My view is that the dream of owning your own home (which you dont really own if you have a mortgage) is over. In many parts of Europe people just rent for their whole lifes.
I think Homeownership both in the UK and US will never reach pre crisis levels but that may not be a bad thing!
Vince Stanzione
Author Millionaire Dropout
https://www.nytimes.com/books/best-sellers/2013/06/02/advice-how-to-and-miscellaneous/
1
If USA followed Germany's proven and successful 2 year/associate degree programs...we'd have a more skilled, educated and "future-proof" generation that spans health, tech, engineering, operation jobs, etc...but no...like France and their abysmal economy (lacks successful growth rates, for years) are too hung up on the shiny 4 year degree for everyone...yet, its not that critical nor substantive when considering the many (but not all) "degree mills" out there pumping out overpriced academics for the "image" and societal expectations...but not like Germany, and delivering solid gains. Realize our economies and spending power is different, U.S. has more disparate economic output with a "more, more, more" insatiable consumption pattern...but take a look at it this way.
"Given how central housing is to the broader economy — it is the biggest driver of both wealth and indebtedness for most families, and its fluctuations have frequently been major factors in past booms and busts".
And in nonsense like that lies the problem. Housing does not "create wealth" for ordinary people unless you suddenly find yourself not needing a place to live, and can cash in on the unearned wealth crated by inflationary property prices.
It is simply not possible for the cost of a staple requirement like housing to indefinitely increase faster that actual incomes. Only in a few nations is it considered normal for the cost of housing to rise by as much as 10% per year while real wages rise by on a small fraction of that amount. Such a boom is inherently unsustainable.
Those who benefit from this boondoggle have manage to achieve " too big to fail" status, and hence government policy will be directed towards increasingly harmful attempts to sustain the unsustainable.
The overriding economic reality is ever-rising wages and wealth belong to a smaller and smaller percentage of the population. And an economic driver or measurement tied so dramatically to real estate is not a balanced or true perspective.
Perhaps it's time to accept the fact that real wage support for homes at these prices does not exist. I find it irresponsible for an intelligent journalist to entertain the idea that other factors even need be mentioned in this regard as this line of argumentation is what helped create the conditions for The Great Recession. Interest rate and bubble economy double-talk encouraged banks to lend irresponsibly to homeowners and buyers who were swept up in the irrational exuberance which always seems to drive economic bubbles no matter how much market participants do or don't know about such things. A little less talk of interest rates and income not adjusted for inflation and a little more focus on the great disparity in wealth distribution would serve your readers better...
2
House prices in my NY suburb certainly seem to be slumping or at least do not appear to be growing anymore - and are not as high as back in 2005-2006 for that matter. I wonder if this is also true for housing prices in retirement areas.
Many many people have been duped in this game of life who of all things bought a house putting in their past, present and future. So why wouldn't some of the next generation start to question the game and it's rules, choosing not to play.
1
We're trying to sell our house. We've made improvements (new front porch, new back porch, put in a fence, painted, repaired), none of which goes to increase the asking price because houses are cheap in this part of Missouri. If we can sell it, what we will get for it will cover the remaining balance, fees and commission, with barely anything left over for a down-payment on a newer house. Higher interest rates don't help. The prices of houses in our neck of the woods have also gone down significantly in the past two months because people want to sell, buy and move before Winter hits.
1
@Jackie: well the oldest saying in the real estate field is "location, location, location".
The same house in Brooklyn or San Francisco would be worth around $2.5 million. In rural Missouri, I imagine a small fraction of that.
We've never (before the last 15-20 years) had such harsh disparity between the value of homes in different parts of the US -- not simply good areas vs. bad or high income vs. low income -- but that places like California now cost about 12x (1200%) more than an identical house in the Midwest or South.
BTW: you can add this to the "why did they vote for Trump" column.
2
My biggest issue with home buying is the underwriting process by banks. If you have prefect credit, can afford a rent of $2500/mo, and have always paid all your bills on time, plus can save for a down payment. How is it that a bank can say: "we don't think you will be able afford that $1800/mo mortgage, even though it will save you $700/mo." That makes zero sense to me.
This mortgage will reduce your expenses by $700 and yet somehow you won't be able to afford it according to the bank.
4
You incur other expenses in home ownership that you do not have in a rental: property taxes, maintenance, higher insurance, HOA fees, in some cases utilities. Additionally a purchase is a commitment you cannot just walk away from with the payment of a few month’s rent. With proper income and tax management, the home can be cash flow neutral. The loan company does not know how good an expense manager you are.
5
Lenders collect bank statements and pull your credit report so they’ve got some idea about your expense management. And HOA fees, property taxes and homeowner’s insurance costs must be factored into debt-to-income ratios. The real reason lenders don’t use your current rental payment as the most important risk metric is that there’s more risk in lending than being a landlord. A foreclosure could easily cost the lender over $40,000 in total costs. So they must be more comfortable that you have sufficient net income to weather an economic hardship. Plus, just because you’re paying a lot in rent does not mean that that is financially smart.
1
Curious how student loan debt is playing into this equation, especially for millennials who would otherwise be entering peak “home buying” years. If they are already saddled with debt it offsets a lot of their income...
6
Absolutely I think that has a large effect. We were able to buy a home at the bottom of the market it 2012, so our mortgage is, thankfully, low. But we pay nearly the same amount monthly in student loan payments.
1
For whom is this economy booming? Not me, and I earn a decent salary as a civil servant and government program professional. Not my family, who are a mix of middle class professionals and economically-challenged blue color workers. Most of us don’t get raises and those of us who do receive 2% for a couple of years and then a freeze for two or three years. I don’t know how anyone can characterize these times as ‘booming’. Only for the already wealthy, the 1%.
17
@Kan: absolutely yes. And add to that, anyone who is much over 50 (unless a medical professional. public union member or high tech specialist) is totally screwed -- you can not only forget raises most years -- not even a COLA -- but you will the first one who gets laid off or down sized, right sized, off shored, etc.
Then good luck getting anyone to hire you for a real professional job with benefits after 55.
1
A thoughtful, well written article except for the glaring mistake of referring to traders in the stock market as “unemotional”.
1
ZIRP and QE by the fed made cheap money available to private equity who came in and sweep up first foreclosures than general inventory with cash to conquer the single family rental market. In America’s largest city’s and burbs inventory has been permanently crushed. Private Equity got the cheap cash for housing and Millennials got more expensive money for school.
There transfer if wealth to the oligarchy and the .01% continues!
5
In California, several factors are driving this Trend. Too few homes are being built. Investors have bought the modestly priced homes and flipped them, offering them at higher prices. Other investors bought homes and made them rental properties. And those who bought homes decades ago are able to keep paying property taxes at the rate the date they were purchased, so they can’t move if they are on a fixed income because they potentially couldn’t afford their new property tax.
This has created a situation were the price of homes and of rents have both gone up because the supply has not increased while the population continues to increase.
2
@Ryan A.: absolutely yes. That is part of the whole scam: they take affordable properties and turn them into UN-affordable properties.
Prices from owners and flippers alike are unrealistically high year-over-year. These costs plus rising rates have essentially frozen out huge sections of society from ownership.
Greed and hubris in real estate are back. Buyers should steer clear en masse until prices freeze and rates decline.
2
interest rates are going up too: http://www.freddiemac.com/pmms/pmms30.html
add that on top of real wages not increasing with inflation, and you've got a bunch of people who are not only priced out of homes, but priced out of mortgages as well.
6
I have heard a strong case put forward that this is part of the plan to ensure that most people have to rent and thereby guarantee good incomes in perpetuity for the landlords
6
In an economy that is starting to fail Econ 101 teaches that housing is the first to go and the last to recover. That economy is starting to fail. With the tariffs on lumber and steel, and some ridiculous building codes, the prices of homes are increasing. Add to that the increase in mortgage interest rates and you get a slumping housing market. Plain and simple, people can't afford new homes.
5
In Seattle, tech money has always raised what used to be affordable housing. It happened with the dot com era and it's happened now. The average salary for a techie in Seattle is $130,00. This and foreign money has contributed massively to making unaffordable what used to be a place where folks could easily settle in to raise a family - without exorbitant student loan debt also making it impossible.
My own adult children, born and raised here, live elsewhere. They can't afford their hometown even though they both have respectable jobs and always have. But they don't work for Google, Amazon, Adobe, Expedia, or Tableau. They are in public service.
12
@Chauncey: in San Francisco, TODAY....the poverty line is now officially $117,000.
You read that correctly. You can earn $116,999 and be considered "poor" because of housing unaffordability.
SF alone has something like 150,000 homeless on the streets, or living in their cars -- and statewide, it is way over 600,000 -- and those generous, liberal "estimates" so probably an undercount.
1
Thanks, Neil. Another great story.
I'm surprised there is no mention in this story of the change in the tax code. Buyers can't deduct as much of their state & local taxes - including property taxes - as in the past. This makes buying a home more expensive. Is this, perhaps, a contributing factor to the market slow-down, too, especially in the high-demand, high-tax coastal cities discussed in the article?
11
I completely agree with this comment and can’t believe it wasn’t mentioned as a factor in the slowdown. When you can only deduct 10K for combined state, local, and property taxes there is no reason to own a home. It’s much cheaper to rent, with no need to pay property taxes, insure the home, pay mortgage interest, or deal with upkeep. There is no longer an incentive to buy in high property tax areas.
5
@Ellen: though I can see why the affluent dislike this...in fact, don't you guys say ALL THE TIME that "you'd happily pay more in taxes"?
Tax laws that reward the rich for buying McMansions are inherently UNFAIR to the middle, working class and poor....who cannot afford the big mortgage, the fancy neighborhood, the vacation home(s) that the rich used to be able to deduct.
Even if you hate Trump....stopped clocks are correct twice a day. On this issue....he is correct and the liberals are wrong.
1
Nothing in this story mentions the student loan debt as a factor in the decline of home buyers. Why? This is a significant, maybe major, factor in the current market.
Many young, and not so young anymore, couples are unable to qualify for mortgages and cannot enter the housing market because of outstanding student loans. That delays their entry into the housing market.
The universities, federal and state governments, and banks have shifted the burden of higher education onto the shoulders of students and their families over the past two decades. This is a national disaster.
Education is a national social necessity from which everyone benefits. Subsidies for every industry in the country are commonplace. For the education "industry" subsidies no longer exists. Universities, meanwhile, build huge palaces for all sorts of athletic projects and educational institutes. The burden for these lands on the backs of students who must pay for these facilities for decades after finishing their educations.
No wonder the housing market is soft!
9
@T.E. McNamara
So....dont take out student loans? Or if you do, only go to a top-25 national university and get a marketable degree?
One is an example, two is a trend. The piece below from May of this year shares many of the same thoughts. https://richmondvamls.net/the-inventory-divide-and-why-it-matters
1
Crisis: Student loans. Student loans. Student loans.
Solution: Forgive. Forgive. Forgive.
10
consumer debt levels more measured? better fact check that.
2
Here in Jersey City, NJ lots of foreign money is driving up the prices. It's normal for Chinese college students to have two or three million to spend on a condo...the family buys for them to have a place to live in while going to school, its seen as a family investment. Developers build in urban areas for that market, not for the middle class.
While I agree that wages are not keeping up with housing price increases and education costs a lot more these days, I also see that millenials are so used to being given everything by their parents that they don't know how to economize. Tell a millennial to buy a cheaper phone plan, or to stay home and cook or pack a lunch instead of eating out so often, or just skip that trip to Patagonia you were planning to boost your Instagram follower base and watch their response. They prefer 'experiential goods' over material goods... Ok fine so pay rent until you're 40. It takes sacrifice to get what you want, and sacrifice is not high on the millennial agenda.
4
One variable not mentioned is the debt that many millenials are already carrying in the form of student loan debt. Many can't afford to buy a car, much less a house.
12
Beyond all of the charts and number crunching is a simple truth- too many people with a full time job and decent credit can not afford to buy a home in far too many places in our nation.
When the market went stupid, the actions taken by the Federal Government and the Federal Reserve allowed banks and others to buy up huge swaths of housing and prevent market based price discovery. I was liquid and looked far and wide, only to see that prices did not match income or demand in way too many places.
Real estate is well overdue a price correction.
15
And what of the “million dollar houses” littering our countryside --many of them standing empty -- from sea to shining sea?
How many of them are actually owned by the people who reside or don't reside in them and how many are actually mortgaged up to the hilt, with the expectation that there is no limit to the number of banks willing to endlessly finance these insane speculations?
The greater fool theory in alive and well and thriving in Donald Trump’s America.
4
@A. Stanton: the problem isn't the very rich, who have always owned multiple homes -- and can afford to keep up a home (taxes, repairs, utilities) that sits empty all but two weeks of the year.
The problem is "what happens to ordinary middle class folks when speculation turns an affordable home into a costly over-priced home?"
It happened JUST TEN YEARS AGO, but it's like EVERYONE in the industry has total amnesia....
1
Let us learn from Denmark: make it illegal to sell real estate to foreigners.
It is mostly foreign money that is causing the discrepancy between income and housing prices. And, a certain amount of that money is being used to buy real estate as an easy money laundering technique. The U.S. housing market is the world’s largest money laundering pool.
And, it is an awful shame to see an American homeless vet on the floor near a building whose lights are mostly not on (absentee foreign owners).
16
Absolutely true in some hot markets, but the Chinese are not buying homes in Kansas City nor Milwaukee.
2
People will still want to buy new homes. The flippers and house for rent corporate game might get caught a little short but I won’t be crying tears for them.
2
@Dani Weber: the LAST housing foreclosure crisis -- just 10 measly years ago -- utterly wiped out a huge swath of wealth in ORDINARY PEOPLE -- turned homeowners into renters -- turned neighborhoods like mine (ordinary Midwest Rustbelt) from owner-occupied to Section 8 rentals -- bankrupted literally millions of people and destroyed any dream of retirement. (Young folks can recover from this ... but try to rebuild your assets after 50. GOOD LUCK!)
1
Where is this booming economy of which you speak?
12
In 2006, when a 1000 square foot "starter house" on my block (2 bedrooms, 1 bath), went for over $600k, I thought that the housing market was going to tank soon. (It took longer than I thought.) Prices like that - even with low interest rates - are wildly out of reach for a person with an average income. Now, it is worse - a house down the street (same general neighborhood) just sold for over $700k - with 800 square feet. This is simply not sustainable and I dread what the future will bring.
17
I’ve been dreading the crash that surely must be just around the corner since the early 1980s, when I was priced out of my hometown. And now prices are 10 times higher there than they were in the 80s! Maybe that is the future for beautiful places, only the wealthiest will be able to live there from now on.
1
I recommend investing in companies that build those little chairs that move up and down staircases. Because as so many have pointed out you may be "stuck" in your big, paid for house in your old age. Finding a smaller, comfortable single story house in the central city wherever you are ? Just as costly, or more so. And taxes will be higher so the utilities being lower is a wash.
This beggars logic of course but the real estate market is no longer logical.
It is also true that the remodeling/renovation option is very, very costly unless you can do it yourself. And then the time involved will eat up your life for years. People have very high expectations now.
I moved into an old, pretty run down small house in my old age-central city, charming old neighborhood. Just paint, roof, electrical, plumbing, brush clearing, some stairway railings for safety, 90 % success keeping water out of the basement, new floors where the floors were gone cost a very great deal. I cannot imagine how much if I decided the kitchens and bathrooms " were total gut jobs ". When I hear this on the decorating channel I often think " No they aren't. Just clean it up and paint it.
But even young people who will settle for a very imperfect medium sized option are out of luck if the do not make $250,000 a year. This is bad for our society in the long run. It is destabilizing. It is bad for mobility when no one can move for all of the reasons mentioned. Correctable now ? Hard to say.
14
I'm disappointed in this article. For the vast majority of Americans, the economy is not booming. The author states that per capita income has risen 25% in the last 7 years. I find that hard to believe. I know of no one who has realized that sort of income increase. I personally know of several companies who will be freezing wages in 2019 (these are manufacturing businesses...not a good sign).
15
Too many people not earning a living wage, it's as simple as that.
14
The economy is not booming. Why are we constantly fed this line?
19
Personal debt loads will stop housing booms.
We are barraged with ''Buy This NOW!'' from the first time we watch cartoons on screens.The advertising gurus earn FAR more than personal finance gurus.
We had Madmen: when was there a sexy drama about people schooling consumers on limiting financial mistakes and working with a budget? I rest my case.
3
Yes, thanks to all the commenters who basically said, "booming for who?" "25% income growth for who?" There is a slice of income earners, below the 1%, who can still afford just about anything they want. They keep the economy going for them. All these huge houses being built? Why isn't that party over? I guess, like other luxury goods, they compete for that market. The rest of us are or will be renting, and wearing--and eating--leftovers. And you know what? That isn't squalor. When did the top 10 or 15% become the only America that large urban news media--or for that matter, marketers of all manner of goods and services--sees?
9
@J Raymond: this is the NEW YORK TIMES...do you never look at the ADS? for Cartier? Tiffany's? Lexus? or those $15 million penthouses?
Their AUDIENCE, the ones those advertisers yearn for, is the super wealthy deluxe class (ironically, the TRUMP class). They are so rich, that ordinary economic trends have no effect on them.
They literally have NO CLUE what life is like in "flyover country" or for the tens of millions who work ordinary jobs and have ordinary incomes.
This is why they were so humiliated and blindsided by Trump. They look down on us as "deplorables in a basket" -- barely human and certainly of no value, unless we "vote their way" -- and even then, we are quickly discarded because we are beneath them.
1
The economy is only booming for some. If you live in place long enough already you might survive. If you are young and try to buy a "starter home" on the east or west coast good luck with that.
There is no way that most people can make it work with these ridiculous high house prices compared to the average income.
4
"The economy is booming" and "the housing market is in slump" are mutually exclusive. If the economy is creating too many low wage, bare necessity subsistence jobs, then it is not booming. It is wheezing, like a emphysema patient who can barely walk to the door and back. A "booming economy" supports all sectors of the economy--including the all important housing sector. And the manufacturing sector. And travel. And entertainment. And tech. Our current economy--in which it takes two incomes for a family to rise above poverty meaning the kids are unsupervised and one major illness means bankruptcy and homelessness and anyone who goes to college will be scrimping and saving for twenty years to repay their loans---that economy benefits 1) banks, who will own people the way that landlords used to own sharecroppers who were always in debt to the landlord's store 2)restaurants, hotels, paper cup plants, chicken plucking plants--you know, Trump/Koch style businesses--which need low skill, low wage workers and 3) alcohol, tobacco, drugs and gambling--the Grover Norquist sector of the economy which booms when people are poor, hungry, scared and despondent. This is the problem with Citizens United. It does not create a robust economy by allowing all business sectors to have their say. It creates weird Frankenstein's monster economies in which a few sectors thrive by buying up all the politicians, leaving the rest of the economy to wither on the vine.
27
@McCamy Taylor You should have your own column! I give you credit for seeing the forest and every tree within it.
8
So well said, McCamy Taylor, and so very true.
1
The millennials who have college degrees (or don't) but are dependent upon a gig economy will never feel secure enough to buy a house.
96
@Scott Kettering
Paying off $150,000 in student loans severely curtails one's ability to save money for a down payment on a home.
Additionally, few Boomer Parents are able to help their Millennial kids with the down payments as their parents were able to do.
Incomes adjusted for inflation from 1975 are down 30%. It all adds up to less cash for a home down payment or monthly payment.
@Mary I teach at a public university with what is considered low tuition. Even so most students need to take loans, work a part time job (or two). Many are first generation to go to college with parents working unskilled jobs. So in the end they get a degree and let's assume they borrow $10k a year- that's still $40k (and I think I'm being conservative), that one heck of a load to carry just starting out- and usually it's much higher-
One student finished his BA, went to law school, now has $125k debt despite job with government with health benefits, pension. Lives at home with his dad- can't afford rent and car payments he has as he needed car for his particular position.
Me - graduated in the 60's, three years on scholarship at a state school and a $500 NDEA loan- I'm reluctant to say when students ask. It's shameful and yet legislatures and Congress have done nothing to alleviate the situation because banking interests fill politicians campaign funds
1
Median, not average, student debt is 25,000 for BS/BA degree holders. The same stat for post grad degree holders is $40K. Yes, some anecdotes exist of big debts. 10 years to repay 25k with 5% interest is not onerous.
People are fed up with paying more than 30% of income for housing. Additionally, high rents prevent home ownership by stifling people's ability to save for down payments.
When housing is indexed to the median income of a region, neighborhoods will drastically improve as home-ownership encourages responsibility for the community. Everyone with reasonably good credit should be able to qualify for at least a basic home in good condition..... Isn't that part of the American dream? 60-75% home-ownership is the backbone of healthy, vibrant communities. Are we there, yet???
If the median income is $50K, the average house price should be $135K; if median income is $38K, average single-family homes should be priced around $95K. In your dreams....... Why shouldn't this be a reality?
It's all on account of greed, isn't it? If only housing prices had risen along the same percentages as wages and GDPs........ In ya dreams, peeps!
Time for a serious market correction.
91
@ultimateliberalThat sounds great, but how do you "index" home prices? How do you dictate at what price people can sell their homes? What if their mortgage exceed the designated "fair price" for that market?
3
@ultimateliberal Home prices don't follow the 'median' rule. You don't need a million buyers for your house, you just need one, who is willing to pay more than the next guy. As a result, home prices trend higher than median, and by a lot in markets with constrained supply. And it doesn't help when selling prices are being set by emotionally attached sellers who take months to realize their house is not worth what they think it is. Here's hoping that realization comes faster than back in 2007.
6
@ultimateliberal
I think the median family income (currently about $60K in the US) is a meaningless statistic for this purpose. That number includes the poor, retirees whose income is lower or are living on Social Security, and other demographic groups who are, generally, not considered potential home buyers for income purposes. People with substantial incomes or those with cash from a previous home sale are the market.
12
As a Boomer forced into too early retirement in 2008, I finally figured it out. Sell my condo and move rural.
My income has dropped way down. Thank goodness for SS and Medicare. We must save both for our grandchildren.
Not everyone is better off since the Last Depression.
138
@Randy
I couldn't agree more. I went from $100,000 income in 2006-08 to $35,000. Sold and moved to smaller home 3 times. Paid college tuition and room and board for 1 child in full for 5 years. Moved from Michigan to the South where I could afford a house with no income tax on Social Security and first $15K of pension income and Sales Tax at 10%.
Savings wiped out in '08, scrapping by even now.
Poverty level is $50,000 , not $20,000!!!
2
Rising interest rates certainly have had an impact, as they should. But the bigger issue is that wages are not increasing fast enough to support higher home prices.
The rich are getting richer, but they already have houses....
150
Most wage earners live paycheck to paycheck with health care, school debt an child care and barely get by. Unless there're some big pay rises on the way, their participation in the economy in general and the housing market specifically is going to be inversely proportionally to the rise in interest rate going forward.
7
In our community, prices were being driven up by out-of-town buyers who would make cash offers for houses based on the proceeds from the sale of the their previous home in places like Seattle and CA. So it was pretty much impossible to compete for the best houses that came on the market in our community. It happened over and over and over again.
9
@Syliva For a significant stretch of time, in certain desirable parts of Southern California, many houses were snapped up by overseas buyers (mostly Chinese), who came in with all cash, over asking price, offers. Made it virtually impossible even for well-heeled local buyers to complete.
3
I don't think the economy is booming. The latest earnings reports from many big companies looks anemic. I starting to wonder if a recession is around the corner.
17
"personal income per capita has risen 25 percent since the end of 2011" means not much, unless it's a median income. The mean income naturally shoots up faster than the median because most real income increase is going to the top .1% or 1% or 5%. That doesn't do much for house sales except at the high end.
13
Another factor: job insecurity (when employees can simply be fired and hired without employers having to prove cause) or contract, freelance, or gig work. The Freelancer's Union claims that around 45 million Americans are doing the latter, and that the numbers are growing. If you're not steadily employed all of the time, there is almost no way to save, because savings always goes to cover living expenses during periods of little to no work. No one can take on a thirty-year mortgage under those conditions. Who knows if you'll have a job in ten years?
18
Here's an idea:
Baby boomers are ready to downsize their residences, but in CA, at least, they are shielded from market-rate property taxes, due to Prop 13.
Thus, they are far more resistant to lowering their offer. Meanwhile, the next demographic "bulge", the Millennials, is terrified of taking on much more debt in addition to their college loans.
High prices, low sales.
16
That 25% wage increase must be an average not a median number. Considering that only the owner class and top earners could have caused such a high increase it says nothing about the stagnant incomes of the majority of people..and there is also your reason for the slumping housing market.
27
@heinrich zwahlen
"Elementary, my dear zwahlen!"
5
@Thomas Zaslavsky
(I meant that as a compliment.)
2
I work in San Francisco as a Real Estate broker and am seeing a stagnant market for next year. One point not mentioned in this article is the young well paid foreign tech workers, here on visas that they are unsure will be renewed. They’re not buying right now and that’s really dragging our condo market
16
Generally speaking a housing slump is an advanced indication of an economy that may be heading for a recession.
17
When I get through buying the essentials, there is very little left over to save. Chalk this up to real inflation and stagnating wages. With skyrocketing asset costs (to include homes), how could anyone reasonably afford to buy. Combine this with new tax policies, rising interest rates, and changing demographics, buying now would seem to border on insane. I see no one wanting to buy a home, and many wishing they had sold.
14
@Founding Fathers
You forgot to mention the 2005 Bankruptcy Law that eliminated the debt-free “fresh start” that was once the whole premise of declaring bankruptcy. Credit card companies, borrowing money at 1 and 2 percent interest and lending it at upwards of 25 percent, contributed enough money to convince politicians that it was morally indefensible to walk away from usurious interest no matter how high. That and the sub-prime mortgage collapse was the one-two punch that the lower and middle class is still reeling from.
8
It's time for the corporatist 1%ers to stop doing share buybacks and start paying their employees. Greed, greed, greed. It will kill this country.
Why people aren't in the streets striking I will never understand. Bring this country to it's knees and make these people pay up and pay a truly living wage. It's getting really, really old.
40
@Sophia
Strikes require organization of specific groups of workers. Unions were gutted years ago; one of the many things that need correction and revival in this country and are not mentioned much by democrats, as well as the GOP.
23
"In contrast with the stock market, where relatively unemotional traders are buying and selling shares every day..." Huh? Which stock market are you following?
12
This entire article never once mentions flippers which are the problem.
13
@J
Flipped houses are often totally unappealing, because they lack taste and character and the interiors often look cheap and trendy. New, yes, but that is where the appeal ends.
1
Thanks to the mountains of extra debt being incurred under the !GOP’s tax cut, interest rates are going to rise for the forceable future. This will eventually kill the housing market.
10
It's hard to think of a worse asset class. 80-90% leverage, immediately worth 6% less than you paid on closing (that's the sales commission you will incur to your oh! so friendly realtor) and highly correlated with interest rate movements.
Worst of all, this highly illiquid asset greatly constrains the owner's ability to move to a better job in a different location, causing large loss of income earning potential. By contrast, the renter gives one month's notice.
The NYT published an excellent multi-variable 'buy vs rent' calculator back in 2014 and use of this tool will show that it seldom makes sense to buy. https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
A house is nothing more than a wooden box that rots. Let the landlord fix the rot. Rent.
And as for putting money in greedy landlords' pockets, the buyer puts it into even more suspect pockets. Bankers, not a one of whom went to gaol for all those liar loans they made in 2007.
18
Greed. That is all.
7
I hate all housing reporting.
Either housing prices are "slumping" and that's bad for the economy because the Home Depot metric says so or housing prices are "soaring" and the signals the end of the American dream of home ownership.
14
The surest way to misunderstand the economy is to take corporate-media reports seriously. Start with his premise, that the economy is "booming".
I realize that most upscale NY Times readers couldn't care less about the answer to the question, "booming for who?" but it remains a valid question for those who want to understand the economy. Just in case any times readers want to get a grasp of what's really going on, follow this link:
http://cepr.net/publications/briefings/testimony/the-news-on-the-economy-it-s-not-what-it-should-be?fbclid=IwAR1aOXd3XAtWIb-3tIov8m7SYyJ1KeiMj1HAer_CBF8X8NrXxsYcL4tb--0
Then there's the expressed hope that millennials will come to the rescue of the housing market - another pollyannish perspective.
https://www.businessinsider.com/millennials-lives-compared-to-gen-x-baby-boomers-did-2018-3
As it turns out, many millennials are still living with their parents, or struggling on their own under the weight of student loan debt - with a unemployment rate of over twice the general population.
The economy is a hot mess for most Americans, but the last thing that the small slice of the population who are prospering want the public to understand is how smoothly their mechanisms of upward transfer of wealth are functioning.
And there is no shortage of intellectuals willing to support the whims of the prosperous few - I suspect the renumeration is quite generous.
18
You claim that per capita wealth has grown by 25%. Really??? I and my coworkers haven't seen this at all. I don't know any one who has.
28
@Mary M If you divide that by 7 years it could be in the ball park - maybe. His one interesting point was that housing doubled the increase in incomes. That's the problem in a nutshell. Builders are a greedy bunch so you need to be lucky and/or really smart when buying a home and especially where you buy. Takes patience and investigation and often a willingness to move to places that are not as desirable as you'd prefer. Other than that home buying is a cinch! Ugh!!
@Sammy Zosa - I doubt it. That would mean 3.57% per year. Not anywhere true for me, a civil servant and professional.
1
In America, the government, coupled with a slew of builder and Realtor associations control the housing narrative. Huge discrepancies exist in the cost of housing in the various markets across America and while price variations are not uncommon they should be seen as a reason for caution. The future of the housing market is a topic that has been subject to a great deal of debate and can be somewhat confusing. The intention of the post below is to shed light on some of the myths that have been generated and add some clarity to the discussion of where housing policies are taking us.
http://brucewilds.blogspot.com/2018/09/the-housing-picture-is-not-brightening.html
3
@B Wilds: outstanding article...we are replaying 2008 only even worse!
You just need to know where to go. You can buy a nice house in Youngstown Ohio and it's surrounds for 50K. Half-way between Cleveland and Pittsburgh, Detroit and DC, Chicago and NYC, on major interstates, decent arts scene, gorgeous huge city park designed by Olmstead. Telecommute. Have no mortgage, Enjoy life. Don't support developers making a killing and your life unaffordable.
14
@Heather Yes thanks for sharing that just as I did. It can be done if you don't mind moving to a new locale. It's almost required nowadays to find affordable homes, existing or new.
1
@Heather: if you can telecommute -- sure, absolutely.
But most of us are not that lucky. Our jobs demand meetings, "face time", late nights....weekends.
Youngstown is pretty economically depressed, very little shopping or restaurants and it is like 90 minutes from Cleveland -- a miserable commute in harsh winter weather.
1
“I think income growth will help us get out of this period,” said Robert Dietz, the chief economist at the National Association of Home Builders.
This reminds me of the blind optimism expressed by Lawrence Yun, Chief Economist at the National Association of Realtors during the collapse of 2006-8. He absolutely refused to admit anything was amiss, which in turn reminded me of "Baghdad Bob" during the Iraq War buildup.
12
@stan continople: but really...do you expect REALTORS to admit their business for years was built on defrauding people into buying overpriced homes -- promising such buyers endless appreciation with no effort?
1
You should consider price of all homes — single family AND multifamily condos. There is no land in San Francisco to make new single family homes, so of course over time they will get increasingly more expensive.
4
There is more imbalance to this economy than just real estate.
Fueling an already hot economy with debt and deficit increasing tax cuts, was shear supply side voodoo economic nonsense.
Oil prices are in flux. Continued decline is not supported by fundamentals. 7% of refining capacity is off line. Price at pump lags crude price when going down but instantly follows crude price when going up.
The more people spend on fuel and other necessities the less they have for housing.
4
The first few paragraphs talk about how the Economy is booming (Great for the Wealthy Investors) however the idea that more people are working at "higher pay" is sooooo misleading! Wages have actually stagnated if not fallen since the 1970's! While unemployment is indeed down, the primary thing that is never mentioned alongside with that is the fact that these are primarily LOW wage jobs. Here in Oregon, the houses being built are large, expensive houses and not starter homes which is what we as first time home buyers NEED.
https://hbr.org/2017/10/why-wages-arent-growing-in-america
15
As I sat here unpacking the underlying meaning of Neil Irwin's analysis of the housing market's future prospects, I recalled a wise saying one of my old ski buddies used to say rather frequently.
He said, "The only thing you know for sure, is that you just don't know." Truer words never spoken and they sum up my take-away from Mr. Irwin's evocative piece.
7
Rent.
3
Millennials are learning that property taxes, homeowners insurance, maintenance and repairs on a house can be a real pain in the butt. I sold my house 3 years ago to a Millennial, because I got tired of it. When I first bought in 2006, taxes were $2000 and insurance $500. When I sold in 2015, taxes were $3000 and insurance $700. So, a nearly 50% increase in 9 years. I live in an apartment now and haven’t done outdoor work in over 3 years. Good riddance.
5
what is going on is that the natural equalibaruim of supply and demand has been interpreted by state and local building regulations, a stranglehold of supply by banks and other companies like Zillow who like modern day carpet baggers bought distressed homes paying dimes to dollars and people simply not being paid enough to buy their own homes. sorry but our form of capitalism is broken.
7
This should not be a surprise...Rising interest rates as well as Trump slashing the mortgage interest deduction. But I’m sure the corporate tax cuts will mean that the 1% are still fine.
12
In desirable neighborhoods in Dallas, mid-century ranch houses are being scraped off of lots in a single day and replaced with million-dollar, multi-story mansions at an incredible rate. But the new mansions are spec houses rather than custom builds, and very few of them have sold. There are also a lot of multi-acre estates owned by billionaires on the market that don't ever seem to post "sold" signs. I have read that the luxury market is weakening considerably across the U.S., most notably in NYC. Are the Chinese and Russians buying up these properties? I can't imagine where other buyers would be found, given the demographics and debt loads of most consumers.
10
The author does not seem to be aware of a major factor affecting the market in high tax states like the NY tri state. The new tax law caps deductions for property and income tax to ten thousand, therefore effectively raising taxes for millions, and making an expensive home in, say, Westchester, that much less desirable. I know of two people trying to sell homes that are taxed at nearly thirty thousand annually, with no offers suddenly.
27
If only it was true. Where I want to move it takes a year to build a new house and existing homes are very expensive vs what they were a few years ago.
2
Where do you want to move?
Yet another article by Irwin that jumps through hoops to prove that supply-side economics is always a full replacement for supply-and-demand economics. Irwin knows full well that consumer demand for houses depends on consumers having higher disposable incomes (in inflation-adjusted dollars). He also knows that the wealthiest already have homes, and second homes in many cases. How then could he wonder why consumers aren't buying more houses when the combined incomes of both groups are rising? I can't believe that he doesn't know that disposable incomes of would-be homebuyers aren't going up, or have just recently begun to inch up.
Several other commenters have also pointed out that the costs of healthcare and especially education are going up, which also reduces the available disposable income for houses. It seems to me that sales are responding rationally to a secular reduction in demand for houses, in the economic definition of demand.
14
@Grindelwald Yep. And no mention of Wall Street purchasing foreclosed homes in an attempt to turn us all into renters. The American dream has become a nightmare.
14
2008 really changed my perception of the risks involved in home ownership. Given where prices are now, I don't see us buying into the market. We're waiting on the sidelines for the (inevitable?) correction. Frustratingly, we are at the point in life where we should be buying a home (stable jobs, good income, desire to start a family). So much for the American dream.
19
Not mentioned in the article, student debt. Buying a first home for a millennial is like taking on a second mortgage. The baby boomers will care about the student debt problem when they can’t sell their homes.
24
@Hambone Nonamington -- you may have student debt but at least you have an education and a diploma. That's more than what the unfortunate under-water homeowners were left with when they lost their homes.
Don't put this on the baby boomers. Many won't sell anyway but prefer to age in place. A lot of the baby boomers did not live beyond their means, which means their home is probably very modest -- ideal for retirement.
6
"In less high-flying markets, there was still a disconnect. In the Minneapolis area, for example, incomes rose 22 percent while home prices rose 46 percent." I would argue Minneapolis real estate was starting at more depressed prices than other metropolises, making this disconnect less important to your point. I think a lot of people pass over the city because of the weather. For whatever it's worth, I think people are willing to look past that now because it's much less expensive, there are lots of jobs, it's very cosmopolitan and it's a Blue state. Putting aside the weather, it's not much different living there to either coast and you get a lot more for your money, even with the 46 percent rise in real estate costs.
2
@beatgirl99 but the weather has always been the over riding reason for why I moved and why I stay
1
@beatgirl99
Depends where you live in Mpls. If you want to be anywhere near the magnificent lakes in and around the city you pay dearly for a home or apartment. Sure, you can live cheaply in yesterday's outer ring northern suburb where mostly food stamps are taken by the grocery stores and people sleep in their cars --- but honestly why live in Mpls if you can't have the lakes and bike trails right outside your door?
1
The 2018 housing story is more concerning than some of the macroeconomic statistics suggest. I am not an economist, but after selling my home in an affluent part of NJ in 2018, I learned a few things that make me worry about the housing market, and the economy.
For most of the homes in my neighborhood, people are still underwater - don't forget that during the 2007 housing crash, prices declined on average by a third, and it will take still higher prices to get those houses back on the market. So, it isn't that homeowners necessarily want higher prices, many NEED higher prices just to break even, which is a concern if housing prices begin to decline.
As for the statistic about rising housing prices - I wonder what is behind the statistics. I saw that, given the lack of housing stock and rising interest rates, very small houses were selling at a premium because that was all new home buyers could afford and that was all that was available. So, if the increase in housing prices means the homes sold in 2018 were over-valued, that is not necessarily good news for the future housing market.
With interest rates continuing to rise, my take-away is that 2019 does not look like a good year to buy or sell a house, particularly in NY and NJ, given the new income tax cap on state and local taxes.
8
I saw this coming. I sold my upstate NY home and my FL condo last year (no damage from Irma, lucky me), and bought a home my wife and I felt we would want to live in for at least the next 10 years.
They are seriously overbuilding here in Naples. The newest housing is overpriced as well. I see the same homes for sale and with open houses now that I saw last year. They can’t get their price.
BTW, I saw the last collapse coming as well, and managed to sell my home then just a little late (my wife didn’t want to sell when I did). I took a light trim, but not a haircut.
10
I for one am glad the housing market is cooling off. Perhaps there will be less rampant speculation and flipping. How many apartment in New York are owned by people who don’t even live in them? For far too long America has subsidized housing with tax breaks. This led people to building ever larger and more extravagant homes, i.e. McMansions.
10
The saying 'what goes up, must go down' has been applied to the markets for as long as I can remember. The exact same principle applies to real estate when the it becomes overpriced relative to what wages/salaries can support.
This is not a surprise. It is however, going to be an inconvenient truth for the GOP as they attempt to convince Americans the economy is great leading into the 2020 elections. The real key will be, as pointed out in this article, just how the real estate market adjusts will be key into how our entire economy reacts in 2019 and 2020
7
While many congressional Republicans were sure the 2017 tax cuts would give them a competitive edge in the 2018 mid-terms, a large percentage of middle and lower income voters comprehended that only corporations and the wealthy were winners. All these tax cuts proved is that supply-side (trickle-down) economics are a fiction that has -never- created good-paying jobs. Why? Because the wealthy do not choose investments on the basis of tax rates but rather return on investments. Even intellectually dishonest Republicans know this.
Eclectic Pragmatism — http://eclectic-pragmatist.tumblr.com/
Eclectic Pragmatist — https://medium.com/eclectic-pragmatism
16
What part of foreign investment skewing real estate market prices is so difficult to understand? Just because some crazy investors in China or xyz think it's a fair price, doesn't mean citizens in America can afford it, or that FM will give you a mortgage for it. I live in a county with a 417 cap on 10% down. Five miles away in another county the cap is 655. If you have a home and are asking 600, which county do you think is easier to get the loan in? (If I'm not clear, at 600k in one county you need 20% down and in the other you need 10% because of federal rules. )
8
in some places ( LA, Vegas, NY, and Miami spring immediately to mind but there are others), the relative salary income of the locals is not very material to the price of existing homes, and perhaps new homes as well.
that's because prices are distorted by foreign cash buyers at the top end, and in the investment segment, and by buyers who are not conventional wage slaves.
these buyers can afford homes much more expensive than typical American buyers, especially 28 year olds forming families, and they often don't need mortages, or even care about the price, as long as they can stash their dough in the safe sanctum of US real estate or use their property to help gain themselves some other benefit, such as in business licensing or progress toward legal residency (see Kushner's pitch to Chinese investors in NJ).
then, ther are people who have struck it big somehow- landing a contract as a sports star, having a hit record, or signing for a leading role in movies or TV, also lawyers who get 1/3 in a big settlment, agents whose clients are breaking through, beneficiaries of IPOs... there are lots of people who participate in the market and skew it for everyone else - perhaps not so much in Ames, Iowa, or Topeka, Kansas, but in many hot American markets. most often, these are not folks who are seeking a modest new tract house built on spec, either.
6
When people cannot even afford rent on a normal sized apartment, how can anyone expect people to buy houses.
Rents are exorbitant where there are good paying jobs. But that good pay is used, in most cases, to pay a rent that easily costs more than 50% of take home pay.
How is a person ever able to save a downpayment in order to buy a house, plus the extremely high closing costs.
Now that interest rates are climbing even more people will be kept out of the market.
The economy is only booming for the top tier of income earners. Not for the rest of us. What the Tax Reform bill did for Corporations was to enable them to buy back stock. There were very few raises. And when Amazon and other companies gave raises, it took back benefits, so the employees were further behind.
The Housing market will continue to suffer, especially with interest rates going up. Every time interest rates go up, selling prices come down. It is the nature of the beast.
The only way most young people are going to be able to afford a home is if their parents can help them out financially. Or if they can move further away from their jobs and take a long commute to said jobs.
23
I doubt movement in average per capital income is the right measure for gauging whether homebuyers are more or less able to buy a house.
With most new income going to the highest earners and investors the "average" per capita is going up but not necessarily the more relevant "median" income.
11
@Chuck Lacy
Yes, it's very hard to find the Average Joe who's ahead 25% from 2011, 2.5% more likely. Median income to housing puts residential housing at least 25% above affordable income levels.
14
Of course, the chief economist of the Natl Assn of Home Builders thinks that income growth will fix the softening of housing prices. No doubt it will for the top quintile of incomes, but what about for the bottom three?
Looking back on four decades of home ownership, I can't say my five homes have been great investments, but I'm not sure that I would have saved the inflation-driven equity gains if I had rented. Mostly, I realize how lucky I was. As risk averse as I am, I never would have bought securities on margin, but I gambled my financial future by buying more home than I could afford, trusting to income growth, which was more prevalent then than now.
Luckily, my income levels held up during the downturns, so I didn't have to sell at one of the (many) cyclical lows.
If any millenial wishes some advice from a boomer--and I wouldn't blame them if they don't--I'd say don't stretch for housing. Rent or settle for something you can comfortably afford and invest the rest. Because if the inevitable downturn is deep or long enough, you'll lose everything and we boomers, who are now clipping coupons, will, once again, prevail at your expense.
22
@maqroll. Agreed. There's a lot of risk in owning property. Maintenance costs can be extortionate, as can property taxes. When you rent, the owner bears more of the risk.
We're talking about the difference between new construction and existing homes. Why aren't we talking about the difference between first time home buyers and existing homeowners? Rising interest rates are probably playing a bigger factor in the market than you think.
An existing homeowner has little incentive to sell a house below their desired price when sitting on a 3% fixed interest rate. For $200,000 with 20%, you lose $30,000 for every percentage point increase in mortgage rates. If you bought at 3% and the market is now 5%, you can't sell and buy elsewhere for less than $260,000 without taking a loss. That's before considering any renovations.
As long as you live in an area where housing demand is expected to increase over the long haul, supply can sit and wait for interests to drop (unlikely) or demand to catch up.
In my area, there's very little single family home construction. Everything going in are medium rise apartments and town houses. They aren't cheap either and most are only available for lease anyway. If you want a single family home, you either need to pay up or move elsewhere.
5
@Andy
Right on the money. This is happening all over my old hometown of Vegas. Huge swaths of older (read: more affordable) homes have been bought by investment companies and are only available now for rent which goes up every year with no justifying improvements to the house or neighborhood. Capitalism is running amok
3
You might have less incentive to sell if your mortgage is paid off and you still like your house as well as the area you live in.
2
Here's what's going on. My wages haven't increase but my rent, medical co-pays and insurance, groceries, gas, etc...have and continue to do so. I see no benefits from the great tax break. It's impossible to come up with a savings plan when the cost of living increases and outrageous medical expenses don't let up.
37
@Mareln Be healthy and not need insurance, that would work but might be difficult.
1
@Mareln - so true buts it’s even worse because the “great tax break” is accelerating rising interest rates which more than wipes out and meger benefit it had for middle America.
3
@Mareln
Exactly. Not enough affluent NYT readers understand the reality in the ground for the younger generations. They still apply the numbers from their childhood to our situation.
4
This is spreading to builders and the construction industry, which includes the vast array of materials sources, both here and "abroad" (China). No wage growth, allowing foreign investment and ownership of U.S. real estate, and crippling interest rates bumps, will spell the end of the "trump economy".
11
Young adults who were put out in the street when their parents lost their homes to foreclosure 10 years ago don’t feel the same drive to buy homes. Also the trillion dollar overhang of student debt leaves many huddling in their parents basement rather than seeking their own house. Also interest rates and property taxes haven been on the rise making homes less affordable. Plus young people today prioritize their phones, restaurants and travel over being tied to mowing the lawn in the suburbs.
19
@Rick -- The overhang of student debt is deeply troubling the economy, and is simply not seen for what it is by those who evaluate trends. It is outside the past norm, so it is not in their data curves.
13
“Nationally, personal income per capita has risen 25 percent since the end of 2011, while the S&P/Case-Shiller national home price index is up 48 percent (neither figure is adjusted for inflation).”
The increase in personal income per capita is virtually meaningless if almost all of that gain went to the top 10%—which it did. The top 10% were already home owners, and the homes they buy and sell aren’t the same as for 28-year-old first-time home buyers anyway. There’s your answer.
58
While I see home ownership as a driver of indebtedness, I fail to see how it is truly a source of wealth. Buying a home is a precursor to spending more money for increased utilities, ever rising property taxes, homeowners insurance, special assessments, upkeep and modernization of mechanical systems such as HVAC, lawn sprinklers and other appliances, radon remediation, foundation repairs, termite control, as well as new kitchens, bathrooms, windows, flooring, decks, driveways, landscaping, lighting, furniture, etc.
Still, my wife and I love having our house in a historical section of town known for its solid and large older homes, brick streets, beautiful churches, long-established parks, and architecturally and academically superior schools (though we do not have children).
But since one needs a roof over one’s head I don’t see one’s house as a source of wealth (and we haven’t had a mortgage for 20 years). If you sell your house you must buy another. And didn’t we learn in the last recession that equity loans were dangerous? And for those who have children you must die to pass on the equity in the house, assuming it isn’t eaten up by nursing-home costs if you didn’t buy or cannot afford long-term care insurance (increasingly pricey).
As land near large cities becomes more expensive, and building costs continue to rise, the price of residential real estate will go up. And, remember that increased income isn’t spread evenly over all earners, with most going to the top.
18
I don't agree with most of your argument. It seems to me that if you do not own your home you must be renting. And if you are renting you are indirectly paying all of the expenses you mention above (Taxes, repairs, insurance, even the landlords interest and equity payments). And yet you never develop any equity. Theoretically, if you have rented a house for 20 years you have basically paid for and paid maintenance expenses and taxes on a house that your landlord now owns. I owned rental houses for many years. Often it did not seem profitable, (and it was never as easy as tenants think) but finally I had one paid for ,which quickly led to another being paid for and then another. When it was time to retire I sold all my rentals and paid taxes on the profits. I do not claim to be wealthy, but the equity from the houses, now invested in other equities, is the basis for my retirement. Even if real estate does not always go up, I still feel it is an important part of most middle class people's wealth and owning is almost always better than renting.
24
I didn’t think the article was about being a landlord, but rather was speaking to owning one’s own home. While perhaps becoming a landlord is a path to wealth, you are right when you say it is hard work. And you are correct in asserting that investing in real estate, as in other assets, can build wealth.
But the point I was making is that one should not consider one’s own house as a financial asset in the same way as rental houses, stocks and bonds because one needs a roof over one’s head and one can’t cash in on the equity in one’s own home in most instances without being dead.
6
@WMB But you rent a place much smaller and cheaper to keep than your single house. Owning a house it to enjoy it for its benefits, not to build wealth. That would be rental income property.
1
Seems obvious to me. Interest rates going up are causing mortgage rates to go up significantly. Also, the GOP tax bill has increased the cost of homeownership in expensive coastal cities, by limiting deductions of property and income taxes and mortgage interest. These make buying/owning a home significantly more expensive, so less to pay for the home itself.
22
Is anyone really surprised? As the old song goes, the rich get rich and the poorer get poorer. Except that the poverty level is now $150,000. Another American dream shattered by the GOP.
31
Home prices are crashing the hardest in California which is the bluest state in the nation and the least in Texas which leans Republican.
2
A rising stock market is no measure for the economic pain and anxiety of the average worker. More work, less pay, no benefits, no pensions and sky rocketing health care make the real world a lot less “booming” than the world of the billionaires whose tax cuts protected their “inalienable right”to own private planes and evade taxes with impunity.
50
@Justice Holmes
Especially the last part. The think only suckers like us pay taxes.
3
People OWE too much to qualify for home loans. The consumers have been wanting more than they can pay for - never a good trend.
Personal debt is higher than the national/federla gov't debt before Obama started his spending spree, in the mid-teens of trillions,
6
@L'osservatore
1) Congrease enacts ALL spending legislation.
2) Republics controlled (outright with votes or via their constant filibuster of every legislative effort by Democrats) Congrease for 23 of the last 24 years.
3) 75% of the current $21 trillion National Debt is caused by Republic enacted legislation.
4) President Obama saved the World economy in 2009 with his deft management of the US economy.
Thanks Obama.
@Blank: : No. 3 is PROVABLY incorrect.
When GW Bush left office, we were $9 TRILLION in debt, and that was with TWO hopeless foreign wars paid for with a "credit card" to the future.
In 8 years, in a deflated economy….Obama managed to add $12 TRILLION to that awful debt -- and for WHAT? the worthless Obamacare with high deductibles? did he end those two foreign wars? Close Gitmo? WHAT exactly?
What did that $12 TRILLION get spent on?
1
The author also fails to mention job security. How many of those "great jobs" out there are contract? No benefits, no paid time off, you can be fired tomorrow for no reason. Why would anyone tether themselves to a mortgage in that situation? No one.
59
who would lend on the basis of such an income stream?
3
This article tracks with my personal experience selling a townhouse in Napa in September. After 4 months, I received a price slightly less than what an identical unit went for a year earlier. We have seen this movie before in California. It’s a slow moving phenomena but real estate is definitely quieted down and especially in areas where the tax deductibility of property taxes has been limited by the new federal tax law. If I were a buyer, I would sit on the sidelines for awhile.
20
Don't forget that every time a house is sold the sellers try to recover the ridiculous commissions charged by realtors, which adds cost beyond normal market forces. Every realtor I've met talks about how hard they work, and virtually none of them work hard enough to justify their commissions. Multi-listing networks are essentially a monopoly that prohibit anyone from working for lower commissions or with a different marketing strategy.
32
You should check out Redfin. They’re using a different model—we’ve been working with them as we’ve looked for houses here on Texas, and so far so good. Not sales-y and fewer commissions.
@Subtropical Matt commissions are always negotiable! Don't let anyone tell you otherwise.
1
Could just one of you housing reporters please do an in-depth article that researches the % of after tax income people are spending to rent a 1-bedroom apartment today versus in the 1970's when wages began to flat line?
When preparing this article please disregard the top 10% of income earners who we all know their incomes have been soaring at 10-15% annual increases at minimum while the rest of us continue falling further and further behind.
After all.....if wages go up as they did this year by 3.2%, but inflation went up by 2.8% and lost tax deductions and various other cost increases like gas and medical insurance are also up, chances are we are in the hole for the year I would suspect.
Mainly I want to see a simple few graphs showing the % of net income after taxes adjusted for inflation that an individual is spending on a one bedroom apartment. Also you could overlay that line on a graph with the decreasing line of the countries quarterly GDP growth over the last 4 decades.
I'm sure it would become obvious that the reason Western countries GDP has been decreasing for the last 4 decades is in direct correlation to a decrease in disposable income for your average consumer because of an increase in the % of money we spend on basic housing costs.
Most importantly, the top 10% who have been robbing us for decades and continue to strip the wealth of Nations need to be eliminated from the median income calculations before you start.
GO.
70
@Richard M The incorrect choice of numbers is no accident. They're still hoping that the "booming economy" propaganda will pacify an increasingly angry population of workers. But, when people see money slipping through their hands with increasing speed and nothing more coming through the pipeline, even the most elaborately constructed lies fail.
3
Move out the cities. There are jobs in rural / suburban communities that pay nearly as good, but your cost of living is so much better.
The down side is there is less tolerance to risk. the good job could be in a one horse type town. Rural communities can collapse with shifts in government policy or technology progress.. However risk can be managed...
4
When my single-parent mother bought her house in 1977, she inflated out of her mortgage payment in about ten years, and there was never a time when the house didn't appreciate. Even if your real wage stagnated, it kept up with inflation, while your mortgage payment and mortgage principal was eaten away by inflation.
Low inflation makes buying a house a risky proposition, unless you are pretty sure of holding on to it for ten years. (It used to be five.) There are high transaction costs, repair bills, insurance, taxes (itemization used to pay for your property tax, but no more.)
11
@Mark Allen: if your mom's house was in San Francisco, or anywheres around there….that market is very unusual and has had stratospheric returns for those lucky to be able to buy in the 70s and 80s -- when prices were high (by national standards) but not INSANELY high.
I bought my current home in 1986; by the middle of the housing foreclosure crisis, it had lost 80% of its 2006 valuation, meaning it was now worth LESS than it was 20+ years later.
1
The most striking thing to me as I read the comments on this article is how different my perception is of "affordable" is when it come to housing. In the Toronto area you aren't going to find a decent detached home in an ok neighbourhood for less than $1m. A tiny 500 sq ft condo is $500k. Yet there is intense competition for pretty much anything that comes on the market. People who are trying to buy a place to live compete with investors and flippers who have a dozens properties. People consider house prices of 10 times their income cheap. How I wish I could buy a detached home or even a condo for only $400k.
22
@Sadie Here you could buy a nice home for under 200K, now it is not in Toronto.
1
Move to Dallas Texas.
1
in LA, you would be lucky to be able to get a small bathroom for $200k. that's becase it's a place people with money want to be, and they also tend to be demanding about what they get for their money.
2
There is a bifurcation in the US housing market
In global cities, such SF, LA, NYC housing prices are getting out of the reach of the middle class, pushed out by the winners of globalization
In Syracuse, NY, on the other hand, housing is plentiful an very low cost. But even there's a crisis, because as Edsall observed on April 19, 2018, the population is getting poorer
In the struggling Syracuse metropolitan area families moving in between 2005 and 2016 had median household incomes of $35,219 — $7,229 less than the median income of the families moving out of the region, $42,448.
For what you can get click here
https://www.zillow.com/homes/for_sale/Syracuse-NY/pmf,pf_pt/31680707_zpid/7353_rid/globalrelevanceex_sort/43.132058,-76.029339,42.938077,-76.249066_rect/11_zm/
A sound national policy would be not to cram more people into globalized coastal cities, but to lift the "hinterlands" by concentrating on lifting the economics of their cities to where people want, again, to live there.
29
@Woof
Americans do not want to live in the”hinterlands”.
2
@Blank
Because mid-size cities, lakes, rivers, and countryside are inherently a bore? Or is it because these places have been left to rot, which is woof’s point?
1
@Msmallard
The causes of why Americans are fleeing the rural areas of the country are numerous but the fleeing is undeniable.
Did the rot come before or after the fleeing, that is debatable but what isn’t is that Americans no longer want to live there.
Another problem is that there is so much student debt that buyers in their prime buying and household formation years can’t qualify. Something needs to be done about the student loan problem to support more sales of homes.
34
I'm 33, have worked 10 years at an indie book publisher, make 45k, and rent a nice (if oddly configured) Manhattan apartment with two good friends. (It was designed for a single, much wealthier person.) My monthly share is $1200. Every time our lease comes up, I look at for-sale apartments I might be able to afford, mostly out of morbid curiosity. This year's top contender was an hour away and lacked a stove. No house for me!
36
@Singpretty As an indie publisher could you not live anywhere? Nashville is very nice and my town of Jackson is acceptable to me. You could get a nice house for far less.
1
@Singpretty
Are you a literary agent?
Please contact me.
you missed the whole point: the writer works AT a publisher, not AS a publisher; it is a job, a job in an industry that is in NY and is not in most other places.
they may have stockbrokers in Tucumcari, but it is not Wall Street. they may have a multiplex in Tecumseh, but it is not Hollywood.
8
The Hartford Courant Homes section recently published a list of all recent real estate transactions by town. There were twenty one listings for my town of Cheshire, a wealthy suburb where many houses cost above $400,000. Only three of the houses sold for above that price. The remainder of the sales were for much smaller and less costly older houses and condominiums. I have been seeing this same trend since this past summer.
10
This divergence between stagnating wages and rising housing costs has been growing since the late 1970s, with some pauses during housing slumps or crashes. I noticed it when researching a book on how we Americans apportion land (Americans and Their Land, 2006) and have long considered it an important and ominous indicator of the dwindling quality of life for growing numbers of Americans as the housing cost burden of both owners and renters has risen to eat up more of Americans' incomes. (The annual reports of the Joint Center for Housing Studies at MIT, plus census figures, reflect this.)
I would only add that Mr. Irwin has chosen to use average rates of wage increases which disguises the fact that "Wages have risen for those in the top of the distribution but stagnated for those in the bottom and middle," according to the Brookings Institute report here, excluding a greater number of Americans from homeownership and even from adequate rental housing.
https://www.brookings.edu/research/thirteen-facts-about-wage-growth/
In addition
26
If you build an apartment building and keep a unit for yourself, the rental incomes will pay for everything and you will essentially have free housing to use as you wish.
Yes, it is more complicated than that and some attorneys say that the IRS is going to want to know why there is no rental income from one of the units. CPA's see it differently however.
10
@jstevend
Now they build a townhouse of 3 floors for one family but when I grew up it used to be called duplex and triplex housing and the upper and in the case of the triplex 2 other floors could be rented out and support the owner's mortgage.
6
It is truly amazing that no one, not even the author picked up on the biggest reason why housing sales are down in 2018 vis-à-vis 2017: the Republican tax act. I must give the Republicans credit, they slip this one by everyone. The tax changes essentially eliminated the tax benefits of a home mortgage for the middle class. Oh I know, the mortgage deduction is still there--if you itemize. But the changes essentially eliminated the benefits of itemizing for the middle class.
166
Yes, this is particularly true for homeowners in or near big cities who are now unable to deduct all of their state and city income taxes and real estate property taxes. For those who live in states with low or no state income taxes, no city income taxes, and relatively low property taxes, the new standard deductions have put such individuals in a better position than before.
8
@Duane Coyle You're talking about Washington State: no state or city income tax, relatively low property tax (1%). But here, too, in Seattle the hot housing market has came to a screeching halt. Sellers are cutting prices, some houses not selling at any price.
7
@Duane Coyle: If a state has no income tax, no city income tax and low property tax, it may be good for the individual on some level, but it sure can't be good for the state. Education and infrastructure must suffer. If not, how are these paid for? Mr. Brownback broke your state with the 'we don't want to pay taxes for anything', didn't he?
Taxes mean civilization. And an educated populace. And decent roads.
Sheesh.
18
The distribution of wealth is such that many wealthy folks own multiple homes where as many other folks can't afford even the low end of the housing market. Maybe low end owners should consider selling and downsizing when the time is right helpimg our potential low end owner young folks.
3
@jazzme2 -- and where do you expect these "low end owners" to move once they sold their "low-end home? There's a good chance these homes are tiny; so down-sizing any more is not possible. Also, why put the onus on the "low-end" owners? Why not ask the one percent to help out?
4
"As Economics 101 teaches, price movements are the way that supply and demand match up with each other."
True, but not the whole picture. When you get past Econ 101 to a more nuanced understanding, you learn that that's based on assumptions that (i) people are always rational, (ii) everyone has the same information about all options available, and (iii) there are never any transaction costs. To the extent these assumptions fail, so does the market.
How true are those assumptions most of the time, do you think?
Usually when someone cites "Econ 101" they dont know much about Econ 102 or beyond.
16
I remember learning that price changes the “quantity supplied” and the “quantity demanded”.
The discussion about millennials fails to take into account the debt crisis most millennials are facing with respect to their educational expenses. Debt-laden millennials are less likely to take on additional mortgages until they become more financially secure later in their careers. The NYT should continue to cover the issue of the mountain of debt most educated young professionals are under today, as the costs of education, particularly for graduate studies in medicine, law and business, etc. have loomed out of control.
37
@Joanna Gawlik Twenty-five to thirty thousand dollars of debt is the average, about the cost of a new car. How is this an insurmountable mountain?
5
@Bruce Johnson ....and how many people getting out of college can afford a $25-30K car plus a $25-30K student loan payment, AND a $500,000 mortgage? How many college graduates start with salaries above $200K who can afford this? I've known since the '90's that, after making a decent government salary, there are places I will NEVER be able to afford a mortgage.
28
@BruceJohnson All the college students I know would be THRILLED if they only had 25-35k of college debt at graduation. Try 200k! That’s what my kids are facing. Pace College in NYC is up over 40k/year for tuition alone (no housing, no books or food) Top colleges require 50k in loans per year. Over the past 20 years the price of college tuition has increased roughly 10 times more than the cost of living (or any expected post graduation wage). 25-35k is a number from the first Bush era. The student debt crisis is looming and may bring down our entire economy.
45
House prices have more than doubled in the past 5-6 years, at least in the SF Bay Area and other job centers. Hardly surprising that this would prove to be unsustainable in any circumstances, let alone in the face of rising interest rates and significantly reduced tax deductibility for mortgages and state income tax.
22
@Bungo House prices where I live- on the Connecticut edge of the New York metro area- crashed in 2007, and have not recovered. I would not get back the gross sale price of my house, bought in 2003, if I tried to sell it today. Along with all the other factors, the author of this article lives in a tiny metropolitan bubble somewhere else.
12
I think it is interesting that people who sign up to pay a loan of 80 or 90% of the price of their house are called home “owners.” Likewise, I wonder how many folks understand that the bulk of what they pay in early years of a loan goes to interest, not principal. I am not making an argument here, just observing the oddities of home financing.
29
@Fintan -- I am sure most people are aware that for many years all they pay is the interest. One more reason to buy something you really can afford. Also, hopefully you've had a great down payment.
1
@Fintan
Even worse: those who trade up in homes on borrowed money. You can end up buying two or three houses and basically give all that away through loan payments.
Sadly, even credit unions have joined this pirates' game.
No wonder so many are broke - and it's all legal.
Compound interest is the cancer of our financial lives.
2
@Fintan
Great point. The word "homeowner" is overrated with 3% down.
What I learned is, that most American's don't understand how interest works and how much they have to pay for it.
I'm shocked there isn't no reference at all to the consequences of the recent tax cuts to mortgage interest deductions and state property tax deductions.
178
The three worst financial mistakes I ever made were buying a condo, buying my first house and buying my current house.
i bought the condo in 2007 and sold it in 2010, to buy my first house- losing $45,000.
I sold the house in 2016 for $6,500 more than I bought it for, but once you consider that I had to buy a new roof for $11,000 and paid a 5% realtor commission when I sold it, resulting in a loss of $25,000.
My current house required a new deck for $8,000, I had to spend $2,500 on AC repairs and I spent about $10,500 on new windows that didn't leak heat like a sieve and that were double hung so I could open the upstairs windows without worrying about my kids falling to their death.
Buying a house is a terrible financial decision.
25
@Joe Public
Your landlord is still going to have to deal with those maintenance costs. He will just pass them down in rate increases. And your landlord pays a higher tax rate because its an income property.
If you factor in maintenance, taxes and financing costs it probably was a wash verse renting.
A home inspection usually picks up the issues you have observed....you then negotiate the final price of the home considering the depreciation.
Does sound like you had some bad luck. But that is not the norm.
13
@Joe Public
i've owned 5 homes & 1 condo since 1986. 4 in CA & 2 in NV. transactions in 1994, 1998, 2000, 2006, 2013, 2018. I have not netted a loss on any of them, and on 3 of them the home value has doubled (not my downpayment, but the home value). In all cases they have been the best financial decisions of my life. Just saying....
7
@Joe Public: You may have had bad luck, but this isn't sound advice for people in general. As a young person, I put every spare dollar into real estate. Though I had jobs that paid only moderately well, and endured several periods of unemployment, I ended up retiring early with a multimillion dollar retirement fund, thanks to property investment. You have to be prepared to ride out downturns; don't sell low and buy high.
Econ 101 also tells you that in an economy: housing is the first to fail and the last to recover. Housing was starting to recover in many areas of the country, some better then others. But when you let a petulant child add on ill-conceived tariffs on lumber and steel, housing costs go up. When you let a public company that does not care for the consumer (but cares more for the money it gets from lobbyists) write building codes with no cares about what they will cost, housing prices go up and sales go down. The "International" Residential Code is not international at all. It's a private company that writes building codes, some carried over from older codes, but many that make no sense. The final nail has been the increase in interest rates. A $100 - $200 increase in a monthly payment will put many first time buyers out of the market.
23
No incentive to buy a home any longer.
Prices are too high relative to income.
Interest rates are rising, not falling, so refinancing if necessary in a few years will be more expensive not less.
New tax law took away deductions for state and local taxes.
New tax law took away second home deductions.
New tax law further limited first mortgage deductibility.
New tax law limited second mortgage tax deductibility.
Homeownership is simply no longer attractive enough for people to enter the market.
59
@Tom
The $24,000 standard deduction combined with the $10,000 SALT cap basically eliminated the tax benefits of home ownership.
33
@Joe Public
My take on the tax advantage was that the itemization gave just enough help on the federal income tax to pay for the local property tax. Going forward, buying a house means you volunteer to pay property tax, with no corresponding relief.
The elimination of the exemption amount made it worse. I am still itemizing, but I am single. With two incomes, I wouldn't. Before the tax cut, it would be exemptions, unlimited SALT, and interest deduction.
8
@Tom
These are good points. However I wonder if what will happen is rather than not buying if there is a trend into smaller or more affordable types of dwellings.
5
It is nice to see an article that clearly describes the housing market.
At the end of the day, it all comes down to the size of the payment. Collectively, home buyers will buy as much house as they can qualify for. Interest rates have been abnormally low for nearly 10 years allowing for prices to go up a lot and still have a payment that can be qualified for. Interest rates are now moving higher. Simple math dictates that home prices must come down to compensate. Tax policy, etc. is part and parcel of the loan qualification process. For some people it may be important; for others, maybe not. Just keep in mind that it really is all about the size of the payment, and payments are going up if interest rates go up.The national average rate on a 30 year fixed loan is 4.9% today. It was about 3.5% two years ago. On a $320,000 mortgage, that rate change creates a $262 per month increase in the payment (13.4% higher). Prices have to come down, and the higher rates go, the more the price will have to drop.
17
Two other factors pushing down prices: the 10K cap on state+property tax deductions, and the new, higher standard deduction of 24K for married couples (meaning most middle-market homeowners will no longer benefit from a mortgage interest deduction). Upshot: Two of the rationalizations homebuyers traditionally used to stretch to the max are now gone.
41
So many things are left out of this article. Some have been mentioned by other commentators: the high student loan burdens and stagnant middle class wages. I see lots of investor activity in my metro area, from big hedge funds (e.g. OpenDoor) to foreign money. They are able and willing to pay top dollar for homes as they came onto the market, artificially driving up prices and edging out would-be homeowners. Then they jack up rents, making it pretty much impossible to save up for a down payment. Then you have all those developers who are building everywhere- but it's all high-end apartments and townhouses! New build homes all seem to start in the 300s. How in the world are those with median salaries supposed to afford that?!
93
@PCW Absolutely spot on!!
3
This terrible tax "cut" law doubles the standard deduction for a family. The standard deduction, which for many taxpayers wipes out the need to itemize, is a real drag on demand. Why buy a house if you can't deduct the interest and property taxes? For a single, the deduction is $12,000 and for a family, $24,000. Your regular taxpayer is not getting more than a 3% drop in the marginal tax rate. On the other hand, corporations got a 14% tax rate cut, from 35% to 21%. Without a middle class who can afford to buy a home your housing market is going to slump and crash again.
86
Then there’s the inability to write off mortgage interest...
18
When my father bought a house in 1966, the price was one year of his income. If I was trying to buy the house I live in now, it would cost 3.5 to 4 years of my income. If I could afford it. And it's a modest house that's over 50 years old now.
23
Many years ago I was working in a lumber yard. I was in my 20's and the owner was in his 60's. Lumber sales were down and he shared something with me that has proven true. When the building industry starts to decline a recession follows within 2 years. Maybe it's coincidence but over the last 40 years it's been a pretty good barometer in my opinion.
48
I can’t figure out why so many economists continue to focus mainly on sale price data when analyzing the real estate market and the lack of “affordable” housing. A far more relevant fact is that home builders are building bigger homes than the market needs and NOT building what is wanted- smaller, accessible, well designed single family homes.
Immediately after WWII the new single family home market was dominated by homes being built significantly less than 2000 square feet in size. Now, the typical new house being built is on average 2-3 times larger. Where are the articles and studies on what incentives and economic guidelines to needed to resurrect the building of normal (historically) sized single family houses versus MacMansions and multi-unit apartments? Why keep reporting on the profit side of the problem (MacMansions = higher sale priced UNITS) versus the production side (Levittown Ranch = 3 BR, 1BA, 1,000 sf carport and including appliances?) Historical first time buyers say “Yes, please!” If given the choice.
50
@BBC
The typical dwelling has an expensive mechanical core with electrical, plumbing, heating, ventilating, and cooling. Kitchen and baths go here.
The rest of the place is empty boxes (rooms), jammed into contact with the core. Doubling the square footage of the rooms doesn't really add much to the cost, hence McMansions
9
@Heckler ... you ignored bribing zoning comissions
@BBC
They must all be counting now on the foreign investments for these huge homes not sure how else it is justified other than for financial gain. Intelligent building seems not to be the focus as they are inefficient energy wise and mostly empty space. A smaller home and more greenery would do better for the health of our planet.
3
I'm older, not a first-time home buyer, and even I backed off. Was just looking to move within a few miles of my current location, but the prices went insane! I will wait and hope that things even out. Maybe that's what a lot of others are doing.
20
It depends where. House sales in my area are low because there is not much inventory, but the second something goes on sale, it is gone and above asking.
We bought our house 6 years ago for just over 400K and its nothing much to look at - an old small house in need of work. Now its closer to 600K, which is insane. We get emails saying "you can still get into this town for 500K" - there is one house listed for that price that is basically a tear down and had nothing done to it since 1950.
A burnt down house just sold for 700K because of the lot - they are going to put a 2 family on there and sell each unit for at least that much.
So basically a couple making 200K together (which is a small percentage of the population, even in the Boston area), can't afford a small home in a middling suburb, especially if they ever want to have kids and pay 20k/year for daycare.
42
There is no "booming" economy. The housing market over heated in the typical areas where they are prone to heat and now need to correct.
23
Housing prices have been overinflated in relationship to income over a decade now. That's not a market that's slow to adjust--that's an intractable market in the face of growing income inequality.
31
One factor not mentioned here is foreign buyers parking their money in twin cities housing. There is scant data because there is a code of silence between reality firms and government institutions. You would have to go to the court house and look at the surnames. No one has done that yet as far as I can tell.
26
Whole towns in bay area same thing.
2
And why might home prices be so far out of reach? Money printing - that's why. In their zeal to inflate asset prices and rescue the crashed financial system, the Fed took things way too far. QE1 was fine for calming the panic, but QE2 and QE3 were sops to the banks - and pushed the price of the average home far from the reach of the typical household. Never mind unintended consequences - these were intended. Now the millennials have to live with them - renters forever.
9
@c smith
nope. nonbank reasons like foreign buying was a much larger share of the equation. Total money creation is not impressive.
9
@Spengler Not impressive at all, unless you think amounts in the trillions are unimpressive.
Between 2008 and 2015, the US Federal Reserve in total bought bonds worth more than $3.7 trillion. The UK created £375bn ($550bn) of new money in its QE programme between 2009 and 2012.Aug 4, 2016
https://www.bbc.com/news/business-15198789
1
Another big driver in the ATL area (and in many other states as well) is the investment groups. They are made up of people from all over the globe (a city south of ATL is 40% owned by Australians!). These investors picked up homes at bargain prices during the recession, and are now rentals. They create a blight in neighborhoods, but try to get the landlords to do anything. Seems the law is on their side, even with solid covenants. Although most were written when no one thought of rentals in a neighborhood of houses. The investment firms are a blight, but there are no laws to limit their greed. Or rents. And when things take a downturn, I'm sure they will just 'disappear' leaving their golden gooses to rot.
16
@Ma
You can blame the American banking system for the GFC and foreigners snapping up bargains. America's fault.
You reap what they sowed.
Student loans. If young people and young couples could refi loans instead of paying ridiculous rates of 6-9%, housing would take off. Relief of some sort is needed for their recovery and it would benefit the economy overall.
14
Houses are still selling in my area, but only the smaller/mid sized ones. Sellers are all but giving away the bigger homes. But prices even for the more moderate sized homes are flat to down somewhat. More people are renting homes as well vs buying because unless you're going to remain for at least 5 years most likely you'll lose money. Too many people got badly burned in the last recession and don't want to repeat it.
10
@northeastsoccermum
"Houses are still selling in my area, but only the smaller/mid sized ones."
Yes, we've noticed the same in our area in the Maryland burbs. The large, expensive homes were on the market for months while smaller, older, more affordable homes sold quickly. (Living in one of those smaller, older, more affordable homes, I hope this stays true.)
What's concerning is that new home construction seems to be all the big McMansion type homes. Building new affordable homes doesn't seem to be in the cards.
14
@Steveh46 -- true, there is much talk about building much smaller homes but the reality is that huge McMansions are here to stay. You couldn't give me one of those contraptions.
3
Home prices are based upon the cost of land and the cost of construction, including the size of the home. When paople were moving out of the cities, the new land was cheaper and the couses could be larger. Now that people are recognizing the benefits of living in cities, the land costs are higher and the home sizes smaller. Statistics of home prices whould be tied to home size. A 3000 sq ft home in the city cost millions. But a 1000 sq ft condo is much more affordable. People are changing their minds about what they want in houses. That 3000 sq ft home on a full acre 20 miles from the city has become much less appealing.
8
Perhaps one problem is too much house for the buyer. A smaller house, built on a smaller lot, would have a lower cost and also lower property taxes and insurance.
16
This doesn't match what I've seen in ATL area. Especially safe areas in the city and the metro suburbs. Housing prices have sky rocketed, and bidding wars are common place. The problem here is that many are staying in their houses as they age vs. downsizing. We have countless 'over 50' neighborhoods being built, and re-zoned to cram in as many as possible (thank you local city councils that are shortsighted and should be flogged). These new neighborhood homes cost twice what one's existing home costs, with 20% of the land and half the living space! I guess this is the future? Construction workers are swamped with work, and many kids go into construction as this appears to be a growth industry with good pay and no college requirement, but it's short lived. WE HAVE TOO MANY PEOPLE LIVING IN THE US NOW! The population has more than doubled in my life time. Why can't anyone see this as an issue for all of us, and our environment?
11
@Ma
We have lower urban population density in the US as a whole than Bangladesh or the Netherlands have. The problem is not that there are too many people, it's that jobs are becoming concentrated in Metro areas so we are seeing the population become more concentrated too.
18
@Steveh46 And higher population density than Antarctica...relevance?
1
@Bruce Johnson
Bruce, most people think of the Netherlands as being a small, densely populated area. The US as a whole is a fraction of that density. Even the urban areas of the US, which amounts to less than 5% of the total land area of the US, is less densely populated than the Netherlands.
We're not running out of room. We're not crammed together.
I wonder if increases in insurance on homes due to fires and hurricanes will have an impact on home prices.
10
@K
Insurance rates are tied to the replacement cost of the dwelling and the zipcode. My neighborhood was hit with hail and rates when up. Housing has continued to increase because of people moving to Colorado.
The last recession my house lost 50k in value when I bought new but since 2011 it has recovered and gone up 125k since I bought it in 2004.
1
1. No job security
2. Crappy pay
3. Long term consumer & student debt
4. Demand outstrips supply
69
Try telling this to the mindless developers here in SW Florida that are planning to build 30,000 houses on what is now tomato fields. When I asked a county commissioner where all these people were going to get the money to buy these houses he replied that they were also building retail space. I guess he thinks a cashier at Publix is going to have $300,000 to buy a house.
33
@Paulie: Florida is a bit atypical, as most buyers are snowbirds from up North…they are retired on SS and pensions and do not need a "job at Publix"...
1
Just wait for the days when a 12.5% mortgage is common. That's what I paid for a $30,000 loan on my first house in 1980.
12
The National Association of Realtors measures housing affordability essentially as price x mortgage rate / income. Prices would need to rise by about 15% or mortgage rates rise 0.75% points to make housing, on average, as affordable as it has been over the last 40 years. The peak in housing affordability was January 2013 when median household income would have qualified for a mortgage that was double the amount needed to by the median house (median family income in the U.S. is $76,800). Over the last 15 years, the median home price in the U.S. has outpaced inflation by 0.3% per year on average, which is hardly a bubble. In the 15 years ended October 2005 (at the height of the housing boom) inflation-adjusted home prices rose 3.25% per year on average. When was a safer time to buy a house? Then or now? The number of households is growing (1.6 million over the last 12 months and almost 10 million over the last 10 years) and the housing stock has risen by only 8 million units over the last 10 years. The percentage of homes unoccupied all year has dropped from a peak of 11% in 2010 to 9.5%--average vacancy rate over the last 20 years was 9.9%. So we need to build more homes. However the unemployment among construction workers is close to a record low at 4.1%. Housing is in nether a boom nor a bust but is gradually expanding.
3
@John R: I fail to see how rising house prices and/or mortgages makes them more affordable.
"Prices would need to rise by about 15% or mortgage rates rise 0.75% points to make housing, on average, as affordable as it has been over the last 40 years. "
3
Working with low-income individuals and families who want to use down payment assistance (DPA) to purchase their first home, I stress to everyone who attends the Home Buyer's Education classes: "Buy within your means, not your dreams."
If the bank pre-approves "you" for $150K and the city is going to provide $35k in DPA, don't go start looking a homes in the $170-80, keep it at or lower than what the bank THINKS is within "your" means to keep up the payments.
If you're going to be a first time homebuyer, whether you qualify for DPA or are [grossly] over income, attending one of these classes or taking it online is very beneficial. Over income or not DPA, there may be some state bond programs available.
16
"legal and other barriers" is a euphemism for your local obstinate, development-opposing city council.
4
A few words to seniors & empty nesters looking to down size. A condominium works really well for many-very little outside work. My mortgage is $722/month + utities & HOA is $100/month.. Easy access to the freeway, & too large grocers to serve me, with less than a 5 minute ride. I order my wine shipment monthy, & I'm content.
12
@Rick Hill No thanks, too many people in too little space.
1
@Rick Hill There are lots of advantages to condo living, not the least of which is sipping a glass of wine while watching someone else, mow, rake, shovel and salt. Enjoy!
20
Beware tyrannical HOA Boards. They can break a nest egg and curtail the freedom of retirement.
2
I live in Central Washington (in a pretty run of the mill city (nothing really desirable about the location) where the median housing price in 300k. I earn a decent living (65k/year) but due to student loans and general $$$ living costs (food/utilities/gas) I cannot afford even a starter home. This has got to change.
222
@Josh G
I just paid off my son's student loan. It cost me $130,000 and I got the money from my dad's estate. He went to Penn State and I am from NJ. That is why it cost so much. I could live in house, not the apartment I am in now, or I could get a fancy car, or take trips, but I would rather my son not face a life of indebtedness. My father saved his grandson.
36
@Josh G -- surely there are cheaper than 300,000 Dollar homes in your area?
When we bought our house we would have preferred a ritzy address but of course this was not possible. So, we settled for a tiny old house (around 1000 square feet) in a decent (but not fancy) neighborhood.
2
@Don Juan Very possible that no, there aren't cheaper homes in his neighborhood. There are some cheap homes in my area, but fixing them up would cost as much as buying a decent one. And, in case you haven't been looking for awhile, builders are no longer building smaller homes. They are building 1600 sq ft and above and have been for quite some time.
14
Housing is going soft because it is too expensive. The number of hours Americans have to work to house themselves is much too high.
What will it take to make it easier to get housing in America? Do we have to break the banks again to get prices down to where you can rent for 25% of your take home or buy for 33%?
Our current management team make their money from housing inflation. Don't expect them to fix anything. If the prices go down, the Trumps' and Kushners' cash flow will tank.
18
@mlbex
The problem was we didn't break the banks the last time, we bailed them out, and if our economy crashes along with the banks balance sheets be prepared to bail them out again.
7
How did you research the causes for the housing slump without realizing that the greatest impediment to young people buying a home is student loan debt? If someone is already saddled with $600-800/month in loan payments immediately upon entering the workforce, how can we save for a down payment on a home?
Young people in America have been handed a rotten deal by the Baby Boomers, a group that routinely votes to gut the social safety net for their own children and grandchildren, and then accuses those same young people of being too "entitled." There is a reason young Democrats are pushing for universal higher education, and I am honestly boggled as to how Mr. Irwin could have failed to mention anything about this in his piece.
209
I absolutely agree
12
@Jessica Panettieri Because Mr. Irwin is talking about the overall economic/housing picture, not the small window that you're looking through. Your points are certainly valid, and I understand your anger, but if that's the only lens you look through, then you distort the picture more than Mr. Irwin.
7
@kcp
Correct is the fact that student debt has become a larger issue than most realize - $1.3 trillion as of 2018. Average per student holding debt is $37,172. How could you even qualify for a mortgage with those figures? This is, of course, only a portion of the total economic problems. Lack of decent full time jobs (with decent pay and benefits) jobs is the biggest problem. I get sick of realtors quoting such unrealistic and confusing figures.
29
Fed inflated a bubble with 0% interest rates and QE, now the bubble is bursting.
8
Besides the inability to deduct interest & taxes the sellers are facing a higher interest rate than they may be holding now which means less "desirable" house for them as well
11
Remember incomes have gone up much less when you look at median rather than per capita increases. And don't forget crushing student debt. Young adults simply don't have enough money. This article shows a lack of research or insight into the issues involved.
66
@Bruce Fry
Exactly, the last time median and GDP per Capita income were somewhat in alignment was 1975. Since then the two numbers have taken divergent courses. I believe a family needs to earn an average of 90-100K per year for the two numbers to be back in sync.
8
Wages to catch up to absolutely insane housing prices?! That isn't going to happen anywhere--maybe corporate America just thinks the urban wokers of LA, SF, and NYC should look into 2 spouses per person so households have 3 incomes.
24
@M Burr Laughing, but seriously.
6
Bring the individuals who knowingly exploit undocumented workers to justice. One can quickly figure out that the new homes are out of reach for our strained work force who's wages are held back by illegal labor.
This is simply organized crime sanctioned by the financial industry, and politicians.
One simple solution for patriots is a system already in effect: E-Verify.
10
The supply of cheap land and cheap materials for home building was exhausted in the USA over the last 40 years as the U.S. population grew by 100 million. Add the movement of good jobs abroad to the mix and the result is millions of people that can't afford a decent place to live.
13
No: “cheap land” and “cheap materials” have not been exhausted. Oversized, “stick-built” McMansions built by inefficient real estate contractors instead of “Levittown” sized and standardized manufacture houses driven by the need for housing (not future appreciation) are the problem. Technology brought down the costs of every other human consumable in the last 75 years. Regulations on financing and taxes (bigger house = bigger mortgage and bigger tax deduction but my prop 13 property taxes stay the same!), zoning (“I bought my house 20 years ago and you’re not going to build new houses for less than I can sell my outdated termite farm for! NIMBY!), construction (my suburb outside San Antonio, Texas is NOTHING like your suburb outside Phoenix, Arizona so more standardized building codes allowing modern manufacturing efficiencies can’t be allowed!), and transit (More roads, parking and bridges for more cars via indirect taxes but NO TAXES for reasonable public transportation!) all need to be re-focused.
It isn’t a “lack of land, lack of materials” problem: It IS a NIMBY and regulatory problem in the US. How many MILLIONS of better quality homes have been built in China in the last 10 years? Against all the objections, Ma Bell’s model eventually lost out to the now ubiquitous, international cell phone. There’s a lot of venture capital saying the obsolete US housing system is overdue for the same kind of radical change. It is long overdue.
10
A whole article to explain why rising interest rates are causing a housing slowdown. One sentence would work. Rising rates cause the monthly payment to go up.
6
@Sean Mulligan,
The 2017 tax cut, grossly enlarging the budget deficit, will continue to drive interest rate increases for years.
10
Too many young people lived through the 2008 crash and saw friends and family lose their homes, go underwater. Owning a home isn't really worth it to this generation. A house is a place for your stuff and not much else. Attitudes have changed about real estate forever.
18
@Anita Very right. But the alternative is to pay your landlord's mortgage for him all your life instead, and end up yourself with nothing.
18
@MTB A house should not be considered an investment. That's the biggest con of all.
11
@Anita
I grew up in the 70s with stagflation. My dad was 43 before he bought a house. I was 35 when I bought mine and lost money during the 2000 recession and almost during the 2008 recession..
I see a lot of millenials trying to buy expensive downtown lofts and gentrified neighborhoods instead of buying something cheaper in the suburbs.
7
Here in Fairfield County in Connecticut, little demand and too much money. People are getting back their original investment after 20 years of paying taxes and interest. But Most importantly, taxes have gone up on these houses to support pensions and disability for town and state workers. Wish I could work for twenty years and be paid for 50. Too late to correct this.
7
@one percenter I'd like to see the math on that work for twenty and be paid for 50. I work as a teacher in NJ and the rule of thumb is my work years divided by 55 times my average three years of salary. To get paid for 50 years I would have to work for 50 years. I have never met a teacher who worked 50-55 years. And OBTW, by one percenter I assume you are a veteran. So am I.
Semper Fi
12
I don't know about other people, but as a millennial having purchased a home recently, it's a very tight market where we live. Many of the houses we wanted to see were sold before we were able to schedule a viewing to see them, while most of the new inventory on the market was well outside of our price range.
We ultimately picked a home that needed a bit of work, but was structurally and functionally sound. We spent weeks cleaning and repainting, but it's slowly becoming our home.
14
The housing market is up against a serious longterm headwind for 2 reasons: 1) the boomer generation (only slightly smaller than the millennials) is beginning to seriously downsize, and, 2) for the first time in history, succeeding generations aren't any larger than the last (the boomer generation was almost twice the size of its parents' generation). My boomer in laws and siblings (genx here) are ALL currently selling their homes or want to sell their homes in the next few years. They say that their friends are doing the same. On a sadder note, I have 2 friends whose boomer parents have passed away (whose homes cannot find a buyer in rural New England). The wave of homes that will be hitting the market over the next few decades will be unprecedented - as will be the fact that for the first time the succeeding generations won't necessarily be large enough to fill all of them.
48
Agree totally. Another aspect not mentioned - my millennial daughter who has no debt and has always rented has the flexibility to move anywhere in the world to work easily. This has really helped her career
13
Yup. The next twenty years will see real price discovery through estate sales.
1
@NRichards: Unfortunately for your theory…..while Gen X was smaller than the Boomers -- the MILLENNIALS are larger than the Boomers, the biggest generation in all of history.
1
An unmentioned factor that might mitigate high housing prices in older northern climes, would be the retirement and movement of the boomers as they reduce the size of their homes and migrate to places where the stores do not sell snow shovels and heating pads are less used.
6
@rich
Yesm snow birds but they tend to fly back every 6 months. Neighborhoods are quieter than they used to be when I grew up and I don't necessarily think it makes an interactive community when you add on the foreign investors that also seem absent for much of the year. Ghost towns are not great for children growing up in them.
10
@Sara
All true, but housing prices are low in ghost towns.
Eliminating the SALT deduction and the rise in interest rates are taking the money out of deals for small investors and landlords in real estate.
Not everyone is a corporation.
25
Although my son and his wife together earn a six figure income that would be fine in many areas of the country and live a modest lifestyle, they cannot begin to afford a home that is reasonably close to their jobs in LA. Middle and upper salaried workers are increasingly shut out of real estate markets in certain big city markets. The solution: moving to a smaller city where they actually can have a high quality of life, including their own home.
11
Yes- and then they drive up prices in the smaller town they move to- and price out locals.
The has happened in Portland, Oregon, where I currently reside in congested traffic hell.
Young folk are utterly priced out of living in their own home town by the wealthy Californians flocking here because it is so ‘cheap’ for them.
9
@Marlene Barbera
The technical term for that is 'Californication.'
2
Once people realize that in addition to the whopping mortgage payments they now cannot deduct their SALT taxes, they lose interest. The houses that are still being built are expensive because most construction workers cannot afford to live locally, or have been caught by ICE. It's a log-jam but a further opportunity for wealthy landlords, and it will get worse if the government continues to favor investors.
14
A relatively small share of mortgage holders use the interest deduction. It is really only a concern for people in coastal cities with high incomes and mortgage payments that are a huge share of those high incomes. While I appreciate those people are a big share of NY Times commenters, the rest of the country does not really care about them. It is surprising how effective the 2017 rate tax cut and increase in standard deduction was in ripping out the bottom of political opposition to those deduction changes. The mortgage interest deduction no longer qualifies as a third rail issue.
4
@Michael Blazin - you may well be right - but moving the goal posts in the middle of the game is rarely a good idea, and it will be many years before the market adjusts. Eventually the coastal states might be forced to abandon their commitment to education and culture, though I'm not sure this will be a net gain for the country.
5
@Michael Blazin I prepare income taxes. Nearly everyone I work with has enough property tax and mortgage interest to file a Schedule A and that has been the case for 40 years. Millions (and more) of people have bought homes with the understanding that they would have this deduction. This "tax cut" is hurting the middle class badly. They can't help their kids buy homes. It's just a mess.
24
You can gussy up an evaluation of the causes of this problem with all the statistics and meta-data analysis you want but it simply comes to this. You have a population cohort that is now entering their prime nesting years. The Millennials. A group that's into their 28th year (as Neil Irwin points out). A segment of America, I would point out, that's LARGER than the Boomer generation.
Yet here's the thing. Despite recent moves to the upside in their incomes they are still coming off a very low basis. For a very long time average incomes in America have been stuck at 1980's levels, while costs certainly have not. Plus, as a group, they are burdened by debt loads (educational and otherwise) that would have choked their parents and grandparents when at a similar age. So despite the fact that the Millennials are a larger population cohort than the Boomers their overall situation is no recipe for a robust housing sector, is it?
So one of two things needs to happen. Either that nesting group of Millennials, et.al., experiences a radical leap in their average incomes; or property valuations must come down. Which do you think the more likely to occur?
John~
American Net'Zen
67
@John
Radical leap in income depends on the sector you work in. Most millennials are being promoted to the tech industry and so forth which will continue to grow. I just don't see them buying the fixer upper houses because skills for maintenance and renov of those are not developed in that age group as much. There are more soft factors that are at play here. The existence of the condo boom is also going to play in because condo's allow those who seek their gratification with technology browsing the time to do so which a house does less. Property values might come down but the stimulus for the increases are in part driven by the increases in foreign investors, at least here.
4
@John Third option: forgive all student loan debt. Housing sales would SKYROCKET if that happened.
20
@bklynfemme
And so would housing prices.
1
We have experienced this first hand. We put our New Jersey house on the market in spring for the same money as we paid 14 years back. We had done substantial renovations and upgrades but none of that mattered. Not a single offer till fall !
13
"In contrast with the stock market, where relatively unemotional traders are buying and selling shares every day and the market stays liquid, home purchase and sales decisions can take months and are deeply emotional for the participants.":
not precisely true.
Stock traders are deeply emotional typically.
Stock markets are notoriously emotional, which is why there are giant fluctuations in stock prices and valuations.
While prices have fluctuated, house prices have not been nearly as volatile as stock prices in the past.
American stock prices fell 50% in the 2007-2008 recession.
6
@David
The stock market always finds liquidity. The real estate market could do likewise...if all sales were by auction!
For the past decade, construction companies have been complaining about a shortage of skilled workers. They’ve blamed labor costs in part for rising prices. A housing slow down should alleviate the alleged worker shortage, but I wonder where the next generation of experienced construction workers will come from.
Boomers are retiring, and these companies clearly didn’t train enough workers to replace them. They act as if fully licensed electricians and plumbers don’t have to first work years as apprentices and journeymen. Even general laborers need safety classes and on the job training. With this next housing collapse, you will have yet another lost generation of construction workers. Remember all the construction workers who were forced out of the industry a decade ago. Most didn’t come back. Future housing shortages are only going to get worse.
19
“Stick-built” building methods are the problem, not a shortage of construction workers.
How many people make their own butter using their cow’s milk, build a car in their garage or assemble a refrigerator for their specific kitchen? Houses can be built efficiently in factories and assembled quickly on-site with a tiny fraction of the low-skill construction labor we already have. Luxurious single-family homes are built this way in Europe and Asia already. Only American Luddite NIMBY’s stand in the way here. US venture capital is saying, “not much longer.”
8
To the headline question, it's mainly wealth segregation effects.
Fewer buyers: The great bulk of wealth is going to a rapidly decreasing group of people. This leaves many more unable to purchase a home. Meanwhile, those in the increasingly wealthy group aren't in the market for affordable homes, which decreases demand for such homes. Leading to...
Decreased supply of homes: A developer has to choose where to build and how to price the product. Places with high home prices make for higher margins on smaller, more rapidly completed projects. Which gives us...
Amazing home prices and price increases: In our Bay Area neighborhood, home prices have increased 2.6x (yep, 260%) in the last 18 years (when we bought ours). That period encompasses various bubble collapses and the Great Recession.
Around here, only those who enjoy top-end compensation and equity rewards can buy in. And if you run a non-tech business, your employees have to commute 2 hours (one way) to find homes they can afford. Soon it will be 3 hours. And 3 families per single-family home.
If we don't fix wealth segregation, we won't fix the American housing market.
209
@ridgeguy
Fix the size of homes being built and you fix the housing problem. Couples are having less interest in large families which were mostly managed by the female. Since we see a shift in this area it seems nonsensical to continue to build huge homes for the 2 to 4 that occasionally occupy it. I seriously don't see how those homes will be filled in the future. I do not see it solely as a wealth issue it is also a reflection of a societal shift. Housing must reflect this and adapt accordingly. The dinosaur needs to be turned around before it's too late.
19
@ridgeguy Open question for the readers, but what are some things we could do to oppose wealth segregation as it manifests in the housing market (to start with)?
@AmericanGirl That's not where it starts, in the housing market. It starts with laws that are riddled with loopholes and rebates to giant corporations.
17
I see no mention of the impact the Trump corporate tax cuts which raised tax burdens for homeowners. Coastal states tend to have the highest income and real estate taxes. With the imposition of limits on state and local income taxes ("SALT"), we see the cost of owning a home increase substantially. On Long Island, for example, real estate taxes can exceed 2% of market value - unfortunately you do no get much house for one or two million dollars.
27
This is the crux of the matter. With the new limits on state and local tax deductions for people in high tax states, the advantage of buying over renting is drastically reduced, if not eliminated entirely. Couple that with the experiences of underwater sellers when the housing bubble burst and you have a great reluctance to buy. Economists have argued that the policy of increasing the percentage of homeowners makes for a distorted allocation of resources. Perhaps a silver lining?
1
high tax states is code for Democratic, in most cases. this sneaky provision was intended to punish non GOP voters.
and, ask yourslf: if you were a billionaire on Fifth Avenue near Tiffany's and also had a home on no income tax FL where your property was also taxed less, where would you claim residence for tax purposes?
rich people have a thousand dodges but the poor almost no choices.
MAGA
1
I can sum up what is happening simply. A "booming economy" for those in the 25-30 year old is "having to hold 2-3 jobs just to live", not able to save for a home, not believing in their ability to purchase a home for families. This booming economy is based on $10-15/hr wages, usually kept *just* below 36 hours per week (avoiding benefits dontcha know). The economy is based on parents of this age group of adults, having to supplement their children's incomes in order to prevent homelessness. This age group can barely afford an apartment, much less save for an actual home! We in our 60's are in this predicament, as are many many others I have interviewed. This nation is quickly going rogue Banana Republic. I just do not understand how people cannot see the criminality toward middle/low class citizens by the GOP. I do not understand how in FL, having endured 8 years of an elite "criminal" who massively defrauded Medicare, and was let go with a great pay out, after pleading the fifth 75 times; how they want this duplicitous criminal for 6 years of FL Senator. It boggles the mind.
445
@Jeff
Come to CA and tell me how the "booming economy" is based on baby boomers.
@JeffNot just Florida. I'm in Ohio and working two jobs to survive is a lot more common than the economist's view of a "booming" economy. I also wish someone would report on exactly what kind of jobs are out there. From what I see, you have to work multiple jobs just to survive.
6
@cuyahogacat I agree it is everywhere. The CEO's and Board members know they do not have to pay well, nor offer health benefits. Many kids/adults have college degree or none, yet working at a smoothie place and a movie theater. Those are the jobs out there. I don't think we have any financial management in our govt- maybe we fight for union's again? A healthy society is a working society.
1
The economy is not booming. I expect better from Upshot. We had a couple quarters of good growth just like we had in 2014 and 2015. Overall we are still well below trend from before the financial crisis and most importantly real wages have not budged.
186
@Bill smith
4.2 and 3.5 GDP, 3.1% wage growth, highest consumer confidence in years, Retailer like Target, Kors, and TJ Max are having best sales in 20 years. Unemployment lowest in 50 years! Not sure what country you're in, but the economy and most people's retirement accounts are larger than , I hate to say it, before Trump
6
@greg That 3.1 percent growth in wages is insignificant when measured against the lack of wage growth during the previous 40 years.
According to the Hamilton Project, the portion of national income received by workers fell from 64.5 percent in 1974 Q3 to 56.8 percent in 2017 Q2. At 3 percent a year, it would take decades to recover what workers received in 1974.
59
Trump has had little to do with this economy. These numbers are due to the Obama administration economic policies.
25
One of the overlooked economic points is when we talk about the increase of housing prices being 48% we forget to take into account where this 48% started. We had a major depression in the real estate market and the prices are just now reaching 2003 to 2004 levels in the Atlanta suburbs for resales. Essentially there has been no or little inflation of value in used homes for the past 15 years. Go to the Census Bureau website and look at the construction cost index. Homes built prior to 2008 cannot be replaced for their current market value. Homeowners realize this and are unwilling to lose a low mortgage and pay a 40% cost differential for an equal but new home. Another factor driving the slow housing market is that the owners are aging and the desire to move is no longer a motivation. Finally, people are beginning to understand that a house is not a financial instrument but simply a place to live.
17
And then there is the impact of the hedge funds on the single family home market in the US. From Makers and Takers: How Wall Street Ruined Main Street:
"Private equity investors have become the single largest group of buyers in the residential housing market, purchasing $20 billion worth of steeply discounted properties between 2012 and 2014 alone and reaping huge rewards as housing prices have slowly risen from their troughs. Blackstone, the biggest of the big private equity firms, with more than $330 billion in assets under management, has become the largest investor landlord in the country, with a portfolio of 46,000 homes and other properties that generated $1.9 billion worth of income in 2014, making real estate the largest profit center for the firm."
At this rate, we'll all be living in Serf City soon.
36
Exactly! Big hedge funds are buying up all the lower-priced inventory in metro areas because they can buy quickly and with no hassle to the seller (no inspections, 3-week close, etc). This investor-fueled demand raises prices and shuts out those who would be actual homeowners. The number of houses that become rentals in any midsize to large metropolitan area is astounding.
7
We bought in the fall of 2010 for $280K. $10k below asking. The house had been on the market for 6 months and the original asking price was $324 when it was first on the market. At its previous peak before the market crashed. The house has been valued at $525K. Just this fall when property tax notices went out the house was valued at $548K. Nearly double what we paid for it and more than its pre-crash inflated value. Though maybe that is about the same if you were to factor in the dollars inflation. While it could be fairly argued I could have been more aggressive with my career, I haven't been standing still either and I don't make nearly twice as much as 8 years ago. As far as I am concerned, we are likely due for another crash.
36
Home prices are not nearly as out of line with incomes as they were then: what a laugh. Only for high income not for middle class income. The housing rise is being subsidy by foreign investments and money. Housing is not worth the money being earned by hardworking people. This article is misleading
8
I was considering moving closer to work, but with a current 3.25% 30 year fixed in it's 7th year and current rates north of 5%, there is no way it makes financial sense anymore. I absolutely guarantee I am not alone. That is going to crimp supply and demand.
My oldest is 28, as are her multitude of friends. NONE of them, absolutely NONE, think they can buy a house in the near future. Zero. No cash thanks to college debt, high cost of living and crappy salaries for starting jobs. Not enough income to qualify for a loan. Plus, they think buying a house is a bad financial bet, and these days they are right with taxes, maintenance, low appreciation and high transaction costs.
The qualification levels are still nowhere near what they used to be. Nowhere requires an absolute minimum of 5% down, plus PITI of 28% of gross income and all debt servicing at 36% like I had to do when I bought my first house in 1993. We STILL are being too loose with mortgages.
26
@Mtnman1963
Low appreciation? What are you talking about? The fast appreciation over the last 8 or so years is why housing is so expensive right now.
4
@Still Waiting for a NBA Title
It depends where you live. I bought my house in 2005 and just went to list it last week and discovered my home has lost 25 percent of it's value. Guess I'll be staying where I'm at.
10
@splasterer
Like you, my house bought in 2005 in the California is still $8000 below its purchase price of the current market value. However, as I refinanced my loan under HARP, I now have paid $100,000 off the original price. I too am staying where I am.
1
The changes in tax code are big local drivers (NY, NJ, CT). The cynic in me can't help but think the changes was driven by two groups - the red states which resent the economic power of the blue states, and Trump's own circle of business associates. They, as landlords, will continue to enjoy the benefits of 100% deductibility, tipping the balance towards tenancy rather than ownership. The fact that these two groups aligned is what allowed them to unwind 90 years of consistent tax treatment. Fundamentally, changing the rules in the middle of the game can be very bad for business, and it will not end well.
88
@Tom Umm...the rules will be changed back when these people are finally jettisoned from power, correct?
5
I've seen this personally with my parents being a couple months late to getting their house on the market (they tried but weren't ready in the spring- it went up in the summer- sold by late fall) they ended up setting for a fair bit less than their original asking price.
Likewise for myself as someone born in 89 I see my salary rise a bit but housing prices are still ridiculously out of reach except in those areas where I just don't want to live because a combination of potential crime in those areas and being too far away from work. Better for me to keep renting...
12
As with everything, look to inequality: Millennial with deep pocketed parents will help with down payments while everyone else rents.
Take the DC exurbs, (Fredrick MD, Fredricksburg VA), for the pleasure of a 75 min commute you can own a slightly-used McMansion, 3,000 sq ft, for about $500k.
That's still a $100k down payment! What 28 year old couple has been socking away $15k (after tax!) every year since graduation??
Thanks to our new tax law (which was anyone but clueless Paul Ryan should have sold as populist), the moneyed class can't write off crazy housing interest which should slow housing prices.
Its cold comfort to normal folks who just want a house, but at least there's less of an incentive lever up and go into crazy debt for a house...
10
@Arturo Who needs a 3,000 sq ft house at 28? That's ludicrously big for one person or a couple just starting their family. Housing prices are obviously too high, but realistic expectations have to factor in somewhere.
5
“There’s no doubt that demographics are favorable for housing demand. The peak birth year for millennials was 1990”. This is a very strange statement: not because we talk left and right about millennials it means they are a large generation… They are actually coming after the baby boomers, which is supposed to be THE large generation.
Also, even if house prices were collapsing, it wouldn’t necessarily trigger a crisis: the 2008 crisis was caused by a lot of houses that were built but that no one needed in the end. This obviously creates a problem, because you have just wasted resources: you have debt and wasted in the economy, but nothing to show for it other than rotting houses.
However, if people still buy the houses an live in them (or rent them out), you are in a zero-sum game: you have debt and spent savings on one side, but you have buyers who are equally better off on the other side. Even if banks were to go bankrupt, you have people who have won enough from the collapse that they are more than able to bail the banks out and be better off.
The property price rally since the crisis happened to a large extent in big cities, where there will always be demand if prices go low enough: we would hence be more in the second situation.
@Bob Robert, there are more Millennials in the overall population than Baby Boomers now, according to census data. (Pew Research predicts that Millennials will overtake Baby Boomers in 2019, but I've seen other statistics that say it's already happened.)
http://www.pewresearch.org/fact-tank/2018/03/01/millennials-overtake-baby-boomers/
4
@hdtvpete Well of course millennials will one day outnumber baby boomers: baby boomers will die earlier. Even the Chinese one-child policy generation will outnumber their parents’ generation one day. That just highlights how completely artificial these categories are (they don’t even span the same number of years): what matters is how many people are in age of buying a house, and how rich they are (relatively to the cost of houses on the market). And I doubt millennials outnumber previous generations in that respect, especially the one that is actually defined by a boom in population…
What's left out of this article is foreign investments. Who else is driving up the prices of luxury condos and homes, and they are built by companies who presumably understand the market, if not the mega wealthy Chinese or Arabs from the gulf states?
Read the real estate articles here, or in the WSJ, and its sickening. How will a city like NY retain its lower middle class cadre of workers when they are forced out by ever rising prices. Rents climb up as buildings get traded upwards, and even Long Island is becoming unaffordable to many. Yes there are some wealthy yuppies who can purchase million dollar condos, but notice it's often the Chinese gobbling up much of Long Island City, etc.
Time to start heavily taxing foreign real estate investment, or we can forget about our own living in coastal cities.
232
@Rosalie Lieberman, spot on. Foreign investors are using real estate in coastal cities like banks. They consider real estate in New York, Seattle, Los Angeles, Boston, San Francisco, and Vancouver to be the safest place to stash their money and see a strong return on it.
106
@Rosalie Lieberman Totally agree! This has become a big problem in hot cities like NYC, SF, Vancouver, Toronto, London. In a healthy functioning society, there should be a simple mechanism in place that distinguishes and priorities buying property for primary home for residency vs secondary home for other uses (like recreation, weekend/pied a terre, investment, etc). If you investigate, you will see that China only allows foreigners to own one property and it must be residential. Why do other countries not have similar policies to ensure that the real estate situation doesn't get altered and manipulated by negative dynamics that have nothing to do with the primary basic needs of providing housing for one's community?
28
@Rosalie Lieberman
Blame who you imagine to be responsible.
It's not that simplistic. You sound like Trump.
Foreigners takes jobs too, I suppose.
As a Realtor in Central Indiana, I am seeing this scenario in spades. :(
7
What’s missing in this analysis is the negative impact of crippling college debt which is reducing the ability of the current generation of young adults from starting families & home ownership. This impact is unknown as of yet, but common sense says it will be major ( who needs your stinkin’ Econometrics!!)
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@Sane citizen
Yes and education does not have to be that expensive does it? the Internet has proven that and on site learning needs to go through an overhaul in its cost structure.
1
This analysis is deeply flawed and missing significant context in the market. First of all, home decisions (buy/sell) are absolutely not a zero sum game. You can "do nothing", "rent", "be homeless" as alternative examples. Furthermore, as other commentators mentioned, there are other forces at play such as increased retirement rates, downsizing, home style preference changes (single floor, for example), movement towards city life, etc etc. Interest rates are 1 data point, and a 1 percentage increase isn't pricing people out just yet. This needs another, deeper look.
9
If you can't afford to live somewhere than move to somewhere you can. You're not owed anything. If the market is really overpriced than it will correct and prices will lower across the board. Real-estate us always self-correcting. It's not rocket surgery.
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@Sparky ah, was waiting for this dumb unhelpful comment. Almost like there's a bot writing it in every comment section
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Oh so true@Sparky. That's the way capitalism works! If you can't afford a Lexus, then buy a Honda Civic instead (a "pre-owned" one will do). Markets for housing and other things do correct themselves over time unless there is government interference with price movements.
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@Sparky So true! My son and daughter on law would love to live in Seattle but income there does not match the cost of living. Instead they moved to New Mexico where their incomes and cost of living are in balance. They bought an affordable house and have more disposable income and free time than they would in Seattle. There is no entitlement but there is (sometimes) common sense!
1
There is a secondary effect from the 2017 tax bill that capped SALT deductions at $10,000, and that is an increase in home values in low-taxed eastern Pennsylvania counties compared to high-taxed homes across the river in New Jersey. In some municipalities, the entire property tax burden for a PA resident falls below the $10,000 threshold, whereas a comparable NJ resident could be paying twice that amount.
In some cases, selling a home in NJ and moving across the Delaware might add just 20 - 30 minutes to a commute, a price many are willing to pay as the increased costs in mileage, gasoline, and wear and tear in a car offset only a small portion of the gained income.
In other cases, retirees or those approaching retirement can reduce their monthly expenses considerably by making the move. One couple did this and sold their NJ residence for far more than the new 3-bedroom townhouse they bought. As a bonus, their son has recently sold in NJ and moved with his children to the same area.
The downside to this trend is that home prices in these communities have appreciated considerably, making them unaffordable to Millennials and Gen Ys looking to start families.
15
The big missing piece is demographics. As millions of baby boomers go into retirement, a good number of them, like me, will be downsizing. I downsized to a starter home last year for my retirement even though I plan to work for a few more years. A 3.99% on a 15 year loan is the lowest I've ever paid of the 5 houses I've owned in the past 30 years. I still look in Zillow to see whats available in the market in my area, but if I never find something better I am content to live out my retirement years in my small bungalow. I got mine and I'm keeping it.
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@Vadertime
I did this too but now everyone wants a bungalow in downtown Tucson and our property taxes have gone through the roof!
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@randy sue
Why do you insist on living on downtown Tucson? It's the most expensive real estate in the area. I know Tucson and the commuting from a few miles further out is not so burdensome and housing costs less than downtown.
1
The author at the end of the article makes an assumption that young adults are forming families and that this creates a need for housing. This assumption is not as strong as it has been in the past as the birth rate in the United States is in decline. Coincidentally, a major factor preventing family formation is affordable housing.
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@Jeffrey
Right. This generation is not marrying, having children at the same pace as previous ones. There have been many articles written on this subject. None of that seems to have filtered into this piece.
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@Jeffrey Yep. I am in my mid-30s. No one I know who had a kid without owning a home owns a home yet. They could never save up enough once the child-care payments started.
Only those who bought a home first, waited a few years, and then had kids (mostly not until early-mid 30s) could actually afford both.
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@MelMill
I think you missed the point. I actually cited the second to last paragraph which speaks of a "basic reality that young adults are forming families and need a place to house them." I was only rebutting this assumption by pointing out that one factor for why housing is slumping is probably due to the lack of family formation and that high housing prices could be inhibiting the very thing needed to support their high values. Thus, the assumption that millennials are destined to form families (and purchase homes at exorbitant prices) might be mistaken.
A good deal of the affordable housing in some areas was purchased by moneyed investors and turned into rentals. This had a double whammy of removing affordable homes from inventory and raising rental prices.
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@C Park
Very true. In my own neighborhood, several bungalows on one block were bought by investors and rented out for section 8 housing, with mixed results. The neighbors who own and live there are unhappy as the appearance of the block has gone down, and a sudden rash of car break-ins on that same block. Renters have to screen, but they are more interested in a steady monthly check.
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@C Park
This has happened in the town where I live, particularly to neighborhoods of smaller one-storey homes. There is nowhere left where one can downsize to a home without stairs.
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@C Park
This has also happened in downtown Tucson's historic Armory Park. In fact, an investor tore down a lovely old Victorian and put 2 new 2 bedroom 1 1/2 bath bungalows in its place and is asking $465,00 for each.
18
All real estate is local.
In the northern Chicago suburbs, the slow down is a combination of the following trends: fewer job transfers into the area; families preferring to stay in city; and population losses driven by high property taxes and a poor financial prognosis for the state of Illinois.
Source: http://www.northshoreviews.com/blog/
9
This is deeply flawed, but the biggest error is the idea that lending standards are tighter than before the crisis. Over the past year, lenders have maintained volumes by jumping into Agency programs that allow borrowers to take ever-increasing leverage when they purchase homes. As rates continue to rise (blame soaring Trump deficits, not the Fed) the fallout may not look like 2008, but it won't be pretty.
Millennials appear to be smarter than their Gen-X predecessors by not being sucked into the industry-fueled narrative about the glories of homeownership at a market peak. Guys, let somebody else bail baby boomers out of their aging (and decaying) exurban properties.
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@Rich888 I agree -- homeownership feels more like an anchor around one's neck a lot of times these days. I have a house but who knows what will happen with it in the future what with climate change: fires, lack of water, etc. The millennials I know are saving as much as possible so they can retire early and stay as flexible as possible. When they do spend, it's on non-possessions such as travel or other experiences. Makes sense to me.
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@Rich888 Gen-X? I know more boomers who got caught buying at the peak than Gen-X. This Gen-Xer bought in 1995, sold and lived in an apartment not long after prices started falling, and bought again in the trough. Buy low, sell high! I wouldn't brag too much about Millennials being smarter than Gen-X. I graduated college debt-free. Talk about being sucked into the narrative that you need massive student loans to get a degree!
5
@Rich888 the lending standards, while certainly far more aggressive since the crisis occurred, are nowhere near the pre-crisis levels. I’ve been in lending for 15 years, it was downright scary how easy it was to get a loan in 2006. I believe the post-crisis lending criteria will prove to be one of the main factors that prevents massive foreclosure activity through this downturn.
The Republican tax bill exacerbated the housing problem, as the amount of both mortgage interest and property taxes that can be deducted from federal income tax were capped. In areas of high-cost housing such as California,New York and other "blue states", this changed the economic equation to a less attractive one.
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The median home price in the San Francisco Bay area is over 1 million. The Fed Tax cut is an increase in this area. You can either deduct your taxes (state and property) or your mortgage interest payments, but not both under the
new IRS limit(s).
The majority of owners putting their property on the market have all done minor to major renovation to prepare their home for sale, so the 98% price increase since 2011 reflects upgrades of $100,000 or more.
.
5
@OSS Architect Oh yes, the “upgrades”.... My husband and I are baby boomers (65 and 61), live in the Boston suburbs and own our house which makes us “lucky,” I suppose. We did a lot of work ourselves and had a ton of work done by others since we bought it in 1993. With no kids at home anymore, we’d love to downsize but when three realtors tell us that things like white subway tile and granite kitchen counters are “outdated”, I guess we’ll stay.
30
@kmw If prices are defined by demand (as they are in most places where the cap on deductibility is an issue), then sellers will just have to adjust their price to find the market. Buyers are not the losers in the story, sellers are. Just like sellers are the real winners in all demand-subsidy schemes. The Republican tax bill is a shame for many different reasons, but restraining housing subsidies that mostly benefit sellers, maybe some home-owners at a push, but certainly not renters, is a very good thing.
1
Three issues. All real estate is local so it depends on location whether the problem exists or not. In the 20 big cities that Case Shiller covers, there are problems. Elsewhere, not so much. Second, looking at income versus housing prices when "neither figure is adjusted for inflation" is ludicrous. As BLS data shows, inflation adjusted wages still haven't budged much for the past decade for the bottom 80% and without wage increases, they cannot afford or qualify for mortgages. Lastly, current lending standards are definitely tighter but whose lending standards? The lending standards at our local community bank (as well as many others across the midwest) never changed and never had to change. The upshot was there was no mortgage crisis in 2008 and isn't one now.
1
Isn't part of the problem that builders won't build houses that 28 year old people can buy? The houses for sale in our area are expensive, too large and out in the suburbs. Our cities could use a boost of moderate priced home building. Seems obvious to this econ grad.
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@tosagehreds
Builders will build whatever they can profit from. For desirable intown locations, land prices are too high to build a moderately priced home and still make a profit. Construction costs have risen. Plus the regulations are often more costly than in far flung suburban areas. They can build a $200,000 house if the lot was $35,000. They can't build a $200,000 house if the lot was $95,000. So yes, homebuilders aren't building houses for 28 year olds, because of they did, they'd be bankrupt because after land costs, regulations and construction costs, there would be no profit.
36
@MC. There are profits and then there are profits. This all is being driven primarily by the huge inequality of wealth in this country.
36
@MC Yes, good points MC. A key word here is desirable. Many lots in our city are affordable now. Desirable?...not so much at least for most college grads. But, make the schools better, attack the fear of racial differences and build communities in the places where lots and homes need the attention and maybe we get some progress toward desegregation and better living for all.
15
More people working at higher pay, Neil?
Maybe minimum wage workers that fought for an increase but I don't see it much anyplace else except for corporate millionaires.
Re housing, I live in NYC and can only comment on that. More and more I see house prices here especially in Brooklyn go thru the roof, total insanity.
White collar professionals often Iive three to four in an apt. to survive.
Lower wage workers are forced more and more to the geo fringes of the city or suburbs where they live on the poverty line.
So much for your booming economy.
211
This article indicates income by 24%??
What is your source?
FRED charts show; Real Disposable Personal
Income Per Capita, at $38,821 (Jan 2011) and
$43,346 for Jan 2018. This is hardly a 24% increase.
Moreover, average household income from 2007
to 2017, indicate a mere 3% increase.
Would the editor please clarify this issue.
Thank you so kindly,
Hans
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@Paul housing is very costly in the suburbs here in So. Cal. too. Many white collar unmarrieds here share houses with strangers as a way to not spend huge sums on housing costs. Very different from when I grew up -- we'd rent an apartment for a while to save money to buy a house. Apartments -- called "apartment homes" here -- are outrageously priced. If you choose to rent one of those you might as well give up on being able to save any money to buy a house. I feel especially sorry for those people trying to live on a minimum wage income, though. I suspect many live in their cars.
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@caligirl-Thank your for your reply. I suspected that was true like in your area and many other areas and yes it was so true, when I was younger I could easily afford an apt. alone and then buy, now it is a pipe dream for many people.
20