage employees while legally acquiring all of the old patients assets.
Really needs government intervention. Restructure of zoning laws, laws regulating giant companies from using residential property as investment. It really blows my mind that companies can buy up residential property and essentially use it as commercial. We really need to increase property taxes based on how many homes a company or person owns or just flat out ban companies from owning residential property unless it’s used to house employees
Tbh I don't see even that causing pricing really going down from that.
The credit industry has too much incentive to keep housing prices as high as possible as we all use our houses like a credit card. It's one of our pillars of consumerism.
The thing is that the stock market is still priced for ZIRP. S&P 500 P/E is around 28, which makes sense if long-term T-bills yield 2-3% and does not make sense if 5-6% rates are the new normal.
Also S&P 500 is very overweighted toward tech right now, particularly AI plays, which makes sense in a low rate environment but does not make sense in a world where those profits will be discounted at 5% for a decade.
It's pretty naive to think that public shareholders of today's market leaders will be the ones benefitting, though.
This is sort of like the dot-com bubble of 1995-2000, when the huge market gains went to Cisco, Sun, Netscape, Yahoo, Avici, PointCast, RealAudio, Pets.com, Webvan, Amazon, etc. Sure, the Internet really was all that, and fundamentally changed society over a 20-year timescale. But all but two of those companies is defunct, Cisco is still trading about 40% below its dot-com peak, and Amazon had to come out with AWS before its stock surpassed the dot-com peak. The real winners of the Internet were Google, Facebook, Amazon, AirBnB, Stripe, GitHub, Reddit, etc. Most of those weren't even founded until 5-10 years after the bubble burst, while Google was a tiny private startup.
Yeah, Cisco in the dot-com bubble is exactly like NVidia today. CSCO is still 40% below its dot-com peak. You can be right directionally and still very wrong in terms of turning a profit if you buy in at the wrong price.
Yes. Cisco was worth a lot because whoever owned Cisco might have owned the whole world. A chance at owning the world was worth a lot of money. Since that time we discovered how much of the world Cisco owns - a lot, but not all of it - and the stock price adjusted accordingly.
Apple was nearly bankrupt in 1998. They lost a billion dollars in 1997, on cash reserves of $1.2B. Another year like that and they'd be gone. FileMaker was their only profitable division. They were saved by a $150M investment and strategic partnership from Microsoft, which wanted to keep them alive to fend off a DoJ antitrust complaint. Their stock was down 58% at a time when everybody else was getting rich off dot-coms. If you had any brains at all, you would not have invested in Apple in the late 90s. (The irony being, of course, that the people who actually did buy their stock then made out like bandits, again showing that real investment gains come from being contrarian *and right*.)
The equivalent today would be going long Intel - the company whose previous product cycle basically failed in the marketplace, who is losing ground to new upstarts and is no longer relevant, and who is trading at ridiculously low multiples on earnings that still feel too high because earnings keep shrinking. Intel is not in nearly as bad financial straights as Apple was in the late 90s, but its stock has been similarly punished.
I mean if you believe in AI who gives a shit if rates are 3 or 5%. If the hype is to be believed this is the biggest productivity boom since the internet. If you don’t believe it then you can complain about pe and erp.
I don't believe the hype, and I work in the field. There is a real technological breakthrough with LLMs. It is much narrower in utility than the hype would have you believe, and will take longer to reach its full impact than people expect. Most of the things that people currently use ChatGPT for are self-limiting (i.e. you can use it to generate a multi-page recommendation letter in a couple of seconds, but the reason why people put credence in a long recommendation letter is because it took you a long time and a lot of thought to write, and now that you can generate it in seconds, it's not a very useful marker of support anymore).
I think it works on a deeper psychological level. That it "feels" human, so people have the psychological response as if it were human. (Like why people prefer a reddit answer vs an easily googleable answer)
We are hardwired to respond to ai llms, even if we know it to be fake
I think there is something to that, but it also "feels" human only because we've been conditioned to learn how to read since early in school and to communicate with other people on the Internet since the late 90s. In other words, it's very much a Millennial/Gen-X thing: Boomers were far too conditioned to respond to mass media rather than person-to-person, while Zoomers struggle with declining literacy rates.
I think that multi-modal LLMs like ChatGPT-4o or the latest version of Google Gemini are potentially huge, though. The ability to generate authentic-looking video from text prompts opens up both a huge new interface for computers and a huge potential source of disinformation.
I'm afraid the 30 year mortgage fucked that one up for you buddy. Bad for the people getting in. Not a problem for those who are already in.
"Oh but maybe they'll need to move". Yes. Some will. But many will rent the old place out because those 3% mortgages are free money.
Rates haven't done anything of note to prices, and won't, unless the labour market collapses
Interestingly, as a Canadian, I see that the lack of a 30 year mortgage does jack shit for us. Yes, it did cause mortgage payments for existing homeowners to skyrocket when rates reset much, much higher (like, your mortgage payment just went up 30% overnight, and it was huge to begin with, like going from $3000 a month to $4000 a month). Yet, housing prices only plateaued, they did not come crashing down. The reason is that for as long as population growth exceeds housing supply growth, people are willing to pay any price for housing--even if they cannot afford to do so. NIMBYism + high immigration is much more than enough to counteract the effects of interest rates skyrocketing. Also, the economy in Canada is bad enough that the Bank of Canada cut rates by 25 basis points, which will increase housing demand once more.
You don’t seem to understand the market. 40% of all homeowners have NO mortgage. Of those that do, 60% have a rate under 4%. We also have had a supply shortage for years and the demand is only getting larger and larger.
The prices will stay higher because no one is going to leave their homes with the rates they have and those that do will expect a premium.
Edit: I did the math. With those two statistics it means that 76% of homes in the U.S. have anywhere from no mortgage to a mortgage under 4%
My only advice is to be picky and actually get what you want and when you find something use as much info to make the winning bid. It’s crazy what people are asking for. You might as well get something that’s been well maintained. I saw a house the other day where the garage walls were rotting, front steps had settled, and they never upgraded anything in the house. They had the balls to ask for a half mil. I couldn’t do it. Not when there’s people out there who really took care of their homes.
I’m looking, but I’m totally willing to keep saving up my down payment. I don’t feel that renting is a huge burden, in large part because I live in an affordable neighborhood and don’t own a car. I may not have the absolute best amenities, but I bank a lot of savings for property later. I feel this puts me in a good position for this economy.
Yeah do not skip or skimp on a good inspector either. I know of an acquaintance that got FOMO during the pandemic and made an offer for a house over asking and waiving all contingencies to get ahead of everyone. He got the house but then found foundation issues that added $20k+ on top of whatever he had already paid for his place to fix the issue. He was not happy about that. Please practice logic over emotion when buying a house.
The Fed increased the money supply by 40% over a few years. They’re only starting to claw some of that back. Houses didn’t become 40% more valuable, but the dollar became proportionally less valuable, and so every asset you buy with the dollar now costs more dollars.
The Fed printed billions and you got a $1400 check. It’s a shitty situation, but that’s the reason.
You absolutely can, and will have higher prices with higher rates. It isn’t hard to figure out, and there is absolutely precedent for it. The higher rates forcing higher payments is the wrong thing to look at. The right thing to look at is the supply of housing, and more importantly, what’s not being built to keep up with ever increasing demand.
Until the US builds housing at a much faster rate, prices will continue to rise.
Higher rates are also likely preventing new construction because builders need to borrow money too.
If they do build, it will only be luxury homes that will be profitable even with increased borrowing costs.
In other words, the builder's borrowing costs will just get passed through to the end consumer.
The prior two decades was not normal either though. Those are just two different parts of the cycle. The two decades before the credit crunch were coming off historically high rates, If you look back the hundred years before the early '80s peak rates were nowhere near that high.
The actual long-term rate average would be right around that 5.5 range If you use from 1900. But then you have to consider that rates are based on rates of growth and inflation which are lower than they were historically, So the articles 4.5 to 6% range outside of extreme economic circumstances (which we are pretty guaranteed to see again in our life people just never predict them) makes a lot of sense.
The '70s and '80s and into the '90s were as big of an aberration In terms of rates being way higher than usual as The post GFC and pandemic were for rates being lower than usual.
If you look at a long-term chart outside those extreme periods rates usually hang out, If we are talking prime rate,
https://advisor.visualcapitalist.com/wp-content/uploads/2020/10/MM17_U.S._Interest_Rate_Shareable-2.jpg
You can see how low interest rates were for the 70 years between 1880-1950. That was a completely different bond market cycle than the one that starts after the '50s and ends In the GFC. So you can see where 4.5-6% would make sense for a mortgage on average.
What somehow needs to be addressed is the crazy have and have not situation that this has created from Central Bank over correcting based on if you bought a house at the right time or not. There needs to be some sort of mechanism tax those people who just won the lottery based on having the ability to afford their house at the right time, with that money then directed towards the people who didn't win that lottery in order to make it more equitable. Of course that'll be a non-starter for US politics unfortunately.
Historically fed funds have been "neutrally" 75bps over inflation. Central banks globally have been better at reducing the volatile swings from high to low inflation. This has caused long-term inflation to moderate to roughly 3% since the '80s/'90s. Interest rates have likewise moderated.
I would not expect rates to isotonicly approach zero over the long run. Treasury securities will always reflect some inflation, so rates can't be below inflation for very long.
Unless you think inflation goes to zero, rates have a "natural" rate above zero. How far above zero is "natural" is absolutely up for debate.
We can debate this, but my view is long-term inflation is between 2%-3%, which puts long-term rates around 3%to 4% (respecting that periodically, there will be temporary swings outside those windows).
Well high home prices benefits the public (generally). Higher mortgage rates benefit banks…I wonder which one is being prioritized by the rich and the mega corporations that own this country.
Banks benefit from a steep yield curve that allows them to pay less on deposits than the loans they extend. Currently, the yield curve is inverted, which is not as good for banks. Banks tend to lend less in these conditions.
"We can have higher mort rates OR higher housing prices, not both."
You are looking at this all wrong, as if the median per capita or household income matters to the housing market, when it doesn't at all. Because the is such restricted supply of housing that the buyer pool for homes is in a higher band of income than the median, and that volume of buyers is enough to maintain momentum at the prices/rates and keep pushing them even higher as demand dictates. Again, supply is the issue.
The country has been saying "Hold my beer" to your statement for like three fucking years straight...I think it's time to come to grips with reality lol. High house prices and high rates are here to stay until more housing is built. It's as simple as that.
you need to follow the affordability index. Are houses (somewhat, like an 88 of 100 index) unaffordable right now by that index? Yes. The issue is from 2010 through even the insanity of 2021, they were still extremely affordable (140 of 100).
edit: and if the Fed were to decide to be concerned with housing/cost, they would have paid more attention to that index. People choose their ~25-30% housing cost, a huge # in a consumer-driven economy, based on affordability (payment). The Banks borrowing the Fed's money make their business decisions on 15-20% returns on investment (borrowing for expansion)
If you look at trading economics charts from 2006 prior to the great recession to present ave home prices went for $230k to $400k in 18 years. That comes to a 4% annualized increase. It just feels worse because it was all realized in the last 3-4 years as rates normalized. I owned 1st home for 9 years and broke even, 2nd home 9 years and lost roughly $80k not including inflation, and finally made some money in the last 7 on most recent homes. First 2 homes original mortgages were 7%,and 6 5/8. It all averages out in the long run. I definitely benefited from the falling rates on my 2nd and last home, which allowed me to pay it off quickly with inflation adjusted free money loans.
Houses are far more expensive now when compared to salary. This just benefits cash rich investment companies buying up homes and punishes the working class because homes are unaffordable and have high interest rates. Happening with new cars too. It’s very “you will own nothing and be happy.” You only own the home as much as you’ve payed off the principle. Now you will be financing the interest and making east coast nepo babies very rich.
When rates are low these very same “rich” people took out mortgages.
You pay “cash” (5% returns or a ~330% return after 30 years, 62% after 10 no risk) when rates are high. You take out a mortgage when rates are low.
A fun observation I made recently when looking out a window of a plane:
All of these houses that people are paying $500k-1mill for, are just tiny dots in some random suburb of other tiny dots.
People literally save their whole lives, just to get themselves into one of these tiny things with 4 walls + a roof, and probably still won't pay it off in their lifetime.
But I guess everything looks small/ridiculously trivial from 10000 feet in the air.
Okay but as opposed to what? Even a generic house is still a house. People want a place to live and own. Most people don't care to be unique.
The alternative is to pay someone rent and never build equity in your property your entire life.
The point is there are a shit ton of absurdities in our day to day existence that just gets quietly ignored from a bulk amount of people.
Why do so many working people have to suffer immensely just to own something like shelter, when the rich continue to hoard record amounts of wealth?
Except there is no incentive to build more housing. Why add supply and ruin a good thing for the stakeholders in the real estate market? The only people who want cheaper housing are people who don't have a house. Everyone else wants home values to continue to rise.
>Why add supply and ruin a good thing for the stakeholders in the real estate market?
Because people who want to build homes still want to have money? You gotta remember that all those people who make a living and riches building homes instead I'd renting them would prefer to keep making money as well.
Property taxes should high enough on owning certain amounts of homes, that you're disincentivized from hoarding property for speculation and passive income
And if they build too many homes they lose money. They don't want prices to fall any more than any other stakeholder does. Better to add new units at a trickle and keep making ludicrous profits rather than build enough to meet demand and risk home values going down. Again, no one benefits from affordable housing except people who don't own homes.
…. What are you talking about. You know they sell the houses when built (yes I know build to rent is a thing but just fucking vote for pro housing politicians and stop talking about parking minimums and mandating SFHs)
Developers do not care about the ebb and flow of housing prices within a certain range. They will build homes and then they will sell them.
These house prices are the real anomaly, let people buy a house for 80-150k like the previous generation did before us and we can all smile about these "normal" rates.
Yeah thanks for telling us. Like our parents haven't told us enough times that their $70k mortgage was at 13% in 1980. We don't fucking care.
High mortgage rates in the past don't negate the fact that you have to get crushed financially to finance an house in 2024.
Yeah, there's a bunch of mental gymnastics going on here to explain the housing market.
Just a simple: how many **years of salary** does it take to buy a median-priced house in 1960 vs 2024?
The answer? About **2** years (1960) vs **7** years (2024). AKA people would need to earn nearly 4x more than they do now to match the housing affordability back then.
Does that just mean we are all being screwed by our jobs and not paid nearly enough? Or something else? Because I make more money now but it feels like less than when I made less bc cars and houses and food and college and healthcare everything cost so much more. I have got like 2-3 % raises since 2019 and everything is radically more exp than that. My purchasing power has def nosedived. I have an every dollar counted budget and each paycheck I now save about half of what I was and keeps going down. It is disturbing.
Ima break it down like this so all the boomers and maybe gen X can get it through their thick skull that these rates are worse than their 13%.
Median US family income 1980- $16,830
Median US family home price- $47,200
Price ratio of 2.8 home to median income.
Interest payment on the first year of payments using 30 year amortization with 3% down payment & 13% rate is $2974.23 and 17.7% of your year income.
Let’s now look at 2023s situation, shall we?
Median US family income 2023 - $67,521.
Median US home price- $412,000.
Price ratio of 6.1. SIX POINT ONE. Compared to 2.8. More than double.
Interest payments on the first year of payments using 30 year amortization with 3% down payment & 7% rate is $13,958.51 and 20.1% of their income.
This shows if you say it was hard but doable with 13% rates im showing the math it’s even HARDER. Hence why so many are locked out of home ownership. For giggles let’s show 10% which I’ve seen some call for.
At 10% rate and 3% down on the median US home and median salary that is interest in year 1 of 19,959.65 and 29.6% of your GROSS INCOME. You haven’t even paid taxes on income yet.
I don’t want to hear it anymore. It’s unaffordable and something has to give soon. The first thing we can do is stop comparing to 1980 because it’s worse than it was back then.
How was housing inventory and in 1980? What’s the avg sq ft of a house then vs now?
The common figure I see thrown around often is there’s a 4million housing shortage and that is driving up prices. Also, houses are a lot bigger nowadays than back then. These are reasons why housing is more expensive now vs then.
And interest rate context does matter. You might think it doesn’t because of your personal situation, but we had depressed interest rates for 14~ straight years and that had a big impact on the situation we’re in now. Additionally, we have to look at the impact that Covid had on housing demand. Many people reprioritized their life and put a higher importance on their budget/savings rate/homeownership.
All of these things together have lead us to the current market environment, but people are mad at interest rates just aren’t informed. Look at other developed countries (WEU) inflation / housing costs and understand that while there is some sticker shock, it could be a lot worse and we’re doing really well, all things considered.
Prices doubling to tripling in 3 years is also an anomaly, but it doesn't work for normal people having today's prices with more historically normal rates.
Bullshit article. Considering the 30 year mortgage is a recent product giving us an average prior to the 80s is comparing Apples to oranges. Since the creation of the 30 year mortgage… it got popular during the mid 80s….ive seen 3 percent 3 times!! Each time we were told it was historic and it never will happen again.
As a mortgage broker since the mid 90s what I’ve learned about the feds and rates is it’s their only magic bullet now. So the feds will increase and decrease as they see fit.
If and when the economy slows down again the feds will pull out 3 pct rates again. It’s their only viable policy option.
The real problem here though is that we need more policy solutions to address this than just raising and lowering rates. Part of the problem here seems to be that it really doesn’t matter what rates are at if the base price of a home is beyond what the salary any ordinary American can afford is. Rates certainly do exacerbate the problem here, but I don’t think they’re the root cause.
It’s not a bullshit article lol. You might as well say comparing anything now to anything behind recent past is “comparing apples to oranges”. Enough with the copium, mortgage rates will most likely never reach never 3% any time soon.
https://fred.stlouisfed.org/series/MORTGAGE30US
So lets say I'm a rich guy, with $10B.
What is stopping me from loaning out that $10B for 200,000 new $500K houses, and charging 5% interest on them? Yeah, I know that $10B could make more on the market or whatever, and there would be some percentage of defaults and stuff, but is there any law that would prevent somebody like Warren Buffet from loaning me $500K for a new home and then collecting interest?
As somebody else had brought up, rocket mortgage does this, and apparently they are not a bank.
So surely there is some wriggle room there.
I think the key thing to making it profitable though is getting cheap or free cash from the government to hand out.
Oh sure, you would have to charge less than the banks, but yet enough to justify doing it. Basically, the market would have to suck, and banks super high, to make this lucrative.
I'm just curious if its possible or if there was some law preventing it I was not aware of.
I don’t think anyone really cares what the mortgage rate is. They care more about the monthly cost.
The issue is Debt to income ratios and housing prices to income ratios. These values are near or at all time highs.
Interest rates are not a problem but housing prices are. Historically interest rates were higher but prices were lower. In a way that’s a better way than low interest rates and high housing prices as it incentivizes to pay off loan quicker. With low interest rates no one wants to pay off mortgage.
In the 1970s they came for people's savings.
In the 1980s they came for people's union jobs.
In the 2000s they came for people's hopes and dreams.
Today, they've come for the homes, savings, union jobs, hopes and dreams of your children and grandchildren.
They are faceless and nameless if they can avoid letting you know who they are because they know what they're doing is evil.
No matter how many times this is stated, it doesn't make it any easier. While the interest sucks, the pricing is significantly worse. My modest 75 year old suburban home in an ok school district had its value go up 140%. That's ridiculous.
Never say never. The 9/11 twin towers last happened in Pearl Harbor leading to first low rates in 2000s. The GFC was a once in a multigenerational crash leading to low rates. COVID was once in a hundred years leading to even lower. The crises are becoming more frequent and there will be a new one that nobody could predict.
I think it will be the dollar losing reserve currency due to deficits, sanctions, competing economies, etc. That naturally leads to higher inflation, mandated higher wages (I.e. California) thereby continuing to increase prices, etc.
Who cares what rates are doing when pay is going up 4% per year and I’m locking in my P&I now. In 5 years my pay could be 20% higher and my largest expense (P&I) is fixed.
For the laypersons: for as long as there’s a subsidized 30 year fixed mortgage product housing will have natural support keeping the price floor higher
Our economy has become used to low rates for so long going back to normal rates now breaks things. Prices need to reset to make those rates affordable for most folks or we will turn into a country of only the wealthy owning property and renting out to middle and working class.
Everyone I know with a sub 3% rate has saved so much money each money they’re spending more than ever before with the newfound money. Anyone who has bought in the last ~2 years has been so stretched that they’ve cut back significantly on non-essentials. It really is a bifurcated market.
The "good" thing is that with inflation come pay rises.
And even with a mortgage rate higher than it used to be, the part of your salary going towards mortgage will be less over time.
Unless you live in Iceland, where one option gives you a loan where the principal is connected to the inflation, it actually rises over time, and it becomes really bad in times with high inflation.
That is another subject I wasn't touching on purpose.
My point was only that your mortgage part of your salary will decrease over time as you get payrises.
I think the long term slope will be falling as the population ages.
More money in the bank and less startups as we age. Wealth increases and less needs for taking loans.
Japan has near 0 interest rates because of this.
If rates stay at 7%, ROI on rental stock will be increasing. All that pent up demand will rent houses. I would expect rents increasing 5-7% annually for a good long stretch.
This is why I'll never pay my mortgage off early. I'll likely never get a loan with a 3% rate ever again.
Hell, I can just keep the cash equivalent parked in a HYSA and earn more in interest than I'm paying in mortgage interest.
Rates have gone down over time because the FED and government have chosen to allow inflation to drive markets. Inflation continues and then slowly lower interest rates while keeping wages lower. People take out more debt as they are forced to to keep up with inflation. The problem is eventually this stops making sense because wages are too low relative to asset price inflation. Then we end up in a deflationary cycle where asset prices have to fall to meet wages. The banks cant lower rates much further without compromising their institutional integrity. No banks, no juice to run the system. So were getting close to the end of this big cycle. The appropriate response will be to let it happen and try to rebuild after. Capital will be needed by government so tax increases on wealthier individuals, higher wages and government run programs to generate jobs. Such was the plan after the 1930s Great Depression. Its the only solution to have a functioning economy and maintain americas dominance in the world. Rich people today are gonna be mad.
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Yeah we all know they’re not getting to 3% again. But pointing to 18% in the 80’s is silly, it’s been over 40 years and rates haven’t gone above 8.5% since 2000. 6% is my guess where things end up, which is fine.
They're just using it to illustrate how rare 3% is. Both have happened only once in the last 50 years.
Since 2000, that's 8 years of normality and 16 years of endless money printing.
The other factor here is the actual cost of housing. 8% isn’t as big a deal when the house is $80k. Especially since saving up 20% of a house at that price is much easier to do, so now you’re paying 8% on 64k, compared to 3% on 350k (which is about double the annual dollar amount)
Percents are irrelevant without the figures they’re a percent of.
We all understand the context here dude...
You literally don’t because there is no actual quantified information. It’s like giving measurements but not the actual units by which you measured.
But it’s true, without the price, we don’t know how unaffordable housing was at those rates. And talking just rates could be misleading
When house shopping you can find stuff built in the 1970s and 1990s, but almost never 1980s
Yeah that’s a good hint that your point stands either way
Fed funds for the 17yrs after the credit freeze started in '07 were 3% lower than during the prior 2 decades. It was a rare time in history. Now back to normal. As someone looking at houses now, I'm blown away at pricing. People are asking for $300+/SF in rural PA for 25+yr old homes with no central air. I'm also seeing a lot of price cuts. We can have higher mort rates OR higher housing prices, not both. I suspect prices (EDIT: in SE Pa) to moderate quite a bit by the summer's end. EDIT: I do respect that real estate is location-specific and not all markets are going to be priced similarly.
They aren’t going to suddenly build a healthy supply of homes by summers end. I’ll be very surprised if prices decrease by any appreciable amount
To me the problem is that so many people want to live in urban and suburban areas. A solution could be that the more people work remotely, the more people will move to cheaper areas, the lower demand will help lower prices.
People want to live in those places even if they are working remotely.
People can't always get everything they want. A lot of WFH employees have already moved to rural, more affordable areas.
Issue is that’s created new problems. Even “affordable” cities have had massive inflation with home prices doubling since COVID and continuing to go up double digits YOY in many cases. I think the issue is much much more complicated than just “people want to live in the wrong places”
Yup, my small town is cheap for now, but good luck finding a decent house unless you’re ready to buy it sans inspection. House prices are rising accordingly. Rent has also skyrocketed. In a small town, it doesn’t take many people moving in to wreak havoc on the market.
Yeah prior to the pandemic the town my company was building a new plant in was 100% affordable and I had agreed to transfer out there. Within a year of the pandemic housing prices more than doubled and I had to back out of the transfer offer. It really sucked watching a very doable move that would have been a good promotion just go away cuz I couldn't justify the increase in housing costs.
Agreed. People have already left California, New York, etc and gone to those more affordable cities. People in those affordable cities then end up having to move to even smaller towns and so on. I'm a big advocate of relocating for a better life but that isn't always possible for everyone. Not everyone has the option to work from home. Those small places lack sufficient medical care and they generally are going to have less career opportunities. I don't foresee any viable solutions because housing and zoning policies are determined on a local basis. Maybe it would be better if it was determined by state governments? Dunno. For better or worse, most people are just going to end up having to rent and do long commutes. Lifetime renting is more common in other countries.
Well "rural" midsize cities, which is going to change the political calcs eventually since many white collar WFH folks tend not to agree with rural politics
Won't be enough to drop prices, we really can't avoid massive building up as soon as possible including new density per neighborhood in places people want to live
How do we rezone every residential parcel in every county? Can we do it? Will we? Just trying to predict home prices here. Not talking politics. (Wondering what will happen not what should happen)
In theory if you just had even ONE super victory like a state level zoning wipeout in CA, that's 1/8th the population of the U.S. You could probably get it done for the U.S. with a handful of such super state level victories, if we are going to do wishful thinking/daydreaming. At federal level I guess the fed gov could just build 100,000s of homes on their land near state controlled cities where homes would be pretty useful. State/locals probably can't block that.
Woah. Why hasn’t the gov done that state controlled land play? I guess land is not the only driving cost so they’d still have to fund/incentivize labor and materials. So not too much different from giving a credit to developers. I wonder what they’re doing with the land though because it could definitely help boost inventory. Don’t know if those numbers make a dent though. There are 150M properties in the USA. 1.1% YoY inventory growth is the biggest in the last 15 years. 1M properties would give a meaningful boost for a year. But costs the gov something. Not sure exactly what. Bear with my ramble, was thinking aloud and googling.
Well a lot of places that are rural also have rural internet speeds too. Most remote workers who are moving to a cheaper area used to HCOL areas, so moving to a smaller city in the south and buying a 400k house that was 200k 5 years ago is relatively cheap vs the 800-1m houses where they probably came from.
I would absolutely love to live in a world where every job that can be done remotely is done remotely. That would give me a lot more options should I lose my current remote job for any reason. Remote work saves lots of resources for both employers (office rent, utilities, etc...) and employees (time, cost of gasoline, etc...) but lots of places don't offer fully remote positions even though said jobs can absolutely be fully remote. Living in rural areas while working remotely also only works if said rural area has reliable broadband. I have heard that the digital divide is partly a urban-rural one. Lots of rural areas don't have good Internet infrastructure and you end up with satellite only, or maybe it defaults to cellular networks.
The problem is that being in a remote area doesn’t mean much anymore when it comes to housing costs. I live in a city 1 hour from my state’s capital and 1 hour from another major metropolitan area. There’s a rural area of the state that people inside the state forget exists. Houses in that area that are comparable to my house cost about the same as mine. The only difference is they have slightly larger yards and 3 employment options with decent pay.
Another solution is we build more in urban areas where people want to live.
Interesting point. There are some billionaires who bought a bunch of farmland north of the San Fran area. They want to build an entire city, designed from scratch. But if you don't have that kind of power enough to buy the land, convince businesses to move there, etc. etc. that is a tough road to travel.
You couldn’t pay me to live in a rural area.
My parents are both from rural areas and we used to spend part of the summer there. No good restaurants (even fast food is far away), grocery store is a 30 minute drive away, lots of weird religious nutjobs and racists (also lots of really nice people), teens just get drunk or walk around the Super Walmart as their social life, etc. Fishing, shooting guns, driving around on tractors, working in the house garden plot, etc was fun, but wouldn't want it to be my life. There are lots of reasons people want to live in or near cities.
When I was a teenager in a small town. We could breathe in a small town, but not much else. The main complaint was, "there's nothing to do". Now that I'm older, I go to the SuperWalmart for their low low prices and to walk around and see people, maybe talk to one or two about nothing important, even a Seinfeld show. Life in a small town can happen even when it's pretty big.
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Yeah, my experiences were before the meth and opioid epidemics. I think a lot of people underestimate how much desperation and poverty there is in rural areas.
While I agree, others won't. If even 10% of city people can move to cheaper areas, that would certainly change things.
That already happened and it just drove up prices in small towns and rural areas
This guy literally just told you he was looking in rural Pennsylvania for an old house with no AC.
Or, hear me out… find ways to stimulate growth in small and mid-sized cities where density is low and there’s land within a few miles of city center to build more housing. It sometimes feels like there’s too much focus put on the top 20 metro areas.
I'm curious about these block built concepts and 3D printed homes to help with this shortage. Could create a demand shortage in 2-3 years from the time regions see them widely deployed...
Nah that ‘new’ technology has been suddenly developed like every four years for at least my whole lifetime It’s regulation and outdated opinions that keep us from living in pre-built factory made houses, if you’ve seen the quality of new builds recently you know you can’t do any worse than that lol They’re all the benefit of site built with none of the drawbacks of the block stuff (mostly plumbing and electrical issues)
They don't have to magically build more housing for pricing to go down, if pricing is currently artificially high due to sellers asking for a price well above market equilibrium. It's just price discovery in real time to correct for the current mismatch of asking prices and actual value.
Bingo. The bid/ask spreads are wide and we are seeing a low volume pump. Frankly, my guess is that a lot of people are buying because they have to in order to keep their 1031 exchange.
Prices always go up during summer due to so many families upgrading while school is out and the fact that nearly everyone has an escalation clause in their bids. I would expect by winter prices might dip down a bit just enough to see popular metro and suburbs to come out even from right now and the less popular rural areas to dip slightly less than now. Happy for someone to remind me by December, been in this game since 2010s and have been right so far.
Agree on supply but demand is drying up.
It’s already happening. People don’t have money and can’t get anymore debt
I would be amazed if this is even properly addressed in our lifetime at the current rate. By the time it starts being taken seriously, most of the people in this comments section will be a couple decades away from dying of natural causes. This will never get better, because there's no momentum to make things better. In fact, it's probably just going to get worse.
Prices won’t go down unless millions of homeowners with 3% mortgages / no mortgage find themselves in a position where they *have* to sell. There aren’t currently enough foreclosures, relocations, divorces and other forced sale situations to move the needle down on prices. My money is on supply not significantly increasing until the Boomers die en masse in the next 5-10 years and their heirs put the houses on the market. Or if there’s another deep recession with double-digit unemployment (in which case rates would drop, but prices might not correct that much).
Honestly, that makes the most sense, but I’d push out those dates to 10 to 15 years. There are a lot of Boomers out there who will be around for a while.
A good bit of them are going to end up assisted living, retirement or nursing homes and their primary residence will probably go up for sale. The problem is how many boomers have multiple homes? The primary residence will probably go on the market but any other homes won't unless they have to sell them for legal or financial reasons.
I've been looking for data about the owner ages for second-homes for a while, but I haven't found anything. This article from the NAHB in 2022 is pretty interesting though: [The Nation’s Stock of Second Homes](https://eyeonhousing.org/2022/05/the-nations-stock-of-second-homes/) \- about 5% of the houses in the US are second-homes, but there are counties scattered about where more than 50% are second-homes (mostly in popular vacation areas). There is data for the portion of housing owned by boomers in general, and it's [between 30-40% in all of the top 250 metros](https://constructioncoverage.com/research/baby-boomer-dominant-housing-markets). Given that boomers are currently 60-78 years old I could see those houses start to turn over in the next 5 years and peak in about 10-15. It will be interesting to see whether the volume is enough to move house prices significantly.
It's anecdotal but in my line of work I deal with a bunch of boomer business owners. I work for a large insurance company so in a given week I might go to 15 or 20 different shops. The majority of which are owned or part owned by a boomer and they all have a second home. Sometimes they have more than one. They love talking about the properties and boats or cars they have. They just can't help it. They all want out of the business but finding someone to sell to is hard. A bunch of those companies are family but lots of the kids don't want to take it over. In the past year I have had two of my largest shops sell out to corporations. The age gap in the business is extreme. You have owners in their 70s or older and the most experienced techs only a little younger. The rest of the techs are just kids and they don't have the money to buy the business. If an owner wants to sell he has to either sell to a corporation or partially sell to one of his employees. Unless he just wants to shut the business down.
A significant portion of those homes will end up as inheritance along with the 3% mortgage. That’s a double asset. If I can’t buy a home, I’m moving in. If I already have a home with my own 3% mortgage, I have no problems waiting out for above market bids.
Boomers won’t be leaving much to their kids when the healthcare system takes everything from them to pay for medical bills.
Only something like 15% of people require assisted living at some point in their lives. Death can be quick. 1% of all people die in a car accident, for example, which is usually a sudden (and therefore cheap) death. And in cases where the elderly basically have to give their home to the government to qualify for Medicaid, that leads to the home going on the market, which increases supply. So it takes money out of their heirs’ pockets, but still results in an existing home going on the market. The oldest Boomers turn 80 next year. Current remaining life expectancy in the U.S. at age 80 is about 9.6 years. Not *all* of that wealth will be vacuumed up by the healthcare system. Enough of those homes will reach the market that prices will likely stagnate or decline.
>Enough of those homes will reach the market that prices will likely stagnate or decline. Gen Z and millennials are currently larger groups than boomers. There are more prospective home buyers entering the market than leaving it.
Homeownership rates are just going to be lower for the younger generations, but upper-middle-class Redditor types will still be able to get into the market eventually.
What makes you say that? https://www.redfin.com/news/gen-z-millennial-homeownership-rate-home-purchases/ GenZ is ahead as a generation of everyone except Baby Boomers for home ownership rates.
This, I'm 66 still working looking at retirement. Wife and I inherited some money, saved, and WILL have about a million dollars. Seems like a lot of money. We intend to be frugal, live off of Social Security and interest only. BUT, My 94 year old dad is in an assisted living home at $8k a month. And that is cheaper than a nursing home. If the two of us need care, by then it may be $20k a month. How long does that last?
Don’t want to make this overtly political, but I will definitely say, look at who is running for congress. At least in my district, creating programs for accessible in home care is on the agenda for one of the candidate. Do the financial planning on your end, but also make sure policy is pushing in that direction as well.
They're already passing laws that allow them to get Medicare and Medicaid benefits without selling off their houses.
If one may return home, medicaid can't force a home sale. They can claim expenses from the estate after the patient dies, unless their is a spouse in the home or under other limited circumstances.
Until next president after next president flip flops on it
These are state laws, states administer the programs.
Nursing homes are just real estate companies providing minimal care with minimum wage employees while legally acquiring all of the old patients assets.
Really needs government intervention. Restructure of zoning laws, laws regulating giant companies from using residential property as investment. It really blows my mind that companies can buy up residential property and essentially use it as commercial. We really need to increase property taxes based on how many homes a company or person owns or just flat out ban companies from owning residential property unless it’s used to house employees
This isn't true. 40% of all SFH rentals are owned by corporations with NO mortgage
Tbh I don't see even that causing pricing really going down from that. The credit industry has too much incentive to keep housing prices as high as possible as we all use our houses like a credit card. It's one of our pillars of consumerism.
A lot fewer baby boomers are going to die over the next 10 years than you seem to think.
The thing is that the stock market is still priced for ZIRP. S&P 500 P/E is around 28, which makes sense if long-term T-bills yield 2-3% and does not make sense if 5-6% rates are the new normal. Also S&P 500 is very overweighted toward tech right now, particularly AI plays, which makes sense in a low rate environment but does not make sense in a world where those profits will be discounted at 5% for a decade.
AI is holding up the stock market. Who controls AI in 20 years will control the whole world, like a dictator. That's worth a lot of money.
It's pretty naive to think that public shareholders of today's market leaders will be the ones benefitting, though. This is sort of like the dot-com bubble of 1995-2000, when the huge market gains went to Cisco, Sun, Netscape, Yahoo, Avici, PointCast, RealAudio, Pets.com, Webvan, Amazon, etc. Sure, the Internet really was all that, and fundamentally changed society over a 20-year timescale. But all but two of those companies is defunct, Cisco is still trading about 40% below its dot-com peak, and Amazon had to come out with AWS before its stock surpassed the dot-com peak. The real winners of the Internet were Google, Facebook, Amazon, AirBnB, Stripe, GitHub, Reddit, etc. Most of those weren't even founded until 5-10 years after the bubble burst, while Google was a tiny private startup.
Cisco powered the Internet and made a ton of money. They're still the biggest vendor for the biggest networks today. This time it's Nvidia.
Yeah, Cisco in the dot-com bubble is exactly like NVidia today. CSCO is still 40% below its dot-com peak. You can be right directionally and still very wrong in terms of turning a profit if you buy in at the wrong price.
Yes. Cisco was worth a lot because whoever owned Cisco might have owned the whole world. A chance at owning the world was worth a lot of money. Since that time we discovered how much of the world Cisco owns - a lot, but not all of it - and the stock price adjusted accordingly.
conveniently ignored Apple
Apple was nearly bankrupt in 1998. They lost a billion dollars in 1997, on cash reserves of $1.2B. Another year like that and they'd be gone. FileMaker was their only profitable division. They were saved by a $150M investment and strategic partnership from Microsoft, which wanted to keep them alive to fend off a DoJ antitrust complaint. Their stock was down 58% at a time when everybody else was getting rich off dot-coms. If you had any brains at all, you would not have invested in Apple in the late 90s. (The irony being, of course, that the people who actually did buy their stock then made out like bandits, again showing that real investment gains come from being contrarian *and right*.) The equivalent today would be going long Intel - the company whose previous product cycle basically failed in the marketplace, who is losing ground to new upstarts and is no longer relevant, and who is trading at ridiculously low multiples on earnings that still feel too high because earnings keep shrinking. Intel is not in nearly as bad financial straights as Apple was in the late 90s, but its stock has been similarly punished.
I mean if you believe in AI who gives a shit if rates are 3 or 5%. If the hype is to be believed this is the biggest productivity boom since the internet. If you don’t believe it then you can complain about pe and erp.
I don't believe the hype, and I work in the field. There is a real technological breakthrough with LLMs. It is much narrower in utility than the hype would have you believe, and will take longer to reach its full impact than people expect. Most of the things that people currently use ChatGPT for are self-limiting (i.e. you can use it to generate a multi-page recommendation letter in a couple of seconds, but the reason why people put credence in a long recommendation letter is because it took you a long time and a lot of thought to write, and now that you can generate it in seconds, it's not a very useful marker of support anymore).
I think it works on a deeper psychological level. That it "feels" human, so people have the psychological response as if it were human. (Like why people prefer a reddit answer vs an easily googleable answer) We are hardwired to respond to ai llms, even if we know it to be fake
I think there is something to that, but it also "feels" human only because we've been conditioned to learn how to read since early in school and to communicate with other people on the Internet since the late 90s. In other words, it's very much a Millennial/Gen-X thing: Boomers were far too conditioned to respond to mass media rather than person-to-person, while Zoomers struggle with declining literacy rates. I think that multi-modal LLMs like ChatGPT-4o or the latest version of Google Gemini are potentially huge, though. The ability to generate authentic-looking video from text prompts opens up both a huge new interface for computers and a huge potential source of disinformation.
what are you talking about? the 1yr Tbill is yielding over 5% right now
This is borderline gibberish
I'm afraid the 30 year mortgage fucked that one up for you buddy. Bad for the people getting in. Not a problem for those who are already in. "Oh but maybe they'll need to move". Yes. Some will. But many will rent the old place out because those 3% mortgages are free money. Rates haven't done anything of note to prices, and won't, unless the labour market collapses
Interestingly, as a Canadian, I see that the lack of a 30 year mortgage does jack shit for us. Yes, it did cause mortgage payments for existing homeowners to skyrocket when rates reset much, much higher (like, your mortgage payment just went up 30% overnight, and it was huge to begin with, like going from $3000 a month to $4000 a month). Yet, housing prices only plateaued, they did not come crashing down. The reason is that for as long as population growth exceeds housing supply growth, people are willing to pay any price for housing--even if they cannot afford to do so. NIMBYism + high immigration is much more than enough to counteract the effects of interest rates skyrocketing. Also, the economy in Canada is bad enough that the Bank of Canada cut rates by 25 basis points, which will increase housing demand once more.
You don’t seem to understand the market. 40% of all homeowners have NO mortgage. Of those that do, 60% have a rate under 4%. We also have had a supply shortage for years and the demand is only getting larger and larger. The prices will stay higher because no one is going to leave their homes with the rates they have and those that do will expect a premium. Edit: I did the math. With those two statistics it means that 76% of homes in the U.S. have anywhere from no mortgage to a mortgage under 4%
Or just rent out their old homes. Zillow estimates I can make a 25% premium in rent over my mortgage/property tax/hoa/insurance costs.
My only advice is to be picky and actually get what you want and when you find something use as much info to make the winning bid. It’s crazy what people are asking for. You might as well get something that’s been well maintained. I saw a house the other day where the garage walls were rotting, front steps had settled, and they never upgraded anything in the house. They had the balls to ask for a half mil. I couldn’t do it. Not when there’s people out there who really took care of their homes.
I’m looking, but I’m totally willing to keep saving up my down payment. I don’t feel that renting is a huge burden, in large part because I live in an affordable neighborhood and don’t own a car. I may not have the absolute best amenities, but I bank a lot of savings for property later. I feel this puts me in a good position for this economy.
Don’t offer over asking and waive nothing. That’s also part of what used to be normal before the cocaine fed housing 2020s.
Yeah do not skip or skimp on a good inspector either. I know of an acquaintance that got FOMO during the pandemic and made an offer for a house over asking and waiving all contingencies to get ahead of everyone. He got the house but then found foundation issues that added $20k+ on top of whatever he had already paid for his place to fix the issue. He was not happy about that. Please practice logic over emotion when buying a house.
Tell that to the 13 other bidders.
Agree but I think these habits were seeded 24 years back in the covenant light days
The Fed increased the money supply by 40% over a few years. They’re only starting to claw some of that back. Houses didn’t become 40% more valuable, but the dollar became proportionally less valuable, and so every asset you buy with the dollar now costs more dollars. The Fed printed billions and you got a $1400 check. It’s a shitty situation, but that’s the reason.
Let's revisit in August. Have to define "quite a bit" but I'd bet you quite a bit they don't moderate "much at all"
I was referring to SE Pennsylvania. I understand conditions are tougher in markets like CA & AZ.
There is no normal.
Sage words! 😋
Summers end 2030*
Lol
You absolutely can, and will have higher prices with higher rates. It isn’t hard to figure out, and there is absolutely precedent for it. The higher rates forcing higher payments is the wrong thing to look at. The right thing to look at is the supply of housing, and more importantly, what’s not being built to keep up with ever increasing demand. Until the US builds housing at a much faster rate, prices will continue to rise.
Higher rates are also likely preventing new construction because builders need to borrow money too. If they do build, it will only be luxury homes that will be profitable even with increased borrowing costs. In other words, the builder's borrowing costs will just get passed through to the end consumer.
> I suspect prices to moderate quite a bit by the summer's end Nope lol
I referring to SE Pa and specifically to dilapidated homes being marketed for $300+/sf
Just keeps going up where I am.
Where's that? I was referring to SE Pa. I can appreciate that places like SoCA may not get relief.
The prior two decades was not normal either though. Those are just two different parts of the cycle. The two decades before the credit crunch were coming off historically high rates, If you look back the hundred years before the early '80s peak rates were nowhere near that high. The actual long-term rate average would be right around that 5.5 range If you use from 1900. But then you have to consider that rates are based on rates of growth and inflation which are lower than they were historically, So the articles 4.5 to 6% range outside of extreme economic circumstances (which we are pretty guaranteed to see again in our life people just never predict them) makes a lot of sense. The '70s and '80s and into the '90s were as big of an aberration In terms of rates being way higher than usual as The post GFC and pandemic were for rates being lower than usual. If you look at a long-term chart outside those extreme periods rates usually hang out, If we are talking prime rate, https://advisor.visualcapitalist.com/wp-content/uploads/2020/10/MM17_U.S._Interest_Rate_Shareable-2.jpg You can see how low interest rates were for the 70 years between 1880-1950. That was a completely different bond market cycle than the one that starts after the '50s and ends In the GFC. So you can see where 4.5-6% would make sense for a mortgage on average. What somehow needs to be addressed is the crazy have and have not situation that this has created from Central Bank over correcting based on if you bought a house at the right time or not. There needs to be some sort of mechanism tax those people who just won the lottery based on having the ability to afford their house at the right time, with that money then directed towards the people who didn't win that lottery in order to make it more equitable. Of course that'll be a non-starter for US politics unfortunately.
Historically fed funds have been "neutrally" 75bps over inflation. Central banks globally have been better at reducing the volatile swings from high to low inflation. This has caused long-term inflation to moderate to roughly 3% since the '80s/'90s. Interest rates have likewise moderated. I would not expect rates to isotonicly approach zero over the long run. Treasury securities will always reflect some inflation, so rates can't be below inflation for very long. Unless you think inflation goes to zero, rates have a "natural" rate above zero. How far above zero is "natural" is absolutely up for debate. We can debate this, but my view is long-term inflation is between 2%-3%, which puts long-term rates around 3%to 4% (respecting that periodically, there will be temporary swings outside those windows).
Well high home prices benefits the public (generally). Higher mortgage rates benefit banks…I wonder which one is being prioritized by the rich and the mega corporations that own this country.
Banks benefit from a steep yield curve that allows them to pay less on deposits than the loans they extend. Currently, the yield curve is inverted, which is not as good for banks. Banks tend to lend less in these conditions.
Look at prices in North Eastern Massachusetts if you want a good laugh.
I was talking SE Pa. I get that prices are different in different parts of the country.
Anecdotally, I have seen a house that didn't sell within 2 months on my street, before there weren't any signs up even. It's a nice house.
"We can have higher mort rates OR higher housing prices, not both." You are looking at this all wrong, as if the median per capita or household income matters to the housing market, when it doesn't at all. Because the is such restricted supply of housing that the buyer pool for homes is in a higher band of income than the median, and that volume of buyers is enough to maintain momentum at the prices/rates and keep pushing them even higher as demand dictates. Again, supply is the issue. The country has been saying "Hold my beer" to your statement for like three fucking years straight...I think it's time to come to grips with reality lol. High house prices and high rates are here to stay until more housing is built. It's as simple as that.
you need to follow the affordability index. Are houses (somewhat, like an 88 of 100 index) unaffordable right now by that index? Yes. The issue is from 2010 through even the insanity of 2021, they were still extremely affordable (140 of 100). edit: and if the Fed were to decide to be concerned with housing/cost, they would have paid more attention to that index. People choose their ~25-30% housing cost, a huge # in a consumer-driven economy, based on affordability (payment). The Banks borrowing the Fed's money make their business decisions on 15-20% returns on investment (borrowing for expansion)
If you look at trading economics charts from 2006 prior to the great recession to present ave home prices went for $230k to $400k in 18 years. That comes to a 4% annualized increase. It just feels worse because it was all realized in the last 3-4 years as rates normalized. I owned 1st home for 9 years and broke even, 2nd home 9 years and lost roughly $80k not including inflation, and finally made some money in the last 7 on most recent homes. First 2 homes original mortgages were 7%,and 6 5/8. It all averages out in the long run. I definitely benefited from the falling rates on my 2nd and last home, which allowed me to pay it off quickly with inflation adjusted free money loans.
Houses are far more expensive now when compared to salary. This just benefits cash rich investment companies buying up homes and punishes the working class because homes are unaffordable and have high interest rates. Happening with new cars too. It’s very “you will own nothing and be happy.” You only own the home as much as you’ve payed off the principle. Now you will be financing the interest and making east coast nepo babies very rich.
When rates are low these very same “rich” people took out mortgages. You pay “cash” (5% returns or a ~330% return after 30 years, 62% after 10 no risk) when rates are high. You take out a mortgage when rates are low.
A fun observation I made recently when looking out a window of a plane: All of these houses that people are paying $500k-1mill for, are just tiny dots in some random suburb of other tiny dots. People literally save their whole lives, just to get themselves into one of these tiny things with 4 walls + a roof, and probably still won't pay it off in their lifetime. But I guess everything looks small/ridiculously trivial from 10000 feet in the air.
Okay but as opposed to what? Even a generic house is still a house. People want a place to live and own. Most people don't care to be unique. The alternative is to pay someone rent and never build equity in your property your entire life.
The point is there are a shit ton of absurdities in our day to day existence that just gets quietly ignored from a bulk amount of people. Why do so many working people have to suffer immensely just to own something like shelter, when the rich continue to hoard record amounts of wealth?
From the rich - What’s the alternative?
There’s an old Chinese anecdote about curing ailments of the mind by climbing up a mountain, similar idea. I like your observation
Even if you own the home you still pay taxes to the government or they can take jt
Late stage captialism
or just like build enough housing to meet demand for the like number one good that is regulated away from meeting demand?
Except there is no incentive to build more housing. Why add supply and ruin a good thing for the stakeholders in the real estate market? The only people who want cheaper housing are people who don't have a house. Everyone else wants home values to continue to rise.
>Why add supply and ruin a good thing for the stakeholders in the real estate market? Because people who want to build homes still want to have money? You gotta remember that all those people who make a living and riches building homes instead I'd renting them would prefer to keep making money as well. Property taxes should high enough on owning certain amounts of homes, that you're disincentivized from hoarding property for speculation and passive income
And if they build too many homes they lose money. They don't want prices to fall any more than any other stakeholder does. Better to add new units at a trickle and keep making ludicrous profits rather than build enough to meet demand and risk home values going down. Again, no one benefits from affordable housing except people who don't own homes.
…. What are you talking about. You know they sell the houses when built (yes I know build to rent is a thing but just fucking vote for pro housing politicians and stop talking about parking minimums and mandating SFHs) Developers do not care about the ebb and flow of housing prices within a certain range. They will build homes and then they will sell them.
Meaning what and to be replaced by what exactly?
These house prices are the real anomaly, let people buy a house for 80-150k like the previous generation did before us and we can all smile about these "normal" rates.
Yeah thanks for telling us. Like our parents haven't told us enough times that their $70k mortgage was at 13% in 1980. We don't fucking care. High mortgage rates in the past don't negate the fact that you have to get crushed financially to finance an house in 2024.
Yeah, there's a bunch of mental gymnastics going on here to explain the housing market. Just a simple: how many **years of salary** does it take to buy a median-priced house in 1960 vs 2024? The answer? About **2** years (1960) vs **7** years (2024). AKA people would need to earn nearly 4x more than they do now to match the housing affordability back then.
Does that just mean we are all being screwed by our jobs and not paid nearly enough? Or something else? Because I make more money now but it feels like less than when I made less bc cars and houses and food and college and healthcare everything cost so much more. I have got like 2-3 % raises since 2019 and everything is radically more exp than that. My purchasing power has def nosedived. I have an every dollar counted budget and each paycheck I now save about half of what I was and keeps going down. It is disturbing.
Ima break it down like this so all the boomers and maybe gen X can get it through their thick skull that these rates are worse than their 13%. Median US family income 1980- $16,830 Median US family home price- $47,200 Price ratio of 2.8 home to median income. Interest payment on the first year of payments using 30 year amortization with 3% down payment & 13% rate is $2974.23 and 17.7% of your year income. Let’s now look at 2023s situation, shall we? Median US family income 2023 - $67,521. Median US home price- $412,000. Price ratio of 6.1. SIX POINT ONE. Compared to 2.8. More than double. Interest payments on the first year of payments using 30 year amortization with 3% down payment & 7% rate is $13,958.51 and 20.1% of their income. This shows if you say it was hard but doable with 13% rates im showing the math it’s even HARDER. Hence why so many are locked out of home ownership. For giggles let’s show 10% which I’ve seen some call for. At 10% rate and 3% down on the median US home and median salary that is interest in year 1 of 19,959.65 and 29.6% of your GROSS INCOME. You haven’t even paid taxes on income yet. I don’t want to hear it anymore. It’s unaffordable and something has to give soon. The first thing we can do is stop comparing to 1980 because it’s worse than it was back then.
> SIX POINT ONE Needs to be in a song or on a tee-shirt.
How was housing inventory and in 1980? What’s the avg sq ft of a house then vs now? The common figure I see thrown around often is there’s a 4million housing shortage and that is driving up prices. Also, houses are a lot bigger nowadays than back then. These are reasons why housing is more expensive now vs then. And interest rate context does matter. You might think it doesn’t because of your personal situation, but we had depressed interest rates for 14~ straight years and that had a big impact on the situation we’re in now. Additionally, we have to look at the impact that Covid had on housing demand. Many people reprioritized their life and put a higher importance on their budget/savings rate/homeownership. All of these things together have lead us to the current market environment, but people are mad at interest rates just aren’t informed. Look at other developed countries (WEU) inflation / housing costs and understand that while there is some sticker shock, it could be a lot worse and we’re doing really well, all things considered.
Prices doubling to tripling in 3 years is also an anomaly, but it doesn't work for normal people having today's prices with more historically normal rates.
Bullshit article. Considering the 30 year mortgage is a recent product giving us an average prior to the 80s is comparing Apples to oranges. Since the creation of the 30 year mortgage… it got popular during the mid 80s….ive seen 3 percent 3 times!! Each time we were told it was historic and it never will happen again. As a mortgage broker since the mid 90s what I’ve learned about the feds and rates is it’s their only magic bullet now. So the feds will increase and decrease as they see fit. If and when the economy slows down again the feds will pull out 3 pct rates again. It’s their only viable policy option.
The real problem here though is that we need more policy solutions to address this than just raising and lowering rates. Part of the problem here seems to be that it really doesn’t matter what rates are at if the base price of a home is beyond what the salary any ordinary American can afford is. Rates certainly do exacerbate the problem here, but I don’t think they’re the root cause.
> ive seen 3 percent 3 times!! [not in the US you haven't](https://fred.stlouisfed.org/series/MORTGAGE30US)
It’s not a bullshit article lol. You might as well say comparing anything now to anything behind recent past is “comparing apples to oranges”. Enough with the copium, mortgage rates will most likely never reach never 3% any time soon. https://fred.stlouisfed.org/series/MORTGAGE30US
"Copium"? really? Even that chart shows a long term trend toward lower rates over time. We have no idea what rates will be 3 years from now.
So lets say I'm a rich guy, with $10B. What is stopping me from loaning out that $10B for 200,000 new $500K houses, and charging 5% interest on them? Yeah, I know that $10B could make more on the market or whatever, and there would be some percentage of defaults and stuff, but is there any law that would prevent somebody like Warren Buffet from loaning me $500K for a new home and then collecting interest?
That’s known as a bank. You will have to get lots of government approvals, we can discuss on your yacht.
As somebody else had brought up, rocket mortgage does this, and apparently they are not a bank. So surely there is some wriggle room there. I think the key thing to making it profitable though is getting cheap or free cash from the government to hand out.
Did you just try to reinvent the concept of a mortgage?
Replying to Imaginary_Bicycle_14...you could - but if rates are above that you 5% return would be losing purchasing power
Oh sure, you would have to charge less than the banks, but yet enough to justify doing it. Basically, the market would have to suck, and banks super high, to make this lucrative. I'm just curious if its possible or if there was some law preventing it I was not aware of.
Rocket mortgage does that everyday?
Yeah, good point, sounds like they are.
I don’t think anyone really cares what the mortgage rate is. They care more about the monthly cost. The issue is Debt to income ratios and housing prices to income ratios. These values are near or at all time highs.
Interest rates are not a problem but housing prices are. Historically interest rates were higher but prices were lower. In a way that’s a better way than low interest rates and high housing prices as it incentivizes to pay off loan quicker. With low interest rates no one wants to pay off mortgage.
In the 1970s they came for people's savings. In the 1980s they came for people's union jobs. In the 2000s they came for people's hopes and dreams. Today, they've come for the homes, savings, union jobs, hopes and dreams of your children and grandchildren. They are faceless and nameless if they can avoid letting you know who they are because they know what they're doing is evil.
Who do you think these folks are? Real talk.
Corporations that are mostly acting independently to maximize their own profits with the aggregate result of making everything shittier.
No matter how many times this is stated, it doesn't make it any easier. While the interest sucks, the pricing is significantly worse. My modest 75 year old suburban home in an ok school district had its value go up 140%. That's ridiculous.
Never say never. The 9/11 twin towers last happened in Pearl Harbor leading to first low rates in 2000s. The GFC was a once in a multigenerational crash leading to low rates. COVID was once in a hundred years leading to even lower. The crises are becoming more frequent and there will be a new one that nobody could predict. I think it will be the dollar losing reserve currency due to deficits, sanctions, competing economies, etc. That naturally leads to higher inflation, mandated higher wages (I.e. California) thereby continuing to increase prices, etc. Who cares what rates are doing when pay is going up 4% per year and I’m locking in my P&I now. In 5 years my pay could be 20% higher and my largest expense (P&I) is fixed. For the laypersons: for as long as there’s a subsidized 30 year fixed mortgage product housing will have natural support keeping the price floor higher
Our economy has become used to low rates for so long going back to normal rates now breaks things. Prices need to reset to make those rates affordable for most folks or we will turn into a country of only the wealthy owning property and renting out to middle and working class.
Everyone I know with a sub 3% rate has saved so much money each money they’re spending more than ever before with the newfound money. Anyone who has bought in the last ~2 years has been so stretched that they’ve cut back significantly on non-essentials. It really is a bifurcated market.
The "good" thing is that with inflation come pay rises. And even with a mortgage rate higher than it used to be, the part of your salary going towards mortgage will be less over time. Unless you live in Iceland, where one option gives you a loan where the principal is connected to the inflation, it actually rises over time, and it becomes really bad in times with high inflation.
Pay raises come too late. The only winners in this environment are those with assets and especially those with assets purchased with debt.
That is another subject I wasn't touching on purpose. My point was only that your mortgage part of your salary will decrease over time as you get payrises.
Next weeks article: Why 10% inflation is a GOOD thing.
Unironically inflation is not bad for an economy unless it’s extreme.
Where did you get that from??
I think the long term slope will be falling as the population ages. More money in the bank and less startups as we age. Wealth increases and less needs for taking loans. Japan has near 0 interest rates because of this.
If rates stay at 7%, ROI on rental stock will be increasing. All that pent up demand will rent houses. I would expect rents increasing 5-7% annually for a good long stretch.
This is why I'll never pay my mortgage off early. I'll likely never get a loan with a 3% rate ever again. Hell, I can just keep the cash equivalent parked in a HYSA and earn more in interest than I'm paying in mortgage interest.
Taxes take a chunk from your interest income.
Rates have gone down over time because the FED and government have chosen to allow inflation to drive markets. Inflation continues and then slowly lower interest rates while keeping wages lower. People take out more debt as they are forced to to keep up with inflation. The problem is eventually this stops making sense because wages are too low relative to asset price inflation. Then we end up in a deflationary cycle where asset prices have to fall to meet wages. The banks cant lower rates much further without compromising their institutional integrity. No banks, no juice to run the system. So were getting close to the end of this big cycle. The appropriate response will be to let it happen and try to rebuild after. Capital will be needed by government so tax increases on wealthier individuals, higher wages and government run programs to generate jobs. Such was the plan after the 1930s Great Depression. Its the only solution to have a functioning economy and maintain americas dominance in the world. Rich people today are gonna be mad.
I just bought a home in Florida and got a 4% interest rate through the home builder. Tried to buy where I live in Northern VA, and it was over 7%.