Because we really don't want the home building industry to stop building homes. The lack of new construction post 2008 is one of the reasons home prices are as high as they are.
Single family homes are quiet cheap in most of the country, especially McMansions. How much more expensive it is to build a house vs an apartment building, especially per sqft?
'Single family homes are quiet cheap in most of the country, especially McMansions' - Citation needed.
Aside from price per square foot, a single family dwelling has room for a single family. That same space could be built upwards for multiple families, but NIMBYS stop it every single time.
Just like the post about Marc the other day they cry about quality of life and property values.
We have people far more worried about the value of their housing 'investment' than people having homes, then they cry about the homeless people and the problems they bring.
Poor people have been priced out of every single place (you mention cheap houses but hardly the case- many millenials have given up on ever owning a house), so what's the only option left, renting until you cant work anymore?
Example - https://www.nerdwallet.com/article/mortgages/condo-vs-house "According to NAR data, in December 2020 the median price for existing, detached single-family homes was $314,300, while it was $272,200 for condos. " - very little difference. Even less per sqft. I actually agree that zoning and most relevant environmental regulation should be abolished, the govt should stop giving people tools to block development. But that would affect the price of land, not the price of construction.
For the rest of the rant - price/income ratio didn't grow THAT much - before COVID spike that is evidently not caused primarily by NIMBYs, NIMBYism existed far longer than that: https://www.longtermtrends.net/home-price-median-annual-inco.... Those who gave up on buying a house should move out of mismanaged coastal cities (I can afford them and yet I certainly wish I did!)
So you think someone making minimum wage can afford 270k+?
Also those prices are only for existing condos and houses
For your second link here's a fact- house prices have skyrocketed for decades now while minimum wage has remained the same 7.25/hr for the same time if not longer.
The very link you used shows a huge spike from 5.1 up to 8+ and those are all historic highs.
1) Why would anyone on minimum wage need to afford a median house (or condo)? The person making the least would need to afford the cheapest house, not the median one.
2) No, housing prices have not skyrocketed for decades. It' simply not true, much less a fact. Aside from housing bubble and COVID mismanagement, they were flat-ish for decades in relation to income, only growing slowly.
3) Are you saying the recent "huge spike" over the last few years is caused by single family housing being preferred to multi-family construction? To me it clearly isn't.
What argument are you talking about? You were claiming that the problem is that the only houses being built are "expensive SFHs" and that needs to stop.
I gave you the numbers that (1) multi-family (condo is the closest I could find) is not much cheaper the houses, do you disagree? Construction costs for apartments I could find are all over the place and hard to compare (they are often wide ranges with wide ranges of units) but they don't appear to be much lower too. Fundamentally, multi-family gets built because you can squeeze more housing in the same piece of land, land is the limiting factor, and land regulation makes both SFH and multi-family expensive. The type of housing has very little to do with it.
(2) Price to income ratios are mostly flat /until the COVID spike/. P/I is the ~same between 1957 and 2017, what do you call that? Housing bubble was just that, a bubble, and it unwound all the way to 1980 levels. So, what remains is COVID spike. Can you point at the change in housing patterns that you argue about, that happened in 2020? Literally nothing related to housing, probably, caused the COVID spike (otherwise why didn't the price go up before?) - just money printing and inflation.
You've unfortunately been breaking the site guidelines quite a lot in recent threads. Can you please stop this? We have to ban accounts that post that way.
It's bad news because nobody wants a repeat of 2008.
Even with the downturn in prices, prices are high enough that building new homes is very profitable, and we want lots of people to do it. But even if it is theoretically profitable, if stuff takes too long to sell builders can become bankrupt anyways. And if builders go bankrupt, the number of starts will go down very quickly. And then just like 2008 caused the 2022 crisis, the 2022 crisis may cause the same problem to repeat in a decade or two.
It's not really even news arguably. The rates have more than doubled in less than a year. That simply removed about 100k of buying power from anyone getting a mortgage.
Not sure how this would work outside the Netherlands where I live, but there seems to be a relation between the housing market and the interest rates...
We currently see the interest rates go up rather quickly. This has a great effect on your monthly mortgage payments, and (at least here) the amount of money the bank is willing to lend you.
While the EU had interest rates close to zero percent for the past decade, buying an expensive house was not a problem: your monthly payments for interest were almost zero. With the interest rate climbing, the number of people that still can buy this expensive house reduces significantly. And so the prices of the houses start dropping as well.
Of course, as long as you are happy with your house and all is well there is no problem. But when you get unemployed, decide to get divorced or otherwise have to sell your house but the bank still owns it, you have an issue. Where you bought it for 600.000, you now get 400.000 - and the bank really wants the 200.000 back...
For an asset you should theoretically be in for a minimum of 5 years, if not decades, a few months shouldn't make a big difference one way or the other.
In Canada, if you refinance before your mortgage term end it's typically to pay 3 months of interest as penalty or the difference between your new rate and the old rate until the term ends.
What's the rationale behind that? That's really a penalty for early repayment - is it set by law, or is it just something that is part of a standard Canadian mortgage contract?
You are right that they wouldn’t normally exist without government intervention.
But banks don’t profit off the interest rate on mortgages. It’s mostly origination fees. Mortgages are sold off immediately. They don’t hold onto them.
It’s just standard. The standard Canadian mortgage contract is for a 5-year term with a fixed rate. Variable rate mortgages have notably lower costs to end early. (Early repayment terms are typically something like “can optionally pay up to 15% extra per year without penalty.”)
Here in Sweden if I have a fixed rate mortgage and want to repay early or refinance at a lower interest rate, I have to pay a penalty which is essentially equal to what the bank is losing in out on in 'missed' interest payments.
Not sure what you mean by free. But there are time time frames where you are barred from refinancing (not within 6 months of closing on a mortgage - including the refi, so you are in a timing the market kind of situation), and the fees (appraisal, closing costs, origination, points, etc.) that go along with refinancing are usually pretty steep.
Refinancing is not free. There are still costs for any loan like appraisal, possibly an inspection, and recording fees, but some lenders will roll those costs into the loan or offer higher interest rates to offset their costs.
Nonetheless, I’ll take the lower principal of a lower priced house than an over-priced house with a lower interest rate … lower taxes and possibility to refinance at lower rates.
When we bought in 2009, the rate was 4.85%. Later we got it down to 3.5%--a difference of over $400/mo. At this rate we'll have it paid off completely 14 years early.
When are rates going back to under 3%? That was a flash in the pan phenomena, I highly doubt that would ever happen again absent some other cataclysmic event. The current rates are more toward the contemporary average.
> When are rates going back to under 3%? That was a flash in the pan phenomena, I highly doubt that would ever happen again absent some other cataclysmic event.
This is what everyone said after the financial crisis. 3 years after rates moved up from 0% (~2018) - the 30-year mortgage rate hit an all-time low (~2021).
I'm not sure how you can be so confident they're never going lower this time. And I'm completely lost how you can be confident they won't be lower than they are now within a couple of years...
You're completely lost, after looking at the last 50 years of rates, at the chances of it falling to 2021 lows? We're talking probabilities here and I'm confident the probability is very low.
Not necessarily. If the price goes down, the amount of mortgage you need to get also goes down. It becomes easier to save for a downpayment. A bigger downpayment means saving on possible expensive mortgage insurance.
We were in a position to buy during the last crash, when there was a bit of a discount off the bubble. So in my experience, in the long run, paying less up front is better than paying more.
I’d agree but don’t think it’s the right comparison for this discussion. It’s more about how much prices have to come down from their recent highs to offset the recent uptick in interest expense.
I bought my first home at end of the last recession (price at floor for my market) and maximized my leverage (little down) AND got low rates. So I did great and assuming you did the same it probably worked out the same for you. But the high rates now make the math a bit more complicated. And, I don’t know if I’d assume the same level of appreciation I did back then. At that time, the recession was a few years in and it felt like that bulls were awakening so I was very confident in my purchase. Right now, it’s early in the recession, we don’t even know how long/far prices will decline, and rates are pretty high and most assets feel inflated. So, I wouldn’t feel very confident about it right now. I’d actually recommend most people just do lowish down, hope for a refi opportunity in a couple years, but make sure you have some cash for repairs/maintenance/rainy days as well.
In any case, how much does a home price have to come down to offset interest rates climbing? It’s a lot. Probably something like 20% (I can’t do the math rn)
> how much does a home price have to come down to offset interest rates climbing
Generally speaking it's a rule of 10x in purchasing power (not price, clearly, because we haven't seen the corresponding price correction yet).
So 1% increasing in mortgage rate should be 10% decreasing in purchasing power, just based on the math. And yes I believe there has been a 2% increase in average mortgage rate (3% -> 5%) so 20% sounds right.
I used to worry about needing to make sure I saved enough so I wouldn't have to pay any PMI. I really didn't like the idea of "throwing away" that money. My wife talked me into it and had me actually look at the real terms.
We ended up putting ~10% down on a house. The PMI for that was ~$70/mo. We refinanced a year later and the home value increased that we were able to get rid of the PMI after only a year. I would have missed out on the lowest interest rates ever really seen and bought with house prices getting even higher over $840 in insurance on a several hundred thousand dollar purchase.
I would suggest you don't assume you need to avoid PMI. For me, if I would have waited it would have cost me >$100k waiting to avoid "throwing away" $840. Obviously, every market is different, every buyer is different, the financial world is different now than a few years ago, your mileage may vary, I am not a lawyer, etc. Just saying, look at some actual terms before deciding.
That's the whole point of my comment, it isn't always better. I could have avoided any PMI by waiting a bit longer to amass more savings to have a larger down payment. But in doing so I would have avoided <$1,000 in PMI payments but increased the cost of the house by >$100k. It was definitely the better move to just pay the PMI in this case than to try and avoid it.
I'd gladly pay $1,000 to make something >$100,000 cheaper in the end.
Not necessarily. PMI removes risk for the lender so often that means a better rate. Also the bigger the loan the easier it is for them to make their fixed costs back. A lower down payment usually makes sense if you have the discipline to invest the difference and can tolerate some risk.
I assume you would feel differently if the market had crashed and your purchase price was $100k less though… avoiding PMI while also having a lower principal. Hindsight.
High range housing will likely be the hardest hit. I would expect low to mid price housing to be a bit more resilient due to buyers and lenders being more conservative.
I had a hell of a time finding a bank willing to put together a mortgage for sub $150k. Has taken me almost 8 months, and multiple failed attempts with various national and local banks before we finally found one willing to work with us to buy my wife's grandfather's house so he can retire.
Without all the cash up front, a low-priced house is actually harder to buy than a house you cannot afford. One of the banks literally told me, I qualify for a 5% down payment on a $750k house (roughly $4k/mo payment), but they wouldn't touch a $110k house with 20% down.
Look. This isn't 2008. Banks handed out < 4% mortgages for years. There is no way people are letting these loans go. The loan payments are cheaper than rent in many areas. The most valuable thing people own right now is super cheap money that is being inflated away. The group of people that own these loans will be the new upper-middle class.
"low interest debt is a solid hedge against inflation"
? It literally is just that. As inflation increases the value of a loan decreases. EG. The value of your money today is worth more than the value of your money tomorrow. So you pay your loan at a fixed rate over time with money that is worth less and less. Inflation eats loans. The dumbest thing you can do is pay off a loan with todays dollars during high inflation. People that win in inflation hold massive cheap debt on real assets. [their loan devalues to nothing AND their assets increase in value]
If you're not buying all cash, the monthly cost of buying a home hasn't gone down, and theres a good chance its even gone up
There's a big difference between the banks are getting a bigger piece of the housing cost cake, and housing is now available to a group of people it wasn't available to a year ago
i mean, at least you don't have to engage in bidding wars with 30 other people foaming at the mouth trying to get this house at any cost while some rich investor scoops up the property.
To the extent that you are buying cash i.e. the size of your downpayment, your hard earned savings are less-inflated, they have more power, and you are able to avoid debt. For those of us trying to live within our means and avoid pricing others out, this is good news.
Plus, it's quite likely that buyers can refinance later.
This is true, but - if you buy with a lower price + higher interest rate, you can potentially refinance to a lower interest rate down the road. Nothing you can do after the fact about a high purchase price though.
Nothing's guaranteed of course, but I'd rather buy a home now than a year ago, even if the same monthly payment gets me the same house
Exactly this. Every boomer who whines about 15% interest rates in the 1980s - rates which existed only briefly - is leaving out the fact that they got low prices and continuous opportunities to refinance at lower rates for the rest of their lives.
Super-high rates coincided with a low in the price-to-income ratio in the post-war era. It was > 6x in the 1950s, < 5x through the 80s, and now stands at > 8x. So why should I care if the bank took a higher share of a lower price? It was still a lower price.
Out of curiosity, are you objecting because you think these points are all obviously true and it's just not interesting conversation, or is it that you take issue with one or more of them?
Good! If you bought your home as shelter nothing has changed for you.
If you bought homes as an investment, pricing out families, turning entire neighborhoods into Airbnbs, and destroying their culture you have my sympathies /S.
This is a little cold. To get into the market, most people need to put in all the money they’ve ever saved plus a good fraction of all the money they’ll ever earn in the future. People will naturally be anxious about the value of that asset as they may need it to fund their retirement, nursing home, etc.
That may be true but as a society we have to end that reality. There is no future for a society where shelter appreciates to such an extent that you can retire on it. Your retirement should be secured by having done something productive, not by merely squatting.
> How about the folks whose retirements are guaranteed to never happen now?
The people who were priced out and who never had any possibility of retirement are not going to sympathize. Maybe homeowners will decide to fight with them, not against them.
As a policy, homes can be a savings tool (like a cushion against disaster or emergency retirement capital) but if they become investments that is antithetical to affordable housing and thus ultimately economic growth and social well being.
> To get into the market, most people need to put in all the money they’ve ever saved plus a good fraction of all the money they’ll ever earn in the future.
This is only true in the most expensive metro areas - nobody forces anybody to live there except for rare combinations like NYC + investment banking, which also tend to be very well compensated. There are plenty of low profile metros with tons of amenities and reasonable housing markets (especially now as home prices will come back from orbit and after some time, rents along with them).
My fiance and I bought 3-4 months ago and mortgage + taxes is approximately 13% of our take home pay. We make good money but nothing astronomical (no FAANG salaries for sure, for either of us) and by every reasonable metric we make 2-2.5x what we need to in order to afford this house without dumping our entire lives into it.
> This is only true in the most expensive metro areas
This is true in all metro areas. Mortgage lenders are actually having to loosen the "percentage of cash flow one spends on a mortgage" requirements because without spending a third if your income you can't buy into the market. I live in a famously inexpensive housing market and a house that sold for $300k last year is now going for $450k.
This is not just NYC and SF, it's the same story in Austin, Seattle, Atlanta, Columbus, Minneapolis, Dever.
Nobody forces you to live where the jobs in your field are, got it. I cannot understand how people assume that everyone just has the mobility to just pick up their entire lives (like they don't have friends and family), sell their house (which is taking a loss now), move and be able to find a job anywhere.
Like good lord not everyone works in a field where you can work remotely from a cabin in the woods. Some people do actually have to be on-prem. So many people in this thread are vastly overestimating the agency people in real life have to participate (or not) in the systems that surround them. If the SWE job market ever cools off I feel like the tone is going to shift dramatically.
It's not true in all metros. I am within a reasonable daily commute to a major city. Being willing and able to move ~30 miles would add two other major cities. At least one of them, by nearly all metrics, is more expensive than several of the cities you listed.
And just because home prices drop a fraction of a percent doesn't mean you're suddenly taking a six figure loss if you sell and move, especially if like your example the price has increased 50% in the last year.
This may be true for some human being in America (almost certainly is, in fact, given the size of the country) but on the whole no one is taking a loss yet [0]
Lenders have always been able to loosen their standards. A non-conforming conventional mortgage gets bought and sold on the private market rather than Fannie Mae. But they are also slightly higher interest because they are riskier.
> If the SWE job market ever cools off
So far it's only the SWE market cooling. Friends in health, education, logistics are beating back recruiters. These are occupations that have been underserved for decades and only worked as long as they have because of solid pensions. But now those retirements are coming due and no one has built the staffing pipeline. Management watched the average employee age increase every year until it was equal to retirement age and here we are. SWE market is extremely young and doesn't have nearly the same recruitment problem.
Metros are metros for a reason. People dont choose to live in a tiny expensive house because they are too stupid to move elsewhere. They are there because that is the best option available to them.
They are there because they choose to be there. Which is fine, but it's a bit like that Eric André meme[0] to choose to live in an expensive metro then complain that the metro is too expensive to live in.
I disagree with your premise that the millions of people living in expensive cities live there because they are too stupid to make smarter decisions unlike you.
If you bought your home as shelter and are going to live in it for the next 30 years then this doesn't affect you. Quite a few people buy starter homes, then upgrade as their family grows. Or have to move due to employment. Or a number of other things that can affect them.
Yep and because housing is completely unaffordable without betting a third of your income over 15 years housing prices won't go down this just fucks you with no recourse.
So yayy! We designed a system where having shelter requires leveraging yourself to the chin in an asset market (if you're renting you just happen to not be playing, but your landlord is) and then putting the blame on the people who didn't have any other option.
True, but generally (generally) speaking, the market changes affect both ways; if the value of the home to be sold dropped, it will also drop the price of the home to be purchased.
It does not drop the amount remaining on the mortgage, so people get stuck paying more for an asset that’s not worth as much as the loan. They can’t sell it because they won’t make up the difference between the new sale price and the amount remaining on the mortgage. Only inflation solves this problem.
If you borrow 80k to buy that 100k house (20% down), and the house drops to 50k, you still owe 80k. You need to be able to sell it for at least 80k, or you ain't getting that other house for 50k. So what happens is anyone that bought at an inflated price aren't going to sell for a number of years (until their equity gets in line with what they owe, or inflation brings the price of the house back up).
Problem is that people were panic buying at inflated prices, because they thought prices would go up further in the future and had to move fast. But they get in over their head, and a slight disruption (life events happen) can cause them to miss payments. Now they are forced to sell or abandon the house, and the bank is forced to take a loss (if in the case of a short sell). And if someone is already losing their house, they aren't going to be doing much maintenance on it so the house ends up in poorer quality even if the current owner doesn't specifically try to sabotage the house. So now you end up with a bunch of houses on the market that aren't really move-in ready, so investors sweep them up limiting the supply, and cause the cycle to bounce all over again.
Yeah, it's important to note the mix effect. New home price can only affect jurisdictions where new homes are actually permitted (i.e. not in the Bay Area).
If you bought a home and had to sell, but made money, congratulations you beat the market. You get to brag at the next barbecue about how your a financial wizard.
If you bought a home and had to sell, but lost money, congratulations you were an unofficial renter. You lick your wounds and lean into the next financial scheme.
That presumes you can sell it. From personal experience in the 2008 market, you can be upside down enough on your mortgage that you financially are unable to sell your home because you don't have enough cash on hand to set fire to.
Its not a good feeling not knowing how long you are going to be stuck in the home. Hope you don't want to move due to things like having kids or getting a new job while you are upside down.
The mortgage market has changed a lot as a result of 2008. It's harder to end up underwater now with requirements for less biased appraisals, actual income, and actual assets. The other thing to note is that even in 2008 almost every home in the country had recovered to above 2008 prices within 5 years. Buying a house without a reasonable confidence of living 5 years in that home is taking a big risk.
If you bought a house to raise your family in the past couple of years, you're toast! You're still on the hook for the absurd loan the bank gave you, interest rates are going up so your payments will too, and your house is worth less.
Looking around ARM mortgages were around 3% of all mortgages in 2020-2021 era, so I don’t think it’s fair to generalize that peoples mortgages are going up. But yeah, people will become immobilized if their property has decreased in value, until it recovers, and that’s unfortunate.
Why starting in 2023? Are you expecting much higher rates starting in 2023? There's a rolling set of people who are continually coming up to their 5-year renewal dates.
We call housing expensive because it takes such a huge part of our income (unjustifiably), but as soon as housing prices go down, people start killing themselves.
With the Fed raising interest rates, this is a fairly predictable happening. Higher rates means more expensive houses get put out of reach of the consumer, it trickles down from there.
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[ 2.7 ms ] story [ 178 ms ] threadFascinating piece, thanks for sharing.
They need to drop. They need to be decoupled from wealth and investment.
Multi-family units need to be built, not more mcmansions.
Aside from price per square foot, a single family dwelling has room for a single family. That same space could be built upwards for multiple families, but NIMBYS stop it every single time.
Just like the post about Marc the other day they cry about quality of life and property values.
We have people far more worried about the value of their housing 'investment' than people having homes, then they cry about the homeless people and the problems they bring.
Poor people have been priced out of every single place (you mention cheap houses but hardly the case- many millenials have given up on ever owning a house), so what's the only option left, renting until you cant work anymore?
Something has got to give.
For the rest of the rant - price/income ratio didn't grow THAT much - before COVID spike that is evidently not caused primarily by NIMBYs, NIMBYism existed far longer than that: https://www.longtermtrends.net/home-price-median-annual-inco.... Those who gave up on buying a house should move out of mismanaged coastal cities (I can afford them and yet I certainly wish I did!)
Also those prices are only for existing condos and houses
For your second link here's a fact- house prices have skyrocketed for decades now while minimum wage has remained the same 7.25/hr for the same time if not longer.
The very link you used shows a huge spike from 5.1 up to 8+ and those are all historic highs.
Your data doesn't match your argument.
2) No, housing prices have not skyrocketed for decades. It' simply not true, much less a fact. Aside from housing bubble and COVID mismanagement, they were flat-ish for decades in relation to income, only growing slowly.
3) Are you saying the recent "huge spike" over the last few years is caused by single family housing being preferred to multi-family construction? To me it clearly isn't.
I gave you the numbers that (1) multi-family (condo is the closest I could find) is not much cheaper the houses, do you disagree? Construction costs for apartments I could find are all over the place and hard to compare (they are often wide ranges with wide ranges of units) but they don't appear to be much lower too. Fundamentally, multi-family gets built because you can squeeze more housing in the same piece of land, land is the limiting factor, and land regulation makes both SFH and multi-family expensive. The type of housing has very little to do with it.
(2) Price to income ratios are mostly flat /until the COVID spike/. P/I is the ~same between 1957 and 2017, what do you call that? Housing bubble was just that, a bubble, and it unwound all the way to 1980 levels. So, what remains is COVID spike. Can you point at the change in housing patterns that you argue about, that happened in 2020? Literally nothing related to housing, probably, caused the COVID spike (otherwise why didn't the price go up before?) - just money printing and inflation.
If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and taking the intended spirit of the site more to heart, we'd be grateful.
Even with the downturn in prices, prices are high enough that building new homes is very profitable, and we want lots of people to do it. But even if it is theoretically profitable, if stuff takes too long to sell builders can become bankrupt anyways. And if builders go bankrupt, the number of starts will go down very quickly. And then just like 2008 caused the 2022 crisis, the 2022 crisis may cause the same problem to repeat in a decade or two.
As Lord Farquad put it: "It's a sacrifice I'm willing to make". Bring it on!
Now I just have to decide, do I buy a house in 11 months when my lease is up, or do I hope for an extended crash and buy in 23 months?
We currently see the interest rates go up rather quickly. This has a great effect on your monthly mortgage payments, and (at least here) the amount of money the bank is willing to lend you.
While the EU had interest rates close to zero percent for the past decade, buying an expensive house was not a problem: your monthly payments for interest were almost zero. With the interest rate climbing, the number of people that still can buy this expensive house reduces significantly. And so the prices of the houses start dropping as well.
Of course, as long as you are happy with your house and all is well there is no problem. But when you get unemployed, decide to get divorced or otherwise have to sell your house but the bank still owns it, you have an issue. Where you bought it for 600.000, you now get 400.000 - and the bank really wants the 200.000 back...
A 4-8% discount multiplied by 5:1 (or 33:1 leverage) is ENORMOUS. It dwarfs an extra 5-10% monthly expense for a year or two or three.
Especially considering R/E capital gains are mostly tax free.
In Canada, if you refinance before your mortgage term end it's typically to pay 3 months of interest as penalty or the difference between your new rate and the old rate until the term ends.
It's pretty damn punitive.
They only exist in the US and Denmark: https://www.thediff.co/p/the-30-year-mortgage-is-an-intrinsi...
And they only exist because of A LOT of government intervention.
If interest rates don't continue to only go down - I imagine you'll see them disappear in the US and Denmark.
US & EU banks mostly make their mortgage profits from constantly refinancing at ever lower rates.
But banks don’t profit off the interest rate on mortgages. It’s mostly origination fees. Mortgages are sold off immediately. They don’t hold onto them.
Nonetheless, I’ll take the lower principal of a lower priced house than an over-priced house with a lower interest rate … lower taxes and possibility to refinance at lower rates.
This is what everyone said after the financial crisis. 3 years after rates moved up from 0% (~2018) - the 30-year mortgage rate hit an all-time low (~2021).
I'm not sure how you can be so confident they're never going lower this time. And I'm completely lost how you can be confident they won't be lower than they are now within a couple of years...
In every country in advanced world??
I bought my first home at end of the last recession (price at floor for my market) and maximized my leverage (little down) AND got low rates. So I did great and assuming you did the same it probably worked out the same for you. But the high rates now make the math a bit more complicated. And, I don’t know if I’d assume the same level of appreciation I did back then. At that time, the recession was a few years in and it felt like that bulls were awakening so I was very confident in my purchase. Right now, it’s early in the recession, we don’t even know how long/far prices will decline, and rates are pretty high and most assets feel inflated. So, I wouldn’t feel very confident about it right now. I’d actually recommend most people just do lowish down, hope for a refi opportunity in a couple years, but make sure you have some cash for repairs/maintenance/rainy days as well.
In any case, how much does a home price have to come down to offset interest rates climbing? It’s a lot. Probably something like 20% (I can’t do the math rn)
Generally speaking it's a rule of 10x in purchasing power (not price, clearly, because we haven't seen the corresponding price correction yet).
So 1% increasing in mortgage rate should be 10% decreasing in purchasing power, just based on the math. And yes I believe there has been a 2% increase in average mortgage rate (3% -> 5%) so 20% sounds right.
We ended up putting ~10% down on a house. The PMI for that was ~$70/mo. We refinanced a year later and the home value increased that we were able to get rid of the PMI after only a year. I would have missed out on the lowest interest rates ever really seen and bought with house prices getting even higher over $840 in insurance on a several hundred thousand dollar purchase.
I would suggest you don't assume you need to avoid PMI. For me, if I would have waited it would have cost me >$100k waiting to avoid "throwing away" $840. Obviously, every market is different, every buyer is different, the financial world is different now than a few years ago, your mileage may vary, I am not a lawyer, etc. Just saying, look at some actual terms before deciding.
That's the whole point of my comment, it isn't always better. I could have avoided any PMI by waiting a bit longer to amass more savings to have a larger down payment. But in doing so I would have avoided <$1,000 in PMI payments but increased the cost of the house by >$100k. It was definitely the better move to just pay the PMI in this case than to try and avoid it.
I'd gladly pay $1,000 to make something >$100,000 cheaper in the end.
Without all the cash up front, a low-priced house is actually harder to buy than a house you cannot afford. One of the banks literally told me, I qualify for a 5% down payment on a $750k house (roughly $4k/mo payment), but they wouldn't touch a $110k house with 20% down.
Also, being able to buy a house you cannot afford may go away as well if lending parameters become more restrictive, which is typical in a downmarket.
? It literally is just that. As inflation increases the value of a loan decreases. EG. The value of your money today is worth more than the value of your money tomorrow. So you pay your loan at a fixed rate over time with money that is worth less and less. Inflation eats loans. The dumbest thing you can do is pay off a loan with todays dollars during high inflation. People that win in inflation hold massive cheap debt on real assets. [their loan devalues to nothing AND their assets increase in value]
There's a big difference between the banks are getting a bigger piece of the housing cost cake, and housing is now available to a group of people it wasn't available to a year ago
Plus, it's quite likely that buyers can refinance later.
Nothing's guaranteed of course, but I'd rather buy a home now than a year ago, even if the same monthly payment gets me the same house
Back when interest rate were >6%, 80%+ of your first 5 years of payments went entirely to interest.
- prices dropping is a good thing
- nimby are the real evil
- we should promote the idea of housing as utility not a store of wealth
- but govt encourages housing as wealth via subsidies and tax breaks
- poc should be allowed to build inter-generational wealth via housing. This shouldn't be suddenly cancelled.
- we should be building more public housing like germany and france.
- some random side convo about gentrification
- another side convo about suburban housing = bad. we should all live in tightly packed cities with no cars.
Rinse and repeat.
- people who have their fortunes tied to housing vs new entrants
- boomers/silent gen vs millennials
- white vs poc
- working poor vs gentrifiers
If you bought homes as an investment, pricing out families, turning entire neighborhoods into Airbnbs, and destroying their culture you have my sympathies /S.
The people who were priced out and who never had any possibility of retirement are not going to sympathize. Maybe homeowners will decide to fight with them, not against them.
This is only true in the most expensive metro areas - nobody forces anybody to live there except for rare combinations like NYC + investment banking, which also tend to be very well compensated. There are plenty of low profile metros with tons of amenities and reasonable housing markets (especially now as home prices will come back from orbit and after some time, rents along with them).
My fiance and I bought 3-4 months ago and mortgage + taxes is approximately 13% of our take home pay. We make good money but nothing astronomical (no FAANG salaries for sure, for either of us) and by every reasonable metric we make 2-2.5x what we need to in order to afford this house without dumping our entire lives into it.
This is true in all metro areas. Mortgage lenders are actually having to loosen the "percentage of cash flow one spends on a mortgage" requirements because without spending a third if your income you can't buy into the market. I live in a famously inexpensive housing market and a house that sold for $300k last year is now going for $450k.
This is not just NYC and SF, it's the same story in Austin, Seattle, Atlanta, Columbus, Minneapolis, Dever.
Nobody forces you to live where the jobs in your field are, got it. I cannot understand how people assume that everyone just has the mobility to just pick up their entire lives (like they don't have friends and family), sell their house (which is taking a loss now), move and be able to find a job anywhere.
Like good lord not everyone works in a field where you can work remotely from a cabin in the woods. Some people do actually have to be on-prem. So many people in this thread are vastly overestimating the agency people in real life have to participate (or not) in the systems that surround them. If the SWE job market ever cools off I feel like the tone is going to shift dramatically.
And just because home prices drop a fraction of a percent doesn't mean you're suddenly taking a six figure loss if you sell and move, especially if like your example the price has increased 50% in the last year.
This may be true for some human being in America (almost certainly is, in fact, given the size of the country) but on the whole no one is taking a loss yet [0]
[0] https://fred.stlouisfed.org/series/ASPUS
* "It's great that housing prices are dropping (which makes it more difficult than it already is to move)"
* "If you can't afford a mortgage just move"
> If the SWE job market ever cools off
So far it's only the SWE market cooling. Friends in health, education, logistics are beating back recruiters. These are occupations that have been underserved for decades and only worked as long as they have because of solid pensions. But now those retirements are coming due and no one has built the staffing pipeline. Management watched the average employee age increase every year until it was equal to retirement age and here we are. SWE market is extremely young and doesn't have nearly the same recruitment problem.
Metros are metros for a reason. People dont choose to live in a tiny expensive house because they are too stupid to move elsewhere. They are there because that is the best option available to them.
[0] https://imgflip.com/s/meme/Who-Killed-Hannibal.jpg
I disagree with your premise that the millions of people living in expensive cities live there because they are too stupid to make smarter decisions unlike you.
I never said anyone was stupid. There are plenty of valid reasons to live in one specific area, family/spouse/kids being a great example.
So yayy! We designed a system where having shelter requires leveraging yourself to the chin in an asset market (if you're renting you just happen to not be playing, but your landlord is) and then putting the blame on the people who didn't have any other option.
Considering the price drop, the new home will be equal, in value, to the one they originally bought for 100k.
This does not include transaction prices (which can be high, of course), but they incur regardless.
Problem is that people were panic buying at inflated prices, because they thought prices would go up further in the future and had to move fast. But they get in over their head, and a slight disruption (life events happen) can cause them to miss payments. Now they are forced to sell or abandon the house, and the bank is forced to take a loss (if in the case of a short sell). And if someone is already losing their house, they aren't going to be doing much maintenance on it so the house ends up in poorer quality even if the current owner doesn't specifically try to sabotage the house. So now you end up with a bunch of houses on the market that aren't really move-in ready, so investors sweep them up limiting the supply, and cause the cycle to bounce all over again.
All homes: https://fred.stlouisfed.org/series/ASPUS
New Homes: https://fred.stlouisfed.org/series/MSPNHSUS
The average person owns a home for less than a decade.
If you bought a home and had to sell, but lost money, congratulations you were an unofficial renter. You lick your wounds and lean into the next financial scheme.
Its not a good feeling not knowing how long you are going to be stuck in the home. Hope you don't want to move due to things like having kids or getting a new job while you are upside down.
And if they see a correction now they may drop below their 2008 peak.
https://fred.stlouisfed.org/series/LVXRNSA
Property taxes
With the Fed raising interest rates, this is a fairly predictable happening. Higher rates means more expensive houses get put out of reach of the consumer, it trickles down from there.