This is the fundamental problem though, because there is a shortage of housing, as wages increases, housing costs (either rent or mortgage) increase to suck up every available penny that’s earned.
What is needed is for housing supply to be able to meet housing demand.
That is by design. Banks figure your monthly payment as a percent of income. Then based on interest rates they figure out how much you can borrow. Then everyone - the sellers, the agents, even the bank - push you to borrow the max allowed and spend it. This is why lower interest rate cause higher house prices.
Interest rates are going up. Home prices have slowed. Speculation is over. Still waiting for the drop. The economy seems to have gotten really good at moving ahead in spite of pressure to slow. I fear there may be built up negative pressure that's about to give. Not sure though.
> Then everyone - the sellers, the agents, even the bank - push you to borrow the max allowed and spend it.
Back in the late 80s Elizabeth Warren and coauthors showed that the most common reason American families went bankrupt was because their high housing costs were an attempt to get their kids into better schools.
The blunt truth is the 20 major metro areas are where nearly all the high income jobs are, so we've seen a decades long pattern of migration towards them. This is a huge underlying force in so much of US economics, politics, and culture. At the same time, these metro areas have not come close to matching demand with increased housing supply.
The result is increasingly people facing the dilemma where the best economic option for their family is for them to spend 3+ hours of their day commuting to an urban core from an outlying area they can just barely afford to rent in. And god help you if your kid gets sick or your car gets totaled. This is the reality for most working class Americans. It's not a matter of them living above what they can afford, it's about our society becoming so broken many people will never reach a threshold of affording anything like middle class prosperity.
And I am entirely out of patience for folks that earn tech industry money while moralizing about how poverty is just people overspending in some purely hedonistic stupid way.
> You are ignoring the reality many are facing, where essentially all the available options are above their means.
People who say this are convinced they need to move to SF/LA/NYC/Boston/Seattle. Yes, real estate is prohibitively expensive in San Francisco, we get it. So don't move there.
I just did a housing search recently and found this out the hard way.
Look at the median for an area and then figure that you can go 10-20% below that for a "fixer upper". Even that isn't an option if you don't have DIY skills.
That means a first time buyer can get into a $150k house with FHA for $4,500 down and $1,300/month (which includes property tax and home insurance).
This means someone making $25/hour can afford to buy one of these homes, right now, today.
The average commute time for Americans in 2019 (pre-pandemic) was 27.6 minutes each way: https://www.census.gov/newsroom/press-releases/2021/one-way-...
Yes, there are supercommuters out there with very long commutes, but saying 3+ hours a day describes "most" Americans simply isnt true.
Those numbers seem insanely high to me. I would've thought people are looking for more like $100k.
This reads like people complaining that a new iPhone is $1,200 and then saying "BUT I NEED A PHONE!". Yes, you need a phone. No, you do not need the $1,200 phone. Take the blinders off, there is a whole ass world out here.
> This reads like people complaining that a new iPhone is $1,200 and then saying "BUT I NEED A PHONE!". Yes, you need a phone. No, you do not need the $1,200 phone. Take the blinders off, there is a whole ass world out here.
And you read like an angry and sour person who wants to rub people's nose in it just to say "told you so" by deliberately missing the point I made. Maybe it makes you feel good but you are not helping anyone.
All I said was:
> Or maybe living close to friends and family matters more ? Moving 2000km away from family and friends is an uprooting move.
Which is basically a fact that explain why it's hard to move for some. I don't see how it can - or needs - to be argued. I am not even claiming it's a valid reason not to move.
> Except I'm right, which matters more. The best way to help people is to be honest with them. [..] I'd rather be right and sound like an asshole than [..].
Oh but you just don't sound like one. Pretty sure you've already been told that.
The solution is simple. Stop moving to the same 5 overpriced cities. Or, don't expect to be able to buy a house there if you do. These are facts, ignoring them causes problems.
No.
> Or maybe living close to friends and family matters more ? Moving 2000km away from family and friends is an uprooting move.
I was talking about why some people would find moving away from SF to more affordable places hard.
It wouldn't make sense to point that living close to friends and family matter more to some when moving to SF than moving to Dallas or Kansas City. What difference would it make to move 2000km away from family and friends to SF or to Kansas City ? Both case you miss friends and family.
You don't hear people from Dallas or KC or Cleveland or Pittsburgh or wherever complaining they can't afford to buy a house there, because I can go to Zillow and show you hundreds of houses in every one of those metro areas (and more) that are under $150k, and affordable to first time home buyers with an FHA mortgage putting less than $5k down and having a mortgage of around $1,300/month which makes it affordable to anybody making over $25/hour. In short, people are making excuses nd pointing to extremes in the Bay Area or NYC or wherever to validate their feelings.
Those are facts, and that is the math. Everything else is just feelings.
Your insistence on trying to paint me into the object of your obsession, that people think the Bay Area is the real world and they are entitled to things you believe they have no rights to, while being wrong and out of place, is preventing any progress on your side in understanding what I am trying to tell you:
> Moving 2000km away from family and friends is an uprooting move.
It's hard, it hurts. That plays a role in people's behavior. You may not like it but it is what it is [0].
All the while you keep trying to convince me of something I don't disagree with (prices of real estate and houses in the US market). Quite frankly it's tiresome and I'll let you have the final word (another copy-paste of a napkin plan to become a homeowner or a rant against the youth-of-today and their damn iPhones I suppose).
[0] That being said, I can understand how frustrating it must be for you since according to your posts you don't seem to hold feelings in high regard or even have some, which would explain it all.
Of course those groups urge you to spend the maximum: they're all being compensated if you do exactly that.
At the end of the day, it's still you who is signing the contracts, responsible for how you spend your money, and has to live with the outcome of your decisions.
If those groups can convince a decent percent of people to spend the max that they can get away with, it doesn’t matter what you do personally. Prices will inflate because most others are still spending big.
The differences among households' incomes are already higher than the reasonable ratio between the max approvable to borrow and the sensible amount to borrow. (A household making $300K can already sensibly borrow more than one making $100K can be approved for and one making $100K can sensibly borrow more than someone making $30K can be approved for.)
Households are still competing with others to buy individual properties, of course. That competition doesn't mean that you should YOLO it with the largest purchase most people will ever make just because others are willing to do so.
That only applies if housing demand exceeds supply because buyers are competing. When sellers compete they try to reduce the price to cost plus profit where the profit is no lower than 3-5% because at some point other industries pay more.
This would require heavy regulation of the housing market. For example, we could add a hefty tax on any home that isn't owner-occupied. Otherwise, housing will remain one of the better places to invest earnings and the cost of housing will continue to rise with earnings. However, such a tax would likely increase the cost of renting.
But why are home prices going up? Is it because non occupying buyers are bidding with each other to drive up prices beyond what is rational? If so, banning those buyers might indeed bring prices down to a saner level. However, if prices are high as a result of supply and demand (ie. more people want to live in desirable places and we can't build more homes to accommodate), then banning non occupying buyers won't do much. Given how the overwhelming majority of home purchases are still done by owner occupiers, I'm very skeptical that it's the former, and it's much more likely that it's the latter.
Non-occupying owners are a factor in supply and demand; banning them (or even just increasing costs on them, e.g., via taxes on long-term vacant units) reduces the number of prospective non-occupying owners buying and causes existing ones to sell. Similar factors applies to owners with residences used exclusively as short-term rentals rather than residences, which I would expect are usually more of an issue than units held vacant by non-occupying owners.
> Given how the overwhelming majority of home purchases are still done by owner occupiers
The share purchased by investors has gone up much higher than usual to 24% of single family homes nationally last year, with Georgia leading the nation at 33%: https://www.pewtrusts.org/en/research-and-analysis/blogs/sta...
The problem with this analysis is that it ignores that homes owned by non-occupying owners (ie. landlord) are still occupied by somebody, and is therefore suppressing demand for buying houses. Or put another way, if you got a landlord to sell a home, there would be one more home on the market, but at the same time whoever was previously renting that home will get kicked out and will also need a home, so the net effect on supply/demand is zero.
The only way to bring down housing prices is to out-build the demand -- which no constructor will do voluntarily, because it's a guaranteed loss proposition. Personally, my only hope is that remote work will even out prices between low-value and high-value areas -- but I'm aware that proximity to the job is not the only factor determining the value of an area.
No actual requirement. Austrians made prices affordable and improved housing quality with public intervention, and it worked well[0]. I yet have to see an housing deregulation experiment that worked though.
Write in complaint about never affording a home. I’ll be 40 next year and in an apartment. Largely, still, because my sub-generation got absolutely knee capped by the Great Recession and just general crap conditions.
It's still only part of the equation since interest rates are much higher now so mortgage payments are double what they were a year ago. So even if the home price isn't rising, the costs to finance it are.
Interest rates will come down again so the effect of them being a barrier will reduce. But the fundamental problem for most people here in the UK is getting a 10-20% deposit together when the average house price is £296k, average salary is about £27k, and average household income is £31k.
New car manufacturers don't like to drop prices, but they do like to offer cash back and below market rate interest incentives. Especially towards the end of the model year. Very low cost leases show up from time to time as well.
You also see things like pausing production when supply is outpacing demand. Sometimes it's subtle like stopping the line a few weeks before the scheduled stop, or starting it back a few weeks later, and sometimes it's a month off during the model year.
True and yet, compared to house price/income multiples in other developed countries, the US metric is remarkably low (yes, Fannie Freddie etc). Perhaps Americans are just catching up
Allow a wage-price spiral of about 6% a year, which would raise long rates, allow short rates to increase eventually without a recession and that would cut off the cheap money supply. Asset prices would fall in real terms because of persistently higher rates across the yield curve. In nominal terms they would be able to maintain more of their price while wages would inflate to the point where people would be able to buy houses and be able to pay back debts (particularly college loans).
Instead the Fed jacking up short rates right now is going to cause a recession, create high unemployment and cap wage growth and break unionization. This will be combined as usual by massive tax cuts for the rich as a bailout package, which will be the only thing possible to get past the Republican House. And the Fed will have to then sharply cut short rates and the cycle will continue. I doubt we'll be able to maintain rates at 0% for another ten years, but they're firmly opposed to trying to wage-inflate our way out of this, so we'll probably see shorter cycles between boom and bust as inflation starts to come back faster. There are no signs that they're going to start to give up on the way they've been running the economy though, I don't think there has been a massive fundamental shift in the economy -- other than no more 10 years of 0% with no CPI inflation.
Only employers can create this type of wage spiral - and I do not think they will do this. Employers are now looking into automation as much as possible to replace labor (supermarket checkouts, at fast foods order kiosks, online ordering, robots for cleaning hotel rooms, etc...)
From 2009-2016 the unemployment rate fell from 10% to 4.7%, it is now at 3.5%
> Only employers can create this type of wage spiral
They don't create a wage spiral, they would naturally want to pay people less, they don't wake up one morning and give people raises without a reason.
And the reason is the jobs overhang. When you have twice as many jobs per job seeker then employers are FORCED to pay more just by supply and demand laws.
That only happens though when unemployment is near its lower bound (which we seem to have empirically determined is around 3.5% at least for our economy right now).
This isn't obvious, wages can drive as well as lag inflation.
> but house prices remain stagnant with no increase, would that bring them down in real terms
Yes.
> without a “housing crash”?
Perceptually? Likely. Substantively? Only if it was a long, slow inflation, and therefore a long, slow real-value decline.
> Could this be a “good thing” and does that even make sense?
It’s the same thing, requiring the same conditions, as the real-value decline without inflation, but with inflation.
What I think you actually want is wages rising greater than both inflation and housing prices (not real decline in housing prices as such), so that wages rise with respect to housing. But the problem isn’t defining the output on that level, anyway, its dealing with housing supply/demand to make either scenario happen.
Summary: Governments and local landowners/homeowners benefit from increasing prices, so they prevent homes from being built or for density to be increased in areas with existing homes and services. This causes supply not to be able to meet demand, which causes rising prices.
Anecdotal but I have 150k of equity in my house that I bought ~3 years ago and a 4.15% interest rate. Not a great rate but if I was to refinance I am looking at 6%. Even if I was to sell, and get 150k out, any house I want to buy afterwards has appreciated at the same rate as my current one, so it is more expensive as is the loan.
I think the only fix is building more housing but now the loans builders need to take out to build are more expensive as well as are building materials so even new construction is very expensive. In addition, the rate at which new houses are built in so low that they don't appreciably affect existing supply in a hard enough way to even approach demand so prices stay high. The only real fix would be a government financed program that dropped hundreds of billions in near 0 % financing to builders to build hundreds of thousands of homes. That isn't happening.
House prices have increased significantly above inflation for decades to the point of absurdity, many multiples of a households income. People in their 20s (and 30s) increasingly don't believe they will ever own a home.
If we have a period of inflation, with increased wages (obviously with a painful lag), but house prices remain stagnant with no increase, would that bring them down in real terms without a "housing crash"? Could this be a "good thing" and does that even make sense?