Short answer for why they would is the economy broadly can't sustain rates this high.
But I think it's worth considering there are many that subscribe to the theory the Fed has almost no control over long term rates (mortgage rates being one type of these), which are set by the market alone based on inflation + growth expectations. [0]
I think it is inevitable that issues like this thread and others whereby many businesses and individuals cannot cope with debt service (see record high credit card delinquency rates) [1] and inflation, along with near record low unemployment means economy will hit a brick wall and prices and rates will fall, regardless of what the Fed wants or does or says.
This is already part of the reason long rates have been underneath short rates, as market has been pricing a slowdown for a while, and Fed wasn't able to set long rates above where they put short.
Additionally, to the degree Fed can influence long rates at all, some would argue raising short rates very high very fast (yes of course to counter inflation) itself can depress long term growth thereby beyond some threshold lowering longer term rates if market expects lower growth.
> Short answer for why they would is the economy broadly can't sustain rates this high.
I disagree, but...
Putting aside the fed and the degree they can set interest rates at the long end of the yield curve - what you are saying is that rates will go down bc the economy can't sustain the debt (in your words - "economy will hit a brick wall and prices and rates will fall"). In other words, there would be a recession bc interest rates are too high.
By the time that recession hits, people will be losing job - people sell assets (houses + stocks) when they lose their jobs.
In the event that the fed lowers rates, it will be bc of a recession, not to prevent one. By then, the damage is done.
Indeed. Everyone I've spoken to seems to be convinced that clearly, something has to change, house prices must drop, but the reality is, there's too many people for too few houses, and unless that changes housing will always continue to become more expensive.
> but the reality is, there's too many people for too few houses
Not really...
There are 2 big things that are skewing the housing market now:
1. In any given market, all-cash investors make up about 20-30% of the demand. [1] They will buy at almost any price. Even though they make a small percent of existing owners (iirc, its like 1-3%), they make an 20-30% portion of demand right now.
2. Inventory (houses that are for sale now, not just total stock) is at historical lows. This is bc of interest rates going higher - nobody who has 3-4% fixed rate locked in will sell (until they have to). The shortage that people refer to is not a shortage in homes that exist, its a shortage of homes for sale.
Now imagine those 2 dynamics flipped the other way - what happens to prices then?
Also food for thought - every market boom/bust cycle was caused speculative demand. What happens when 20-30% of demand goes away?
More food for thought - the folks that feel like they are locked out of the market and have been screwed (the young) are growing increasingly resentful. How will they vote?
If interest rates plummet and people start purchasing houses that they can only afford due to cheap loans, I would expect home prices to… rise. As they did before.
The 20-30% of demand you’re citing is your own claim that it’s driven by all cash buyers. I’m not seeing any reason why they would possibly disappear. That class of homebuyers may comprise a smaller portion of demand, but only due to demand growth from mortgage wanters, which again implies lower interest rates.
You’re also conflating demand with quantity demanded, so this chain of reasoning is not correct.
> 2. Inventory (houses that are for sale now, not just total stock) is at historical lows. This is bc of interest rates going higher - nobody who has 3-4% fixed rate locked in will sell (until they have to). The shortage that people refer to is not a shortage in homes that exist, it’s a shortage of homes for sale.
This is a way bigger than non-homeowners realize and is keeping prices high. I would love to sell my midsize (slightly under 2500 sq ft) for something around 3500 sq ft and maybe a little bit bigger lot. I’d pay something like an additional 50% over my existing mortgage for a property like that. Online mortgage calculators show that I’d pay around 2x-2.5x for that property now. I know play the worlds smallest violin for me but this affects people downstream who are looking to become homeowners.
> The most common sacrifice was taking no or fewer vacations. More than one-third of homeowners and renters (34.5%) who struggle to afford housing indicated that they skipped vacations in the past year in order to afford their monthly costs.
Vacations, at least the kind where you travel somewhere, are the definition of luxuries. It's jarring to hear about skipping them adjacent to a paragraph about skipping meals. I went on only a handful of vacations growing up, all of them staycations or domestic road trips with some other reason for going there or with someone else paying.
Yeah, lifestyle expectations have shifted dramatically and many people have become strongly attached to consumer luxuries and extravagences.
If you watch or read older media (fiction or non), or if you lived through it, you regularly see even middle class and professional characters living with sparse conveniences in their home and going on exactly those sort of modest road trips and motel stays you talk about and many of us remember. Trips to faraway lands, were treated as a novelty that you might bucket list once or twice rather than an annual necessity. You didn't buy a new TV until the old one broke. You talked to your neighbors and borrowed each others tools. You ate out as a treat, not because you just didn't feel like cooking that day. You planned your grocery shopping around sales and strove not to deviate from the plan while at the store.
And these expectations shifted for everyone, not just incoming generations. It wasn't a generational divide and I don't mean to stir up boomer/zoomer tension -- it was a dramatic cultural shift that almost everybody seems to have adopted without even noticing.
Exagerrated consumerism and "we are all middle class on the inside" mentality was how the West distinguished itself from its Cold War villian and now we are where we are.
Everybody needs an often-unattainable and generaly-unsustainable amount of money to fulfill a life that few would have taken seriously just a few decades earlier, and the essential dissonance is producing widespread misery and angst.
Counterpoint: a friend of mine grew up in LA. His family, consisting of his parents and his brother, took a month long road trip vacation every year. They owned a home that is now valued at around $2 million.
They did all this solely on his father’s income, which he earned as a public school teacher.
The middle class has been gutted in the past 40 years.
If you're trying to say that workers in vital industries used to have access to a stable, modest suburban lifestyle negotiated by their union and that the same can't be said now, I don't disagree.
But that's a separate and compounding issue, not a competing one.
By today's standards, being able to afford a three bedroom home in the LA metro area and raise two children on a single income, and not merely survive but be financially comfortable, isn't just a 'modest suburban lifestyle', it's an unimaginably rare privilege. Even if teachers are unionized, they aren't on the extreme high end of the income range for working class people.
I mean, I personallg know people who live exactly that "unimaginable" life in El Monte and Baldwin Park and Rancho Cucamunga and Van Nuys and Val Verde, so I hope you know you're exaggerating for effect.
But I don't even disagree with you, as I already said. Things are hard for many people, and uncertain for many more, and in many different ways.
I was talking about one of them. You're talking about one of them. Neither contradicts the other.
> They did all this solely on his father’s income, which he earned as a public school teacher.
This has more to do with his profession and inflation than anything about halcyon days of the middle class that socialists love to talk about when it's really just a post-war phenomenon.
40 years ago the average teacher's salary was $24,000. A hotel room was around $40. Maybe less for something like a Motel 6, but for a typical vacation hotel, $40. That's just for the room, add in gas, meals, activities and you would easily have another $40 a day. So $80/day * 30 days = $2,400.
Your friend's father may have spent 1/10th of his salary on a road trip vacation every year, but that was not typical.
My anecdotal experience growing up in the 70's and 80's matches the parent comment. Vacation meant driving to grandma's house. I did not take a "real" vacation until I was in my 30's. Eating at a restaurant was something you did a few times a year. Lifestyle expectations really have changed.
Same experience here as a 70s-80s kid. We did one week-long "vacation" a summer at the Jersey Shore, drove the whole way, and shared a place with another family so we could afford it. I don't know where this expectation came from where a middle class family should be able to afford to jet off to France for two weeks staying in a luxurious hotel and visiting wineries or skiing in the Alps. That's always been travel for the very wealthy.
Same experience here for restaurants, too. We ate boxed macaroni-and-cheese and canned baked beans, alternating every other day. Going to a restaurant to eat was a once-every-two-months luxury.
That’s just bad data storytelling. What’s more likely, that these people were planning extravagant vacations that they had to cancel? Or that they simply cannot afford vacations, and when asked if they “skipped” vacations “for monthly costs” they said yes.
Curious then to hear your thoughts then. If a person can't afford "vacation" what incentives do they have to take them then? Fundamentally you're saying that vacation days should be used like sick days.
So in reality the only people who can afford to have a real vacation are the ultra rich? So people like Elon Musk who feel like the world owes them attention because they are richer than any of us combined and have this constant need to flex that wealth to "own the poor" are okay?
Meanwhile these same rich people will have a heart attack if you so much as dare ask for a living wage that adjusts for inflation. How dare you take away their hard earned money? Right?
If it's laying on the beach for a week in Hawaii, or traveling through France, those are luxuries that should not be annual expectations.
Vacation just means having time to periodically not work for a living. Anything above that historically has been earned as a rare experience, but today is unrightfully expected.
Like OP, we went camping or to visit extended family once a year. Instagram vacations to the beach were what the rich families did.
Objectively, vacation days have declined and home ownership happens later in life and people have fewer children (and more have fewer children than they want).
We're doing the same work and getting less for it.
I've felt similarly about tattoos. I've never understand someone complaining about their student debt when they've been to a dozen or so countries, or have $20K of tattoos on their body, or spend more on door dash per week than I do on food per month.
I do think for some people the number gets too large and it becomes abstract. $100K debt and they think "I'll never pay this off" while they spend $1000 a month across discretionary extras.
I was on the verge of buying pre-Covid era. I was going to end up paying mortgage for 20/25 years. My plan was a small 2-bedroom bungalow, I was still considering then, that I was going to pay quite a lot for what I wanted... Covid happened, prices went to the roof and beyond... I'm not buying squat right now, no way... Prices remain just the same, it's funny when they go up they go all the way up as high as they can push it, when then come down you can't even feel they did.
I'm scratching 40s and I think my new plan is to go somewhere else... save for the next decade and move to Northern Africa, which I love and have ties to... Retire there and work remotely, or teach or a combo of those... I hope it works, even if it doesn't beats the crap out of grinding my whole life for a small pod in the west.
Not going to lie here. It was shocking at first, the cultural clash was intense at first, and I was like a scared child wandering about... But afterwards I felt much more at home than at any other place I've lived before (including where I live now). People are very nice, they are gentle, sincere, humble and welcoming (in general). Just this is enough of a reason for me to move, really...
I recommend Morocco or Tunisia. They have some amazing cities, and you will miss none of the fun you get in western countries, the vibe is different but it is far safer, people don't drink to nuke their brains out, and yes, there are pubs, mainly in tourist hubs...
In Tunisia you will love Tunis, Nabeul, Djerba, Monastir... All places are living postcards. Cost of living is extremely good. Nice house near the coast is about $300/400 US for rent. Food is amazing.
Monastir and Nabeul are both good options. The other good thing about Tunisia is that you have so many nice places you can go and it's all right there. I would want to point out that the other things that takes time to get used to is the driving culture, this can be tough to adapt to. Bare that in mind, since I know not everybody is up for the thrill
1) You're competing in an auction for the house so if you make 75th percentile income and only willing to spend 20% of your income on a house than anybody in the 50th percentile and higher whose willing to spend say 40-50% of their income will out bid you.
2) Interest rates do make a big deal when buying a house. A 250k house @8% is a 1.8k monthly payment (21.8k/yr) while that 250k house @4% is ~1.2k and @2% is ~900.
So if you can afford spending 1k/month on a house then @2% that house is 270k, @4% that house is 210k, and @8% that house is ~140k.
2a) So you could buy a 270k house @8% and be paying ~2k/month in hopes of the interest rates to drop to 2% and then refinance to pay ~1k/month but I'm risk-adverse so I don't condone that idea unless you can stomach 2k/month.
I'm guessing without rising interest rates we wouldn't actually see the housing market cool down.
I took a quick look, and Indianapolis (my old home town, and first place I looked) is rife with ‘em. Nicer than my much more expensive house in Redmond, too.
So if you’re not seeing them, I’ll bet you’re not looking very hard. Or you’re looking on the coasts.
Truthfully if you can stand the sweating buying at an 8% rate is the way to go. If rates ever go down (and history suggests at some point they will) you can re-finance, once you've agreed on a price you can't go back a re-negotiate to a lower one.
You’re close to the age where the realization sinks in that access to world-class health care, both emergency and otherwise, is near the top of your priorities.
I have a place overseas I want to escape to but I think about what would happen if I had x or y entirely probably health emergency. I have family there so I dont’t have to use my imagination.
Most health care can be had more affordably outside the US. There are places where it is relatively cheap and relatively high quality. In fact, life expectancy is lower in the US than it is in, even the UK, at every income level. So for some level of medical care you may actually do better outside. Granted, if you get cancer you probably want to return to the US.
And you do trade time, life, sedentary time at a desk, for the money that pays for the location. What happens if you work less, go someplace cheaper, and use your decreased stress and increased time to look after your health more?
> In fact, life expectancy is lower in the US than it is in, even the UK, at every income level. So for some level of medical care you may actually do better outside.
This only makes sense if one assumes a society’s medical care is the main driver of its population’s life expectancy rating.
There are some areas where it doesn't make any financial sense to own real estate in comparison to renting for the purposes of having a place to live. If you owned a few years back that would be different since you might have a 3% mortgage and have bought for 50% less than today's prices.
Many people compare a mortgage to rent but that's not a fair comparison. Homeowners should calculate an additional 10-20% of their mortgage to save for maintenance, repairs, etc. At some point major systems of the house will fail - HVAC, roof and windows are big ticket items. When you're renting you just call the landlord and say "the upstairs bathroom or the water heater or something is leaking water into the ceiling" - you are inconvenienced. If you own the place, you are acting as the general contractor attempting to triage the problem find a plumber or maybe an HVAC person, maybe they are flakey and don't show up, maybe they do good work, maybe their quotes are outrageous, etc.
Then there is just general maintenance and upkeep on top of the redecorating that most people like to do like paining rooms different colors and having more space, typically, that gets filled with stuff. You go from 3 rooms in an apartment to 7 rooms in a house and you'll definitely spend more money on filling the 4 extra rooms, maybe with stuff, maybe with people (kids) or both.
The price will always go up in most long terms. It's going to require massive population decrease within an area to actually drop prices. If you are going to live somewhere for about 5 years buying is worth it financially.
> I'm not buying squat right now, no way... Prices remain just the same, it's funny when they go up they go all the way up as high as they can push it, when then come down you can't even feel they did.
HNomics tried to convince me that inflation didn't matter and rent/sale prices actually go down when you consider your salary beats inflation. Your salary beats inflation, right ?
We've been underbuilding housing for quite a while in the United States. The GFC in 2008-2009 also spooked a bunch of people and convinced far too many people that another residential real estate crash was right around the corner. COVID happened and many people who were holding out lost their nerve and scrambled for housing, driving prices even higher.
First time in my life where asset doomerism actually made something more expensive.
The US has one of the highest square footage per capita of housing in the world. So maybe less underbuilding and more of a misallocation of the square footage.
So long as there are more home seekers than homes people will be in competition with their peers for homes. But maybe that's the idea? If people felt secure in their home then maybe they wouldn't work so hard, perhaps switch to a 4 (or 3!) day work week, maybe get more involved in their community, volunteering, advocacy, etc.
And that would, presumably, be a disaster. We apparently need everybody working as hard as possible so that capital owners can take a share of our labour. It is hard not to feel like housing scarcity is the primary tool to keep everybody working at capacity, and all for the benefit of the few.
Of course, when people shriek about capitalism they're usually imagining Scrooge McDuck or something, but in this case the beneficiaries are mostly old homeowners. And when it's your grandma saying "that's my nest egg!" about how great high home prices are, it's harder to fix the problem. Grandma wonders why her kids live 5,000 miles away, though. At least my kids' grandma does.
For a few years I had a paid off house in the middle of Ireland. (The house was dirt cheap). Sadly it was not a great place for me to live - we did not get on well with the neighbours, among other things - but the feeling that I could tell my boss to go to hell and live for literally multiple years on a single income's worth of savings was powerful.
We ended up moving to the Netherlands, which is much better for me overall (I have a lot more in common with the people here, and love biking!) but yet again I need to stress about mortgages, rent, etc. etc. and I miss the freedom I had.
Are you suggesting some great conspiracy with developers and banks to make less money on purpose by fixing supply in order to have a working style that hypothetically benefits a few unrelated people?
No, I think that homeowners largely have the ability to make it illegal to build new homes near them, which makes them wealthier. Sometimes it's for reasons like noise, parking, etc. (though I don't really think "it's illegal for you to build a home here because I like free street parking" is moral, but that's another matter), but sometimes it's because new homes - especially apartments - are likely to reduce the cost of housing (aka "bring down my home's value").
If you own a home, you want as many people working as hard as they can to outbid each other when you sell.
> No, I think that homeowners largely have the ability to make it illegal to build new homes near them, which makes them wealthier
How do I get this power? I see this all of the time on this website and Reddit but as a homeowner for nearly 2 decades in multiple cities I have never felt that I have any influence over what gets built and don’t recall seeing anything regarding zoning or specific developments that were up for vote.
Vote for people who want to stop "Big Developers" from "Destroying Your Community" with "Condo Towers" (that are 3 story 4-unit buildings like the Victorians people love in Berkeley but whatever). Raise hell at every local planning meeting. Shriek about parking and traffic. Donate to same.
Is this a trend that's going up? It seems like the norm for the past several years (at least) is for a good chunk of Americans to live paycheck-to-paycheck [1] and not have much of a financial cushion [2]. There's just a lot of precarity out there, whether by choice or by circumstance.
Have you ever noticed you never see anyone plot the percentage of Americans living paycheck-to-paycheck over time? It's because the number is surprising stable, and always too high.
citation that it is stable? Considering that pay has been flat since the mid 2000s, mortages/rent has skyrocketed, price of everyday goods has sky rocketed, and the debt bubble is getting bigger and bigger I find it hard to believe that line is flat.
What's the point of not living paycheck to paycheck if interest rates are low and inflation relatively high? Holding cash just wastes it.
(Note: this is not my personal viewpoint and is not financial advice. It is asked to fairly portray a counterpoint which most people must hold, even if only implicitly.)
You don't hold it all cash. You stick most of it in investments and let long-term market trends smooth out day-to-day volatility. It's easy enough to cash out non-retirement investments in case you have need for a big expense like a home purchase or riding out longer-duration job loss.
For the bit of cash you do hold onto, that's a buffer against random short-term life events: home and car repairs, medical expenses, etc.
If you spend all your money down, your life becomes brittle to everyday shocks. Money buys security: you can actually make plans and stick to plans if you have a financial cushion. It's the opposite of precarity.
> stick most of it in investments and let long-term market trends
Not liquid, doesn't count for this purpose.
> random short-term life events
There's always something that requires a chunk of change isn't there? You may as well deal with it using normal cash flow. Anything larger than that gets rolled into a loan because interest rates are low (car, medical repayment plan, etc).
> Money buys security
In a low interest rate world, that security is very expensive. Shocks that are everyday are by definition no longer shocks but normal business. Deal, defer or finance. Roll initial high interest rate immediate financing into lower rate that takes more time to acquire.
Taking off this hat of devil's advocacy or steelmanning the opposite: I think the biggest problem of no cushion is the assumption that interest rates will stay low. People behave in meta-rational ways. Nobody says "I enjoy living by each paystub" but when classical incentives like getting a spiff for saving are not present, savings will not be a salient activity. It might even be better to have a level of unpredictable interest rate variability so that folks by and large learn to exercise a balanced approach of spend|save|invest.
It takes 72 hours at most for me to liquidate shares and for it to show up in my checking account. That's liquid.
It's a layered approach: 0-interest checking for day-to-day expenses (i.e., regular cash flow), low interest savings for a cushion (i.e., anything surprising that absolutely needs to be funded within 72 hours), and everything else in productive investments. The cushion means you rarely ever touch the investments, so it grows happily over time, but it's still easy enough to get to just in case. Nothing expensive about this security at all, regardless of interest rates.
In, at least the area I live (Central Texas), property taxes are also a problem with home affordability. I got my tax assessment a couple days ago and it notes that the assessment is up 653.08% since 2019.
GA has both income tax and sales tax (and property taxes way less than Texas'...). A recent statewide proposal is considering capping home assessment increases at a set rate, pegged to inflation — until the house sells to a non-family owner.
I think all three ideas are GREAT for Joe Average Georgian.
Except, I am not getting 653% more service. Traffic is worse, roads are worse (except the brand new ones), crime is higher, schools are more crowded. No public water for me. It is admittedly the price of growth in the area (recently rural area). I understand that government and taxes are good, up to a point. The extra taxes are bringing more people in but not helping those who are already here.
South Texas here and I have to say that the whole low-tax red state thing seems very oversold. We sure get the culture war stuff good and hard though (and even a few years ago I would have said that Texas was actually governed by the more pragmatic wing of the Republican party, but no more).
I bought in 2010, when interest rates were low, and my payments are almost comically low by 2024 standards. BUT - the taxes are going up so fast, they've almost caught up with the actual mortgage payment (I pay as much in tax & insurance as I do for the house payment itself), and there's no end in sight.
Right, this is such an underappreciated problem. Buying a home doesn't "lock in" your monthly costs. It locks in the mortgage, sure. But it's very easy for your insurance and property tax rates to surpass any growing income.
This is particularly bad for fixed-income folks, living in retirement. Congratulations, you've saved and scrimped to get your house paid off by retirement age, but rising property taxes are outstripping your social security income.
Well, at least where I live, property taxes are capped once you hit 65, as long as you stay in one place. I'm a LONG way from 65, though (fortunately).
The most common sacrifice was taking no or fewer vacations. More than one-third of homeowners and renters (34.5%) who struggle to afford housing indicated that they skipped vacations in the past year in order to afford their monthly costs.
This makes the headline verb "Struggle" seem overly dramatic.
I’m a very strong subscriber to the housing theory of everything.
To summarize: most of the malaise in developed economies especially among the young is due to housing prices.
A lot of the other issues we face including inflation in other areas is downstream of housing prices since expensive housing drives wage inflation. That wage inflation doesn’t end up benefiting the worker much though because it’s all eaten by housing. This bids up housing even more in a vicious cycle.
A lot of social problems are also downstream of housing: alarmingly low birth rates, depression to some degree, the decline of in person socialization due to the death of “third spaces” (too expensive), parents and grandparents becoming a burden on the young because they can’t afford to live, etc.
Failure to build sufficient housing to meet demand is literally destroying civilization.
You can see this most clearly in certain cities like SF that have this disease worst of all, but it’s a problem everywhere.
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[ 2.9 ms ] story [ 174 ms ] threadAnd I dont know how else to read this except -- home prices will go down.
But I think it's worth considering there are many that subscribe to the theory the Fed has almost no control over long term rates (mortgage rates being one type of these), which are set by the market alone based on inflation + growth expectations. [0]
I think it is inevitable that issues like this thread and others whereby many businesses and individuals cannot cope with debt service (see record high credit card delinquency rates) [1] and inflation, along with near record low unemployment means economy will hit a brick wall and prices and rates will fall, regardless of what the Fed wants or does or says.
This is already part of the reason long rates have been underneath short rates, as market has been pricing a slowdown for a while, and Fed wasn't able to set long rates above where they put short.
Additionally, to the degree Fed can influence long rates at all, some would argue raising short rates very high very fast (yes of course to counter inflation) itself can depress long term growth thereby beyond some threshold lowering longer term rates if market expects lower growth.
[0] https://medium.com/the-investors-handbook/why-the-fed-doesnt...
[1] https://archive.is/s14dY
I disagree, but...
Putting aside the fed and the degree they can set interest rates at the long end of the yield curve - what you are saying is that rates will go down bc the economy can't sustain the debt (in your words - "economy will hit a brick wall and prices and rates will fall"). In other words, there would be a recession bc interest rates are too high.
By the time that recession hits, people will be losing job - people sell assets (houses + stocks) when they lose their jobs.
In the event that the fed lowers rates, it will be bc of a recession, not to prevent one. By then, the damage is done.
I do think Fed will lower because of recession yes. The damage will be done yes. It sounds like you do agree.
Not really...
There are 2 big things that are skewing the housing market now:
1. In any given market, all-cash investors make up about 20-30% of the demand. [1] They will buy at almost any price. Even though they make a small percent of existing owners (iirc, its like 1-3%), they make an 20-30% portion of demand right now.
2. Inventory (houses that are for sale now, not just total stock) is at historical lows. This is bc of interest rates going higher - nobody who has 3-4% fixed rate locked in will sell (until they have to). The shortage that people refer to is not a shortage in homes that exist, its a shortage of homes for sale.
Now imagine those 2 dynamics flipped the other way - what happens to prices then?
Also food for thought - every market boom/bust cycle was caused speculative demand. What happens when 20-30% of demand goes away?
More food for thought - the folks that feel like they are locked out of the market and have been screwed (the young) are growing increasingly resentful. How will they vote?
[1] https://www.corelogic.com/intelligence/us-home-investor-shar...
[2] https://tradingeconomics.com/united-states/total-housing-inv...
Operative word being "If"...
What if rates go up?
Look at it from the perspective of the fed:
- Home prices up (or neutral)? Check...
- Stock market at all time highs? Check...
- Strong labor market + low unemployment? Check...
- High inflation? Check...
^^ The combination of the above make the case for rate increases, not cuts. [1]
[1] https://nypost.com/2024/02/20/business/larry-summers-said-th...
If the rates go up… then the dynamics you were discussing become more prevalent
> This is bc of interest rates going higher - nobody who has 3-4% fixed rate locked in will sell (until they have to).
And the asked
> Now imagine those 2 dynamics flipped the other way - what happens to prices then?
And I told you if interest rates went lower then priced would rise.
That's not what I meant.
I meant - what if:
- the 20-30% investor demand in the housing market would go away (demand down), and
- sales inventory went back to historical mean (supply up)
^^ then house prices go down bc demand goes down and supply goes up.
You’re also conflating demand with quantity demanded, so this chain of reasoning is not correct.
This is a way bigger than non-homeowners realize and is keeping prices high. I would love to sell my midsize (slightly under 2500 sq ft) for something around 3500 sq ft and maybe a little bit bigger lot. I’d pay something like an additional 50% over my existing mortgage for a property like that. Online mortgage calculators show that I’d pay around 2x-2.5x for that property now. I know play the worlds smallest violin for me but this affects people downstream who are looking to become homeowners.
We americans have been living beyond or means and much better relative to the rest of the world, and the world is starting to equalize. Makes sense.
Vacations, at least the kind where you travel somewhere, are the definition of luxuries. It's jarring to hear about skipping them adjacent to a paragraph about skipping meals. I went on only a handful of vacations growing up, all of them staycations or domestic road trips with some other reason for going there or with someone else paying.
If you watch or read older media (fiction or non), or if you lived through it, you regularly see even middle class and professional characters living with sparse conveniences in their home and going on exactly those sort of modest road trips and motel stays you talk about and many of us remember. Trips to faraway lands, were treated as a novelty that you might bucket list once or twice rather than an annual necessity. You didn't buy a new TV until the old one broke. You talked to your neighbors and borrowed each others tools. You ate out as a treat, not because you just didn't feel like cooking that day. You planned your grocery shopping around sales and strove not to deviate from the plan while at the store.
And these expectations shifted for everyone, not just incoming generations. It wasn't a generational divide and I don't mean to stir up boomer/zoomer tension -- it was a dramatic cultural shift that almost everybody seems to have adopted without even noticing.
Exagerrated consumerism and "we are all middle class on the inside" mentality was how the West distinguished itself from its Cold War villian and now we are where we are.
Everybody needs an often-unattainable and generaly-unsustainable amount of money to fulfill a life that few would have taken seriously just a few decades earlier, and the essential dissonance is producing widespread misery and angst.
They did all this solely on his father’s income, which he earned as a public school teacher.
The middle class has been gutted in the past 40 years.
If you're trying to say that workers in vital industries used to have access to a stable, modest suburban lifestyle negotiated by their union and that the same can't be said now, I don't disagree.
But that's a separate and compounding issue, not a competing one.
But I don't even disagree with you, as I already said. Things are hard for many people, and uncertain for many more, and in many different ways.
I was talking about one of them. You're talking about one of them. Neither contradicts the other.
I had high school teachers who worked construction (working class) jobs during the summer, but that wasn't their regular work.
This has more to do with his profession and inflation than anything about halcyon days of the middle class that socialists love to talk about when it's really just a post-war phenomenon.
Your friend's father may have spent 1/10th of his salary on a road trip vacation every year, but that was not typical.
My anecdotal experience growing up in the 70's and 80's matches the parent comment. Vacation meant driving to grandma's house. I did not take a "real" vacation until I was in my 30's. Eating at a restaurant was something you did a few times a year. Lifestyle expectations really have changed.
Same experience here for restaurants, too. We ate boxed macaroni-and-cheese and canned baked beans, alternating every other day. Going to a restaurant to eat was a once-every-two-months luxury.
I still eat boxed macaroni-and-cheese a few times a month :)
Although it's gluten free and I put some bacon bits in it. Fancy!
So in reality the only people who can afford to have a real vacation are the ultra rich? So people like Elon Musk who feel like the world owes them attention because they are richer than any of us combined and have this constant need to flex that wealth to "own the poor" are okay?
Meanwhile these same rich people will have a heart attack if you so much as dare ask for a living wage that adjusts for inflation. How dare you take away their hard earned money? Right?
If it's laying on the beach for a week in Hawaii, or traveling through France, those are luxuries that should not be annual expectations.
Vacation just means having time to periodically not work for a living. Anything above that historically has been earned as a rare experience, but today is unrightfully expected.
Like OP, we went camping or to visit extended family once a year. Instagram vacations to the beach were what the rich families did.
Objectively, vacation days have declined and home ownership happens later in life and people have fewer children (and more have fewer children than they want).
We're doing the same work and getting less for it.
Source?
>We're doing the same work and getting less for it.
If you're talking about absolute amounts, this is directly contradicted by the BLS data.
https://fred.stlouisfed.org/series/LES1252881600Q
I do think for some people the number gets too large and it becomes abstract. $100K debt and they think "I'll never pay this off" while they spend $1000 a month across discretionary extras.
I'm scratching 40s and I think my new plan is to go somewhere else... save for the next decade and move to Northern Africa, which I love and have ties to... Retire there and work remotely, or teach or a combo of those... I hope it works, even if it doesn't beats the crap out of grinding my whole life for a small pod in the west.
I recommend Morocco or Tunisia. They have some amazing cities, and you will miss none of the fun you get in western countries, the vibe is different but it is far safer, people don't drink to nuke their brains out, and yes, there are pubs, mainly in tourist hubs...
In Tunisia you will love Tunis, Nabeul, Djerba, Monastir... All places are living postcards. Cost of living is extremely good. Nice house near the coast is about $300/400 US for rent. Food is amazing.
1) You're competing in an auction for the house so if you make 75th percentile income and only willing to spend 20% of your income on a house than anybody in the 50th percentile and higher whose willing to spend say 40-50% of their income will out bid you.
2) Interest rates do make a big deal when buying a house. A 250k house @8% is a 1.8k monthly payment (21.8k/yr) while that 250k house @4% is ~1.2k and @2% is ~900. So if you can afford spending 1k/month on a house then @2% that house is 270k, @4% that house is 210k, and @8% that house is ~140k.
2a) So you could buy a 270k house @8% and be paying ~2k/month in hopes of the interest rates to drop to 2% and then refinance to pay ~1k/month but I'm risk-adverse so I don't condone that idea unless you can stomach 2k/month.
I'm guessing without rising interest rates we wouldn't actually see the housing market cool down.
So if you’re not seeing them, I’ll bet you’re not looking very hard. Or you’re looking on the coasts.
I have a place overseas I want to escape to but I think about what would happen if I had x or y entirely probably health emergency. I have family there so I dont’t have to use my imagination.
Most health care can be had more affordably outside the US. There are places where it is relatively cheap and relatively high quality. In fact, life expectancy is lower in the US than it is in, even the UK, at every income level. So for some level of medical care you may actually do better outside. Granted, if you get cancer you probably want to return to the US.
And you do trade time, life, sedentary time at a desk, for the money that pays for the location. What happens if you work less, go someplace cheaper, and use your decreased stress and increased time to look after your health more?
I'm not sure about any of this.
This only makes sense if one assumes a society’s medical care is the main driver of its population’s life expectancy rating.
You don't worry too much about PCP-in-network at that point.
We could, of course, have very different notions of "health emergency."
Many people compare a mortgage to rent but that's not a fair comparison. Homeowners should calculate an additional 10-20% of their mortgage to save for maintenance, repairs, etc. At some point major systems of the house will fail - HVAC, roof and windows are big ticket items. When you're renting you just call the landlord and say "the upstairs bathroom or the water heater or something is leaking water into the ceiling" - you are inconvenienced. If you own the place, you are acting as the general contractor attempting to triage the problem find a plumber or maybe an HVAC person, maybe they are flakey and don't show up, maybe they do good work, maybe their quotes are outrageous, etc.
Then there is just general maintenance and upkeep on top of the redecorating that most people like to do like paining rooms different colors and having more space, typically, that gets filled with stuff. You go from 3 rooms in an apartment to 7 rooms in a house and you'll definitely spend more money on filling the 4 extra rooms, maybe with stuff, maybe with people (kids) or both.
HNomics tried to convince me that inflation didn't matter and rent/sale prices actually go down when you consider your salary beats inflation. Your salary beats inflation, right ?
First time in my life where asset doomerism actually made something more expensive.
And that would, presumably, be a disaster. We apparently need everybody working as hard as possible so that capital owners can take a share of our labour. It is hard not to feel like housing scarcity is the primary tool to keep everybody working at capacity, and all for the benefit of the few.
Of course, when people shriek about capitalism they're usually imagining Scrooge McDuck or something, but in this case the beneficiaries are mostly old homeowners. And when it's your grandma saying "that's my nest egg!" about how great high home prices are, it's harder to fix the problem. Grandma wonders why her kids live 5,000 miles away, though. At least my kids' grandma does.
For a few years I had a paid off house in the middle of Ireland. (The house was dirt cheap). Sadly it was not a great place for me to live - we did not get on well with the neighbours, among other things - but the feeling that I could tell my boss to go to hell and live for literally multiple years on a single income's worth of savings was powerful.
We ended up moving to the Netherlands, which is much better for me overall (I have a lot more in common with the people here, and love biking!) but yet again I need to stress about mortgages, rent, etc. etc. and I miss the freedom I had.
If you own a home, you want as many people working as hard as they can to outbid each other when you sell.
How do I get this power? I see this all of the time on this website and Reddit but as a homeowner for nearly 2 decades in multiple cities I have never felt that I have any influence over what gets built and don’t recall seeing anything regarding zoning or specific developments that were up for vote.
[1] https://www.npr.org/2020/12/16/941292021/paycheck-to-paychec...
[2] https://abcnews.go.com/US/10-americans-struggle-cover-400-em...
2017: 78% of all workers are living paycheck-to-paycheck https://www.cnbc.com/2017/08/24/most-americans-live-paycheck...
2012: 68% of all Americans are living paycheck-to-paycheck https://www.reuters.com/article/idUSBRE88I1BF/
(Note: this is not my personal viewpoint and is not financial advice. It is asked to fairly portray a counterpoint which most people must hold, even if only implicitly.)
For the bit of cash you do hold onto, that's a buffer against random short-term life events: home and car repairs, medical expenses, etc.
If you spend all your money down, your life becomes brittle to everyday shocks. Money buys security: you can actually make plans and stick to plans if you have a financial cushion. It's the opposite of precarity.
Not liquid, doesn't count for this purpose.
> random short-term life events
There's always something that requires a chunk of change isn't there? You may as well deal with it using normal cash flow. Anything larger than that gets rolled into a loan because interest rates are low (car, medical repayment plan, etc).
> Money buys security
In a low interest rate world, that security is very expensive. Shocks that are everyday are by definition no longer shocks but normal business. Deal, defer or finance. Roll initial high interest rate immediate financing into lower rate that takes more time to acquire.
Taking off this hat of devil's advocacy or steelmanning the opposite: I think the biggest problem of no cushion is the assumption that interest rates will stay low. People behave in meta-rational ways. Nobody says "I enjoy living by each paystub" but when classical incentives like getting a spiff for saving are not present, savings will not be a salient activity. It might even be better to have a level of unpredictable interest rate variability so that folks by and large learn to exercise a balanced approach of spend|save|invest.
It takes 72 hours at most for me to liquidate shares and for it to show up in my checking account. That's liquid.
It's a layered approach: 0-interest checking for day-to-day expenses (i.e., regular cash flow), low interest savings for a cushion (i.e., anything surprising that absolutely needs to be funded within 72 hours), and everything else in productive investments. The cushion means you rarely ever touch the investments, so it grows happily over time, but it's still easy enough to get to just in case. Nothing expensive about this security at all, regardless of interest rates.
I think all three ideas are GREAT for Joe Average Georgian.
This is particularly bad for fixed-income folks, living in retirement. Congratulations, you've saved and scrimped to get your house paid off by retirement age, but rising property taxes are outstripping your social security income.
This makes the headline verb "Struggle" seem overly dramatic.
To summarize: most of the malaise in developed economies especially among the young is due to housing prices.
A lot of the other issues we face including inflation in other areas is downstream of housing prices since expensive housing drives wage inflation. That wage inflation doesn’t end up benefiting the worker much though because it’s all eaten by housing. This bids up housing even more in a vicious cycle.
A lot of social problems are also downstream of housing: alarmingly low birth rates, depression to some degree, the decline of in person socialization due to the death of “third spaces” (too expensive), parents and grandparents becoming a burden on the young because they can’t afford to live, etc.
Failure to build sufficient housing to meet demand is literally destroying civilization.
You can see this most clearly in certain cities like SF that have this disease worst of all, but it’s a problem everywhere.