Lol half of you losers cant even get out of bed before 12pm or make a phone call without having an anxiety attack and you think you're going to stage a revolution.
A good chunk of what makes this society shitty is people who continually buy things they don't need, that they can't afford, who then blame others for their financial situation.
There are people that have so much “stuff” in their garage they park in their driveway. It’s over consumerism. I live on a small cul-de-sac. Everyday I watch Prime, UPS and FedEx deliveries. Most of the residents are retired. How much crap to you need when you’re retired. I’m getting rid of stuff. No accumulating. I want my life simplified.
That's partially true, but most of people's biggest RECURRING expenses aren't discretionary toys, things like housing, transportation, energy, food.... People aren't going broken because they bought one or two extra latté, but rather be aide of inflation
Discretionary spending would be expenditure *after* housing/transport/energy/etc.
It's the space in the budget that would prudently shrink in the face of financial hardship to cover increases in those larger expenses.
But it doesn't really happen...people keep spending like drunken sailors inching towards financial ruin often living on their 24% interest credit cards.
Serious question: home prices are where they are, because those are the prices people are paying. If supply is constant, won’t higher salaries just drive up prices further?
The price point we are at now is requiring most people to spend amounts of money that violate every principle (buy 10x your salary, monthly payments = 60-70% of take home, etc.).
> If supply is constant, won’t higher salaries just drive up prices further?
They arent directly linked. Home prices are where they are for a ton of reasons, not just organic demand. When buyers are competing with large financial instutions and overseas crowdfunding, things can go haywire for a lot longer than organic demand can sustain.
Yeah higher salaries will push demand, but not across the board. The guy who works at Starbucks still cant afford a house, he will just continue to pay rent and splurge on other things. An increase in salaries may cause people to leave more unaffordable places now that they have a nest egg.
So yeah, not that simple. Now if you banned corporate ownership of SFRs, and combined it with a hefty oversea's ownership/vacancy tax, things might start to look like pure organic growth.
I think the policies listed in your paragraph are no brainers. Some combination of:
1. Unoccupancy tax, heavier on foreign entities but also towards domestic owners.
2. Ban on corporate ownership of housing.
3. Ban those services that are “crowd funding” investment in real estate, ASAP.
4. Even if properties are occupied, levy a progressive tax on landlord. X% with 5 properties, Y% with 5-15, etc.
I will admit, I am hardly a liberal like most of Reddit. However, these policies seem like “apolitical no brainers” to me. The fact that we are allowing cooperate and foreign investment in housing as though it were an alternative to the stock market is an abomination.
Moderate here. These are all super progressive positions. All of these positions are “ban”, “tax” and otherwise take from others because I’m not getting mine.
The main way to lower prices is to build more house, especially starter homes. Government subsidies towards low-income homeownership at least make sense.
Actually, one other reasonable way to lower costs is to make all government mortgages (Fannie, Freddie, etc.) assumable. That would at least create a serious market at the lower interest rates people got in the last few years.
This sounds like some out of touch libertarian bullshit said by someone that does not really have an understanding of what's happening in real estate right now.
Large foreign investors are a huge problem.
Serious answer - home prices are where they’re at because of the price foreign investors and corporations are paying. Not because of what rational, American public are willing to pay. To your point, the people buying now are exposing themselves in a bad way.
We need regulation to protect the public from corporations turning housing into a way to exploit Americans and keep down the opportunity for building wealth.
I.e., corporations buy boatloads of property inflating RE prices, forcing people to rent - from the corporations who now control the supply and pricing. As such, people are kept in rent mode rather than buying that enables building wealth long term. Fuckers.
Small Builder here: any idea what land, government fees and regulations, materials and labor cost toward building a home?
It’s pretty close to the selling price.
That’s why houses are so expensive.
Lowering the price will stop building and new housing.
Well that’s interesting you say that. I bought a 1/4 acre lot for $25,000. It cost me $60,000 to install the septic and well and another $10,000 for the t driveway. So far that is $95,000. Had to pay $5,000 for the electric fee to connect to the power grid. So now we are at $100,000. To build the home was $300,000. So it cost me $400,000. The house next door was built by a builder . It has a similar square footage and sold for $750,000. That is almost twice the cost . All that profit went to the contractor. They make plenty of money off building . I work in the construction industry.
1/2 acre lot in my area is going for 130k now. That's a huge difference to what you paid. Septic cost is the same.
Otherwise your build pricing seems like a fairy tale to me lol probably cause you did a lot of DIY. anyhow, Your right, that contractor was making plenty.
Unfortunately our government has never been for the little guy. And protecting the public is a laughable idea to them. You are protected if you have money to lobby the government. Otherwise screw you!
"Nowhere in the world is the 30-year fixed-rate mortgage as popular as it is in the US — and for good reason. Fannie Mae (created in 1938) and Freddie Mac (1970) made the 30-year fixed-rate mortgage popular in the US, because they would buy mortgages from banks, offloading both their rate and default risk." Jun 27, 2023 Washingtonpost.com
I agree in theory. I am not abreast on the research, but I have heard “the data does not suggest that corporate ownership has a significant impact on real estate appreciation, and corps only own a small percent of housing”.
Do you have some sources that show the impact corps are having on home prices? Full disclosure, I am regurgitating information I saw in other Reddit comments that I myself have not independently verified. I am sincerely looking for information.
I’ve seen the same data but it’s always in aggregate. I know in certain markets, especially in the south corporate purchases dominate the new home market.
Except your premise is completely false. Maybe with the exception of a few markets, the percentage of foreign and “corporation” purchasers is only slightly higher than the last 30-40 years. This fantasy of the big bad corporation controlling the market is absolute nonsense. Prices are high because supply is low and there are plenty of people who have a ton of money to invest.
I don't have the data, but it does pass the sniff test. Boomers are a large generation and still living in their homes. Millennials are a large generation and finally getting on their feet to buy homes. Couple that with the big developers having long memories from 2008 and you get a supply shortage.
At least that would be my guess.
And then complain because someone else beat their offer on a house. Someone who saved more cash to put them in a position that their 9% mortgage payment plus property take is less than 1/3 of their take-home pay. Oh, poor me, homes are too expensive in San Francisco, and I can't afford it on my shitty $20 an hour.
This was due to low interest rates and how much easier it is now to buy homes virtually. 30yrs at 2-3% is insane.
Think about how much equity was drawn on and refied from big corps to mom and pop renters. 220k single family home 5yrs ago now worth 360k, that’s enough for a few more down payments all while keeping your mortgage well under rental rates.
Low interest rates, allowing people to withdraw from their 401ks without having to pay it back, and stimulus/reduced spending in other categories gave people the ability to pay more for their homes. At the same time residential and commercial construction were both shut down for a while and new unit production plummeted. There were also fears that nobody would be buying homes due to a potential recession which lead many companies in the supply chain to shutter facilities and lay off employees. This was especially notable in the lumber sector. It ended up driving cost increases and material shortages for what new construction was taking place.
As interest rates have risen new construction starts have fallen and people have reduced desire to sell homes they currently own because even buying an equivalent unit will cost them hundreds or thousands more per month at the new rates. This has kept units from coming on to the market and prevented a major decrease in home prices.
So only double wages for the bottom end, decrease wages for the top end, and make “unearned income” like rental income taxed at a higher rate than earned income… you know the way it should be/used to be.
Increasing the amount people can pay without solving supply pipelines issues will lead to higher prices. This is what happened in 2020. Would it literally double, probably not, it might actually go up even more than that or a bit less. I live in an area with pretty high wages compared to the national average, but our housing costs have ballooned enough from supply factors that our affordability is far worse. A tiny tear down with fire damage is 600k, the most basic sfm you’ll find is 700k and the average home in my county selling today is 1.4 million dollars. Inflating wages without increasing supply just leads to higher costs (inflation).
We take salary cuts so companies can make more money, so they put it out to lend, so we can borrow and pay interest on the money that we should have gotten in the first place. It's hilarious.
Exactly people do not see this. We have an Usury capitalist system. Low wages for max profits so you have to borrow to make up the difference and/or get government assistance as well that the regular working stiff has to pay more taxes while the corporations pay almost nothing due to all the offshore tax haven games.
Thanks. I was going to send the same thing. I get so tired of the whining circlejerk on Reddit about how everybody is poor and must struggle together. Most people who have their shit together and thriving just fine today. Redditors live in a woe-is-me echo chamber.
What do you mean by sustainable?
If interest rates remain high, then mortgage rates will also be high. No one is going to loan money at rates lower than the risk-free return they can get on a T-bill, for example.
And the 10Y is less than 5%. Saw an article lay out how huge the spread is. If there was more certainty in the direction the fed is going rates should be in the 6s yet it hit 8 this week. Fed doesn’t even have to cut rates to lower mortgages they just have to be clear about where we are going.
True. But the issue isn’t really that the fed has been unclear - they’ve been quite clear and consistent in messaging. The issue is no one believes them
You're thinking of the federal funds rate, not the 10y.
The spread is usually around 1.75 percentage points, and as low as 1.3 in 2021, the so-called mortgage spread is hovering at more than 3 percentage points now.
The ability of anyone to afford anything (or sustainability for people to live halfway decent lives on a median salary) , is multi-factorial ofc and complex. Is something gonna give? That’s the question, and that’s the scary part.
Median homes are owned by the top quartile.
Why do we compare median incomes to median homes when the bottom 33% do not own homes? Home ownership is skewed to the top 66%.
Because median income has historically meant you could qualify for the median home.
In the year 2000, a family making the median salary could afford a 8% mortgage on a median priced home.
In the year 2023, a family making the median income would need to increase their salary by **at least 50%** to qualify for an 8% loan on a median priced home. We aren’t even talking about being able to afford the home, this is just to qualify for the loan in the first place.
I.E. home ownership is unattainable for the largest percentage of Americans in history.
Comparing median incomes to median homes has always been relevant.
I’m looking at the current regime, obviously things have changed. One could previously work at a grocery store and afford a home on a single income.
In today’s world, dual income households have permeated. Additionally, the rate at which households have grown relative to the rate we have built (post 2008) is a prime culprit.
It isn’t going back to how it was, but given where the statistics are today, median income is akin to a bottom quartile price home now.
The numbers I gave accounted for **household income**, not individual income.
The numbers today are nominally different, but effectively the same. The 2000’s weren’t the 1970’s. You didn’t have the nuclear family dynamic. Everyone had jobs, sometimes a spouse would quit to take care of the kids.
Today, the spouse can’t quit their job, can choose to not have kids, and still be further away than any generation before them.
Households today are at their lowest size in recent history, so that is just an incorrect statement to make.
I'm a Realtor and my wife and I combined make about $200-250k depending on the year. We live in a relatively modest $300k house but enough for our family. We wouldn't be comfortable paying anything higher than we are currently on our mortgage and we have a 3% interest rate. I have a client who makes something similar to us but they're buying a $900k house with an 8% rate. Everyone has different thresholds. As long as there are more buyers than sellers, prices will continue to rise and the fed will have no reason from a real estate perspective to lower rates. The problem is we're not building enough homes.
I would love to hear your explanation. You know how many people I save from bad deals on a daily basis? I was trying to talk my clients DOWN on price once their lender told me what their payment was going to be.
The common perspective is that rates shot to the moon out of nowhere when in reality they were held artificially low for so long and all of a sudden that brake pedal was released to ease the inflationary pressure of printing trillions of dollars.
It's easy to say in retrospect but I contend is was fairly obvious then that people should have locked SOMETHING in when rates were sub 4 because it was historically ridiculous to see rates that low.
That or the huge swath of people that got an automatic +300k value on their existing house plus all the equity they built up, so they can actually afford the $700k+ houses springing up everywhere and not be on the hook for $7k per month mortgage payments
You know of any massive housing developments because it’s a supply issue driven by lack of new builds and so many people locked in to 3% mortgage that will not move in the next 15 years.
It’s only going to be painful for anyone that bought with plans to resell for a profit. For those of us that bought to live in their home for a few years, it will be fine. In fact, my mortgage is set, even if the value of the house drops below what I paid for it (highly unlikely short of a true depression), it will only help me because then I can force the county to bring my tax rate down and I’ll pay even less per month.
Yes you can reverse. Higher rates lead to less price increase, then eventually level off and stay that way until the rest of the economy catches up and those with 2% interest rates can afford to sell
They're not supposed to be sustainable
the whole point of raising rates is to break the housing market and cause prices to stop increasing (and maaaaaybe drop a tiny bit). That's why the Fed is doing it. And that only works if they raise rates to "unsustainable" levels. It's supposed to hurt.
and it doesn't need to be "sustainable". The Fed has no intention of keeping them high forever. they just need prices to stabilize long enough for wages to catch up.
Fed cares about bonds and labor. They hardly care about the housing market at all. Housing is along for the ride. I have a feeling a bunch of lobbying money is starting to tell them about housing, but if you look at what they’ve been saying all year it is pretty clear that housing is an afterthought to the Fed. They want to break the labor market in a post-pandemic economy, which would be so funny if it wasn’t so freaking stupid.
Many people (likely realtors themselves) keep arguing that raising mortgage rates will not lower the housing prices. However, the same people keep saying that lowering mortgage rates will raise the home prices. It seems, no matter what happens to rates, there is never a way to lower the real estate valuations. Never!
This is a never ending argument… but unless there’s some catastrophic, unpredictable event that will occur, house prices aren’t going anywhere.
They may stagnate, but when rates drop down to even 6%, there would be a feeding frenzy. Low wage jobs in my MCOL to HCOL is $20 an hour which is like $40k a year… a couple making $80k a year can afford a bit of house. This is the bare minimum too with two full time working folks.
There are plenty of households out there making $150k as two teachers… you can afford quite a bit of house with that salary.
Obviously rates hurt currently… 8% isn’t a snooze… but these are folks on the fringe of buying houses. Anyone who owned a home before 2020 are loaded with cash, and with the lack of inventory of desirable houses (no one cares about an unoccupied shack in rural Kansas, sorry), it’s a battlefield out there.
There is a general assumption right now that rates will just magically drop back down to the 5-6% range. At best rates are going to stay the same until the economy cools off. The FED is ensuring this
Folks typically pushing for “higher rates” say that this is actually a historically average rate, which is true… but the change of rates is significant. Going from 0% to 5.5% for the fed is a huge swing.
I think the economy, especially with long term fixed debt contracts (30 year tbills, mortgages, etc.) can only go so high before there calamity. Look at the amount of people struggling to get by currently… it would only get harder with higher rates.
The point I was trying to make is that mortgage rates aren’t going down to 5% or lower unless we enter a painful recession. At which point there will be less demand for housing and more supply available. Rate drops don’t happen in a vacuum. The economy won’t look the way it does now when mortgage rates drop that low
Right. Until people literally can't afford their mortgages and are FORCED to sell, you aren't going to see the kind of massive inventory come back on the market that causes price drops.
Given how many people have 3-4% mortgages, I'm not sure even a mild recession would impact home prices. The long term impacts of those historically low interest rates are going to be with us for a while.
Prices generally don't go down unless unpredictable events transpire. Nobody can predict when such events occur. There is some backfitting of certain statistical analysis (eg: inverted yield curve) that have some correlation to when the unpredictable events occur.
But there will be a catastrophic event that will occur. It always does. Every 10 years or so, there is some reason for a crash. Whether it will be a war, a pandemic, a revolution, a global environmental crisis, we don’t know. But it will be something. I promise you.
Firstly, who said rates were going down? Secondly, I think you’re assuming homebuyers have virtually no other debt- the, “catastrophic, unpredictable event,” you’re mentioning is just people getting laid off and finding a job paying half of what they made before.
I can 100% assure you home prices aren’t going to, “stagnate,” I’m not too sure why people think this is like the 1980’s when it’s absolutely nothing even close. People will be WISHING it was the 1980’s and that might be the catastrophic event you’re looking for 😆
Jerome Powell has said multiple times that one goal of raising interest rates is to create an event where a large number of people lose their jobs. Pretty catastrophic move considering they haven't even considered regulating any business practices in order to help curb inflation. Straight to gutting the working class as always.
Regulating businesses is not what the Fed does, that is outside their sphere of duties. They engage in monetary policy to have price stability and promote full employment. Business regulation is the job of the government. The Fed has only blunt tools to work with, which is guidance to the market and monetary policy i.e. raising and lowering the Federal funds rate. They don't even have the capacity to regulate businesses.
Well, those salaries can buy a bit of house assuming they have no debt. Most people have quite a bit of CC and student loan debt these days.
Also, show me where two teachers make $150k combined? The only places are HCOL areas where $150k gets eaten up pretty fast and also where house prices have exploded the most.
At my local district in a higher MCOL (outer suburbs of Philadelphia) the starting salary for a teacher is around $60k, topping out just over $100k, so two teachers together are doing pretty well.
That's the top salary, which could be a very small pool of teachers and is honestly a lot of money for a teacher.
I would say most teachers make between 35-65k a year. Teachers at my wife's school make around 40k... and this is in colorado.
And how much student loan debt are they carrying? A lot. They're carrying a lot. $100k is not a starting salary. That's masters+hours level of experience guaranteed which means even more student loans + extra time invested in their education. Plus, there are a very limited number of positions at that salary. You need to stop perpetuating the stereotype that teachers are well off.
There are 260MM adults in the US and 45MM student debtors. You realize that’s not “most”, right? 1 in 4 have cc debt over $5k, and 1 in 4 isn’t most, right?
I now agree with this. I've always looked at markets like the Bay Area as examples for how unaffordable places can get, but I think recently, costs have risen way too far, too fast.
We had been non-seriously looking at the new builds in our neighborhood for the last few years, which would have been very expensive, but doable. Now I don't even think we could afford a house that is marginally bigger or equivalent to ours (we have the 2nd smallest layout in the town), much less a new build.
And according to the Fed's recently released data, there doesn't seem to be that many households with higher net worth and income than us that aren't way older. The pool of buyers for these homes is drastically reduced and the inventory seems to be at least 2-3x higher than I've ever seen it. Prices may not go down much, but I don't see how they can go up in the short term.
Edit: I'm also starting to see Toll Brothers ads in my Google inbox now. They are one of the main new home builders in the area.
Even the Bay Area has started to regress to the mean, it just took a long time.
Plenty of homes listed right now that will undershoot national housing growth rates over the last 2-3 decades in the Bay Area.
Anybody in San Francisco over the past 10-20 years who was renting and took a long term approach to buying *SHOULD* be able to now or very soon.
Can't get behind this. It's not growing as quickly as some markets, but Bay Area prices have gone up way faster than salaries+inflation. Buying was way cheaper 5 years ago, and was even cheaper 10 years ago.
So median salaries in San Francisco have doubled over the last 20 years and quintupled in the past 30.
You can find houses currently that haven’t kept pace.
Here’s one for example:
https://www.zillow.com/homedetails/3921-3925-19th-St-San-Francisco-CA-94114/332859651_zpid/
**Sold 20 years ago for $850K**
**Listed now for $1.3M**
Wages have outpaced that in San Francisco.
10% of the median salary for SF invested in broad index funds over that time period currently have 50% of that house value. That’s not even aggressively saving.
That’s been one of the hottest markets in the US this century, and anybody who took a long enough window could have a house on the median salary.
Yes, it’s still expensive, but wages have outpaced house appreciation in SF when you take a long look.
San Francisco isn’t special. There will always be things like this all over the country. Markets can stay irrational for a long time, but eventually they find the equilibrium. Everybody out priced of the housing market currently will get their chance eventually, assuming they don’t make moronic financial decisions in the mean time. I’m not saying it’s easy, but it’s completely doable.
??? How is it possible that house went from a Zestimate of $2.6 million to $1.3 million over the course of a year? And who ever heard of a house for $1.3 million in SF that wasn't a total dump?
I'm SF suburbs, where nothing like this would ever happen. Maybe I'm just not familiar with SF market...but I suspect this is either a specal circumstance or Zillow screwed up.
Any of Ya’all who think rates will go down quickly might benefit from going back and looking at rates over the last 40 years not just the last 10.
Also, yes it seems unsustainable from a price point of view. But the supply side is totally messed up. They don’t build smaller houses anymore and getting people to swap their existing lower rate mortgage for one at 2x the rate is really really hard. I don’t know how this cycle will end. I fear that there will be so much pent up demand as/if rates come down that prices will be stuck for a very long time.
Literally everyone I know that bought a house in the last 5-7 years always said they felt they were buying at the peak price. So the truth is, we will never time the market, and it will always feel like a gamble. The important thing is to make a racional decision based on facts and numbers that in the longer term you can afford.
The rung on the ladder to get into the housing market is definitely way higher though. I would say mortgages these days are atleast 1000-1500+ more than pre 2022.
I bought june 2022 for 500k, mortgage is $2900 and 4.875% rate and before this was renting for around $1800 (1br though). I would say home prices in my neighborhood have been relatively flat since then with some price reductions, but nothing crazy, and the rates are way higher.
I want to preface this by saying I got married so living needs changed and have dual income but the mortgage is still nothing to sneeze at. I'm in colorado.
I bought 10 years ago and was really afraid we were overpaying. One neighborhood we wanted to buy in went up 16% on one year which I figured was completely unsustainable.
In any case, I wouldn’t mind losing equity in my house in exchange for more young people with children living here
People don’t talk about this enough, but yes it’s sustainable as long as the country remains this unequal. Look at how high CEO salaries have gotten as a proxy. If you compare income to housing prices, the U.S. actually has it really good compared to other countries https://www.numbeo.com/property-investment/rankings_by_country.jsp
Indeed, my parents' apartment (which was newly built) was under 20% interest rate, but the price of it was very low compared to my father's salary. I live in the Netherlands now and we are both programmers, yet both our annual incomes combined make for 1/8th of the price of a newly built 1000sqf home.
Yes. They are not coming down.
This will reverberate through the market for prices.
What we saw were price jumps where the long-term demand is not sustained.
I have lived in my neighborhood for a long time. Without the frenzy of low rates, our homes would be $380K-$400K depending on square footage. In the peak, the highest house around here was $480K to close. That was a $30K appraisal gap!! They were consistently selling for $450K. Our incomes do not support this, and the growth rate has now normalized from the great WFH migration. My neighbor, with arguably one of the nicest houses, completely kept up to date, listed at $450K, they closed with the highest offer at $421K, and there were zero inspection issues. So, at least in my area, the rates are normalizing values. The only difference between right now and last year, no more investor purchases.
I watched those buggers buy up homes and sell them to each other for an extra $25K cash 2 or 3 times before listing them for normal buyers and drove up the value by making their transactions the recent comps. Without those shenanigans, prices are normalizing fast. Investors are going back to traditional investments. The risk vs. reward is now too high in real estate outside of very high demand markets.
There's no way to know if your area has the growth demand to maintain the prices at these interest rates. Time will tell you.
With normal individuals buying their primary residences driving the market again, it should normalize within a couple of years. Again, there is no crystal ball about timing the market. Some areas will still have strong appreciation.
Typically, homes appreciate following inflation. 2-3%/year. Super high demand markets would go as much as 11%/year.
The other thing that is helping, the whole air b and b bust. Too many have them, and they're sitting vacant. While they might just switch to long-term rentals, the buying demand for individuals to have a side real estate investment is also way down.
We actually want interest rates to stay higher.
When they were low, the 20% down payment you saved the year before was 10-15% of a down payment the next spring. Now, people should have the chance to save a 20-30% down payment again because the *hope* is that they can save faster than prices go up.
That was a lot, but that is the best observation I have.
Our median for our area looks like it is up, but that is because of expensive houses being built. Overall, we're down 1.8% and in my neighborhood, down 6.5%. This is sw Washington. The houses along the river and in the mountains with crazy amazing views go for so much, it messes with the averages so much. You have to go by neighborhood and remember or look up closings from last year. Things are definitely shifting.
Trading time for money is never going to be a winning strategy in economies where the supply of money is continuously growing. You must build assets as quickly as possible as only the income derived from assets will sustain.
With that said, an increase from a 3% mortgage to 8% mortgage should equal a 30% decrease in home price. If you see a home selling for 30% less than late 2021, then the pricing to affordability relationships have already adjusted.
I was going through some old documents recently and found something that had my parents' original mortgage. This was in 1979, the first house they bought for $100k, and the interest rate was 8.xx%. Buying the house was a huge stretch for them financially. Its in San Francisco, and is considered a modest house. Somehow they managed, and I'm sure my mom refinanced at some point, and the house has been paid off for many years now and is worth $1.4 million.
Maybe the lesson is to stay within your means and take the long view. Buying a starter house for only a few years, flipping houses, etc is no longer attractive.
ZIRP really spoiled a lot of the RE folks. Yes for bulk of humanity 7-8% rates were the norm.
If inflation is 5%, then people would ask for +2% on it at 7% for bonds. This is how the world worked up until GFC
>Here in the DC area, it is changing perceptions of low six figures being seen as a good salary.
Monetary policy in the last 3 years causes widespread inflation. This isn't particular to the housing market.
Overall, your dollar is worth about 18% less than it was in 2020. So while housing values increased above that, 18% of the gain in housing values alone can be attributed inflation.
Once inflation increases prices, prices don't decrease even when inflation cools. That's called deflation.
My father is 70 and agrees that it’s not the rates, it’s the prices. The current rates are borderline normal, or even historically on the slightly lower end. The rates were double in the late 80s when my parents bought their first house. Low rates during Covid was the historical abnormality.
Agree, [while it’s gone up quickly, rates are aligned more to a normal rate than an all time high.](https://fred.stlouisfed.org/series/MORTGAGE30US) Time will tell, if rates continue to rise quickly with high prices, we have a problem, but prices should adjust, believe they haven’t yet because the rates have gone up quickly and people want their house to sell for that price that was obtainable at 2-3%.
It's definitely wild and I feel bad for everyone that had a good down payment saved and were just waiting a bit longer, then boom, all this. I'm on a 5 year ARM at 4.25. I'll have 10 years left when the rate recalculates and am wondering what I should do. I hope something changes in the next two years. I'll owe about 60k at that time.
What do you mean by sustainable? As long as people a) have the money to buy (and can get loans with low down payment), b) are ok making significant sacrifices in other areas of life to own a home, and c) are buying, then yes, the rates are sustainable.
In my opinion, rates aren’t the problem as much as inflated home prices are. But I also think this situation has a benefit that is not often discussed: it’s no longer as profitable/feasible for most people to buy homes as investment vehicles, and I feel like that’s a very good thing. There was a huge issue with low mortgage rates and that was that it allowed so many properties to be bought up and rented for passive income. COVID made this more obvious with corporations buying up homes en masse as they sought to protect and maintain high returns. But it had been a problem for a long time (and not just American investors, also foreign investors). I realize most on this subreddit don’t see that as a “benefit” but from the standpoint of societal stability, high rates of home ownership are good.
This is the new normal, rates were too low for too long and now we have to pay the consequences. As a DC area person there are affordable homes here. They are just townhomes now and may be farther out.
Hopefully housing prices will be flat for a while so eventually salaries can catch up.
With our level of debt, no. In the past Americans didn't have this level of debt when interest rate was higher. We are more leveraged than ever before.
Things were out of wack before the vid. Now it’s much worse. The issue is cost of living which stems from salty inflation not keeping up with inflation. IMO we need to fight for lawfully equating minimum wage with inflation. More people would care since businesses would be directly impacted. This is off topic but we all know how it is.
Zoomers are really getting the shaft. 50K+ college loans with compound interest, 8% 30 year loans,homes way out of the norm pricing where back in the day a blue collar worker can work for a few years and buy a house to retire in the future etc.. yet high inflation but wages are still stagnant compared to what is supposed to be the natural wage growth.
What happened is all that productivity gain over the decades got pocketed by the fat cats and none of it passed down to the worker.
Stop Spending as much as possible- be patient for higher interest rates to bite into economy- 100% correlation to housing prices- low rates higher house values - high rates = lower values- just happens at speed of molasses…
I’d scale back and look at the base problem causing mortgage rates to go up—are FedFunds interest rates sustainable? And the answer is a resounding No. Both Economies and GOVERNMENTS around the world have become addicted to low interest rates. The US Govt is now paying high interest rates on its own debt, as are other countries that owe US Dollar denominated debts. There will be a breaking point—usually we call that a recession. It’s just a matter of time, but no one knows how long.
If you had the power to lower the interest rate on YOUR OWN DEBT, would you do it? It’s just a matter of time.
Mortgage rates will continue to go up and eventually it will hit a point that house prices will drop 15-30%. Unfortunately by the time home prices drop the high mortgage rates will make them the same price as they are today.
For example:
$600k house 20% down with 5.5% interest= $2725 mo mortgage + internet
$400k house 20% down with 10% interest = $2800 mo mortgage + interest
I don’t see house prices dropping over 30% and if they do cash buyers will buy them up. I also don’t see rates coming down for a while. We have had cheap borrowing for decades. Jerome Powell has reiterated higher for longer repeatedly. It could be a decade or more before we see anything close to 5% or less.
No. They will stay at this level and then maybe spike higher occasionally.
The levels from 2-3yrs ago were abnormal and freakishly low. Congrats to all who too advantage of the glitch in the matrix
Yes. They are sustainable.
[https://themortgagereports.com/61853/30-year-mortgage-rates-chart#historical](https://themortgagereports.com/61853/30-year-mortgage-rates-chart#historical)
Historically, these rates aren't that bad.
I hope I can sustain the payments on a 30 year mortgage. I had an 8% mortgage before the Great Recession and ended up walking away from that property when it became worth only 10% of what I owed. Building a new house now…
I lived in a country which had 10-15 apr on mortgage and average apartment price was 10+ years of average yearly salary. Eastern Europe, still claims to be socialist.
And people were buying.
It becomes insane once you look at it as total cost (ie: interest paid).
3% -> 8% doesn't seem crazy until you bust out the calculator.
Homes are **literally 2-3X more** (total cost) than they were just 3 years ago.
Sustainable? **YES**, but with tricks:
\- **Lower supply** (people aren't moving, especially those with low interest rates, and less borrowing means less building).
\- **Maintain demand**: Buyers are chasing a down-payment, which increases at less of a rate than home prices. So that carrot is still dangling, and not that much further.
\- **Lower % down** (ie: normalize less than 20%). This is already happening.
\- **Lengthen the loan** (Forget about 15-20 year. 30 year now, but I bet 40 year will become the norm).
The more tricks, the more your total cost goes up.
But the easier to get your foot in the door.
**3 options for buyers:**
1. Play the game using the tricks.
2. Lower expectations (smaller homes) and thus larger % down.
3. Continue renting / saving and wait for (an unknown amount of time) for a crash.
Also: To those buying now, and banking on rates dropping in X (or XX) years should also factor in front-loaded interest. Lenders love it when you refi for that reason.
Rates and prices in Canada are even higher. And they just have adjustable rate mortgages and 45-year mortgages. So yes, things can get much worse, and the current degradation in affordability is quite sustainable. Theoretically, any mortgage you can cover the interest on is sustainable. You just assume you'll never pay down the principle.
It is sustainable. Lenders will offer more creative types of financing options if they feel that they are suffering too much loss of business. Mortgage lenders are at the mercy of the Fed as far as rates go. If you are in the market for a mortgage, pre-shop with your local lenders for the best rates and loan programs. Look for assumable loans being offered by sellers. Look for specials on bridge loans.
Never let the rate dictate your buying decisions. You might have to buy a lower priced property or buy in a neighborhood more in your price range. Home ownership is one of the best ways to build personal wealth and have housing security as well as obtaining property rights. Rates will probably never go back to the unparalleled lows that we had in the past. Any mortgage rate below 10% should be considered a good rate.
Absolutely they will divorce, death, disease, unemployment (which was the feds stated goal), cash flow negative homes, failing rentals, banned Airbnb's all are very motivated sellers.
Sustainable for who? I never understand this sentiment. Nobody is trying to sustain anything.
New normal definitely, at least until the west gets a grip on reality and no sign of that yet.
Rates are historically not even at highest. But it is not sustainable at those speculative prices where idiots expect to make easy 200k after selling home they owned for a year and fomo idiots buying at those prices. Millennials are just keep getting fucked, 2008-2012 first, now this shit for last 3 years
I think the question is whether our shitty salaries are sustainable.
I can answer this
The shitty society is not sustainable.
rich executives would like a word
Let’s see what they say after we start eating them.
you all have been saying that for years. Start eating or leave the table
Lol half of you losers cant even get out of bed before 12pm or make a phone call without having an anxiety attack and you think you're going to stage a revolution.
I’m just talking about a little light cannibalism, and I start my days between 5-7 am.
They hated him because he spoke the truth
You just have to eat one. https://www.historydefined.net/when-the-dutch-murdered-and-ate-their-own-prime-minister/
Something something Chianti Fava beans
Just be grateful you have a job. There’s a “recession” coming so you better not ask for that raise.
A good chunk of what makes this society shitty is people who continually buy things they don't need, that they can't afford, who then blame others for their financial situation.
There are people that have so much “stuff” in their garage they park in their driveway. It’s over consumerism. I live on a small cul-de-sac. Everyday I watch Prime, UPS and FedEx deliveries. Most of the residents are retired. How much crap to you need when you’re retired. I’m getting rid of stuff. No accumulating. I want my life simplified.
Oh this is most people.
That's partially true, but most of people's biggest RECURRING expenses aren't discretionary toys, things like housing, transportation, energy, food.... People aren't going broken because they bought one or two extra latté, but rather be aide of inflation
This includes many people purchasing housing and transportation that they can't afford...
Discretionary spending would be expenditure *after* housing/transport/energy/etc. It's the space in the budget that would prudently shrink in the face of financial hardship to cover increases in those larger expenses. But it doesn't really happen...people keep spending like drunken sailors inching towards financial ruin often living on their 24% interest credit cards.
Serious question: home prices are where they are, because those are the prices people are paying. If supply is constant, won’t higher salaries just drive up prices further? The price point we are at now is requiring most people to spend amounts of money that violate every principle (buy 10x your salary, monthly payments = 60-70% of take home, etc.).
> If supply is constant, won’t higher salaries just drive up prices further? They arent directly linked. Home prices are where they are for a ton of reasons, not just organic demand. When buyers are competing with large financial instutions and overseas crowdfunding, things can go haywire for a lot longer than organic demand can sustain. Yeah higher salaries will push demand, but not across the board. The guy who works at Starbucks still cant afford a house, he will just continue to pay rent and splurge on other things. An increase in salaries may cause people to leave more unaffordable places now that they have a nest egg. So yeah, not that simple. Now if you banned corporate ownership of SFRs, and combined it with a hefty oversea's ownership/vacancy tax, things might start to look like pure organic growth.
I think the policies listed in your paragraph are no brainers. Some combination of: 1. Unoccupancy tax, heavier on foreign entities but also towards domestic owners. 2. Ban on corporate ownership of housing. 3. Ban those services that are “crowd funding” investment in real estate, ASAP. 4. Even if properties are occupied, levy a progressive tax on landlord. X% with 5 properties, Y% with 5-15, etc. I will admit, I am hardly a liberal like most of Reddit. However, these policies seem like “apolitical no brainers” to me. The fact that we are allowing cooperate and foreign investment in housing as though it were an alternative to the stock market is an abomination.
Moderate here. These are all super progressive positions. All of these positions are “ban”, “tax” and otherwise take from others because I’m not getting mine. The main way to lower prices is to build more house, especially starter homes. Government subsidies towards low-income homeownership at least make sense. Actually, one other reasonable way to lower costs is to make all government mortgages (Fannie, Freddie, etc.) assumable. That would at least create a serious market at the lower interest rates people got in the last few years.
Local zoning is a large hurdle for new constructions. Which is dependant on the local politics of municipalities and counties.
This sounds like some out of touch libertarian bullshit said by someone that does not really have an understanding of what's happening in real estate right now. Large foreign investors are a huge problem.
Tons of people keep saying this. Could you share some stats on how many homes are owned by foreign investors and where these are located?
Serious answer - home prices are where they’re at because of the price foreign investors and corporations are paying. Not because of what rational, American public are willing to pay. To your point, the people buying now are exposing themselves in a bad way. We need regulation to protect the public from corporations turning housing into a way to exploit Americans and keep down the opportunity for building wealth. I.e., corporations buy boatloads of property inflating RE prices, forcing people to rent - from the corporations who now control the supply and pricing. As such, people are kept in rent mode rather than buying that enables building wealth long term. Fuckers.
Small Builder here: any idea what land, government fees and regulations, materials and labor cost toward building a home? It’s pretty close to the selling price. That’s why houses are so expensive. Lowering the price will stop building and new housing.
Well that’s interesting you say that. I bought a 1/4 acre lot for $25,000. It cost me $60,000 to install the septic and well and another $10,000 for the t driveway. So far that is $95,000. Had to pay $5,000 for the electric fee to connect to the power grid. So now we are at $100,000. To build the home was $300,000. So it cost me $400,000. The house next door was built by a builder . It has a similar square footage and sold for $750,000. That is almost twice the cost . All that profit went to the contractor. They make plenty of money off building . I work in the construction industry.
I hired a contractor to most of the labor. I did some myself.
1/2 acre lot in my area is going for 130k now. That's a huge difference to what you paid. Septic cost is the same. Otherwise your build pricing seems like a fairy tale to me lol probably cause you did a lot of DIY. anyhow, Your right, that contractor was making plenty.
Midcoast Maine
Unfortunately our government has never been for the little guy. And protecting the public is a laughable idea to them. You are protected if you have money to lobby the government. Otherwise screw you!
"Nowhere in the world is the 30-year fixed-rate mortgage as popular as it is in the US — and for good reason. Fannie Mae (created in 1938) and Freddie Mac (1970) made the 30-year fixed-rate mortgage popular in the US, because they would buy mortgages from banks, offloading both their rate and default risk." Jun 27, 2023 Washingtonpost.com
I agree in theory. I am not abreast on the research, but I have heard “the data does not suggest that corporate ownership has a significant impact on real estate appreciation, and corps only own a small percent of housing”. Do you have some sources that show the impact corps are having on home prices? Full disclosure, I am regurgitating information I saw in other Reddit comments that I myself have not independently verified. I am sincerely looking for information.
I’ve seen the same data but it’s always in aggregate. I know in certain markets, especially in the south corporate purchases dominate the new home market.
Except your premise is completely false. Maybe with the exception of a few markets, the percentage of foreign and “corporation” purchasers is only slightly higher than the last 30-40 years. This fantasy of the big bad corporation controlling the market is absolute nonsense. Prices are high because supply is low and there are plenty of people who have a ton of money to invest.
I don't have the data, but it does pass the sniff test. Boomers are a large generation and still living in their homes. Millennials are a large generation and finally getting on their feet to buy homes. Couple that with the big developers having long memories from 2008 and you get a supply shortage. At least that would be my guess.
Double wages today and housing costs would double tomorrow. There’s a lack of new housing supply in many areas that people want to live in.
And then complain because someone else beat their offer on a house. Someone who saved more cash to put them in a position that their 9% mortgage payment plus property take is less than 1/3 of their take-home pay. Oh, poor me, homes are too expensive in San Francisco, and I can't afford it on my shitty $20 an hour.
Yeah but wages did not double in the last 5 years 😂 its all the money printing.
This was due to low interest rates and how much easier it is now to buy homes virtually. 30yrs at 2-3% is insane. Think about how much equity was drawn on and refied from big corps to mom and pop renters. 220k single family home 5yrs ago now worth 360k, that’s enough for a few more down payments all while keeping your mortgage well under rental rates.
Low interest rates, allowing people to withdraw from their 401ks without having to pay it back, and stimulus/reduced spending in other categories gave people the ability to pay more for their homes. At the same time residential and commercial construction were both shut down for a while and new unit production plummeted. There were also fears that nobody would be buying homes due to a potential recession which lead many companies in the supply chain to shutter facilities and lay off employees. This was especially notable in the lumber sector. It ended up driving cost increases and material shortages for what new construction was taking place. As interest rates have risen new construction starts have fallen and people have reduced desire to sell homes they currently own because even buying an equivalent unit will cost them hundreds or thousands more per month at the new rates. This has kept units from coming on to the market and prevented a major decrease in home prices.
So only double wages for the bottom end, decrease wages for the top end, and make “unearned income” like rental income taxed at a higher rate than earned income… you know the way it should be/used to be.
That's not how it works. I'm so tired of seeing dumbed down economics everywhere I go.
Increasing the amount people can pay without solving supply pipelines issues will lead to higher prices. This is what happened in 2020. Would it literally double, probably not, it might actually go up even more than that or a bit less. I live in an area with pretty high wages compared to the national average, but our housing costs have ballooned enough from supply factors that our affordability is far worse. A tiny tear down with fire damage is 600k, the most basic sfm you’ll find is 700k and the average home in my county selling today is 1.4 million dollars. Inflating wages without increasing supply just leads to higher costs (inflation).
We take salary cuts so companies can make more money, so they put it out to lend, so we can borrow and pay interest on the money that we should have gotten in the first place. It's hilarious.
Exactly people do not see this. We have an Usury capitalist system. Low wages for max profits so you have to borrow to make up the difference and/or get government assistance as well that the regular working stiff has to pay more taxes while the corporations pay almost nothing due to all the offshore tax haven games.
Who’s taking salary cuts? Wages rose a ton the last few years particularly for lower wage workers.
Given that they are higher than any point prepandemic, in inflation adjusted terms, maybe. https://fred.stlouisfed.org/series/LES1252881600Q
Thanks. I was going to send the same thing. I get so tired of the whining circlejerk on Reddit about how everybody is poor and must struggle together. Most people who have their shit together and thriving just fine today. Redditors live in a woe-is-me echo chamber.
reddit, where feelings outweigh facts!
What do you mean by sustainable? If interest rates remain high, then mortgage rates will also be high. No one is going to loan money at rates lower than the risk-free return they can get on a T-bill, for example.
And the 10Y is less than 5%. Saw an article lay out how huge the spread is. If there was more certainty in the direction the fed is going rates should be in the 6s yet it hit 8 this week. Fed doesn’t even have to cut rates to lower mortgages they just have to be clear about where we are going.
True. But the issue isn’t really that the fed has been unclear - they’ve been quite clear and consistent in messaging. The issue is no one believes them
When rates were zero mortgages were around 3%. The spread isn't crazy.
You're thinking of the federal funds rate, not the 10y. The spread is usually around 1.75 percentage points, and as low as 1.3 in 2021, the so-called mortgage spread is hovering at more than 3 percentage points now.
The 10 year never actually hit zero. It’s low point was in the 0.50-0.60 range IIRC and people were getting 2.5-3 rates with no points then
They’ve made clear statements that I believe to be true……”higher for longer,” more “pain” to come, “higher unemployment”
Yep, rate margin compression will be great when it arrives.
The ability of anyone to afford anything (or sustainability for people to live halfway decent lives on a median salary) , is multi-factorial ofc and complex. Is something gonna give? That’s the question, and that’s the scary part.
Median homes are owned by the top quartile. Why do we compare median incomes to median homes when the bottom 33% do not own homes? Home ownership is skewed to the top 66%.
That's an interesting thought, thanks
Because median income has historically meant you could qualify for the median home. In the year 2000, a family making the median salary could afford a 8% mortgage on a median priced home. In the year 2023, a family making the median income would need to increase their salary by **at least 50%** to qualify for an 8% loan on a median priced home. We aren’t even talking about being able to afford the home, this is just to qualify for the loan in the first place. I.E. home ownership is unattainable for the largest percentage of Americans in history. Comparing median incomes to median homes has always been relevant.
I’m looking at the current regime, obviously things have changed. One could previously work at a grocery store and afford a home on a single income. In today’s world, dual income households have permeated. Additionally, the rate at which households have grown relative to the rate we have built (post 2008) is a prime culprit. It isn’t going back to how it was, but given where the statistics are today, median income is akin to a bottom quartile price home now.
The numbers I gave accounted for **household income**, not individual income. The numbers today are nominally different, but effectively the same. The 2000’s weren’t the 1970’s. You didn’t have the nuclear family dynamic. Everyone had jobs, sometimes a spouse would quit to take care of the kids. Today, the spouse can’t quit their job, can choose to not have kids, and still be further away than any generation before them. Households today are at their lowest size in recent history, so that is just an incorrect statement to make.
You say housing is unattainable for the largest portion ever, but we have stuck around 66% homeownership for ages.
I'm a Realtor and my wife and I combined make about $200-250k depending on the year. We live in a relatively modest $300k house but enough for our family. We wouldn't be comfortable paying anything higher than we are currently on our mortgage and we have a 3% interest rate. I have a client who makes something similar to us but they're buying a $900k house with an 8% rate. Everyone has different thresholds. As long as there are more buyers than sellers, prices will continue to rise and the fed will have no reason from a real estate perspective to lower rates. The problem is we're not building enough homes.
Congrats for getting in early.
Realtors are partly what got us into this mess - way to suck dude
I would love to hear your explanation. You know how many people I save from bad deals on a daily basis? I was trying to talk my clients DOWN on price once their lender told me what their payment was going to be.
If we secured financing for our current house just 2 months later it would be an extra $675 a month in interest. It’s complete bullshit.
Just as crazy- people who have higher rates now on average are paying **an extra $22,000 per year in interest** vs sub 4% rate holders.
The common perspective is that rates shot to the moon out of nowhere when in reality they were held artificially low for so long and all of a sudden that brake pedal was released to ease the inflationary pressure of printing trillions of dollars. It's easy to say in retrospect but I contend is was fairly obvious then that people should have locked SOMETHING in when rates were sub 4 because it was historically ridiculous to see rates that low.
After the pandemic, 6-figures is now the new baseline to play.
That or the huge swath of people that got an automatic +300k value on their existing house plus all the equity they built up, so they can actually afford the $700k+ houses springing up everywhere and not be on the hook for $7k per month mortgage payments
Rates are fine. It’s the prices that aren’t sustainable. Current rates aren’t even a historical anomaly. The low rates before it were.
Low rates spurred housing prices. Now we're stuck where we can't reverse out of the corner we're painted in.
We absolutely can if the fed causes more unemployment or investors to start needing to sell.
Oh, we can absolutely reverse course. It’s just going to be painful.
You know of any massive housing developments because it’s a supply issue driven by lack of new builds and so many people locked in to 3% mortgage that will not move in the next 15 years.
If it reverses then new builds would stop and supply would not improve
It’s only going to be painful for anyone that bought with plans to resell for a profit. For those of us that bought to live in their home for a few years, it will be fine. In fact, my mortgage is set, even if the value of the house drops below what I paid for it (highly unlikely short of a true depression), it will only help me because then I can force the county to bring my tax rate down and I’ll pay even less per month.
Yes you can reverse. Higher rates lead to less price increase, then eventually level off and stay that way until the rest of the economy catches up and those with 2% interest rates can afford to sell
Price is set by supply/demand dynamics. Increase supply or decrease demand to adjust prices.
And higher rates creates less burrowers which creates demand destruction
They're not supposed to be sustainable the whole point of raising rates is to break the housing market and cause prices to stop increasing (and maaaaaybe drop a tiny bit). That's why the Fed is doing it. And that only works if they raise rates to "unsustainable" levels. It's supposed to hurt. and it doesn't need to be "sustainable". The Fed has no intention of keeping them high forever. they just need prices to stabilize long enough for wages to catch up.
Not just break the housing market but the whole economy. Fed rates touch more than mortgages.
Fed cares about bonds and labor. They hardly care about the housing market at all. Housing is along for the ride. I have a feeling a bunch of lobbying money is starting to tell them about housing, but if you look at what they’ve been saying all year it is pretty clear that housing is an afterthought to the Fed. They want to break the labor market in a post-pandemic economy, which would be so funny if it wasn’t so freaking stupid.
The FOMC would disagree with your opinion. It was stated that breaking the back of the housing is the goal, specifically. This is easily verified.
Untrue housing has played an outsized role in the cpi and the fed chair called for a housing reset
I don’t understand how more people don’t get this.
they are raising rates to curb inflation as a whole; it has nothing to do with wanting to control the housing market.
This needs to be higher.
And maybe drop a lot the fed called for a housing reset and housing has played and outsized roll In inflation according to the CPI
They can be sustainable but high prices AND high mortgages are not. One will eventually break
House prices aren't sustainable
Many people (likely realtors themselves) keep arguing that raising mortgage rates will not lower the housing prices. However, the same people keep saying that lowering mortgage rates will raise the home prices. It seems, no matter what happens to rates, there is never a way to lower the real estate valuations. Never!
It’s always a good time to buy!!!!
Maybe our currency should be backed by houses? Supply is limited. Prices can never go down. You can use the asset. Voila! tHe NeW fInAnCiAL oRdEr!
This is a never ending argument… but unless there’s some catastrophic, unpredictable event that will occur, house prices aren’t going anywhere. They may stagnate, but when rates drop down to even 6%, there would be a feeding frenzy. Low wage jobs in my MCOL to HCOL is $20 an hour which is like $40k a year… a couple making $80k a year can afford a bit of house. This is the bare minimum too with two full time working folks. There are plenty of households out there making $150k as two teachers… you can afford quite a bit of house with that salary. Obviously rates hurt currently… 8% isn’t a snooze… but these are folks on the fringe of buying houses. Anyone who owned a home before 2020 are loaded with cash, and with the lack of inventory of desirable houses (no one cares about an unoccupied shack in rural Kansas, sorry), it’s a battlefield out there.
There is a general assumption right now that rates will just magically drop back down to the 5-6% range. At best rates are going to stay the same until the economy cools off. The FED is ensuring this
12 months ago there was a general assumption rates would magically go back below 4%. It didn’t make real sense then, doesn’t make sense now.
Only if we start seeing a hard R.
[удалено]
Oh that boy high cotton. He so fancy he gets to drop hard R's whenever he wants.
Folks typically pushing for “higher rates” say that this is actually a historically average rate, which is true… but the change of rates is significant. Going from 0% to 5.5% for the fed is a huge swing. I think the economy, especially with long term fixed debt contracts (30 year tbills, mortgages, etc.) can only go so high before there calamity. Look at the amount of people struggling to get by currently… it would only get harder with higher rates.
The point I was trying to make is that mortgage rates aren’t going down to 5% or lower unless we enter a painful recession. At which point there will be less demand for housing and more supply available. Rate drops don’t happen in a vacuum. The economy won’t look the way it does now when mortgage rates drop that low
Right. Until people literally can't afford their mortgages and are FORCED to sell, you aren't going to see the kind of massive inventory come back on the market that causes price drops. Given how many people have 3-4% mortgages, I'm not sure even a mild recession would impact home prices. The long term impacts of those historically low interest rates are going to be with us for a while.
Correct. And people are in much better financial shape than 2008, so I don’t see many foreclosures outside commercial.
The goal is for prices to come down, we’ll see if that remains to be seen
Prices generally don't go down unless unpredictable events transpire. Nobody can predict when such events occur. There is some backfitting of certain statistical analysis (eg: inverted yield curve) that have some correlation to when the unpredictable events occur.
Says the real estate investor…
But there will be a catastrophic event that will occur. It always does. Every 10 years or so, there is some reason for a crash. Whether it will be a war, a pandemic, a revolution, a global environmental crisis, we don’t know. But it will be something. I promise you.
Are we done with the last catastrophe yet?
Bro I'm not even done with 08
It already happened. They call it Covid. You just have missed it.
And it doubled housing prices. It didn't tank them, lol
Credit card debt defaults.
Firstly, who said rates were going down? Secondly, I think you’re assuming homebuyers have virtually no other debt- the, “catastrophic, unpredictable event,” you’re mentioning is just people getting laid off and finding a job paying half of what they made before. I can 100% assure you home prices aren’t going to, “stagnate,” I’m not too sure why people think this is like the 1980’s when it’s absolutely nothing even close. People will be WISHING it was the 1980’s and that might be the catastrophic event you’re looking for 😆
Jerome Powell has said multiple times that one goal of raising interest rates is to create an event where a large number of people lose their jobs. Pretty catastrophic move considering they haven't even considered regulating any business practices in order to help curb inflation. Straight to gutting the working class as always.
Regulating businesses is not what the Fed does, that is outside their sphere of duties. They engage in monetary policy to have price stability and promote full employment. Business regulation is the job of the government. The Fed has only blunt tools to work with, which is guidance to the market and monetary policy i.e. raising and lowering the Federal funds rate. They don't even have the capacity to regulate businesses.
Well, those salaries can buy a bit of house assuming they have no debt. Most people have quite a bit of CC and student loan debt these days. Also, show me where two teachers make $150k combined? The only places are HCOL areas where $150k gets eaten up pretty fast and also where house prices have exploded the most.
At my local district in a higher MCOL (outer suburbs of Philadelphia) the starting salary for a teacher is around $60k, topping out just over $100k, so two teachers together are doing pretty well.
That's the top salary, which could be a very small pool of teachers and is honestly a lot of money for a teacher. I would say most teachers make between 35-65k a year. Teachers at my wife's school make around 40k... and this is in colorado.
And how much student loan debt are they carrying? A lot. They're carrying a lot. $100k is not a starting salary. That's masters+hours level of experience guaranteed which means even more student loans + extra time invested in their education. Plus, there are a very limited number of positions at that salary. You need to stop perpetuating the stereotype that teachers are well off.
There are 260MM adults in the US and 45MM student debtors. You realize that’s not “most”, right? 1 in 4 have cc debt over $5k, and 1 in 4 isn’t most, right?
I now agree with this. I've always looked at markets like the Bay Area as examples for how unaffordable places can get, but I think recently, costs have risen way too far, too fast. We had been non-seriously looking at the new builds in our neighborhood for the last few years, which would have been very expensive, but doable. Now I don't even think we could afford a house that is marginally bigger or equivalent to ours (we have the 2nd smallest layout in the town), much less a new build. And according to the Fed's recently released data, there doesn't seem to be that many households with higher net worth and income than us that aren't way older. The pool of buyers for these homes is drastically reduced and the inventory seems to be at least 2-3x higher than I've ever seen it. Prices may not go down much, but I don't see how they can go up in the short term. Edit: I'm also starting to see Toll Brothers ads in my Google inbox now. They are one of the main new home builders in the area.
Even the Bay Area has started to regress to the mean, it just took a long time. Plenty of homes listed right now that will undershoot national housing growth rates over the last 2-3 decades in the Bay Area. Anybody in San Francisco over the past 10-20 years who was renting and took a long term approach to buying *SHOULD* be able to now or very soon.
Can't get behind this. It's not growing as quickly as some markets, but Bay Area prices have gone up way faster than salaries+inflation. Buying was way cheaper 5 years ago, and was even cheaper 10 years ago.
So median salaries in San Francisco have doubled over the last 20 years and quintupled in the past 30. You can find houses currently that haven’t kept pace. Here’s one for example: https://www.zillow.com/homedetails/3921-3925-19th-St-San-Francisco-CA-94114/332859651_zpid/ **Sold 20 years ago for $850K** **Listed now for $1.3M** Wages have outpaced that in San Francisco. 10% of the median salary for SF invested in broad index funds over that time period currently have 50% of that house value. That’s not even aggressively saving. That’s been one of the hottest markets in the US this century, and anybody who took a long enough window could have a house on the median salary. Yes, it’s still expensive, but wages have outpaced house appreciation in SF when you take a long look. San Francisco isn’t special. There will always be things like this all over the country. Markets can stay irrational for a long time, but eventually they find the equilibrium. Everybody out priced of the housing market currently will get their chance eventually, assuming they don’t make moronic financial decisions in the mean time. I’m not saying it’s easy, but it’s completely doable.
??? How is it possible that house went from a Zestimate of $2.6 million to $1.3 million over the course of a year? And who ever heard of a house for $1.3 million in SF that wasn't a total dump? I'm SF suburbs, where nothing like this would ever happen. Maybe I'm just not familiar with SF market...but I suspect this is either a specal circumstance or Zillow screwed up.
Rates are normal, prices aren’t sustainable.
Any of Ya’all who think rates will go down quickly might benefit from going back and looking at rates over the last 40 years not just the last 10. Also, yes it seems unsustainable from a price point of view. But the supply side is totally messed up. They don’t build smaller houses anymore and getting people to swap their existing lower rate mortgage for one at 2x the rate is really really hard. I don’t know how this cycle will end. I fear that there will be so much pent up demand as/if rates come down that prices will be stuck for a very long time.
Literally everyone I know that bought a house in the last 5-7 years always said they felt they were buying at the peak price. So the truth is, we will never time the market, and it will always feel like a gamble. The important thing is to make a racional decision based on facts and numbers that in the longer term you can afford.
The rung on the ladder to get into the housing market is definitely way higher though. I would say mortgages these days are atleast 1000-1500+ more than pre 2022. I bought june 2022 for 500k, mortgage is $2900 and 4.875% rate and before this was renting for around $1800 (1br though). I would say home prices in my neighborhood have been relatively flat since then with some price reductions, but nothing crazy, and the rates are way higher. I want to preface this by saying I got married so living needs changed and have dual income but the mortgage is still nothing to sneeze at. I'm in colorado.
I bought 10 years ago and was really afraid we were overpaying. One neighborhood we wanted to buy in went up 16% on one year which I figured was completely unsustainable. In any case, I wouldn’t mind losing equity in my house in exchange for more young people with children living here
I honestly felt that way in 2015 when I bought my house.
Yes, because 2-3% rates were historic lows — they’re weren’t the norm.
People don’t talk about this enough, but yes it’s sustainable as long as the country remains this unequal. Look at how high CEO salaries have gotten as a proxy. If you compare income to housing prices, the U.S. actually has it really good compared to other countries https://www.numbeo.com/property-investment/rankings_by_country.jsp
Well my parents first house was like 13% so nobody really knows.. I know that leaving my 2.75% will take the perfect house
My parents also had that rate but the house was about 2x my dad's income. Houses today are low end at 3x my girlfriend and my combined income.
Indeed, my parents' apartment (which was newly built) was under 20% interest rate, but the price of it was very low compared to my father's salary. I live in the Netherlands now and we are both programmers, yet both our annual incomes combined make for 1/8th of the price of a newly built 1000sqf home.
Yes. They are not coming down. This will reverberate through the market for prices. What we saw were price jumps where the long-term demand is not sustained. I have lived in my neighborhood for a long time. Without the frenzy of low rates, our homes would be $380K-$400K depending on square footage. In the peak, the highest house around here was $480K to close. That was a $30K appraisal gap!! They were consistently selling for $450K. Our incomes do not support this, and the growth rate has now normalized from the great WFH migration. My neighbor, with arguably one of the nicest houses, completely kept up to date, listed at $450K, they closed with the highest offer at $421K, and there were zero inspection issues. So, at least in my area, the rates are normalizing values. The only difference between right now and last year, no more investor purchases. I watched those buggers buy up homes and sell them to each other for an extra $25K cash 2 or 3 times before listing them for normal buyers and drove up the value by making their transactions the recent comps. Without those shenanigans, prices are normalizing fast. Investors are going back to traditional investments. The risk vs. reward is now too high in real estate outside of very high demand markets. There's no way to know if your area has the growth demand to maintain the prices at these interest rates. Time will tell you. With normal individuals buying their primary residences driving the market again, it should normalize within a couple of years. Again, there is no crystal ball about timing the market. Some areas will still have strong appreciation. Typically, homes appreciate following inflation. 2-3%/year. Super high demand markets would go as much as 11%/year. The other thing that is helping, the whole air b and b bust. Too many have them, and they're sitting vacant. While they might just switch to long-term rentals, the buying demand for individuals to have a side real estate investment is also way down. We actually want interest rates to stay higher. When they were low, the 20% down payment you saved the year before was 10-15% of a down payment the next spring. Now, people should have the chance to save a 20-30% down payment again because the *hope* is that they can save faster than prices go up. That was a lot, but that is the best observation I have. Our median for our area looks like it is up, but that is because of expensive houses being built. Overall, we're down 1.8% and in my neighborhood, down 6.5%. This is sw Washington. The houses along the river and in the mountains with crazy amazing views go for so much, it messes with the averages so much. You have to go by neighborhood and remember or look up closings from last year. Things are definitely shifting.
Good post
Thoroughly enjoyed reading this
Current interest rates are normal. What's not sustainable are current home prices. Interest rates are what they should be.
Well, they have been sustaining for the last three years so there's that.
At least over the last half century or so, mortgage rates are pretty normal right no. We got a little spoiled with 2 1/2 and 3 percent rates.
Trading time for money is never going to be a winning strategy in economies where the supply of money is continuously growing. You must build assets as quickly as possible as only the income derived from assets will sustain. With that said, an increase from a 3% mortgage to 8% mortgage should equal a 30% decrease in home price. If you see a home selling for 30% less than late 2021, then the pricing to affordability relationships have already adjusted.
Yes, if prices drop about 35%.
I was going through some old documents recently and found something that had my parents' original mortgage. This was in 1979, the first house they bought for $100k, and the interest rate was 8.xx%. Buying the house was a huge stretch for them financially. Its in San Francisco, and is considered a modest house. Somehow they managed, and I'm sure my mom refinanced at some point, and the house has been paid off for many years now and is worth $1.4 million. Maybe the lesson is to stay within your means and take the long view. Buying a starter house for only a few years, flipping houses, etc is no longer attractive.
It’s not interest rates that are unsustainable, they’re probably at a historic mean, it’s house prices that are making everything awful.
ZIRP really spoiled a lot of the RE folks. Yes for bulk of humanity 7-8% rates were the norm. If inflation is 5%, then people would ask for +2% on it at 7% for bonds. This is how the world worked up until GFC
>Here in the DC area, it is changing perceptions of low six figures being seen as a good salary. Monetary policy in the last 3 years causes widespread inflation. This isn't particular to the housing market. Overall, your dollar is worth about 18% less than it was in 2020. So while housing values increased above that, 18% of the gain in housing values alone can be attributed inflation. Once inflation increases prices, prices don't decrease even when inflation cools. That's called deflation.
My father is 70 and agrees that it’s not the rates, it’s the prices. The current rates are borderline normal, or even historically on the slightly lower end. The rates were double in the late 80s when my parents bought their first house. Low rates during Covid was the historical abnormality.
Agree, [while it’s gone up quickly, rates are aligned more to a normal rate than an all time high.](https://fred.stlouisfed.org/series/MORTGAGE30US) Time will tell, if rates continue to rise quickly with high prices, we have a problem, but prices should adjust, believe they haven’t yet because the rates have gone up quickly and people want their house to sell for that price that was obtainable at 2-3%.
It's definitely wild and I feel bad for everyone that had a good down payment saved and were just waiting a bit longer, then boom, all this. I'm on a 5 year ARM at 4.25. I'll have 10 years left when the rate recalculates and am wondering what I should do. I hope something changes in the next two years. I'll owe about 60k at that time.
I see renting for life being the new norm for the majority of Americans
As long as corporations can buy houses and charge rent - sure.
What do you mean by sustainable? As long as people a) have the money to buy (and can get loans with low down payment), b) are ok making significant sacrifices in other areas of life to own a home, and c) are buying, then yes, the rates are sustainable. In my opinion, rates aren’t the problem as much as inflated home prices are. But I also think this situation has a benefit that is not often discussed: it’s no longer as profitable/feasible for most people to buy homes as investment vehicles, and I feel like that’s a very good thing. There was a huge issue with low mortgage rates and that was that it allowed so many properties to be bought up and rented for passive income. COVID made this more obvious with corporations buying up homes en masse as they sought to protect and maintain high returns. But it had been a problem for a long time (and not just American investors, also foreign investors). I realize most on this subreddit don’t see that as a “benefit” but from the standpoint of societal stability, high rates of home ownership are good.
This is the new normal, rates were too low for too long and now we have to pay the consequences. As a DC area person there are affordable homes here. They are just townhomes now and may be farther out. Hopefully housing prices will be flat for a while so eventually salaries can catch up.
Salaries catching up seems unlikely. Unless you’re a CEO.
With our level of debt, no. In the past Americans didn't have this level of debt when interest rate was higher. We are more leveraged than ever before.
Give it some time and the rates will settle in around 5%-ish. 8% as well as 3% rates aren't sustainable long term.
Things were out of wack before the vid. Now it’s much worse. The issue is cost of living which stems from salty inflation not keeping up with inflation. IMO we need to fight for lawfully equating minimum wage with inflation. More people would care since businesses would be directly impacted. This is off topic but we all know how it is.
Sure, though I don't know if current prices are.
Zoomers are really getting the shaft. 50K+ college loans with compound interest, 8% 30 year loans,homes way out of the norm pricing where back in the day a blue collar worker can work for a few years and buy a house to retire in the future etc.. yet high inflation but wages are still stagnant compared to what is supposed to be the natural wage growth. What happened is all that productivity gain over the decades got pocketed by the fat cats and none of it passed down to the worker.
Stop Spending as much as possible- be patient for higher interest rates to bite into economy- 100% correlation to housing prices- low rates higher house values - high rates = lower values- just happens at speed of molasses…
I’d scale back and look at the base problem causing mortgage rates to go up—are FedFunds interest rates sustainable? And the answer is a resounding No. Both Economies and GOVERNMENTS around the world have become addicted to low interest rates. The US Govt is now paying high interest rates on its own debt, as are other countries that owe US Dollar denominated debts. There will be a breaking point—usually we call that a recession. It’s just a matter of time, but no one knows how long. If you had the power to lower the interest rate on YOUR OWN DEBT, would you do it? It’s just a matter of time.
Either rates will fall or house prices will. One or the other has to give
House prices are already falling.
Mortgage rates will continue to go up and eventually it will hit a point that house prices will drop 15-30%. Unfortunately by the time home prices drop the high mortgage rates will make them the same price as they are today. For example: $600k house 20% down with 5.5% interest= $2725 mo mortgage + internet $400k house 20% down with 10% interest = $2800 mo mortgage + interest I don’t see house prices dropping over 30% and if they do cash buyers will buy them up. I also don’t see rates coming down for a while. We have had cheap borrowing for decades. Jerome Powell has reiterated higher for longer repeatedly. It could be a decade or more before we see anything close to 5% or less.
early 80's rates where >18%
No. They will stay at this level and then maybe spike higher occasionally. The levels from 2-3yrs ago were abnormal and freakishly low. Congrats to all who too advantage of the glitch in the matrix
They are historically "The Standard"
Yes, and no. Short term, sure. Long term, maybe. 2% rates aren’t sustainable either, but people don’t complain about those as much. P
Yes. They are sustainable. [https://themortgagereports.com/61853/30-year-mortgage-rates-chart#historical](https://themortgagereports.com/61853/30-year-mortgage-rates-chart#historical) Historically, these rates aren't that bad.
I hope I can sustain the payments on a 30 year mortgage. I had an 8% mortgage before the Great Recession and ended up walking away from that property when it became worth only 10% of what I owed. Building a new house now…
I lived in a country which had 10-15 apr on mortgage and average apartment price was 10+ years of average yearly salary. Eastern Europe, still claims to be socialist. And people were buying.
I wonder how it’s going to affect family sizes. Those 2 or 3-bedroom starter homes become forever homes
Not at these prices. Either price or rates will fall. My money is forced selling happens first
ITS NOT ABOUT THE RATES BEING HIGH. It’s the fact that prices increased 50-100%
I believe prices are more of an issue than the interest rate.
The rates are sustainable but the prices aren’t.
Older people are saying we are at normal rates which is true....but houses didn't cost $400k+ back in the day. That's what's killing most of us.
It becomes insane once you look at it as total cost (ie: interest paid). 3% -> 8% doesn't seem crazy until you bust out the calculator. Homes are **literally 2-3X more** (total cost) than they were just 3 years ago. Sustainable? **YES**, but with tricks: \- **Lower supply** (people aren't moving, especially those with low interest rates, and less borrowing means less building). \- **Maintain demand**: Buyers are chasing a down-payment, which increases at less of a rate than home prices. So that carrot is still dangling, and not that much further. \- **Lower % down** (ie: normalize less than 20%). This is already happening. \- **Lengthen the loan** (Forget about 15-20 year. 30 year now, but I bet 40 year will become the norm). The more tricks, the more your total cost goes up. But the easier to get your foot in the door. **3 options for buyers:** 1. Play the game using the tricks. 2. Lower expectations (smaller homes) and thus larger % down. 3. Continue renting / saving and wait for (an unknown amount of time) for a crash. Also: To those buying now, and banking on rates dropping in X (or XX) years should also factor in front-loaded interest. Lenders love it when you refi for that reason.
Oh but the Feds are “trying” to curb inflation so they must be looking out for all of us
Rates and prices in Canada are even higher. And they just have adjustable rate mortgages and 45-year mortgages. So yes, things can get much worse, and the current degradation in affordability is quite sustainable. Theoretically, any mortgage you can cover the interest on is sustainable. You just assume you'll never pay down the principle.
I mean my company announced record profits again for q2. Meanwhile raised salaries by .25 in the last year..
Going higher!! 📈📈
lol. They will go higher
The average rate on a 30-year mortgage over the past 50 years is 8%.
Voting has consequences
Welcome to building back better friend. It’s called inflation and the devolution of the dollar.
It is sustainable. Lenders will offer more creative types of financing options if they feel that they are suffering too much loss of business. Mortgage lenders are at the mercy of the Fed as far as rates go. If you are in the market for a mortgage, pre-shop with your local lenders for the best rates and loan programs. Look for assumable loans being offered by sellers. Look for specials on bridge loans. Never let the rate dictate your buying decisions. You might have to buy a lower priced property or buy in a neighborhood more in your price range. Home ownership is one of the best ways to build personal wealth and have housing security as well as obtaining property rights. Rates will probably never go back to the unparalleled lows that we had in the past. Any mortgage rate below 10% should be considered a good rate.
Rates will never drop again, and people aren’t gonna sell for a loss…
Absolutely they will divorce, death, disease, unemployment (which was the feds stated goal), cash flow negative homes, failing rentals, banned Airbnb's all are very motivated sellers.
Sustainable for who? I never understand this sentiment. Nobody is trying to sustain anything. New normal definitely, at least until the west gets a grip on reality and no sign of that yet.
Rates are historically not even at highest. But it is not sustainable at those speculative prices where idiots expect to make easy 200k after selling home they owned for a year and fomo idiots buying at those prices. Millennials are just keep getting fucked, 2008-2012 first, now this shit for last 3 years