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OP is calling out the base price increase, but if you do the math, the real culprit is what the article is, rightly, focusing most of its time on. Interest rates.
Interest rate increases are the main reason why mortgage payments have skyrocketed recently. The math doesn’t lie. Any loan calculator will show you that the 2019 to 2023 interest rate changes are like a damn sledgehammer.
That is correct, interest rates are high on purpose to slow inflation. Now I know I'll never sell my house because at 2.4% interest I'd be stupid to do that and then have a 7.9% interest rate on a new home.
Which obviously has knock on effects as people like me will never be able to buy a first home because others aren't selling theirs (understandably) due to the high interest rates...
I was never really ok with the idea that retirement was only for the well off, but now we're getting to "literally anything one considers part of a normal life is only for the wealthy now." Considering home ownership is pretty much a necessity for retirement as you can work on a budget, now both seem like mythical creatures one only encounters in fairy tales. :/
Hey, FWIW, there are even blockers to maintaining homeownership now. Property taxes in some locations keep skyrocketing, making the attempt of just sitting still in one's home become less and less attainable. I've seen those in retirement/fixed income having to sell their house and leave where they live due to the static cost of living climbing too high to be able to continue to afford. Every kind of home maintenance cost has exploded since 2020, further stretching the ability for one to sit still and live.
Just straight existing seems to be increasingly challenging. It's annoying and unacceptable.
So supply is low and home prices are increasing. Not good for home buyers.
Interest rates are also high.
I had a mortgage in 2005 with 7.5% interest. The cost of homes is 2-4x as much now but I’m only making 20% more.
I had a mortgage in 1998 with 7.5%.
I do make quite a bit more now but I am not sure I would be able to buy my current house at today's prices (I refinanced when interest rates were low).
On one hand, I don't like when I read about 'astronomical interest rates' when I know the rates in the 70s, 80s and 90s were the same or higher than what we've had in the last 15 years. I'd prefer people understand that it's the wages not rising along with price inflation that's the issue.
This is exactly the issue I had. Infuriating as it is, I finally clawed my way up to a position where I could earn enough to buy a house and then COVID hit and destroyed everything... Now I'm back to having to live in someone else's garage, paying their entire mortgage payments in rent prices for the rest of my life...
"Fun."
I bought a place in 2019 that I could in no way afford at the current rates. The mortgage would be roughly $1000 more per month. Just not possible.
The big driver is the interest rate, not the base price increases.
Home price increases, going up about 3%, have pretty much tracked with the inflation rate. 3% on the base will add a bit to your mortgage payment, but no where close to what doubling the mortgage interest rate will do.
Just jump into a loan calculator and see what happens when you bump up the base price 3% vs. shifting the interest rate from 2019 to 2023 values.
I WONDER WHY THAT IS.
Well the market is trying to correct itself it seems. The prices should plateau at some point you would think, unless it’s still just all these cash buyers/corps salivating for property.
House prices never come down unless the local economy crashes.
i guess corporations with lots of cash on hand just look for ways to put money to work.. they'll continue to put it into real estate as long as it looks like a better long term investment than something else..
I checked the value of my home on Zillow. It's crazy high. Like, ridiculously high. And now interest rates have gone up.
There are still empty homes that aren't owned by venture capital firms?
Thanks for the post!
Interesting to see how the housing market is doing.
Is it artificial low supply, so high demand? Since many laws were implemented to hault building new working class homes in most dense populated areas, or I am just wrong and don't know too much?
No, that's pretty accurate. There is new construction, but not nearly enough, and more importantly not dense enough to satisfy demand.
People still want to live in cities, but often denser buildings are blocked. And people that want to live in suburban areas can't afford the homes being built.
People who want to live in rural areas are fine, because the demand for those homes is so low. Not many people want to live in bumfuck Ohio.
This is about existing home sales. From what I can tell (on very limited information) new home sales are still at normal levels. People who don't have a house are buying a new one, as are people looking to upgrade.
Thank you for taking the time to explain!
Seems cash is becoming king again?
All-cash sales accounted for 29% of transactions compared with 26% a year ago. Distressed sales, including foreclosures, represented only 2% of transactions, virtually unchanged from the previous year.
I work with a lot of tech directly related to the mortgage industry, and it's kind of crazy to look at the data. Mortgage originations plummeted as interest rates rose (less people buying houses) but new construction - especially on lots that had been cleared but had been sitting undeveloped for several years - exploded in a rush, and it's not clear why.
I've been through previous mortgage corrections and this one is pretty tame by comparison to some others - the hard part about buying a house is that prices will rise for years upon years and waiting for a correction seems risky when you see prices rising out of your affordability. But in the past, it has always been true that the market will level out over time.
I'm guessing a lot of that are townhomes built on old cleared lots. The supply of affordable SFH in a lot of cities is pretty slim but these townhouses are going up all over the place and you can fit 4-6 of them on the same lot some old run down 1950s house used to occupy.
Thank you for the input!
That’s not how supply and demand work. Low supply doesn’t drive demand higher; demand is usually independent of the supply. However low supply for any given demand will cause prices to increase.
And what makes you think the supply “artificially” low? There’s not a big conglomerate somewhere holding on to a large enough tranche of housing to cause a dip in supply, most likely.
It’s low supply because homeowners with record-low interest rates are less interested in selling and moving, since the monthly payment they pay right now be for less house. It’s a side-effect (or maybe the main effect? I’m not an economist) of the fed increases.
I think they're referring more to artificial restrictions like single-family zoning, setback requirements, parking minimums, etc.
To take Manhattan as an example, 40% of the buildings could not be legally built today because they would violate zoning laws. A huge amount of San Francisco is under single-family zoning, and so low density - and given fixed land, low supply - is artificially enforced, which probably has something to do with it being one of the most expensive housing markets in the country.
edit: removed off topic, added blackrock conspiracy video
Thanks for the input!
I have heard of companies buying up 'would be first time buyer' homes and renting them out.
Similar to this moderate random video on subject:
Why Wall Street Is Buying So Many U.S. Homes [12:33 | CNBC] https://www.youtube.com/watch?v=iLsZlrZIFwU
The Blackrock Conspiracy Debunked [20:54 | The Hated One] https://www.youtube.com/watch?v=STYgeA9VScc