It's incredible how a story titled Housing boom is over as new home sales fall to pandemic low was literally just published yesterday. Granted, these aren't the same publication but the stark difference between the two is bewildering.
Articles can be written with any viewpoint you want - it just depends on where you get the information from and who massages it to further push their opinion onto you.
Real estate articles are usually rewritten press releases from the NAR, so really just a bullish viewpoint - either prices are rising so quickly that you have to buy now to lock current prices in, or they're so low that buying now would be a great bargain.
I know there is actual nuance to both articles. I guess I'm just trying to express my frustration at how the two headlines seem to directly contradict each other.
Or sales fall to a low because people who wanted to move out of smaller places in a city pull back when they see what the prices are like. (But people who can afford it are still bidding prices up.) And, yes, while lumber prices have apparently headed back down, access to builders/contractors is still tight.
I’m not an expert on the subject but I imagine lumber that builders buy is bought in terms of futures contracts. So whatever you buy today at a low price won’t actually be delivered for several months.
I mean yes it has surged. I see a lot of it in very specific and weird ways. I'm seeing that in some instances, house prices are stable. And in others you see a random manufactured home on 40 acres going for 600k (and the project at the time it was built was probably 200k). And yet in the same year another manufactured home that was just as nice (but only on a measly 11 acres) goes for 220k (no acres in that area are not worth that much).
:shrug:
There are explanations though... go into the 220k house and smell the 10 years of cigarettes... or the 40 chicken coop across the street.
I guarantee the average home buyer does not know that houses are a hedge against inflation. There's a good chance the average home buyer doesn't even know what hedge means in that context.
Given when they started, I imagine they’ve bid on a fairly high percentage of the sales in the last 5 years and had an impact on the prices and perceived value of the housing market.
Anyone who was in the market in 2008 knows that houses don't always go up. Over the long term, it's a pretty safe bet that they do, but it's not always a smooth ride.
And there are still neighborhoods that are in decline. Opportunity to get in before they gentrify? Maybe, but it's a gamble.
Yet, how does the fed fight inflation? By raising rates, i.e., home prices will be dropping. By how much, no idea, but sure reeks of bubble territory.
Of course the loan itself is worth less to the bank during inflationary times. You make more money, your payment stays the same, and real estate prices will rise somewhat, but it's not as simple as you make it seem. I'd be worried if I were planning to sell within the next few years.
I don't think they know what 'hedge' means, but they understand the concept that the value of the money may be going down.
That said, it's probably not a driving sentiment, rather, just the basic overall impetus of inflation and low rates.
It could be that there are whispers of increasing rates and everyone is looking to lock in.
That said, in around 2006, this was the feeling as well. The major crash. And as soon as things were getting frothy again - COVID and major turmoil.
Finally, it should be noted, that there are external factors driving inflation, if even some of it is temporary, which is cost of transport, and supply chain issues in China, and of course, tarriffs.
The average homebuyer is also only putting 5.3% down [1], so even if they know what hedging is, they’re not exactly moving significant amounts of capital around.
hmm I don't recall QE and trillion-dollar stimulus being a 'thing' in 2004-2006. Or the 80s and 90s. The fed began to raise interest rates a lot in 2004 but the housing boom continued for 2 years later. I think it just comes down to shortages and speculation.
The OP didn’t claim that houses prices only ever go up thanks to money printing. But with the amount of money being printed all asset prices go up, it’s almost mechanical. And we have done more money printing in the last 18m than in 10y of response to the 2008 recession.
Money is just one factor. I can think of tons of other factors - low interest rates, relatively rich city people moving from smaller apartments to houses to escape Covid, low supply because of construction halts during Covid, high price of lumber (which is slowly coming down).
Also, there will always be limited supply. COVID-19 and remote work changed that a little bit, but there's other reasons people want to live close to population centers: Restaurants, entertainment, shopping, schools, and friends, to name a few. Most people will always want to live not very far (but not too close!) to some group of other people.
All this is premised on a housing shortage. Without that housing shortage, there is no long-term positive return on investment.
There is not infinite demand even when housing is a guaranteed positive investment, because there's limited money and capital.
We have let people think that housing is always a positive return investment, instead of a bank account. And to do that, we have limited home building in the in-demand areas.
The actual way this is enforced is by home owners restricting development in their neighborhoods, a trend that is likely to continue.
Read the prospectus' of the private equity investments in residential housing and you'll see they are saying the same thing.
> House prices are going up because there aren't enough of them.
It's an interesting premise, I'd love to see more data on this. It's a very common claim but at least on a macro level there's a lot of indicators that would make me assume otherwise.
Typically if there isn't enough, you'd expect that the general trend has been that the availability per person is decreasing over time.
Availability can be measured in a few ways:
- Number of persons per home
- Number of square feet per home
Ceteris paribus, if either are going respectively down and up, you'd see increasing availability and would assume decreasing scarcity.
The number of persons per home has been decreasing for 150 years, and dropped from 3.4 to 2.5 (-30%) in the past 60 years.
The number of square feet per home has more than doubled in that time. In other words, we have 30% fewer people and 100% more space. The square foot per person has increased by 270% in the past 60 years.
Of course you can still not have enough if demand has grown much faster. But instead I think there's good indications (and plenty of studies) that price increases are mostly being driven by low interest rates and a culture around seeing homes as a speculative asset instead of just a home that happens to have some of your capital locked up in it.
"The S&P CoreLogic Case-Shiller 20-city home price index, released Tuesday, soared 17% in May from a year earlier on top of a 15% jump in April. The May increase was the biggest since August 2004."
This article is garbled, as far as I can tell. What I think they're saying is that from May 2020 to May 2021, prices rose by 17%. So that wouldn't be on top of the 15% from April 2020 to April 2021, it would be overlapping with most of it. It also wouldn't be a "May increase" but a yearly increase.
They're talking about it as if it were a monthly price rise (or an annualized monthly price rise to be generous to the author), but if it were, what does "a year earlier" have to do with it?
The worst possible interpretation is that the headline is saying that prices rose 17% faster this May as compared to last May (e.g. prices rose 0.6% last May but 0.7% this May) but that wouldn't be a story.
edit: also, wasn't May 2020 around peak covid terror time? I can't imagine people were looking to make long term investments.
It’s definitely annualized. That makes the most sense. And when you look at the case shiller index directly it bears that out. Also interesting is Feb to Feb was only 12% annual increase. But may to may was 17% increase so there was definitely an acceleration there. Some markets are insanely hot. We saw homes going for 30-40% more than the previous year in our neighborhood. A house almost exactly the same as ours sold this year in June for almost double what we paid for ours a few years back. Some real estate markets are more than just hot.
e: its rolling 12, which is what I meant, but yeah.. words matter :)
I bought my current house in May 2020. We got a ton for our old house due to people starting to move to the burbs, but still paid a good price (relative to today) for our current house. We thought we did pretty well in the grand scheme of things.
This is the one case I would believe if it was month over month growth. Rents were so insanely low in Jan-Apr (some places even 50% off). Now everyone is trying to get a place.
Sales of anything tend to be tied directly to human action which is more or less seasonal. So it makes sense to compare to a comparable time the year before.
I like millions of parents spent a few hundred dollars on backpacks, shoes, pencils and lunchboxes this week for back to school. Won't be doing that again until next year.
The closest reset (when stores update their prices/products they carry) to November this very crappy wine I sometimes buy, goes from $6 a bottle to $3.89-- presumably to captures sales for holiday get togethers where people are looking for quantity and not quality. It stays at that 3.89 until after New Years.
I don't know what the cycle is for housing-- but I suspect under normal circumstances sales would be highest about an escrow-long time before summer vacation so moving would be least impactful on kids.
right, but then new buyers taking out new mortgages at new rates will be unable to afford monthly payments at drastically increased prices.
If fed rates ever go back to 5%, which they haven't been since the 90's, then mortgage rates would go to 7 or 8 percent.
it's the monthly payments not the price of the house, and if rates go up because the Fed has to chase inflation, then those monthly payments go up, and affordability goes down.
No, when interest rates rise, prices of houses will go down to what people can afford as monthly payments. Principal Price of house amortized + interest = monthly payments
If people's income have been increasing,they will be able to afford slightly higher monthly payments but it's all going to be eaten by interest.
Except that your monthly payment is directly affected by the price of the home. If the fed starting selling bonds left and right tomorrow to get the rate to 5%, those home prices would sink.
Forget the article; the Fed is currently targeting a rate of 0.00-0.25 as far as I'm aware. That's the same as 2008, which was the lowest target ever.
>As of 30 October 2019 the target range for the Federal Funds Rate is 1.50–1.75%.[10] This reduction represented the third of the current sequence of rate decreases: the first occurred in July 2019. As of March 15, 2020 the target range for Federal Funds Rate is 0.00–0.25%,[11] a full percentage point drop less than two weeks after being lowered to 1.00–1.25%.[12]
>The last full cycle of rate increases occurred between June 2004 and June 2006 as rates steadily rose from 1.00% to 5.25%. The target rate remained at 5.25% for over a year, until the Federal Reserve began lowering rates in September 2007. The last cycle of easing monetary policy through the rate was conducted from September 2007 to December 2008 as the target rate fell from 5.25% to a range of 0.00–0.25%. Between December 2008 and December 2015 the target rate remained at 0.00–0.25%, the lowest rate in the Federal Reserve's history, as a reaction to the Financial crisis of 2007–2008 and its aftermath
I remember someone in my neighborhood selling their large home for $1+ million back in 2012 , which at the time seemed like a lot money. I bet he probably regrets that now. We see over and over: the media rushes to call something a bubble, a crisis, unsustainable, irrational, mania, etc., whether it's stock prices or real estate or tech valuations, over and over the media keeps being wrong. For every correct prediction, they get dozens wrong. Even if housing prices were to fall a lot, which I don't think they will, but even so, prices would probably not fall to where they were in 2011-2013 when the bubble predictions began. Remember all those predictions and articles in 2014-2015 of Seattle, Vancouver, and Toronto housing being a bubble. The media has no skill at predicting this stuff.
I sold my AAPL years ago, after buying in 2000 at a dot-com crash low of something like $12.
Could I have made more by holding? Yes, obviously. Do I regret my decision? No, I made way more than I ever expected to on that investment, funded a down payment on a house, and diversified the remainder into other holdings (which indirectly still includes some AAPL and other tech stocks).
Pigs get fat, hogs get slaughtered. Set your goals, and stick to them. When you achieve what you want, it doesn't make sense to regret that you didn't get more.
Similar concept in poker: Even if you folded a hand that would've worked out, don't regret the fold, if it was the right call given the information you had at the time.
Basically, it's easy to see what magically perfect decisions you should have made in hindsight and feel a lot of painful regret. But it's silly! Because of course we never have perfect information, and it is inevitable that we will suboptimal choices. So lighten up on yourself. :-)
If he put the proceeds in the stock market he is likely far ahead today than if he had held on to the house. The S&P 500 has returned 300%+ in that time period.
The reason housing comes out ahead for many is due to the favorable terms on which you can buy the asset (the land and/or house) using margin (only a fraction of your cash). This makes the returns much higher.
You can, of course, do the same with publicly traded equities, and it is much easier nowadays than 10 and 20 years ago, so the calculations may have changed. But you still do not have to worry about margin calls or other risks when buying land on margin. Plus the 1031 exchange tax benefit.
Home prices have risen similarly here in the UK, which has largely been attributed to a temporary cessation of Stamp Duty (tax you pay on the value of a home you buy). It's interesting that the same has happened in the US, without that (unless something comparable happened there?).
Do you pay the stamp duty tax once when you buy the home. Or do you pay it annually?
If you pay it once when you buy the home, there is something similar, called a transfer tax. This is set by the local government(city or county). I think most places don't have a transfer tax.
If it's an annual tax then it's property tax. This is specific to the State/County/City/Neighborhood.
You pay when you buy the home. But the point is you didn't have to pay it at all if you bought between last July and the end of this month (unless buying a very expensive house). Meaning (or so I thought) a big rush on housing and a big increase in house prices.
- Large shift in buyer's preferences due to COVID and remote work
- Eviction moratorium
- Low interest rates
- Millennials at prime age for purchasing homes
- Inflation from QE
- Institutional investors purchasing property
- Limited new supply from construction
As a prospective home buyer, it's hard for me to see enough of these factors changing within the next couple of years to make home prices more sensible.
I feel like my choices are to (A) bite the bullet and accept that I missed out on better times for buying or (B) wait 3-5 years in the hopes that things turn around.
I suspect inflation will catch up soon enough. I suspect that's actually the major effect. We dumped a ton of money into the economy. I'm not sure how much we can take out without tanking the economy.
My general feeling is that if we hit 50% inflation due to COVID19, we're about right. Economists would disagree with me, but I think the alternative is a deep structural wound to our economy.
how long can we continue like this though?
In the end, a shock inflation will be even more disasterous as it will wipe everyone's savings.
Also, either way, at some point the system will reach a point in which affording basic needs becomes more and more of a problem, especially if wages are not raised. The US had a stagnat minimum wage for nearly two decades.
With bleeding inflation, and an ongoing pandemic seemingly forever? I'm not sure.
My estimate was that 50% inflation as a one-time is about what it would take to:
- Take drastic actions to bring the pandemic under control
- Not drive debt-loaded businesses under
- Not drive people out of mortgages
This was at the very start of the pandemic. It's harmful, but I still haven't figured out a lower-harm alternative. The longer we delay, the more costs wrack up. I suspect at some point, the above will be too expensive too.
Also: Inflation means everything goes up, including wages. We're seeing that right now. Both savings and debts get wiped out.
This is a big one, particularly since its effect is concentrated in high-priced geographies. Lack of foreclosure supply is a reduction in supply. Curious to see how that shifts at the end of this month as well as in March next year.
Same here, my partner and I decided we're just going to bite the bullet. At least we can afford it and we'll lock that affordable mortgage into place and hope for the best.
I can't comment on your particular situation, but my partner and I just went through this (closed in May 2021).
Our thought-process was that we would only purchase if we could:
- Plan to live there for 5-10 years
- Plan finances to be able to weather a recession and housing bust within the next 1-3 years (related to the first requirement)
- Plan to live in a place which would have been tolerable Pre-COVID
This is a hard set of requirements for most people but fortunately we are in a good financial situation to be able to meet them.
Pre-COVID: Both of us are remote now (with me having been remote for 3 years prior to COVID). Her commute would not be bad if she had to go to the office. It's not common for technical sales to be in offices, so I am not seriously impacting my career options.
Live there for 5-10 years: We moved back to be near her aging parents. We don't plan on moving _away_ from them and like the area. The area is great for both of our careers and has fantastic schools.
Recession weathering: We had enough available to put down a sizable (50%+) down payment so our monthly mortgage is do-able on 1 income.
The net/net is that I'd hate to be a person who wasn't in a well-paying career who hasn't been fiendishly saving for many years.
We were the last generation who could afford housing. I look at kids carelessly running around in a nice neighborhood and think: "by the time you are 30, any of these houses will cost many multiple of your lifetime income, unless you are a successful exec in a big firm, and owning such a house will be like owning a private jet today." In fact, private jets may be cheaper than SFH because jets don't require a chunk of highly desirable land.
its absolutely abhorrent actually.
a younger friend of mine (mid twenties) known no one in his age bracket who is able to afford a home. They all have normal jobs, a high education etc. (teacher, mechanical engineer, nurse etc).
This is happening in Seoul, SK and Toronto, CA right now. I wish it weren't coming to parts of the US, but also, I don't see why it wouldn't. Only with sustained economic decline would home prices drop. Or, maybe if supply increased substantially, but people in the suburbs love their home values and that sort of thing tends to turn people into NIMBY's.
I'm not even sure it's nimbysm. There's simply no room for new SFH neighborhoods in reasonable proximity to city centers where the jobs are. New construction is still happening, but it's big RE firms buy out small businesses and replace them with dense apartment complexes for rent. The thing is, people who are going to live in those hives will have no housing to buy, no matter how much they save.
This is what people don't seem to understand. NIMBYism is vilified as the cause of all evils, when in reality there's a limit to how many people can be housed. Imagine suggesting that the reason people in Beijing or Seoul or Delhi don't have 1 acre lots and 3-bedroom houses is because of NIMBYism. At a certain point, owning a house in certain cities is simply not a reality anymore. Whether it's through sheer population size or sheer population wealth, NYC, LA, etc will never be a small town again. Fighting NIMBYism will just turn them from dense cities into Judge Dredd-like hives, as you said. But hey, I want a nice big property with a nice big house out in the country, so I'm not complaining if everybody insists on renting little shoeboxes in the big cities.
> There's simply no room for new SFH neighborhoods in reasonable proximity to city centers where the jobs are.
The demand isn't only for SFHs though. People are willing to rent/buy condos, and existing homeowners are refusing to allow them to be built. How is that not NIMBYism?
Funny enough, looking to Korea and China is IMHO a crystal ball to the US' future. Overpopulated, hive cities, incomprehensible levels of competition for everything from jobs to (literally) pre-schools. Increasing rates of alcoholism, depression, suicide, other illnesses.
This is an idealistic and unrealistic viewpoint. In feudal ages, basically nobody could afford housing. You basically had to sell yourself to even get housing. Then people in the US got housing. Now the US and other rich countries are becoming dominated by the upper classes. Which means people who want a different life have to leave for somewhere else, like colonists did in coming to the US centuries ago and like countless immigrants do in coming the US today. Land and housing is cheap in places like eastern Europe.
>Which means people who want a different life have to leave for somewhere else, like colonists did in coming to the US centuries ago
I couldn't agree more. I'm surprised by how US-centric the housing view of many of my Americans is ("well housing can go to infinite levels and I'll just have to suck it up and accept a life of debt slavery...")
I know one guy who just bought a (small, old) place in Italy an hour east of Rome for $10k. Not the exact location that I'd choose, but at some point I'll just live elsewhere too. The US doesn't limit the exfil of legitimately acquired and taxed money in your bank account and it's a big world out there.
I hate this global trend of talking about real estate prices in yoy terms (without mentioning that, particular in the title), by month.
e.g. in this case, prices increased in May by 2% percent, such that they ended up 17% higher than May 2020. Yet the title is prices surged 17% in May.
It's obvious it should be read differently than your intuition says only if you follow the market. And it's surprising how many people I come across citing this figure who're unaware of the difference and the correct way to interpret this misleading statement.
At 17% it becomes more obvious than years with 3% growth, but still.
Further, even if they had clearly stated something like "May's RE prices see 17% growth in one year", it can still be a bit misleading. It's easy to imagine a price-curve where a rolling 12-month period can see increasing yoy-growth, even though the market is in decline the last months. And I've seen RE-driven news pieces abuse it in the past stating 'record high prices' based on this yoy growth figure, even though the past few months the market was dropping.
There's been a number of studies that show that RE has been strongly driven by market opinion/expectations, not just a simple 'demand for housing'. In fact, to 'overbid' means essentially to get comparatively fewer square feet per dollar. As in, overbidding means reducing the feet per dollar you buy. For people who demand housing (square feet), it's interesting that RE pushes people to accept less housing for more money. And it's in part because of a collective craze as people believe prices will keep going up. Interestingly there's more RE per person than ever before. Construction has been outpacing population growth, there's fewer people per home because of this, and homes are getting bigger every year. There's some indications (of course low interest rates are the primary factor) that the RE price craze is causing a bit of a self fulfilling prophecy, and I find that the news is actively contributing to it, looking to publish the most incendiary selections of data.
Anyway bit of a rant for just a news article title, but everytime a big paper publishes a piece like this it's always part of the talk at the coffee corner the next day and in my country (Netherlands) there's clear links between the articles/journalists and the largest RE agent association that has 80% of the market. They're always pushing a narrative.
There is still a moratorium on evictions in many areas so you literally can’t sell a rental home. Then there is mortgage forbearance, meaning many people have paused or delayed payments allowing them to stay in the home longer and with less money. This means there is almost no foreclosure market. On top of that there are still unemployment payments and other various business credits or programs keeping people from going broke or failing to meet non-home obligations so they can focus on home payments. Obviously interest rates are all time lows, allowing people who refinanced to now afford payments as well where they might not have before. Once these government programs all end and interest rates rise we will see supply become available again. Prices won’t go down but they will at least stall again.
2004 was 17 years ago? My god where did the time go. Someone born in 2004 will be 18 next year.
So if history does repeat, home prices will keep skyrocketing for 3 more years before another economic crisis? Or will it be different this time around?
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[ 5.2 ms ] story [ 170 ms ] threadhttps://www.cnbc.com/2021/07/26/housing-boom-is-over-as-new-...
They're not directly comparable.
positive spin: use prices
Sales tend to be much more volatile and cyclical than prices, so it's easy to find a negative data point
https://twitter.com/HousingRalph/status/1420020332774137856
:shrug:
There are explanations though... go into the 220k house and smell the 10 years of cigarettes... or the 40 chicken coop across the street.
BlackRock owns around $60 billion in real estate assets. The value of the housing market in the United States is more like $36 trillion.
And there are still neighborhoods that are in decline. Opportunity to get in before they gentrify? Maybe, but it's a gamble.
Of course the loan itself is worth less to the bank during inflationary times. You make more money, your payment stays the same, and real estate prices will rise somewhat, but it's not as simple as you make it seem. I'd be worried if I were planning to sell within the next few years.
That said, it's probably not a driving sentiment, rather, just the basic overall impetus of inflation and low rates.
It could be that there are whispers of increasing rates and everyone is looking to lock in.
That said, in around 2006, this was the feeling as well. The major crash. And as soon as things were getting frothy again - COVID and major turmoil.
Finally, it should be noted, that there are external factors driving inflation, if even some of it is temporary, which is cost of transport, and supply chain issues in China, and of course, tarriffs.
That said, Fed probably needs to raise rates.
[1] https://www.housingwire.com/articles/49443-the-average-down-...
They're only a good hedge against inflation if there aren't enough of them.
All the other stuff, like low interest rates in mortgages, just accelerates the underlying cause of the price jumps.
1) Real-estate is a long-term positive return investment
2) The USG will do anything in it's power to keep that premise #1 valid (QE, low/negative interest rates, etc)
3) You can use real-estate equity as part of leverage to buy more real-estate.
4) Foreign investment is allowed, so the system isn't a closed loop
It's a bubble and will keep inflating until it pops.
There is not infinite demand even when housing is a guaranteed positive investment, because there's limited money and capital.
We have let people think that housing is always a positive return investment, instead of a bank account. And to do that, we have limited home building in the in-demand areas.
The actual way this is enforced is by home owners restricting development in their neighborhoods, a trend that is likely to continue.
Read the prospectus' of the private equity investments in residential housing and you'll see they are saying the same thing.
It's an interesting premise, I'd love to see more data on this. It's a very common claim but at least on a macro level there's a lot of indicators that would make me assume otherwise.
Typically if there isn't enough, you'd expect that the general trend has been that the availability per person is decreasing over time.
Availability can be measured in a few ways:
- Number of persons per home - Number of square feet per home
Ceteris paribus, if either are going respectively down and up, you'd see increasing availability and would assume decreasing scarcity.
The number of persons per home has been decreasing for 150 years, and dropped from 3.4 to 2.5 (-30%) in the past 60 years.
The number of square feet per home has more than doubled in that time. In other words, we have 30% fewer people and 100% more space. The square foot per person has increased by 270% in the past 60 years.
Of course you can still not have enough if demand has grown much faster. But instead I think there's good indications (and plenty of studies) that price increases are mostly being driven by low interest rates and a culture around seeing homes as a speculative asset instead of just a home that happens to have some of your capital locked up in it.
[0] https://fee.org/media/15199/housing1.png?width=600&height=38...
The downturn in home building is decades long. And the 2008 cycle reduces the construction workforce even more, and it never recovered.
This article is garbled, as far as I can tell. What I think they're saying is that from May 2020 to May 2021, prices rose by 17%. So that wouldn't be on top of the 15% from April 2020 to April 2021, it would be overlapping with most of it. It also wouldn't be a "May increase" but a yearly increase.
They're talking about it as if it were a monthly price rise (or an annualized monthly price rise to be generous to the author), but if it were, what does "a year earlier" have to do with it?
The worst possible interpretation is that the headline is saying that prices rose 17% faster this May as compared to last May (e.g. prices rose 0.6% last May but 0.7% this May) but that wouldn't be a story.
edit: also, wasn't May 2020 around peak covid terror time? I can't imagine people were looking to make long term investments.
Yes, but that's when people started to want places outside of big cities.
e: its rolling 12, which is what I meant, but yeah.. words matter :)
I bought my current house in May 2020. We got a ton for our old house due to people starting to move to the burbs, but still paid a good price (relative to today) for our current house. We thought we did pretty well in the grand scheme of things.
I like millions of parents spent a few hundred dollars on backpacks, shoes, pencils and lunchboxes this week for back to school. Won't be doing that again until next year.
The closest reset (when stores update their prices/products they carry) to November this very crappy wine I sometimes buy, goes from $6 a bottle to $3.89-- presumably to captures sales for holiday get togethers where people are looking for quantity and not quality. It stays at that 3.89 until after New Years.
I don't know what the cycle is for housing-- but I suspect under normal circumstances sales would be highest about an escrow-long time before summer vacation so moving would be least impactful on kids.
Heard from a friends dad, he bought a 1.2 million house in the early 80’s. He had a $10,000 a month mortgage.
Can you imagine? Obviously early 80’s rates were incredibly high, but that’s what high interest rates can do to mortgage payments.
Haven't had rising interest rates in over a quarter century
If fed rates ever go back to 5%, which they haven't been since the 90's, then mortgage rates would go to 7 or 8 percent.
it's the monthly payments not the price of the house, and if rates go up because the Fed has to chase inflation, then those monthly payments go up, and affordability goes down.
If people's income have been increasing,they will be able to afford slightly higher monthly payments but it's all going to be eaten by interest.
> The Federal Reserve's easy money policies have also kept mortgage rates near historic lows, pushing up demand for housing
That said, I agree with your sentiment more than the article's reductionist view that the low rates simply "pushed up demand."
>As of 30 October 2019 the target range for the Federal Funds Rate is 1.50–1.75%.[10] This reduction represented the third of the current sequence of rate decreases: the first occurred in July 2019. As of March 15, 2020 the target range for Federal Funds Rate is 0.00–0.25%,[11] a full percentage point drop less than two weeks after being lowered to 1.00–1.25%.[12]
>The last full cycle of rate increases occurred between June 2004 and June 2006 as rates steadily rose from 1.00% to 5.25%. The target rate remained at 5.25% for over a year, until the Federal Reserve began lowering rates in September 2007. The last cycle of easing monetary policy through the rate was conducted from September 2007 to December 2008 as the target rate fell from 5.25% to a range of 0.00–0.25%. Between December 2008 and December 2015 the target rate remained at 0.00–0.25%, the lowest rate in the Federal Reserve's history, as a reaction to the Financial crisis of 2007–2008 and its aftermath
https://en.wikipedia.org/wiki/Federal_funds_rate
Also, everything being equal, lower rates will _always_ increase demand.
Could I have made more by holding? Yes, obviously. Do I regret my decision? No, I made way more than I ever expected to on that investment, funded a down payment on a house, and diversified the remainder into other holdings (which indirectly still includes some AAPL and other tech stocks).
Pigs get fat, hogs get slaughtered. Set your goals, and stick to them. When you achieve what you want, it doesn't make sense to regret that you didn't get more.
Basically, it's easy to see what magically perfect decisions you should have made in hindsight and feel a lot of painful regret. But it's silly! Because of course we never have perfect information, and it is inevitable that we will suboptimal choices. So lighten up on yourself. :-)
You can, of course, do the same with publicly traded equities, and it is much easier nowadays than 10 and 20 years ago, so the calculations may have changed. But you still do not have to worry about margin calls or other risks when buying land on margin. Plus the 1031 exchange tax benefit.
If you pay it once when you buy the home, there is something similar, called a transfer tax. This is set by the local government(city or county). I think most places don't have a transfer tax.
If it's an annual tax then it's property tax. This is specific to the State/County/City/Neighborhood.
- Eviction moratorium
- Low interest rates
- Millennials at prime age for purchasing homes
- Inflation from QE
- Institutional investors purchasing property
- Limited new supply from construction
As a prospective home buyer, it's hard for me to see enough of these factors changing within the next couple of years to make home prices more sensible.
I feel like my choices are to (A) bite the bullet and accept that I missed out on better times for buying or (B) wait 3-5 years in the hopes that things turn around.
My general feeling is that if we hit 50% inflation due to COVID19, we're about right. Economists would disagree with me, but I think the alternative is a deep structural wound to our economy.
My estimate was that 50% inflation as a one-time is about what it would take to:
- Take drastic actions to bring the pandemic under control
- Not drive debt-loaded businesses under
- Not drive people out of mortgages
This was at the very start of the pandemic. It's harmful, but I still haven't figured out a lower-harm alternative. The longer we delay, the more costs wrack up. I suspect at some point, the above will be too expensive too.
Also: Inflation means everything goes up, including wages. We're seeing that right now. Both savings and debts get wiped out.
This is a big one, particularly since its effect is concentrated in high-priced geographies. Lack of foreclosure supply is a reduction in supply. Curious to see how that shifts at the end of this month as well as in March next year.
Our thought-process was that we would only purchase if we could:
- Plan to live there for 5-10 years
- Plan finances to be able to weather a recession and housing bust within the next 1-3 years (related to the first requirement)
- Plan to live in a place which would have been tolerable Pre-COVID
This is a hard set of requirements for most people but fortunately we are in a good financial situation to be able to meet them.
Pre-COVID: Both of us are remote now (with me having been remote for 3 years prior to COVID). Her commute would not be bad if she had to go to the office. It's not common for technical sales to be in offices, so I am not seriously impacting my career options.
Live there for 5-10 years: We moved back to be near her aging parents. We don't plan on moving _away_ from them and like the area. The area is great for both of our careers and has fantastic schools.
Recession weathering: We had enough available to put down a sizable (50%+) down payment so our monthly mortgage is do-able on 1 income.
The net/net is that I'd hate to be a person who wasn't in a well-paying career who hasn't been fiendishly saving for many years.
The demand isn't only for SFHs though. People are willing to rent/buy condos, and existing homeowners are refusing to allow them to be built. How is that not NIMBYism?
I couldn't agree more. I'm surprised by how US-centric the housing view of many of my Americans is ("well housing can go to infinite levels and I'll just have to suck it up and accept a life of debt slavery...")
I know one guy who just bought a (small, old) place in Italy an hour east of Rome for $10k. Not the exact location that I'd choose, but at some point I'll just live elsewhere too. The US doesn't limit the exfil of legitimately acquired and taxed money in your bank account and it's a big world out there.
e.g. in this case, prices increased in May by 2% percent, such that they ended up 17% higher than May 2020. Yet the title is prices surged 17% in May.
It's obvious it should be read differently than your intuition says only if you follow the market. And it's surprising how many people I come across citing this figure who're unaware of the difference and the correct way to interpret this misleading statement.
At 17% it becomes more obvious than years with 3% growth, but still.
Further, even if they had clearly stated something like "May's RE prices see 17% growth in one year", it can still be a bit misleading. It's easy to imagine a price-curve where a rolling 12-month period can see increasing yoy-growth, even though the market is in decline the last months. And I've seen RE-driven news pieces abuse it in the past stating 'record high prices' based on this yoy growth figure, even though the past few months the market was dropping.
There's been a number of studies that show that RE has been strongly driven by market opinion/expectations, not just a simple 'demand for housing'. In fact, to 'overbid' means essentially to get comparatively fewer square feet per dollar. As in, overbidding means reducing the feet per dollar you buy. For people who demand housing (square feet), it's interesting that RE pushes people to accept less housing for more money. And it's in part because of a collective craze as people believe prices will keep going up. Interestingly there's more RE per person than ever before. Construction has been outpacing population growth, there's fewer people per home because of this, and homes are getting bigger every year. There's some indications (of course low interest rates are the primary factor) that the RE price craze is causing a bit of a self fulfilling prophecy, and I find that the news is actively contributing to it, looking to publish the most incendiary selections of data.
Anyway bit of a rant for just a news article title, but everytime a big paper publishes a piece like this it's always part of the talk at the coffee corner the next day and in my country (Netherlands) there's clear links between the articles/journalists and the largest RE agent association that has 80% of the market. They're always pushing a narrative.
If there was ever a time you'd think that legislation could be drafted to help the common man, here is a great case! But I'm not holding my breath.
So if history does repeat, home prices will keep skyrocketing for 3 more years before another economic crisis? Or will it be different this time around?