Oso planning to go pro
There are a zillion things wrong with the US housing market.Previous low mortgage rates are just a drop in the bucket.
82You should cash out of some of your stocks and buy your daughter a home.
Mortgage rates are keyed to the 10-year Treasury rate. So long as the Federal Reserve uses higher interest rates to lock down inflation, mortgage interest rates will remain at current levels.The irony in all of this is that those of us who came of age in the late 1970s and 1980s would have drooled at the current market interest rates. Many of us took out 30-year, fixed rate mortgage loans on our first homes that had an interest rate of between12 percent and 14 percent. We never dreamed that rates would get into the 2 percent to 4 percent range.The difficulty with wide swings in mortgage interest rates is "consumer reach." When rates dropped to very low levels, homeowners had a couple of choices. The first is refinance downward, get a lower payment or pay off your home more quickly with the same payment on a shorter term loan. The second is to sell your house, buy up and keep your payment relatively flat on a much larger outstanding balance. Much of the country did the latter.The housing market is locked up because young, first-time homebuyers who can afford homes at 4 percent can't afford the same home at 7 percent. They're either going to have to come up with a lot more down, which delays homebuying, or buy a much smaller property. For existing homeowners, many became aggressive assuming cheap mortgage money would always be out there. It's not and so the numbers don't work on a new home. Incidentally, if rates do come down dramatically, expect housing prices to skyrocket. We made a fortune in the 1980s when we bought using a 12.75 percent mortgage and sold seven years later when mortgages were in the 6-8 percent range. I'd expect that as rates fall and demand recovers, prices will see double digit increases. My SIL and daughter are starting to look for a home in the Syracuse, NY market and as long as they can make the payment, the house would be a sterling investment.
In many markets and time periods, owning a house has been an incredible investment. But for many others, it's not really been that great of an investment. A person can say, "I bought this in 2015 for $250K and now it's worth $425K, so I made a boatload!" But if that person put $75K into the house to update the kitchen and baths, all of a sudden the profit isn't so great. Add in maintenance, taxes, insurance, etc, and maybe it's been a pretty bad investment. That's why I look at a house as a place to live; if it happens to end up being a great investment, that's wonderful.
Welcome to my home in Suburban Chicago. We lived there for almost three decades and, because of our tax and residency circumstance, we had to pay capital gains on the home. Fortunately, my wife was a pack rat who kept every receipt on every cap-ex we made. We went back to our suppliers for the ones we didn't have and acquired them. We paid almost no capital gains on our house, when you figure what we did to it over the life of the ownership.The problem we had was our home was in a stable region with modest economic growth. The next suburb over was an emerging Chicago suburb that built and built and built more houses. They'd approve anything! The result was far more supply than demand at a time when professional jobs in the area were shrinking. Hence, modest price growth.You argument is an eloquent reason why we ended up selling Chicago. It was a lovely home in a nice community. We used it a few months a year to escape Florida's summers and I used it to come back during the winter periodically. Similar to the way folks used homes in Northern Wisconsin. The costs of paying taxes, insurance, heating and cooling, repairs and cap-ex were just not worth keeping it.
My OP wasn't about "wrong" or "right." It simply offered a link to a fact-filled article on one of the main reasons the housing market is "gummed up."This actually is one of the things affecting the housing situation for my daughter and SIL right now. They own a house in a Seattle suburb that they bought before they had their 2 kids. It's too small, and not in a walkable area, and they want to move. But they have a 3% mortgage and aren't wild about the idea of selling that to buy a more expensive house that also would come with a 7%+ mortgage. Also, partially because of this mortgage-rate situation, they are finding inventory to be very low where they want to buy; potential sellers in those areas also don't want to give up their low rates.
Unlike you, today's sellers benefit from updated tax laws that make the first $500K in home profit tax-free for couples ($250K for individuals). So no need to save every receipt except for those raking in big profits.
That's true for your primary residence. Chicago was NOT our primary residence when we sold it.Several years ago, we were spending so much time in Florida that we became legal Florida residents. That enabled us to shield all of the income on our original home in Florida, which was an incredibly smart move from a tax standpoint. We had massive appreciation on our first Florida home, which was sold in 2022, largely because of location and Florida's desirability. We used almost all of the $500,000 tax exemption.We're now in our forever home and, like Brother Tower, it's paid off! We paid off a five-year, 4 percent mortgage because we absolutely hate debt! Especially at our age.
Okay. Now compare the prices of homes in the 70s and 80s to the average income at the time.Further, the housing market is "locked up" because we have a terribly short supply. We need significantly more public housing options. We need significantly less corporate/private equity ownership of housing. We need people to see housing as NOT an investment vehicle.
No surprise that public projects like Amtrak and housing fail in the US.Those things work darn well in western Europe.The only public projects that succeed at all are the ones that benefit private capital.NIMBYism also plays a role.But, regardless, I'd be curious to hear folks' ideas about how to address the housing shortage. Or, if you don't consider housing supply a problem, how can we bring down housing costs?
Jesmu84, not to be morbid, but a decade from now the housing market will be saturated as a generation passes and is replaced by a smaller one.