US home sales see worst year since 1995(bbc.com)
bbc.com
US home sales see worst year since 1995
https://www.bbc.com/news/business-68035274
14 comments
The reason 2023 year was so bad is that prices are lagging behind interest rates. In a liquid market, they have an inverse relationship, but it wasn't until Q3 of 2023 that prices actually started giving way.
There's almost a 1-year lag, which resulted in high prices AT high interest rates. Reasonably, this affected purchasing decisions.
Sales will pick back up again by Q2 2024.
There's almost a 1-year lag, which resulted in high prices AT high interest rates. Reasonably, this affected purchasing decisions.
Sales will pick back up again by Q2 2024.
Exactly. RE prices are sticky on the downside.
Some of it is logical (selling a leverage asset at a loss when you can just live in it / if you sell you give up your below-market-rate mortgage) and some of it is emotional (people like to win).
So as mortgage rates approach 4-5% range (not that far off, we've already dropped from 7.8% to 6.6% in 2 months), homes will start moving again. People need to upgrade/downgrade/move/etc, and the marginal cost will start to compress and make it worthwhile again.
As an example - I have a typical 2018-2020 ZIRP bottom barrel interest rates.. So while the apartment upstairs from me which is on sale for 25% more than my apartment purchase price, it would have actually cost me 75% more in monthly payments at peak interest rates. At current interest rates it is 58% higher payments, and at 4.5% it would be about 31% higher payments (pretty close to proportional to price).
So I think somewhere in the 4-5% range things get pretty normal pretty quick.
Some of it is logical (selling a leverage asset at a loss when you can just live in it / if you sell you give up your below-market-rate mortgage) and some of it is emotional (people like to win).
So as mortgage rates approach 4-5% range (not that far off, we've already dropped from 7.8% to 6.6% in 2 months), homes will start moving again. People need to upgrade/downgrade/move/etc, and the marginal cost will start to compress and make it worthwhile again.
As an example - I have a typical 2018-2020 ZIRP bottom barrel interest rates.. So while the apartment upstairs from me which is on sale for 25% more than my apartment purchase price, it would have actually cost me 75% more in monthly payments at peak interest rates. At current interest rates it is 58% higher payments, and at 4.5% it would be about 31% higher payments (pretty close to proportional to price).
So I think somewhere in the 4-5% range things get pretty normal pretty quick.
Need to remember to subtract inflation from any interest rate, though. "Real interest rate" accounting for inflation.
Edit: for example this one https://fred.stlouisfed.org/series/REAINTRATREARAT10Y
Edit: for example this one https://fred.stlouisfed.org/series/REAINTRATREARAT10Y
Main issue with taking inflation into account is that wage inflation doesn't exist, companies aren't giving raises every year to 'match inflation', if they do offer raises it's for retention and/or is performance-based.
This chart is based on forward inflation expectation, which is probably lower than actual. Ideally I'd like to see this chart until 10 years ago that compares the rate of interest on a US 10Y t-bond when issued with the actual inflation that occurred over the 10 years until it matured.
Inflation fluctuates constantly. Mortgage rates are fixed for 15-30 years, unless one makes the mistake of getting a variable rate loan.
> The good news is rates are slowly heading down
Interest rates or the inflation rate?
Interest rates haven't started heading down yet, whilst inflation rates are easing, they're still higher than desired.
https://www.forbes.com/advisor/investing/fomc-meeting-federa...
Interest rates or the inflation rate?
Interest rates haven't started heading down yet, whilst inflation rates are easing, they're still higher than desired.
https://www.forbes.com/advisor/investing/fomc-meeting-federa...
Mortgage rates are down from peak
https://fred.stlouisfed.org/series/MORTGAGE30US
Which is what people buy based on
https://fred.stlouisfed.org/series/MORTGAGE30US
Which is what people buy based on
That's very interesting. Mortgage rates dropped without a corresponding drop of the fed rate.
In Australia the big lenders are in lock step with the reserve bank on rate increases, and lag behind on rate decreases.
In Australia the big lenders are in lock step with the reserve bank on rate increases, and lag behind on rate decreases.
Inflation is coming down, Fed is signaling they would cut without a recession in order to hold "real rates" as inflation drops, etc.
Mostly a discussion as how many Fed cuts we see in 2024 now, not whether they will.
Mostly a discussion as how many Fed cuts we see in 2024 now, not whether they will.
Mortgage rates are tied far more closely to 10y TSY yields than the FFR, and the 10y yield is predicting FFR rate decreases in the future.
Housing prices remaining high because people can't move and people can't buy because of interest rates just shows how stupidly hard it is to build new housing in the US.
Home builders operate on borrowed money so high interest rates push up their costs significantly. Worse still, with rates expected to slowly come down they’ll be selling into a market where house prices are likely lower (in real terms). Neither are really connected to how hard it is to build housing (though yes it’s too hard).
Does anyone have a good explanation of why the Federal Reserve isn’t able to have lower interest rates for supply creation activities? It appears that would be a useful tool that would work in favor of their inflation and employment mandate.
Money is fungible, and people WILL arbitrage equal-risk rate differentials, even if you make it illegal.
Economy is doing "good" so there is no need. And there is still large risk of inflation coming back. So it is better to keep rates higher. There is yet no real need to lower rates. So better to wait and see.
The idea is that it could help lower inflation as shelter is a large portion of core CPI. It’s not about lowering the prime rate, but having a lower rate for creation of supply, which would exclude all services (80% of the economy).
The financing for home builders would also be a bit lower if housing were easier therefore less risky to build.
But agree that higher interest rates hurt builders too.
But agree that higher interest rates hurt builders too.
was having this discussion with my father the other day.
The housing crisis seems to be essentially global. It's getting really very bad over here in Australia, we have young families being priced out of even the rental markets and staying in tents and stuff.
I dont understand how the building industry can possibly be going broke when people are clambering for houses to be built!
The housing crisis seems to be essentially global. It's getting really very bad over here in Australia, we have young families being priced out of even the rental markets and staying in tents and stuff.
I dont understand how the building industry can possibly be going broke when people are clambering for houses to be built!
It’s the “nobody builds used cars” problem.
The people who have the money want high end big houses to be built, so that’s the supply being added.
It’s not being added fast enough to fee up enough “used” smaller houses.
The people who have the money want high end big houses to be built, so that’s the supply being added.
It’s not being added fast enough to fee up enough “used” smaller houses.
This is mostly because US has these crazy 30y fixed mortgages right? Everyone who owns a loan like that is sitting on huge gains and will find it very difficult to sell given the effective loss they would realise - transitioning to another house at a 4 percentage point higher interest rate will cost them a ton of money.
I was amazed to realise that in the US they can have multiple decade long fixed mortgages. Do they also have the ability to refinance long term to a lower rate if it becomes available?
In Australia, we have fixed and variable with all fixed rates being locked for only a number of years. So you are always going to have the bear increases in mortgage rates if they occur.
In Australia, we have fixed and variable with all fixed rates being locked for only a number of years. So you are always going to have the bear increases in mortgage rates if they occur.
>>> Do they also have the ability to refinance long term to a lower rate if it becomes available?
Typically yes. There are mortgages that penalize you for paying them off early, but the conventional wisdom is to avoid those.
For our previous house, my family re-financed twice. In our present house, we got a 15 year mortgage, and paid it off early.
Typically yes. There are mortgages that penalize you for paying them off early, but the conventional wisdom is to avoid those.
For our previous house, my family re-financed twice. In our present house, we got a 15 year mortgage, and paid it off early.
> Typically yes. There are mortgages that penalize you for paying them off early, but the conventional wisdom is to avoid those.
And these clauses were largely made illegal by the 2010 Dodd-Frank Act.
And these clauses were largely made illegal by the 2010 Dodd-Frank Act.
Yes. There are fees associated with a refinance so it might not make sense if you don't plan to be in the house for at least a few more years.
But I've refinanced twice (two different houses) once to get a lower rate and once to both get a lower rate and shorten the term to 15 years.
The real key is to NOT take equity out when you do this. Many people do but that's like starting over with a higher mortgage balance. Just refinance the outstanding balance if it makes sense, and do not reset the term back to 30 years. I'll have a fully paid-off house in a few years that I plan to retire in with only taxes and insurance to worry about.
But I've refinanced twice (two different houses) once to get a lower rate and once to both get a lower rate and shorten the term to 15 years.
The real key is to NOT take equity out when you do this. Many people do but that's like starting over with a higher mortgage balance. Just refinance the outstanding balance if it makes sense, and do not reset the term back to 30 years. I'll have a fully paid-off house in a few years that I plan to retire in with only taxes and insurance to worry about.
Indeed, that's what we did -- refinanced the outstanding balance for a shorter term. We now live in a functioning but small and ugly house, paid off.
Normally yes: in France we also have 30y fixed-rate mortgages (in fact, nobody sane would do variable: there's no upside except for the bank). If the rate gets way lower, you can pay the advance repayment fee and reborrow, so the banks directly just cut your rate, everyone does it. And if the rate goes up, the banks swallow the losses.
There have been discussions in parliament for decades about the prevalence of fixed rates and the cost it has for the banking sector, but it's nearly impossible now to change it. Banks simply have to make less money, and expand abroad if they want to do more predatory variable rates. The French philosophy is that banks should not speculate too much on mortgage profits and accept to make some but not optimal profit there. Suffice to say that our banks are struggling a little bit more than say British banks.
There have been discussions in parliament for decades about the prevalence of fixed rates and the cost it has for the banking sector, but it's nearly impossible now to change it. Banks simply have to make less money, and expand abroad if they want to do more predatory variable rates. The French philosophy is that banks should not speculate too much on mortgage profits and accept to make some but not optimal profit there. Suffice to say that our banks are struggling a little bit more than say British banks.
France is not typical of EU countries.
The United States is unusual in the high proportion of long-term fixed-rate mortgages. Long-term fixed-rate pre-payable mortgages used to be the dominant product in Denmark, but low and falling short-term rates have led Danish borrowers to shift to medium-term (one- to five-year) rollover mortgages in recent years. France is the only other country with a majority of fixed-rate mortgages. Unlike the penalty-free pre-payable Danish and U.S. FRMs, French fixed-rate loans have pre-payment penalties (maximum three percent of outstanding balance or three months' interest). German mortgages can be fixed up to 15 years with a 30-year amortization.
The upside is typically that variable rates are typically lower by one percent or more - for example, my local CU is quoting 6.875% today for a 30 year fixed but 5.5% for a 5/1 arm. But that variability and sudden change in payment when the rate adjusts was apart of what caused the '08 mortgage crisis (played a part in people being unable to afford the higher payments and being foreclosed on).
Welcome to what Australia is dealing with now, increases in interest rates to kerb inflation
> And if the rate goes up, the banks swallow the losses.
Aren’t the mortgages ultimately guaranteed by the European Central Bank? No actual interest risk for the banks.
Aren’t the mortgages ultimately guaranteed by the European Central Bank? No actual interest risk for the banks.
Not sure how it works in Europe, but if it's similar to the U.S., the issue is similar to what happened to SVB - they invested a large portion of their cash into low-rate mortgage-backed securities, so when the rates rose, the actual value of the mortgage-backed securities dropped, making it hard to sell them without losing a bunch of money (which was deposits, not their own revenue/profits). The FED did guarantee all money in all accounts - even past $250k - but it's not a great look to be taken over by the fed to ensure money is available for withdrawal to depositors.
SVB was investing Checking accounts money into mid-term bonds. Another kind of scam.
It was all within the Fed's fund rate guidelines so I'm not sure how it was so scammy. Or does the the typical bank have a larger amount of short-term investments that can be easily liquidated in case there's a bank run?
Cash-equivalent or money market are fine, mid-term bounds are not.
> It was all within the Fed's fund rate guidelines so I'm not sure how it was so scammy.
SVB people are getting charged with criminal charges.
> It was all within the Fed's fund rate guidelines so I'm not sure how it was so scammy.
SVB people are getting charged with criminal charges.
>Do they also have the ability to refinance long term to a lower rate if it becomes available?
Yes. You can also borrow against whatever equity you have in your house. Say you bought a house for $200 and it's now worth $250, you can borrow against part of that $50K equity if you refinance, for example if you need a new roof. I don't think you can borrow 100% of your equity though, I seem to remember 80%. It's been a while since I've done it.
Yes. You can also borrow against whatever equity you have in your house. Say you bought a house for $200 and it's now worth $250, you can borrow against part of that $50K equity if you refinance, for example if you need a new roof. I don't think you can borrow 100% of your equity though, I seem to remember 80%. It's been a while since I've done it.
80% is the limit for what can easily be resold to Freddie Mac or Fannie Mae - government programs that buy conforming loans and guarantee and resell them as bonds.
You can go above 80% but costs rise sharply.
You can go above 80% but costs rise sharply.
We’ve refinanced our previous house 4 times, between 2010 and 2013, bringing the rate down from 5.75% to 3.625%.
We did it as soon as the rate dropped another 0.5%.
We did it as soon as the rate dropped another 0.5%.
Did you actually save a lot of money from doing this? Those refinance fees and origination fees can be pretty hefty, typically 1% of the value plus fees like credit score, appraisal, recording, etc.
Absolutely.
You need to find a broker who's willing to eat most of the costs. That's easier in the Bay Area where mortgages are high dollar so that they still make enough money to make it worthwhile.
I don't have closing statement with me, but the total cost is way lower than 1%.
And, yes, I obviously had a spreadsheet to evaluate the different scenarios.
You need to find a broker who's willing to eat most of the costs. That's easier in the Bay Area where mortgages are high dollar so that they still make enough money to make it worthwhile.
I don't have closing statement with me, but the total cost is way lower than 1%.
And, yes, I obviously had a spreadsheet to evaluate the different scenarios.
It’s quite easy to do the math (you can find a spreadsheet or setup your own) and it will give you an exact date for when one option passes the other(s).
We had a worst-case scenario where a highish fixed rate was underwater for quite awhile, but when it finally wasn’t the payoff time for a refinance at a lower rate was in the matter of one or two months (the monthly payment got cut in half or so).
We had a worst-case scenario where a highish fixed rate was underwater for quite awhile, but when it finally wasn’t the payoff time for a refinance at a lower rate was in the matter of one or two months (the monthly payment got cut in half or so).
I saved enough from my last refinance to double my car payment. Paid it off early.
That's seemingly cash flow though. The other poster is asking if the aggressive refinancing paid off the transactions fees that it incurred.
How is it crazy? How else could one reliably afford to buy a house? The main lesson of the 2008 housing crisis, as I saw it, was that adjustable-rate mortgages are untenable; I certainly would never sign up for one, because it leaves you too vulnerable.
There are two sides to the transaction. The lender is offering a fixed rate loan for 30 years, with no option to call for early repayment. However, the borrower does have the option to repay early at their discretion. In exchange for this massive assymetry, the borrower pays a premium of about 60 basis points over an adjustable rate with 5 year initial rate lock.
Broadly speaking, this product makes no sense. If interest rates go up, the value of the loan goes down. If interest rates go down, the value of the loan goes up ... until the borrower unilaterally refinances and pays of the loan at face value.
Indeed, no bank actually holds fixed rate loans. Instead they immediately sell it to Fannie May/Freddie Mac, which were created by the government specifically to allow for a product as absurd as the 30 year fixed rate mortgage to exist.
Broadly speaking, this product makes no sense. If interest rates go up, the value of the loan goes down. If interest rates go down, the value of the loan goes up ... until the borrower unilaterally refinances and pays of the loan at face value.
Indeed, no bank actually holds fixed rate loans. Instead they immediately sell it to Fannie May/Freddie Mac, which were created by the government specifically to allow for a product as absurd as the 30 year fixed rate mortgage to exist.
The existence of this product inflates prices, making it difficult for people to buy except with a 30 year mortgage.
The real winners are those who own before the government enforces new price inflation policies on the market. (The only reason we have 30 year fixed mortgages is because of government intervention in the market.)
The real winners are those who own before the government enforces new price inflation policies on the market. (The only reason we have 30 year fixed mortgages is because of government intervention in the market.)
Most of the world lacks this product. In the UK, for example, I think the most popular product is what we'd call a 2/1 ARM!
How does this work? Are people just routinely evicted when the rate goes up and they can't afford the payment anymore, or is there some reason this doesn't happen?
From my US perspective, I would rather rent forever than risk such a loan, so I suppose there must be something else at play which makes your approach less awful than it would be if we did that here.
From my US perspective, I would rather rent forever than risk such a loan, so I suppose there must be something else at play which makes your approach less awful than it would be if we did that here.
You buy less house and you can get squeezed. It’s closer to renting.
Adjustable Rate Mortgages destroyed a lot of people’s wealth in the US back in the housing bubble. I don’t know if the laws are supportive of borrowers in the UK, but in the States ARMs have a bad reputation that they probably won’t shed for 2-3 generations.
It's crazy because it's a government subsidy for mortgages. The bigger the mortgage the bigger the subsidy.
Key is not overextending too much. Which I think was one of key issues in that collapse.
Also adjustable rates have been amazingly cheap in past and still are not that expensive. Like sub 1% total. And my adjustable rate loan would be 4.425% if it adjusted today.
Also adjustable rates have been amazingly cheap in past and still are not that expensive. Like sub 1% total. And my adjustable rate loan would be 4.425% if it adjusted today.
It’s definitely why I wouldn’t sell under anything but duress. Going from my current 3% to 7% would be crushing.
We’re in the same boat. We live in an apartment building in a neighborhood we love. Recently, a larger apartment in our building came onto the market. The seller is desperate to offload and the size would really suit our family’s long term needs. However, the double whammy of the loss we’d take selling our unit while paying a higher mortgage at a higher interest rate is just too much to stomach.
Yes, a lot of my friends are "trapped" (not really they're actually quite happy about it) in their houses because they have 2-3% interest rates locked in which is today is almost free money.
Prices rose because of those rates, so not always the bargain it may have seemed.
Not if you refinanced.
Financing affects the financing part of the payment, unsurprisingly… not the price part.
It's not a loss if they're still net positive from their unrealized gains. It's basically the home ownershipt version of "I know what I've got" but they in fact don't.
How is it an effective loss (or gain) if they have not sold the asset (which they are currently living in)?
One Example: you can get a "Home Equity Line of Credit" (HELOC) against your house, then use that money to do things, e.g., remodeling (the interest from such loans is in some cases tax deductible). The house you would own with a 3% interest rate is likely worth significantly more than the house you would own with a 7% interest rate, so the potential impact of a HELOC is higher.
> difficult to sell
Bought the house I’m in in 2010 at a 4% fixed 30-year. I’m never leaving.
Bought the house I’m in in 2010 at a 4% fixed 30-year. I’m never leaving.
I think pandemic created a one in a lifetime structural change (remote work) that is going to take years/decades for supply to catch up with demand. I keep seeing YouTube analysts predicting a housing crash every year for several years in a row... I think they are missing that there are not as many 'local' jobs/wages anymore and a lot of the demand is from those remote/hybrid workers moving into areas that previously only had local jobs and thus housing remained more closely tied to those wages. That paradigm is now broken or forever changed. Instead of living in SF, people moved to Napa/Sonoma/Petaluma/Sacramento/Tahoe/Monterey/Santa Cruz, etc. so now housing prices have gone up in those places. Hopefully the housing/zoning laws that have been passed in California start to have an impact and we see more housing development, but I still think there are legal barriers that prevent that.
"We expect a scarce supply of existing homes for sale to keep home price growth positive this year,"
or said another way: If young families just hold off on purchasing a house for a little bit longer, prices might go back to normal. I mean do you expect the 40% price hike during Covid to become permanent? I don't.
or said another way: If young families just hold off on purchasing a house for a little bit longer, prices might go back to normal. I mean do you expect the 40% price hike during Covid to become permanent? I don't.
>do you expect the 40% price hike during Covid to become permanent?
Definitely. US real estate is literally the best investment real estate in the entire world, and it's availabile to the entire world. Prices definitely won't be going down.
Edit: This comment has nothing to do with whether or not the US is a desirable place to live. The value of US real estate is tremendous simply because the US dollar is the hegemonic international currency and the US holds the only meaningful military power in the west. And finally, one does not have to live in a property to invest in it.
Definitely. US real estate is literally the best investment real estate in the entire world, and it's availabile to the entire world. Prices definitely won't be going down.
Edit: This comment has nothing to do with whether or not the US is a desirable place to live. The value of US real estate is tremendous simply because the US dollar is the hegemonic international currency and the US holds the only meaningful military power in the west. And finally, one does not have to live in a property to invest in it.
> US real estate is literally the best investment real estate in the entire world, and it's availabile to the entire world.
Apparently, we haven't learned shit from the Great Financial Crisis on what happens when we take a basic living essential, and rather than shepherd it as a vehicle for responsible capital preservation, the market instead shills it as growth investment.
No doubt in my mind that real estate speculation will go down as this century's most epic tragedy of the commons.
Apparently, we haven't learned shit from the Great Financial Crisis on what happens when we take a basic living essential, and rather than shepherd it as a vehicle for responsible capital preservation, the market instead shills it as growth investment.
No doubt in my mind that real estate speculation will go down as this century's most epic tragedy of the commons.
The defining characteristic of capitalism is the opportunity to exercise capital to accumulate more capital.
Indeed, an apt agentless response in defense of parasitic excess that so readily cannibalizes its host for a quick buck just before collapse...which is doubly curious given the Fed has been telling us for well over a year now that not exercising capital to accumulate more capital is the name of the game.
You may misunderstand how the "entire world" thinks about it.
I'm French and live in Hong Kong so I'm exposed to a lot of European and Asian real estate experience, have friends with everything from a villa in Vietnam to a flat in Berlin etc.
So the way we see the US is:
I'm French and live in Hong Kong so I'm exposed to a lot of European and Asian real estate experience, have friends with everything from a villa in Vietnam to a flat in Berlin etc.
So the way we see the US is:
- it's risky to live there, for many reasons (high crime, gun ownership, children mass murders, rampant untreated schizophrenia, drug abuse issues)
- it's optimized for gasoline consumption, you can't really live near your work as much as elsewhere, the city center isn't as interesting as in Asia/Europe and suburbs are very low-density, copy-pasted houses, so the "value" of a property is more flimsy than other places.
- it's expensive with low speculative upside: it's a very mature market, it might conserve some value but it won't like double like in Saigon, Bangkok or Lisbon, and it won't "last forever" like Paris or Hong Kong who have structural reasons to be expensive (Paris as capital of a European geographical center between 6 rich countries, Hong Kong as a gateway in and out of China). To give you a random example: Seattle is quite "new" and particularly useless / unknown to, say, a successful Tokyo upstart. It's considerably more expensive than what it should be from an Asian point of view.
- Visas are annoyingly complex vs very open economies (in term of real estate investment) and the US is far down the ranking of countries you trust to access your property easily. I'd rather have a small thing in Singapore that I know I'll always be welcome to visit, than something huge in Ohio which will make me feel like shit each time I have to fill paperwork to see.
- Political instability seems to have taken hold and we never know if foreigners will be barred from the US on a whim because of some flu. It doesn't feel that much better than China, which is considered one of the worst market to invest in around me (basically you have random chances to simply see your house unreachable for years there, or disappear).
I didn't say anything about living here. See "investment real estate"
Same, but why would others live there ? When you invest in real estate, you expect, I hope, to rent. Sure you can just wait it out and lose in estate taxes, but normally: you expect people to live there.
Sadly, since living conditions in the US are deteriorating, dangerous, and unattractive, your investment... is the same: people won't pay a fortune in rent for the privilege of being mugged in their sleep (exaggerating for effect).
And again I'm not even saying that it's actually like that there, but that's how we seem to perceive the US from abroad: we're not jumping on it, it's scary and strange, and it doesn't bring as much yield as safer, less unstable countries. I'd rather buy a losing property in Japan, making up for the value loss (automatic there due to earthquake damages) in stable unchanging rent, with an asset I can safely visit when needed, or at least just access when needing to sell.
If you just want real estate exposure you make a REIT mix and pray the Gods you won't be scammed, from a few click in your broker's app. When you buy a real thing, you don't touch the US.
Sadly, since living conditions in the US are deteriorating, dangerous, and unattractive, your investment... is the same: people won't pay a fortune in rent for the privilege of being mugged in their sleep (exaggerating for effect).
And again I'm not even saying that it's actually like that there, but that's how we seem to perceive the US from abroad: we're not jumping on it, it's scary and strange, and it doesn't bring as much yield as safer, less unstable countries. I'd rather buy a losing property in Japan, making up for the value loss (automatic there due to earthquake damages) in stable unchanging rent, with an asset I can safely visit when needed, or at least just access when needing to sell.
If you just want real estate exposure you make a REIT mix and pray the Gods you won't be scammed, from a few click in your broker's app. When you buy a real thing, you don't touch the US.
>Same, but why would others live there ?
Because has more theoretical opportunity than where they live and they can't move to Europe. This is not complicated.
Because has more theoretical opportunity than where they live and they can't move to Europe. This is not complicated.
If risk isn’t proportional to reward,… well it is almost always.
Emerging markets are riskier and more rewarding (when the risk isn’t active), mature markets are less risky and less rewarding (unless comparative emerging markets craters).
I personally don’t think the term of loans or the maturity of the US market has much to do with the low volume of home sales. Rather, it’s a combination of loss aversion (as others have pointed out) and general uncertainty.
Emerging markets are riskier and more rewarding (when the risk isn’t active), mature markets are less risky and less rewarding (unless comparative emerging markets craters).
I personally don’t think the term of loans or the maturity of the US market has much to do with the low volume of home sales. Rather, it’s a combination of loss aversion (as others have pointed out) and general uncertainty.
They will go down if we adopt California-style zoning reform, or enact other policies that allow the supply of housing to increase.
Not a chance, which is why housing prices aren't going down in any parts of the US, including the vast majority of the US that has none of the "California-style" laws that insufferable developers like you despise.
Except housing prices _did_ go down in areas that adopted zoning reform that allows for more apartments to be built at lower prices.
People with 3% mortgages aren't going to sell unless they lose their job and can't make the monthly payment. I mean do you expect a large recession in the next year ? I don't.
Can you look at this chart, identify the pattern, and then explain why you think a recession isn't imminent? https://i.imgur.com/pkl8nfq.png
Your chart shows that during the time where there's no recession, unemployment generally gradually declines, and then when a recession hits unemployment spikes very quickly, irrespective of what level it was at prior to the recession (this seems fairly obvious: the definition of recession is "significant decline in economic activity", which predictably correlates closely with reduced employment). Why do you think this should mean there will be an "imminent" recession? Just because unemployment is currently low?
Employment is a lagging indicator. In the past, every time unemployment hit rock bottom, a recession followed.
That’s tautological though. Rock bottom will always be right before it goes up because that’s what rock bottom means. That doesn’t mean we know when it will go up.
Can you look at it and explain why you think employment leads to recessions?
It's not that employment itself leads to a recession, but that low unemployment has been a 100% accurate lagging indicator for recessions.
There's no limit to how long we can have low unemployment, and no rule that recessions have any particular temporal spacing or severity. All we can see from your chart is that occasionally there is a recession, that these are spaced unpredictably in time but usually no longer than 2 decades apart (but sometimes only a few years apart, and plausibly it could be longer), and then unemployment rises from wherever it happens to be. But that doesn't mean the recession is caused by either low unemployment directly or by the causes of low unemployment, or that the recession is at all predictable from unemployment data.
I mean yes, it’s not a causation. But it’s pretty difficult to argue that an extremely strong correlation doesn’t exist.
[deleted]
I do. I grew up in Australia and there has been basically uninterrupted crazy property price growth for 25 years. Always a reason why it would or should go down, but it never has. Canada is the same as far as I know.
You might be very disappointed if you’re waiting for a crash
You might be very disappointed if you’re waiting for a crash
> I mean do you expect the 40% price hike during Covid to become permanent? I don't.
The 08 crisis had a large impact because of inflated home values but it wasn't triggered by inflated home values. What triggered the drop in home values is all of the foreclosures that flooded the market - which was triggered by people with inadequate income/asset verification, multiple homes, ARMs, etc. The Dodd-Frank Act largely fixed all of these issues and made it so that banks had to verify you could actually afford a loan before you can get one, leading to all of the security that exists for home sales in the current day.
The 08 crisis had a large impact because of inflated home values but it wasn't triggered by inflated home values. What triggered the drop in home values is all of the foreclosures that flooded the market - which was triggered by people with inadequate income/asset verification, multiple homes, ARMs, etc. The Dodd-Frank Act largely fixed all of these issues and made it so that banks had to verify you could actually afford a loan before you can get one, leading to all of the security that exists for home sales in the current day.
>I mean do you expect the 40% price hike during Covid to become permanent? I don't.
Don’t hold your breath for a pullback without a major economic crash.
Don’t hold your breath for a pullback without a major economic crash.
I don't think there's any case in which I see it pull back anywhere remotely close to 40%, short of societal collapse. Way too many factors that keep demand high and supply low.
Positive price growth means prices rising, not falling "back to normal".
Canada's real estate market seems far more precarious.
28% of the Canadian economy is real estate. China’s peak was 22% and people been talking nonstop about how unsustainable it was. Canada is absolutely fucked imo
And yet in California, it has practically no effect on prices because people selling have absurdly low property tax rates locked in from buying decades ago, thanks to Prop 13.
That's the perfect analogy, a huge disincentive to move. I was telling my son today that I would love to move, we need a different house and for a variety of reasons in a different neighborhood. But I cannot bring myself to trade 2% for 7%. Back when it was 5.75% for 6.25% who cares, now it's a big deal. My exact same house now would cost me 2x in payments.
Long term non-transferable mortgages are the home ownership equivalent of rent control. In both cases housing ends up being used suboptimally because moving is too expensive.
Some people rent out the original house or try to transfer the low mortgage rate in order to monetize it.
Oregon too. People buying new construction get kinda screwed.
Oregon property tax rates are insanely high on older units too IMO. How does this apply to new construction?
Old property gets locked in until there’s something to trigger a change. There’s a couple ways to avoid it a good contractor can work around. It’s not the rate that’s lower on the older property it’s the property value. They have a law that limits how much it can increase per year similar to prop 13 but it can transfer to new owners. Makes old houses worth significantly more than some new homes.
Just to add more context here’s the Oregon rules. The linked doc might not be the most up to date but should provide enough info.
https://www.oregon.gov/DOR/forms/FormsPubs/maximum-assessed-...
https://www.oregon.gov/DOR/forms/FormsPubs/maximum-assessed-...
My understanding is that in Oregon, new construction property taxes are higher than on older units
Honestly I think this one is totally fair. I would even go further and say that property tax you pay on your house should be capped at what you're paying on the day you bought it. And even further we should just get rid of property taxes and collect it via income. We don't tax unrealized gains except for property and doubly because you can't just sell 20% of your house to pay the taxes.
Owning your home is meaningless if you can be priced out of it while just living there. Making people come up with money because they have an asset that can't be readily turned into money is silly when you can just tax money.
Owning your home is meaningless if you can be priced out of it while just living there. Making people come up with money because they have an asset that can't be readily turned into money is silly when you can just tax money.
If you shouldn’t have to pay more in property tax, then why should you be a me to realize corresponding gains on the sale price, above inflation? After all, that has very little to do with whatever the owner does in HCOL areas, but is instead drive by the total economic activity that occurs around them. Home ownership is also meaningless if more and more people are locked out of it based on the premises of “fuck you I got mine (20 years ago)”.
Those gains are taxed (minus the exemptions, which perhaps are too generous).
Part of that is to prevent the “I can’t move from my house to the identical one across the street because of taxes” issue.
Part of that is to prevent the “I can’t move from my house to the identical one across the street because of taxes” issue.
For all practical purposes, the majority of people do not pay taxes on those gains and they’re easily dodged through a variety of mechanisms.
It's not entirely meaningless. You have a place you can modify to your desire as long as it's allowed by the law and you're earning equity instead of paying it to a lord. Quit exaggerating.
California's laws allow for tax to not reset when passing houses down through inheritance, too. Do you feel this is also fair?
California's laws allow for tax to not reset when passing houses down through inheritance, too. Do you feel this is also fair?
Earning equity just means I own it, that not a benefit that's the definition of ownership. Do you not view your government as the acting lord demanding recurring money to continue owning the thing you own?
And yes for inheritance because I don't consider inheritance to be a transfer of property in any meaningful sense. The person who inherits my house didn't buy it, they don't have to get a new mortgage, and they deserve to continue having the property on the same terms I did. I don't think any inheritance should be taxed outside the regular taxes on income. And more broadly people should be able to and actively encouraged to build generational wealth. It's silly that the typical experience is kids starting new families from near nothing.
And yes for inheritance because I don't consider inheritance to be a transfer of property in any meaningful sense. The person who inherits my house didn't buy it, they don't have to get a new mortgage, and they deserve to continue having the property on the same terms I did. I don't think any inheritance should be taxed outside the regular taxes on income. And more broadly people should be able to and actively encouraged to build generational wealth. It's silly that the typical experience is kids starting new families from near nothing.
Nevada offered Allodial title for awhile.
I agree property taxes are inherently problematic and potentially even dangerously unjust - they are one of the few major taxes that continue even after income has ceased.
We (usually) don’t tax food because it’s “necessary” and then tax houses? The “homestead” exemption is usually a farce.
I could be convinced that a 0% property tax on dwelling units, owner occupied (with reasonable limits to prevent Elon Tesla from living in his factory) and instead applied against commercial property would be fine. Could also reduce the expanding “all housing” suburbs.
I agree property taxes are inherently problematic and potentially even dangerously unjust - they are one of the few major taxes that continue even after income has ceased.
We (usually) don’t tax food because it’s “necessary” and then tax houses? The “homestead” exemption is usually a farce.
I could be convinced that a 0% property tax on dwelling units, owner occupied (with reasonable limits to prevent Elon Tesla from living in his factory) and instead applied against commercial property would be fine. Could also reduce the expanding “all housing” suburbs.
These seem like wild takes to me, but thanks for sharing your opinions on them, it gave me another perspective to think on a bit.
Of course inheritence is a transfer of property, in the only meaningful sense!
Literally yes because that the framework the law provides to conceptualize it but we build in so many exceptions because folks don't really consider it to be one. We don't have a good way to express familial ownership. All my stuff isn't owned by me, not really, it's owned by a line of succession. My wife isn't being given my stuff if I die it always was hers, she's next in line and so on.
If it's unfair to tax unrealized gains from owning property, then surely it's even more unfair to tax actual work?
[deleted]
Worst is an interesting framing - lowest transactions is far better.
Obviously all in housing transaction costs decreasing from nearly 10% today to something a lot more reasonable would increase liquidity and transactions. A shift towards more short term rentals is also reducing the demand for homeownership.
Obviously all in housing transaction costs decreasing from nearly 10% today to something a lot more reasonable would increase liquidity and transactions. A shift towards more short term rentals is also reducing the demand for homeownership.
Short term rentals do not reduce demand for homeownership. Quite the opposite, they reduce supply for home ownership.
Nicer apartments, more houses are offered as short term rentals. People's preferences adjust. Resulting demand curve for homeownership adjusts
Homeownership is a far smaller part of the 'American Dream' relative to a few decades ago.
Homeownership is a far smaller part of the 'American Dream' relative to a few decades ago.
I don’t think this is preference as much as lack of choice. Housing has gotten so expensive that people are delaying purchasing, and renting as an alternative.
>A shift towards more short term rentals is also reducing the demand for homeownership.
Honestly what on Earth are you talking about??? Your logic is not clear at all, and if you're truly trying to claim that less people want to own houses then you need to make an argument because that is an outrageous claim.
Honestly what on Earth are you talking about??? Your logic is not clear at all, and if you're truly trying to claim that less people want to own houses then you need to make an argument because that is an outrageous claim.
Two points, demand can be specific to a price point. More people would want houses for $1 than $10 million dollars.
Short term rentals specifically drive down demand. No need for a vacation house when you can rent. They drive down supply, but presumably the same number of people what to to live in a house
Short term rentals specifically drive down demand. No need for a vacation house when you can rent. They drive down supply, but presumably the same number of people what to to live in a house
>demand can be specific to a price point
This only illustrates that you don't know what demand is, in the context of economics.
This only illustrates that you don't know what demand is, in the context of economics.
Fairly self evident. Far fewer married people, many want to live in apartments, and others enjoy renting houses for a few years at a far cheaper rate than being locked into a dwelling.
A careful glance at any of the academic research around housing corroborates this. Or, any modicum of common sense
A careful glance at any of the academic research around housing corroborates this. Or, any modicum of common sense
>Fairly self evident.
Not even close
>Far fewer married people, many want to live in apartments
This has nothing to do with owning a home.
>others enjoy renting houses for a few years at a far cheaper rate than being locked into a dwelling
Source? In my 40 years on this Earth, I have not once met a single person in such a condition for more than a few years at most.
>A careful glance at any of the academic research around housing corroborates this.
Bullshit. Show me a single instance of such research. You are making some truly outrageous claims.
Not even close
>Far fewer married people, many want to live in apartments
This has nothing to do with owning a home.
>others enjoy renting houses for a few years at a far cheaper rate than being locked into a dwelling
Source? In my 40 years on this Earth, I have not once met a single person in such a condition for more than a few years at most.
>A careful glance at any of the academic research around housing corroborates this.
Bullshit. Show me a single instance of such research. You are making some truly outrageous claims.
I live in the midwest (Wisconsin), the newer houses are from the 1950s and the older ones are from the 1900s. People prefer to live in specific villages or suburbs because of safety and community. The inner city is ridden with crime. These villages cannot expand as they were (in most cases) already developed in the 1950s. Here, multi-family houses don't sell well. Newer houses cost a lot more than older ones. To make matters worse, usually, families combine their income to buy a house but all of my friends and coworkers that are in their 30s are still single. Additionally, we have apartments here that cost more than single-family and they are usually advertised as "luxury apartments". To summarize,
- multi-family houses don't sell well
- no new housing development in years
- people are single and can't combine their income
- house prices have increased a lot more than people's income
- multi-family houses don't sell well
- no new housing development in years
- people are single and can't combine their income
- house prices have increased a lot more than people's income
[deleted]
[deleted]
[deleted]
After 2008, there's a 600,000 housing unit deficit. Also, an increase in corporate investors buying cash and waiving inspections.
The American dream will be rented not bought. You'll own nothing and be happy.
The American dream will be rented not bought. You'll own nothing and be happy.
Less than 1% of single family homes are bought by institutional investors. Post pandemic they’ve actually been selling more than buying
Do you have a source for this? I don't really doubt you but it runs counter to what I thought was happening.
I feel like only way to fix this is with government intervention, and I absolutely hate that idea.
You could reduce immigration or the birth rate but there are exceptional problems with both.
The good news is rates are slowly heading down to normalish (4-5%) range, but the era of free money (sub 3% mortgages) are unlikely to come back. If those rates do come back, it will not be pleasant as it will be the other side of a fairly large recession.