What a corrupt article. All these column inches and graphs about home sales but no graph or mention of home sales.
701,000 new homes sold in August 2019, up from 569,000 in August of 2016. That's a 132,000 improvement, or a 23% improvement.
That's great progress.
1
Rate cut is not targeting the real estate market, it rather tries to balance out the actions by countries all over the world taking similar steps to prop up the economic slowdown.
To put it in simple terms, US wants a weaker dollar so that it can compete with others effectively.
However, the impact on stock market is profound. If things don't improve around the world, it would lead to Hail Mary scenario. Most of the wealth generated by US multinational companies rely on worldwide economic strength.
3
What people want is affordable housing.
It isn't about the interest rates, it is the cost of the home.
$1,000,000 for a basic home is not affordable. $500,000 for a basic home is not affordable.
Even if you earn a great salary and have great credit, the 20% down payment on the above prices is not doable and a monthly mortgage is not doable; especially considering other expenses like taxes, insurance, car payments.
Investors, flippers, and greedy real estate brokers have ruined the real estate market on both coasts.
Anything even slightly affordable in California is located in the middle of mountains or desert not any where near jobs or quality schools.
8
Wait, I thought this was only happening in California!
2
Yes, it does take money to generate more money. When rates get lower, people refi. But of course you need to have owned a property (and a mortgage) first before you can refi to benefit from the lower rate. In fact, that's exactly what I did with a few mortgages of mine, refi them get lower rates. What's not to love?
For those who complain that properties get more and more expensive, I'd say this: Get a starter home; don't chase the market; choose a neighborhood that's up and coming rather than the perfect one (which would surely be expensive); buy with a view to hold it long term; don't overstretch; conserve your funds and wait for a chance when market turns (downward) so that you can pounce.
A starter home is perfect segway into future gains. Don't consume yourself with green envy to someone buying a million dollar home in Harvard Square, but go a bit further afield to, say, Needham or Natick or even west Newton where there are still cheap(er) homes to be had. (If you're familiar with property prices and neighborhoods in MA, you'll know what I meant.)
4
There are more factors affecting the housing market than interest rates.
1. Student loans. We have one, possibly two generations of college graduates that are so burdened with student loan debt that they struggling to pay and will be for many years. (Debt to Income Ratio)
2. Foreclosures. We have almost 8 million people who lost their homes in the financial crisis just ten years ago. They are still struggling to repair credit scores and find decent housing. (Credit Score)
3. Job Security. We have students who are leaving college with very expensive degrees and no jobs in their field. They are working two and three part-time jobs and struggling to survive and pay off student loans. (Debt to Income Ratio.)
4. Medical Debt. If someone has an expensive (high co-pay/deductible) insurance or no insurance and have been ill or injured. That creates a lot of medical bills very quickly and these go to collections very quickly and they are as brutal as student loan collections (Credit Score)
These are real issues that desperately need to be addressed.
Forgiving debts caused by the unethical and vile loan practices of the lenders whose greed led to so many becoming homeless in this, the richest country in the world.
Realistically and thoughtfully addressing the issue of medical debt (81 Billion) and student loan debt ($1.3 trillion) would be a HUGE boon for Americans who want to become homeowners.
11
To add to your list:
5. Properties being purchased in order to generate income as Airbnb rentals rather than less lucrative long term rentals.
6. Properties being purchased by foreign investors in order to launder money or to provide a foothold in the US.
7. Properties being purchased as second homes / investments and often left empty for most if not all of the year. (With today’s ridiculously low interest rates this makes much more sense than keeping your money in a bank account.)
11
I don’t know about this but I do know about domestic REITs and private equity investors buying entire neighborhoods in the Midwest for pennies on the dollar through foreclosure and short sale and then simply rerenting or flipping for profit to the same types who used to live there. This arbitrarily inflates the market and benefits one or two investors at the expense of the entire community.
9
Median household Income in the USA is around $63K/year.
Median price of Homes is around $289K, and median price of homes that sold is around $237K.
Median Rent price is around $1,700.
(The above prices vary somewhat by geographic area.)
Figure in the less-variable costs of healthcare, student loan debt, childcare, transportation, utilities, and food (no fluffy stuff like avocado toast or going to a concert or movie theater — ‘cause bits of fun and little pleasures are EVIL!).
Now do the Math... and vote Progressive Democrats in 2020.
10
Welcome to Venezuela or Cuba perhaps
4
@Gdk
Or Germany.
2
The last thing we need is another housing rally.
2
Cheap money is dangerous money. And it won't solve any problems America is presently encountering. Fewer Americans can afford to buy houses and the reason is that our economy has become increasingly top-heavy for the past 30 years. Most of the wealth in America is held by a small percentage of Americans. This problem is solved by raising the minimum wage, which Republicans refuse to do. They claim it will cause inflation, kill jobs and hurt small businesses. Meanwhile, over the past 30 years the buying power of approximately 60 million Americans has dropped considerably. The average income in America has only risen about 28% over the past 30 years (using current dollars). Meanwhile, healthcare, gas, automobiles, houses, rents, and many other items have risen much faster. Our buying power in 1989 was far greater than today. What happened? The answer is Republicans, period. And it makes no sense. Raising the minimum wage to $15 per hour over the next 5 years is a win-win for everyone. But people keep voting against their own best interests because they believe Republican lies. Republican economic ideology is destructive. Fact.
12
Even 0.00% interest on unaffordable is still unaffordable!
12
And zero percent on affordable is still a bad deal if you don't have thousands in the bank to cover the inevitable new boiler, new roof, new windows.
In houses, things break. If you own a house, it'll cost you beyond the price you paid for it.
13
My Government backed student loans have interest rates of 8% and 9%. I cannot refinance them per law. The interest never lowers, per law. I pay and watch my balances up up every year. How is the fed lowering the rate going to help me get out of this problem and buy a house?
10
Go on IBR, lower your AGI by investing what you would otherwise be giving Sam into the market via IRAs, etc. The lower your AGI through this scenario the lower your IBR payments.
2
Folks need to consider leaving for smaller, more affordable cities. There are thousands of livable smaller cities with good jobs and schools throughout the country.
10
@BA,
and they can turn them blue so we never have an evil republican congress or president ever again.
10
My credit score is 755. I want to buy a house - again - but am facing obstacles such as: debt to income ratio. It's where it should be, below 30%, but mortgage companies say I can't afford a $120,000 mortgage - and no one wants to give a "no down payment" loan. But none of that matters if you can't find a decent house for $120k. They were a dime a dozen 10 years ago - now they are practically complete reno projects. Just the most blatant example of how far apart the "classes" have grown since the 1990s.
13
Home ownership just ain't cracked up to what it used to be, so I am not sure there is a problem here that is in need of fixing. Between the significant increase of the standard deduction for tax filers, the greater volatility in housing prices, and the fact that "lifetime employment" is a thing of the past, renting is much more appealing in comparison to owning.
2
This article just illustrates that the method the Fed uses to grow the money supply is obsolete (unless the point is likely to make billionaires richer).
Before the internet, the only way that the Fed could distribute new money through the economy was by giving it to Banks at low rates, as an incentive for them to lend at slightly higher rates. This is no longer necessary and is no longer working. The interests of global banks are to far removed from the interests of We the People or even the US economy.
Money created by the US Treasury to be inserted into the economy doesn't belong to global banks. It belongs to We the People, and if the money was directly given to us, it would grow the money supply and the economy more directly.
The Federal Reserve Board should decide how much it wants to grow the money supply by, each quarter. Then they should divide that number equally among all citizens and give the money to us. The IRS or Social Security Administration could deliver the funds into our accounts.
If the Fed gave our money to us, then we would use it to pay medical, student, and other debt, invest in businesses, or just go shopping. It would increase demand in the USA, growing the economy and stimulating new business investment.
This would make the Fed 's control over growth and inflation more direct and it would be far more fair because that money belong to We the People,
Just the $3 trillion NET given away under Quantitative Easing comes to $9,000 PER CITIZEN!!!
4
While home prices are the biggest problem to owning a decent home, another problem is the mind-numbing real estate and financial bureaucracy one has to navigate in order select a home and get a mortgage. Mortgage agreements are often well over one hundred pages; this is insane! No wonder many people prefer to rent--the bureaucracy is much less cumbersome.
3
The cost of home maintenance is never discussed by real estate brokers or planned for by buyers. Depending on the age of the home and other factors that's a minimum of $300.00 per month. But you might have something major to do which may cost you $2000.00
9
Just what is wrong with renting?
5
@Pundit,
There isn't anything wrong with renting. however, it does come with a stigma in the United States, even if it is an unfair stigma.
1
@Pundit Because in some areas, it's very expensive, offers no tax benefits or security (whereas at least a mortgage can be a fixed-rate) and unlike home-ownership, there is no end to it... you keep paying the rent until you die.
9
A FHA loan can be obtained with a minimal FICO® score at least 580 = 3.5% down payment. The home must be the borrower's primary residence. Borrower must have steady income and proof of employment. Source: https://www.fha.com/fha_loan_requirements
2
@Henry
Yes, and:
FICO® score between 500 and 579 = 10% down payment.
MIP (Mortgage Insurance Premium ) is required.
Debt-to-Income Ratio < 43%.
It's the debt to income ratio of < 43% that's the deal killer for most young earners in 2019 in the USA (and elsewhere).
Say, you're earning $43 K Per annum. Then the maximum you can borrow is just $100 K.
What can you buy for $100 K in the USA today in commuting range of your city job that pays $43 K?
8
@Colenso You can buy a single family house near Nashville, TN for under $200,000. That is why we are having such rapid population growth, to accommodate the re-location of major industries here.
2
@Henry
Sure – but that still requires a single income of $86 K to buy a $200 K home (if you ignore the effect of the deposit) because the maximum debt to income ratio of 43% only applies to the gross income of the first borrower, not to the combined gross income of two borrowers.
How many young earners earn $86 K?
8
This isn't only a US problem.
In the South East of England, in European capitals including Berlin where I was looking at trying to help my son buy his first flat, in all Australian state capital cities, property has long been unaffordable for most young middle-class professionals.
In 1983, I bought my two-floor flat at the top of a converted Victorian terrace house in Burgoyne Road in Harringay in Haringey for 25,000 pounds with the help of a 100% mortgage from the Abbey National Building Society. The flat had been bought by the owners just five years earlier for 8,000.
I'd been a member of the Angel Housing Co-op, living for a peppercorn rent in a run-down short-life terraced house, one step up from a squat, owned by Islington Council. Islington was keen to get us out of its properties, so agreed with the Abbey National to underwrite and in effect guarantee the 100% mortgage.
With overtime, I was projected to earn 8,500 pounds per annum in my starter job as a building services design engineer working at the Max Fordham partnership in Camden.
The Abbey National would lend three times the gross salary — three times 8.5 is 25.5. so I qualified for a 25 K loan.
Today, I would not be able to buy my flat.
Today, my starter job as a design engineer pays about 25 thousand to 30 thousand.
But my flat, in a part of North London that is still pretty grotty, would sell for between 250 thousand and 300 thousand — so about ten times the starter salary of my design engineer job.
10
I have heard that the massive Chinese investment in US real estate has been reduced sharply since the tariff wars started but I don't hear that mentioned as one of the causes for the housing market cooling off.
3
@Don Oberbeck Interesting. Hadn't thought of that. But I guess I just assumed the Chinese would be investing in large projects, not single-family homes.
"When the central bank cuts interest rates, it encourages people to buy houses (since mortgages are cheaper) and builders to ramp up construction (since demand is strong and borrowing is easier). Those decisions then ripple through the economy, as people buy furniture, builders hire workers and brokers cash their commission checks."
In my neck of the woods, builders would LOVE to build, whether the rates are 0, 5, or 10%. Too bad overly restrictive zoning laws propped up by the landed elite have placed an effective moratorium on new construction.
My combined household income is above 400k a year. Yet we can't afford to buy anything unless we sink our entire net worth into a down payment. It feels like the last generation has basically built a wall around the American dream.
7
Clearly the homes you are looking at are out of your price range.
Maybe look for something less expensive??
2
David! It's San Francisco! Home are over $1mil and hiw about property tax!
6
While availability of credit may be factor it's most likely like at margins. The bigger issue is that housing prices have risen faster than incomes, in a number of cities, for multiple years.
Extol the virtues of owning a home all you want but if the down payment alone is comparable to your annual salary (or greater), owing a home is simply out of reach.
9
Where is the supply to level the price range? Why don't we ask the federal government, going back to the Obama administration, why hedge funds, banks and wealthy investor groups were allowed to buy blocks of homes that were turned into rentals. Then we saw the explosion of home/apartment/room rentals via AirBnb. A recent Los Angeles Times article stated that since 2015, the popular Silver Lake neighborhood, an up and coming hipster area, has seen between 40-60% of home sales going to owners for whom it will not be a primary residence. Let that sink in. That's where the housing stock is disappearing and raising the prices on the few homes left for sale. Our state and local government leaders are either asleep at the wheel or being paid off. It may be time to consider regulating home sales.
17
I have an excellent credit history, a stable full-time job and a FICO score that would easily qualify me for the lowest mortgage rates, but I am nowhere near being able to purchase my own house. My wages have lagged far behind the increase in the real cost of living and prices here in the Northeast are among the highest in the nation. There is definitely an affordable housing crisis in many parts of the US - it’s been said so often it now feels like a canned buzz phrase - with developers building larger, more expensive homes. You can see the reasoning: why build smaller, less expensive “starter” houses with thinner margins? Unfortunately, this has left a large portion of Americans like myself without affordable houses to purchase while also trapped paying too much in the rental market.
14
Why on earth are you looking at brand new homes to buy?
2
@David H
I'm not. Affordable ones don't exist. That was my point. And in my area, many extant houses that fall in the "affordable" category are snatched up by developers and speculators with cash on hand looking to flip them.
7
Twice the Housing Credit Availability Index exceeded 15 and twice a recession followed, in some relation to the length of loosened credit. The correlation I make may be too simplistic but perhaps we haven't had another recession in part because of our more stringent lending standards.
The core problem is no one can save for a decent down payment when they are still paying off huge student loans. Higher education costs are diminishing the prospects of home ownership. General stagnant wages don't help either.
Comparing home ownership rates to 2006 is meaningless considering a growing share of home loans then were bogus. We see now a leveling out or an increase in home ownership rates.
The one chart I'd like to see is the actual equity held by Americans in their primary homes.
5
I am absolutely astounded at the degree to which a sense of entitlement pervades much of the comments today.
In the early 1970s, when I was 12, the weekly highlight for my family was to go to Woolworths on a Sunday morning and get the one dollar breakfast special. You could get two scrambled eggs and a piece of toast for a dollar, or you could get two scrambled eggs and a glass of lemonade for a dollar. I could never get two scrambled eggs, lemonade, and toast because my parents could not afford it.
One could say that I was raised to fully appreciate the value of a dollar.
I don’t buy junk, I manage my money carefully, and I know how to save. I live within my means. It sounds like many people commenting today have no clue what that means.
These days, when my 20-year-old daughter wants to meet me for lunch, I end up spending $40 on sushi for both of us. Whenever I sign the bill, I’m always amazed at how different her life is than mine was.
For those here cannot afford a house. I recommend you do what I did after my divorce: live in basement apartments for $850 a month, save your money until you can put down a down payment. There are far worse things in the world.
14
@David H Always have the basement apartment evaluated for mold before you move in.
5
@David H And maybe giving up cable or expensive iPhone would help.
5
@David H The sad thing about this comment and others like it is that you don't realize that this is exactly what a lot of Americans are ALREADY doing and STILL cannot afford to save or buy because of the combination of inflated home prices, high rent and stagnant wages. I live in a $1900/month one-window basement studio apartment, no microwave, dishwasher, on-site laundry or cable tv. I do not own a car, I use public transportation. I cook most of my meals at home. I work a full time job and yet STILL I struggle to get by from month to month. My salary on paper says that I should be middle class but that is not a reality. Groceries, utilities, transportation, healthcare are all really expensive.
There needs to be a total correction of the system.
20
Article doesn’t mention that renting is usually a less expensive option. The notion of creating wealth by owning a non liquid asset which can depreciate and leaves people financially strapped, is a questionable plan in today’s reality.
4
@Daniel B,
When you factor in the full costs of homeownership--not merely comparing a rent payment versus a mortgage payment--including things like property taxes and repairs and maintenance renting is not the waste of money some want you to believe it is.
5
@Louis precisely my point
1
Haven’t we learned the lessons from the whole “everyone should own a home” thing from, say, 2007-2009, or have we forgotten them already?
5
Sure is a lot of crying about being able to buy a house. "The only people buying them are rich Investors... ". "We need to make 3 times the salary we make now.....". "Our student loans are crippling us...". The average length of time to sell a house in the US is 68 days. Near me, Santa Barbara County, CA, 2 weeks. Average is about $400,000. Illegal aliens are buying houses here (I don't know how, but they're doing it!). Those student loans, isn't that art history degree doing it for you? You signed the papers, maybe they should have a course in high school about reading what you sign? Didn't you also work while in school? Do you have a $1000 phone, go out drinking, smoke weed, have a BMW payment, etc? How bad do you want that house?
4
@Boris Roberts: We have old phones that are paid for and no landline, along with no cable. We have one small, fuel-efficient Toyota that is thirteen years old. We both work full-time. We cook at home, and rarely go out. But we have massive debt from when I had cancer four years ago and couldn't work for a few months. Our savings has been wiped out, we had to sell our stock, and there is basically nothing left. Don't lecture us about cutting back on expenses. You have no idea what you're talking about.
20
1. "It Will Take More Than Lower Mortgage Rates for a Housing Rally"
2. "But don’t expect it to provide much of a lift to the housing market."
4. "it isn’t clear that a further cut by the Fed will do much for housing"
5. "the housing market, which had been heading for a major slump"
6. "few economists expect the housing market to take off"
What planet does Casselman live on?
The "housing" market has been in rally mode since 2011 (that would be a nine-year rally):
Average sale price of home in United States as of Oct.24, 2019: $380,300.....up 46% from $260,000 in 2011.
https://fred.stlouisfed.org/series/ASPUS
After this nine year rally which easily surpasses the bubble years of 2007/2008....the simple fact is that no one can afford to buy an average house at these nose-bleed levels.
7
@John I believe you are essentially making the same point that Casselman is making.
1
More than 30 years ago, when I began working, with a starting salary, I could have easily afforded a condo in Cambridge MA, the very location in this article's photo. I didn't because I chose to move abroad.
Today, although I've saved up enough money for a substantial down payment, and my salary has increased (more as a result of inflation than anything else), the same condos' prices have increased at a much higher rate. Meanwhile, I have fewer years of income ahead of me, and can't retire with a large mortgage, especially when I can't rely on Social Security payments, given the country's huge and increasing debt, or Medicare (which means I need to set money aside). Being house-rich but cash-poor is not appealing. In fact, I know a number of homeowners who have chosen to sell and rent instead, either because the mortgage burden is too high, or because prices are good.
As a result, I chose to continue renting, even though Cambridge rents are also astronomical. The key is moving to a less expensive location after retirement, but even then, the prospect of having to deal with maintenance and repair at a time when life should be ideally carefree doesn't appeal to me, so I may just continue renting.
I missed my chance back then. The young people today have no chance.
12
@ml How many short-term rentals in pricey Cambridge area? AirBNB and similar operations are distorting local housing markets across the country.
6
I'm a real estate "professional" in as much that I own a total of 7 properties in LLC structure, a personal coop, and 6 other rental properties under my own name.
Despite on paper under standard Fannie/Freddie guidelines, I should be able to get a mortgage without issue, and I am able to from some banks, other banks have their own "overlays" or rules they implement above and beyond those rules promulgated by Fannie/Freddie.
For example, one bank stated that since the 6 rental properties under my personal name were only recently acquired between August 2018 and now, they won't use the rent revenue from those properties toward my DTI ratio, and treat the houses as vacant liabilities. Another stated that since my LLC properties show negative income over the past two yrs (despite being due to initial reconstruction, but currently are rented cash positive), they count the negative income on my K-1 tax form against my DTI, despite Fannie rules allowing for such to be excluded if I have a W2 day job, which I do.
Low and behold, despite grossing more than $25,000 a month, and a DTI lower than 30% when following Fannie's formula to exclude Schedule K-1 losses and 75% of net rental income toward my DTI, I struggle to find a bank willing to not use their own overlays and/or the most favorable interest rates.
My having to pay an extra percent in interest to a bank per property for a mortgage reduces my ability to reinvest in rebuilding houses, which detracts from communities.
5
Classic case of banks locking the door after the horse ran off and the barn burned down. These overlays are due to requirements of the secondary market which is still skittish after the crash.
3
There is a buyer for every home. The only homes that dont sell are homes that are overpriced its that simple. The real estate market always finds it way, for better or worse. High rates equal lower prices, low rates equal higher prices. A bad economy equals lower prices, but no money to buy with. A strong economy equals higher prices, but now out of your price range. Todays economy is very tough on younger people on so many levels . Home ownership has always had obstacles, lets not forget 16-17 % intrest rates of the 80s and the price collapses in the early 90s and late 2000s .Good luck to all home buyers,millions of us have been through it.
7
We are in a housing crisis. Here in N.J. , there is nowhere near a sufficient quantity of updated housing that is affordable in safe neighborhoods for most people, young or older, who would wish to buy. A great quantity of housing—in cities and towns, urban, suburban, and rural—is middle aged (built in 1960s and ‘70s) to old (1940s and ‘50s) to older yet (1900s-1930s) to antique—Civil War era and earlier. This mass of housing stock is at or near functional obsolescence, and requires costly repairs, updates, and renovation (when salvageable) to be safe and habitable to current housing standards in America in the 21st century. What’s happening on the ground is that those able to handle the costs to repair, update, renovate aging housing stock are mostly builders/contractors and investors—individual and institutional—who can purchase properties individually or in blocks, renovate, to turn considerable profit. There is nothing wrong with real estate investing. But isn’t there something wrong when updated, decent, nice housing is unattainable to a great majority of individuals and families? When housing at lower, affordable price points does not exist? This is what we got, folks. We are in a housing crisis.
5
Some attention needs to be paid to the situation in which corporate entities are buying up huge portions of the housing and retail market. These corporations can afford to hold on to a property until their price is met, because using the property as a tax write off is more lucrative than selling that property. Some business are buying up condos, apartments and houses to be used on the vacation rental market, thus limiting the market of available homes. Once again greed wins the day in America. Hurray for capitalism!?
12
@Joan Chamberlain You hit several big nails on the head, thanks!
2
A VA loan (no downpayment) helped my wife and I purchase our first home. I don't think we could have done it otherwise. VA loans are one of the best military benefits in my opinion.
5
The housing market is affected by demography, spending patterns, inventory, interest rates and yes, loan scoring. However, the Tone of this article suggests that lending standards should be lowered to accommodate higher risk lenders in some social engineering effort. Hmmm, wonder when I heard this before. People have lower FICO scores because they handle their credit less responsibly.
2
The entire FCIO score is a sham. It creates its own circular logic. If you try to get a loan to consolidate credit card debt, you are told that your credit card debt is too high and the you don't use your credit cards enough. How can those two things be true at the same time? You can have decades of mrtgages with no late payments ever, live in the same geography for decades, have plenty of cash flow, and still not qualify with a credit score that is considered "good." What is good about a credit score that will not allow you to obtain a loan or a mortgage?
11
Ever since Barack Obama's and Eric Holder's decision to gut Fannie Mae (an FDR-created institution created in the 1930s) and Freddie Mac (an LBJ-created institution created in the 1960s), fewer lenders have confidence that anyone's going to backstop these loans for first-time borrowers. When both of these lenders were doing exactly what the regulators were telling them what to do.
Thus it's back to the old days of those with cash can buy homes, while everyone else needs at a minimum of 20 percent down and thirty percent of income for payments. For a million dollar home that's about a $200k down payment and a $150k income. Good luck with that washing dishes.
6
@sthomas1957
The problem was by the Govt backstopping loans willy nilly, lenders were allowed to run rampant, lending to anyone who could fog a mirror. The result was janitors making $13/ hr with half million dollar mortgages and no equity in the property. It would be nice if everyone could afford to buy a house - but sadly they can't.
1
@MrC And those were the regulators telling these companies what to do. These two entities are not now and never have been free to do what they want. That's why they're called Government Sponsored Entities (or Enterprises - GSEs).
@stthomas1997 the real driver of garbage loans was the secondary market which scooped them up securitized sold them off and clamp red for more. Now that the secondary market has higher standards mortgages are harder to get. Most of the subprime loans were not Fannie or Freddie.
2
The biggest obstacle to home ownership is the price of a home. Period. If a young working couple near a major metropolitan area (i.e. one where good-paying full-time jobs are found) wants to buy a home, the down payment is typically 10-20% depending on creditworthiness.
In my area, that means coming up with at least $30,000 to $40,000, money that that average couple starting out doesn't have and isn't likely to realize after investment, given the low rates of return.
When I bought my first house almost 40 years ago, my wife and were able to put down 31% of the purchase price because she and I both worked decent-paying jobs and her employer had a employer match (dollar for dollar) savings plan that paid 12% interest annually. With that kind of financial booster rocket, we were able to accumulate the down payment in about two years, putting us on the home equity train.
Who has that kind of financial opportunity today? This may be a reason why an increasing number of Millennials are renting instead of buying. They've just given up on the idea of finding an affordable house and coming up with the required down payment.
109
@hdtvpete A FHA loan can be obtained for 3.5%
The home must be the borrower's primary residence. Borrower must have steady income and proof of employment. Source: https://www.fha.com/fha_loan_requirements
2
@hdtvpete
The problem is that wages are flat for 50 years, but rich people from all over the world are bidding up the price of homes by using U.S. properties to launder money. Representatives of the global rich, from places like China and Russia pay cash for homes that remain empty or get rented.
Also, since Trump got rid of the mortgage interest deduction, there is no longer a tax incentive to not rent.
18
@hdtvpete That is a major factor. If you will read my reply to thi8s article you will see the other major factors that are stunting the growth of the real estate market.
Until all these factors are addressed we will have at least one or two generations of Americans who will not be able to know the security of homeownership. Possibly more since the Equity loans are a large factor in helping children pay for college. Those children will either be another generation crippled by student loan debt and unable to purchase a home or parents who have had to use their equity to pay for medical care necessary to live and not covered by or huge deductible insurance policies.
5
America, generations ago, was identified by its stabile thriving middle class of which home ownership was a key component. Not so today where middle class life has for too many become sustainable only through credit card debt. With insufficient income to cover daily living expenses saving money for a down payment for a home is in itself a challenge. For more and more Americans owning a home has become a dream not a foreseeable reality.
58
@Rose - credit card debt is never sustainable. So if someone is relying on it to be "middle class", they're not.
14
@DRS: And that is how we know that the middle class has been decimated. People are paying for groceries with their credit cards, because wages do not cover the cost of housing and healthcare. The whole system as it stands is completely unsustainable for the country. We cannot have a supremely wealthy handful of pseudo-aristocrats making laws in their own favor, and a large population of serfs struggling to get out of debt and held back at every turn by an unfair, unjust economic system.
25
Debt has become the American way of life. A condition that will ultimately have dire consequences for the people and this country. American society has figuratively become like a sandwich. The middle class held between two pieces of bread. The top tier of the upper elite smashing more and more of the middle down into the bottom slice of poverty. This is how America has been operating for the last 40 some years. Squeezing the life out of the middle class.
14
I think the whole FICO score industry needs to be revamped. Case in point; The mere existence of the Experian Boost product is indicative of a problem. I shouldn't have to go to Experian to get a 'boost' on my score by providing my email address. Are they purposely lowering scores? If not then the only other logical conclusion is that they are not properly calculating scores to begin with.
Penalizing someone for an issue years ago is not a good determination of current risk. If someone voluntarily closes a credit card account why is that a sign of risk? (I have lots of credit cards that I don't use but I fear closing them - I sign up for the discounts i.e. Macy's card got me a big discount for a large purchase)
55
@Sean. Closing a credit card account per se might not negatively affect your score, but it could since your score is largely based on outstanding debt relative to credit available.
Thus if you have three credit cards with a total of $20k credit available, and $2,000 in debt, you're 1/10 in the hole of what's available to you (10%). If you get rid of one of those cards and now have only $10k available to you, now you're suddenly at 20%. You don't owe any more money, but your ratio has gotten worse.
Bottom line, the less debt you owe, the less difference it makes.
6
@Sean You also get dinged for taking out credit. What is the point of a "credit score" if my score tumbles from taking out credit? We just refinanced our mortgage to a much, much lower rate and my credit score dropped almost 50 points immediately after refinancing. Why should moving a mortgage from a one lender to another drive drown scores like that? Gosh...it's almost like we were just penalized for making the smart decision to move to a loan with a 2% lower APR. Credit scores are a scam IMHO.
27
This administrations attack on immigrants has had major effects on the cost of labor to build introductory housing. Let’s not forget all of the materials that go into construction. Lumber, cement, tile, drywall, lighting, appliances, windows and AC. Between financial services, private equity and Trump tariffs there are no winners here.
8
@Sailorgirl What do tariffs have to do with buying a house?
Nothing at all if you are buying a fixer upper - except that it will cost you more to fix it up.
If you are buying a new residence or one that has been recently improved, the tariffs raise the construction cost, and thus the price.
1
Here is what happens in my town. We have a good economy now, there’s are jobs that pay well, people are moving here. But...
The 1950-60s homes that predominated built for young families back then are being destroyed and replaced with $1 million+ monstrosities. There are 4 such constructions on my block right now. Developers buy a house just to demolish. It’s completely changing the neighborhood, from teachers and pharmacists and sales reps (middle class), to doctors, lawyers, financial types.
Meanwhile, where will the young families go? And where will the older people in my neighborhood (not big money people) go if they sell?
19
Nothing stands for issue clarity as experience, for which I am an expert, having spent 5 years living in my car, then years in shelters and senior apts, during which I managed to maintain integrity which I am sure baffled the cops who with collaborative social workers stole my and my husband's home in Rhinelander WI. The reason you don't see more of these types of posts is that library's computers must be available when you are.
Having survived 25 years since my husband's death on social security, and having no debt except a $500 hospital bill I pay $5 a month on---and this after paying off almost $ 900 in hospital/clinic charges incurred by walking thur a crosswalk on 'walking man' green and being hit by a truck---was the driver ticketed? Who knows? the cops did not tell me even after I asked---I applied for a Rural Development loan in a small town and acquired a mortgage of $330 monthly, 1/3 of which is escrow. You may assume the house needed work but I did not, perhaps due to my small brain trauma when I was a child. No vehicle as that would tip my precarious existence into homelessness.
I am reminded of the quote from history: "Whom the GODS would destroy they first make mad."
For every comment from Americans with their head above water, there are a hundred like mine, and 500 even worse.
5
That wages v housing prices chart is flat out depressing. Wealth gap expansion on full display.
5
You usually have either good economy or low interest rate. Now is a rather unique time that we have both. Which means the current housing bubble is susceptible to both rising interest rate and bad economy, making it riskier than usual to buy unless you are planning not to sell for the next 30 years and enjoy the low interest rate that you locked yourself in.
1
Dear Advocates:
Tighter lender standards protect everyone. Instead of advocating for those who don’t make the cut, invest in some serious consumer education. I don’t mean a class offered on the computer or your phone. I mean a real teacher in a real room in a location with free parking, refreshments and even child care. And a series of classes offered at times that are realistic for those paid hourly. The potential home buyer must set up a savings plan. Do this in partnership with a bank, or better yet, with several banks. Pass the course, and the bank contributes to your down payment. Maybe have a two to one match of the buyers savings.
Versions of this approach have been implemented across the country, and surveys of these loans one,and,two years later demonstrates that this definitely works!
The investment in classes and grants before purchase is cheaper by light years than even one foreclosure. And the skills the buyers attain carry over into other important life decisions. A win/win.
7
This article omits the impact that property taxes are having on housing affordability. For example, in Albany, New York a $200,000 home can carry an annual property tax of over $6,000, or $500 per month. In several areas of the country a property tax mill rate of 3% or more is not uncommon, so that a $300,000 home carries an annual property tax of $9,000 or more. Retirees are now being property taxed out of their own homes even with no mortgage.
Finally, over the past 20 years property tax has been increasing like college tuition, educational, and healthcare costs at a much faster clip than either CPI or household income.
Many buyers can afford the mortgage, but cannot afford the mortgage and the property tax. Property tax is absolutely killing the housing market.
25
This is why California passed Prop 13 and still, after much hand wringing and much debate, hasn’t repealed it after all these years. Prop 13 gets blamed for a lot of California woes but what people don’t understand about it is that it is not something that benefits the rich. For the rich, steadily rising property taxes are an unwelcome nuisance. For a middle class family or a retiree living on a fixed income steadily rising property taxes are a disaster.
5
I'm a Realtor so of course I'd like to sell more houses. But I also lived in an area that was decimated by subprime loans, allowing investors to swoop in and literally buy entire neighborhoods, so I do NOT think everyone deserves to be a homeowner.
I also don't think this recent rate cut will do anything to boost the market. Because even with historically low rates already, we simply don't have enough houses to sell. Here in St. Louis city/county, there are currently 10,000 FEWER houses for sale than there were 2 years ago!
Why is that? Why are so many people staying put? Have they lost confidence in our economy? In our government? Or is it just a problem of baby boomers aging in place and leaving the market in near gridlock?
2
Because index funds, bonds, and stocks have barely have no transaction fees anymore. Real estate profits don’t exists after selling a home because everyone along the way skims off the top. Rent and pump your 401k and investment account is the new path. You can even invest in areas with good housing market without buying a home if you still want that diversification.
4
@shstl If the St. Louis market is anything like Chicago's suburban market, I will tell you it is home affordability. Many more of us are single professionals, so we rely on ONE income. That said, with a salary of ~$75,000 a year, in order to maintain a nice balance of not being TOO house rich and car poor, or TOO house rich without having the flexibility to continue to go on vacations and spend money on entertainment, I would say I feel somewhat comfortable purchasing a home for about $175,000 or so. The homes near O'Hare airport that are in turnkey condition with 2+ bedrooms are going for WELL above that...which is fine, as long as you count on 2 earners pulling in $75k EACH. But for the single person, nah, it's better to rent and pay approximately $100-200/month extra in rent payments (as opposed to mortgage payments) so that the repairs can be someone else's headache.
1
OR if you can't deduct high local property taxes from your taxes anymore....
11
Finance is a product of mans independent, focused mind, not a bureaucrats gun stuck in the face of financiers. Trash the Fed w/its mystical corruption of math.
1
As someone who is going through the very difficult process of saving enough for a down payment (for a house that on an HGTV show would be a "total reno") our biggest hurdles: student loan payments and day care. It's very demoralizing to be a professional and have to move back into your parents' house with your husband and child in order to save enough.
17
Good luck to you M. Hopefully the pain you endure now will pay off down the road.
2
With the removal of the tax deduction for mortgage interest it’s not that great an opportunity any more unless you just want to get out of an apartment.
4
@JD
mortgage interest is still tax deductible
3
@JD You’re wrong about it not being deductible.
2
@Jackson if your income doesn’t justify the mortgage deduction then it might as well not exist... I used to be able to itemize but now it almost impossible for us to do now that we are retired.... and I can’t wait for the first one to tell me I should have paid my house off before retiring. Get real
4
About 30 percent of all home purchases nationwide in 2017 were to LLCs. Securitized rentals have replaced subprime loans. Waiting for the REIT bubble to pop.
18
You'd have to have a decent paying job with affordable health care benefits to think about saving for a down payment, so there's that....
11
Another trend to watch. As younger families delay having children later in life and have fewer of them, they don't need large "trophy" houses and McMansions.
This trend has already been documented in suburbs. Those larger homes are not selling as well or as fast as smaller homes. (It's a combination of price and square footage requirements.) Larger homes also cost more to maintain, something younger families aren't interested in. And they have higher property taxes.
I was told by a realtor a longtime ago, "Buy the smaller/smallest house(s) in a good neighborhood, and you'll never have trouble selling when it's time to move."
Good advice!
16
I grew up in a neighborhood like that. Several homes had hot beds. One person worked days and his brother worked nights. They slept in the same bed. On weekends one might sleep on a cot.
Another family had their relatives living in the garage.
A few homes away a man lived in a small trailer that was parked in a garage. The garage had running water, a sewer, and electricity.
Where I live now, several houses have motor homes parked outside where family members stay. They hook up an extension cord to the unit. It is “temporary “ so there’s no code violation.
4
Richard, where I live, a city of 100,000ish, plus an estimated 20,000-30,000 illegal aliens, we have house with 25-30 people living in them. I thought about doing this myself, except my house would get trashed. 25 people times $125/per person/week is $12,500/month, I could live in downtown Santa Barbara with that kind of cash coming in.
2
Please study the mortgage market. One fed rates do not impact mortgage rates. The Ten Year does and that has moved up in past three weeks. Second credit ratings are predictive of ability to pay back. It was only little more than a decade ago that low standards resulted in the Great Financial Crisis. Have we forgotten the lessons so quickly. I recall thinking the world as we knew it ended.
This article is more WOKE than substance
2
Just more evidence of monopoly capitalism destroying the working classes of this country. Investors with cash to burn snap up all of the affordable properties, while fewer and fewer individuals have any choice at all and are forced to rent by default, whether they want to or not. And increasing numbers of older people who bought property when it was affordable can no longer pay the property taxes on their homes, so they are forced to sell. The whole system stinks and nobody currently in office is going to address it, because widespread propaganda, bought and paid for by the wealthy who run this country, has persuaded enough voters that "socialism" and "immigrants" are to blame for their problems.
16
Toured an attached 3 story townhouse with a friend who has been looking for a place to get out of her $2,400 a month rental. It was in a decent neighborhood, brand new, 950 square foot two bedroom, 2 bath, very small kitchen, modest builder grade finishes, no onsite parking and it was $650,000. A house here in Seattle I had to sell back in 1990 I sold for $365,000. It was a nice house, not luxurious but nice. The people that bought it just sold it two months ago (and had made no further improvements to it over the last thirty years) for $1,161,000. Something is very wrong with this picture.
24
@Steve So, Seattle doesn’t have enough housing.
1
@Jackson
There is only so much land, they aren't making any. The townhouses we looked at ( a total of 6 units) replaced a single family house that the developer demolished. As a tech hub we have many highly paid techies that have driven prices up into the stratosphere, the rest of us are being shut out of the market. I do not know what the solution is other than income redistribution.
7
@Steve Seattle, Vancouver and other West Coast cities have become favorite places for obscenely wealthy foreigners (especially Chinese) to park their (often laundered) wealth in real estate. They pay cash and the sky’s the limit. They then leave the place empty or rent it out at preposterous rents. This is a very real problem, along with the AirBNB. Of course, it’s just one more bit of gravy for the .01%!
4
The compalints are, housing is too expensive. But, the real estate market is perfect example of basic capitalism, supply and demand. If a house dosn’t sell at a particualr price, the owner lowers the price until it does. If there are enough buyers out there to buy at the current prices why would we expect them to come down? The problem, is people don’t make enough income, and other expenses, (health insurance, car payment, student loans) eat up the brunt of the paycheck. My solution? Go back to the lier loans. The problem with them wasn’t homeowner liers, the banks bundled the morgtgaes and they lied to investors. For the homeowner, with his lier loan, the worst that can happen is he forclosed, and he’s out on the street. The bank owns the house, and sells it at the market rate. The problem was Wall Street. Obama, and Githner, restricted the ablitity to get a mortgage, but that was never the issue, it was the ability of banks to lie to investors the value of bundled mortgage securities. If Trump wanted the economy to soar he should forget about tariffs, and allow Americans to be capitalists, to take a chance on an investment that will pay off over time. The largest employer in the U.S. is not Walmart, it construction.
10
I downsized at age 43. The rental apartment portion of the owner occupied duplex I bought rents for 1750.00 a month here in Portland. I've refinanced several times and the current PITI ( principal, interest, taxes and insurance) is 1080.00 per month. The property has appreciated in value from 133K to 625K in 25 years I've owned it. And, in that period, I've not only had the rental income, but the write off for depreciation, interest, property taxes, repairs etc., This is one model for the future of home ownership. Not mini mansions with hundreds of sq feet of rarely used space...but hardly a tiny house either. Now retired, it's appears to be the best investment I ever made...
7
The biggest negative on the housing market was Trumps tax changes which eliminated state and local property tax deductions. Its destroyed the market in California New York and almost all states with any meaningful state income tax. All for spite for not voting for him.
13
@sense
So New York and California, states with eye-poppingly soaring real estate markets, have somehow been destroyed?
Does not compute.
7
The impact of the disastrous 2017 tax bill is just beginning to be felt. Most of all by the next generations given the tax break for the ultra wealthy immediately caused a trillion dollar deficit. Cutting expenditures for Medicare, Medicaid and disability payments and eventually social security will put the nail in the coffin creating a permanent underclass and sowing the seeds for more unrest in the country.
10
The soaring real estate market is exactly the problem. Affordable only for the very rich.
3
How did the new Income Tax rules get left out of this article? The new policy which was clearly designed to be punitive to the blue coastal states makes owning a home much less attractive. The limit on deductions makes renting more attractive than owning in these areas.
21
@JohnC
Yes, I would like an article on the new tax laws NYT real estate section.
Three causes: 1. Housing that would normally be sold sucked up by private equity instead to rent out. 2. Air B&B allowing people to spend more on housing than they should. 3. New itemized deduction limits on interest and taxes, which of course are deductible for private equity but not for the average consumer.
18
@JJ It’s bizarre to think Air B&B has anything to do with this.
@Jackson AirBNB rentals suck up housing that would otherwise be available for long-term tenants or local buyers. It is an enormous problem in many communities across the country. Big investors are buying out entire blocks and converting them to short-term rentals, destroying neighborhoods in the process and distorting the local housing market.
4
Anecdotally, the dearth of starter homes is coming as smaller, older two and three bedroom single family homes are being demolished for larger, expensive homes. It's not out of need: most families with children nowadays have fewer children than when the older homes were built.
7
Let's be sure that the borrowers are creditworthy.Treat all borrowers the same.Ratial disparity if based on race blind criteria is the responsible way to look at mortgages.We don't need another real estate meltdown.
tra
3
The prices are just too high. How is anyone below the upper middle class supposed to afford a home that costs 300k? You need good credit, good income, and if you down 20% you need 60k in the bank. Interest rates are low so the monthly payments are probably lower than what you'd pay in rent but unless we relax the lending standards to dangerous levels or drastically increase salaries, middle income people just won't be able to get in.
I'd love to know what's keeping the prices so high. Is it just another bubble where millionaires are convincing each other that yes that 1200 square foot home in San Francisco is really worth a million dollars? Is it due to foreign investors? Is it consolidation of yet another area of the economy in the hands of the uber rich? I've yet to see an article actually analyzing the reasons for the high prices. I have a lot of trouble believing this isn't another bubble.
11
@Eric
The reason there are no articles analysing the reasons for high prices is that it is an extremely speculative area to tackle, but also because there is a devotion to the efficient market theory that simply cannot be shaken off or even questioned.
My two cents as to why prices are so high: For many, many years now there have been no investments that were not inherently risky (has anyone had any faith in the stock market since all the interventions in 2008-2009?). At the end of the last decade it was made clear that the gov't would NEVER again allow the status quo be threatened because of outrage over a popping real estate bubble, or even a dropping RE market. (Compare to the price supports for foodstuffs instituted during The Depression)
So, the safest investment that would pay dividends and probably go up, became real estate, with all-but a government guarantee. Real estate now goes up-up-up, despite any and all economic headwinds. As a result, if you were not in a position to profit from the last market crash you are all but guaranteed to economically stagnate.
5
I have over 7 figures in savings and investments but I’ve never had a consistent job long enough to qualify for a loan, perhaps pre 2008 they would have given me one. I just rent cheap places and save and invest. I am confident that some day if I want to buy a home when baby boomers start to really die off that houses will be a dime a dozen
3
@Dom A few lenders will qualify you based on your Capital Gains and Interest Income. Even mainstream lenders will look at your assets; so-called asset-based loans.
These loans may be more expensive, but if you want to buy, it is an option.
I don't agree that houses will decline in price as baby-boomers die off. The population is still increasing, and housing is always a good long-term investment.
1
@Dom If you have over 7 figures, you can pay cash and don’t need a mortgage. But thanks for the sentiment that you hope we die off. Did you ever think someone might be inheriting our property?
15
Looking for love in all the wrong places. We won't fix housing with lower interest rates or lower eligibility requirements.
The problem is, wages have not kept pace with productivity and profits over the last 40 years.
Income inequality happens only because the boss takes your raise. People should be earning three times as much as we are now. Then affordable housing comes into focus.
13
@Occupy Government What a ridiculous statement. The boss takes your raise? And by the way, that’s not how inequality happens.
He means that the profits generated by increased productivity of workers are not shared with workers.
9
1. When interest falls (real interest rates, nominal minus inflation are now near zero), the ability to pay is replaced by credit worthiness. [1]
2. In France, where the interest on a 20 yr mortgage is now 1% (below inflation) [2] as a result of the ECBs record money printing, the gain to consumersled to a sharp increase in housing prices. In Bordeaux, housing prices increased by 16 % in one year. (To a significant degree due to the credit worthy rich borrowing large amounts of free (in real rate ) money to "invest" in real estate.)
Printing money by the Central Banks does not change the reality of supply and demand . Instead it enriches the credit worthy rich
[1] https://www.bloomberg.com/news/articles/2012-07-16/zuckerberg-s-loan-gives-new-meaning-to-the-1-mortgages
[2] https://www.reuters.com/article/france-realestate/update-1-french-banks-lowering-mortgage-lending-standards-financial-watchdog-idUSL5N26M57X
--
4
My grandfather never owned a home. He lived to be 96, and rented for his entire life. Lived in some great locations, too. Not saying renting is for everybody, but maybe buying isn’t for everybody anymore. Maybe the dream of owning a home is an outdated cultural norm that has gone by the wayside along with gas guzzling cars, TV dinners, phone booths and TVs with no remote. Maybe lets not try to own. Keep light on your feet. Let the big real estate investors eat up all the big properties and see where their big investment gets them.
8
They have lobbyists in the DNC that will cushion them with your tax money...just like the banks, pharmaceuticals, and military complex.
I would love to buy a house, but doubt I ever will at my current location. In the city, a (1000 sq ft 3 bed, 1 bath house built in the '40s and in need of major repairs) starter sells for $275k, assuming you can find one. My husband and I have so-called "bankable" degrees, but even modest student loan debt, a child, and no family money make even a 5% down payment still years off.
5
@IndieGirl Let’s hope you’re planning on 20% down or there will be another housing crisis.
1
Perhaps we should should put more restrictions or increased taxes on house flipping. This really seems to be causing much of the increase in prices. When you have several well financed companies buying up all the properties, I can see how housing prices and rental properties go up in price irregardless of peoples incomes. People have to live somewhere and when all the choices are out of your price range there is not much you can do but suffer financially.
17
The affordability problem is an interesting one.
In thigh markets, people owning homes have the expectation to see the home price climb faster than wages.
It may seem irrational, but it affects choices of selling VS renting out for investors that can afford multiple mortgages.
So, income inequality has a lot to do with prices climbing up.
Also, people wanting to buy to live in the house have to compete with people that can just write a check to park money outside of the banking system.
6
Rhetoric like this is dangerous and is what caused the Great Recession. I suggest a read through of “Fragile by Design,” by Charles W. Calomiris of Columbia University and Stephen H. Haber of the Hoover Institution at Stanford.
Many of the graphs included in the article construe the facts disproportionately favorably to the author. For example, I would prod the author to consider presenting data prior to 2006 for the "Change in home ownership rate, in percentage points, since fourth quarter 2006". Congress pushed banks to invest in underdeveloped communities. These initiatives may have cause a larger bubble in African American communities which led to a larger collapse and more difficult recovery. A graph with a longer history would likely show this. On this issue I would recommend "How to Lie with Statistics" by Darrell Huff for some guidance on honest journalism.
6
I read that liar loans without a down payment we’re back in vogue. If there’s no need to prove your income, something else must be slowing the sales of homes.
1
Cheap money for the rich is what the interest cut of the Feds is about.
15
Buy a $500,000 home in CA.. expect to pay over $10k in annual property taxes.
6
Yes, you are likely paying significantly more than you should in property taxes because of Prop 13 which artificially gives some longer owning homeowners a tax break rather than paying equal taxes. And big corporations aren’t paying their fair share either.
15
It's been almost 40 years since that Reagan Revolution, and it's time to thank Saint Ronnie for destroying the middle class.
Good job, GOP.
56
@ABG
You are correct Sir! Our current economic plight and degradation of the middle class can be directly traced back to Ronnie and it started with the PATCO break up and the "trickle down" lie.
We now have 2 generations that have grown up not knowing good governance.
8
Despite what Trump says, you’ll need a job to get that loan. Good luck.
4
Look what happened to home ownership rates for African Americans. Meanwhile, the big banks have been rolling in dough.
https://thehill.com/opinion/finance/385284-10-years-after-the-great-recession-big-banks-are-still-making-outrageous
5
Another consequence of banks relying only on the borrower's adjusted gross income as shown on their 1040: That made it much harder for self-employed people, who can be quite flexible in the expenses they deduct from their business income (thus lowering their taxable income) and thus in the resources they can put toward a mortgage.
Another harmful aspect of Dodd-Frank was that it essentially exempted landlords from the tighter lending rules, thus promoting buying for rental income over buying homes to live in. Rather an insult added to the injury of the 2008 collapse.
8
@RL Exactly. Much of the real estate "boom" in my community is speculators who gobble up low-end, new and existing tract homes, rent them at high prices, and then flip them when the market gets "hot." MAGA.
15
Honestly, I’m amazed that the housing crisis across the country was never treated as a national security threat, because it is.
Following the 2008 sub-prime mortgage crisis and the market’s begin of the longest bull market in history, foreign oligarchs were looking for a safe haven for their money in a time of global turbulence. With the market on the rebound and real estate at rock bottom prices, foreign investors began buying property by the city block. At the time, the United States had a lot more pressing problems on its hands, and it welcomed the cash infusion.
But today, there are entire neighborhoods where home ownership is only in the 30% or 40% range while the rest of the homes are being rented by corporations that act as equity holdings for foreign oligarchs. This also gives those same foreign entities outsized influence in local matters.
For better or worse the United States was used to being the one in control of the chess game. But more and more, it seems like multi-national corporations and foreign billionaires are controlling the board. It’s not good for American workers.
59
@Austin Ouellette How can conservatism specifically help?
Great point being made in the article. The housing supply in dense cities has not kept up with demand due to NIMBYism. We need the same type of dynamic leadership that rose in the 80s and 90s to tackle spiraling violent crime to take on housing today.
I think this is where conservatism can make some inroads in cities.
1
@Ed Conservative policy vs Liberal policy has nothing to do with it. The CA state legislature is controlled by Democrats, our Governor is a Democrat. Starting January 1st, depending on how your lot is set up, you could build up to three homes on a lot that is normally zoned for "single family homes". There have been many proposals for encouraging higher density housing and relaxing the endless project reviews coming from Democratic state senators and assemblypersons. There's always some level of opposition to these proposals because people often don't want changes in their neighborhood regardless of their general politics. NIMBYism isn't a partisan issue, it's a basic instinct to control the environment that you've settled in.
5
@Eric I should be clearer by "conservative" I'm referring to embracing more market based policies towards housing as opposed to say rent controls, set asides etc.. Such views can be embraced by either Republicans or Democrats, although such views are more associated with Republicans than Democrats.
@Ed How can conservatism specifically help?
Living in the heart of Los Angeles, paying my monthly bills while trying to save up for a down payment is the biggest problem (small condo studios cost $500k here). I make enough to pay a mortgage but like they mentioned, I'm one of the people with a poor family and no parents who can give $20-30k to help out.
13
Wkp
Have you tried the suburbs?
3
LA suburbs aren't necessarily cheaper than LA proper. And you have to add in cost of transportation which is significant whether in a car or by public transportation.
11
@Wkp Not to sound grass but why do people expect their parents to give them a down payment for the house? We bought ours, without help from our parents. Set a little bit aside each month for your down payment. You'll get there!
3
Don't forget "whack a mole". Your interest rates may have decreased, slightly, but other associated costs have gone up. When federal and state government "cut our taxes", roads, schools and libraries etc must still be funded. Where do they get their money? Property tax, which already is steadily increasing as the value of your home rises in value. And is average income Joe able to purchase an average house and still have a small emergency fund when his hot water tank breaks? Don't forget there is now a cap on what you can deduct on your income tax, so that incentive is gone. If you live in a community of high housing or commuting costs or if you are at risk of being downsized or transferred, you best option may be to rent.
19
It’s called class war and the corrupted two party system (yes both parties) has been waging on the 99% on behalf of Wall Street, Pharma and the 1%.
Housing, food, education, health insurance all have gone through the roof! But real wages have not risen since 1970s.
Wealth inequality is at an historic high and both parties are to blame!!
Bush and Obama bailed out billionaires while they threw out Main Street and the 99%.
This is called Neoliberalism. It goal is to eliminate the middle class and create permanent serfdom instead. Late stage capitalism is another term used. The capitalists use tax payer money like a nanny state gorging themselves with tax breaks and tax cuts while starving and punishing the 99% while exporting jobs and industries for extreme profit for sociopathic few.
The real enemy that will destroy this country Is the tiny cable of billionaires that control our government.
Elections (as they own our elections as well) will not remove them. It will take far more.
Good luck
30
@ma77hew
Yes, I seriously believe this was an intended outcome of capitalism. There is no 'next big thing' which is the only thing that sells capitalism, and our fatal attraction to change leaves us vulnerable to the next media frenzy.
What I think I see here at home is a version of our global tactic to create a revised entity that then owes us payback. That, coupled with the deep-sixing of an entire generation, also at work in the world via 'war', is the new progression of a global economic society.
We're expendable. We have no value whatsoever.
1
@ma77hew This is so true look at Trump's cabinet. It's a who's who of the billionaire's club and the American people are scrounging and falling further behind. As a contractor, I feel like I'm minutes from losing everything job, health insurance, etc. I'm in a job I'm not loving just for the health benefits while I've got them. My anxiety awakens me daily at 5:45 a.m., the upside is no alarm clock needed and I'm never late.
9
My two college educated millennial sons are married, nominal school loans, excellent jobs. Their wives are also gainfully employed so the household incomes are in low six figures. They managed to buy affordable homes in well established neighborhoods in Charleston and in a suburb of Greensboro NC.
One has an FHA loan and the other's wife is in military so they got a no down payment loan. The homes have appreciated in value and they have plans to remain in them for the long term.
They have a friend who is in the mortgage business who was able to streamline the process and help them qualify. I'll add that we are an African American family. I live in a neighborhood just minutes from downtown Charlotte full of millennials who are able to afford $400,000+ new homes/condos and there seems to be no end to the building. We know the coasts and the rustbelt states are struggling with high prices/or stagnation, but it would seem that here in the South things are percolating just fine. It's thought there is overbuilding, but hey, Microsoft just announced it is adding 450 people to it's workforce here with average salaries of $90K!!! Corporations are getting the message and are coming to the South! It's affordable, good quality of life, and the economy is booming.
8
@Debra The South has a more laissez faire attitude towards building so prices there can remain relatively affordable in areas where wages are decent. The issue in the South is in places like Miami and Orlando where wages are very low, so working people can't afford houses that would be considered steals in other cities across the country.
11
Housing prices are driven by the total monthly payment that people can afford, it is a combination of interest, taxes and principle. If you lower interest rates, the principle goes up. Great if you already own your home, not so great if you don't, especially where the supply of housing is constrained.
Lowering interest rates in the end hurts the middle and lower classes more than it helps. It doesn't by itself make home ownership more affordable. It also hurts savings, with savings accounts essentially paying zero you have to put money in more high risk investments to get any return.
13
@Hugh G Middle class can refinance at lower rates.
How much of the housing price increase in that graph is a correction for the plummeting prices during the financial crisis?
The percentage increase from 2012 on when the housing market began to recover in certain areas would over-report the actual price increase as a result.
I think the data are incomplete without extension of the graph into the past and without absolute dollar amounts noted.
7
People need to regain faith -- mistaken, in my view -- to the inviolability of their house as a main and everlasting investment. The old advice still holds: 1/3 of the assets in cash, gold, bonds, 1/3 in marketable securities, and 1/3 in real property. Alas, unfortunately not all can afford such diversification.
1
Not mentioned in this article is the affect the 2017 tax law had on purchasing a home. The increase in the standard deduction, as well as a cap on write-offs for mortgage interest and state taxes has created a dis-incentive to home purchase.
28
They always talk about how people are unable to afford something right before they suggest propping up the market with handing off debt to people who are under employed or lack the means to pay back debt. That is because it is backed by the government in bailouts.
We are at the point where the wealthy who bought everything during the upswing will try to hand it off to the poor who cannot afford it so they can keep the profits and socialize the losses to all of us.
14
No mention of the hundreds of thousands of homes removed from the market and sold to Munchin and his friends which is why the home prices as sky rocketing. They made billions off the banking orchestrated housing crash and continue to revamp the laws to steal even more.
51
In my neighborhood in San Diego, homes in reasonably good condition go for $650 per square foot, or a bit over $1 million for 1,600 square feet. A total fixer that size in such disrepair that the agent included no interior photos was listed at $999,000 and sold for $1,125,000 recently.
Are low interest rates supporting such lunacy? Lack of supply? As the article states, even for buyers with good credit ratings, housing prices have risen so much since 2011 they they have outstripped many buyers' income and assets. When we do finally find a home we can afford that is not a wreck, we find that they go to all cash buyers.
31
Basic housing is too expensive to build and to buy. Period. The only way to fix it without going full-on communist is to develop and permit lower-cost alternatives, and to zone and build enough that supply and demand lowers the prices.
This will hurt landlords and investors. That someone's ox will get gored is a given; right now it is anyone who doesn't own yet and/or who isn't invested in rental properties.
The fantasy that we can have a so-called housing recovery and not increase homelessness is just that... a fantasy. They are opposite sides of the same coin (caveat: the misbehaving homeless also need institutional support, but without inexpensive housing, they aren't going to get it.)
2008 was the first round in an economic balancing act. We survived it by pouring nearly a trillion dollars into a market that the laws of supply and demand tried to crash. We can wait around for the next round to smack us upside our head, or we can prepare for it and try to soften the blows. First we have to acknowledge the parameters of the problem, and we seem unwilling to do so.
7
@mlbex You have it right. A sea change in distribution of incomes from the middle class toward the wealthy and to foreign exporters ended the American Dream.
It has been a decades-long devolution. At the beginning of our careers in the 1970s, my wife and I bought our "starter home", a nice three-bedroom brick ranch, for a price that was less than the annual income of either one of us. To do that with a million dollar starter home today, a young couple would each need an annual income of a million dollars or more.
Lower interest rates and more available credit cannot span the gap between housing costs and stagnant incomes. It is a classic market failure. If wages cannot go up then housing prices have to come down.
8
Why do the lobbyists for the real estate and banking industry get to benefit from the government welfare dole that supports this deduction?
Making policy by federal income tax code is a deceptive and duplicitous benefit for real estate agents, tax accountants and lawyers. mortgage lenders, construction companies and homeowners.
But what are the costs and benefits?
Black Africans in America still lose in comparison to white Europeans in America.
Due to a weak seldom enforced no deterrent fair hosuing law. HUD is ' led' by the ignorant. incompetent, inexperienced, intemperate and insecure rich black brain surgeon Ben Carson.
9
“White Europeans”?
Please, give it a rest.
4
Housing prices are going through the roof. My small home is now assessed at close to $300,000. I bought it for $70,000. Insurance and taxes now exceed my entire mortgage payment when I bought it. Gentrification is rampant. Anytime an estate home goes on the market, contactors sweep in, gut them and sell them for very high prices. In some neighborhoods, even ones that are lower income, homes are torn down and high end structures are built which drives up property taxes for those that remain to the point that they have to move.
Move where? There are no low cost homes to be found. A person would have to move 20 to 30 miles out of the city to get an affordable home and then spend hours a say commuting which creates tremendous transportation costs and wastes energy.
Housing costs, like healthcare, has become unaffordable. Why? So a very few can make a very lot.
354
@Bruce Rozenblit
We bought our home in order to be able to walk to work, which we did for 30 years. It was assessed at and cost $205K and now is assessed at $2800K [no typo]. Yes, taxes have gone up 1400%. Brookline, MA
24
Move where, you ask?
You’re just not looking hard enough.
2
@Bruce Rozenblit
And when seniors move out of the cities in California, they get left behind when wildfires burn down the house.
6
Had dinner with a friend last night. She told me she saved more than $15,000 from the Trump tax breaks - her household earns around $375k. I said that’s great for you but your children are paying for your tax break and cannot afford a home because the can not deduct the state and local income taxes that made home ownership possible for our young marrieds. Her kids earn under $150 with their spouses, have student debt and without the deductions they will be renters forever. She got real quiet after that. There is no joy in knowing your good fortune comes at your kids expense and none of it helped the economy. She saves her tax break as did I.
376
@Deirdre Household income of $375k and her kids are saddled with student loan debt? It sounds like your friend has enjoyed her lifestyle on the backs of her children for quite some time.
274
@Deirdre Your friend has 375K in income and her children are saddled with student loans? Just evil!
113
Her kids don’t have loans but their spouses do.
27
There's also the issue of down payments. Most millennials are within the age range of individuals expected to purchase their first homes and most are saddled with student loan debt, low paying jobs (factoring inflation) and a nonexistent savings (present company previously included). If you want to boost the housing market, there needs to be access to mortgages with 100% financing. Low-interest loans on barely affordable houses isn't going to cut it (5% down on a $200K home is $10,000 before closing costs; 3% rate means $600 payment w/out taxes/insurance--this is a doable monthly payment at $45K per year, but without other debt; however the upfront costs on that salary are laughable). Individuals need to have good to excellent credit and income verification. Before people comment that these sorts of offers will still exclude many, I must point out that current practice seems to exclude all except those who have parents who either paid for their college or paid their down payment.
I had scholarships for undergrad, borrowed only the necessary amount to cover grad school plus worked and graduated with my first job making $40K. I took on a second job 3-nights per week to cover all my bills and attempt to save money. I was one of the fortunate ones to be able to purchase a home---no familial assistance---that will at least appreciate and help me build wealth because I was able to purchase the cheapest home in a gentrifying area. I sometimes hear gunshots.
5
It's almost comical that homes where countless millions of parents happily raised their families back in the day have now been relegated to "starter" or "entry-level" status. And a starter home for $300k? Ludicrous! The real-estate market will bust soon enough as current prices are unsustainable (I think).
121
A 300,000 starter home is all but impossible to find in many coastal cities. Your average home in the City of Los Angeles is closing in on 600,000. This in a city where the average family wage is perhaps 60,000.
41
@DonS
They are in the phase of trying to justify handing the costs off to people who cannot afford the homes. This is when they socialize the losses and keep the profits.
It will sound like this. ‘Everyone should have a home we developed this program in partnerships to assist you into that home you deserve! Now is the time to buy!’
Hand off the garbage loans to government and keep the profits of pumping up the market to unaffordable levels.
6
@DonS In my neighborhood, all those houses where millions of parents raised their families have been demolished in favor of "starter condos." There are few to no single family homes at all at this point. And those "starter condos"? They are, at a minimum, $600k.
9
Rates in Europe are much lower. A 20-year fixed percentage mortgage with 20% upfront can be had at 1.5% in Belgium.
At least normal people get some benefit too from the money printing era there.
2
Yeah, but who would want to live in Europe?
1
I would!
2
Also, with the recent change in federal tax law, home mortgage interest and property taxes won’t be deductible on federal tax returns for many taxpayers, narrowing the effective cost gap between buying and renting.
227
The standard deduction amounts for 2019 will increase to $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly and surviving spouses.
That should more than compensate for the disappearance of the mortgage interest deduction.
14
@David H
Sorry to say that's not the case. A married couple with one child saw their standard deduction go up by $12k but lost $12k in exemptions - it's a wash before you even get to itemizing.
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@David M
Considering the average property tax in the US is under $5K, most Americans are ahead with these tax law changes (ex., higher standard deduction and lower tax rates).
Families also benefit from the doubled Child Tax Credit.
4
This is good coverage about mortgages. But could we have an article about how much of the nation still is in a “housing bubble”?
8
"Let them eat tax cuts !"
Sponsored by the Grand One Percent party.
GOP 2019
20
Everyone knows that a serious wealth transfer from the top that's made out like bandits since I was born in 1970 is what is needed, and that it must be done in a Green fashion, or this whole sucker's going down.
Gee, low unemployment, and people still have no money, tons of debt, little hope -- to the point of nearly half the country embracing or at least tolerating supporting fascism. But we can't figure out the solution, we're told.
The solutions to all our problems, even including global warming, exist. It's the power elite that simply refuse to let it happen.
We can cut interest rates to -49.56%, but if people have no set work schedules, no power over their work, over policy formation--no democracy, effectively -- they will sink further and further into hopelessness.
"I know, but me and my family will be in our private compound in New Zealand, so it's all OK! We'll be as happy as the guy from Ex Machina, because living in a swanky prison as society collapses, which is itself a fantasy (won't happen; unsustainable), is, like, a wonderful prospect for my grandkids. Honey, what's our Exxon-Mobil stock up to? Is Ashley coding yet? I know she's not toilet trained yet, but we have to protect her future!"
12
I’m a physician making a good salary in a high COL area. Between student loans, childcare costs, and the fact that I got a late start on my career (med school, residency, fellowship, etc.), the time it would take me to amass a down payment for an apartment of comparable size/convenience to the one I am currently renting is formidable. Sure, I could move to a lower COL area, work more hours, or scrape and pinch for the next decade to make home ownership possible, but life is too short. I’ll keep on renting.
40
Lower interest rate doesn't help when car insurance keep going up for no reason. car price now required 6 years payments plan because a good car cost over 40k. Property tax keep going up. Real wage is not keeping up with real inflation. People can consume less but not with taxes and insurance. Health care insurance keep going up. Home price, forget about. I live in Tampa Bay area and if you don't plan to spend 400k, you not having a nice home while the area income is under 50k. Thankfully I save and invest in my early 20s and now I got two home. When I die my two kids will get one each. There is no way for future generations to buy a home when the price is out of reach for many middle class. Then you put students loan into the equation then you put 401k/IRA plans in for retirement. Where is the money to save for a home down payment? I went to army to pay for my college but I would not want my kids to do it. God help all these young peoples.
24
What? The real cost of cars has dramatically fallen. You can get a great car for 25,000 new or less used. It’s just that people want huge new SUVs.
6
Why not try sharing the wealth it is in the Bible and let Mr Biden force a15.00 and hour minimum wage. Make it a livable wage. There are many Republican states that are still in the ancient days and only have 5.25 cents an hour for minimum wage.
That is slave labor and this needs to end. I bet there will be a housing boom. If that does not work the Dems will need to put in tough regulations that force lower prices for every thing. The Capitalist way is only working for the 1 percent. It is a failure.
14
Precisely. The housing market has been fundamentally broken by an extended period of rampant speculation fueled by low-interest loans and flipping property to “get rich quick”. Those “profits” are basically derived for the future earnings of the new buyer. As the prices skyrocket a larger and larger percentage of people’s earnings are being fed into this inter generational ponzi scheme. At some point the people buying in have to say enough and I think it’s finally happening. Many cities have simply become too expensive to live in. Here on the Charleston peninsula I see many over priced homes (and lots) sitting unsold for months, if not years.
The answer,of course, is obvious: Publicly owned housing available to all. This would instantly transform the economics of living in the Bay Area and the New York region along with many other places. Building decent housing and making it affordable is not rocket science, but it does require an entirely fresh approach to how we finance it.
19
None of this would be an issue if there were affordable and decent rentals within a reasonable commute from work.
15
I'm a Realtor and recently have worked with clients who are struggling to get financing because of their credit scores even though their income qualifies them. They get passed around to the "underwriter du jour" with different conditions based on who sees the file. Then it usually gets declined for something affecting their credit years ago. Lenders need to look at their situation now. Most of my clients want a home they can value and most of them want to stay put. They've been in a cycle where they can barely afford the home and want to get in. Once there it is their prized possession and they do everything to keep it. Until lenders make loans affordable to middle and lower classes it will be only the wealthy that can afford them.
11
@VBGuy852 You write "they can barely afford the home". What makes you think they will be able to make the mortgage payments and ever increasing property taxes? If you can barely afford a home you are better off renting.
4
Home ownership is overrated. Homes should not be thought of as a source of income. It's where you live to be close to your place of employment and possibly your place of recreation. The government should not be enticing buyers - there should be no mortgage interest deduction for example - why should home owners get that giveaway. I think in a more fluidly functioning society people can pack up and access jobs as they arise - and owning a home is a deterrent to that.
The effect of home and home prices on schools is the big factor - it's a way to ensure that a school has the demographics that the parents want. A thinly veiled was of saying parents want a school where the number of kids receiving free and reduced lunches is low. And buying a million dollar house makes it more likely that the kids come from families who resemble them and their values.
8
@Donald Driver Exactly. The mortgage interest rate deduction is the greatest give away in the tax code...and the price of homes creates a situation of economic segregation. The schools in the country will never be equal until they are no longer funded by property taxes, i.e. the cost of real estate. It's a great injustice that even we northeast liberals take advantage of and never speak about, out loud anyway. Nimbyism exists on a major level right here in Westchester County, NY and everyone fights affordable housing in the most heavily taxed county in the country because of the "home values" and those school demographics.
4
@Kelle the greatest giveaway in the tax code is the lack of a meaningful estate tax (exacerbated by stepped-up measurement of investment gains, which allows much inherited wealth to be passed on without a dime in taxes ever applied to the money). the second greatest is the $500,000 exclusion from taxation on homeowners' profits.
13
@Kelle
Our town in the suburbs of Chicago pays a local fine for not allowing low-income housing. Which we pay gladly every year in order to prevent "creep" from Chicago. Many people buy homes based on the school district. I'd say if you're a 20-something starting out with a family it's your number one factor in choosing as home. And people see racial make-up and socioeconomic status of families as a major factor in that choice of schools. Much more important than per-pupil expenditure. I believe there are schools in DC and Chicago and other urban centers spending $20,000 plus per pupil. And parents feel better served going to a school in the suburbs where per pupil spending might be half that, but with a student population resembling their own. This is not a novel point I know - white flight has been happening for decades, and property values is one weapon we use.
1
Author says no one wants a return to the liar loans that precipitated the last financial crisis and then proceeds to make all the same arguments we heard about the need to lower underwriting standards in the 90’s, which was a big contributing factor in causing the Great Recession. Yes, it’s tremendously unfair that in this life the people who don’t need money can go into a bank and get essentially unlimited loans at lower rates than those that are really strapped for cash and need a little help. But that’s life. Nothing is fair. The reason banks loan money to people with money is simple: these folks either pay the bank back or the bank seizes their assets (which are vast). Nothing personal. If we try to encourage or require banks to hand out loans to less creditworthy borrowers, they will oblige us, but eventually the less creditworthy folk in large numbers are going to default, and then we can go right back to blaming the greedy bankers for the concomitant economic recession and saying “poor borrowers” (as though these folks weren’t being greedy too when they took money they had no business taking since they couldn’t afford to pay it back). And the cycle continues...Also this whole implied argument that people of a certain income should automatically get approval without reference to their credit history is ridiculous. A person can have plenty of income and still be a terrible risk to loan money to if, for example, said person tends to overspend or shirk duties.
21
There will be another crash coming, this time, it will be bigger than 2008. Unfortunately.
A house which was 500K, 4 years ago, now 800K, how does that make sense? Tulip mania again all over.
22
As someone concerned about climate change, I'm committed to living within busing distance of my work so that my family doesn't need a second car. That's doable, but not easy in my city as a renter. It's practically impossible as a buyer. Add on to that $500 a month student loan payments that make it practically impossible to save for a down payment and the moans of my homeowning peers that there are tons of hidden costs, and the whole concept of home ownership looks really unattractive. Lower interest rates won't change that.
8
@Newmom that is what happens when basic human needs (housing, health) are treated as"investments". I'd argue that using the word investment is wrong: investment means adding value; you work, you risk, or you lend money to someone who is doing that: alas, you *do something*; then your something, if it has value, will move other people and become a well deserved profit for you; that's capitalismat its best, the most efficient way to produce things and services; on the contrary, buying homes, sitting on them for a few years and selling them for a "profit" without doing anything to increase its value has another name, it's called "speculation"; ther is no added value, the price goes up just because demand increases (so, people really *want* that), but only a few have it (so the feudal lords control the gates and ask 40% of your income to use their property); it's all an abstraction, a game of numbers; but it has real consequences; and good people, who bought their homes honestly using their own work, are now outpricing young people like they once were, just because "it's the market " (translation: "everyone else is doing it, so I'll do it too"). Big corporations, instead of really investing (building new homes or renovating existing ones) are buying old houses cheap and selling old houses for a big buck. It's capitalism at its worse, a form of predatory animal behavior, a collective form of madness.
25
@Alex
Wealthier borrowers are also buying up homes as investment properties and (of course) charging as much rent as they can. And in a tight market they can (and do) gouge. The rich get richer, and...
22
Truth is we have only ourselves to blame for this crisis. Because there are some people that are willing to pay virtually any price to own a home (and do), it raises prices for everyone. If buyers just held out then prices would inevitably fall. But alas, there are now venture (vulture) capitalists who are buying up all the houses as investments anyway. This has lowered inventory and raised prices. The bubble will pop again but at least I don’t own a home and will not suffer as I did in 2007.
10
not so long ago, owning a home was not so critical to wealth creation. i mean, did our grandparents get rich by buying a home??
it only plays a role today in high demand cities, where prices keep going up due to demand, or due to very poor housing/zoning laws. very low interst rates made people think they could buy/flip anywhere in the country, which led to disaster. it's called a bubble.
for the vast majority of americans, i don't see why owning a home, with all the costs and risks involved, is a good idea at all.
15
The promise of home ownership via expensive and lengthy mortgages, the concepts of forced savings and building a nest egg are all well and good.
But the fact of the matter in many locations is that housing prices vastly exceed wages and make very little sense for people with shaky financial security. Yet still, somehow, they are sold the great lie of home ownership.
For many, many people, renting is far preferable and avoids many of the expenses of purchasing and owning a home.
13
@T. Rivers We rented for quite a few years before we were able to buy a tiny home (less than 1100sqft). We still live in this tiny home though all around us these "used houses" are torn down to make way for huge McMansions. Btw, even as tiny our house is, we are paying a huge property tax!
2
In most economically vibrant areas of the US, housing prices are in a huge bubble that has been fueled by low interest rates, easy credit for the gainfully employed (usually two-earner households) and investors seeking to profit from housing as an investment for earnings yield from short-term rentals (VRBO, etc.) or quick profits from flipping. When the bubble pops, a lot of people buying at the top will be burned badly. In the meantime, home ownership for starting families is out of the question. Housing has been financialized by the oligarchs (as has vast areas of the US economy). This will end in tears for everyone, but mostly for the most financially vulnerable attempting to achieve a middle class standard of living.
24
@Mister Ed I'm not sure I agree with this. My house is worth exactly what I paid for it 15 years ago in a leafy New England suburb despite all the work we have put into it. The town is doing great, but what is going up are now "luxury rentals" 2500 square foot apartments that look like condos but aren't for sale at all. Only rentals. Meanwhile the housing prices have stagnated for well over a decade.
5
@Harpoon Are they short-term rentals or meant to actually house locals? Just curious, thanks.
Here in Cambridge, and much of the surrounding Boston metro area, homes for sale are advertised as “investor opportunities” and the idea of taking out a mortgage to buy a home is laughable when transactions are cash only and often subject to a bidding war that results in overpaying by 10’s of percents.
Unless you happen to have a million dollars in cash on hand - and no that is not exaggeration - home ownership in this area is out of reach.
Even more disheartening is that I’ve supposedly done all the right things. Served 6 years in the military. Undergraduate and graduate degrees from well known schools. On the path to professional licensure.
It’s easy to say “just move somewhere else,” but then job opportunities evaporate the further away from metro areas you go. There is truly no hope unless there are structural changes.
129
@Lance Smith simply false. plenty of good jobs in all kinds of cities all over the country. some cities and states are begging for workers
3
@Ari Weitzner that is a simplistic false statement. I had a job in the airlines that were available in only a few locations. Not all jobs are transferable to any location. Do you think Mudflats, Arkansas has jobs for microbiologists that are wanting for employees?
The jobs that go wanting are usually poorly paid, horrible occupations that nobody wants to do.
100
@Lance Smith -- or people are satisfied with renting until they have saved the down payment and are financially more stable.
1
Many young folk cannot afford cars. How will they ever own a house?
We rent a home to young families, professionals all. We rent it at below-market rates.
For tenants who want to buy, the prices locally are crazy. Perhaps as higher-density rental options appear some of the single-family homes now used as rentals in moderate-price neighborhoods will come on the market.
Perhaps the next downturn--and it's coming--will help those with incomes to buy. Or perhaps it will simply lead to more homes in the hands of landlords. I do plan to buy another distressed property, fix it up myself, and rent it.
That said, large landlords and flippers are dominating the market today here.
31
@Peak Oiler The GOP tax bill handed out enormous breaks to those large landlords, exacerbating the housing crisis.
2
Couple of things to note, a) home ownership isn't the investment is used to be, b) high student loan debt, and c) the need for flexibility to change locations for employment have a large part to play for many Americans. In some areas of the country there are many homes up for sale at high prices despite high foreclosure rates in these areas. And if folks can not get a traditional loan, they certainly can not get financing for foreclosed or auctioned properties. A no win situation for homeowners or potential buyers in these areas of the country.
10
We recently made an offer on a house which was rejected by the seller who neglected to inform the realtor that they were under water on the mortgage and couldn’t entertain any offer below asking price (despite the house needing extensive work to the “not fun stuff” like utilities and we were willing to live w the ugly unmaintained interior).
So that’s a fun new obstacle for everyone /sarcasm
4
@Kay so, you want a perfect house for a low price?
@donjuan they’re asking $525k in town where all the houses are between $400-450k (I have lived in this town my whole life so I know it well). We made a reasonable $500k offer on a house that still needs expensive and extensive work. Please show me where I want a perfect house for a “low price.”
6
We have been looking around for a place to build a home for the past six months or so. This week, we were told that building costs have risen sharply, some 10-15% because of Trump's tariffs. It has taken some time for the costs to filter down to buyers, but the inflation of cost is settling in now.
48
It’s ALWAYS the fault of someone else that we cannot have what we want. How sad.
7
Fact: Trump tariffs have caused a global manufacturing slowdown
Fact: The US has spent more billing bailing out the farmers than they did bailing out GM. GM paid back their loans. Farmers were given taxpayer dollars to make up for income lost due to Trump Tariffs. So it really is Trump and republicans fault.
113
@David H
trump's bull in a China shop policies are having consequences everywhere. trump's 300% Cseries tariffs created the A220, so now Airbus has 2 narrowbody programs and Boeing has none. trump's trade war with China crashed the copper market, contributing to the crisis in Chile. The stable genius businessman is doing for the world what he did for Atlantic City, the trump Shuttle, the USFL etc.
21
What do you mean by “housing rally”? That implies housing prices are too low and need to go up.
Housing is way too expensive. Why, because interest rates are artificially low. That keeps prices high because most people decide to buy based upon monthly payment, not total price. Which, if you ask me, is not wise.
55
@Chris I guess you don't remember the Times series on foreign buyers, especially those of a rather shady character using US real estate as a safe haven for their dirty money. $20M penthouses like Trump sells, sitting empty while their Arab and Russian owners are smiling. And they are doing it in all the major cities and all over the world. And paying cash, by the way.
68
@Miriam I work in the financial services industry and since 9/11 the anti-money laundering continuing education and systems have massively increased yet it is my understanding that nobody asks about the source of funds for cash real estate purchases, and once the property is sold the money is clean as a whistle.
7
All you people complaining about high property taxes and blaming tax laws or political parties need to remember what your taxes are funding. In Westchester County our taxes are high because we pay all public employees a lot of money. Somehow the school districts sold everyone on the idea that teachers should be paid more for each degree they get. Would your private employer ever consider doing that? NYS demands a lot of money from each town to pay retirement benefits for NYS pensions. That’s why taxes are high. The answer is not to restore deductibility, the answer must be to reduce spending by government and schools.
13
@christine Yes, businesses would consider doing that. I was a legal secretary and was substantially rewarded for my MA.
36
@christine
Schools? Do you want our children to have inferior educations?
If anything, schools deserve higher funding.
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@christine -
The problem with this is that the number of people who are willing, degree in hand, to become teachers is limited. Even fewer are people like me who decided after a nice 25+ year career earning much more than the average income, to give up that income and take a 70% cut in pay to become a public school teacher, where I worked longer hours than I did in the private sector. As a teacher I put in an average of 55 hours per week for 185 school days (37 weeks), versus the 40 hours I used to work in the private sector at 48 or less weeks per year (vacations and paid holidays don’t count). So even with summers off, I worked more hours a year as a teacher than in the private sector.
So, if you are willing to have the next generation of Americans be ones that don’t know what the three branches of government are, who don’t understand how loans work, who don’t even read at the 8th Grade level, go ahead and cut teacher pay. The average teacher earns less than most other college graduates. That is one reason that many areas are looking into helping finance homes for teachers. Note, if you cut the pay of teachers, many new teachers will no longer be able to pay their student loans, adding to the student loan crisis and therefore the shortage of applicants to become teachers.
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We are doing it again. People are buying homes they can’t afford. Good old conservative economics, deregulation and housing bubbles. What could possibly go wrong.
68
Precisely. People never learn.
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@Harry B
"People are buying homes they can’t afford."
How is that "Good old conservative economics"?
7
@Harry B I think some are tryingto by homes they can't afford because it is better than rent they can't afford that keeps going up ridiculously fast, too.
12
Monied force’s look to own all items of value in the world. What we are seeing is the powerful trying to replicate the Middle Ages.
Lords and serfdom is what they want.
45
Does the housing market need a lift? We just bought in a house in a small New England town. Took almost a year. Prices are through the roof compared to local wages. Extreme housing shortages abound. Lots of multiple offer situations on anything that's not a fixer.
Lower interest rates are good, but the real problem is that there simply aren't enough homes -- and those that own are loathe to sell because there's nothing on the market to buy.
31
There's a reason for not getting a mortgage: Risk.
And, if you cannot afford a home, you shouldn't be trying to buy a home.
These are basic tenets of finance, personal and public.
29
“There are a lot of people that have the income to afford their payments, they could be responsible homeowners, but they may have a lower FICO score, they may have a smaller down payment, and that really holds them back,”
It isn’t just the US housing market....
6
Have never seen so many working overtime to spin this economy negatively. The housing market is strong. Consumer spending is strong. Fed rates don't lie.
7
@AACNY Is that what you said in 2007? Everything is rosy, people buying homes with 5% down, 60 month auto loans, 1 trillion dollar deficits and free money for the big boys. I think I lived through this deregulated utopia just recently. Most have conveniently forgotten the lessons of the Great Recession. No worries, the expert on bankruptcy and Kudlow are in charge.
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@AACNY - Great economy with interest rates below 2% and the feds pumping $690 Billion a Week into wall street; this is after a huge tax cut.
https://wallstreetonparade.com/2019/10/fed-ups-its-wall-street-bailout-to-690-billion-a-week-as-media-snoozes/
Why did the fed lower interest rates to less that 2% if things are great?
If you look behind the curtain, our economy has got problems
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@Harry B
This economy is nothing like 2007. Listen to the Fed.
2
Is America Great Again Yet?
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@✅Dr. TLS ✅
Well, greater than it was five years ago.
5
Houses were a lot cheaper a few years ago. So did the market just bottom? Or did Goldman and Warren Buffet and a bunch go Hedgefunds buy millions of home on the cheap , rent them for a few years and are spitting them out at 200% profits.
Wall Street and its search for profit. It is why your insurance always goes up. It is why drug prices always go up. It is why despite low rates toys credit cards are still 18% or 25%.
To paraphrase Leonia Helmsley, Only the big people set the rules for the game.
102
I just went through mortgage hell with my local bank and finally decided to go it alone. The poor quality lending practices coupled with the bank's being nothing more than a shill and puppet to the primary out-of-area mortgage provider that pulls all the strings was maddening. And my credit is excellent!
48
Rates are so low that general purpose, especially local, banks don't care much about initiating mortgages. Their profit margin is low for the amount of work that is needed and as you said they are typically just sold off. I know most of my local credit unions sell their 30-year fixed loans and only keep the 5-year ARMs in their portfolio. Mortgage specific brokers are much more likely to get your loan completed quickly and with a better rate.
4
One would hope the great tax cut of 17 would have pushed wages up so much (as advertised) that everyone could buy a home. Alas, wages trail price increases by a cumulative 40%. The FED continues to attempt to thread the needle. At some point all good intentions will blow up in their face.(history tells me so, not Facebook) Then these unlucky potential buyers will either get stuck with a newly purchased overpriced home or be on the street looking for a job to save it or having been foreclosed on, find someplace new to rent.
26
It will take a repeal of the exclusion from tax deductions of mortgage interest and state/local taxes. In ny it will take a repeal of the so called mansion tax which levies 10k additional cost to start on overpriced but ordinary properties. It will take removing govt impediments.
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@Aubrey It will take not allowing foreign buyers with all cash purchases. In fact, it will take limiting buyers who aren't US residents, living in their home at least 6 months a year.
3
@Miriam Yes!!
We bought our first home in 1980 when the interest on home loans was tax-deductible. That's the only way we could afford to buy a home for our young family back then. Under the new tax laws passed in 2017, it is estimated that 25% of the U.S. population will no longer be able to itemize deductions, and therefore won't be able to use the mortgage interest deduction. The 30% of taxpayers who have traditionally itemized deductions has now dropped to about 5%. Goodbye, middle class.
168
The standard deduction was doubled to
$24,000 for married couples and an additional $1,500 for seniors simplifying the tax code for a large percentage of taxpayers. Furthermore the child tax credit was increased $1000.00 Why is the media always negative about this economy
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@Fred C Dobbs
Sorry Fred. You forgot that the personal exemption was repealed taking away $8k of the increase. Seems that fact is conveniently omitted.
The net increase you tout isn't so real .
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@Fred C Dobbs Because in places that are not rural Trump strongholds like your town, state and local taxes may far exceed the standard deduction. The federal deduction on SALT is now limited to $10,000. This meant that my federal tax bill went up substantially this year. So in addition to being a traitor and a degenerate, Trump is also a thief in my book.
54
Lots of twisting numbers to make a point here, this is really muddled. But the main miss is that more credit availability will just drive up demand and prices, undermining affordability further. Home construction was up modestly last quarter, but for only the second time in the last two and a half years. Higher prices have done nothing to boost supply, and we shouldn't expect it will. The average age of the housing stock is well over 50 years in much of the country, and much of that in flood planes and fire zones. We are just going to have to open our eyes and acknowledge that a 4-bedroom house with a two car garage on a quarter acre is an unsustainable lifestyle. The only solution is dense occupancy near public transportation. Good luck running for President on that platform.
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@Rich888
Funny, because here the 4 bedroom house on a quarter acres is much cheaper, and needs a lot less repair, than the 2 bedroom, 1 bath near transit. If you want to spend 2-3 hours a day commuting housing isn't so bad, but to live near where you work, it's your primary investment.
3
Make up your mind people. You didn’t like when banks loaned to everyone because that meant loans to people who couldn’t actually afford them. Not you don’t like tight standards. Short of banks just giving money away, what will please you?
24
@Tim: A progressive federal income tax which will convert the bubble assets held by the financial institutions to cash for consumers to pay down their debt will do just fine. Today it is simple thievery, capitalists weaseled earnings from working class wages with over priced debt for over priced assets and future generations with tax cuts for dividends and gains on capital, which has accumulated as hoards of worthless cash looking to speculate on property rights.
There is nothing wrong with capitalism except the unrestrained capitalists who misused it and brought the United States a constitutional crisis.
Was it once that the crown owned the country; is it now the corporation? Yup we'll all owe our soul' to the company store, the company's town.
6
@Tim Higher wages that reflect the higher cost of living would please us.
1
A lot of middle class folks are looking at eternally mailing out property tax checks for 12k or 15k or 18k (or much more) for an ordinary suburban home, year after year, always a little higher than the year before. An expense that is no longer deductible from federal taxes. Simply another cost on top of the rest.
They are reconsidering the value proposition of home ownership. Current owners are considering getting out from under that, and realistic prospective buyers on the fence are dissuaded from making the leap. Empty nesters who would otherwise stay put are now looking for the exits.
It only takes a subtle shift in the ratio of sellers to buyers to change market dynamics. Mortgage rates are not the only long term cost of ownership. The "dream" of home ownership has been smashed. Retirees on fixes incomes no longer feel that their high tax house is a safe haven.
Thank you so much "ownership society" GOP for your anti-ownership tax bill. Now only real estate investors and landlords are incentivized to own, with even bigger tax breaks, while ordinary homeowners get shafted.
(Odd that this major factor was completely absent from the article. Does anyone involved in creating it actually own a house?)
205
The Times reports on just one thing: income inequality. You cannot expect it to sympathize with retirees who are being taxed out of their homes.
Unless they are demographically relevant.
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@Ben K
Ownership can also be a burden when fixed costs such as taxes rise sharply. Selling and moving can be costly and create upheaval in people's lives, so often you are kind of stuck and just have to pay more. Politicians know this.
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@Ben K
It is entirely possible that the writer does not own a home (he may, I do not know) and editors are not going to insert themselves into an article like that regardless of their status, not for a news article.
It is also entirely possible that the writer simply did not want to disclose his current financial status regarding homeowner status, or that the editors did not want the writer to include his own personal status--either directing him to talk with a struggling homeowner or to not add himself into a news article for objectivity reasons.
It's a good point, don't get me wrong. We just don't have any way of knowing without them telling us the decisions from behind the scenes.
Encouraging builders to ramp up construction is all well and good; but you have to have elasticity of workforce in order to meet increasing demand for construction. The intersection of current unemployment rates and federal immigration policy has produced a significant damper on workforce availability. Unless this changes it will continue to contribute to higher housing prices.
14
Trying to pump up home prices with easy money is a terrible, one-sided policy. Young people are struggling to afford housing because we treat homes as investments. If your home is an investment, then you expect your children to pay more for housing than you did.
We need to include housing prices in the inflation index. Pumped up housing is just inflation.
103
@Newmom You hit the nail on the head.......housing goes up 100% and there is low inflation?
17
Lower interest rates don't necessarily make housing more affordable. Prices float upward to reflect the increased ability to pay. This is the same principle behind the fact that increased access to student loans resulted in college education becoming more and more expensive year after year.
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@Matt0147
Lower interest rates could mean lower rates. This is how it usually works.
5
I thought private markets were supposed to allocate capital and wealth in the most efficient ways for the social good.
This article manages to explain why the situation is unfair and doesn’t work without offering even a hint about what to do - very typical liberal-realist thinking.
This is why Warren-Sanders have such a big stake among voters in the primary. No fresh personality or trusted gumption is going to do anything to help make housing affordable.
And this hints too at why De Blasio’s policies for New York haven’t worked. People want more than “realistic” solutions - ones that don’t work in the first place!
5
Prices will fall in accordance with supply and demand. Meantime, lose the entitlement, save for a 20 percent down payment and be patient like your elders.
7
@David H With Boomers enjoying essentially free public universities, no investment in things like computers as a requirement to secure and hold jobs, and pensions and great health care available once jobs were secured, it’s hard to see how any of what older generations did financially applies to entry level homeowners today. Unless you mean prior to the New Deal, when life was basically nasty, brutish, and short.
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@David H
So much whining. Must be the "Warren and Sanders effect." They don't realize they are being fed all this negative information because these candidates want them to feel cheated. Their anger is political gold.
No one is being cheated. For some reason they believe they are entitled to things instead of understanding that they have to succeed like everyone before them -- in good, bad and sometimes awful conditions. No one had it easy.
15
M
Life is still nasty, brutish, and short. The only differences it today we have political correctness, which papers things over quite nicely.
12
Home prices have outstripped wage gains since 2012, according to the graphic in the article, but the graphic doesn’t tell us whether they also dipped to the same extent during the recession. I am pretty sure that home prices fell way more than wages (which mostly stagnated) and so their reverting to earlier levels would follow a different incline, much steeper for homes, as the graphic depicts. The interpretation of the graphic is therefore misleading.
6