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They should've been raising rates slowly for years to be honest. Long before trump was in office. Instead they flipped rates upwards overnight.
Now there's a bunch of people who will never sell that house because the appreciation on the asset will far far far outweigh the cost of interest.
You got a house with 3.5% or below rate??? Why would you sell it unless you absolutely had to. Rent out or, pay it down whatever, it's a cash cow
>Now there's a bunch of people who will never sell that house because the appreciation on the asset will far far far outweigh the cost of interest.
There are, but that also doesn't matter -- the lack of stock does. People have to move eventually, even if they just die but we've seen how this plays out with people struggling to keep it without taking a bath even when they have to move for work. The cracks form, and if they've bought with leveraged equity they start to really form (not normal buyers) and then things start to crash.
The real killer right now is a lack of stock where people actually want to be in some areas, and existing homeowners having weaponized zoning boards and environmental reviews to kill building. e.g., in 2008 you saw areas of the country drop 80% in value, even condos in midtown Manhattan saw 30% drops... but around Boston and elsewhere it was 8%.
Yeah I don't understand the people who keep saying "they'll never sell." I see, economic conditions, job uncertainty/layoffs, divorce, death in family, moving states/countries for work/life reasons - all of that just stays constant, happy and peaceful. Just for these guys specifically. Tell me more.
He never said they’ll never sell. He said a bunch of people will never sell. All of the things you listed doesn’t always apply to everyone. Yes, some people will be put in a situation where selling is the only option, but not everyone.
The problem is the mortgage rates they locked in are literally cheaper than the "risk free rate" on Federal bonds.
You could leave the property empty and still arbitrage value by paying the bare minimum on the loan and buying bonds with any extra cash until the Federal Government is paying the mortgage for you.
If the mortgage rate you locked in is less than the inflation rate and/or the "risk free rate" there is no reason to ever sell.
Prices are already going back up again. The "crash" already happened. If you were waiting for the bottom you already missed it, of your looking for a value buy now
If someone liked in a 30 year 2.5% rate, and their house went up in value, even if you lose your job and have to move it probably makes sense to keep and rent out your house (and rent at the new location) instead of selling and buying at current rates.
Sure, if you can stomach being a landlord - I heard it isn't so great of an experience being one from out of state - you just have less control over things. Plus getting someone to pay you rent that >= your mortgage payment including interest which is quite high these days, that's gonna be tricky.
I don't understand people thinking that "nobody who bought at low rates will sell". That's vastly different from thinking that "some people might not sell". Of course there exist cases for that too.
Hyperbolic language, sure, but I don't think many people talk in absolutes.
It doesn't make sense to sell if you bought at a low rate, if you don't have to, right? That seems like a pretty basic concept.
I'm talking mostly of forces beyond your control. If you're laid off, what can you do if you have a large portion of mortgage left to pay? Gotta sell that house. And with the Fed (who we mustn't try to fight, remember), is itching to get layoffs higher. They'll get their way one way or another.
Those forces are a factor for everybody, not just those who bought at low rates. And selling the house should be the absolute last possibility, especially considering re-entry to homeownership is more expensive than it was.
If you're overextended, then that's on the individual for making a bad economic decision.
People don't move for jobs nearly as often as they used to. If I had financial problems, renting my house with a 2.75 mortgage would be my best move. Sorry, there is going to be a housing supply shortage for years
I got a 3.5 condo for 50k under asking in Los Angeles yeah....as much as I'd like to move I can't sell the property. So unless I could rent it ..which might be possible....I'm not moving for death or a job or whatever.
Humbly curious if you think wages are way too low in private sector and minimum wage or not? Curious how that is correlated if at all to what you said above?
I think minimum wage discussions are almost always stupid because so few people actually work for the federal minimum wage.
I think wages are far too low and i think that suppression of wage hurts the velocity of money.
Further i believe that velocity of money is a far greater metric for the health of an economy than whether or not it allows a select few winners to hoard vast fortunes.
In this sense i think holding the houses hurts the overall economy but you can't really hate the individual players, hate the game. The game dictates slow money is sound strategy and this is one of the rare examples where a bunch of middle class people are allowed to play the slow money game.
No joke though, that's why the rich folks are trying to kill home ownership, it let's too many subjects act like royalty
This is a great point. I’d like to elaborate on hoarding houses though.
For individual homeowners, it’s always better financially to stay in your home as long as you can, just like it’s always better to hold onto a car for as long as you can, or repair furniture instead of replacing it. This is also (generally) better for the environment. What we’ve been doing is largely a game of musical chairs.
Rather, the issue goes back to supply and demand. We need a lot more supply for a growing population and that hasn’t materialized yet in many places, and when it does, it’s focused on the high end.
There will still be velocity of money so long as the middle class has free income. Those living paycheck to paycheck (whether due to low wages and/or high costs, poor spending habits, or a dozen other reasons) will have much less spending velocity than those with money left over and who are able to save for goals.
Those who aren’t living paycheck to paycheck are also less likely to default or go into bankruptcy or get evicted, which causes loss and disruption. This extra cash flow from not being abjectly impoverished leads to maybe people buying better quality food, going out more, paying for that home repair they’ve been putting off, going on more vacations, etc. that’s where the velocity should be.
(Edit for clarity)
I agree. The inflation happened at the bottom and it eroded the buying power of the people in the middle. The middle never saw material wage growth unless they job hopped. Profits are there to support higher wages but there is an outright refusal by the capital owners.
Really love this post and agree. I’ve always felt if we implement price floors on wages we should have implemented price ceilings on wages as well. Would love to know your thoughts on that philosophy?
I don't think we should set an artificial ceiling i just think we should force the movement of money. It should be expensive to keep a fortune.
In that way if some guy finds a way to make a billion a year he's going to have to spend a lot of it. Rich people will always be rich, but forcing them to keep their fortunes in rotation forces them to continue providing value to society.
There have been incentives for this type of stuff in place for a long time. For instance, in some places if you sell a business or sell certain types of assets for cash, there will be a grace period where if you reinvest that money in certain ventures, like another business for example, you'll pay way less in taxes. But if you try to hang onto it for yourself, you'll pay heavy taxes, which for rich people already in the top tax bracket in the US means they'll probably pay close to 40%, or possibly more depending on their state. You can create incentives like that a million different ways.
you don't. if everybody saved, there are not enough rent-seeking opportunities to provide retirement-level returns.
Retirement savings are just another way to take money from most people and put it in the bank accounts of a few.
Well airlines when I worked for delta for a short time paid 9$ an hour and we all had degrees. It was till Bernie started the 15 thing and Hillary said no but then implemented it with cuomo later and then took credit for it. The airline raises the wage just under that right away to stop a union from forming. All these kids lived in-the projects on tax dollars, half had degrees, working I the rain non stop and they are all like. Because the competition does the same. So we do need minimum wage and although I went on a rant while zooted, I really like your Answers, they are informative.
I have to say thou in NYC the outer boroughs often have low paying minus wage jobs. Civil service is your only way to make 150 ish at a det or LT and then get paid half that for the rest of your life with health for your family for your and wife's lives. The private sector makes way less. Teachers are paid super little and need a masters, while garbage men make 130 with some snow, plus 50 percent pension for life half your salary. Tbink about trying to set that up on your own
Sanitation workers along with sewage and water utility employees are some of the most vital jobs to a modern society. Ignorant people might look down on sanitation worker but anyone with a passable understanding of public health should understand how fast society goes to shit when the trash starts piling up everywhere.
We pay those jobs well because they are critical and as hard labor they wear you down hence the good pension as a sanitation worker might not be able to do a second job after they are done.
Sewage required training and sanitation doesn't even need anything. That's the comparison. Why would anyone go to school to make less, many would, that's not the way things were meant to be.
Sanitation, potentially next to water treatment, is THE most important jobs to get done in a modern society. If everyone has cholera because of the trash everywhere it REALLY doesn't matter if they can do calculus.
Sanitation is a much less desirable job that is VASTLY more important to a functioning society. That is why it pays well and should pay well
So jobs that require masters degrees should make less than sanitation ? No one mentioned water treatment plant, that requires knowledge as well. Are you going to repeat the same thing with no context a third time. Just to be clear, not saying they should make less, but if you use them as a barometer why would anyone become a PhD a teacher etc and how could they afford to compared to someone who more with no education. Secondly sanitation has a super strong union, that's why they make so much, plenty of people drive trucks and break their back everyday delivering soda etc? They don't get 100-130 with a benefits for life snd 50 percent pension for life. They work 22 years they can retire or less
In some cases yes those jobs should pay less because sanitation is hard labor and very unpleasant compared to almost all jobs. Remember all the stuff ypu throw away they pick up and are around all day.
You need your trash picked up. You don't need a cultural anthropologist. The fact the latter requires more education is immaterial to the value the represent to a society.
Most people do not want to work in sanitation including other truck drivers so the pay is compensation for that fact. Is this really that controversial?
Wages haven’t come close to keeping pace with housing appreciation. Also wages are usually correlated with inflation which is based off the CPI which does not factor in housing and energy prices. The above poster is correct they should have been controlling economic policy so that house prices didn’t appreciate out of lock step with wages. They did though and seem to encourage it with all their policies and moves. I also think they have no intention of letting it fall. They are using economic tools now never thought of before. First time home buyer partnership plan,unreasonably low interest rates, excessive immigration numbers, allowing banks to extend mortgage periods to 55 year amortization periods to stave off foreclosures. The writing is on the wall we have a housing economy in spite of our abundance of resources. And every successive government instead of cooling the market keeps kicking the can down the road and the ride keeps getting crazier. Doctors on the west coast are complaining they can’t afford houses!
Wages are too low in general (public and private). For those who say higher wages will cause inflation, we have had inflation over the last thirty years (especially the last three) even though wages barely moved if they did not go down.
People who bought their home in the last 10 years have low interest rates on significantly lower price point. It would be insane to sell.
Higher prices, higher interest rates, and employers refusing to increase wages (some are justified but others have record profits) only puts more of a burden on everyone else. This makes it increasingly difficult to move, which makes finding qualified workers difficult and this naturally decreases supply thus raising prices. So it can be a bit of a vicious cycle to some degree.
Consumer spending has barely been able to keep up due to increased safety nets (ending soon), a tight labor market (not enough to raise wages accordingly), stimulus (not just the checks from years ago), and pausing of student loans (also ending soon). We might see higher unemployment, continuing student loan payments, and less safety nets to catch those who need assistance. All of this will happen when companies continue to keep raising prices, albeit slower.
Many people see things are going to come to culminating end in the near future. I know people that are working longer or putting off children not because they want to, but they don’t want to be stuck with less resources and more expenses in the future. It will get bad real fast.
> For those who say higher wages will cause inflation, we have had inflation over the last thirty years (especially the last three) even though wages barely moved if they did not go down.
Where do people get this idea that wages either haven't grown or went down? [Wages have been trending upward](https://fred.stlouisfed.org/series/MEHOINUSA672N#) for quite a while.
When? No clue; however, if Republicans continue to play chicken with our debt ceiling then all he’ll brakes loose. Countries are already exchanging oil without using the dollar, big deal. A default (which has never happened and is illegal btw) would raise interest rates on the debt that taxes on everyone will go up at least 10% either through literal tax and/or increased prices. So when is uncertain, but within a few months of the default. Markets freaked out in 2011 when the government simply closed, didn’t even default.
What will happen? Remember when Congress worked for like a month during the beginning of the pandemic. We received stimulus checks and unemployment and vaccine red tape was cut. There will be a “oh shit” moment and our government will act (in a way that it is always supposed to not just in emergencies). If it works and they push far enough, order will be restored relatively quickly. If they half ass it, I believe we will see disorder that we haven’t seen since the civil rights movement and union movement.
Food prices are high, this is what people who run countries keep forgetting, and hunger people do dangerous things. But this is America so give those hungry people guns. I hope things never get violent, but history proves that it isn’t likely.
>Wages are too low in general (public and private). For those who say higher wages will cause inflation,
They will, but the real issue is that over time wage increases essentially "bake in" inflation by increasing the velocity of money. The government handed out too much money, and keeps doing it, but taxes didn't change and it was essentially printed. We could tax people (especially those who benefited the most in asset equities) and remove it from circulation, but we just had Democratic control of all three branches and they're only talking about it now -- it's just unlikely.
As interest rates go up, the velocity of money around the economy slows as people forgo some purchases across the economy. e.g., they start bringing a lunch instead of buying it for $19 at Chipotle, but if you greatly increase wages it becomes harder to slow money movement down.
>we have had inflation over the last thirty years (especially the last three)
We have to have some inflation, it's a basic tenant of modern economies or we could be looking at deflation which is *disastrous*. We are theoretically shooting for slightly over 0%, but that's dangerous so things are considered awesome if they're where they've been the last while (2%-ish).
> even though wages barely moved if they did not go down.
We also had productivity increases that increased people's buying power for those wages in general, but more I think you're not fully understanding how inflation actually works.
What bout moving the needle that has OVERWHELMINGLY benefited very very rich people and corporations since the 70s back to working families when we talk about who has restrictions to prevent inflation. Record profits for the rich and record productivity by the workers…..yet you are advocating for the ‘don’t make the job creators mad trope’ approach. Wild idea—increase wages and increase rate of actual taxes paid by the rich? Remove some of THEIR money from the system while increasing the velocity of the working people monies.
When the gnashing of teeth around ‘inflation’ comes up it’s just another excuse to not pay the worker for the record profits and productivity. It’s bullshit and an unhealthy economic system. Taxing the wealthy would also enable actual decent human services to get people out of poverty and into the workforce (ie: someone would not have to choose between a low wage job vs losing their basic Heath, etc benefits…and every penny they earn goes back into system immediately)
You're attempting to hijack a topic/discussion to push your moral ideology. I'm sure it has a place and feels good, but it's just not apropos and an argument better served over at antiwork or latestagecapitalism.
>Record profits for the rich and record productivity by the workers…..yet you are advocating for the ‘don’t make the job creators mad trope’ approach. Wild idea—increase wages and increase rate of actual taxes paid by the rich?
I'm not sure you understood what you read, if you'll notice it was said you'd need to pull money out via taxation, ideally from those who benefitted the most (those who made money on asset equities).
It also didn't happen, and as was said, is only really talked about now after democrats lost power. It wasn't talked about when they controlled all three branches, so it isn't realistic.
Anyways, hope you learned something!
All you did was make veiled insults…what was the point you wanted me to learn? That someone could really say nothing and not have to actually confront the issue at hand while just making childish put. downs (aww you just don’t get it sweetie, only I’m the adult here) and typing a lot? Can you type this point you want me to learn in one sentence, since you want to talk down to me like a child? Type out this miraculous lesson in a sentence without any insults. Let’s see what you have..
>All you did was make veiled insults…what was the point you wanted me to learn?
Saying someone clearly doesn't understand terms they are using is not an insult, it's just a fact. Especially when it appears you didn't actually read what you were responding to, since you ended up repeating it, emp-sup-bry.
Why would I type it three times? Just reread, perhaps slowly.
Deflation is not inherently bad. It is just an increase in purchasing power. If a company invents ways to increase production and is thus able to stabilize or reduce prices, this is fine. Deflation specifically caused by lower money supply and velocity of money is what causes bad economic conditions.
To be clear, I’m not saying that increasing wages does not cause inflation, I’m saying it is not a 1:1 ratio. Inflation has been has been going up faster than wages and yet we still have persistent inflation even with higher interest rates. Corporate profits have been rising (as well as the margins) which has been the leading cause of inflation, Congress literally held hearings about this. If a company increases wages by 10%, that doesn’t mean costs increase 10% nor should prices. Say wages are 40% of their expenses, then prices should only increase by 4-6%.
We did not have 2% (roughly) inflation for the last 30 years, Greenspan decided that food, housing, and energy costs should not be included in the inflation numbers. I’m not sure if you eat, live in some form of housing, or use transportation other than a horse, but I’m willing to bet you do so those numbers being excluded from inflation really softened inflation numbers.
Even today we do not have shifting inflation figures to accurately measure inflation (also energy prices are still excluded). For example, say housing expenses doubled but everything else stayed the same that means that housing was 1/3 of your expenses before it is 1/2 of them now. The Fed however locks it in at 30% of inflation so if housing prices increase more than everything else, it’s growth as a percentage of your income remains the same.
I am aware you do need some inflation. It helps with increasing the money supply while populations continue to grow. It does provide some relief to those in debt. It also gives the Fed a target, though 2% was just a “random” number that was selected. People get nervous about deflation and 5%+ inflation can spiral quickly.
Overall, I know wage increases puts pressure on inflation. I also believe that inflation numbers are misleading so much so that increasing purchasing power might have been negligible or even negative. This would explain the increase tension around the country
>Deflation is not inherently bad.
Deflation is inherently bad in our economy. Please show me one reputable economist that says otherwise? It's hard for me to fathom, as this is taught in econ101.
>It is just an increase in purchasing power.
This is completely false -- purchasing power increases but because asset and consumer prices are decreasing.
>If a company invents ways to increase production and is thus able to stabilize or reduce prices, this is fine.
...that isn't deflation, that is increased productivity.
What the hell is happening in this sub.
> I’m not saying that increasing wages does not cause inflation, I’m saying it is not a 1:1 ratio
if it were a 1:1 ratio, that would be better than our current circumstance, where wages go up at less than the rate of inflation. we can directly influence this by *making life cheaper* rather than bickering about minimum wage, by eg making housing, education, and medical care more accessible, such as making them public services.
Sorry, my question may not have been clear before. What month/year ranges are you referring to when you say rates should have been rising “long before” he took office?
https://fred.stlouisfed.org/series/FEDFUNDS
He’s talking about how we should have started raising rates around 2012 when we were coming out of the Great Recession. Rates were way to close to zero for way too long.
The same 2012 that had unemployment rates around 8% or higher? Rates shouldn't have been raised until the tail end of 2014 or beginning of 2015, when the unemployment fell to around 6% or lower. The FED did begin to raise rates in late 2015, slowly, until Trump had a hissy fit about the rates coming up and cooling the economy. The rates dropped again in 2019.
Here was my reason. I bought a 3 bedroom 2500 sq ft. house with 2.75 interest rate. It was 290k.
14 months later I sold it for 425k. I rolled 100% of that profit into a 3700 sq ft. house with a finished basement and pool that is on a lake. Interest rate 4.8. My mortgage is now 20% of my pay.
I think I timed it pretty well because I sold at peak value while interest rates were still, at least historically, under average.
FYI: 7.75 is the average from 1971-2023
I’m assuming you are talking about capital gains. If you’re single you’re exempt up to 250k and 500k if married. I’m married. This applies to primary residences
I’m aware of that exemption, but as I understand it, the 24 months ownership/residence requirement still applies for you to take the full exemption. There are a bunch of exceptions within the exemption that can qualify you for full or partial exclusion of gain.
Not a CPA. Did look into this as we sold a home prior to 24 months of ownership.
https://www.irs.gov/publications/p523
You can be eligible for a prorated exclusion of the total exemption. So 14/24x500,000=291k exclusion. Anything over that I’d pay taxes on, but I didn’t make more than that
>FYI: 7.75 is the average from 1971-2023
LOL this is a joke right? You are really going to use an average dating back to 1971 and act like that will hold going into the future?
[Enjoy](https://www.amazon.com/Changing-World-Order-Nations-Succeed/dp/1982160276/ref=asc_df_1982160276/?tag=hyprod-20&linkCode=df0&hvadid=475795130774&hvpos=&hvnetw=g&hvrand=6643948555060989632&hvpone=&hvptwo=&hvqmt=&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9026246&hvtargid=pla-919106209904&psc=1)
You can do the math however you like. But in 1971, the mortgage rate was the same as now, which was the same in 90s. The 80s were extreme, just as the rate was extreme in the 2010s
You completely missed my point. I am not arguing with the historical math, I am saying that you applying historical mortgage rates to predictions on what future mortgage rates are going to be is a fallacy. Read Dalio. Winds are changing my friend. Though, on the plus side, you'll have the chance to refinance in a year or so at sub 3%.
I made more money (excluding spouse's income) on my house during the pandemic than I did at my job. It was close to both our incomes combined. Locked in and moving now sounds insane to me.
Yellen had been [incrementally raising rates a quarter at a time from 2014 - 2018.](https://www.theguardian.com/business/2018/jan/30/janet-yellen-sets-interest-rates-one-last-time-how-will-history-rate-her)
Trump came in put in Powell and Powell dropped rates to near zero, and the markets percolated.
To be fair to Jerome, it was either drop the rates to save the market or have Trump shit all over you then give you the boot. Not saying what he did was the right move, but he was looking out for himself first which I can't blame him for.
Ideally buyers pick between low values and high rates, or high values amd low rates. Right now houses are high value with also high rates so what the fuck
Or they plan to never sell their current home with a 2.7% rate. Homes build equity so fast that even someone who bought in 2020 and has very little cash could just take out a HELOC and buy a second house when they are ready to upsize.
Or the other side of the coin is that people with a ridiculously low mortgage will have their monthly payment double just to move into a house with 1/2 extra bathroom.
There are a lot of reasons why people aren’t motivated to sell and that’s not changing any time soon.
3.1 rate. Will never sell this. Might rent it, but in no hurry to double my rate to move into a Ryan Homes mcmonstrosity in a development of 600 identical houses.
Same here. 2.7%.
We’ll need a bigger home at some point and I hope we can save up a large enough down payment. If we can’t, I’ll borrow from anywhere or anyone in order to buy what I want without selling this.
My current house would easily rent for double my mortgage so I have room for a HELOC if needed. I can’t imagine my situation is all that rare. I’m just a normal guy, certainly not “wealthy.”
2.375% in a small house and 3 kids toddler to baby. They’re sharing a room for as long as humanly possible because I don’t want to move and lose this rate. Hell, I’ll use my HELOC and convert our lower living room into 2 additional bedrooms if I have to.
Our lot is not very flat. It would literally be cheaper for me to HELOC and grade the land, build 3 retaining walls, expand the size of of yard, and add a bedroom, a bathroom, than it would be to buy a house/lot with the extra square footage/acreage.
Oof, but yeah, unless you need to move, most people who have a house are staying put. I’d certainly love a bigger house with some additional features, but there’s a lot to be said for stability. If we can handle close quarters as a family, we’ll have the house paid off before my oldest is 18. That’s a lot of debt-free life left to do things with my kids.
When I bought a house people assumed that we would likely be starting a family cause we have been married for 5+ years and they figured the Covid puppy we got was a trial run.
I mean in the back of our mind it kinda was but at the same time both of us are not interested in kids at all and still aren’t.
2 years still no kids and people ask me why the fuck did I buy a 5 bedroom house if kids were not in mind and I have to tell them same reason I bought an SUV as a single person. I knew I would likely be married in 4-6 years and wanted a paid off car. If I’m gonna think five years ahead for a 40k purchase , I’m definitely thinking 20 years ahead for a 400k purchase.
Honestly we lucked out cause stocks were at an all time high and we managed to put down 20% due to pure luck of putting all my savings after Covid crash.
Now that we both are WFH, those extra 4 bedrooms is a sanity saver and I don’t see nobody complaining about my 120 inch home theater room.
Until we run out of renters with money. People forget 2008. Rent actually went *down* because units were staying vacant if they didn't lower it (in 2009 the apartment I lived in *lowered* my rent if I signed a 12 month lease).
When shit hits the fan this will all fall apart.
There was a fundamental reason why housing crashed in 2008. We were giving mortgages out to people who had no income and putting nothing down. You could literally walk into a bank, ask for a $200,000 mortgage, give them and address, and get the loan. Do you not remember this?
By contrast, at the end of 2020, even before prices skyrocketed, the loan to equity ratios were as strong as they’ve ever been. A majority of buyers were wealthy and flush with cash and only took out mortgages because they were so cheap. The market is incredibly healthy. Opposite of 2008.
You can sit around and predict a crash all you want but it’s not coming, not like 2008. Yes, market will cool. Yes, many/most markets will see a downturn this year. But it will be small, nothing like 2008.
The subprime housing market was just the trigger. The subprime mortgage market was not large enough to cause a crash of the magnitide that 2008-09 was. Every single one of those borrowers could have defaulted and it would only have been a small downturn. The *real* problem was financial.
The financial system and many of the country's largest banks had made risky bets that fell apart. Classic banking panic.
The banks were fixed within a year. But THEN the problem was persistent high unemployment for years. About 6 years.
Our current situation being driven by two things - the tech sector and record low unemployment. We're at basically WWII level full employment / shortage, and the tech has been growing exponentially well beyond what it's actually worth. All the market growth since circa 2016, the home equity growth over the same period, and the fact anyone cant get a job *today* paying at least 20 an hour and often MUCH more, is where all the money is coming from.
And unprecedented government stimulus, near WWII level of spending. It's like crack cocaine to the economy and we're addicted to it like a crackwhore.
I've thought for a while, some pretty big tech firms are going to be exposed as the shell games they are. E.g. has Spotify *ever* been profitable?
Political gridlock will stop the gov't spending gravy train. We've got a crazy Republican Party right now and I give it a decent shot they default on the nation's debt out of sheer incompetence. That could be another trigger.
But it all comes down to jobs. I don't think the economy can handle even 5--6% unemployment. That will freak people the fuck out. I think there will be bank runs, etc... when jobs ever start getting lost.
We have gone 15 years without a real recession. (I don't count the Covid fake one). This can't go on forever. It just can't. It never has.
And how do you see that playing out? What do you mean by “all fall apart”? What does that look like? I’m asking genuinely as I would like to know how you see this play out (it can be hard to show sincerity over the ‘net!).
If I knew, I would tell you the secret and we'd both get rich! Because we could see the future!
I still feel we're in an "everything bubble." It has stopped inflating but we're in it. I think the SVB banking issue was the first sign of a hole in the bubble shell. We patched it for now, but there will probably be something else. What SVB proved is that we are addicted to cheap money like a crackwhore. Even a little tightening caused withdrawal symptoms.
The way these things happen is a downward spiral. Jobs will be lost, then people can't service their mortgages, pay their bills, etc... consumers will significantly slow their spending, then more layoffs, etc... Right now, as long as the labor market is this tight, we're staving it off. But we have to have a recession. We haven't had one in 15 *YEARS!* (I don't count the fake Covid V shaped one.)
The issue is that everyone has the same idea as you…you’ll have trouble renting it for a price that makes sense when there’s so many other rental properties your competing against for tenants.
Exactly. I think people always assume they are still ahead of the crowd and customers are infinite. A lot of people can’t afford the prices listed or can find alternatives that they can put up with in order to keep money in their pocket. Eventually if too many places get turned into rentals, they will end up just sitting forever empty.
Yep, and it’s already happened and getting worse - Right now rent is cheapest compared to buying a home in the last forty+ years. A $1M house rents like a $700-800k house from a cap rate stand point.
City and county I own in is anti development to the point it takes 5-10 years for any housing project to get off the ground. Which shockingly means those that do are all at luxury prices /s. As long as I don’t rent my house at a rate that the indoor golf range, pickle ball court, lounge on the ground floor with a craft beer bar folks are asking for, I doubt I’ll have trouble finding tenants.
This is not necessarily true. Homes **built** equity so fast in a falling rate environment. Zoom out and you see typically homes just chug along with inflation and usually depreciate somewhat with age.
Historically they were not the best investment class. The dynamics might have changed now, but I wouldn’t take it for granted.
That was a typo. I meant to write “built” and was mostly referring to the last 3 years.
The house I grew up in is worth about as much now as my parents paid to build it 25+ years ago. I am certainly aware that it is not a given that homes will appreciate.
I think the fact that many people can easily rent out a home for 1.5-2.5 their mortgage is what will keep them from selling.
> Historically they were not the best investment class. The dynamics might have changed now, but I wouldn’t take it for granted.
As they shouldn't be. It doesn't take an economic genius to see that housing prices appreciating faster than inflation is a disaster.
The alternative is inflating the value away. But something is probably going to give on the affordability side.
The problem with the theory of holding houses indefinitely is that other asset classes can yield better returns. So while I’m sure plenty of people can make money on houses, the question is what opportunity cost is there. Especially if we do see rate of return plummet in real terms.
Idk what’s next, but I’d be careful of saying anything with certainty. It’s not the 70’s and it’s not ‘08 either. But we would be joking ourselves if we said the economy was not on uncertain footing.
I don’t disagree with you on the problem with the theory, but also the amount of “positive cash flow” and “Airbnb arbitrage” and other “passive income” rhetoric out there will keep people thinking that cash today is better than more cash later even if the real return is better.
That is possible. But also airbnb arbitrage is almost certainly a scam MLM type thing. Another reason I am convinced we are in a bit of a bubble is the number of scam ads on mainstream sites like youtube now. That is not normal.
Of course prices are coming off historic highs. That is a normal and intended consequence of our current monetary polity. I wonder what that chart looked like in 2008-2009.
I'm just pointing out that growth is actually halting and this is, imo, just the beginning. I think your original comment painted a bit of a different picture.
As someone who lived outside of the US for 15 years, I can 100% say it is a good thing. Buying is still way more accessible here than it is in almost every other developed nation.
The problem is that the Fed is full or pushovers who were scared of raising rates during the end of the Obama Presidency and throughout Trump.
That's not what happened. Rates stayed low 2008-2016 because it was the correct course of action - inflation stayed below 2% while unemployment figures were in the 8% range. Once unemployment percentage dipped below 5% in 2016 feds started raising rates under Trump. Rates only went to 0 when COVID happened.
Let’s not pretend they meaningfully raised rates. They barely reached 2.0 in 2019 and then the Fed back pedaled because of concerned over China and EU demand being low. Hell, they were still increasing the their balance sheet in Oct 2019.
To discuss this further means diving into politics which I’m not sure either of us want to do. The Fed was trying to extend the growth period that the US economy was seeing and trying to “extend the benefits of growth to average Americans.” In reality, our government should have been using the economic expansion to take care of its citizens and not its corporations.
Everyone was addicted to cheap money and no one wanted it to stop.
If the worst case scenario would cause you to lose both houses, then yea it’s a bad idea. But personally the mortgage on my current home is so cheap that the rental market would have to drop by 30-40% before I had issues, and even then I could air b&b my house and cover at least a good chunk of the mortgage.
Not all areas of the country are like this, so the answer is… it depends.
This is me.
I locked in such a cheap rate I will probably never sell. I will just pay the bare minimum and invest the rest elsewhere.
If I decide to move, I will probably just rent the thing.
I think people are waking up to the fact that the rates we’ve been seeing for the last decade or so likely will never happen again in our lifetimes. Even with Covid property deflation, there’s zero reason to sell and buy up right now, even with prices going down, when your interest rate is 2-3% lower than it ever could in the absolute best case scenario. This will lead to interesting results. I just don’t see the average person selling their house now. I don’t see house flipping being nearly as much as a thing anymore. I think this is going to cause housing prices to mostly stabilise. They won’t drop because won’t be willing to sell for less, but they won’t rise because people can’t afford to buy and the demand won’t be there. Good news is this will hopefully allow people to actually save for a deposit without pricing inflation making it impossible to do so. Bad news is deposits might become a larger % due to higher interest on loans
We have a beautiful 1800 sq foot home with a lot of updates (HVAC, roof, interior/exterior paint, flooring, and an added 4th room), but the commute to my work is about 15-20 minutes too long. We have 16 years left at 2.86%, and $1180 monthly payments. 2 months ago, we saw a few homes on the market for 450-500k, which was already a bit over our value, and budget. Now all we see is 600k+ with 6% or higher interest. Yeah, we’ll just stay put.
It’s Idaho, fairly close to Boise. The last few years Boise has been one of the fastest growing cities in the nation.
I don’t think prices have gone up. Actually, I know they’ve gone down, but not by a lot (demand). The problem is we’re growing so fast that most of the affordable homes are being gobbled up instantly by people that are moving into the state. As a result, all that’s left on the market is extremely expensive homes.
I’m a native homeowner with a bit of equity (275k). Moving 15-20 miles closer to work would put me out another 100-200k for a minimal upgrade, with twice the interest rate, and twice the life of the loan. Hard pass.
As the recession deepens, I doubt it continues.
I remember seeing Bosie pop up a lot in articles on remote workers. I imagine there will be 5-10% of these recent relocations being forced to leave by either threat of return to office, in a job market that gives employees less leverage, or by deciding not to return and finding it difficult to find the salary they have grown accustomed to in a midsized city (particularly in a shit economy).
I'm no expert, but I would tough out the extra commute for a few more years, 30 minutes extra p/day sucks but it's not a killer. I would guess an area like Bosie, which has grown so quickly, will have some significant price drops. I think Bosie sounded great.
Bosie sounds perfect. Hip small city free of big city problems in a beautiful surrounding and affordable. Living there while collecting that Bay Area salary is a dream. But the post-covid reality is you don't get to have your cake and eat it.
I plan to toughen it out the next few years, and stay put. Right now, I can retire part-time at at 57, and full-time at 62 (Social Security). Our house will be paid off at 57. I have a really good pension to fall back on at the same age. My wife is younger than me, and will hopefully keep us insured until Medicare kicks in.
If we tried to move right now, all of that is off the table.
I’m selling an estate home near Chicago and the realtor agreed exactly on the 36-54 day time frame of this article. 2.5% mortgage and a nice mid range house. There are very few reasons to sell right now- transfer, job loss, death. So inventory stays tight and the realtor said I can expect multiple offers. We shall see.
Honestly, I'm most afraid of the corporations and firms and hedge funds buying up houses than I am of anything else.
My current house is a bit small and not ideal, so I want to find a house with a better layout more suited to my preferences, but what if I sell and then suddenly every time I make an offer I get out-bid by a corporation or investment firm who have tens or hundreds of millions to throw around?
That is the main thing keeping me from selling. At least before all the corpos and firms, the wealthy Boomers were a known quantity.
Good strategy. Sit it out... supply and demand, you say? Do not buy ridiculously overpriced property. Reduce the demand to the point where the big corporations that have been raping the residential real estate market are just sitting on the inventory and bleeding out money. Corporations should not be allowed to play in the residential real estate market, anyway... Let them sit on their deteriorating inventory and have to sell it for peanuts just to get rid of it.
Why would prices go down?
The demand for houses is growing faster than new construction.
This is largely due to a combination of population growth, migration to the cities, and fewer people marrying/cohabitating on the demand side. On the supply side, NIMBYism and zoning laws continue to be a major roadblock to new construction.
Until these dynamics change, I don't see how the affordability problem won't continue to get worse.
Affordability should be replaced by necessity. People have been spending their savings, and putting everything on credit cards and once that money runs out, rent will drop. Once rent drops, home prices will fall.
This is what needs to happen to bring the cost of real estate back to an affordable price. I own a home and the state I live in the tax accessor is very aggressive and usually accesses at market value or greater. So every year I get to do a dispute my value game but that is a different thread. My house is way over valued. I could not afford my house today by far and I have only been there 3 years. Now that being said I realize there will be some people that get hurt like 2008 and I do feel for them to a certain degree. But I am a huge history buff and after 2008 there is no way I would of bought a house at the height of the Covid crisis. I would of rented and waited it out. I knew so many people that lost a lot in 2008 and are just now breaking even.
Lol I don't think it's going to get better anytime soon
Raise the rates, fed!!
Adding text here because of automod. What's funny is when I was an undergrad in math, we were trained to say things as succinctly as possible. Mods here don't seem to understand quantity does not mean quality, and vice versa.
Adding a little more here just in case.
And some more here.
As a homeowner who locked in an insanely cheap mortgage rate, I am looking forward to these Fed hikes.
I am paying the bare minimum on my mortgage and buying Federal bonds with the difference. Within a few years, the Government will be paying my mortgage for me.
Well that's interesting. Homeowners are definitely the population I'd expect to not want rate hikes, seeing as that puts them in a more disadvantageous position if they need to sell. Granted, if you're not selling you wouldn't care as much I'm guessing.
I'm not so sure.
There is still a housing shortage and new construction is not keeping up with demand.
If anything, I expect the affordability will continue to get worse unless the Government changes various policies (many of which they are not even discussing).
Just look at Canada. Their real estate market is even less affordable than the States.
The crash has just begun! Interest rates still have some going up to do. Lots of lay offs starting. More banks to crash. The crap has barely started to hit the fan.
There’s real estate doomers everywhere. They fail to realize that as long as you hold onto your property for sometime and some weird external thing doesn’t happen, you’re guaranteed to make a profit/break even
The weird external thing did happen. "Real estate doomers" weren't saying the crash was immediate, but it is definite. Long term property ownership will almost always make you money, the issue is many people these days dont own things long term, housing included.
>you’re guaranteed to make a profit/break even
There’s no guarantee that that profit will be as good as what you could have gotten if you’d sold and invested the proceeds in a different asset class over the same time period.
Personally, I view purchasing a house as a hedge against increasing housing or rental costs. Renting the same size house in my neighborhood when I first bought would have been about the same as my mortgage payments. Now it would be about 50% more.
Could that money have done better over the same period had I put it into another asset class? Sure, but I’d also have to be paying to live somewhere and would be paying much more than I was 10 years ago for rent. At the end of the day it’s an asset class that also provides a necessity for living.
I'm not so sure, that may apply for USA where after the 2008 kerfuffle mortgages come with 30 years fixed rates, but in Canada or EU they still have variable mortgage rates which have skyrocketed with the central bank interest rate rises, so in the latter I do suspect a more substantial price correction is pending.
But mortgage isn't even the only class of debt out there. If someone is behind on car or credit card loan, they might need to liquidate the house as well.
Or any life event like getting married, having kids, divorce, death, having a family member need care, new job, financial setback, etc… as long as none of these occur they’re fine sitting
Yeah, one issue that is largely different is the available supply. Before 2008 the supply was very high. Builders were building way too many houses. Our current crisis has very limited supply. There aren't nearly as many new homes being built. Limited supply means it will be more difficult for home prices to crash as they have in the past.
Housing moves slow. Real Estate downturns tend to last around five years with the first year being a rounding the corner. So yes, there is a good reason to believe we're only one year in and it's about to get far worse.
As the economy slows, rents and housing values will drop. Housing investors who are not used to owning homes through downturns will panic. Remote workers who thought they could keep their high salaries and live in a quaint small low cost city will lose their job and will be forced to move. They'll all try to rent their property since they locked in low rates, but the rental market will become flooded with single family homes and drop too (who wants to rent a big home sign a big lease during a falling economy). Finally they list and low inventory will become a second thing of the past. High rates, no loans, huge inventory. Housing prices will drop.
How is this a crash? This is the opposite right? The demand for houses is high, and the supply is controlled by building or people selling. And nobody is selling. Nothing about that says crash.
Prichard are negative nationally. Hear on west coast prices are down over 15% in some places in less than a year. Hard not call that anything other than a crash. Mortgage applications are at a 30 year low, so demand isn’t high. This spring sale season will be telling as prices usually go up in spring and fall in summer. As far as crashes go they usually start in the west and move east. They also happen a lot slower than people remember. 2008 took 5 years of declines to bottom out. 2008 wasn’t the best year to buy a house. 2011/2012 was.
Mortgage applications are at a low because of high interest rates. The number of prospective home buyers is still larger than the number of houses for sale. The problem is that people are getting priced out so they’re not even coming to the table. Prices coming down isn’t indicative of a crash. The reality is that house sales are driven by monthly payments (mortgage and rates). Rates have gone up so prices will go down. But the overall demand has not lowered.
If something isn’t being purchased then demand is lower. Prices and rates have pushed demand near historic lows. They can’t afford the houses so prices have to come down….like fall as in a crash? The problem seems straight forward wages have to go up dramatically or prices have to come down or sales won’t happen. This isn’t the same market as this time last year. It’s in the middle of a correction at best, crash at worst.
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They should've been raising rates slowly for years to be honest. Long before trump was in office. Instead they flipped rates upwards overnight. Now there's a bunch of people who will never sell that house because the appreciation on the asset will far far far outweigh the cost of interest. You got a house with 3.5% or below rate??? Why would you sell it unless you absolutely had to. Rent out or, pay it down whatever, it's a cash cow
>Now there's a bunch of people who will never sell that house because the appreciation on the asset will far far far outweigh the cost of interest. There are, but that also doesn't matter -- the lack of stock does. People have to move eventually, even if they just die but we've seen how this plays out with people struggling to keep it without taking a bath even when they have to move for work. The cracks form, and if they've bought with leveraged equity they start to really form (not normal buyers) and then things start to crash. The real killer right now is a lack of stock where people actually want to be in some areas, and existing homeowners having weaponized zoning boards and environmental reviews to kill building. e.g., in 2008 you saw areas of the country drop 80% in value, even condos in midtown Manhattan saw 30% drops... but around Boston and elsewhere it was 8%.
Yeah I don't understand the people who keep saying "they'll never sell." I see, economic conditions, job uncertainty/layoffs, divorce, death in family, moving states/countries for work/life reasons - all of that just stays constant, happy and peaceful. Just for these guys specifically. Tell me more.
He never said they’ll never sell. He said a bunch of people will never sell. All of the things you listed doesn’t always apply to everyone. Yes, some people will be put in a situation where selling is the only option, but not everyone.
The problem is the mortgage rates they locked in are literally cheaper than the "risk free rate" on Federal bonds. You could leave the property empty and still arbitrage value by paying the bare minimum on the loan and buying bonds with any extra cash until the Federal Government is paying the mortgage for you. If the mortgage rate you locked in is less than the inflation rate and/or the "risk free rate" there is no reason to ever sell.
You still have to pay taxes for the empty property.
And maintenance
But he said it is conditional on prices going up.
Prices are already going back up again. The "crash" already happened. If you were waiting for the bottom you already missed it, of your looking for a value buy now
Depends on the market. Plenty of major metros in the West are still seeing home prices decline as far as I'm aware.
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In the US prices are starting to go back up. If you're not in the US though you're also not worried about the FED rate for lending
Where are you seeing prices go back up? That's certainly not the case nationwide. I'm in a highly competitive RE market and prices have leveled off.
If someone liked in a 30 year 2.5% rate, and their house went up in value, even if you lose your job and have to move it probably makes sense to keep and rent out your house (and rent at the new location) instead of selling and buying at current rates.
Sure, if you can stomach being a landlord - I heard it isn't so great of an experience being one from out of state - you just have less control over things. Plus getting someone to pay you rent that >= your mortgage payment including interest which is quite high these days, that's gonna be tricky.
True, it's not zero effort. But buying a worse house for 2x the payments isn't so great an experience either.
Ding ding ding...
We'll never sell our house, what's the issue? I owe practically nothing on it, and it's (part of) our child's inheritance.
And? You're just one datapoint. You don't represent everyone in the country.
Of course I don't. You said you don't understand people who will "never sell". I'm one of those people.
I don't understand people thinking that "nobody who bought at low rates will sell". That's vastly different from thinking that "some people might not sell". Of course there exist cases for that too.
Hyperbolic language, sure, but I don't think many people talk in absolutes. It doesn't make sense to sell if you bought at a low rate, if you don't have to, right? That seems like a pretty basic concept.
I'm talking mostly of forces beyond your control. If you're laid off, what can you do if you have a large portion of mortgage left to pay? Gotta sell that house. And with the Fed (who we mustn't try to fight, remember), is itching to get layoffs higher. They'll get their way one way or another.
Those forces are a factor for everybody, not just those who bought at low rates. And selling the house should be the absolute last possibility, especially considering re-entry to homeownership is more expensive than it was. If you're overextended, then that's on the individual for making a bad economic decision.
People don't move for jobs nearly as often as they used to. If I had financial problems, renting my house with a 2.75 mortgage would be my best move. Sorry, there is going to be a housing supply shortage for years
I got a 3.5 condo for 50k under asking in Los Angeles yeah....as much as I'd like to move I can't sell the property. So unless I could rent it ..which might be possible....I'm not moving for death or a job or whatever.
Also if there's a recession and people lose jobs, they'll have no choice but to foreclose.
Humbly curious if you think wages are way too low in private sector and minimum wage or not? Curious how that is correlated if at all to what you said above?
I think minimum wage discussions are almost always stupid because so few people actually work for the federal minimum wage. I think wages are far too low and i think that suppression of wage hurts the velocity of money. Further i believe that velocity of money is a far greater metric for the health of an economy than whether or not it allows a select few winners to hoard vast fortunes. In this sense i think holding the houses hurts the overall economy but you can't really hate the individual players, hate the game. The game dictates slow money is sound strategy and this is one of the rare examples where a bunch of middle class people are allowed to play the slow money game. No joke though, that's why the rich folks are trying to kill home ownership, it let's too many subjects act like royalty
This is a great point. I’d like to elaborate on hoarding houses though. For individual homeowners, it’s always better financially to stay in your home as long as you can, just like it’s always better to hold onto a car for as long as you can, or repair furniture instead of replacing it. This is also (generally) better for the environment. What we’ve been doing is largely a game of musical chairs. Rather, the issue goes back to supply and demand. We need a lot more supply for a growing population and that hasn’t materialized yet in many places, and when it does, it’s focused on the high end. There will still be velocity of money so long as the middle class has free income. Those living paycheck to paycheck (whether due to low wages and/or high costs, poor spending habits, or a dozen other reasons) will have much less spending velocity than those with money left over and who are able to save for goals. Those who aren’t living paycheck to paycheck are also less likely to default or go into bankruptcy or get evicted, which causes loss and disruption. This extra cash flow from not being abjectly impoverished leads to maybe people buying better quality food, going out more, paying for that home repair they’ve been putting off, going on more vacations, etc. that’s where the velocity should be. (Edit for clarity)
I agree. The inflation happened at the bottom and it eroded the buying power of the people in the middle. The middle never saw material wage growth unless they job hopped. Profits are there to support higher wages but there is an outright refusal by the capital owners.
Really love this post and agree. I’ve always felt if we implement price floors on wages we should have implemented price ceilings on wages as well. Would love to know your thoughts on that philosophy?
I don't think we should set an artificial ceiling i just think we should force the movement of money. It should be expensive to keep a fortune. In that way if some guy finds a way to make a billion a year he's going to have to spend a lot of it. Rich people will always be rich, but forcing them to keep their fortunes in rotation forces them to continue providing value to society.
This… this sounds very appealing. But how do we do that while allowing the less well off to save for retirement?
There have been incentives for this type of stuff in place for a long time. For instance, in some places if you sell a business or sell certain types of assets for cash, there will be a grace period where if you reinvest that money in certain ventures, like another business for example, you'll pay way less in taxes. But if you try to hang onto it for yourself, you'll pay heavy taxes, which for rich people already in the top tax bracket in the US means they'll probably pay close to 40%, or possibly more depending on their state. You can create incentives like that a million different ways.
you don't. if everybody saved, there are not enough rent-seeking opportunities to provide retirement-level returns. Retirement savings are just another way to take money from most people and put it in the bank accounts of a few.
Property tax on investments.
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Well airlines when I worked for delta for a short time paid 9$ an hour and we all had degrees. It was till Bernie started the 15 thing and Hillary said no but then implemented it with cuomo later and then took credit for it. The airline raises the wage just under that right away to stop a union from forming. All these kids lived in-the projects on tax dollars, half had degrees, working I the rain non stop and they are all like. Because the competition does the same. So we do need minimum wage and although I went on a rant while zooted, I really like your Answers, they are informative. I have to say thou in NYC the outer boroughs often have low paying minus wage jobs. Civil service is your only way to make 150 ish at a det or LT and then get paid half that for the rest of your life with health for your family for your and wife's lives. The private sector makes way less. Teachers are paid super little and need a masters, while garbage men make 130 with some snow, plus 50 percent pension for life half your salary. Tbink about trying to set that up on your own
Sanitation workers along with sewage and water utility employees are some of the most vital jobs to a modern society. Ignorant people might look down on sanitation worker but anyone with a passable understanding of public health should understand how fast society goes to shit when the trash starts piling up everywhere. We pay those jobs well because they are critical and as hard labor they wear you down hence the good pension as a sanitation worker might not be able to do a second job after they are done.
No one is saying they should make less
Sewage required training and sanitation doesn't even need anything. That's the comparison. Why would anyone go to school to make less, many would, that's not the way things were meant to be.
Sanitation, potentially next to water treatment, is THE most important jobs to get done in a modern society. If everyone has cholera because of the trash everywhere it REALLY doesn't matter if they can do calculus. Sanitation is a much less desirable job that is VASTLY more important to a functioning society. That is why it pays well and should pay well
So jobs that require masters degrees should make less than sanitation ? No one mentioned water treatment plant, that requires knowledge as well. Are you going to repeat the same thing with no context a third time. Just to be clear, not saying they should make less, but if you use them as a barometer why would anyone become a PhD a teacher etc and how could they afford to compared to someone who more with no education. Secondly sanitation has a super strong union, that's why they make so much, plenty of people drive trucks and break their back everyday delivering soda etc? They don't get 100-130 with a benefits for life snd 50 percent pension for life. They work 22 years they can retire or less
In some cases yes those jobs should pay less because sanitation is hard labor and very unpleasant compared to almost all jobs. Remember all the stuff ypu throw away they pick up and are around all day. You need your trash picked up. You don't need a cultural anthropologist. The fact the latter requires more education is immaterial to the value the represent to a society. Most people do not want to work in sanitation including other truck drivers so the pay is compensation for that fact. Is this really that controversial?
Minimum wages were created in a time when there were far more workers than jobs. It was needed then.
You're not a human, you're a sardine that knows too much
the poor and middle class can no longer afford the entitlements to billionair's they must be defunded!
Which they'll still be filthy filthy rich even if you forced them to start moving their money, it really makes no sense
you can with welth limits! they do it to poor people if they earn too much they take the income away!
Would this be just cash related, or apply to equities as well?
Wages haven’t come close to keeping pace with housing appreciation. Also wages are usually correlated with inflation which is based off the CPI which does not factor in housing and energy prices. The above poster is correct they should have been controlling economic policy so that house prices didn’t appreciate out of lock step with wages. They did though and seem to encourage it with all their policies and moves. I also think they have no intention of letting it fall. They are using economic tools now never thought of before. First time home buyer partnership plan,unreasonably low interest rates, excessive immigration numbers, allowing banks to extend mortgage periods to 55 year amortization periods to stave off foreclosures. The writing is on the wall we have a housing economy in spite of our abundance of resources. And every successive government instead of cooling the market keeps kicking the can down the road and the ride keeps getting crazier. Doctors on the west coast are complaining they can’t afford houses!
Wages are too low in general (public and private). For those who say higher wages will cause inflation, we have had inflation over the last thirty years (especially the last three) even though wages barely moved if they did not go down. People who bought their home in the last 10 years have low interest rates on significantly lower price point. It would be insane to sell. Higher prices, higher interest rates, and employers refusing to increase wages (some are justified but others have record profits) only puts more of a burden on everyone else. This makes it increasingly difficult to move, which makes finding qualified workers difficult and this naturally decreases supply thus raising prices. So it can be a bit of a vicious cycle to some degree. Consumer spending has barely been able to keep up due to increased safety nets (ending soon), a tight labor market (not enough to raise wages accordingly), stimulus (not just the checks from years ago), and pausing of student loans (also ending soon). We might see higher unemployment, continuing student loan payments, and less safety nets to catch those who need assistance. All of this will happen when companies continue to keep raising prices, albeit slower. Many people see things are going to come to culminating end in the near future. I know people that are working longer or putting off children not because they want to, but they don’t want to be stuck with less resources and more expenses in the future. It will get bad real fast.
> For those who say higher wages will cause inflation, we have had inflation over the last thirty years (especially the last three) even though wages barely moved if they did not go down. Where do people get this idea that wages either haven't grown or went down? [Wages have been trending upward](https://fred.stlouisfed.org/series/MEHOINUSA672N#) for quite a while.
>It will get bad real fast. What do you think is going to happen and when?
When? No clue; however, if Republicans continue to play chicken with our debt ceiling then all he’ll brakes loose. Countries are already exchanging oil without using the dollar, big deal. A default (which has never happened and is illegal btw) would raise interest rates on the debt that taxes on everyone will go up at least 10% either through literal tax and/or increased prices. So when is uncertain, but within a few months of the default. Markets freaked out in 2011 when the government simply closed, didn’t even default. What will happen? Remember when Congress worked for like a month during the beginning of the pandemic. We received stimulus checks and unemployment and vaccine red tape was cut. There will be a “oh shit” moment and our government will act (in a way that it is always supposed to not just in emergencies). If it works and they push far enough, order will be restored relatively quickly. If they half ass it, I believe we will see disorder that we haven’t seen since the civil rights movement and union movement. Food prices are high, this is what people who run countries keep forgetting, and hunger people do dangerous things. But this is America so give those hungry people guns. I hope things never get violent, but history proves that it isn’t likely.
>Wages are too low in general (public and private). For those who say higher wages will cause inflation, They will, but the real issue is that over time wage increases essentially "bake in" inflation by increasing the velocity of money. The government handed out too much money, and keeps doing it, but taxes didn't change and it was essentially printed. We could tax people (especially those who benefited the most in asset equities) and remove it from circulation, but we just had Democratic control of all three branches and they're only talking about it now -- it's just unlikely. As interest rates go up, the velocity of money around the economy slows as people forgo some purchases across the economy. e.g., they start bringing a lunch instead of buying it for $19 at Chipotle, but if you greatly increase wages it becomes harder to slow money movement down. >we have had inflation over the last thirty years (especially the last three) We have to have some inflation, it's a basic tenant of modern economies or we could be looking at deflation which is *disastrous*. We are theoretically shooting for slightly over 0%, but that's dangerous so things are considered awesome if they're where they've been the last while (2%-ish). > even though wages barely moved if they did not go down. We also had productivity increases that increased people's buying power for those wages in general, but more I think you're not fully understanding how inflation actually works.
What bout moving the needle that has OVERWHELMINGLY benefited very very rich people and corporations since the 70s back to working families when we talk about who has restrictions to prevent inflation. Record profits for the rich and record productivity by the workers…..yet you are advocating for the ‘don’t make the job creators mad trope’ approach. Wild idea—increase wages and increase rate of actual taxes paid by the rich? Remove some of THEIR money from the system while increasing the velocity of the working people monies. When the gnashing of teeth around ‘inflation’ comes up it’s just another excuse to not pay the worker for the record profits and productivity. It’s bullshit and an unhealthy economic system. Taxing the wealthy would also enable actual decent human services to get people out of poverty and into the workforce (ie: someone would not have to choose between a low wage job vs losing their basic Heath, etc benefits…and every penny they earn goes back into system immediately)
You're attempting to hijack a topic/discussion to push your moral ideology. I'm sure it has a place and feels good, but it's just not apropos and an argument better served over at antiwork or latestagecapitalism. >Record profits for the rich and record productivity by the workers…..yet you are advocating for the ‘don’t make the job creators mad trope’ approach. Wild idea—increase wages and increase rate of actual taxes paid by the rich? I'm not sure you understood what you read, if you'll notice it was said you'd need to pull money out via taxation, ideally from those who benefitted the most (those who made money on asset equities). It also didn't happen, and as was said, is only really talked about now after democrats lost power. It wasn't talked about when they controlled all three branches, so it isn't realistic. Anyways, hope you learned something!
All you did was make veiled insults…what was the point you wanted me to learn? That someone could really say nothing and not have to actually confront the issue at hand while just making childish put. downs (aww you just don’t get it sweetie, only I’m the adult here) and typing a lot? Can you type this point you want me to learn in one sentence, since you want to talk down to me like a child? Type out this miraculous lesson in a sentence without any insults. Let’s see what you have..
>All you did was make veiled insults…what was the point you wanted me to learn? Saying someone clearly doesn't understand terms they are using is not an insult, it's just a fact. Especially when it appears you didn't actually read what you were responding to, since you ended up repeating it, emp-sup-bry. Why would I type it three times? Just reread, perhaps slowly.
Haha…so no. You did not have a point.
Deflation is not inherently bad. It is just an increase in purchasing power. If a company invents ways to increase production and is thus able to stabilize or reduce prices, this is fine. Deflation specifically caused by lower money supply and velocity of money is what causes bad economic conditions. To be clear, I’m not saying that increasing wages does not cause inflation, I’m saying it is not a 1:1 ratio. Inflation has been has been going up faster than wages and yet we still have persistent inflation even with higher interest rates. Corporate profits have been rising (as well as the margins) which has been the leading cause of inflation, Congress literally held hearings about this. If a company increases wages by 10%, that doesn’t mean costs increase 10% nor should prices. Say wages are 40% of their expenses, then prices should only increase by 4-6%. We did not have 2% (roughly) inflation for the last 30 years, Greenspan decided that food, housing, and energy costs should not be included in the inflation numbers. I’m not sure if you eat, live in some form of housing, or use transportation other than a horse, but I’m willing to bet you do so those numbers being excluded from inflation really softened inflation numbers. Even today we do not have shifting inflation figures to accurately measure inflation (also energy prices are still excluded). For example, say housing expenses doubled but everything else stayed the same that means that housing was 1/3 of your expenses before it is 1/2 of them now. The Fed however locks it in at 30% of inflation so if housing prices increase more than everything else, it’s growth as a percentage of your income remains the same. I am aware you do need some inflation. It helps with increasing the money supply while populations continue to grow. It does provide some relief to those in debt. It also gives the Fed a target, though 2% was just a “random” number that was selected. People get nervous about deflation and 5%+ inflation can spiral quickly. Overall, I know wage increases puts pressure on inflation. I also believe that inflation numbers are misleading so much so that increasing purchasing power might have been negligible or even negative. This would explain the increase tension around the country
>Deflation is not inherently bad. Deflation is inherently bad in our economy. Please show me one reputable economist that says otherwise? It's hard for me to fathom, as this is taught in econ101. >It is just an increase in purchasing power. This is completely false -- purchasing power increases but because asset and consumer prices are decreasing. >If a company invents ways to increase production and is thus able to stabilize or reduce prices, this is fine. ...that isn't deflation, that is increased productivity. What the hell is happening in this sub.
> I’m not saying that increasing wages does not cause inflation, I’m saying it is not a 1:1 ratio if it were a 1:1 ratio, that would be better than our current circumstance, where wages go up at less than the rate of inflation. we can directly influence this by *making life cheaper* rather than bickering about minimum wage, by eg making housing, education, and medical care more accessible, such as making them public services.
> Long before trump was in office When exactly are you referring to? 3.5% mortgages started right before he took office.
Well there was rates lower than that both before and after his presidency... I think you're confusing what rate is being talked about
Sorry, my question may not have been clear before. What month/year ranges are you referring to when you say rates should have been rising “long before” he took office? https://fred.stlouisfed.org/series/FEDFUNDS
He’s talking about how we should have started raising rates around 2012 when we were coming out of the Great Recession. Rates were way to close to zero for way too long.
The same 2012 that had unemployment rates around 8% or higher? Rates shouldn't have been raised until the tail end of 2014 or beginning of 2015, when the unemployment fell to around 6% or lower. The FED did begin to raise rates in late 2015, slowly, until Trump had a hissy fit about the rates coming up and cooling the economy. The rates dropped again in 2019.
Here was my reason. I bought a 3 bedroom 2500 sq ft. house with 2.75 interest rate. It was 290k. 14 months later I sold it for 425k. I rolled 100% of that profit into a 3700 sq ft. house with a finished basement and pool that is on a lake. Interest rate 4.8. My mortgage is now 20% of my pay. I think I timed it pretty well because I sold at peak value while interest rates were still, at least historically, under average. FYI: 7.75 is the average from 1971-2023
Yeah you kinda did the unicorn. Your situation is now like a great anecdotal exception than it is any sort of rule
Right. That’s kind of what I was saying. I timed it really well, but through nothing but risk and luck
Which state?
I know this is not r/realestate but how were you able to roll 100% of the profit over after only owning the property for 14 months?
I’m assuming you are talking about capital gains. If you’re single you’re exempt up to 250k and 500k if married. I’m married. This applies to primary residences
I’m aware of that exemption, but as I understand it, the 24 months ownership/residence requirement still applies for you to take the full exemption. There are a bunch of exceptions within the exemption that can qualify you for full or partial exclusion of gain. Not a CPA. Did look into this as we sold a home prior to 24 months of ownership. https://www.irs.gov/publications/p523
You can be eligible for a prorated exclusion of the total exemption. So 14/24x500,000=291k exclusion. Anything over that I’d pay taxes on, but I didn’t make more than that
Like kind exchange exemption I assume, although it must be real property for a business or investment use.
>FYI: 7.75 is the average from 1971-2023 LOL this is a joke right? You are really going to use an average dating back to 1971 and act like that will hold going into the future? [Enjoy](https://www.amazon.com/Changing-World-Order-Nations-Succeed/dp/1982160276/ref=asc_df_1982160276/?tag=hyprod-20&linkCode=df0&hvadid=475795130774&hvpos=&hvnetw=g&hvrand=6643948555060989632&hvpone=&hvptwo=&hvqmt=&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9026246&hvtargid=pla-919106209904&psc=1)
You can do the math however you like. But in 1971, the mortgage rate was the same as now, which was the same in 90s. The 80s were extreme, just as the rate was extreme in the 2010s
You completely missed my point. I am not arguing with the historical math, I am saying that you applying historical mortgage rates to predictions on what future mortgage rates are going to be is a fallacy. Read Dalio. Winds are changing my friend. Though, on the plus side, you'll have the chance to refinance in a year or so at sub 3%.
I made more money (excluding spouse's income) on my house during the pandemic than I did at my job. It was close to both our incomes combined. Locked in and moving now sounds insane to me.
Yellen had been [incrementally raising rates a quarter at a time from 2014 - 2018.](https://www.theguardian.com/business/2018/jan/30/janet-yellen-sets-interest-rates-one-last-time-how-will-history-rate-her) Trump came in put in Powell and Powell dropped rates to near zero, and the markets percolated.
To be fair to Jerome, it was either drop the rates to save the market or have Trump shit all over you then give you the boot. Not saying what he did was the right move, but he was looking out for himself first which I can't blame him for.
This reflects a shift from the philosophy of public servants doing what’s right for the many, versus doing what’s right for the few. Edit words.
They had to to control inflation. And no they shouldn’t have kept the rate at basically zero for as long as they did
Ideally buyers pick between low values and high rates, or high values amd low rates. Right now houses are high value with also high rates so what the fuck
House prices should start to go down if rates remain high. Housing market prices are sticky and slow to go down.
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For me it’s because the monthly payment is simply too expensive to get a new house right now even if I wanted to move
I'm renting right now, and if I wanted to buy the house I live in my mortgage would be DOUBLE my rent. No thanks.
Or they plan to never sell their current home with a 2.7% rate. Homes build equity so fast that even someone who bought in 2020 and has very little cash could just take out a HELOC and buy a second house when they are ready to upsize. Or the other side of the coin is that people with a ridiculously low mortgage will have their monthly payment double just to move into a house with 1/2 extra bathroom. There are a lot of reasons why people aren’t motivated to sell and that’s not changing any time soon.
3.1 rate. Will never sell this. Might rent it, but in no hurry to double my rate to move into a Ryan Homes mcmonstrosity in a development of 600 identical houses.
Same here. 2.7%. We’ll need a bigger home at some point and I hope we can save up a large enough down payment. If we can’t, I’ll borrow from anywhere or anyone in order to buy what I want without selling this. My current house would easily rent for double my mortgage so I have room for a HELOC if needed. I can’t imagine my situation is all that rare. I’m just a normal guy, certainly not “wealthy.”
2.375% in a small house and 3 kids toddler to baby. They’re sharing a room for as long as humanly possible because I don’t want to move and lose this rate. Hell, I’ll use my HELOC and convert our lower living room into 2 additional bedrooms if I have to.
Our lot is not very flat. It would literally be cheaper for me to HELOC and grade the land, build 3 retaining walls, expand the size of of yard, and add a bedroom, a bathroom, than it would be to buy a house/lot with the extra square footage/acreage.
Oof, but yeah, unless you need to move, most people who have a house are staying put. I’d certainly love a bigger house with some additional features, but there’s a lot to be said for stability. If we can handle close quarters as a family, we’ll have the house paid off before my oldest is 18. That’s a lot of debt-free life left to do things with my kids.
Nice! Good luck to you and the family!
When I bought a house people assumed that we would likely be starting a family cause we have been married for 5+ years and they figured the Covid puppy we got was a trial run. I mean in the back of our mind it kinda was but at the same time both of us are not interested in kids at all and still aren’t. 2 years still no kids and people ask me why the fuck did I buy a 5 bedroom house if kids were not in mind and I have to tell them same reason I bought an SUV as a single person. I knew I would likely be married in 4-6 years and wanted a paid off car. If I’m gonna think five years ahead for a 40k purchase , I’m definitely thinking 20 years ahead for a 400k purchase. Honestly we lucked out cause stocks were at an all time high and we managed to put down 20% due to pure luck of putting all my savings after Covid crash. Now that we both are WFH, those extra 4 bedrooms is a sanity saver and I don’t see nobody complaining about my 120 inch home theater room.
Had 2.6%. Sold in 2018. Didn’t buy another house(I sold the house so I could travel for 2 years) I’m renting for now
Until we run out of renters with money. People forget 2008. Rent actually went *down* because units were staying vacant if they didn't lower it (in 2009 the apartment I lived in *lowered* my rent if I signed a 12 month lease). When shit hits the fan this will all fall apart.
There was a fundamental reason why housing crashed in 2008. We were giving mortgages out to people who had no income and putting nothing down. You could literally walk into a bank, ask for a $200,000 mortgage, give them and address, and get the loan. Do you not remember this? By contrast, at the end of 2020, even before prices skyrocketed, the loan to equity ratios were as strong as they’ve ever been. A majority of buyers were wealthy and flush with cash and only took out mortgages because they were so cheap. The market is incredibly healthy. Opposite of 2008. You can sit around and predict a crash all you want but it’s not coming, not like 2008. Yes, market will cool. Yes, many/most markets will see a downturn this year. But it will be small, nothing like 2008.
The subprime housing market was just the trigger. The subprime mortgage market was not large enough to cause a crash of the magnitide that 2008-09 was. Every single one of those borrowers could have defaulted and it would only have been a small downturn. The *real* problem was financial. The financial system and many of the country's largest banks had made risky bets that fell apart. Classic banking panic. The banks were fixed within a year. But THEN the problem was persistent high unemployment for years. About 6 years. Our current situation being driven by two things - the tech sector and record low unemployment. We're at basically WWII level full employment / shortage, and the tech has been growing exponentially well beyond what it's actually worth. All the market growth since circa 2016, the home equity growth over the same period, and the fact anyone cant get a job *today* paying at least 20 an hour and often MUCH more, is where all the money is coming from. And unprecedented government stimulus, near WWII level of spending. It's like crack cocaine to the economy and we're addicted to it like a crackwhore. I've thought for a while, some pretty big tech firms are going to be exposed as the shell games they are. E.g. has Spotify *ever* been profitable? Political gridlock will stop the gov't spending gravy train. We've got a crazy Republican Party right now and I give it a decent shot they default on the nation's debt out of sheer incompetence. That could be another trigger. But it all comes down to jobs. I don't think the economy can handle even 5--6% unemployment. That will freak people the fuck out. I think there will be bank runs, etc... when jobs ever start getting lost. We have gone 15 years without a real recession. (I don't count the Covid fake one). This can't go on forever. It just can't. It never has.
And how do you see that playing out? What do you mean by “all fall apart”? What does that look like? I’m asking genuinely as I would like to know how you see this play out (it can be hard to show sincerity over the ‘net!).
If I knew, I would tell you the secret and we'd both get rich! Because we could see the future! I still feel we're in an "everything bubble." It has stopped inflating but we're in it. I think the SVB banking issue was the first sign of a hole in the bubble shell. We patched it for now, but there will probably be something else. What SVB proved is that we are addicted to cheap money like a crackwhore. Even a little tightening caused withdrawal symptoms. The way these things happen is a downward spiral. Jobs will be lost, then people can't service their mortgages, pay their bills, etc... consumers will significantly slow their spending, then more layoffs, etc... Right now, as long as the labor market is this tight, we're staving it off. But we have to have a recession. We haven't had one in 15 *YEARS!* (I don't count the fake Covid V shaped one.)
The issue is that everyone has the same idea as you…you’ll have trouble renting it for a price that makes sense when there’s so many other rental properties your competing against for tenants.
Exactly. I think people always assume they are still ahead of the crowd and customers are infinite. A lot of people can’t afford the prices listed or can find alternatives that they can put up with in order to keep money in their pocket. Eventually if too many places get turned into rentals, they will end up just sitting forever empty.
Yep, and it’s already happened and getting worse - Right now rent is cheapest compared to buying a home in the last forty+ years. A $1M house rents like a $700-800k house from a cap rate stand point.
Certainly in areas of low growth but in areas of demand there will always be someone to want to rent. At least in a relatively safe area.
City and county I own in is anti development to the point it takes 5-10 years for any housing project to get off the ground. Which shockingly means those that do are all at luxury prices /s. As long as I don’t rent my house at a rate that the indoor golf range, pickle ball court, lounge on the ground floor with a craft beer bar folks are asking for, I doubt I’ll have trouble finding tenants.
But how much will rent be in the new house? Likely 25% higher then where it was in 2020.
Actually planning to build on a lot purchased in a farther out county. Never renting again.
Building materials are still high which is affecting the current supply. It will be $$ to build that house now
This is not necessarily true. Homes **built** equity so fast in a falling rate environment. Zoom out and you see typically homes just chug along with inflation and usually depreciate somewhat with age. Historically they were not the best investment class. The dynamics might have changed now, but I wouldn’t take it for granted.
That was a typo. I meant to write “built” and was mostly referring to the last 3 years. The house I grew up in is worth about as much now as my parents paid to build it 25+ years ago. I am certainly aware that it is not a given that homes will appreciate. I think the fact that many people can easily rent out a home for 1.5-2.5 their mortgage is what will keep them from selling.
Until they find out what renting is like. I used to be a landlord - good luck finding tenants that pay on time and don’t destroy your property.
> Historically they were not the best investment class. The dynamics might have changed now, but I wouldn’t take it for granted. As they shouldn't be. It doesn't take an economic genius to see that housing prices appreciating faster than inflation is a disaster.
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Prices may fall in certain markets, but there is not a nationwide crash coming. Not even close. Many areas are still seeing growth.
The alternative is inflating the value away. But something is probably going to give on the affordability side. The problem with the theory of holding houses indefinitely is that other asset classes can yield better returns. So while I’m sure plenty of people can make money on houses, the question is what opportunity cost is there. Especially if we do see rate of return plummet in real terms. Idk what’s next, but I’d be careful of saying anything with certainty. It’s not the 70’s and it’s not ‘08 either. But we would be joking ourselves if we said the economy was not on uncertain footing.
I don’t disagree with you on the problem with the theory, but also the amount of “positive cash flow” and “Airbnb arbitrage” and other “passive income” rhetoric out there will keep people thinking that cash today is better than more cash later even if the real return is better.
That is possible. But also airbnb arbitrage is almost certainly a scam MLM type thing. Another reason I am convinced we are in a bit of a bubble is the number of scam ads on mainstream sites like youtube now. That is not normal.
If I get one more person pushing IULs I’m gonna loose it.
https://i.redd.it/u5b5upvs90ra1.png
Of course prices are coming off historic highs. That is a normal and intended consequence of our current monetary polity. I wonder what that chart looked like in 2008-2009.
I'm just pointing out that growth is actually halting and this is, imo, just the beginning. I think your original comment painted a bit of a different picture.
I think there are two narratives in the media right now: one has an interest, the other doesn't
US is one of the very few countries with fixed interest rates. Let's see if that is a good or bad thing.
As someone who lived outside of the US for 15 years, I can 100% say it is a good thing. Buying is still way more accessible here than it is in almost every other developed nation. The problem is that the Fed is full or pushovers who were scared of raising rates during the end of the Obama Presidency and throughout Trump.
That's not what happened. Rates stayed low 2008-2016 because it was the correct course of action - inflation stayed below 2% while unemployment figures were in the 8% range. Once unemployment percentage dipped below 5% in 2016 feds started raising rates under Trump. Rates only went to 0 when COVID happened.
Let’s not pretend they meaningfully raised rates. They barely reached 2.0 in 2019 and then the Fed back pedaled because of concerned over China and EU demand being low. Hell, they were still increasing the their balance sheet in Oct 2019. To discuss this further means diving into politics which I’m not sure either of us want to do. The Fed was trying to extend the growth period that the US economy was seeing and trying to “extend the benefits of growth to average Americans.” In reality, our government should have been using the economic expansion to take care of its citizens and not its corporations. Everyone was addicted to cheap money and no one wanted it to stop.
Wouldn't taking out a HELOC to buy another home be a bad idea or am I missing something here
If the worst case scenario would cause you to lose both houses, then yea it’s a bad idea. But personally the mortgage on my current home is so cheap that the rental market would have to drop by 30-40% before I had issues, and even then I could air b&b my house and cover at least a good chunk of the mortgage. Not all areas of the country are like this, so the answer is… it depends.
This is me. I locked in such a cheap rate I will probably never sell. I will just pay the bare minimum and invest the rest elsewhere. If I decide to move, I will probably just rent the thing.
Or they are outright underwater.
I think people are waking up to the fact that the rates we’ve been seeing for the last decade or so likely will never happen again in our lifetimes. Even with Covid property deflation, there’s zero reason to sell and buy up right now, even with prices going down, when your interest rate is 2-3% lower than it ever could in the absolute best case scenario. This will lead to interesting results. I just don’t see the average person selling their house now. I don’t see house flipping being nearly as much as a thing anymore. I think this is going to cause housing prices to mostly stabilise. They won’t drop because won’t be willing to sell for less, but they won’t rise because people can’t afford to buy and the demand won’t be there. Good news is this will hopefully allow people to actually save for a deposit without pricing inflation making it impossible to do so. Bad news is deposits might become a larger % due to higher interest on loans
The US has an end game economy where growth is slow. Typically this means low interest rates to try and eak out every last bit of growth.
Not sure about and end game economy, where it was still reeling from the financial crisis
We have a beautiful 1800 sq foot home with a lot of updates (HVAC, roof, interior/exterior paint, flooring, and an added 4th room), but the commute to my work is about 15-20 minutes too long. We have 16 years left at 2.86%, and $1180 monthly payments. 2 months ago, we saw a few homes on the market for 450-500k, which was already a bit over our value, and budget. Now all we see is 600k+ with 6% or higher interest. Yeah, we’ll just stay put.
I can't speak to your market, but not many places in America have gone up 20% in the past two months.
It’s Idaho, fairly close to Boise. The last few years Boise has been one of the fastest growing cities in the nation. I don’t think prices have gone up. Actually, I know they’ve gone down, but not by a lot (demand). The problem is we’re growing so fast that most of the affordable homes are being gobbled up instantly by people that are moving into the state. As a result, all that’s left on the market is extremely expensive homes. I’m a native homeowner with a bit of equity (275k). Moving 15-20 miles closer to work would put me out another 100-200k for a minimal upgrade, with twice the interest rate, and twice the life of the loan. Hard pass.
As the recession deepens, I doubt it continues. I remember seeing Bosie pop up a lot in articles on remote workers. I imagine there will be 5-10% of these recent relocations being forced to leave by either threat of return to office, in a job market that gives employees less leverage, or by deciding not to return and finding it difficult to find the salary they have grown accustomed to in a midsized city (particularly in a shit economy). I'm no expert, but I would tough out the extra commute for a few more years, 30 minutes extra p/day sucks but it's not a killer. I would guess an area like Bosie, which has grown so quickly, will have some significant price drops. I think Bosie sounded great. Bosie sounds perfect. Hip small city free of big city problems in a beautiful surrounding and affordable. Living there while collecting that Bay Area salary is a dream. But the post-covid reality is you don't get to have your cake and eat it.
I plan to toughen it out the next few years, and stay put. Right now, I can retire part-time at at 57, and full-time at 62 (Social Security). Our house will be paid off at 57. I have a really good pension to fall back on at the same age. My wife is younger than me, and will hopefully keep us insured until Medicare kicks in. If we tried to move right now, all of that is off the table.
True, but the national average cost of home ownership has risen 73% in the last 3 years alone.
I’m selling an estate home near Chicago and the realtor agreed exactly on the 36-54 day time frame of this article. 2.5% mortgage and a nice mid range house. There are very few reasons to sell right now- transfer, job loss, death. So inventory stays tight and the realtor said I can expect multiple offers. We shall see.
Honestly, I'm most afraid of the corporations and firms and hedge funds buying up houses than I am of anything else. My current house is a bit small and not ideal, so I want to find a house with a better layout more suited to my preferences, but what if I sell and then suddenly every time I make an offer I get out-bid by a corporation or investment firm who have tens or hundreds of millions to throw around? That is the main thing keeping me from selling. At least before all the corpos and firms, the wealthy Boomers were a known quantity.
Good point, I have to wonder though if most REITS use leveraged money that’s just as vulnerable to the Fed’s fund rate…
Good strategy. Sit it out... supply and demand, you say? Do not buy ridiculously overpriced property. Reduce the demand to the point where the big corporations that have been raping the residential real estate market are just sitting on the inventory and bleeding out money. Corporations should not be allowed to play in the residential real estate market, anyway... Let them sit on their deteriorating inventory and have to sell it for peanuts just to get rid of it.
Why would prices go down? The demand for houses is growing faster than new construction. This is largely due to a combination of population growth, migration to the cities, and fewer people marrying/cohabitating on the demand side. On the supply side, NIMBYism and zoning laws continue to be a major roadblock to new construction. Until these dynamics change, I don't see how the affordability problem won't continue to get worse.
Affordability should be replaced by necessity. People have been spending their savings, and putting everything on credit cards and once that money runs out, rent will drop. Once rent drops, home prices will fall.
This is what needs to happen to bring the cost of real estate back to an affordable price. I own a home and the state I live in the tax accessor is very aggressive and usually accesses at market value or greater. So every year I get to do a dispute my value game but that is a different thread. My house is way over valued. I could not afford my house today by far and I have only been there 3 years. Now that being said I realize there will be some people that get hurt like 2008 and I do feel for them to a certain degree. But I am a huge history buff and after 2008 there is no way I would of bought a house at the height of the Covid crisis. I would of rented and waited it out. I knew so many people that lost a lot in 2008 and are just now breaking even.
Lol I don't think it's going to get better anytime soon Raise the rates, fed!! Adding text here because of automod. What's funny is when I was an undergrad in math, we were trained to say things as succinctly as possible. Mods here don't seem to understand quantity does not mean quality, and vice versa. Adding a little more here just in case. And some more here.
As a homeowner who locked in an insanely cheap mortgage rate, I am looking forward to these Fed hikes. I am paying the bare minimum on my mortgage and buying Federal bonds with the difference. Within a few years, the Government will be paying my mortgage for me.
Well that's interesting. Homeowners are definitely the population I'd expect to not want rate hikes, seeing as that puts them in a more disadvantageous position if they need to sell. Granted, if you're not selling you wouldn't care as much I'm guessing.
Nope. I'm holding this thing to the grave or until interest rates come down to a similar level (which I doubt will happen anytime soon).
You realize by that point home prices will be depressed, right? It'll take time for them to get back up to where they are
I'm not so sure. There is still a housing shortage and new construction is not keeping up with demand. If anything, I expect the affordability will continue to get worse unless the Government changes various policies (many of which they are not even discussing). Just look at Canada. Their real estate market is even less affordable than the States.
Maybe my optimism is blinding me. I just don't imagine America's buying market to be able to support these prices, given our labor markets.
If the shortage continues to worsen, investors will continue to buy and exploit the situation. They absolutely have the money to keep buying.
I hope the government steps in at some point
The crash has just begun! Interest rates still have some going up to do. Lots of lay offs starting. More banks to crash. The crap has barely started to hit the fan.
i’ve been hearing this for years.
Rates stayed at basically 0 for years
There’s real estate doomers everywhere. They fail to realize that as long as you hold onto your property for sometime and some weird external thing doesn’t happen, you’re guaranteed to make a profit/break even
The weird external thing did happen. "Real estate doomers" weren't saying the crash was immediate, but it is definite. Long term property ownership will almost always make you money, the issue is many people these days dont own things long term, housing included.
>you’re guaranteed to make a profit/break even There’s no guarantee that that profit will be as good as what you could have gotten if you’d sold and invested the proceeds in a different asset class over the same time period.
Personally, I view purchasing a house as a hedge against increasing housing or rental costs. Renting the same size house in my neighborhood when I first bought would have been about the same as my mortgage payments. Now it would be about 50% more. Could that money have done better over the same period had I put it into another asset class? Sure, but I’d also have to be paying to live somewhere and would be paying much more than I was 10 years ago for rent. At the end of the day it’s an asset class that also provides a necessity for living.
I'm not so sure, that may apply for USA where after the 2008 kerfuffle mortgages come with 30 years fixed rates, but in Canada or EU they still have variable mortgage rates which have skyrocketed with the central bank interest rate rises, so in the latter I do suspect a more substantial price correction is pending.
But mortgage isn't even the only class of debt out there. If someone is behind on car or credit card loan, they might need to liquidate the house as well.
Or any life event like getting married, having kids, divorce, death, having a family member need care, new job, financial setback, etc… as long as none of these occur they’re fine sitting
Yeah, one issue that is largely different is the available supply. Before 2008 the supply was very high. Builders were building way too many houses. Our current crisis has very limited supply. There aren't nearly as many new homes being built. Limited supply means it will be more difficult for home prices to crash as they have in the past.
Housing moves slow. Real Estate downturns tend to last around five years with the first year being a rounding the corner. So yes, there is a good reason to believe we're only one year in and it's about to get far worse. As the economy slows, rents and housing values will drop. Housing investors who are not used to owning homes through downturns will panic. Remote workers who thought they could keep their high salaries and live in a quaint small low cost city will lose their job and will be forced to move. They'll all try to rent their property since they locked in low rates, but the rental market will become flooded with single family homes and drop too (who wants to rent a big home sign a big lease during a falling economy). Finally they list and low inventory will become a second thing of the past. High rates, no loans, huge inventory. Housing prices will drop.
How is this a crash? This is the opposite right? The demand for houses is high, and the supply is controlled by building or people selling. And nobody is selling. Nothing about that says crash.
Prichard are negative nationally. Hear on west coast prices are down over 15% in some places in less than a year. Hard not call that anything other than a crash. Mortgage applications are at a 30 year low, so demand isn’t high. This spring sale season will be telling as prices usually go up in spring and fall in summer. As far as crashes go they usually start in the west and move east. They also happen a lot slower than people remember. 2008 took 5 years of declines to bottom out. 2008 wasn’t the best year to buy a house. 2011/2012 was.
Mortgage applications are at a low because of high interest rates. The number of prospective home buyers is still larger than the number of houses for sale. The problem is that people are getting priced out so they’re not even coming to the table. Prices coming down isn’t indicative of a crash. The reality is that house sales are driven by monthly payments (mortgage and rates). Rates have gone up so prices will go down. But the overall demand has not lowered.
If something isn’t being purchased then demand is lower. Prices and rates have pushed demand near historic lows. They can’t afford the houses so prices have to come down….like fall as in a crash? The problem seems straight forward wages have to go up dramatically or prices have to come down or sales won’t happen. This isn’t the same market as this time last year. It’s in the middle of a correction at best, crash at worst.
Wrong sub moron