People are bringing up that past rates were higher but leaving out how much lower past prices were. Have a look at rates over time[1] vs median home price[2].
Yes rates were 16% in 1980 but the median home was $64,000. That's $230,000 in today's dollars.
If you'd prefer to pick a time when rates were more comparable, how about 2001 at 7%. The median home price was $180,000. $301,000 in today's dollars.
Today's median home is selling for $440,000. It's small wonder that people are upset.
Economists need to figure out how people are buying these expensive houses. I work in big tech and probably in 1-2% and I am still priced out of market even outside of CA. How do other people not in big tech do it? My guess is that most people buying houses are double-income families which wasn't the case in 1980s. Note to self: If you want Ameican dream, make sure you marry someone who makes as good income as you :).
I guess it depends on your standards but to say you’re priced out everywhere with no context is a wild exaggeration if you’re in the top 5% of earners.
a $1M house or condo bought at 3% rates would have been under $5k all in a month. I’m fairly certain a single person with mid six figure income could easily afford that. It’s now around $6k which should also be doable.
I think the housing situation is causing a great deal of pain in the country right now. I see manifestations of it all around me. Collectively we seem unable to do anything but continue doing what we've always done -- bid higher.
If your family owned real estate in 1980, then odds are good that generational wealth provides the needed liquidity. As has been discussed elsewhere in this thread, the monthly payments haven't changed much as a function of income - it's only the nominal price and the associated down payment that's changed over time.
Yeah, people price housing in terms of the monthly payment, not the dollar amount so much... higher interest rates mean people can afford less principal. And mortgage rates have doubled in less than a year.
(of course, in practice, once they've bought, people tend to be averse to their "investment" losing 20% or 30%, even if they did lock in a good interest rate they'll be paying for years to make up the fall. this has always been one of the giant gotchas with keeping interest rates so eternally low... also the cost of financing the national debt just zoomed up too.)
> of course, in practice, once they've bought, people tend to be averse to their "investment" losing 20% or 30%, even if they did lock in a good interest rate they'll be paying for years to make up the fall.
This is not entirely irrational. The median length of hone ownership is about 13 years. With stable value and interest rates, this is not a big issue. People can role their equity into their next home and just pay the transaction cost of selling. With rising rates and falling prices, you would also need to realize the loss, and give up on the counteracting benefit of a low rate.
The net effect of this is to make people more reluctant to move than they otherwise would be.
Wouldn't you agree the dollar amount plus the interest rate broadly determine the monthly payment? So we can compare a 2001 home at $300,000 for 7% vs a 2020 home at $440,000. Someone buying a home today will pay more month to month for a median home.
You need to account for inflation. Dollar value in 2001 and 2022 is not the same. CPI today is ~295 vs ~175 in 2001, so while nominally today's monthly payment is higher, it is not higher in terms of its purchasing power.
I adjusted for inflation in my numbers above. The median 2001 home cost $180,000 in 2001 dollars. $300,000 in today's dollars. Someone who could purchase a median home in 2001 cannot purchase a median home in 2020 without increasing their monthly cost. Using Google's mortgage calculator and punching in those numbers at 7%:
$1,996 / month in 2001 vs $2,972 / month in 2022
That's in today's dollars, accounting for inflation. Almost 50% more. Feel free to point out an error in my math.
Didn't know you already inflation-adjusted your numbers. So I looked up the prices, mortgage rates and CPI in 2001 and 2022. I think your math is correct.
Hasn't square footage also trended up? That's why you use something like the Case-Shiller index to chart housing prices. I know those components go into it and perhaps others.
Yep, I'm not disagreeing with your original point, just pointing out that these comparisons have a few variables to consider. At least someone already went to the trouble of creating an index for it.
It's true that modern homes may differ from those of the 1980s or 2001, but homes built from those periods are still for sale, and in my experience are commanding prices in line with homes built more recently. I recently toured a home built around the 70s or 80s with few or no updates as best as I could tell. They wanted $550,000. The house was pending last I checked.
I have been wanting to ladder up to a bigger house for a few years now.
For a US$1M house, which is the going rate near my area, the jump from 6% to 7% is $5000/month apr interest to $5834/month apr (not including fees, taxes, and insurance).
So to go back to the monthly of $5000 (which is out of my budget), a US$1M house would need to fall to $857,153. That is NOT happening around here.
I have no idea who is buying houses at these prices, if it's not BlackRock-type firms (corrected company name, thank you). I can't fathom how new homeowners are fairing in this market.
> I have no idea who is buying houses at these prices, if it's not Blackwater-type firms.
US housing at 2% 15-year fixed is the biggest handout the world has ever seen. That's why Blackrock-type firms GOBBLED up real estate.
They were the first ones to back out when interest rates started going up.
They're not the ones buying.
I'm guessing the people who are buying are either 1) completely desperate, 2) oblivious, or 3) are willing to bet they'll have a chance to refinance at a much lower rate within a year or two and don't mind the extra carry-cost until then.
You'll see a lot of comments in these kinds of threads by posters who say that they're just buying now and don't care since they're in it for the long term and will just ride it out. Not sure if those people are paying mostly cash or if they're just not factoring in that they may lose their jobs in ~12 months.
They don't need to use mortgage financing, they can borrow the money through other methods. One consequence of Fed Reserve rate setting in combination with a regulated mortgage market is that private equity firms can borrow at lower rates than individual borrowers. I wouldn't be surprised to learn that this dynamic has been a major contributor to housing prices rising so quickly.
BlackRock buys stakes in investment firms that directly purchase real estate (some specifically SFH).
Those companies issue corporate debt (bonds) to buy houses.
The yield they need to offer goes down when the Fed manipulates bond prices by gobbling up non-corporate debt (US Treasuries & MBS).
BlackRock & other firms aren't taking on debt to invest in REITs - they're just directing more of their portofolio to REITs when The Fed drives down yields.
This is such a common confusion, someone made a handy diagram for telling apart the firms comprising the cross product of {"Black", "Bridge"} x {"rock", "water", "stone"}.
Correction to the minor correction, Blackrock, the asset manager/ETF provider, does not engage in institutional purchasing of SFH homes. For a little while BlackStone, the Private Equity firm, had an ownership interest in company that did this, but I’m not sure they still do.
1) You lock your mortgage rate for 90 days, so 90 days ago rates were significantly lower. These will be rolling off soon and by early next year the prevailing rates will obviously be much higher.
2) People are paying points up front to buy down the interest rate.
3) Jumbo mortgages are still much cheaper than conforming (I think a full point).
4) Lots of people buying with all-cash or mostly-cash. You're not at all rate-sensitive if you're a cash buyer.
5) A lot of these cash-heavy buyers are powered by generational wealth.
6) The housing shortage in the US is incredibly acute, so much so that the market will continue chugging along even as borrowing conditions worsen considerably. I bought a couple of years ago when the market was red-hot largely because a family-sized property was unrentable - to get anything big enough for my needs there was no choice but to buy. I imagine others are in the same position now.
Cash buyers are not necessarily interest rate insensitive. When I bought a house earlier this year, my lender advertised a cash offer program. They would by the house with cash on my behalf. Then, they would confirm they could give me the mortgage, and sell the house to me at the same time they give me the mortgage. This program wasn't available in my state, but might be common enough in others to skew the numbers.
Institutional (or rich) buyers have the option of buying the house in cash, then taking out a loan against the house. This gives them the benefit of being able to make an all cash offer, and the long term benefit of leveraged, low interest debt.
Yea, in my home we have extremely high prices for homes and the only thing my family can do is rent a house owned by family. We can't find a house to rent on the real market (this house is semi-broken-down and normally wouldn't be rented to anyone), and we certainly can't afford to buy, so I guess we'll live here until we inherit a home from family or maybe get kicked out by my wife's cousin once he inherits this one!
I don't think you should ever buy home all-cash. That would be financially stupid move. Even at 6% rates, you can get far better return on your capital on long term basis (>15 yrs). Additionally, you can always refinance later whenever rates goes down. So, paying all-cash for a house is losing a lot of ROI on your capital and is plain stupid.
There is a lot of diligence and headaches when you are involving the bank's money. Sellers like cash offers and it's at least a tiebreaker factor when you have two equal offers, in fact many sellers will prefer an all-cash offer even if it's a bit less in the end (small buyers are gonna wanna quibble about another couple grand for property defects too).
Yes, it's perfectly sensible to use the bank's money when it's a fairly sure bet and the interest rate is low... but there is a big complexity cliff that exists between "used 0.1% of the bank's money" and "used 0% of the bank's money". Using 0% of the bank's money is preferable when closing the deal at least.
If you are in a position to make an all-cash offer but you want financing, you could probably buy the property in cash and then get a mortgage after. That's not the usual workflow for homebuyers but I don't see why you couldn't do it, it's just like refinancing really.
You don't even need to do that, just make an all cash offer and set the closing date like 30-45 days out and you can finance it from the get go. You just need that extra closing time to get the financing ironed out and then you can still pay for a home with a mortgage even if you made an all cash offer. That is what I did with a place back in March.
You're assuming that the all-cash (or mostly-cash) buying is buying with their own cash.
I don't know about you but in my generational cohort the people buying entirely on their own earning power is a small minority. The bulk of buyers are only able to enter the market due to generational wealth - and that comes in the form of cash.
So yeah, agreed in principle that if you had $X in cash lying around it'd be a poor choice to put it all on a piece of real estate. But in this case the $X in cash doesn't belong to you.
The whole state of the housing market is beyond alarming - not only are things completely unaffordable to wage earners, the people who are able to survive in this market are overwhelmingly doing so via familial and generational wealth. This is a flywheel of wealth inequality that is accelerating by the day - the well-asseted use their wealth to catapult their offspring into more assets that largely wage-earning classes (even very well-paid wage earners) are completely cut out of.
People with adjustable rates haven't been adjusted yet. People that locked in rates at the lows are just fine. Only some small percent of people with mortgages would be affected right now, and optimistic people that think they can pay the rates have a few months before they realize their budget didn't fit. The cash buyers have slowed down. Just not a flood of foreclosures yet.
I don't expect prices to drop much because they are based on the assumption that interest rates will drop and new homeowners can refinance later. We see that with the inverted Treasury yield curve where long term interest rates are projected to be lower than today's rates. Also, with current homeowners locked into their low rates, there will be a shortage of houses on the market (you can't take your low mortgage rate to a new house). So the people buying now will be buyers that absolutely need to and/or buyers with lots of cash that expect to refinance later. The only people selling now are people that absolutely need to.
The economics of housing are weird. Someone who bought the 1MM house at 2.5% still has a payment based on 2.5%. This individual's house might be nominally underwater, but they are still comfortably making payments. If they were to move, then they would lose both the downpayment and their monthly payment would increase. So the best bet for them is to stay put. However this might mean that they put the house up for sale, and let it stay for sale for the next 2 years.
It gets even weirder if that person loses their ability to continue to pay their relatively comfortable mortgage and they have to put their house on the market. In this tremulous economy being underwater is still a very uncomfortable place to be, unless one has plenty of cash reserves — which may be unwise to spend on an overvalued asset.
aye - we may get general debt reform if enough homes become underwater. I'd have to imagine that the number of people able to buy a million dollar house at the 15% interest rates of the 1970s is not large enough to support the current market.
It's likely that most people willing to pay $5,000 a month to get a million dollar house are at least able to pay an additional $800 a month. They may not like it, but people in million dollar houses can usually find a grand a month extra if they really need to. Buyers already at the absolute upper edge of their possible budget are a non-zero proportion of total buyers, but not a large enough proportion to force prices to drop, at least not yet, at least not at that already lofty price range. Price elasticity of demand is likely greater at lower prices, where the buyers don't have much in the way of reserves and excess income.
Where do you live? I live in Santa Barbara, a notoriously expensive area, and our housing prices are dropping / housing on market for way longer. Not that it's a fantastic barometer but the monthly email from Zillow for our zip-code usually forecasts some outrageous 1yr growth figure (ex. forecasted increase of 15%) and yesterday the monthly email predicts a 1yr housing price decline of ~2%. Things move slowly in large assets. Hell, the dot com bubble and 08' housing crash both took over 2 years to unwind.
> I have no idea who is buying houses at these prices
Only the most richest parts of the US have homes that start at $1m. And only a fraction of the people rich enough to live there can afford to purchase.
Can't you buy now at high APR and then refinance later? I would think these large rates would not last more than 2-3 years. You will take some hit for short period but also might get better deal as there are not a lot of buyers. After rates come down, you might easily end up paying 5-10% over asking price. Is there any issues in refinancing later?
I tend to agree with your logic but a lot of people think they know what rates will be like and what a home will be worth and any number of things in 2 to 3 years. I'd say that they everyone is always gonna pay more then they want and only question is if it's going to the seller or the bank.
My dad gave me these rules for home buying:
* can I make the monthly payment for as long as I own the home?
* don't buy unless you expect not to sell for 5 years
If there is a chance you will want to move in the next 10 years, then the numbers are even worse! Not only are you paying more every month with higher rates, but the amortization schedule is not in your favor. For your hypothetical $1M house and a 6->7% rate change you build about 20% less equity each year also.
90th percentile US individual income is 130k. Median house is around 440. You can afford a 440k house on 130k income, even if you have a small amount of other debt.
>Median house is around 440. You can afford a 440k house on 130k income, even if you have a small amount of other debt.
That's a $3500 monthly housing payment with taxes, PMI, insurance, and 5% down.
I bring home $7k net/month. So that would be a 50% monthly housing payment for a 90th percentile income to purchase a median priced home. And that's even if I had the $30-40k cash in the first place to close on the loan, which is impossible to save due to rent, healthcare, transportation, and food costs going through the roof.
I seriously have no idea how people are even surviving on 50/60/70k salaries at this point.
I think the issue is more that you can't save the 100ish thousand needed to avoid pmi. Assuming you live in the a HCOL area that's understandable. I live in Chicago and am spending 25k a year since my total housing costs come out to less than 1k a month, so I'm already halfway to saving the down payment after just a year. If you don't want roommates than you should be looking at household income, for which 90th percentile is 200k, making a 440k house pretty easy to afford.
This is the part where scraping the bottom of the barrel must become a lifestyle in order to scrape together the ginormous down payment toward a home mortgage.
Once done, it gets easier.
Of course, that is easier said than done, but it took me 10 years to save up for that first-time 20% down payment.
I too was a 90% percentile. And it also … afterward … took several homes upward before I can tap out for a bigger down payment for a 3,200 sq. ft. in “cushy” California while attaining just 25% of take-home pay toward mortgage+insurance.
First home was a killer 48% of take-home pay toward house payment.
I can’t comment on Mortgage News Daily but the FHLMC, affectionately called Freddie Mac, is a pretty good source. They have a decent graph on their homepage. 30yr fixed rates are currently at 6.29%.
Zillow is saying 6.54% (actually down 6 basis points, though still up 39bps from last week). Zillow does break things down into categories more with Jumbo loans having a lower than average rate at 6.36% while FHA loans are at 7.05%.
It's hard to estimate what the average loan rate is (or really anything in the real world where you don't have complete data). What's the average price of a gallon of milk in your city? I mean, it sounds like a simple question, but quickly becomes complicated. There are 5 supermarkets in my city. Do I just look at the price at each of them and take the mean? Do I weight the prices based on which supermarkets are more popular? Do I only take the lowest price of a gallon of milk at the supermarket or do I average in the prices of brand-name and specialty milk? Should I also include milk prices from bodegas in my average? Should I include the milk price from Instacart where they're adding their own markup?
With the average mortgage rates, is this the average rate for mortgages with zero points or the average rate that buyers are getting with some deciding to pay points? For those who don't know what points are: you sometimes have the option to pay an upfront fee for a lower rate. Each point is 1% of the loan value. If your loan is for $1M and you pay 2 points, you're paying $20,000 upfront to get a lower rate.
For example, when I look at mortgage rates on BofA's website (https://www.bankofamerica.com/mortgage/mortgage-rates/) for a $500k home with 20% down ($400k loan), they pop up 6.625% (6.787% APR) with 0.865 points which would be an upfront cost of $3,460. Their calculator doesn't say how much the rate would be worse without points, but maybe they do if you're actually applying for a loan (or maybe they don't give you a choice).
Beyond points, there's so much difficulty in knowing what average rates are. Do you look at each lender and just average the rates or do you weigh rates from BofA higher because they're writing a lot more loans than smaller lenders? Do you even really know?
Also, since you posted (and since I started writing this comment), Mortgage News Daily has adjusted their estimate down to 6.82%.
I think one thing we can certainly say is that mortgage rates have been pushed quite high and the average is likely in the 6.5%-7% range at the moment. Yes, that is a reasonably broad range, but it's certainly a contrast from the sub-4% and even sub-3% rates we had seen.
Jerome Powell has indicated he wants to see the housing market correct.
Unfortunately, real estate agents and sellers are slow to react. You don't just immediately drop your price to match the payment.
In Bay Area, houses effectively dropped from 2 => 1.85. They should drop 150K; but with the latest interest rate hike of 5.2->6.2 you'll see 50K price drops as buyers/sellers adjust. In reality, prices are still dropping as we bounce off the unreasonably low interest rate of 2-3%.
The interest rate will act as a gravity on prices, but housing prices won't immediately "snap" to the new normal. You'll see house prices begin to crash in a few months as a lagging effect.
On top of this, you'll see new home builds get put on hold, because the builders specifically won't be able to find people to buy a new house for a high price; their margins will be squeezed. With existing homeowners, they can at least hunker down in their well financed 30 year fixed rates.
Pretty crazy correction if you run the math on mortgage payments. I bought a place 1 year ago with a 2.75% rate. Say you're somewhere outside a major metro buying a $500k house. With a $100k down payment, a 2.75% rate equates to $1,633/month. A 6.5% rate equates to $2,500/month.
With $600/month in taxes/insurance, the "don't spend more than 40% of your income on housing" rule means the necessary income to comfortably afford that property increases from $65k to $93k. That'll create some waves in the market.
I bought a house in 2009 @ 3.75% for 480k fixer-upper 1922 craftsman home in East Los Angeles area. My monthly payment was about $3200 because I could only afford ~4% down so we had to get PMI. At the time I made $110,000 and wife made $60,000. We put in about 50k into the house using my dad who is a general contractor (basically only paid for materials).
In Dec of 2021, we refinanced for 2.75% and our fixer-upper was valued at 750k which meant we could get rid of PMI and now our monthly payment is $2500 (including taxes). It's a massive drop for us now that we have a baby.
Literally none of this is possible right now. It feels like we've won the lottery. On top of that, we had a ton of help making this place a home because of my dad. For most families in the major metro areas, this is just totally out of reach now.
The market does not work that way. You're implying that the cause and effect are backwards. It is local wages that set the price! The prices, while they do adjust slowly due to high friction in the housing market, are not exogenous.
The <100% pay differential between California and somewhere in the Midwest does not explain the >500% difference in housing prices. You are leaving out numerous factors including demand, supply, and local regulations.
> <100% pay differential between California and somewhere in the Midwest does not explain the >500% difference in housing prices
Curiously, 20% down implies 5x leverage. Not saying that's what's causing the difference. But in the weird way leveraged finance works, a <100% income difference can absolutely fuel a 5x asset price gap.
Imagine two people. One person makes 50k the other makes 100k. Both have expenses for food, tech, schools etc at 40k. This leaves 10k vs 60k to spend on housing. >500% difference.
That was true before the pandemic. Part of the reason demand surged in "second cities" around the country was because remote work allowed higher paid workers to migrate somewhere cheaper and not only take advantage of low rates but lower housing prices.
It remains to be seen if now that the wave of remote workers is (probably) largely over now that employers are more likely to offer hybrid than fully remote work if these housing markets more severely correct compared to coastal cities (SF, LA, NYC) that have always been expensive.
Like most rules-of-thumb, they're 'fuzzy' and it's not about the total home value but the actual monthly cost of ownership.
Pick a state though, say Missouri. A married couple earning $65k will bring home $50k after tax. In the first example, with a mortgage + tax + insurance house cost of $2,200/month, their home costs will be about $25k/year leaving them about $25k for other spending. Not lavish, but likely doable.
The real comparison though, is what they could rent an apartment for as the alternative to buying that house. In most places, they'd be paying nearly that same total in rent so it's basically a wash (assuming they can come up with the down payment).
Right, and it ignores interest rates which is the whole point of comparing actual mortgage costs instead of home prices.
Same example, $65k salary x 3x to get a home value would be a $200k house. That's a total annual home cost of $11,750 with 2.75% interest rates and $16,200 with 6.5% rates.
If they can afford the $16,200 today based on the 3x rule, then surely they could have afforded a $285k house (4.4x gross) last year considering the monthly cost would be identical?
Maybe, maybe not. The monthly cost wouldn't be identical due to taxes, difference in down payment (if also following best practices there), insurance, and that ignores potential future repairs (more expensive houses tend to be larger and/or fancier).
Actually I should have shared the link I was using - my figures included proportionally higher taxes and insurance per the Smartasset calculator to get to the same monthly payment. Though yes, the down payment would be higher since I assumed 20% down for both.
Same house should net same taxes even after a value increase, cities/counties have a levy and back calculate the necessary tax to raise it. If your home increased in value, so did your neighbors.
people who can buy a house all cash will be the real winners here. if and when rates go down, they can cash out refinance, and if they don't they will benefit from the downward pressure high rates create on prices.
My wife and I have been waiting for this for a few years now. We live in a college town in the South and the prices here are fairly delusional. I imagine this will allow for some market correction and we’ll be able to get into a bigger home.
I sort of doubt it will correct very much. I assume a fair percentage of the homes are rentals. Landlords won't care to lower prices. They have a client based that's geographically constrained to the college and able to get easy money from the government.
None of the homes we'd be interested in are rentals. Our town presently has ~3k more rental bedrooms than it has college students so a lot of the rental properties are actually going on the market now. But again nothing we'd be interested in buying. But even with the ~3k additional rooms, developers are still building apartment complexes that are "student only". I'm not sure how they plan to fill them.
I'm also from a small southern college town and the housing market has been absolutely absurd for the past decade or so. It's always seemed like football fans looking for vacation homes and retirees were buoying it.
I believe they play a part here as well. My own home has increased in value ~$160k in 3 years. We’re ready to leave this town. The college kids and the retirees make it an absolute chore to live here.
In California property tax is also fixed based off purchase price (thanks Prop 13, love it or hate it) so one could pay ~1% on 1M at 7% vs 1.5M at 3% and then simply refinance the 7% later.
This assumes you'd anticipate rate cuts in the near-ish future. This property tax arbitration could easily go wrong.
You cannot do a cash out refinance if you don't already have a mortgage on the property. You can do a home equity loan or line of credit but those come at higher interest rates than a refinance.
But yes the real winners are almost always those who have ample resources.
I'm not. You can do something similar with a home equity loan, but you can also do a cash-out refinance. The main distinction is that a refinance, like a mortgage on a home you don't own out-right has a better rate than a home equity loan or HELOC
Why should we look at a period 20 years in the past for predictions about the future? 20 years ago Facebook didn't exist nor did the iPhone. For the last 10 years rates have been below 6%. It seems a strech to call a decade "recent."
If you think it’s bad in the US, it’s going to be a total catastrophe in the UK.
* Similar problems with house prices going up
* If you default on a mortgage in the UK, you still owe the difference between what the bank are able to sell it for and your original loan.
* The period over which people have fixed interest rates is most commonly two years, and at that point, people have to remortgage, or go onto a “variable rate”. Many people will not be able to remortgage, so they’ll end up at the Bank of England’s interest rate plus an additional 3.5-4%.
Of the ARM mortgages, nearly 90% of them have longer terms than 1 year.
You're looking at maybe 2% of mortgages that will be impacted unless rates stay this high for >2 years.
Everywhere else in the world beside Denmark, where there are ONLY ARM mortgages - they're gonna be in for a world of hurt if interest rates stay this high for >2 years...
Someone explain to me why someone would ever get an ARM unless you were planning on selling the house before it adjusted, because it just seems like an invitation to get fucked.
When rates were low it really didn't make sense, unless you planned to be paid off before adjustments. If you have poor or average credit an ARM can get you a lower rate and the mortgage will boost your score to refinance to a fixed rate you couldn't get before. ARMs have max adjustments as well, so if you anticipate rates increasing more than that, you can get a lower rate than available at the time and in the future.
Bridge loans are less popular now, so you could get an ARM or interest only ARM on a new house and refinance later after selling your old house.
I got a 10 year ARM back in march as it was 1.125% lower than a 30 year fixed. If I cannot get a good refinance in the first 7 years, I'll just focus on paying it off fully in the next 3. Worse comes to worse, I'm like 95% certain it will be worth at least what I paid for it in 10 years if I did need to sell it for any reason so I'm not worried at all.
You would have been an idiot not to at least refinance the ARM (if not get into a fixed) a year ago when rates were low. Check back in 5 years when those ARMs start resetting.
The problem, at least in California, is that there is too much of an incentive for a long-time resident to not sell even if they want to move out permanently. Because they are paying extremely low property taxes that cannot be passed on to the next buyer, so even with high overhead, the efficient outcome is still for them to rent their place out instead of selling. So existing houses go on the market at a very low rate -- often only when the owners die.
Combine this with the number of Bay Area potential buyers who are relatively insensitive to interest rates due to being able to make very large down payments, and of course the lack of new SFH construction relative to SFH demand... I don't think Bay Area SFH prices are actually going to drop much.
I'm more optimistic about affordability of denser housing. I'm unsure how many Americans are actually happy with that, though (which is part of why it's relatively affordable...).
We had stupid cheap money with low interest rates and an increased demand for space for lockdowns and WFH. Of course prices went way up. The prices weren't delusional; they reflected market realities.
Right, and this is a hard point to overstate. The average home price was around $80,000 in the early 80s, whereas it's currently $525,000. If we see home prices drop by 85% we won't be buying homes with US dollars any more.
That $80,000 isn't inflation adjusted. Drop would be more like 40%, not 85%.
But current home prices don't need to drop. The average price needs to drop. That means more housing. Likely ends up meaning some drop or stagnation in current prices, but you don't need to shift down 40% to reach the goal.
Housing in my area is only a little above the 80s price after adjusting for inflation. Of course, the 80s price is nationwide average, while my given price is only the local average.
I recall my parents being very proud of securing a 7% rate in the 90s when they bought our first home. That said, it was a very very inexpensive house compared to today's prices.
I'm betting the rates will be back to 2% by 2026 as global growth collapses due to a combination of high interest rates, deleveraging of over-leveraged organizations and geopolitical strife causing further de-globalization.
the only similarity would be the 1 year aspect matching the sample size of 1 in that comic, but the driving forces are the quantitative tightening which are a greater sample size, and the velocity is important
there's better jokes
if mortgage rates want to stay 100% over Fed Funds rate, or 100% over 30yr treasuries, we'll have 8-9% by end of year, with many borrowers already being offered or experiencing 10%+ by then
I'm all for it. If this edges out the razor thin margins that Redfin et. al. were making on the US housing market, let's go. As a first time homebuyer who would like to purchase a place to live, a few points of interest are not going to dissuade my decision. But I have a strong feeling that the REIT market will pop like the bubble that it is once the financials start looking unfavorable.
Why root for the downfall of Redfin and the like? They were finally a lower cost alternative to the stranglehold that RE agents have had on sellers for decades.
I think what the parent commenter is referring to is Redfin’s (along with Zillow and others) practice of buying homes and flipping them. I thought they stopped that a while ago when they saw where the market was headed though.
Redfin over paying for houses seems to be good for homeowners though. If they can't sell them then they'll have to reduce the prices eventually to match the market.
Do you have to pay tax to the Government where you live to buy a house ?
I'm wondering if Stamp Duty is just a UK thing. Here we pay a tax to the government when you buy that is based on the value of the house you are buying.
Up to £250,000 Zero
The next £675,000 (the portion from £250,001 to £925,000) -5%
The next £575,000 (the portion from £925,001 to £1.5 million) -10%
The remaining amount (the portion above £1.5 million) - 12%
The tax goes up even higher if you are buying a second home.
Like most things in the US, it varies wildly by location. In Seattle, there's a 0.50% real estate excise tax that the seller pays (theoretically it doesn't matter if the seller or buyer pays it, but practically speaking it's better for the seller to pay since they're the ones with cash in hand.) I'm fairly certain that WA can't have graduated rates because our state constitution prohibits anything but a flat rate for nearly all taxes.
As with most things in the US, it depends on where you live. I’ve paid anywhere from a flat rate of a couple hundred bucks to 2%. It’s generally called a real estate transfer tax. Note: this is different than points, general property tax, agent fees, etc.
Yes well, that's probably a lot better than paying a typical USA real estate tax, which must be paid quarterly and non-payment means the enclosing town takes your house away. What are RE taxes like in London? Do rich foreigners pay anything to park money into central London properties?
A few states/regions have this, for instance Pennsylvania I believe has a 2% transfer tax. Overall it is not common.
Edit: Based on [0] more common than I thought, though there is a really wide range in values with some of the rates quite small, e.g. 0.1%, even 0.01% in CO. This reference is 25 years old though.
Depends on the locality, but as far as I know, most cities in the US have a "transfer tax" that is some percentage of the home sale price. It varies quite a bit in different cities and can also be 'progressive' in some cities, where more expensive properties have a higher tax rate.
Tend to think this is what will happen. Unless you have no choice what advantage is there to move if your interest rate is less than 4% in today's market? Almost certainly moving will mean a smaller/worse home for more money each month.
Housing should not have been treated like stock market. But it was and now we have a lot of bag holders, just like there are bag holders in the stock market. The housing bag is a very expensive bag to hold.
I might be in the minority, I liked Redfin as a broker / NAR competitor. Seeing houses was super easy, lower fees, etc. I'm well aware of tradeoffs in the industry and connections.
Someone is buying them, and it’s definitely not the average American. I have a 90th percentile income, and I cannot afford the median (or mean) home price in the US.
This is basically you refusing to believe in wealth and income inequality. Once you realize that the 99th percentile net worth is 100x the median net worth, and the 99th percentile income is 50x the median, and the 99.99th percentile is 50x the 99th, it should start to become clear. There are millions of people out there walking around with fairly large inherited assets and the only thing they can imagine doing with it is parking it all in real estate.
Yes rates were 16% in 1980 but the median home was $64,000. That's $230,000 in today's dollars.
If you'd prefer to pick a time when rates were more comparable, how about 2001 at 7%. The median home price was $180,000. $301,000 in today's dollars.
Today's median home is selling for $440,000. It's small wonder that people are upset.
[1]: https://fred.stlouisfed.org/series/MORTGAGE30US [2]: https://fred.stlouisfed.org/series/MSPUS