It's sickening that this is always marketed as bad news, even though we've been in a bubble for the past 20 years. The bad news is that we decided that owning a house is a retirement plan instead of giving people proper retirement plans. Somehow every non-homeowner has to be a policy slave to the passive income of some wealthy person. And we defend it by claiming that old people who are worth enough money not to work are not wealthy, as if we care about old people. We only care about old people as model "savers" who can be used to morally justify policies that directly and overwhelmingly benefit the very wealthy to the obscenely wealthy.
And also, there's a problem with revolving credit (i.e. a 2-year mortgage), such as Australia or Britain, or anything that is floating along with some interest rate. But these are a) intentional problems that the people making the loans hope will make them rich, and b) problems with pricing, because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
> people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time. Somehow every non-homeowner has to be a policy slave to the passive income of some wealthy person.
I agree that we have made houses too central to net-worth, but most homeowners are not wealthy. They are typically paying a significant amount of "rent" in the form of interest on the borrowed capital used to purchase their houses. I'm not saying it's the same as the non-tax-deductible rent paid by renters, but it's a very different situation than an inherited house in a very expensive area that is owned outright.
> people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
As someone who built significant portions of my house with my own hands in my spare time, I can assure you that individuals artisanally and incrementally building their homes is not a scalable approach to housing. We should instead be building houses like we build modular flat-pack furniture, with major components built in controlled factory settings, and final assembly on site. The way I did it (GC doing the heavy structural work, my doing the finishing work) itself isn't scalable.
Yes it saved me money, but the amount of knowledge I had to build in order to effectively complete it isn't realistic for most people, who very reasonably aren't interested in the understanding all the different ways to do flooring underlayments.
Trade carpenter here. IMO biggest problem for folks who banzai DIY home construction projects with no prior experience is the financials behind YouTube content producers. Their need to make engaging content unfortunately necessarily means dead simple tasks end up being presented as significantly more complex than they are in practice. I do agree that DIY construction is poorly suited for the lone individual though. Having a group of friends/family get together to bang out a construction project is a much better strategy.
Houses are routinely constructed in the "flat pack" style you reference. Modular homes have been a thing since at least the 50s (we see you over there Lustron). Weirdly "manufactured housing" performs poorly when compared to traditional stick built construction methods. There is this impression in the market that manufactured housing is in some way inferior. Based on my experience in the industry I'd personally take a modular over anything stick built any day of the week. Modules are built truck enough to shrug off getting hauled OTR for hundreds of miles and then get hoisted into position with a crane. No way in hell stick built anything is going to take that level of abuse and remain intact.
I deeply question the idea that it's reasonable for an adult human in the world to have no curiosity about, or experience with, how their home is constructed. While I have certainly paid my bills off the backs of folks who simply could not come to grips with whatever project was at hand I much prefer to see folks able to do for themselves and thereby avoid my markup.
> While I have certainly paid my bills off the backs of folks who simply could not come to grips with whatever project was at hand I much prefer to see folks able to do for themselves and thereby avoid my markup
I've long thought (and would pay for) a skilled tradesman offering to do a job at double their usual hourly rate - with the condition I (the homeowner) works as their assistant being taught on the job would be a nice niche business for someone with the skills and network.
I'd have paid handsomely for a plumber to come teach me how to sweat pipes in a day or two and all the weird little gotchyas vs. me figuring it out by trial and error. There are other projects I'd love to start but get cold feet about the last 20% so I don't quite ever get there. I would rate myself as near the top of my network in terms of "handy" skills, but still lacking in direct experience.
I know how much of a PITA the average homeowner is, but man I'd love to be able to apprentice next to skilled pros doing work on my own home. Having someone to both teach and act as a safetynet if the project starts going sideways would be highly compelling to me.
I've done a variation on this a couple times. I don't like doing business with friends so when one of mine has a large scale project I'll volunteer to help them with the work and keep them out of the weeds but refuse to take point on anything. Walked a friend with no construction experience through tearing a gas log surround off his house and rebuilding it from the studs out. I recon he saved himself 8 grand on that one. Next weekend I've volunteered to foreman a deck teardown and rebuild at another friend's place, he's got a bunch of his buddies coming over so I'll be keeping them productive and safe.
> I deeply question the idea that it's reasonable for an adult human in the world to have no curiosity about, or experience with, how their home is constructed.
Why isn't it reasonable? Plenty of people have no curiosity or experience with how medications are manufactured or how sewage systems work, and those are no less fundamental to our modern lives than how a house is built.
> I much prefer to see folks able to do for themselves and thereby avoid my markup.
If they are hiring you to do it, doesn't that indicate that they prefer your mark-up over learning how to do it themselves?
The major difference being home construction, remodeling, and repair are routinely performed by untrained laborers who are high out of their mind. Some folks weren't raised to work and are apparently very comfortable with a level of helplessness that I can't fathom. Good business for someone I guess.
> The major difference being home construction, remodeling, and repair are routinely performed by untrained laborers who are high out of their mind.
One would have to be out of their mind to hire someone who is untrained and high out of their mind to build a house (or anything else for that matter).
For starters, you wouldn't let them anywhere near power tools because they are a bad accident just waiting to happen. Secondly the quality of the work would tend to be horrendous.
> Some folks weren't raised to work and are apparently very comfortable with a level of helplessness that I can't fathom.
I'm a big advocate of trade schools as an alternative to college, and think we should take steps to bring societal recognition and pride to the trades as found in places like Northern Europe. And certainly a basic set of mechanical skills is very helpful to anyone and should be encouraged.
That said, if you pick the right set of filters to look through, anyone can look helpless in a way that is unfathomable to someone else, so to judge anyone on such a basis is at the least misinformed.
"One would have to be out of their mind to hire someone who is untrained and high out of their mind to build a house (or anything else for that matter)."
Tell me you've never worked in the trades without telling me you never worked in the trades.
"That said, if you pick the right set of filters to look through, anyone can look helpless in a way that is unfathomable to someone else, so to judge anyone on such a basis is at the least misinformed."
Postmodernist navel-gazing aside it isn't unreasonable to expect grown-ass adults to be able to handle maintenance and repairs on their home.
1. Unless you're screwing around with systems work (plumbing, electrical, hvac) there's nothing particularly complicated about the work and honestly even plumbing and electrical work are dead fucking simple compared to wrangling a codebase.
2. The majority of folks were able to clear this low-ass bar 20 years ago.
3. The US is missing two full generations of skilled trades, the odds of being able to attract a talented craftsman to your project are slim and the majority of folks can't afford one when the find them. The aphorism "If you want it done right do it yourself." has never been more true than it is now.
You might be interested in Walter Segal's ideas of building houses as assemblies from materials in their available dimensions so the parts are easy to reuse or modify. I find his ideas both compelling and a bit too idealistic or from another era. In the winter I have an architect friend who I talk to and hope to get his views on the pros and cons this year.
https://theprepared.org/features-feed/segal-method
He's kind of amazing and I'm obsessed with him, but the problem with his original concept is how hard they are to insulate. He has a lot of living followers that have put a lot of time into designs that can be insulated well, but they lose the off-the-shelf quality of the original Segal concept.
edit: It took me a little while to find Segal's followers' books, so I might as well list the ones I own here if anybody else is interested. They contain updated, insulated interpretations of Segal's process, and experimentation with alternative materials.
The Self-Build Book: How to Enjoy Designing and Building Your Own Home by Jon Broome and Brian Richardson
Out of the Woods by Pat Borer and Cindy Harris
The Whole House Book: Ecological Building Design & Materials by Pat Borer and Cindy Harris
The Green Self-Build Book: How to Design and Build Your Own Eco Home by Jon Broome
Thanks! I did some reading about his concepts but decided it was a rabbit hole that would take a while to explore. Decided to stop for a while so I can focus on more pressing things but I'll add those to the list. Looking at updated information seems worthwhile.
Out of the Woods is familiar for some reason, I know my dad wanted to build a house himself at one point. Maybe that was on the bookshelf when I was younger? I'll have to talk to him about this.
Ugh. Not really. I struggle to come up with any reason at all given that it's proven technology with prior art going back many thousands of years. The entire city of Venice is built on the concept.
We keep digging up long forgotten civilizations to find their post beam foundations in tact.
My best guess is rot. However, if you do it right there is no risk.
I had wondered if there were a sort of open-source floor plan for a smallish single-family home.
I imagine a design that has variations for different geographical regions of the country to account for material availability, local needs and codes. Optimized for ease of construction, cost, etc.
Perhaps it could get some sort of blessing from various municipalities so that building permits are either waived or fast-tracked.
Perhaps construction workers could learn or train to construct these homes such that experienced contractors can rotate across a number of builds in an area — total time for construction of one home perhaps close to 3 or 4 months.
> This plan is drawn to meet the National IBC (International Building Code), but it may not completely comply with state, city, county or municipality code requirements. It's recommended to consult with your local building official prior to purchasing the plan. If needed, this plan can be modified to comply with any state, city, county or municipality code requirements. Modification fee may apply. Plans ordered in an electronic PDF format are not refundable due to the licenses issued to the purchaser for the rights to build the Plan. *State of Illinois residents: Please consult with your local permitting officiant prior to ordering plan.
An "open source floor plan", beyond a floor plan, gets into liability.
Not fully parameterized like what you're talking about but Seattle has some standardized pre-approved plans for DADUs (detached accessory dwelling units) available. It would be nice to see design libraries for various regions with equivalent building codes/standards.
The building by hand thing is a bit of distraction to be honest. In the UK we already know we can build 'ok' housing for £2k per sqm, all in. Land is a minimum of /Half/ the cost of a new build house, and frankly that is probably on the outskirts of some run down town in the midlands or something. Build in a populous, prosperous city and well you can imagine what portion of a £800k 50Sqm apartment is building cost, maybe 10% or so.
It's the land with building permission which is scarce and insanely expensive. If you have a house in an area then you are motivated to block/object to all planning applications locally. Including lobbying your MP, campaigning and so on.
Houses do come as flat pack. You just fail to realize what a miracle the 2x4 is, and all the other standard parts. Walls could come as a unit, but that makes shipping harder and since people (for good reason) don't like identical houses there isn't even any savings possible doing it in a factory.
Prefab/modular is a thing, it isn’t really cheaper yet, but there are niche cases where they have benefits over stick builds. Quality, for example, can be better with prefab, since QA in the factory might be better than QA on-site.
Cover is a company that tries to apply auto manufacturing knowledge to build modular homes. ATM they are super luxurious and expensive granny flats (auxilary unit), but I can't see why they can't scale up in future.
That said steel houses have been tried and have few downsides - echo, blocks RF and hard to modify.
While that can be true, modular has earned a reputation for bad quality. When you buy one with good quality it is only a little cheaper than stick built on site, and stick built gives a lot more options.
Yeah I'm not convinced that reputation is earned. As I said elsewhere in the thread modules are built significantly more rugged than the equivalent stick built construction due to having to survive the rigors of transportation and installation. If there's any grounds at all for critique it might be interior surface treatments, but those are customizable.
I did some tech work for the Amish (seriously) where I used to live, and their model of a community coming together and building a house or barn or whatever seemed to work well for them. I agree that the work I've had to do to make my home my own has been a significant challenge once children appeared, and that many people simple wouldn't have have the bandwidth in one way or another. However, I do wonder if that's a consequence of a lifestyle choice and if there aren't better ways to approach these problems.
>I can assure you that individuals artisanally and incrementally building their homes is not a scalable approach to housing.
I think they were saying that the time and hours taken is not commensurate with the purchase cost, not proposing it as an actual solution. That said I think they are still very wrong.
If you were to build a modern house from scratch, you're taking enormous amount of time. Imagine felling the the timber and Milling it alone would take years. Ignoring the material side of things, most of what you're paying for is the knowledge and experience of the laborers. It takes a lot of time to learn each trade and how to build properly. It also takes a fair amount of work to learn the the regulations and comply with the certifications for each task
I wasn't assuming that you'd be mining the gypsum and milling the screws. The materials cost of houses isn't the justification for the lion's share of the price.
I'm just talking about doing the stuff that anybody can figure out to do. You purchase materials, and you hire craftsmen to do the hard stuff. I'm also not talking about getting a house for free, I'm talking about boring house prices that track inflation rather than exciting house prices that track bitcoin.
Well you can always be the general contractor and do just that for a standalone home. Shop around and hire the workers for each part. Most people don't because it takes time, work, and knowledge, so they would rather pay someone.
Alternatively, you can get a new prefabricated home built and delivered for about 100K or less.
I think a lot of cities have zoning regulations against doing that, but it's common in the country and counties.
Where I think you do have a point is the land. That's often the expensive part. It's not as wild as Bitcoin, but it certainly does follow the market.
After perusing their website for a while, I could not find anything resembling a cost estimate, or cost figures for the multitude existing homes they feature.
With that, I wonder if using their materials and services saves any construction money. (Should save maintenance money, I think.)
> I'm not saying it's the same as the non-tax-deductible rent paid by renters,
With the standard deduction being as high as it is, most people don’t pay enough in interest to itemize to take advantage of the mortgage interest deduction.
While no politician would dare touch the mortgage interest deduction, most progressive economists think that it is hand out to the rich and we should get rid of it.
While the Trump era tax cuts and increasing the standard deduction didn’t get rid of the mortgage deduction, it was one thing that was right about the law.
I'm thinking that the only viable solution to the log jam in construction is to have a structural engineering AI help people build homes and guide construction and renovation.
If the AI says it's safe, the local inspectors will have to agree.
> The bad news is that we decided that owning a house is a retirement plan instead of giving people proper retirement plans.
I've pondered on this a lot. Houses have been treated as "nest-eggs", which is really a fancy term for a fallback plan, for quite some time. The housing market really only got out of control after the 80's which coincides with when mortgage packages started getting sold on the stock market. To me, that, city zoning, corporate SFH buying, and state governments that have economic policies that embrace/grow inflation seem to be the actual problem.
I still think it's worth while to have house equity as a way to securely store money, but the government has to protect the housing market conservatively to make that work. Just like anything else the market is a system of incentives.
A big problem is that homeowners understand that for the value of their "nest-egg" to appreciate, this implicitly relies on housing scarcity, and this influences the outcome of elections, which influences the outcome of government housing policy.
As home valuations become more important and critical to the wellbeing of the "middle class", any policy that would even indirectly hinder valuations comes under great criticism.
There were a number of issues in my recent municipal council election, but I cannot help but notice that the candidates suggesting to build rental housing everywhere, which would have empowered renters and hurt homeowning minor landlords that benefit from high rents, lost, and those that won suggested the status quo that would protect detached home areas, with their main housing policy suggestion being around faster renovation permitting, useful of course for those minor home owning landlords wanting to create a secondary suite to get a renter to pay off their massive mortgages.
You could also come at the problem the other way. If incomes were keeping up with productivity and cost-of-living, people wouldn't be relying so heavily on their homes appreciating in order to have enough money to retire.
I agree but there is another factor, that is the ability for income earners to effectively save for retirement. Artificially low interest rates forced savers into the stock market, which caused equities to be artificially high relative to their yields, creating a positive feedback cycle where there was no alternative to 'saving' via stock investments and causing corporations to be able to ride a tidal wave of investment without justifying it via dividends. This is all downstream from cheap credit and a lack of incentive to save money (defer consumption) and now we are faced with the unintended consequences of decades of short-sighted monetary policy.
> If incomes were keeping up with productivity and cost-of-living
Something's got to pay for all that increase in government spending. With all the government spending and government pensions and all the people on the government payroll, sometimes I'm surprised the economy isn't a complete basket case.
The extra productivity isn’t going to the government via taxes on the common person, it’s going to those who already own most of the capital and can leverage that. Maybe the government also spends too much, but that’s not the root cause of the lack of the common person sharing in productivity gains.
Why do you think government spending specifically is the problem? I strongly doubt there is a crowding-out effect going on with the things that the US government has been spending money on lately. And all that spending has been financed by debt; it's not like income taxes have been going up. The big increases to cost of living have come in the form of energy, housing, and healthcare. I'm not sure how government spending would cause that, unless you are arguing that the spending has been misallocated.
> Why do you think government spending specifically is the problem?
There's no such thing as a free lunch. Government spending always gets sucked out of the economy one way or another. Ultimately, everyone pays for it with a lower standard of living, directly or indirectly.
As for the government financed by debt spending, the cost to you is inflation.
No spending is not sucked out of the economy. The government doesn't take your taxes and light the money on fire. They pay for public works that you use every day. They hire people to create such works and maintain them. Those people take their wages and spend it in the economy and support private businesses.
In the scenario you described, the majority of voters in those areas must be land owners, based on how they voted. Assuming that the elections you are describing are genuinely democratic, why should people vote counter to their own interests?
In general, candidates that promise to do things that benefit people who are not their constituency don't get elected. Personally, I want to live in an area where most of the residents own their own property rather than renting it. Why? Because people who own their own property are more invested (literally) in maintaining it than renters.
I live in an area with recent massive flooding (in areas that are not historically flood zones). Lots of people are outside fixing their own properties but also hiring people to fix the problems, both functional and aesthetic. If they were all rental properties, the motivation of the landowner to fix the aesthetics would not exist until the current renter left.
The problems in real estate are not primarily property ownership vs rental, but the financialization of the real estate market.
It's a race to the bottom, because the costs are concentrated and the benefits are distributed. If we allowed each district to vote their own income tax rate, everyone would vote for 0; what's happening with house-building is the equivalent for that. We need state- or national-level housing policy with no ability to override it locally, or at least to enforce some minimums. (Interestingly California at least already has that law on the books, although so far they're only enforcing it against towns they don't like rather than the general enforcement that we need).
> California could vote for a 0% tax rate today via their ballot referendum system and yet it hasn’t happened.
For the state as a whole, sure; I think people can see the problem with that. If you let people vote for an 0% tax for just their town, with the rest of the state staying the same, it'd be a different story.
I'm not the person you responded to, but the exact same thing played out where I live (Vancouver) recently. We also have a massive crisis of homelessness here, which has led to more crime, theft, etc. The party's solution? Make the city safer (for the homeowners, interpretation mine) by hiring more police.
The winning party (ABC, which had all of their candidates claim seats) did not have majority support, they were just one of the only parties that wasn't campaigning heavily on building more affordable housing (8 other parties committed to affordable housing likely split the vote)
So the homeowners largely supported them, and that class of people are also more likely to have time to research the confusing election.
ABC's mayoral candidate had the highest voter support of any of their candidates, and it was still only 86,000 of 172,000 voters.
I think the percentage of adults renting vs. owning their home in Vancouver is about 50/50, but I can't imagine how people who didn't already enter wealth through real estate appreciation could afford to buy a home here now. If prices don't fall, I would never be able to buy a home here.
This is overly simplistic: people regularly vote against their own interests in all domains, all the time.
There are even semi-rational reasons for doing so: many Americans consider themselves "temporarily embarrassed millionaires," and vote in the interest of their hypothetical, wealthy future self rather than their current self.
On the other hand, it's also perfectly rational to "altruistically" vote in favor of policies that decrease your financial wealth in the short term, but that benefit society as a whole, and/or benefits you in the long term.
Now just anticipate the number of private equity firms betting on appreciation of their house portfolios in addition to the rents they charge that fewer and fewer can afford... private equity may be forced to liquidate their sizable home portfolios.
It's worth considering that money that isn't going to mandatory-contribution retirement schemes (as in many union jobs, or government retirement schemes) is freed up to put in one's own retirement account... or to use to buy better housing (in a better school district, say) than one would otherwise be able.
Get a few defectors who choose to do this and suddenly the housing you can get without sacrificing money that should be going into a retirement account is worse than it would have been if no-one had that option, so it gets more and more tempting/necessary to do it.
Perhaps also single family zoning started to make its effects clear in the 80's.
Personally I'd prefer to live in a nice townhouse in a dense neighborhood but that's hard to pull off (location wise not many options, and price wise there's just not enough available to make the nice ones comparable to a single family house)
I suspect a successful city depends on diverse housing availability. Having too much high and medium density brings its own issues, same with too much low density. There's probably also something to how those are arranged within a city. I always wanted to grab something with lots of trees in near-proximity to the city, but I don't want to live near the active hustle and bustle. That usually comes with other trade-offs like a lack of greenery.
Inflation adjusted house per square foot has been quite stable for almost 100 years. Houses are now a lot bigger, making the inflation adjusted prices increase. If you factor in shrinking household size, then square foot per person as increased dramatically over the past 50 years. Finally, if you include house quality (fire retardant, electrical improvements, thermal improvements, etc.), then house benefit per dollar has vastly grown over 50 years.
Not sure where you get the "out of control in the 80s" unless you ignore all other relevant variables (like size, quality, efficiency) that also changed.
To read this stuff and see Census data (and others) demonstrating it, google for historical house price per square foot inflation adjusted, and read articles and look at data.
The cake of my house has gone up 5x in twenty years. Ignoring the last year, inflation didn't quite double in that time period. So, for at least me, my house per square foot wasn't stable
> I've pondered on this a lot. Houses have been treated as "nest-eggs"
There is a nasty policy trap here, in that reducing the investment value of houses can mean (as a federal government) you are expecting pain down the road caring for people with insufficient retirement savings.
A crash back to where we'd be with a following-inflation rate of increase in house prices since, say, 1995, would absolutely wipe out a terrifying proportion of the working-age population's on-paper wealth.
IDK what the solution is that doesn't completely fuck a generation or three, one way or another. Of course the best answer would have been to never get into this situation in the first place, but here we are.
There are a couple misconceptions with this. There is no such thing as “inflation”, inflation exists in different categories and inflates differently based on supply or demand for different products. It wouldn’t make any sense for housing to inflate at the rate that consumer electronics inflated, they are totally separate markets.
If you want a real answer, look at the population now vs. the population in 1995, and the number of housing units now vs. 1995, you’ll see that housing has not kept pace. The prices are a form of equilibrium. Because increasing supply in many locations is physically impossible, prices are unlikely to drop much. Another input people don’t want to talk about much is the price of energy, and the cost of skilled labor which has skyrocketed. The cost of building things is simply more expensive.
If we just started building enough housing now, things would be fine IMO. No need to bring prices down to a reasonable level and wipe out all the NIMBYs
I would settle for prices simply flattening, which at least would cut off the cycle of homeowners expecting property to continue appreciating.
We also need to start building different kinds of homes. More "starter homes", fewer McMansions in the suburbs and luxury condo apartments in the cities.
Sadly, investors that own the undeveloped property, construction companies — they want the big margins and so build expensive homes. (Which the rest of us buy because that's what's available — a bit like a car dealership lot these days where their entire inventory are the expensive, top-of-the-line models.)
Something else happened about that time and it boggles my mind that it’s practically never mentioned when it comes to home prices: https://cis.org/node/11952
We’re letting in far more immigrants than homes being built - of course home prices are going to soar.
Technically you are correct. But practically I'm not sure effect is directly correlated - immigrants typically have nowhere near funds to buy property, so instead rent from rent seekers (which itself is huge problem). Some of them also live in much denser arrangements - think someone sleeping in living room, 4-8 people per bedroom in bunk beds.
As person who migrated couple of times it really hurts to come help local economy, pay significantly more taxes and then get accused. For one - my parents will never be able to lend me $100-300k for a deposit. Tons of migrants also have to support extended families back home.
Right, but those apartments are still off of the market. Demand goes up with supply staying the same.
I will say it's a bit more complicated in the US considering how many immigrants are involved in actually building homes, but I very much doubt it makes up for the literal millions of people coming in every year. Are there any (first world) countries that have housing costs going up at a large rate that doesn't have large population growth from immigration?
It's not hard to see that if we're adding a little more than 1 million housing units a year and our population is going up significantly more than that due to immigrants and their children that we're going to have an issue.
- we stop building more houses. That's what happened in 2008, and is one of the major causes of the current crisis
- it discourages turnover. IOW, people who should move for work/personal reasons don't because they're underwater or because selling would mean they lose the really nice rate they're currently locked in to. And without turnover, it becomes hard / expensive for people to buy.
The latter issue is a stupid technical reason. The second issue could be solved by transferrable mortgages.
I am a huge proponent of normalizing work from home / remote work for this reason. Arbitrary, economically forced turnover (i.e., location requirements from corporations) is very disruptive for human life and childhood development. As a kid, I averaged one move per year due to job availability being tied to location of said job. If housing turnover was primarily a matter of personal preference, not economic necessity, the world would be a more stable, healthier place.
Factory work cannot be done from home. With re-industrialization trying to take off, there will be more factory work, with many positions requiring highly educated / trained professionals.
Reindustrualization is coming with automation. The people building the factory will go to the next one when this is done so they can live anywhere. Many of the machines need a specialist to repair, so that person just needs good access to an airport and can live anywhere.
Some people will go in daily, but the days of thousands of Union workers in a factory are gone. It will be hundreds.
Transferable mortgages would be great or even just carry mortgages - if you are in a 300k house on a 3% mortgage you should be able to swap house (assuming all approvals and stuff) to another 300k house and keep the mortgage.
Might cause rates to rise a bit but probably worth it.
You can do most of this already, right? When you can choose from 10, 15, 20, 25, 30, 40, 50 year mortgages, take your equity, swap to a new house, pick the mortgage closest to the term you want, and there you go.
You will never get 3% mortgages to follow you through any refinance - if people like the ability to lower by refinancing, the cost is that if you refinance under a worse time you get higher rates. If you want the ability to lock in a 3% loan no matter what changes you make, you will have to pay a premium, so you would not get the 3% to begin with.
I don't understand how high prices good news for anyone except people who own multiple houses. Your home is not a luxury. If you're selling it in an inflated market you're also buying in an inflated market, unless you want to throw your money away renting.
One tends to have a lot more constraints on where one can or would prefer to live when one has kids and/or is working age.
Once the kids are out of the house and you retire you can dump the expensive house in commuting range of a high-wage city in the excellent school district, buy one half as expensive somewhere with worse schools and farther from jobs, and pocket the rest of the money.
> unless you want to throw your money away renting.
You're not always throwing your money away when you're renting; I'm pretty sure that housing prices are rising faster than rents, due to a culture of housing speculation.
Housing prices may be going up faster than rent. But as a homeowner my housing prices aren’t going up.
When we moved into an apartment in 2012, rent was $1200. By the time we left in 2016, rent was $1700. Our mortgage was $2200 including PMI, taxes and insurance for a house we had a built. By 2020, rent at the same apartment was $2400. Our house is three times the size.
The rent you are paying now is the least you will ever pay where you live. Besides changes in property taxes, our mortgage is the most we will ever pay.
lot of opinions here - counter to that, we're paying less for renting the same location we moved into three years ago. Covid, WFH and location value... lots can happen to change prices.
> Still, rents rose by double-digit percentages in all size categories in July compared to a year ago, with monthly rents for studios up 14.3% to $1,555; one-bedrooms, up 12.2% to $1,745; and two-bedrooms, up 11.7% to $2,103.
> The South and Northeast have seen the largest rent increases. Miami, where rents were up 26.2% from a year ago, saw the biggest increase among the 50 largest US cities for the 10th-straight month. Miami was followed by New York, Boston, Chicago, and Orlando.
If not in the principle building (mortgage payments are commonly less than rent and 20+% goes to principle year 1 - assuming 0 price increase over your term).
But also in the US + state tax code and credits - first with "homestead exemptions" - but especially if you make over $100k (yes, roughly 2x median household income, but applies broadly to hacker news and it's a home worth the "average"city price as you get to deduct the property tax and the mortgage interest (so rough savings of 25% on the remaining 80% year 1). For icing on top, you also get credits on energy efficient upgrades.
My current rent is half (literally) what I’d pay in mortgage and property taxes if I’d bought the same place at the same time. That was when rates were low. It’s even crazier now, with the interest rate spikes.
Even at the maximum rate it’s allowed to go up, it would take 5 years for that to change. But that isn’t happening, because California prices dropped 30% yoy already, and it isn’t stopping there anytime soon.
Conservatively, my landlord has been ‘paying’ me $4500/mo due to the difference. She inherited it, and refinanced with low rates, so she’s fine at least. A lot of folks I know are staring at bankruptcy right now.
Landlords haven’t had positive cash flow on a property in California in at least 5 years (based on ‘purchase now’ numbers).
What you are talking about is the ‘sane market’ behavior, but that hasn’t happened anywhere in the country (near as I can tell, from real estate investor friends) for years.
sure, if you're going to live in a 3BR+ home either way, it doesn't take long to break even on a purchase in most markets.
but I'm living in a 1BR apartment that comes with a garage parking spot, an ideal setup for me personally. a mortgage for an entry level home in the same neighborhood is comparable to my rent, but it would be a strict downgrade to my QOL, as I don't actually benefit from the extra sqft and would have to put in more work to maintain it. obviously a house with a garage would be much more expensive. I've looked at 1BR condos, but the condo fee generally means it takes much longer to break even vs renting a similar property.
In Atlanta, I was renting in a 1br condo for 7 years; when rent went up 15% in one year, it was free (after principal subtraction) for me to buy/move to a 2br in the same building in 2017. (Even more advantageous as a friend moved in). By 2019 comparable rents for a 2br were 2x my total payments.
You are paying for a service (somewhere to live). Unless you can afford to buy outright then you’re either “throwing money away” renting or on interest payments.
In a lot of places, mortgage payments are around the same as rent, so if you can "buy" (qualify for a good mortgage) you'll be paying less AND your net worth will be growing
Of course, the situation is more complicated in areas like the SF Bay and Seattle. Housing prices vs rent basically assume 5% year over year growth forever, so if you think housing prices will be flat, it's economically advantageous to rent
> In a lot of places, mortgage payments are around the same as rent, so if you can "buy" (qualify for a good mortgage) you'll be paying less AND your net worth will be growing
sure you'll be paying less, but you'll also be buying a lot of risk. You don't own anything until it's fully paid, and if the interest rates skyrocket good luck with bankruptcy
What kind of lunatic offers a fixed rate mortgage for 30 years? If people knew anything about banking they would realize that this type of mortgage can only exist in the form of a government subsidy.
You’re assuming that a mortgage is always more expensive than rent. Your rent is going to go up. My mortgage isn’t.
To put things in perspective, my parents had a mortgage of $600/month in 1978. It wasn’t too much of stretch for them then. But it did sting. They were a teacher and a factory worker. By the time they paid the house off in 2008, $700 by then was laughably small.
This is a vastly underestimated component of why owning makes more sense than renting for the majority of the population. Practically, you are unlikely to make more than 2x your starting compensation from school. Rental costs are somewhat sticky at around ~25-50% of your income depending on your preferences. You can save money, and live frugally. But a good chunk of your future disposable cash flow is going to come from fixing your housing costs.
> Practically, you are unlikely to make more than 2x your starting compensation from school
I wouldn’t go that far. I don’t know what my parents made in 1968 or for that matter 2008. But from the time period I mentioned 1978 - 2008, if their income just kept up with inflation, it would have gone up by 650% according to the official CPI calculator (https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=1968...).
Well actually, they retired in 2002 at 55 and 57 respectively - from teaching and factory work - and have been retired since then.
They’ve taken two 5 month long cross country trips and have only slowed down their shorter road trips in the last couple of years because they were worried about Covid
I should have specified 2x real income e.g. income indexed for inflation.
If your parents started working in '78 they have likely had a nearly miraculous wealth transfer from owning a home in a world with declining real interest rates. As you noted, their income rose 650% due to inflation - and their housing cost was likely fixed.
You said if you buy outright then that means that you won’t have that money to invest. If you assume that you either pay money for mortgage or rent, the only way that would be true is if your mortgage would be more expensive than your rent short term.
What are the chances I’ll want to be living in the same area, or same house, considering the massive churn in demographics, economic shifts, etc. currently ongoing? Or even in 5 years?
About the same.
If one of those moves happens and the markets down, things get interesting. Especially when someone is upside down.
Either way, transaction costs tend to eat up any potential gains unless one is really lucky or you stay a long time, which is hard to do during high change times.
If, in the future, I can find a place in a good location/part of town, with plenty of room, and is convenient to earning income, etc. and that doesn’t require me to get loan payments at some crazy multiple of my income, then yeah I’ll probably buy.
But that hasn’t been a thing in the Bay Area since about ‘15 or so. And with everyone running for the rural areas for a multitude of reasons and remote work becoming the norm, the rental markets are crashing hard here.
Even before COVID however, housing prices had started to flatline or decrease as even with historic low interest rates, payments were very high, and even with increasingly risky financing, very few people could afford them.
> Either way, transaction costs tend to eat up any potential gains unless one is really lucky or you stay a long time, which is hard to do during high change times.
Even if you go by historical norms of prices housing rising with inflation and you consider selling costs of 10% (a bit high of estimate), you only have to be in a house 5 years to come out ahead.
> If, in the future, I can find a place in a good location/part of town, with plenty of room, and is convenient to earning income, etc. and that doesn’t require me to get loan payments at some crazy multiple of my income, then yeah I’ll probably buy.
I’ve been in the same metro area since 1996. My last job was 30 minutes away. My current job’s headquarters is on the opposite coast and the official location of my division is on the same coast but about 15 hours away by car. I doubt I will ever work in an office again.
> But that hasn’t been a thing in the Bay Area since about ‘15 or so
There is a whole big old United States outside of the Bay Area.
I ran the math when I rented in SF. I was paying about half of what my place would cost to own.
Even with housing doubling in price, the returns from the market were 3x (though not leveraged).
Assuming 20% down and the cumulative monthly difference, maintenance, transaction costs, and what equity I would have gotten back, I pretty much broke even to owning.
It’s good for people who want to sell and live in something smaller, since the market inflated the delta between differently valued houses on an absolute dollars basis.
And in the age of increased nomadic living, emigration to low CoL countries and multi-generational households, there might not be much of a replacement to buy or begin to expense.
Just explaining, not advocating for selling one’s home to retire.
>> Some states are non recourse or single action. Worth knowing if you’re possibly going to be in a Situation.
Non recourse means they dont pursue you for the difference. It doesnt mean your credit isnt completely ruined for the next 7 years. It would be impossible to get another home (and in many cases to lease another apartment) with a walk-away from debt.
High prices are good news because home building is profitable, you get increased supply and that buffers price shocks. If prices start falling it will put home builders out of business (The same as 2008), and we’ll have another decade of housing shortages. Sure there will be some people who benefit, people with means who can use cash to go scoop up cheap real estate as an investment. The average person is going to be screwed and the bank will not give them a 9% interest loan during a recession.
On a more abstract note, deflation is terrible for an economy. In a healthy economy you want people to be building things. It creates jobs, lifts people out of poverty, and so on. Deflation causes people to hoard cash and stop working and investing.
Nope - they’re talking about turnover between current ‘have’s’ and ‘have nots’, allowing the have’s to move to an area that someone who is poorer cannot afford to live due to lack of jobs or the like.
There are more than enough actual houses in the US. We aren’t short on space. It’s location and current needs based on time in their life and available assets, etc.
It's bad news if you own a home and the market falls and you need to sell.
Otherwise it's some opportunity cost (arguably) but you can continue paying your mortgage payments to stay in your house, and if you hold long enough it'll likely recover.
This is different from the last major crash because that time house prices AND mortgage rates both dropped so you could easily feel "trapped" in your underwater house.
>> Otherwise it's some opportunity cost (arguably) but you can continue paying your mortgage payments to stay in your house, and if you hold long enough it'll likely recover.
Most people cannot do this though, because the conditions that lead to housing market crashes also result in huge numbers of layoffs. What that means is that not only do people find themselves "underwater" but also unemployed, which means they either can no longer afford their mortgage payments, or sell at a (often huge) loss and start renting and/or relocate.
It’d be interesting to see the actual numbers - i suspect they’re relatively low for those in 20% down loans even during the last housing crisis, but I don’t have evidence beyond anecdata.
It's not that bad as long as you're planning to stay in your home and keep your job. Long-term owners are basically indifferent to housing prices, because they're not going to be making any transactions in the housing market. Same reason Warren Buffett is always marveling over why working-age people think news of stock market declines is bad. If you are a net saver, you want asset prices to be cheap and interest rates to be high, because you'll be a buyer of assets.
Also, you're going to be investing in your children for a good 20 years, so it's not that irrational to make a 30yr investment in a house to get them into a good school district.
> The problem is the entire system where you are making a 30yr investment just so your family can get a good school district.
A good school district can be nice (if you'll have kids and if you'll send them to that public school) but the primary reason to have a home is have a place to live where the costs are predictable over the long term, unlike renting.
> And also, there's a problem with revolving credit (i.e. a 2-year mortgage), such as Australia or Britain, or anything that is floating along with some interest rate. But these are a) intentional problems that the people making the loans hope will make them rich, and
The 30 year fixed US mortgage is responsible for a lot of the higher prices in US. Future taxpayers or users of the USD pick up a lot of the interest rate risk on behalf of present day borrowers. Evidently, given the continued resilience of the USD, market participants are very okay with this.
> b) problems with pricing, because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
This is a highly dubious claim for which I would need to see proof. The actual building of a house in the US is down to 100 days by a well operated tract builder. The outsize portion of the cost is in the land.
> The actual building of a house in the US is down to 100 days by a well operated tract builder.
So I think one person should be able to manage it in less than 30 years, periodically calling in skilled help. If you're a Walter Segal fan, you can probably do it a lot faster.
> The outsize portion of the cost is in the land.
It is. I think that's a problem because land value is always speculative, so everything can be written off as land value. Why is that land worth that much? Because that's what was paid for it.
If you think the average person is capable of doing the things needed to build a modern house, or learning to do them at a level of expertise compared to any professional, we are living in different worlds.
90% of people will not get past laying a concrete foundation.
I think of all the reddit DIY posts where there are immediately a hundred comments about how those notched beams will inevitably collapse and destroy the second story, or about how those pipes are laid out wrong and are guaranteed to clog, and then there's the nightmare that is bad wiring...
Not to mention code compliance. It requires high skill just to understand what requirements you must meet, when they must be inspected, etc. The idea that most people can build a modern house is hilariously out of touch.
> 90% of people will not get past laying a concrete foundation.
Mainly because it's a good idea to leave certain parts to the pros. Anyone can do framing or hang drywall. Roofs are as simple as you design them to be. It's the areas where your house 'interfaces' with the rest of the world where you'll need the most help, but a lot of those situations can be set up so you can do the majority of the labor (and the tools available now make it easier than ever).
The USA has enough cheap and cheerful (aka "shit") housing already. The last thing we need are people with no building skills building crappy stud framed square boxes. If they have to build, let it be more quirky and individual, and if they don't, lets try to keep pushing building standards forwards, not backwards towards the level that Jill & Joe Everyman will likely (not necessarily, just likely) operate at.
People could also learn to do a lot of stuff they choose to buy instead, like sew their own clothes or build their own furniture. What makes housing so special here?
I could take a random sample of 10 HN users, ask them to frame and drywall a house, and the result would have to be condemned. Please don't kid yourself.
I’m fairly handy and have hung drywall before. It’s not the hardest thing in the world, but you quickly realize a mediocre hanging job results in far more work by the mudding/taping crew. And the end result still probably would be OK at best.
Agreed, and I was exaggerating of course. There are definitely some handy people around here, but a lot of folks tend to underestimate what is involved. I've worked with a lot of beginners, and they can have a rough time just getting drywall screws to sink properly.
Like you said, it's not the hardest thing in the world, but it's not something that just anybody can do.
they can assemble houses on sight that fast too. however it is a lot of management and you often have people standing around waiting until someone else finishes their part so they can start. . it is done as a stunt once in a while, but for price reasons it takes a few months.
The US federal government explicitly and implicitly guarantees a huge portion of the mortgage market, keeping an interest rates lower than they would be. Explicitly via things like FHA/VA/Ginnie Mae loans since investors know the government will pay even if borrowers default, and implicitly by bailing out Fannie Mae/Freddie Mac in 2008, as well as the COVID bailouts (unemployment/PPP).
All of these actions either accrue more debt for the federal government, which usually means higher taxes in the future, or increase money supply, which means reduced purchasing power for users of the currency, which also includes taxpayers.
I write usually in the paragraph above because if the debt or issuance of new money results in commensurate economic growth, then it would not reduce purchasing power, but I am of the opinion that a large part of the economic growth equation is birthrates and proportion of working age population, which has been in decline for a long time. The effects were tempered due to automation/immigration and productivity enhancements in general, but I do not think that has been able to keep up with declines in birth rate for a while now.
Ok so many things are like 90% correct here but missing the crucial 10%.
Fannie and Freddie are not end holders of your mortgage. They sell it ahead and because they’re govt entities, they actually pay less for offloading that risk off their balance sheet than a typical bank would. As you say, they are guarantors. This means you as a taxpayer are on the hook only during events of default which happen once a decade if that. 2008 was a massive one off.
Gnma loans are sub prime as you’d know but they’re also just guarantors. They’re not literally lending money.
The cost of these guarantees is typically very very low compared to the size of the US govt. FNMA is like a $47 billion company. And that is with full conservatorship. It’ll likely expand in size as the public takes on more risk. But it’ll still be very small.
Your second paragraph is also like 95% correct. I’m not sure what you mean by increased money supply in the future. Increasing debt is increased money supply in the present, not in the future. Econ 101 would tell you it means reduced purchasing power but that doesn’t account for how much the US dominates the world. There are several untapped sources of low labor and costs around the planet. This is currently a non issue unless we suffer a double whammy of continuous high rates and the discarding of the $$$ as the worlds leading exchange currency.
The last paragraph I understand but disagree with. Economic growth imo is driven by loose monetary policy and almost nothing else. Human ingenuity or labor capital continues to be as high as it ever was in the highest echelons of research, finance, industry etc (compared to the revenue being produced). But that’s just my opinion. It is likely someone has studied this but I’m too lazy to search and then find a study where I find immediate issues with the way it is structured right in the abstract.
>Increasing debt is increased money supply in the present, not in the future.
I phrased that poorly. I should have written now and in the future (the future because I am assuming bailouts will happen regularly until a total collapse). When the government enables socialization of losses and privatization of profits, that lets people today realize a lot of the potential gains from the future. For example, land that costs x years of work can now cost 2x or 3x years of work.
>Econ 101 would tell you it means reduced purchasing power but that doesn’t account for how much the US dominates the world. There are several untapped sources of low labor and costs around the planet.
I think there is a lessening of the domination, specifically with competition from China.
>This is currently a non issue unless we suffer a double whammy of continuous high rates and the discarding of the $$$ as the worlds leading exchange currency.
Yes, the US is still in a relatively good position, but what has occurred is a fracturing in the trajectories of the US population itself. If you are top 10%, life is awesome and looks okay going forward. Next 10%, you have a chance of moving into the top. Next 10%, you are treading water and with some luck might move up. Bottom 70% has stagnant futures or looking at declines (relative to their recent past).
>Human ingenuity or labor capital continues to be as high as it ever was in the highest echelons of research, finance, industry etc (compared to the revenue being produced).
Yes, but the distribution of gains from the ingenuity will be less equal.
I find the bad news angle weird too. If our home were to lose half of it's value it wouldn't really change anything except our ability to move in the near future. That's assuming I keep my job during this time of course.
Well, it depends on how you financed. If you paid a large part of your mortgage already, or needed a small one to begin with, you can still move, bacause all houses will get cheaper.
If you sit on a large mortgage, though, you better don't move and have a long-running fixed interest rate.
> That's assuming I keep my job during this time of course.
Sure, but that's the other jaw of the trap we've built for ourselves. The knock-on effects of large-scale drops in home values are highly likely to induce major economic disruption on a national scale, which makes losing that job all too likely.
Does everything in world have to be sickening, or appalling or catastrophic. Is it really so sickening that someone in the world had the audacity to frame something in a way you disagree with? Can't you just say "I disagree with this"?
I say this as someone who thinks it is very much a good thing that house prices are coming down, and the more the better.
I only say sickening because it makes me nauseous. You may have another physical reaction, and you're entitled to it.
> Is it really so sickening that someone in the world had the audacity to frame something in a way you disagree with?
It's sickening because it's a manipulation intended to bolster house price growth. When housing is too expensive, some children literally don't eat. Is that sickening?
> Can't you just say "I disagree with this"?
I feel like I got that across. If you're complaining about getting a little extra, it's low on the list of things that bother me.
Getting physically nauseated by every opinion you encounter you disagree with sounds like more of a bad outcome for you then anything else. I'd want to fix that if I were you but of course feel free to continue if you enjoy it.
I'll be honest, I don't believe you. I guess go ahead with it if that's what you want. It definitely lowers the quality of the discussion
No one said anything about 'every opinion you encounter', so if anyone is exaggerating it's you (and personally it feels more like you're lowering the quality of the discussion at this point).
In this specific case I'm also incredibly frustrated by the negative language used in these articles. I see the same thing all the time here in New Zealand, despite house prices being completely out of reach of nearly everyone and most young people wondering if they will ever own a house.
I guess it's just natural for those who only see housing as a 'market' to be exploited.
> even though we've been in a bubble for the past 20 years
what is a "bubble", to you? the last 20 years includes one of the greatest housing crashes of all time, and a period of some of the cheapest housing costs we've ever seen.
> the last 20 years includes one of the greatest housing crashes of all time,
We can call it a housing pause at this point, because all of that money was put back into houses. I think it is unbelievably important to remember as a baseline that world housing prices tracked inflation for 400 years. In the US they tracked inflation, there was a bump up with government housing subsidy right after WWII, then it continued to track inflation until the dot com bubble burst
After which there was hockey stick price growth, a crash, massive government intervention and transfer payments to the wealthy, mass evictions of people who couldn't pay after their ARMs moved, massive buy-ups of that property by large investors and funds, and the restoration of hockey stick price growth.
> a period of some of the cheapest housing costs we've ever seen.
Where? Are there any places that fell back to the 380 year trend line, or are there places that are reasonable compared to their price in 2006 considering inflation. We're still in a period of the most expensive housing costs ever. They've grown to precisely what they need to be to take away any disposable income, along with education and healthcare. They're completely detached from physical considerations, they're simple financial instruments. And property owners have tricked people into thinking that it's a supply problem.
Because it's certainly true that there have been real (not just nominal) housing cost increases, but my understanding is the increase is much less extreme if you compare apples to apples.
Americans have just decided to consume a lot more square-footage of living space than they used to, is a large part of the story outside of tightly constrained markets.
Doesn't the Shiller index account for that? It's currently at 307 compared to 213 two years ago. A decade ago it was 134. Hard to look at the curve and avoid the conclusion that things are way more expensive now than anytime in the past.
Yes, Case-Schiller index is same-home sales. The only thing it doesn’t account for is upgrades/additions but I doubt those are prevalent enough to change the numbers much.
I suspect in most cities it is the land that is valuable not the house. Even the 1940s-1950s houses where I live are selling for 800k. I suspect that an empty lot would sell for slightly more since they get immediately torn down and something bigger put up whenever they sell. And I am just in some random suburb of a city that is not even close to top 10 in terms of population or wealth.
We also have higher population and it’s literally illegal to build houses like many that are in the older/cheaper parts of town. The sq ft of the “minimal viable house” keeps growing.
Prices did fall after the 2008 crash, but only back to where they were around 2003: https://fred.stlouisfed.org/series/CSUSHPINSA. Of course there may have been more of a drop in particular locations.
This may not be a functioning program in the next 30-50 years, or will have extended the minimum ages for payout that they won't be viable.
2,3,4.
All examples of the replacements for traditional Pension programs, which are what we should have. Putting the onus to not only save hard, but to invest wisely in the time horizons necessary for something like retirement in the market is, in my opinion, not workable and combined with the complete lack of education around money management in public schools makes it, again imho, just down right cruel.
I'd like to see the return of heavily regulated pension programs and unions for many, if not most professions.
The traditional pension systems (defined benefit programs) have turned out to be very vulnerable to insolvency. Hence the transition to defined contribution programs, like 401ks and IRAs.
SS is a defined benefit program. Its insolvency is a problem with all such systems, including the ones you advocate for.
Traditional pension plans should work better than individual retirement investments because they pool participants. Individuals have to invest enough to get the payout for their longest reasonable life expectancy. A pension fund can rely on statistics and not be funded enough for every participant to live the longest time.
Emphasis on the word should. Humans are bad at managing huge amounts of money.
private pensions are typically not adjusted for inflation. you're trading a slice of an uncertain economy for a guaranteed amount of an uncertain currency. pensions could be inflation-adjusted, but then you have to trust that the official inflation figures actually track your personal expenses. it's a tradeoff either way; no one can guarantee that there will be enough surplus to support the non-working population several decades in the future. but at least 401k upside is uncapped.
> Traditional pension plans should work better than individual retirement investments because they pool participants
I don't see any particular reason why they would. Lots of individuals do much better with their investments than bureaucrats do. Also, there are many "fire and forget" index funds available for those with little investment skill.
Defined contribution plans have been an abject failure.
Quite simply, the guise of individual exceptionalism and the illusion of financial control was used to justify the shift away from pensions, which shareholders took profit from what would’ve been pension contributions, and compounded by stagnant wages, a substantial amount of workers were left with nothing.
Which never were given to many people (so SS was the biggest source of income, even then), were insolvent, and make little sense for the mobility of a modern job market. I'd much rather get paid more, put that money into multiple places and plans I control, so if my company folds, I am not left with nothing.
And the historical evidence is that pensions were not what people now assume they were.
Probably the fact that some of the worse financial disasters undergone by city/county governments have been because of pension obligations.
(Sarcasm to be clear, though I think something between a full pension and entirely on the worker is what we need). Defined benefit is too easy to abuse and defined contribution has weaknesses, too.
Well you want prices to go down because supply is going up. If the supply is the same and prices go down it doesnt mean it is more affordable - it is precisely because it is LESS affordable!
In the US, there is Social Security which one could argue could be higher but it's there.
And lot of people were happy with the shift away from defined benefit pension plans that were essentially a transparent way to get a retirement supplement for having worked for GM for 30 years. A lot of people wanted to have greater control of their retirement savings in a way that wasn't tied to long tenure with an employer.
Maybe because the long tenure with an employer went away in the 70's when we started off-shoring everything?
I don't think people want control of their retirement savings, they just want a retirement savings. (And you're lucky if Social Security even covers health insurance costs - forget about covering your property taxes, grocery bill, utilities, etc.)
>Maybe because the long tenure with an employer went away in the 70's when we started off-shoring everything?
Maybe because people started moving around in their careers a lot more than in the 1970s when you had one job for life?
We employ far more people, at higher wages (especially for women and minorities, and certainly with higher benefits (BLS tracks total cost to employ - check the historical data) than the 1970s. So maybe that offshoring really did not move many jobs overseas. Most jobs moved to automation (the US only lost top producer of goods rank somewhat recently - except most of that production is automated now).
Also, pensions never covered many people. Far more people retiring have 401ks now than had pensions at their peak.
In general, I get the somewhat paternalistic sentiment that people should be provided for in retirement in spite of lack of explicit savings on their part (presumably in excess of Social Security). As a society, we don't want elderly people to lack shelter and food.
However, I find it hard to argue that the fix is to tie increased retirement security to very long term employment with government or individual large companies. Basically, the typical tech worker would get basically no pension under the terms of most pension agreements of the 50s-80s even if the large tech companies offered such.
I see a lot of people in well-paying tech jobs moving around every few years--and not just because of companies going out of business or laying off people. I'm sure many have good reasons for doing so. But people used to stick with employers through thick and thin. I just saw a former manager who was with the same employer (through a couple acquisitions--and, yes, a couple years laid off in dot-bomb) for 43 years.
That's a small amount of people. Most people in life move from job to job by choice as they gain skills or want to try something else.
Track all the people you run into in a week, and consider how many you think would choose to keep the job their in with the same employer for life. I don't know anyone I can think of who would choose that.
There's just too many opportunities, at all levels, to find better jobs over a 50 year span.
> because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
The problem isn't the building costs - it's the land costs.
Construction workers are relatively low paid, and profits on home building aren't outrageous.
DIY housing doesn't really solve any problems - and is a ridiculous proposal to the average person.
Probably because people are only building McMansions - mostly because the way the market works - buyers are only buying new McMansions.
Between site prep, utility hookup, permits, and plans - there's probably close to a $30k fixed cost to build a 600 sqft house.
If the lot also costs $15k (usually $60k+) - you're looking at a $45k - $90k fixed cost.
Every house has at least one kitchen - you can build these for much cheaper - but the types of kitchens buyers of new houses expect cost at least $60k. Same for a bathroom - but you're looking at $20k.
Assuming the rest of the house costs $100 sqft - a new 500 sqft house is going to cost $50k + $60k + $20k + $45-90k = $175-225k. You want a ~20% margin - so this becomes $210k-$270k. At this point - why are you building a 500 sqft home? You bump it up to a 2bd + 2ba 1400 sqft home, and you run into the same problem. There's no buyers at the price you can build - so you build a McMansion instead.
> It's sickening that this is always marketed as bad news, even though we've been in a bubble for the past 20 years.
Everything is marketed as bad news. Bad news sells. The bubble was itself a favorite target.
And FWIW, we're seeing the same thing happen currently with the freakout about inflation. Understood correctly, inflation is just a gauge transform; it doesn't "do" anything on balance. Sure, it moves money around a little because some signals are delayed more than others. But to the extent it does it works to the benefit of almost everyone complaining about it. Everyone with significant debt (mortgages for the folks here, credit cards for the proles, corporate loans for the people folks here want to be) experiences inflation as a reduction in net money owed. It's a good thing for us, on balance. Yet... freakout anyway. Because bad news sells.
I am just not sure about this. There are more Millennials than Gen X, and Millennials are in their prime family-building and house-buying years. At the same time, in the aftermath of the Great Recession, not much new housing was built. The intersection of those two trends might mean demand exceeds supply purely mathematically. Especially if people who locked in mortgages at lower rates are reluctant to sell as a result, furthering lowering supply.
Certainly prices may come down in some locations as interest rates go up if there aren't enough cash buyers, but will it be enough to counteract the imbalance of demand and supply? I think it's an open question.
My 30-year mortgage is locked in at 2.875%. My overall mortgage payments would go up 60% if I took out a new loan for the same amount at 7%.
On one hand, this means that prices need to come down to get houses into peoples' price ranges. On the other hand, if the market is down, there's no way in hell that I'm selling my house. A loan at 2.875% is almost like having free money, so even if I need to move, I'd prefer to rent out my house than sell it.
It's unclear if we will see low prices, but fewer sellers, or high prices, but fewer buyers. What's clear though is that this is going to be a low liquidity housing market without a lot of transactions.
> A loan at 2.875% is almost like having free money, so even if I need to move, I'd prefer to rent out my house than sell it.
I've watched a lot of friends go through this thought process recently. Locally, the thought process grinds to a halt when they see the exorbitant prices that property management firms are charging for new customers these days. Apparently there's a huge spike in the number of people trying to become landlords because they don't want to give up their low mortgage rates, like you. Property management firms are taking advantage of this.
I also see a lot of people changing their minds when they do the math on the size of down payment they'd need and the monthly cost of a 7% mortgage on the types of houses they want to move to. There's a reason people talk about starter homes and trading up as opposed to accumulating additional properties every time they move to a nicer house.
OTOH, I know a number of well compensated software engineers who were trying to pour their money into real estate investments. All of them are very firmly paused on buying new properties at the moment.
Because it's significantly more work than you'd expect to rent out a place and manage it.
Some people get lucky with golden tenants who never cause trouble, pay on time, and even fix little things on their own.
Others get unlucky and have to deal with a neverending stream of issues, from dealing with payment issues to having to leave work in the middle of the day to handle the issue of the week.
The laws around being a landlord are also more complex than you'd expect. In many locations, you can't show up and fix things on a rental by yourself unless you're a licensed contractor. A lot of landlords ignore that and do it anyway, but if anything goes wrong then you have a target on your back as soon as the tenant engages with a lawyer. Hiring a property management company is a way to pay someone else to handle all of that and take a significant legal liability off of your shoulders.
I remember early in my career I worked with a guy who thought he was going to manage a couple rentals on the side while doing his SWE job. He ended up getting PIPed because he was missing so many meetings and had to disappear all the time to deal with the latest issues at one of his locations, or even just to try to find new tenants after the constant turnover.
Anyone who owns a house for long (the older the house, the more true it is), knows that it requires constant small bits of care here and there to make it ‘work’. A bit of maintenance on the exterior here, some yelling at a new yard guy who is mangling something here, getting a plumber in to fix a blocked drain there, add some untangling who gets to figure out the fence contractor on top, and you’re looking at work. Not full time work, but it goes on the pile.
If it doesn’t happen, it goes into a maintenance backlog that will make your head spin later, and possibly your wallet implode.
If you live there, it’s usually straightforward enough to fit it in with everything else, but can be exhausting on it’s own.
Through something major in (roof leak? AC breakage?), add it being in an area you don’t live in anymore, and gets harder.
Then, you can have tenants that aren’t absolutely perfect, and it gets even harder and more tiring. Late payments? Property damage? Neighbor complaints?
If you pick good tenants each time and nothing goes wrong, it can be great. It only takes one case of it not for things to get really unpleasant and overwhelming however.
Also, add in the Covid eviction moratoriums, which opened a whole additional can of worms for landlords - if something happens like that again, which precedent has now been set - you could spend years paying a mortgage and upkeep on a place with zero income from it.
Personally, I never rent out a place unless I know how to do an eviction in the local jurisdiction. I hope I never would have to, but not knowing how is a good recipe to lose your shirt and possibly any future gains you could ever hope to have.
I’ve known folks that had renters who seemed perfectly fine (solid full time professional jobs, etc), but left a complete trash house (literally, multiple dumpsters worth - trash to chest high), and disappeared suddenly without paying last months rent.
The underlying truth is that it takes work and management expertise + energy to maintain a house in livable condition, let alone want-to-live-in-it-condition, and that has value. Also, not everyone can, or wants to do that.
> Personally, I never rent out a place unless I know how to do an eviction in the local jurisdiction. I hope I never would have to, but not knowing how is a good recipe to lose your shirt and possibly any future gains you could ever hope to have.
I know how to do an eviction in my local market and did one in my former life as a landlord. That is precisely why I will never be a landlord again.
It’s the grind especially when you are juggling a real job.
The eviction process in my state
- first you have to give them your own personal notice.
- if they don’t pay in 7 days. Then you go to court and file paperwork with the court
- then once the tenant gets served they have a certain amount of time to reply to the notice
- then they can make up any reason to dispute it
- then you have to wait on a court date after you win. They still have a certain amount of time to pay. If they don’t…
- then the Marshall again serves a notice
- then you have to schedule a time for the marshal to oversee the eviction.
- then you have two hours to remove everything from the house on the street while the marshal is supervising. You must have a crew of 5.
- while all this is going on, you can’t enter the house or harass the tenants in any way.
- then you have to clean the place up and fix any damage.
- then you have to find and screen new tenants.
There is a reason standard underwriting only gives you credit for 75% occupancy. The effort is not worth the money. I spent years grinding out rental property between 2002-2010 and even if the housing market hadn’t crashed, I would have been better off focusing on my career.
From 2010-2020, by concentrating on my career I tripled my compensation without having to relocate. Not bragging, it’s about that of a mid level software engineer at any BigTech company in the US (I work remotely at BigTech in the cloud consulting department). Even now if I cared to, I could put in 6 months to a year worth of practicing coding interviews and probably increase it by another $100K.
Residential real estate is not “passive income” by any stretch. I am better off just investing my income from my 9-5 in REITS if I wanted exposure to real estate.
I pay a property manager, 10% rent plus VAT, plus whatever costs are involved in actually fixing stuff that needs fixing.
I do so for a few reasons: first, I have no idea what my obligations are as a landlord and they do; second, they have a list of local tradespeople whereas I live in a different country; and thirdly, the property is an apartment and the common areas and exterior were already being managed by them.
Depends on your personality and skill set. When I rented I watched the property management company do a shitty job on all of the work they did. They would treat the renters (not their customer but their customer's customer) with pure contempt. One place would not let me see the lease terms until I paid a non refundable deposit up front (I walked). Another presented a lease renewal with open ended charge backs and used pretty words to tell me how fair they were but refused to modify the lease (I moved).
On the other hand I watched my wife tell a male owner that she would not accept a rent increase and he backed down.
Overall if you only have one property, have the right skill set and personality I would say you are better off doing it yourself. If you cannot say no to a young woman then you had better let someone else take care of it for you.
This is 300% the case, and they don’t care about you, either.
You’re probably better off finding a good tenant and paying the tenant to manage themselves, paradoxically.
Rental management for the most perfect possible tenants (parents) is still a moderate annoyance and more expensive than expected. Without appreciation I’d be below zero, and even with it I’d have to do some serious work to figure out how much I’ve “made”.
Because you want to be insulated from the trouble renters can cause. Heating breaks at 7 in the morning on saturday? Time to call the landlord. They let mold destroy the bathroom? Better have insurance and now hire someone to take care of it etc.
I thought that if I ever get a duplex and rent one side out and live in the other. I would still get a property manager and never let the tenants know I own the place. For context: former landlord.
single unit landlord here… i’ve done the management myself, and i currently use a management firm (which charges me a very reasonable percentage each month).
i made the shift because i was tired of having to deal with every minor crisis myself, take time away from work to (for example) meet prospective tenants, get a new AC installed, handle the make-ready process, etc. i had a good long stretch with one tenant that was low-maintenance but they moved out suddenly with very little notice (add managing the lease agreement to the list of stuff i don’t like doing as a landlord) and a lot of work i had to do to clean up after them.
all things considered, i’m happy to fork over 5% each month to someone else to deal with those headaches.
I think a lot of people in this situation are turning to Airbnb. I've seen so many now listings where I can tell, the property is 100% investment and that the owners haave never lived there.
The problem is that due to inflation, the cost of living has sky rocketed too, at least in a lot of countries.
This means your mortgage repayments aren't the only thing that has increased, so has absolutely everything else in your life. Look at Australia for example, they're predicting the already ridiculously high food prices to go even higher, up to 7-10% due to major flooding events this year.
So your analysis kind of works, but it's not factoring in whether people feel ok about paying > $200k (AUD) or more for a house which isn't worth that much anymore (prices are going down already, many many people bought at the height of a bubble, due to FOMO), then having absolutely no money to do anything with their house to improve it (building costs are astronomical) and having no money for leisure or holidays, then you have high energy and school fees to add to all of that.
In my opinion, this is what will start to drive more people to sell. It's not just the house prices, but it's the burden of being tied to such huge debt.
Also money isn't so cheap right now, so it will slow down property speculation. Many people also bought houses thinking that if they don't like being so heavily leveraged they will just sell their property at a net gain. Not at a loss, this I think is starting to scare people.
I'd say we'll see a lot of people at least consider downsizing in the near future.
Over the past few years the appreciation on housing has meant that for many people their shelter, and entirely non-productive asset, has outpaced their own earnings. For anyone not on that rocket ship, good luck.
Sorry I meant 200k more than the current market value. I have friends in realestate in Australia who told me this. The only way they are selling property today is by dropping one to two hundred thousand off the Jan/Feb price. However many many people purchased within the last year at such inflated prices. They said during covid, most things were sold the day they were listed.
So the majority of recent buyers are servicing loans much larger than their current house is worth, and paying more interest on top of that.
I’m sure it will “go back up again”, but it doesn’t seem like there are any events in the near future which are likely to kick off another massive boom, all signals are pointing towards a property slump.
Is there any data about downsizing? It almost seems impossible to do at some level (and I'm sure depending on the area) because of an extremely short supply of smaller houses these days. I could be wrong, but this seems like the last area to cut expenses on for most families.
I think 30-year fixed mortgages are somewhat of an American phenomenon (perhaps due to the luxury of having the global reserve currency). They are not generally available in Canada or UK, where 5-year fixed rates are the norm.
When I bought (UK) five years ago, I went for a 10-year fixed rate, which was the longest I could find. Currently very happy with that choice. Shorter fixes were available at slightly lower rates, but at this point I still have 5 years of 2.64% in hand, by which time the house will be close to paid-off.
In my case I went for a 5 year fixed because if I save at the same rate in those 5 years as I have in the last 5 years (which given my mortgage repayments are 75% of the rent I was paying prior, for much more house, shouldn't be too challenging, even with the inflation), then if rates are shit in 5 years I can pay off like 40% of the mortgage after the fixed rate and still have lower payments than I do today.
I almost grabbed an ARM on one refinance because the maximum amount it could jump at each adjustment was 1%.
Years ago my dad took an ARM at 18% because the anti-usury laws limited the maximum it could go to 20% and it turned out to drop each adjustment period after that (80s wheeee)
20 year fixed interest rates are a thing in Germany. With an option for mortgage owner to buy out the lender after 10 years without additional costs. 5-10 years fixed rates are cheaper but way to risky IMHO.
The lending bank finances the mortgage on the financial markets, the spread between their interest rate and the one the bank clients get is the banks profit. Part of the terms and conditions are that those profits for the bank are what you, as the oerson taking the mortgage, owns the bank for the duration of the interest rate fix. That is capped so, by law, at 10 years. Partial down payments are negotiable, e.g. 10% of the initial loan per year. Anything above that, and prior to that 10 years, will incure the clients obligation to cover the banks lost profits (part of what you agreed to pay the bank). If the explanation makes sense.
Canada is similar - usually you can prepay up to 15%/year, but any more than that and you need to pay a penalty (which seems to be calculated based on the interest they would lose). Also the yearly prepay amount is use it or lose it.
20% lose-it-or-lose-it yearly is my experience in Canada, and I believe that's on top of being allowed to make double payments.
And yes, the prepay penalty is generally based on the interest they would lose or a few month's interest, whichever is better for the bank at the time of payment.
But also note that if you paid the extra for a 10-year, Canadian federal law says you can prepay 100% at any time after 5 years with no penalty (or virtually no penalty?). Which is part of why longer-term mortgages are markedly more expensive.
Another interesting aspect of Canadian mortgages (as opposed to US ones) is that you can't just walk away if the mortgage is underwater (which is what a pot of people in the US did after the GFC). The bank can come after you for the difference between house value and mortgage.
> In the US, I have never read about not being able to pay or a penalty for paying the entire mortgage at anytime.
My parents (we're all American) were always very careful to check that early repayment didn't come with a penalty, on mortgages and all other loans, so I assume it used to be a thing. I've always asked (following their example) and not once had the answer be "yes, there's an early-repayment fee" so maybe it's a whole lot less common than it used to be.
If I'm not mistaken US mortgage rates are several percentage points above what they would be if prepaiment was not "free". You have to pay for that option some way or another.
You can find them but they’re rare, because it messes up the resale of the loan.
Our 80/20 loan back in the countrywide heyday had a prepayment penalty on the 20 which also had a balloon. We structured our refinance to avoid the penalty.
If so, I wonder why the option is not offered when shopping for a mortgage. I have a 2.5% 30 year fixed, so it is hard to imagine a 0.5% loan, with an early repayment penalty since I would have no incentive to pay it off early anyway.
Negative interest rates were hard to imagine a few years ago but they have been a reality in many parts of the world for several years. Maybe it's not multiple percentage points and it's around one, I don't know the specifics of the calculations. But the prepayment risk in principle has to be compensated. Otherwise lenders would have no incentive to lend money to you - if you can pay it off early anyway.
"The prevalence and handling of prepayment risk differs in two respects between Europe and the US. First, while in the US prepayment costs may be priced into the interest rate, in many European countries lump-sum prepayment penalties are induced by statutory requirements. Often banks impose charges on homeowners for early repayment. These fees force households to bear part of the prepayment risk and, if the fees are sufficiently high, may deter homeowners from prepayment, thereby nullifying the prepayment risk faced by banks. An exception to this is the Danish mortgage market, where long-term fixed-rate mortgage loans with an embedded option of a penalty-free prepayment are typically offered, as in the US."
If a government wanted to encourage home ownership, it would either incentivize building more homes to bring down price, and/or give cash to people so they are able to buy. The latter option would require government taking from richer to give to poorer, or issuing new money, which is sort of the same by reducing purchasing power of money,
The long term fixed rate mortgage is where no wealth gets redistributed today, but rather from future taxpayers or users of the currency.
if government wants to encourage buying, it must make take private equity and wallstreet out of property speculation. They leave swaths of properties empty just for the purpose of land banking.
Secondary step would be to make landlord-ing less attractive by giving tenants a lot of rights, naking them hard to evict, thank kind of thing.
This would make houses less atractive as an investment asset.
Lastly you could increase property taxes, again driving down atteactivenes of hiuses to investment.
Beinging down price of houses is easy. The question is what do you do with all the people who bought a house for 500k and now its worth 250k and they are stuck
Reports 30 year fixed is about 7.32% and 5 year ARM is about 6.75%. A 10 year would be somewhere between that, but if I was choosing with less than a 52 basis point difference, I would go with 30 year fixed due to less downside risk of my mortgage blowing up.
At 30 year mortgages of 2% to 4%, no brainer to just go with 30 year even though you might pay a $1k more in interest every year. But you might not, and you definitely will not pay more than a $1k extra in interest since it is locked in.
If the 10/1 ARM was 5% and 30 year was 7%+, I would think about the 10/1 ARM.
When everyone is invested into society, we have incentives to defend the status quo, thus making our society stable. In the next generation or two we'll get to see what happens when half of the men of the nation don't own anything of substance and have no meaningful connections to society.
Yeah there’s a secret dark opposite of NIMBY - WGASA (who gives a shit anyway) and that can end up much worse in the long run.
Part of the problem for communities starts when not all participants live in the community - if the grocers and workers and police are “imports” from the suburbs or other areas you start to get divergent goals and WGASA starts to take hold.
Homeownerism sounds like a regional form of nationalism where an us Vs them conflict is actually the point. The problem is that once you understand the problem as a politician the only thing you can do is do even more nationalism by including the formerly excluded and doing an us vs the world because not having an enemy and cooperating with everyone else is unimaginable.
> On the other hand, if the market is down, there's no way in hell that I'm selling my house.
As long as you are occupying a residence, it would not effect nationwide or region-wide supply and demand, right? You selling would be offset by you buying.
Deaths, divorces, immigration, births, and of course, new construction is what would shift supply and demand curves, on average.
Yes, but in this environment, I'd probably try to buy something new without selling (but renting out instead).
Also, if lots of people are buying and selling, even if aggregate demand is the same, it's a more liquid market. If I'm a first-time homebuyer, I'd rather play in a market of musical chairs then try to buy in a theater where only the dead and divorced get up from their seats.
That's entirely true if all houses are the proverbial spherical identical house, but people chasing to remain "where they are" also slows down upgrades and downgrades.
If a family that would normally have sold their older two bedroom and moved to a four bedroom instead chooses to remain in the two bedroom longer, that two bedroom doesn't appear on the market, a four bedroom languishes.
And if nobody is building two bedroom houses, that can have ripple effects.
Says someone who probably has never been a landlord. I would rather poke both of my eyes out while getting a rectal exam than ever be a landlord again.
So if you are a first time home-buyer who needs a loan to purchase a home you are going to get shafted on interest rates, but if you already own real estate you can either buy stuff cash or sell a property and defer capital gains to buy a new one. I struggle to see how raising interest rates helps the class that is most reliant on loans to even enter the market.
I'm not sure about this either. My guess is that there are two factors at work:
1) raising rates and otherwise making money more expensive encourages capital to do something else with their money than speculate on real estate cheaply, which was a pretty appealing option over the last 5-6 years (let alone the last 2).
2) it's a mistake to rely on interest rates alone to address issues here. There's a whole raft of policy issues that should be brought into play here: progressive taxation by ownership volume and vacation-rental usage, better interest breaks for first-time homebuyers, encourage owner restoration and discourage investor-flippers. BUT every other way of addressing the policy is actually harder politically, since one party sees inequality as feature-not-bug and will actively fight attempts to address it (especially if it represents a win for their opposition), and the other has both a tenuous hold on power and a coalition that may not be all on board.
I locked in February on a 180-day lock: 3.25%. There were some documentation issues that I had to rely on a third-party (the IRS) to resolve, so I had to start looking elsewhere. Rocket Mortgage was able to lock me at 5.25% (around April/May) - this would cost me an additional $400 each month. (Fortunately the original lender was able to make to adjust what they were asking for - it wasn't a matter of not closing the loan, but it meant they had to hold it rather than selling it while the IRS gets their act together)
Millennial here. In the last 18 months I've substantially increased the % of net worth I'm comfortable allocating to a home, reflected in both purchase price and remodeling costs:
- it's not clear that pandemic-era is over, whether that be new Covid strains or other mutant viruses (not to mention global thermonuclear war)
- work from home requires much more space to do well + i'm home more often to enjoy the rest of the house
- most of my close friends work from home which means they can come and visit much more often
- due to Covid, parents are afraid of nursing homes + kids taking longer to leave the nest = intergenerational living is back on the radar
- life is short, a little bit of post-Covid YOLO
I'm not sure how widespread the sentiment is but if enough people feel this way it could make an impact.
> in the last 18 months I've substantially increased the % of net worth I'm comfortable allocating to a home, reflected in both purchase price
And in the past 18 months, the changes to interest rates mean that your budget on a standard 30 year fixed has shrunk by 40%. That is, the same payments will get you 40% less house at 20% down. To make up for that, you would have to increase both your down payment and monthly rates by 66% to afford the same dollar value as a year ago.
I'm in the process of buying a place in mostly cash. I had been saving in expensive parts of California for the past four years, so with that as my target I was able to pick up a very nice house in Portland as the price corrected from ~650 to mid-400's. The way I look at it, after seeing tech do so well in remote work, it's here to stay and I plan on dying in that house.
Yeah that's a great feeling and I apologize for my comment sounding negative, because in truth I was lucky to have it more than once. Congrats and enjoy your new home.
In theory you missed that memo in 2019, it's that Corona threw in a curveball that gave us an additional 3 years on the inevitable recession. This is why timing the market is hard.
I am assuming they are not being greedy. Around summer last year I'd say a lot have an opportunity to cash out and buy a decent house and be debt free.
But sadly many were thinking "one more year and I can afford a multimillion mansion with an infinity pool"
Not saying you are right or wrong, but you seem to be over indexing for Covid. Most people seem to have moved on finally, and even the last bastion WFH will come under pressure with the bad economy.
As things stand I'd need a significant pay rise to start working from an office again. Bills and mortgage increases have eaten the benefits I got from not having to travel so if I had to travel into work most days I'd be significantly worse off.
There seems to be an implicit assumption that WFH is somehow less productive. I've not seen much evidence of this personally. It certainly makes management harder but it's a small price to pay when it's saving a bunch of travel costs for the employee and office costs for the employer
> As things stand I'd need a significant pay rise to start working from an office again
If I am understanding the parent, the point being made is this may be less of an option for many if companies revert. If there aren't many opportunities to work remotely, this will become more of a perk, like free lunches, and not something other organizations will compensate you for. Not everyone may have a choice to demand more money if the number of WFH options are very limited.
WFH being very limited doesn't reflect the situation I'm seeing at the moment. Over half my team have been hired since WFH was introduced, almost all of them live too far away for commuting more than occasionally to be an option. One of them even got it written into his job offer that he has to do at most 1 day a month in office and he gets paid travel expenses.
Apple and Google might be able to pull it off but run of the mill non-unicorn companies? Not convinced.
Another thing to consider for the non-unicorn companies. If the big players axe WFH, the smaller companies and "non-unicorn" could be in a good position to use WFH has a hedge to attract talent. People who would apply and get hired at MANGA, but they will pass it up for the ability to live and work anywhere. My guess, there are a lot of talented engineers who would take that.
Because Google didn't rename to Alphabet. They created a parent company called Alphabet which owns Google and a bunch of other subsidiary companies, but Google is still itself and still wants to be called Google.
Whereas Facebook made a big announcement that they were renaming the company Meta. They asked to be called Meta.
Are there payrates at Alphabet lower than at Google? Typically, I have always read the acronym in relation to high paying jobs or high performing stocks.
I don't think they're lower, but they're different. Notably, Alphabet employees of the other Bets (Waymo, Loon, Verily, etc.) get stock in the bet rather than GOOG stock. This is privately held and so a lot less liquid than GOOG, and you lose your unvested shares if you transfer to the mothership. It has a lot of the same risk/reward tradeoffs as working for a startup.
I worked for what was technically an Alphabet company, and it was no different from working at Google. I was told, but never confirmed myself, that I worked for Google and Google contracted me out to the subsidiary. Maybe things have changed in the intervening 5 years since I was there, but this was something for the accountants and not something that affected everyday life.
Hiring a CFO from the banking industry did make it more difficult to get the free food, though. The cause and effect there was immediately noticeable.
I don't know if there's an implicit assumption that WFH is less productive, quite possibly. But if we look at the power dynamics of the question, it's about (tech in this case) labor being able to demand what it wants when it's in demand. I think the point above is that this dynamic will change with the economy going south.
With labor having less power, it's likely that the members of senior management who don't like WFH (for a multitude of reasons right and wrong) will have more sway in the conversation.
I'm not sure about this read either though. We've been powerfully signaled to stop considering it, but it is still out there and still spinning off new variants, some of which are worse than their precursors. It's still killing a lot of people, plus disabling who even knows how many.
It's entirely possible that on the scale of like 30-40 years, this period will be considered a "slump" in how bad covid is, or a time when we were just not considering its effects enough. I don't think this scenario is extremely likely, but I do think our collective uncertainty about long term covid effects on society is still very very high and we should be factoring that into long-term decisions like where to live, housing ownership, etc.
The high confidence people are comfortable displaying about where we are with it is not warranted, imo. It may not be a critical day-to-day concern for most people anymore. But there's no guarantee it can't go back to that state, or with the hindsight view of covid disabilities we'll have wished we kept it as a daily concern during this time.
Plus nursing homes are probably going to remain more lethal than they have been during most of our lives. I think expecting a social change around elderly care based partially on that is astute.
Just saying I share your viewpoint. I continue to wear my mask and get vaccines. We really have very little idea how continued exposure, despite vaccines, will go.
> due to Covid, parents are afraid of nursing homes
All good apart from this, its clear you don't actually have kids - interest in kindergartens didn't drop a zilch (given, where I live - Geneva, Switzerland and around, plus at home country in EU). We properly don't care about covid anymore, had it at least 4 times, last 3 times even mild flu would be much worse experience.
Sure if you are a proper germ freak or some qanon-like paranoid nut you would base your decisions on this... but if you are just another sane parent, you just drop your kids there and hope for the best. Same as with any other sickness that kids do catch often that's looming out there.
> Certainly prices may come down in some locations as interest rates go up if there aren't enough cash buyers
The interest rates make a huge difference here...a hypothetical buyer who could afford $5000/month in payments would qualify for a $1.22 million mortgage at 2.75% interest, whereas that same payment at 7% would only cover a $750k mortgage.
Cash buyers are generally about 25% of the market, which is a good chunk, but not enough to prop up prices if the other 75% of buyers they're competing with have had their purchasing power drop by 40% in the past 6 months.
> Cash buyers are generally about 25% of the market
Cash buyers often finance the property they buy. All a "cash buyer" means is that the deal is not contingent on financing, either contractually or as a practical matter. That is, they can guarantee the sale goes through with cash.
I'm not sure. Certainly many people refinanced their houses to pull money out over the past few years or got margin loans based on their stocks. Using that money to buy a (different) house gets counted as a cash buyer in the 25% number. But do you consider them a cash buyer? If they later do a HELOC to pull money out of the new house?
It's a tricky question that can really only be answered by looking at how leveraged assets in general are.
> Cash buyers are generally about 25% of the market, which is a good chunk, but not enough to prop up prices if the other 75% of buyers they're competing with have had their purchasing power drop by 40% in the past 6 months.
In aggregate in the U.S., but this and much other commentary in this thread doesn't consider enough the vast variation in local markets. There are spots where there's a higher percentage of cash buyers due to wealthier people living there, a larger contingent of foreign buyers, or people who sold homes in very expensive areas to buy in slightly-less-expensive areas. I'm seeing this where I am, where people are moving from the city (where a 1 BR apartment is easily over 1M, a 2 is 1.5-2M, etc.) to the suburbs, where an 800K house is considered pocket change.
Not to mention some people have access to "cash" without having it. Some mortgage brokers, even from large banks, can arrange to let you use collateral to help guarantee a closing within a short time (eg. 30 days) letting you waive the finance contingency.
In a given real estate transaction, someone waiving financing contingency is going to fall in to the category of "cash buyer", and it might not be obvious that the cash shown in the holdings (if it is even shown to the seller as proof of funds) came from a loan.
The price is set by the ability of other buyers. Doesn’t matter what one individual can pay if the climate points to falling prices, why would they overpay when they think prices will fall? Prices are set by willingness to lend and interest rates, not by cash buyers.
I was just responding to the poster who wrote, 25 percent cash buyers isn't enough to prop up the market.
I don't know if it's enough or not, I was making the point that that 25 percent number is in aggregate for the entire large country and there are some insane skews in local markets where the number is much higher.
But to directly answer you, if inventory is dried up, no one is listing, and the stuff that comes online is still priced like mortgage rates are 3 percent, that might kill off a large pool of buyer demand but those cash buyers are still the marginal buyers and bidding wars will ensue just the same. I'm seeing this at present.
I think what will happen though is that those cash buyers, who are not stupid, will read the direction of the rest of the market and realise the music has stopped. At which point they won’t want to buy either.
Crashes often happen in slow motion, as this one is. It’ll take years to play out.
I hope so. There's a unique situation playing out that the inventory is extremely low in parts of the country where there hasn't been a lot of building (so I exclude places like Phoenix, Boise and Austin where there is a crash). So even if the non-stupid cash buyers pull back, and the financing buyers are priced out, it leaves a slim supply and a slim demand. But the supply didn't suddenly explode, who will sell their sub-3% mortgaged homes, even to downgrade or upgrade to a new home, unless they absolutely have no choice. That leaves family events like deaths, marriages, and such.
That's why - unfortunately - there could be no crash this time. Just a long period of stagnation and low turnover.
Well redundancy is the other event which forces a sale. In a recession that is what happens and it becomes a spiral. It is quite possible to see a long period of stagnation though with no nominal price drops, just real price drops, as may well happen with stock prices too (see Japan in the 90s to today). The rest of the world is ahead in entering a downturn, but a recession and mass layoffs is coming in the US too, particularly in the tech sector which is massively overvalued and overpaying for talent right now.
I think what we can say is that the boom is over, and this will impact stocks, real estate and jobs for at least a couple of years till assets become more affordable again.
What can change this is a fed pivot on interest rates, which will happen at some point when things really break (bond market, stock market) or inflation comes down a bit, but not until then, so unlike previous downturns the fed doesn't have much ammunition here as they need to look serious on inflation.
My local anecdote - a few of my realtor friends said roughly 70% of all transactions in the last two years in Santa Barbara area have been cash deals. They also said currently those deals are all dried up. From what little research I've put into it, from the county assessors office it looks like 2.5k homes were sold last year in the area. Now think about this, we had an overwhelming number of people from LA and SF flee to Santa Barbara during the pandemic. How many of those people had temporarily won the stock option start-up lottery, ie. any tech bubble employee - zoom, pelaton, doordash, etc, or had a house that had spiked in value willing and was willing to swap homes. It doesn't take much when housing supply is at historic low and temporary bubble demand skyrocketed to throw the market all out of whack. Personally, I know at least 10 people that traded their zoom stock for all cash housing deals here in SB at the right time. Now that stock is worth 1/8 of what is was. I imagine that this scenario played out a few hundred times just in our little town. Extrapolate that nationwide, you can see what might have contributed to massive asset valuations that quite literally, don't make sense. In the long run, it shouldn't matter, however it will be fun to watch it all play out.
> Are cash buyers really 25% of the market in the US?
Not in the sense that they didn't finance part of the purchase, as I understand it. It just means the cash is already there from the point of view of the buyer.
You’re probably better off buying at 7% than at 2.75% if housing prices are adjusted. You get the house for less, more room for profit when you sell. Also, if you’re force to sell, it’s better to do this on a loan of 750k rather than 1m.
FWIW, those numbers are off because of escrow and taxes. 1.22MM house means AT LEAST 30k in property taxes a year, which mean's they'll end up at >~7.5k a payment, which means they'll need to buy a smaller house.
Property taxes in WA wouldn’t be much more than $13k if the home had an assessed value of $1.22M.
It also isn’t uncommon to see a big difference between the sale price and assessed value. One datapoint would be a $4M purchase that is only taxed at $2.2M the first year after the deal closed. At least in King County, the valuations do seem to “catch up more quickly” after a sale, so at +1y it might be $2.8M, at +2y it might be $3.3M, but to be paying >$30k here in taxes you’d need a >$3M assessed value home.
Seattle area property tax is usually around 0.75% of market value. Although, I would guess some are near or above 1% due to very recent declines in market value.
That seems low. My taxes were $9.40 per $1000 of assessed value in 2022. From searching around, I see an average 0.88% for King County (and apparently Pierce and Snohomish are higher).[1]
Yes, last time I checked, the numbers were still based on outlier price increases in 2020 and 2021. It may already be at 1% or even higher for many people.
> In Seattle, where the housing market is considered expensive, a 1.2m house only pays $7k in property taxes
Only if it has (a) an exemption or (b) an assessment well below market value. A typical house with a $1.2 million assessment will have paid over $10k in property taxes in 2022.
That would be option (b) in my comment. Washington State law requires assessed values to be 100% of "true and fair value"[1] despite the fact that they tend to lag market value.
Yeah this is very market dependent, especially with regard to whether there are state/local income taxes or the government depends mostly on property taxes. Here in NYC I’d expect to pay $10k or less in annual taxes for a property in that price range, however there are city and state income taxes plus apartment building building common charges.
It’s hard to compare this stuff apples to apples, but the one constant regardless of locality is that higher rates significantly reduce buying power for people relying on mortgages.
NJ and NY both have some pretty wide ranges of property taxes from town to town, county to county, not just because the percentages might be a bit different, but because their valuation systems are wildly confusing and inconsistent.
Where do you live in NJ? The average effective property tax rate is 2.470% of the home value. Property taxes would be ~$38k in Gloucester county(across the river from Philly).
People sitting on 2% mortgages are not going to move. There's a lot of housing inventory that's locked away now [1].
We're going to enter a lower supply, lower demand market. The prices might not move much.
[1] Maybe downsizing Boomers will balance this. I'm not aware of any measures of this trend, though. And a lot of Boomers just sold/downsized to take advantage of the high prices.
I see a future for a new financial product where the existing owner keeps paying the 2.5% motgage but is sells an option where he’s contractually required to sell it for the balance of the mortgage and rent the house for the current mortgage payment. In the old days there was a transferable loan, those don’t exist now but you need a new product to extract value out of an artificially low existing mortgage
Nearly my entire neighborhood consists of old Gen Xers and Boomers living in 2500-3500 sq ft houses, sometimes alone. It's insane. These people have decades to live in many cases. They are taking up these huge houses in smaller cities like mine so where are families going to go?
Not everyone is "fit" for living in dense cities with shared walls, noisy streets and crowded environs. There's a psychological component to being embedded with many people 24/7 that is under-appreciated here, when people fantasize about the ideal society of walkable cities, proportionally-sized dwellings, and density. The latter is for the single, the young and the adventurous. The old cranks like me grow out of it and long for a few thousand feet without noisy student neighbors playing music in the middle of the night or having parties.
Not to mention waiting in lines everywhere to go, and being forced to rub shoulders with lunatics when you need to commute for work or shopping.
At this stage of the game I'm ready for the 2500 sf house.
As one of those genx with a house larger than I need... yes.
The flip side of that is when I bought this hose from (looking it up) silent generation owner who was moving to a nursing home, there wasn't any other housing inventory in the price range and area and cost. Buying an old house and fixing it up over the years was much cheaper than buying a new house another half an hour out of town that costs 2x-3x more.
The buying a small house new house is still 2x-3x more than this old house would sell for.
Other than that this is a big house, there is no reason to sell it at this time. Additionally, the new development that is being built is targeting the most money that can be packed into a single lot... and... well, I don't want or need that.
If people want me to move out, build a nice 1-2 br 1.5 bath with a room for a home office on the quiet end of a street. I don't need a fancy kitchen. I don't need a place for fancy plates to show off in the dining room. I don't need a man cave with a bar or a three car garage... just something nice and sensible.
And yes, it is certainly a problem. Housing supply has been woefully under built for a decade or more, and that which is there is not targeting what remains of the middle aged middle class that sees a 30 year mortgage when they're 40 as absurd. The less expensive supply is often getting bought up by people speculating, as a rental property (either by a landlord or by a company).
Which brings us to "I've got a house, its paid off, going anywhere else reduces my net worth and gives me some debt that I'm unlikely going to be pay off before I retire - there is no reason to move at all."
Yeah, but some people switch to adjustable rate or balloon mortgages when they can't afford fixed. This is what I did when I bought my first house in 1988, with fixed rates over 10%.
I welcome a slump. I doubt it will be as big as I hope. My first home cost me ~2x my
new grad salary. Today homes cost 5+x a new grad salary. And it isn't because Millennials are buying up the market. Investors are buying up the market and making it impossible for run-of-the-mill families to own a home. I hope those investors lose a lot of money. It needs to hurt bad enough to settle into long term memory and discourage such behavior for generations to come.
I was house shopping this year but had to wait as I moved for a new job. In January I was quoted $>1M of buying power (without my partner). Now I’m quoted <$700k. I’m not buying anything soon.
My father is looking at moving to a new condo for retirement but was hesitant about HOA fees. This year he spent $50k to replace all the windows in his current home to prep for sale. That $50k in maintenance would cover $300mo in equivalent hoa fees, and that’s not considering every other maintenance cost he’s spent. The math just doesn’t justify home ownership from a financial perspective - if your home value isn’t skyrocketing.
I’ll be a renter for a while it seems. Maybe that’s ok.
As a side note it's often not worth maintenance in prep for sale, unless it takes it from uninhabitable to habitable (or more precisely unmortgageable to mortgageable).
The $50k you spend on windows would often only recoup $45k or even less, people vastly underestimate the costs of many things (but not all, foundation problems people always overestimate).
The saddest story I read about was someone who was told that putting $20k of new windows would let them sell for $40k more; and they did, and the buyer bulldozed the house to build a new one.
People often overestimate the universality of their tastes. Our sellers assumed that one of the first things we'd do would be a kitchen remodel, but we actually love the kitchen the way it is, and are just doing minor appliance replacements. Meanwhile what we actually did was new windows, solar, and a bunch of energy efficiency upgrades, which had been totally off their radar screens. If they'd gotten a different buyer it probably would've been a very different set of upgrades.
The value in home ownership is in reliability of housing. With a family, I seriously value knowing that I'm not likely to have my home pulled out from under me by the landlord for a higher and better use.
Ya, this is not like 2008 where interest rates were low AND housing prices collapsed, which actually did make houses more affordable. This happened because the recession was specifically about real estate and the bad mortgage loans blowing up. Since this is not happening now, even if housing prices stagnate or go down a bit, unless you are paying with cash, things are not going to be more affordable since rates are up.
Ya but being underwater doesn't really matter if you plan on living there for a long while. People will need a good reason to sell their house, like no longer being able to make payments due to job loss etc. (or they bought like 10 houses like in early 2000's...) So as long as the rest of the economy is okayish, I just see prices stagnating for a while. Also, inflation actually helps when you have a fixed mortgage...
You forget margin calls (mortgages with margin call provisions are illegal in California, and probably some other states in the US).
Basically, your mortgage says you have to maintain N% down. So, if the house price drops enough, you make a balloon payment or the bank forecloses, and sells the house at auction.
Once margin calls start triggering, there's an automatic sell off of whatever asset is impacted, causing more margin calls and a feedback loop.
90% of Britain's pension funds were hours away from being zeroed out by margin calls a few weeks ago. The Bank of England intervened.
It made for some great reading. This is why the UK gov't keeps walking back the mini-budget, and the IMF is making noises usually reserved for failing dictatorships.
I wish the "it's all supply side" meme would go away. With Western countries importing millions upon millions of people from other countries--and sometimes, implicitly importing them with wide-open borders like the US--the demand side is at least as much at fault. Western country birth rates are already near replacement levels; we shouldn't have to be building more housing in the first place!
The US is below replacement rate on 3rd generation+ families, and would experience an aging crisis like Japan if it were not for immigration. You're 'wide open borders' statement is just a dog whistle.
As someone currently sponsoring my immigrant spouse, I can first-hand tell you: the US immigration process is probably a lot more complicated, slow, burdensome, and frustrating than you think it is. It's expected to take 18 months and over $2,000 in various fees before my (currently undocumented) spouse will get a green card, and be able to begin working legally in this country.
> Millennials are in their prime family-building and house-buying years.
They have less earnings and savings than the previous generation as compared to the price of homes at the same time in their lives. While government intervention in the USA has adjusted the requirements to get a loan approved, it will not be enough to keep up with rising interest rates. Prices have to come down for millennials to make purchases. This will cause a "house-price" slump.
Traditional institutions, like home ownership, marriage, and religion, are fading in their appeal.
In the case of home ownership, the benefits depend quite a lot on the number of years the property will be owned. I'm not sure what the numbers are now, but when I bought and later sold my house, I determined that 6-7 years was the minimum duration that made home ownership better than just renting.
People change jobs more frequently now than in the past, and consequently they tend to move around more often. That makes investing in a home more risky, as it's really unclear if one will still want to be in that home/location in 5 years. Renting, by comparison, is less risky. It may be less economical over the long run, but not if you would find yourself moving every small few years.
Also, the remote work thing is not going to decrease; if anything, it will increase, reducing location pressure (and consequently reducing the value (or rate of increase in value) of homes in certain areas). That implies even more risk for homeowners in those areas, as they cannot rely on ever-increasing values.
"Traditional institutions, like home ownership, marriage, and religion, are fading in their appeal."
I think you might be reversing cause and effect. Millennials are less wealthy, and thus less able to purchase homes, get married. Traditional religious affiliation is declining, but it's debatable to what degree religious impulses have declined and to what degree they have simply found new forms of expression (e.g. into astrology, QAnon-style "theories", "General Artificial Intelligence", spiritualized ecology, etc.)
"People change jobs more frequently now than in the past, and consequently they tend to move around more often."
This is a false statement. The decline of residential mobility and its impact on labor market dynamism is a hot topic in U.S. economics research today.
> e.g. into astrology, QAnon-style "theories", "General Artificial Intelligence", spiritualized ecology, etc.
Most of all: College. Not only does it share a lot of the practical value that the church historically provided (community, fellowship, teaching), but notably it carries a similar fear-based belief system whereby there is a lot of social pressure to attend and it is accepted that if you don't attend you will face the scorn of the economic deity; the modern day version of "you will go to hell".
The specific "higher power" may have changed with time, but the human behaviour certainly hasn't.
My guess is that moves will go down even further over the coming years. Anyone who bought or refinanced a home over the past decade would need a hell of a good reason to sell and buy a new home in a new location with interest rates going up like they have.
I think that’s a good thing. Hard to build communities of anonymous transient people. Who cares if there is a park and cafe or you get to know your local representatives if you move every few years.
Home ownership is fading in appeal due to price, not because of social changes. Most people do not want to live in a concrete cave stacked side by side and underneath other concrete caves. They want space to go outside and enjoy themselves and do what they want to do. People change jobs more frequently but they usually stay in the same metropolitan area and if a job is worth enough to get them to move, the job usually comes with relocation benefits.
You seem to be equating "home ownership" with single-family detached homes, but that is not what the term means -- you can own an apartment flat as well, it's called a condo.
Maybe, but few people truly want to live in a condo. They're what you settle for unless you're old enough that you can't maintain a yard or regularly partake in outdoor activities anymore.
While I don't doubt the majority of homeowners prefer single-family homes, I've known a fair number of condo owners (and renters) over the years, and none of them were "settling" because they were too old for yard work. Some made that choice for financial reasons -- condos often cost less than roughly comparable SFHs even when you figure HOA fees in -- but many made that choice because they prefer urban or oceanside living. My former roommate of many years now lives in a loft condo in a dense urban area, and it is more or less his dream house. Currently I live in a SFH on over an acre of land in rural Florida, and while there are some lovely things about it, I would trade it for a condo in certain cities in a heartbeat. Not everyone places a high priority on being able to smoke a brisket in the back yard.
Yes, this is all anecdotal, but I can't help suspect that you're doing a bit of "this is how I feel, so surely it's the way everyone else feels". :)
Being that in the SFH neighborhood I live in there are a ton of homes that are serviced by lawn care companies, I don't think lawn maintenance is a determining factor.
It's about utilization of the space. If I want to smoke a brisket, I'm not getting far on an apartment balcony, and a pool party isn't the same when you just invite people to the shared one in the complex.
That's true, but not universally. There are places where one doesn't have to live in a concrete cube. Instead one can buy a home and have a space to go outside.
It sounds like true freedom is the life of an itinerant drifter - no ownership of anything and no social connections to tie you down; a bit ironic it would seem to me.
It may be, from a purely self-centered perspective (and I can appreciate that). However, hobos, drifters, and homeless generally force large externalities on the rest of us--i.e., it's not pure libertarianism.
Anecdotally, most of my older relatives spent 20+ years working at the same place. Meanwhile I’ve had 4 different employers in the last decade and don’t know many young folks in tech who have stayed with a company for 5+ years. (Why would you if you can only move up in position or salary by job hopping?)
In my anecdotal social circle, which skews older millennial with no tech representation outside of myself, I only know of one person who has jumped around to several jobs. A small handful have changed jobs once. The vast majority are where they started, 15+ years in now.
The boomers lived through 11% unemployment. It may not have been job hopping by choice.
Am I reading you right? You are saying that the vast majority of people in your social circle have been in the same job for 15+ years, and yet they are under age 50?
That would be astonishing, unless you are in some really unique industry.
Perhaps if it's one of the big consulting firms, maybe. They start right out of university and then follow a career track which can easily go 15 years to partner level. And for those willing and able to live that life, I imagine they don't change jobs as often as others.
Seems so. I don't see it being all that astonishing. Where else are you going to go? For normal people not in tech there aren't a thousand startups calling your name. There might be one or two competitors that aren't able to pay any more and would be a lateral move at best, which isn't worth the risk of hopping unless things are horrible where you are. A fair number work for government, so that's your only option save completely changing careers.
Table 2 pdf will also be of interest - Table 2. Percent of employed wage and salary workers 25 years and over who had 10 years or more of tenure with their current employer by age and sex, selected years, 2012-2022
> In 1983, more than 1 worker in 3 aged 35 to 44 had been with the same employer 10 years or longer and almost the same ratio of workers 45 and older had worked for the same employer 20 years or more
> Among the principal findings:
> One worker in 6 has been with his or her employer for at least 15 years. Among workers aged 45 and over, nearly one-third have been with their current employer for 20 years or more.
> 2022, about 1 worker in 4 aged 35 to 44 has been with the same employer or longer, which is almost the same ratio as workers 45 to 54 working for the same employer for 20 years or more.
> Amount the principal findings:
> One worker in 18 has been with his or her employer for at least 15 years. Amount workers aged 45 to 45, less than one fifth has been with their current employer 20 years or more. This climbs to slightly more than one quarter for workers aged 55 or older.
Depends on the industry. For many people in IT, changing jobs every few years is pretty standard, as is relocating if a good enough opportunity pops up.
Agreed. Prices might fall relative to the wackiness of Covid peaks that were hit in the past year or so, but the long term trend will be for prices to outpace inflation unless a building spree hits due to demographic changes.
A bright light I'm seeing is that material costs have largely fallen back to pre-covid levels. There are a few bits that are expensive or hard to obtain (windows), and the labor market is still aging. But still, the cost to build in many areas has fallen dramatically.
This demand effect is certainly real, but is going to be weighed against the higher rates effect. A lot of the increase in prices was purely mathematically driven by the falling interest rates. The monthly payment if you get a mortgage has now doubled for most people. There's no way that's sustainable, especially as most first time buyers were already stretcing to their limit. All it takes is a belief that prices might fall to put off buyers a year or two and balance the demand side of the equation enough for prices to fall. House prices typically fall slowly though, as sellers are reluctant to sell at first and buyers just start waiting. Seems we are already seeing that impact on transaction volumes drying up.
Wait, we are in the aftermath of a recession? From where I am standing we are in the thick of it with a long road ahead of very uncomfortable economic pressures restricting personal upward mobility. What person is looking at a 20% increase in living costs, high interest rates, and houses that were priced for low interest and more money in people's pockets?
Reality is people can't afford the pre-recession prices, so they will rent and ride it out for a while longer which will put downward pressure on people trying to sell and the market will meet the demand that way.
Or institutional buyers will just continue absorbing housing stock as it goes on the market, and converting it into rental units. Squeezing more people out of ownership and into permanent rental.
I do wonder how many people can afford that vacation home without making use of Airbnb (or other vacation rental type system) to help with the payments...
If millennials were as wealthy as earlier generations at the same age, I think you'd be right. But millennials hold about half the fraction of national wealth that the baby boom generation did at the same age.
> in the aftermath of the Great Recession, not much new housing was built.
Notably due to the Great Recession aligning with record high (at the time) food commodity prices, which saw farmers outcompeting home buyers for development lands.
Food commodities have completely smashed those records over the past year or two and if that continues we will no doubt have farmers willing to bet big, which again will constrain housing development.
What will be interesting is if we are able to get our food supply issues under control. Food prices have been known to drop like a rock before.
I’m slightly surprised by this comment. The main story I see online is more like ‘the places that people [with reasonable amounts of money to spend on property] want to live are in or near the centres of large cities and land-use policies in those cities mean that it is very difficult for developers to build significant amounts of property, so it mostly doesn’t get built’. Obviously there aren’t farmers rushing to convert car-parks in San Francisco into wheat fields.
But perhaps what I’ve read is just wrong or biased towards the kind of wealthier youngish people who want to live near the centres of these big cities and can already afford to rent there.
I don't think they are at odds with each other. A city not being able to easily sprawl into the surrounding farmlands, as they have historically done, puts increased pressure in the city centre.
Maybe you prefer the city centre, but if you could build a new home in the suburbs for pennies on the dollar, it would be hard to pass up. But when building that suburban home costs just as much then there is little reason to compromise.
There is still a lot of sprawl happening, to be sure. But when competing for use, you're going to pay a lot more, which in turn drives up the cost in the city centre. Prior to 2007 when food commodities first started going nuts farmland was significantly less valuable.
Cities don't stand as islands. They exist within a much larger world.
People complain about what they can't get, not about what they are getting.
Around here we have something like 500+ new dwelling units in the last few years, and we're pretty small. Other areas all over the country have been building like mad.
I think near is the key. 5 years ago It used to be that the city core was cool now city cores are just a dumping ground of empty offices and societies rejects. We’re in another era of sprawl this time driven by for from home convenience
Sort of, the bigger problem in the US is that the US market is short something like 6 million houses due to zoning rules.
Volume is going to dry up significantly, and prices will go down a little bit - but there won't be a deluge of forced sellers like there were in 2008 because most people are on long-term fixed-rate loans. The majority of sellers will be divorcees and estates, as individuals chill in their 2.625% APR 30y fixed's - or own their homes outright.
Unlike 2008 we're not coming off a deluge of building, quite the opposite - and unlike 2008, most people don't have 5 houses on variable rate debt.
tl;dr: Prices will go down a bit, but the market is so short housing, it won't really matter.
Longer term anyone who buys at 7% APR will just refi down when rates drop - and probably cash-out refi at that.
Another big factor here is that the boomers are starting to die off. The oldest of that generation is 77 now and 80% of them are homeowners, so the next 20-30 years are going to see quite a lot of wealth (including homes) pass from boomers to their GenX and Millenial children.
Yes, more than a few will be lost that way. From what I've read though boomers as a whole want to stay out of assisted care facilities, probably because many of them saw their own parents rot in such places. My own parents are near the leading edge of the boomer cohort (they're 75) and it's a common feeling among their friends.
Also, the grim reality is that you have to live long enough to need assisted living. A life expectancy of 78 sounds good on paper, but by the time you get to your late 60s and early 70s people in your age bracket are dropping pretty quickly.
They may want to stay out of assisted care facilities, but late life decline makes independent living difficult to impossible for many.
They may try to put it off as long as possible, but it will catch up to them. And then it does not take long for the costs to consume their would-be estate.
And the irony is that it's the system their generation built for their parents.
Thanks for pointing out what almost no one else does. Younger generation out here with their beaks open hoping to catch that lucky break of passed down Boomer wealth, but I think you're right on. Healthcare will capture a huge amount of that wealth, part of it is being inflated away, and there's always the looming threat of increasing taxes or changes in laws to make sure Millenials aren't so lucky.
Hopefully this discourages investment firms from buying up housing stock[1]. To me the long-term danger for housing affordability seems to be that individuals will be priced out by institutional money.
If interest rates are up then you want a comparably higher yield (ie rent as % of purchase price) on the property (otherwise you could just earn interest on the money directly) and so that’s either a lower sale price or a higher rent. The rents you take in will mostly be determined by the market and it likely wouldn’t be a good investment to buy a house to rent it if market rents suggest you’d make a lower yield than buying similarly risky bonds.
It’s a bit of a different story if you’re just buying the property on the expectation that its value will go up better than other assets. There are reasons to expect that might happen (old people typically own more property and vote more than young people and they tend to care a lot about the value of their property going down so governments often have policies to try to ‘help people buy homes’ which allow people to afford higher prices which helps to keep the prices high) but it does seem that something has to give eventually (and eg it seems like there has been a bit of a change in Californian housing policy recently).
Generally I would expect an institutional investor to be more sensitive to things like interest rates and price when making purchasing decisions than a potential owner-occupier who has to live somewhere and may be more sentimental about certain things investors don’t care about.
One thing we always collectively fail at addressing is how to classify housing in a special category of goods, where simple free-market rules don't apply. Things like rent-control are in this direction, yet we never articulate what the goals are and the compromises we're willing to make.
Allowing the next generations a good start in life means that everyone that wanted houses to be a great investment need to take a loss, there's simply no way around this and we should collectively accept this.
I'd also be for completely different taxation levels depending on if this is your first, second or third home (properly handling even if first buying before selling within x months, so you only have a single home), if you're a company, if you're a foreign citizen that merely wants to snatch some random safe property.
Some problems really need a complex, evolving and carefully weighed solution, and housing really has been shamefully abused so that the haves screw other the not-yet-haves.
Taking a bath on a home sale isn't the only solution. Make it easier for people to build houses. The majority of old houses were built by the first owner. They bought land and built a house the way they wanted not following thousands of regulations dictating how a home must be built. If you build a shitty house, well, good luck selling it. If it falls down thats your own damn fault. All of the ways we have learned over time that houses can be built better should just be shared knowledge and recommendations for somebody wanting to build a house. Every requirement a builder must follow means it costs more to build and less people are capable of following all the rules. Where I live if you build something that doesn't follow code you get fined for every infraction. That's a disincentive for people to build.
Remove costly regulations and you get more houses.
If you know anything about building a house you'll know that; 1) not everything shitty is visible, and 2) not everything shitty can be understood by homeowners, otherwise we'd need no codes/minimums (we'd all be perfect architects/building scientists/craftspeople).
I could get behind removing almost all zoning, but code is just sensible.
Code is an accumulation of things we have learned to make a house last longer and be generally safer. That doesn't mean a house that isn't built to code is less effective as a house. Infact most houses older that 20 years old will no longer be up to the current code.
I have built a house. If somebody is building a house for their self they will make it as safe and sturdy as they are able. Somebody building a house to sell will cut cost wherever possible to make more profit.
I would be fine if building code was administered more like Underwriters Laboratory. Let people build however they want but give the option to certify it is up to the code at the time it was built. Not all homes would be certified but there would be more homes. Over the long run the majority of homes would be certified due to the higher value certification would carry.
Penalizing undesired behavior is much less effective than incentiving the desired behavior.
> Taking a bath on a home sale isn't the only solution. Make it easier for people to build houses. The majority of old houses were built by the first owner. They bought land and built a house the way they wanted not following thousands of regulations dictating how a home must be built. If you build a shitty house, well, good luck selling it. If it falls down thats your own damn fault. All of the ways we have learned over time that houses can be built better should just be shared knowledge and recommendations for somebody wanting to build a house. Every requirement a builder must follow means it costs more to build and less people are capable of following all the rules. Where I live if you build something that doesn't follow code you get fined for every infraction. That's a disincentive for people to build.
> Remove costly regulations and you get more houses.
There's a YouTube channel.. our little homestead I think is the name.
They built separate studio apartments for each of their kids on the same lot.
They used earth bags and the costs for one was 5k, the other 8k and they're pretty amazing for being something sturdy and safe to live in, and being made of dirt and mud I think they're probably fire proof too.
This is what I want to do.
I'd also like to help other's do that through a collective or something where everyone builds their own home and helps others build theirs.
"House-Price" is a terrible metric that only house sellers really care about. Everyone else is more concerned with monthly total housing costs. If house prices stayed the same and interest rates increased 2-3x that means monthly payments for new mortgages also increase. Buyers are unable or unwilling to pay the higher monthly cost so they bid less and the price comes down but their total monthly payment does not decrease.
In some sense this is a transfer of wealth from home owners/sellers to banks/lenders and hopeful and prospective first time buyers see no benefit, aside from maybe smaller down payments.
When you’re talking about the price of the most expensive purchase most people will ever make, it seems like house owners (around 2/3 of American households) would be quite interested in the topic.
First-time buyers benefit from both the decrease in down payments and the easier ability to pay down principal as nominal salary grows and/or if interest rates fall during the mortgage term.
Sure, but I think the point is that a perspective home buyer ultimately rationalizes the cost with monthly payments. It is harder to wrap your mind around paying, lets just say, $500,000 over 30 years as compared to paying $1,300 monthly. When your considering purchasing a home and how that relates to your budgeting, a flat $500,000 over 30 years is meaningless compared to, okay, this is how much money will be going out of my bank account each month.
When I buy a car, I don't think of it in terms of $20,000 over 5 years. I think of it in terms of $350/month over 5 years.
In a market where sellers have an advantage over buyers, buyers have to compete using the highest monthly payment they can afford which allows them to pay the highest price for the home to outbid other buyers.
But outside of that type of market, buyers are not trying to pay more for a house just because they can afford a monthly payment.
At least in CA your property tax is, roughly speaking, based on the last sold price. The lower the price the higher percentage of it is covered by your savings.
Bring it on. As a first time buyer, I don't even care about prices going down as much as I care about being able to actually buy a home that I want without feeling like it's a blind gamble.
I want to be able to look at a listing, talk to the realtor, have a scheduled showing, and put in an offer at list price with inspection/appraisal contingencies. You know, like how normal life was forever until the last 5 years.
As a current homeowner in a state that only tempers rising property taxes I would very much like the assessed value of my house to drop as I like my neighborhood!
Of course if it doesn't and I get priced out then I get to pay off my mortgage and find a new place to live with a nice little cash bonus!
I also like the idea of deferred property taxes... that is, you can choose to limit the rate increases and pay the difference at the time of sale. This way you can stay in your neighborhood but you don't get a giant cash bonus for your role in creating inefficiencies in the housing market.
wouldn't this basically be a state operated reverse mortgage? A financial instrument like that available under 62 would be interesting because as it is now it really feels like a "heads I win, tails you lose" situation. Any policy change that lowers prices gets a bunch of people upset about losing value and anything that raises them gets a bunch of people upset about having to pay taxes commensurate with the value they gained.
That said I could see how this would create a mini prop 13 situation where people don't want to move because they would have to eat a big jump in property taxes.
And many jurisdictions it doesn't matter what your house appraises at, because when yours goes up everyone else's goes up, and they allocate the property tax based on the needs (budget) of the community. So if your house was 1% of the total value in the town, it will remain 1% even if it tripled in price.
5 years? The norm here has been 10-20 bids on a house, with an all-cash offer from foreign investors behind a faceless LLC, for like 30 years. Where are you living?
>5 years? The norm here has been 10-20 bids on a house, with an all-cash offer from foreign investors behind a faceless LLC, for like 30 years. Where are you living?
In the major metros, sure. But I'm talking about 3rd tier city suburbs.
Every area is different, some places the norm is to price the house low and then take the highest offer, other places price the house high and then take the highest offer (that will be below the asking price).
Arguably if the house doesn't sit on the market for about 3 months it was priced too low, and if it sits longer it was priced too high (this can also depend on if it is empty or inhabited at the time).
>The point I was making is that houses sold quickly regardless of how low they were priced relative to comps.
And my point is that speed is a feature of any sellers market, bubble or not.
I think it is/was a sellers market, but don't think it is a bubble that will pop.
It might go down some or sideways, but it wont be disastrous.
For those that sold out of stock to buy a house, their homes could loose 30% and they would still have come out ahead.
I don't even see a reason for a recession yet. We are forcing this slump on ourselves for no reason. If some aspect of the economy is fundamentally rotten then of course a recession is imminent. However, there is nothing like that now. Very low unemployment, a genuine reason for inflation (supply chain issues), low supply coupled with a very sudden need for more space causing housing price jumps. The only issue is excess cash in the market because of government stimulus. That could have contributed to the excess jump in stock market which also led to the home price increases. However this doesn't mean we should be in a recession.
Ok, now the interest rates are going up to counter the inflation. I am not convinced it will dent anything other than home and car prices. In this scenario, is a full blown recession actually going to happen if so why?
> I am not convinced it will dent anything other than home and car prices.
It will. All corporations will see their debt servicing cost go up. A lot. They'll start the layoffs. How many posts on HN are about layoffs at this and that well-known tech company?
Once people fear for their job, they'll start being more cautious with their spending. Less demand means prices will go down.
At least that's how the Fed thinks. They are trying to destroy demand. They know they can't increase supply (obviously), so they are going after the demand. If 3.75% is not enough (spoiler alert, it won't be enough), they'll go to 4.5%. And then to 5%. If it's still not enough (spoiler alert, ... it won't be enough), they'll go higher.
You may not be convinced, and it looks like a lot of people are unconvinced, but the Fed means business. All the members of the Fed know history, and know that in the '70s the Fed lacked the backbone to keep the rates high enough long enough to beat the inflation. They were trying to have both low inflation and some semblance of growth. They got neither. Stagflation for a whole decade.
People who forget history repeat it. Powell will not let history repeat on his watch.
Powell does whatever the popular narrative tells him to and he’s been that way since he took office. The idea that he’s fundamentally a hawk at his core is totally absurd. If that were the case he’d have enacted tougher policies a year earlier when many economists were saying he should and that there was absolutely no reason for the fed to be buying tens of billions in mortgages during a housing shortage with record low unemployment.
Now because he’s lost credibility and everyone thinks he’s a joke he’s acting tough. But in reality he is totally reliant on cpi data. As soon as that comes in (nobody knows when many have been eager to call a top for several months and continually getting burned) the narrative will shift for the fed to slow down or cause a major recession and believe me they will. The sad reality is that this fed is not made of rigorous economists who have some read that nobody else does. They have absolutely no idea what they’re doing or what their policies will or won’t do down the road. So the best they can do is try and preserve market order by giving the appearance of having control and keeping stability.
It’s like dominoes- cpi data moves rates which move the stock market. It’s all one trade.
Great points but imagine how much their eyes will pop once the budgets or spending reports come out and congress finds out how much they’re spending on interest payments on their debt.
I’ll do the math for you: 4%/yr of 31T means they’ll be paying 1.24T in interest expenses per year. Of the 4.9T in tax revenue, 1.24T of it or 25% of it is burned on interest payments on the national debt.[1]
From a totally armchair perspective, the large of quantitative easing to cover various covid-related situations in combination with the supply chain issues also caused by covid have resulted in The inflation figures we've been seeing the last three quarters.
This level of inflation isn't sustainable, therefore interest rates are increased to reduce average Joe's disposable income so they're not buying as much stuff and / or being more careful with their spending and / or just can't afford as much alongside their mortgage or rent increases, which, in theory, should lead to inflation dropping.
The scale and chosen areas of belt tightening by the proletariat, will cause an equivalent scale of business insolvency and employee shedding in those areas, which will add momentum to the already running scenario.
By most indicators the US is already in a recession, and the Fed is (controversially to some) still talking an aggressive game when it comes to rate hikes, so I'd confirm the inevitability of a recession.
I think it's possible that those who wield the power would like a recession because it can allow further concentration of power by increasing the wealth gap; provide an opportunity for those like Black Rock to increase their portfolio of real estate once mortgages start defaulting. It's also a reminder to the covid quitters to "get the fuck back to work" (ironic for when jobs are being shed rather than created, but creates that thirst for becoming employed, which has its own societal momentum, and serves business owners well).
Also, the way debt works, and the way stock market valuations work, and the level of debt that seems to be in the system, a little bit of fear goes a long recession.
According to my Dad, younger generations have never experienced a housing environment where your home value goes sideways for a decade. With rates this high and going higher. We may experience our first example of buying a house and selling the houses 10 years later for about the same price.
Millennials have never known different until very recently. To them, housing wasn't something that appreciated at all. In fact, it's so common for millennials to say things like, "just waiting on another housing bust." It's like they think 2008 was come cyclical event that you just need to wait another year for.
I held a similar attitude towards housing and rented throughout my 20s because every single homeowner I knew bitched about how buying a house was a loss for them. People didn't make money on houses outside of rich coastal cities. Heck, I'm trying to unload a parent's home and they are disappointed that the house they lived in for 16 years has only appreciated by maybe $10k.
Covid was the when young people outside of NYC and Cali learned that it is smart to get into the housing market earlier, rather than later.
This depends on your local market. Where I used to live I saw a sideways on my home price for nearly a decade. I watched other larger markets going up YoY. Your market conditions will probably be different than others.
My parents bought a house in the early 70s. They paid about 12,000 for it. That same house now is being appraised at about 210k. However, if they sold they could take that money and buy a comparable house for about 210k. Housing is a good hedge for inflation. It is a mediocre investment vehicle, unless you happen to win the live somewhere where supply is not where it needs to be lottery.
I bought my house and paid for it as quick as I could. The saving on the rent alone was worth it to me in my area vs the cost of the house.
It is an insane investment vehicle if you keep using the leverage and prices are going up faster than inflation (which is part of the problem).
Arguably they might not be going up much more than inflation once you calculate all the various new requirements for new buildings, but it's still a problem. In absolute long terms, housing can't become completely unaffordable.
Long term it is wildly affordable. 0$ rent is way better than some of the rents I have been seeing lately. Owning property and renting it out is a nice 'gig' if you are into that sort of thing. But if you have 5 properties and one bad tenet they can wipe out 2 years of ROI very quickly (had family members this happened to).
Holding value is also not necessarily a bad thing. You want a pyramid of investments. With your base being solid boring things. Then once you have those nicely going. Risk is not really that risky. It is not 'i am not going to eat today' it is 'darn lost that investment life goes on'.
It depends on the risk model you are making. My current one involves keeping a house and then using the money I would use for rent as investments. Think of whatever you are renting or your payment per month is. Now think of what could you do with that extra amount of money per month. I have had hundreds of people tell me the same thing. That there are these great investments out there where I could turn the value of a house into 1500-2000 a month with low work. Yet no one points them out. They 'are out there'.
My risk model is zero debt and no rent. Giving money to other people for borrowing is a risk model I used when I was younger. I no longer do that. It is like getting a 50% raise on the same income.
Or as a old saying says "a bird in the hand is worth two in the bush". I am well into 7 figures on wealth instead of low to mid six figures in debt. You can play debt in that way. But it is risky and has lead many to ruin. However I traded debt for a reliable income at a fixed pace that was well above my spend level. I curb stomped all of my debt own a nice house, nice car and paid for with no debt. Debt is thief of your future potential. Debt can be used for that sort of thing but you have to use it extremely carefully. Most people dont. I was not among the gifted of picking the right things to invest in. I also know to almost the penny the potential I lost. Because hindsight is 20/20. It is nearly identical to what I have. Because I basically became the lender instead of the borrower. Debt is now a tool for me instead of a worry.
Can't speak for the US, but here, the mentality was always "trending up with highs and lows" which caused people to believe waiting was better after several years of increases, not the idea that housing didn't appreciate in the long term. Along with record appreciation, people didn't just think it would crash eventually, but it was downright necessary for most to buy.
I don't understand. Housing has been going up steadily for the past decade. 2007-2010ish was the only time it decline, and 2018-2019 had a flat region for some places (not where I live though).
The disconnect is because there are very large regions of the US where land price had stagnated or even went down in price for the past few decades, but there are also very large regions of the US where land price increased or skyrocketed.
Many people experienced different things. Of course, the regions where most people were moving to and where most house sales occurred experienced higher land prices, but the regions where land price was stagnating or declining would have fewer sales in the first place and hence not reflect in the data, but the people there would still be experiencing it.
So you just have large numbers of people experiencing different price movements depending on where they live.
Because you're looking at the USA market as a whole. The regional view tells a much better story because then you don't have movement in one region offset that of other ones.
You can pretty clearly see that most regions there were long periods of housing stagnation and decline, followed by quick price jumps, then back to stagnation.
And look at how wildly the NE region fluctuates. It regularly moves 10% up or down in any given year. And sometimes much more, prices moved from $403k to 566k in one year (2016->2017).
Whether you did well or not in your housing purchase comes down to luck. Yeah, in aggregate, over long enough time periods, housing does well. But your individual situation will vary dramatically.
Happened to us and our neighbors - bought end of 2005. 2015... house estimated for... about the same as we paid for it. It wasn't "steady sideways"... it was 'crash and recover'. But it's certainly happened to many folks - buy then sell years later at roughly same price.
Yeah, bought my first house in 1988 and a decade later was still looking at a steep loss, but by luck sold for a profit at the market peak in 2003. In 2011 it resold for less than in 2003.
Every millennial lived trough 2008, plus also 9/11, also a global pandemy and now +10% inflation. Everything with real wages being stagnated since the 70's
I think we could give those "young latte-sipping kids" a break..
By definition no. In reality not either as you have to live somewhere - it might feel like your "investment" hasn't kept up with inflation but your next house hasn't gone up either so is actually good for the average person. Of course if you have a large mortgage the investment is small anyway.
> might feel like your "investment" hasn't kept up with inflation but your next house hasn't gone up either
Unless inflation is zero, this won’t be true. Commodities will have gone up. Labor will have gone up. That fundamentally raises construction costs for new homes. For existing home prices to remain flat that requires land values to fall.
Add in real-estate transaction costs and maintenance (which are also fundamentally exposed to inflation), and yes, one will lose purchasing power in a flat housing market. Intrinsically. And relative to someone owning productive assets. (I say this as a homeowner.)
You should also factor in "imputed rent," which is what you would have spent on housing had you not owned a home. Subtract your property taxes, mortgage interest (+ PMI if you had it), and upkeep costs from how much it would have cost in monthly rent to live in your home.
Generally, even if you lose money from inflation, property taxes, transaction costs, and maintenance, imputed rent will put you ahead in the end.
It can be quite instructive to "excel pretend" that you're buying your house and renting it to yourself.
Buy a few landlording books and read through them, and then vigorously track everything that would be a "rental expense" if it were a rental property in your spreadsheet, then at anytime you can "back out" what you would have had to pay in rent assuming some % profit. Add that to rental comparables from your area and you can get quite a good idea as to the true cost of home ownership (and renting).
Or you can do a simple version of it by calculating what the IRS would allow you to deduct as depreciation and assume that's roughly the maintenance cost.
Are you forgetting about the 10% of sale price haircut that accompanies real estate transactions? Agent fees, taxes, title insurance, blah blah. If you sell your house for what you bought it for in the US, you end up with ~90% of what you started with.
Yeah, and what the above is forgetting that most of the payment is interest. So it may have been no different than paying a landlord. My experience renting houses in the 2000’s was that my rent was about the same as my mortgage payment + taxes would have been for the same house. Add in maintenance and it was several hundred per month cheaper to rent. Even the house I live in now I rented prior to buying and my rent was 12% less than my monthly mortgage payment. It really only made sense for me to buy because my city was seeing 10% yoy rent increases that I expected for several more years, which meant locking in a price with a 30 fixed gave me and expected monthly savings.
The "old rule of thumb" was it took 5-7 years for the break-even on buying - if you were going to stay in the house less than 7 years renting would probably win, if you were staying more than buying would win. Of course appreciation and other factors change this; if houses are appreciating quickly buying will be better, if they're stagnate or dropping rental may be better (but then you can get rental inversions where the cost of renting goes way below or way above the cost of buying).
At some point buying is basically arbitrage between the mortgage rate and the inflation rate.
> buying is basically arbitrage between the mortgage rate and the inflation rate
It's a play on rental yield, i.e. rent versus price. Inflation is relevant, but more precisely considered as the cost of capital (opportunity cost of your down payment plus lost/gained yield on the difference between ownership costs and rent). Everything else is adjustments. Whether it's financed with a mortgage or cash is important, but the fundamental analysis still holds.
Yes I did forget but I'd suggest the transaction costs aren't significant when you hold 10+ years and are just another cost of living. If you rent you have to pay fewer transaction costs but you have rent rising so that has its own problems.
Yes, assuming the rental market has sufficient competition and can take advantage of existing homes. Local rental property monopolies or regulation (either governmental or from private organizations like HOAs) that prevents the excess homes from being rented can cause a rise in rents that is not related to underlying housing prices.
Depends on your situation. For example, I bought a house and my mortgage+insurance+repair amortization is less than I'd pay for renting a similar sized apartment or home. I had to lock up 30k in my down payment, but I'm saving $500+ (probably closer to 1000) a month vs renting. That's equivalent to 6k a year, or >20% return on my investment.
Be sure to save that extra money, houses have a way of turning you into a cash machine for Home Depot holy shit there's always something to fix or spend money on
Owning a house is essentially like having a bottomless pit to throw all your excess money into. I didn't really appreciate the advantages of renting until the dishwasher and the oven broke in the same month.
Don't get me wrong, you spend that money on stuff you use, but the TCO is much higher than the mortgage payment.
Only if you're a robot that sleeps in a closet. Otherwise you have to live somewhere during that time. And every penny spent on rent is literally just vaporized into nothing.
We have a ways to go to get back to "normal" whatever you define that as.
Locally and anecdotally, I've noticed houses are sitting on the market much longer, and I'm starting to see "price lowered" emails from Zillow. We've definitely entered a cooling off and people are moving less.
I doubt this. The super rich have too much money and need this converted to assets. In the UK at least you're not just competing against would be first time buyers but multi-national companies wanting to expand their portfolio and the super/ultra rich.
We need to tax the rich to redistribute the wealth. Own more than 3 homes as a single entity? Mega taxes etc.
Tax the rich doesn’t work like the utopic stories tell.
Typically what happens is the rich leave to a place with less taxes or where they’re not seen as the mortal enemy of X local government. Then all that tax money they otherwise were paying goes somewhere else, and the state is left with a net-negative tax inflow.
that's the top 1% of people ordered by how much tax they pay, not the top 1% most wealthy. We tend to tax earnings rather than wealth and thus the super wealthy get by with minimal taxation. This should be fixed imo.
Also if you try to dodge US taxes by renouncing your citizenship you owe a large one time payment so it doesn't work so well. So an exodus of super wealthy individuals seems unlikely.
Most wealth tax proposals are to take a percentage of a person's accumulated wealth annually.
A property tax isn't what people are talking about for a wealth tax.
I do believe that you should be able to keep accumulated wealth. We are all equals under the law. Once there is a wealth tax the definition of wealthy will be continually decreased so the government can take more. The government has an insatiable appetite for spending other people's money. It will always demand more.
Like I said, that isn't what is bandied about as a wealth tax. Elizabeth Warren proposes a 2% annual tax for net worth over $50 million and 6% for over $1 billion. It is literally taking a percentage of what they own every year. Don't forget, they would still pay taxes when selling assets.
A price-slump in emerging markets with a ton of startup money is practically guaranteed. Bangalore's real estate has been propped up by speculative investor money leading to overpaid employees for a decade, and I can see it collapsing soon. Canada is probably in a similar situation.
US cities' housing value is entirely captured within the local committees' ability to block any and all construction nearby. If zoning limitations are eased then the American housing market will crash irrespective of the nature of the economy around it.
Few cities have been building housing as fast as Toronto. The main issue is whatever housing toronto builds, the government turns up the immigration tap twice as fast.
Aside: I was in Vancouver last year and I was amazed at all the high rises. It seemed to blow Seattle out of the water. Seattle and Bellevue have high rises but every other suburb is just flat. Whereas every burn of Vancouver seems to have towers.
Yeah Toronto and Vancouver have both been building incredible amounts of housing. Really puts to shame any US city. Still not enough to satisfy the immigration firehose tho.
Over 80% of Vancouver is zoned for single-family homes. The few plots of land downtown that can have density have been crammed with towers. If you leave the downtown core the density plummets
While local effects like startup money or industry can definitely not be ignored locally, everyone is lifted by the tide of fed money printing, modulated by their exposure to the US markets.
Minus some really out of the way places (Iran? Central Africa?h that’s pretty much everywhere.
As money starts to tighten up again, expect a LOT of house pricing headwinds.
If you analyze the house prices in "fast-moving" economies (bay area, nyc, etc.) you will see prices have corrected rapidly. However relative to the interest rate, these asset prices are still somewhat inflated. However due to the cash-heavy nature of buyers in these specific markets, you can expect less correction relative to interest rates as cost of borrowing is less of a concern.
Now move out to more desirable places to live (say, San Diego with it's great sunshine) and you will see asset prices are blown way out of proportion. This is a very geo-specific asset class, so you will have to look relative to the geo.
Unfortunately or fortunately, it has a lot to do with the interest rates and inflation. What you will see is with the layoffs and for folks who have taken out ARMs to optimize the cost of borrowing, a lot of folks are in for a big wake up call.
Could be wrong but the Economist doesn't usually make predictions like this? This article doesn't have the same depth they usually write to. The reasoning behind their predicted price slump is that interst rates are going higher, making homes less affordable. But I think they stop there without looking at any other factors. Such as, the tempering effect of rising commodity and labor costs of new builds. The other half of the article is about knock-on effects of higher interest rates and the predicted price slump.
I guess I'm not saying their predictions will or will not come true, just that they don't support them.
The article is in the Leaders section, which is a section with 4 or 5 short summaries of important weekly news. They do special reports on all sorts of topics although unhelpfully in this case their last one on housing was back in 2020 (https://www.economist.com/special-report/2020-01-18). Probably due another one soon.
> Such as, the tempering effect of rising commodity and labor costs of new builds.
Understated from my experience. I recently had a relative going through the process of having a new build and the builder had very many excuses and delays due to scarcity of materials and costs. I was pretty sure the relative was getting scammed, or that the builder simply wouldn't be able to deliver.
They did finish that home eventually, and made a lot of progress on the development of that neighborhood. And all their issues were corroborated by what's seen in commodities circles and general supply chain issues. I think they could have gotten the resources they needed at a higher bid but they had to operate within the budget as they had collected money and credit in advance of the supply chain constriction, which would be passed down to the forecast of what the home would have cost.
I'm very skeptical that there's going to be a prolonged slump. What happens when the next economic recession/crisis comes, and the Fed starts lowering interest rates again? Couple that with how wages are adjusting for inflation, and you're going to have a floor on prices that'll probably be higher than most people think.
There's nothing guaranteeing the Fed will try to juice the market the same way they've done in the past; for example the government could decide to try to counter unemployment with direct employment instead of lowering rates, or sudden reductions in immigration (for whatever reason) could cause unemployment to remain low even as rates skyrocket.
The main floor on prices is the cost of new building, if that starts to drop than house prices will drop with it in the areas where building is occurring, which helps slow down the rise everywhere.
>There's nothing guaranteeing the Fed will try to juice the market the same way they've done in the past;
There is a ton of political will to ensuring the market keeps rising.
Significant portion of voters are invested via retirement account.
Politicians are invested via their own investments.
Rich people own public equities,
And finally, hundreds of billions of dollars of unfunded liabilities for taxpayer funded pensions are invested in the market. The worse the market performs, the higher taxes have to be to pay for all those good plated retirement benefits.
If anything, I would say the only guarantee is that on a timescale of 5+ years, government leaders will always choose to sacrifice purchasing power of currency to keep nominal asset value increasing.
Underwriters are much more strict after the 2008 crash and it’s become more difficult to qualify for a conventional mortgage. New home builders were building less overall and focused mostly on building expensive ($500K+) rather than affordable homes. In addition, cash buyers still make up over a 3rd of US home purchases which include many investors. A healthy drop in prices might happen in the near term but any kind of doomsday scenario is unlikely to play out IMO.
It would be astonishing if they didn't. 30-year rates have gone from <3% to 8% in the past 2 years, and will rise further. If they go to 10%, that means a monthly payment more than twice what you would have had 2 years ago.
Home prices can only go as high as the top bidder can afford. How many people are ready to buy the same house at the same price for twice the monthly payment?
Maybe globally true but if you live in a strong developed country I disagree. Looking back at a +-150% value increase in 20 years I'll take a slump but every other indicator like more pop and less being built works against this theory. Ofcourse I can see this in less desirable areas of the world being true or regions like china with massively bloated housing sectors.
>First, because gummed-up property markets are a drag on the jobs market. [...] the uncertainty makes people hesitant about moving
It could also mean that a huge supply of real estate makes it easy to move for everybody who doesn't own a house
>Lower house prices also hurt growth in a second way: they make already-gloomy consumers even more miserable.
Or it frees huge amounts of capital for those who buy a house when prices are low.
This is all insignificant to a coming disruptive change. China and India are incentivized to develop more efficient modes of housing. The west is cut off from that development by insisting on maintaining the status quo with zoning laws.
Even if western citizens remain in their countries, the west will lose the migrant science workers when they move to where housing doesn't take half of your income.
As a consequence, the housing market can collapse even more.
If the market was something remotely non-dysfunctional a slump would be expected.
BUT, why are thousands of buildings/units empty in NYC that have been empty for years with an outrageous rent? Because among other things the owners win/lose less when the building is empty due to taxes plus many are with a noose around the neck waiting for the big sheik to come around and buy their building for a non-sense amount of money.
A version of that exists all around the country, plus builders "stopped" building new houses around a year ago, so inventory will disappear and prices will stay or even go up.
Apartment buildings are the exception for now but it's a gamble and with the high costs of everything ( now including finance ), I don't see how those prices will slump.
NYC vacancy is around 4%. It's effectively impossible to get below 3% due to people moving and renovations. The meme that the issue is vacant units is pretty much just straight up false. Yes, there are some luxury condos that are largely vacant, but those barely effect the rental prices of normal units other than maybe encouraging building luxury instead of normal housing.
I'm interested to know the source of this figure. It sounds typical for a reported rental vacancy rate. Is this not just the percentage of available rentals that are not currently occupied? This would exclude things like second homes, homes on the market, homes being renovated, land-banked homes, etc.
See Melbourne's Speculative Vacancies Report[0] for a comparison (in some years I've seen this report indicate that vacant properties in many areas are over 10%).
edit: I forget which year's report it was, but they did once find a very strong positive correlation between the rate of capital gains and empty properties. I.e. the stronger the capital gains in an area, the more likely properties were to be left empty.
> BUT, why are thousands of buildings/units empty in NYC that have been empty for years with an outrageous rent?
There are absolutely not thousands of buildings empty in NYC. It's also worth noting that there are 3.52 million housing units in NYC. As the other reply points out, rental vacancy is lower than 4%. However half of those are either being renovated or are rented/sold but not yet occupied. Of the 3.52 million housing units in NYC a paltry 103,000 (less than 0.2%) are pied-à-terres or seasonal/short-term rentals. On the much maligned Billionaire's Row there are some 350 empty condos.
This line about "thousands of empty units" is a sort of innumerate argument made by DSA/Working Families Party types to oppose all new construction or up-zoning.
The housing market is quite peculiar in many aspects.
The article is right about the effect of interest rates, they tend to push the prices up when they are low and having high interest rates will reduce demand of people who are using houses as investment assets.
This is far from marginal but also not the complete picture.
Most homeowners are living in them, and most potential home buyers are looking to do the same.
The core (and thus the long-term trends) of the supply/demand game in the housing market is directly related to demography.
Short term panic can occur, but unless people are dying _en masse_ or you wait long enough to see effect the demographic slowdown in your area, I don't think the housing market is susceptible to crash durably.
I think it would be an excellent thing if it could stabilize.
> The cause of the crunch is soaring interest rates: in America prospective buyers have been watching, horrified, as the 30-year mortgage rate has hit 6.92%, over twice the level of a year ago and the highest since April 2002. ...
Bond markets tell a very different story. In the US, the yield curve is either inverted or flat from the 1Y treasury all the way out to the 30 year. Parts of the curve have been inverted on and off for a long time.
This is pointing to much lower rates ahead. Mortgage rates, too.
The global house-price slump, if it occurs, will happen not because of high mortgage rates, but in spite of falling mortgage rates. The driver will be job losses and financial turmoil.
A slump is likely. Or specifically a correction followed by a period of slow/no growth, but I don't expect a crash similar to 2008. The last housing crash was primarily due to a combination of overleveraging and overbuilding. The cost of nails, wood, and labor hadn't increased to the same degree.
The recent asset price increases have been supported by broad inflation. I don't see how prices drop significantly without monetary deflation. If we see deflation at scale, then everything is in trouble.
Homes prices are not falling fast enough to offset the increase in interest rates. Homes are more expensive is some areas now than in Feb 2022 as a result.
Bought a new home in a community that isn't finished (signed contract last November, closed in July). The prices they are advertising for the new homes under construction seems to be holding firm, but it also looks like those homes are sitting on "available" far longer than my street did. I had an investor come to my door asking about the area; the price he was telling me he was quoted was eye-poppingly low.
Experts have been saying this every year for the past decade. It pays to just ignore these predictions, imho. Had you heeded these warnings 5 years ago , home prices have have up so much that even if prices do fall, you will likely still not be able to buy at the price you had originally planed to buy. Waiting too long means having to buy at a much higher price , even if there is another correction.
People don’t care about prices, they care about payments and low interest rates kept payments low and pushed prices higher.
The Fed was sucking up MBS and keeping mortgage rates artificially low for far too long. That is over and a typically 30 mortgage is now close to 7% with home affordability being at record lows.
Unless the Fed drastically changes course and rates lower, prices will absolutely come down.
> As that edifice of capital crumbles, consumers are likely to cut back on spending. Though a cooler economy is what central banks intend to bring about by raising interest rates, collapsing confidence can take on a momentum of its own.
Sounds like hitting 2 birds with one stone. Or maybe we don't need to hit one of the birds, not raise interest rates, and thus not cause the other problems mentioned?
If there is a housing crash coming, the builders around me tend to think otherwise. Lots of new construction starts.
I think as it often happens, the most likely outcome is that lower priced areas will see the brunt of the value decrease, while higher priced neighborhoods may at best see a moderate speed bump.
"When people cannot move, it saps labour markets of dynamism"
I wonder how much new WFH norms will reduced this impact? I suppose the concern is those working in jobs with the most need to live close to their place of work are those that are least able to move.
It's logical as it costs more and more to maintain a house
until now we were moving to gigantism (houses, cars, ..) (like species without predation), but now hitting the planet's limits we will reduce our dependencies
It turns out when i is greater than 0, it decreases the present value of future payments. Who knew? I've been working in this industry for five years and I've never seen it happen.
I missed the news for when there was a house building boom. Oh, there wasn't? Then the law of supply and demand will keep housing prices high. People don't like being homeless and now the Boomer's children are having children and demanding more housing.
You're forgetting that the demand side of the equation is very sensitive to the cost of credit.
Put it this way. We know for example that a lot of homes are rented out as AirBnBs. We can safely assume that many of those were purchased for that purpose and that the purchase was funded with borrowed money. The AirBnB income and anticipated capital gains made the borrowing worthwhile. Is it still worthwhile if the cost of credit doubles and capital gains seem much less certain? It's likely that we'll see a lot of investment and speculative demand disappear leading to lower demand overall.
In other words, demand isn't just for properties as homes - it's for properties as investments as well.
The number of housing units under construction in the US is at a record high [1] and the number of people entering their homebuying age is going to slowly decline for the next 20 years [2].
Demand is a function of money, not counting up people and dividing by houses. The supply of credit and discretionary spending is drying up at the same time.
Insane considering current prices. Which is really to say that current prices are insane. They won't stay that way if interest rates don't go down again soon.
Seeing a lot of long term analysis in these comments, I would add: Whenever the boomer sell-off begins, that will be the paradigm shift. It may be in 5, 10, 15, or 20 years.
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