Scholarship table
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.
Bought our first home about 14 months ago after saving for 10+ years. Put 20% down, bought the cheapest house in the best neighborhood we could get into in Bethesda, MD, top school district, NIH and Walter Reed only a stones throw away...will be the last place we ever buy. Locked in 5.65% for the next 28 years, curious if we'll ever refinance (doubt it).Amazingly happy
That'll probably come to pass.My fear is who buys those houses
Why do you doubt that? If interest rates fall to where they were just a couple of years ago, you can knock years off - even refinancing at 30 but paying the same amount you do now will have a significant impact.
It's more of a bet to see if interest rates ever creep down again that low (in the foreseeable future)...if they do, absolutely I'll do it. My knowledge of ReFi is admittedly limited, but a rule of thumb I read is it only starts making financial sense if rates are least a full point less than what you are locked in at (in this case I would need to wait until at least around 4.5%).But probably a lot more expertise on this board, so I am all ears 😃
Build dense market-rate housing in city centers, it drives down the cost of existing housing that just cant compete for consumer dollars with new construction. This is a solved problem. Build baby build.
Is there an incentive to build if it brings down profit margins?
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?
My best advice, is the old real estate slogan. Location, Location , Location. Also to the younger folks just get yourself in the market. Get a condo in a good building or development if the single priced homes are out of reach. You can always upgrade on house 2 and 3.
Agree about location, of course, but younger folks (and older ones) should be careful not to make themselves "house rich and life poor" just to get into a house or condo (or to move up to their "dream house.") Having a house but not being able to afford to do anything fun or enriching, or to not be able to invest for the future, isn't a great way to go through life. As has been discussed earlier in this thread, houses/condos aren't necessarily great investments. Sometimes, they're even mediocre (or worse) investments.Also, though it seems like house prices only go up, there have been many historic stretches in which that has not been the case. Here in Charlotte, it took 5+ years for housing prices to recover after the Great Recession. It had been a hot market, but it cooled off fast and very painfully for many. It's a red-hot market now, and I hope some of those buying at what is a new top every day don't regret it. And there are many markets like Charlotte now.
Main problem with the housing market is three fold.Lack of inventory, commercial investment, and commodification of housing.
Would you rather have a 20% profit margin on 100 million in inventory or a 10% profit margin on 300 million in inventory?
Locked in 5.65% for the next 28 years, curious if we'll ever refinance (doubt it).
Bro, u crazy?
Sitting on a 3.0% mortgage on a house we bought 5 years ago that would sell immediately for nearly twice what we paid, maybe a bit more. We did finish the basement so put close to $60k into that all in (I did a lot of the work) but we’re still going to make out like bandits. We’re not going anywhere until kids are all out on their own (youngest is 6th grader) so hoping we continue to see growth in value over the next several years. We are in number one school district in state with top 5 schools across the board and one of the fastest growing counties in the country.
We're at 4.25, and it will take a powerful "push" force to make us move off of that rate. Could it happen? I guess. But I'm skeptical that something will come along powerfully motivating enough to make it happen.
whoops, not 4.25.2.75.
What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer. You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!
Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.
You don't need a realtor to have access to the MLS.Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet. It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.
Brother MU:The problem with discount brokers comes from real estate agent behavior. In effect, if there isn't a satisfactory commission in it for the Realtor(c), they won't show the house. That, frankly, has been one of the reasons why the National Association of Realtors(c) was sued and ultimately lost!You're a smart dude in a good neighborhood. That makes life a lot easier, I'll concede. But not everybody knows the market as well as you or has the time to assist in the set-up and sale.A good real estate agent knows the market well and knows how to position a home to sell. The problem, in my mind, was commissions were not negotiable, agents were lazy and the set-up/marketing work sucked. I found the quick way to separate real from pretend real estate agents is to ask "who would buy my house?" and "how many clients do you and your agency have that you will show this house in the first week?"
Much depends on the agent and the market you're in. I admit, I have a generally low regard for real estate agents but there are times when they're useful.A Realtor(c) brings access to the MLS, for one thing. It's not the only way to sell a home, but it's a proprietary network and probably the best opportunity to get noticed. Secondly, the adept real estate agent, stages, helps prepare things for sale and has a pool of potential buyers. Two years ago, I sold two houses and bought one within six months. The selling agent in Florida helped stage our home, got everything "perfect" and attended every showing to ensure the features of the house were fully explained. The selling agent in Illinois on my home there was good at staging but once the house was listed, we never saw her again. I'll agree the buy side in Florida had limited utility but I'll also admit, I know real estate finance better than most people. We found the house we live in now; we knew the neighborhoods where we wanted to live; and, we ultimately set the price. The agent was our messenger but their idea on structuring a deal helped us get the house we wanted.It's interesting that in Illinois, the real estate agent presents the buyer and then lets counsel for both sides negotiate a transaction. In Florida, the agents do the negotiation and legal counsel drafts the definitive agreement.Much of the value of real estate agents depends on the customs in a region and their "connections." In both communities, we already had access to financing, attorneys and anyone else we needed. My concern with most agents is why they are recommending certain folks and whether there's kickbacks between the referral and referral source. Maybe it's because I lived in Illinois too long and no one's hands are clean!