As a Canadian it's like deja vu watching these comments play out about this subject.
I swear to god I've seen these entire threads verbatim on Canadian subreddits over the past few years as the prices keep rising, rising, rising and no one, not politicians, not central bankers, not construction companies seem to be able to solve the problem.
I don't know what's going to happen but it's far too late for us and it's probably too late for you.
Things are going to keep getting more and more expensive while some people online are going to swear up and down that they're not and the economy will grind to a halt because people literally can't afford to go to work.
In 1981 my father bought 3-bedroom home in the suburbs for about 2x the annual salary of his blue collar job. The same home today costs more than 12x the annual salary of the exact same blue collar job.
The Simpsons started playing on TV in 1989. Single income family, no college, working low skill blue collar union job. Yet they still owns a large home with a yard. That premise is absurd by modern standards.
So in the 40 or so years since 1981, has that blue collar job's output as a percentage of global GDP increased, decreased, or remained the same?
I would argue that the same blue collar job might've been reduced as a percentage of global output, which means the value creation is lower, and thus, the 12x salary for a house might be justified.
>So in the 40 or so years since 1981, has that blue collar job's output as a percentage of global GDP increased, decreased, or remained the same?
It is a blue collar government job. Like most government jobs, one could easily argue that the "value created" was zero then and is zero now. In any event, the job remains the same, and salary has risen (more or less) with the official rate of inflation. There is no reasonable argument to be made that the same house that this government worker could buy 40 years ago for 2 years salary should now be worth 24 years salary.
Sure. Now tell me about his monthly payments on a 30 year mortgage for that same house, as a fraction of his monthly pay, then and now.
The demand part of the supply/demand curve on houses is set by monthly payment, not purchase price. Interest rates change the relationship between the two.
Sure. He had a 20 year fixed mortgage, which he paid off entirely on the same blue collar job, with low monthly rates because he was able to save and put down 50% in cash, which represented only 1 year salary. The same worker today has to save up 12 years worth of salary to put down 50% on the same house. It is amazing how so many can't understand that the USA has entirely changed for working people in the last few decades.
I should include that on his salary he was also raising two children, could afford for us to see the doctor/dentist on a regular basis, owned a car outright while my mother stayed home to raise the kids.
House prices were also much lower back then, but that only proves (what I assume is) your point - we can't view the past with rose tinted glasses.
The American Dream was always aspirational and took grit and effort and was never attainable for 15-30% of the country due to their skin color or ethnic origins until precedent against redlining took hold by the 1980s.
IMO, I'm fine with us keeping high interest rates if it forces a rebalancing of prices long term.
It's not like low interest rates would help affordability anyhow, as it's only us white collar workers in high paying fields like Tech, Finance, etc that have the dry powder to execute on purchases.
> IMO, I'm fine with us keeping high interest rates if it forces a rebalancing of prices long term.
House prices are still sticky and high interest rates haven't rebalanced anything.
Houses are 50%+ less affordable on a month-to-month basis, and housing prices are stable or increasing. If you use critical thinking, it's obvious that inflation is still present and interest rates are masking the inflation. If rates decrease even slightly (Which will ultimately be required due to the ticking time bomb of the government defaulting on the debt and banking system collapse) prices are going to skyrocket.
The real problem is that we printed trillions of dollars. That has to come from somewhere no matter how much you fiddle with the interest rates. And that "somewhere" is directly out of the pockets of the middle class.
I agree that higher interest is a worthwhile trade-off if actual prices come down, but to your last point, don't low interest rates benefit some marginal buyers by (1) lowering the monthly payment and (2) making it more appealing to put minimum down?
Granted, even minimum down is out of reach for too many people, but I feel like "if only we could afford the down payment, we could definitely afford the mortgage..." is a relatively common lament. And sometimes those lamenters don't realize you can/should put down 5% instead of 5-20%, circumstances permitting.
Total rubbish. 7% was the floor for 30-year mortgages from 1970 to the mid-2000's[0], and people were buying houses just fine. This is a submarine story trying to use the heartstring-pulling framing of "the American dream is dead!" to try and coax policymakers into any course of action other than the "build. more. friggin. housing." which is the only actual way out of this.
And others might be able to buy a house for the first time. The issue with houses being the main form of families to acquire wealth is that newcomers to the market have it much much harder to enter participate in it as time goes on and house values increase.
So people losing some "paper" savings is a price to pay so other people can also own.
But in reality, when homeowners struggle and sell their homes is mostly large real-estate funds that buy them. So it's possible that homes losing their value means owners lose savings but newcomers still can't enter the home ownership virtuous cycle.
The principle paid down on those repayment mortgage came from homeowner income and was diverted away from other savings and investments.
Punishing millions of people who just sought housing security because, for reasons beyond their control, the Fed decided to cut rates after the GFC and keep them low for 15 years is just not tenable.
Fortunately, in the UK at least, it looks like (nominal) house prices will remain stagnant until real earnings catch up with rates. A better all round solution.
> So it's possible that homes losing their value means owners lose savings but newcomers still can't enter the home ownership virtuous cycle.
if a house is cheap, but is still valuable (as new owners _want_ to buy because it's worth it while it's cheap), then this means it's a mis-pricing. And mis-pricing means that any investing entity will want to buy as well. In aggregate, this _should_ push the price back to the correct equilibrium.
Therefore, housing being expensive today is a reflection of how many people value it high. It might also indicate that the reason it was cheap before was a mispricing, and those who got in early was merely lucky.
I’d argue that there’s so many buyers waiting in the wings (not even counting hedge funds and Blackrock), that there’s an effective floor on home prices. 5% down swing will mean more buyers and in that kind of market a 20% drop just isn’t happening.
Yeah but homes were priced based on that historical trend. Now the high interest rates are pushing up against a decade plus of very low interest rates. There are willing sellers that can't actually sell because even with significant equity in their existing home a new purchase would result in a much higher payment. There are too many people locked in at low rates.
Yep, we're pretty much stuck. Not really complaining, at least I have a home bought at a much lower price and rate compared to homes now, so my mortgage payment is quite affordable, but I really wish we had followed through with moving when we were looking at homes just before the rates started jacking up.
We waited a bit and it quickly got to the point where our mortgage payment would double if we sold and bought an equivalent home to what we have today (and we'd ideally want to upgrade a bit, we bought this intending it to be an affordable starter home).
There are too many factors which artificially make housing less liquid IMO.
In the UK we have stamp duty which means that if I sell and rebuy the exact same house next door I would lose tens of thousands in taxes, on top of all of the (unavoidable) costs like surveys, estate agents etc.
In both the US and UK if you can't port your mortgage to a new home then you take a gigantic financial hit to move into the same house next door because your rates go from e.g. 2% to 6% overnight, doubling your mortgage payments.
We should definitely build more, but stuff like this also needs to be addressed, no-one is going to downsize if they end up losing most of the money.
Just an idea: The use of ground rent in new developments is one way to reduce cost to home buyers in higher mortgage rate environments. In this way, the homeowner can still develop equity in the property while the ownership and expense of the land by the developer or investor can covered over time by the ground rent eventually resulting in a ROI for the developer or investor. There could be fair ways to allow homeowners to purchase the land at some point, similar to a car lease, when their financial situation allows. Another way to think of this is fractional ownership: land + dwelling.
It’s hard to compare with houses 30 years ago when, per square area, they are more technologically valuable, much larger per occupant, and the demographics surrounding the houses has completely changed.
That's an interesting statistic. The prospect of being "house poor" isn't particularly enticing to the younger generations either. And your bank actually owns the place until you've paid the last cent anyway. Couple that with the general precarity of the job market, and you probably won't be putting that down payment even if you technically could.
> your bank actually owns the place until you've paid the last cent anyway.
your bank "owns" the place, but you gain the economic and utilitarian benefits of the place (after all, you get to live in it, or rent it out and receive income). It's not exactly the same as the bank owning it.
When I first realized that media discourse trivializes "The American Dream" as owning a house, I was in my early teens. In school we had just read a few essays from the 1920's and 1930's debating whether the American Dream was dead.
I was very confused.
Maybe the American Dream was dead in 1925. Maybe it was dead by 2005. Maybe it wasn't dead at all, or maybe it never existed to begin with! Real, illusion, dead, alive. Whatever it is, it sure as shit means something more than owning a single-family house.
I wish the media discourse would stop abusing the term.
"Owning a house" is really about achieving personal security living in a society, where if you maintain resources, your land generally won't be taken away randomly (there are rare exceptions, like government appropriation for projects).
I've not ever heard of this happening to somebody in the United States, I suspect it's uncommon. In most states property taxes are somewhat fixed at the time of acquisition.
I’ve known folks in NH this has happened too. One of the only real taxes NH has is a property tax so it keeps going up. Folks who’ve owned their place forever suddenly can’t afford it. Most of them are old so they’re on fixed incomes or they’re woodchucks who do odd jobs/labor to get by.
Just for comparison: I live just outside of Boston. My property taxes for my house are roughly the same as my parents in NH. Even though my house is worth 5x as much.
It makes sense for property tax totals to be similar if they are used to provide similar services. If everybody's home price suddenly doubled, property tax rates to first order would halve (there are second order effects like needing to pay firefighters more so they can afford to live in the jurisdiction).
I would bet that, to a first approximation, most municipal taxes go to paying salaries of municipal employees (or contractors' employees), and so the "second order" effects of all those workers needing to live nearby are in fact most of the budget. Sure, higher property values mean the county clerk doesn't use more paper clips, but that kind of thing isn't gonna be most of the budget.
> In most states property taxes are somewhat fixed at the time of acquisition.
No... that is only in california. In all other states they fluctuate with property value, as evaluated by the assessor (and potentially appealed by the owner)
> In most places across the world homeownership is a dream.
AFAIK this is more a phenomenon of Western urban areas than the world in general. Even in very poor countries home ownership is normal (and for men it can be a de facto requirement for getting married).
They’re on their way up, way higher than 7%. If we’re headed into stagflation, which it looks like we are, they’ll probably be above 17% we had last time because back then we didn’t have $35T in debt, did not pay $1.7T in interest (which is what it’ll be next year) and did not add $2.5T in debt per year.
but last time the world didnt have the new sources of oil that exists today, and the technology level back then was also lower - leading to lower productivity.
Long term interest is related to growth, and higher interest is indicative of growth.
High interest is related to high prime rate. High prime rate is related to reduced demand for US debt, which it must issue because it can’t pay its bills. You offer debt with a higher rate of return to sweeten the pot or go bankrupt.
Honestly, I never understood why a mortgage would even exist at, say, 3% interest ...
Why would anyone loan out trillions of dollars at 3% (that also includes the risk of default).
The same money in an index fund produces 7% over the long term
Even at a 7% rate mortgages appear to be be less liquid, more risky, and will underperform the market.
Mortgages exist probably only because the govt backs them (aka, taxpayers are on the hook) and allows banks to keep charging bogus paper filing fees on top of it. Banks offer mortgages to charge a 1K "origination" fee ... or whatever it is called.
> Why would anyone loan out trillions ... The same money in an index fund produces 7% over the long term
the originator of these mortgage loans want a consistent income from the interest payments, even if it's lower than buying equities. These equities that earn a theoretical 7% is only good in the long run, such as 10-20 years. It might not return anything in particular years, or negative returns in others.
If you needed a fixed income stream (eg., an insurance, or an annuities provider like pension funds), you will not want to bet it all on equities. Mortgages, which are collateralized, means you have a buffer for losses if the defaults do happen.
There are enormous funds such as pension, state, family funds that require some percentage of assets to be held in fixed income. When the government bond returned only 1%, 3% mortgage fixed income seemed glorious.
https://www.rocketmortgage.com/learn/historical-mortgage-rat....