I anticipate that mortgages will continue to push past 30 years into a strange 45-year+ territory, and we'll begin to see Japan-like multi-generational mortgages. Actually, in reality this is already happening, because people buying homes past the age of 37 (think retirement at 67, but these people are still working and trying to figure out estate handling late in the game) are passing on their mortgage to their children. I am personally seeing this with my friends. No headroom for paid off inheritances!
Alternatively, if the federal government does not prevent it from happening, residential REITs will buy them all up and force people to rent.
Residential REITs need to profit when they buy a house. An individiual homeowner doesn't, they can pay more if they want to. And individual homeowners get subsidized loans, and in many states subsidized property taxes, they can have a much lower monthly payment, and afford to offer a higher sale price. So for move in ready homes, the seller will almost always go with an owner occupant.
The real problem is with investors buying homes that aren't move in ready. Rehab loans are expensive and risky, individual buyers can't compete with investors, and the sellers are the ones with the short end of the stick.
From an article in September: "Blackstone Group, which blazed a trail for Wall Street in 2012 when it formed Invitation Homes and became the largest owner of single-family rental homes in America, has returned to a familiar watering hole." [1]
It's another way to milk the middle class.
[1] https://www.housingwire.com/articles/blackstone-gets-back-in...
The issue is part land scarcity driving up the cost of land and part the transition of our economy out of production and into consumerism.
Building has never been cheaper, and even quality has improved, including working through some pretty bad materials changes (like PEX plumbing, or chinese drywall).
We no longer really do nearly as much blue collar work as we used to, and many of the unskilled blue collar jobs have seen ridiculous wage stagnation. Companies have offloaded that to China, Mexico, Vietnam, etc, where they havent automated it.
Heck our population doesnt WANT those jobs. Theres a TON of demand for trades work and more are retiring than filling those gaps, but our society has pushed hard to posit that college is the only path to success and trades work is to be looked down upon.
Add to that our population has never been higher. In fact its growth has stagnated the worst since the Great Depression based on the intials of the 2020 Census, which is not a good omen.[1]
https://www.pbs.org/newshour/nation/census-texas-gains-congr...
Do you mean it was a significant change?
The federal government wouldn't really be able to prevent REITs from buying up homes.
Why wouldn't it? If this was bad enough the government could just pass limitations on it. Hell, the government could probably ban REITs overnight if that was wildly popular.
That's a bunch of horse hooey, as the customers in all housing markets (outside of a few global cities) are all local. Median income + credit conditions = how much buyers can afford.
> The federal government wouldn't really be able to prevent REITs from buying up homes.
Of course not, but no matter what kind of black magic Blackstone is weaving, they cannot get a more than a trivial number of people to rent a 3BR apt for $10K / month (approx price for nice 3BR in Manhattan). Once again, the population's median income is the driver.
If you do, you put average people at REITs out of work. This isn't a terrible thing if you ask me, because not much of it is real estate specific. REIT HR people can find work at other companies, developers and salespeople, too. But it's not a good look, I suppose?
Real estate is a real problem that no one seems to want to touch. "The rent is too d*mn high!"
Correct. The national median income is insufficient to purchase a home in the most expensive cities in the country. That seems reasonable?
The national median household income is about $65,000. That’s enough to afford a mortgage of somewhere in the $300,000 to $350,000 range.
Is that enough for San Francisco? Absolutely not. But that will buy you a nice house in the vast majority of the country.
California has garbage housing policies. San Francisco is even worse. You can buy a lovely place in Dallas, Kansas City, Atlanta, etc on national median income.
I do agree with you regarding location, though.
It's not clear if the GP was referring to national median income. My interpretation was that they may have been referring to local median income. Is the median family income of SF ($136k, I think) enough to buy a home there?
For the next several months we'll be in a period of base effects. That means that year over year comparisons are going to look alarming.
Think back to what was happening one year ago. The economy almost completely shut down. Return to "normal" is going to give a lot of weird readings.
Articles like this should point this out, but don't. They should note, for example, the % drop in single-family housing starts YoY for 2020 for comparison.
The article hints at the phenomenon, but fails to actually quantify it. This leads to a more sensationalistic article that might attract eyeballs, but does a poor job of informing.
1) Lumber mills shutting down because of weak demand and tariffs.
https://www.woodworkingnetwork.com/news/woodworking-industry...
2) Curtailment of remaining production because of coronavirus
https://www.woodworkingnetwork.com/news/canadian-news/corona...
3) The housing market going a little nutty
https://www.vox.com/22264268/covid-19-housing-insecurity-hou...
4) I imagine record low interest rates also contributed
- WFH people fleeing high COL cities, buying fixer-uppers, and paying whatever to renovate
- Rolling covid shut-downs of companies that make wood products like OSB glue or treated wood chemicals
- Freight costs
- Trailing effects from a bad fire season and the Texas ice storm repairs
- Tariff repercussions
- Russia is planning to stop exporting raw logs next year. They are about 12% of the worlds supply.
- Speculators profiting off the volatility
Why would they do this? Is this a way of getting back at the US for sanctions? Seems like they're shooting themselves in the foot.
How can this be the case when lumber prices are surging in Canada as well? You'd expect that if the price was in response to tariffs then the origin country would be flooded with supply?
checks the futures market
And indeed it is. May trades 40% above Nov on CME.
So if you want to buy a rural house, you can just....wait until a couple of years after the pandemic?
I don't know why you would rush to build a house right now, unless you want to live in technocrat-favored places like Austin and Denver that are seeing demand creation due to permanent WFH among Big Tech companies.
There are places where home prices are just getting back to where they were in 2006, though. You can certainly end up underwater on a mortgage and stuck. Property taxes, insurance, and maintenance are high fixed costs with a home.
That's a funny way to spell government appointed central bankers who fix the price of money.
Darwinian forces always win.
"When baby boomers hit a median age of 35 in 1990, they owned nearly one-third of American real estate by value. In 2019, the millennial generation, with a median age of 31, owned just 4 percent... that gap will probably narrow by the time they see 35. But they’re not likely to reach 30 percent of the housing market — or even the 20 percent attained by the smaller Generation X at the same point in their lives."
> Millennials are less likely to be homeowners than baby boomers and Gen Xers. The homeownership rate among millennials ages 25 to 34 is 8 percentage points lower than baby boomers and 8.4 percentage points lower than Gen Xers in the same age group.
https://www.urban.org/sites/default/files/publication/98729/...
In my area in particular, I live outside of a city hit hard by COVID, and that had lots of workers who could transition to WFH. The combination means that city dwellers have flocked to the local suburbs in massive quantities, often buying up the cheapest houses & either immediately expanding them or simply knocking them down completely to rebuild from scratch. As a result, not only is it difficult to find local contractors available for even minor home improvements, local property values have spiked as much as 30% over the last 14 months. This has been greatly assisted by mortgage interest rates that as incredibly low-- I just refinanced and saved about 20%/month on my mortgage and an overall $50,000 saving over the life of the loan.
And steel makes a much better frame. Fire resistant, termite free, mold free, holds up better in earthquakes and floods, stronger, doesn't rot, doesn't warp. The problem with the construction industry takes way too long to adapt new patterns, even long after shifting technology and economics makes it compelling.
Even last year, when I was buying lumber from Home Depot, they cancelled parts of my order, raised the price on certain items by almost 20% and never added them back.
I had to fight them for a week and it took over a month just to get a fairly modest amount of lumber delivered.
At least in this area, the price has a lot more to do with NIMBYism than the cost of materials.
This is just people being taking advantage of their housing...investment/tax shelter/savings plan that is bidding the price up.
Look at something like this zero red flags that I can see for $219k that is much cheaper than in most other large cities, housing doesn't have to be this expensive. https://www.redfin.com/IL/Chicago/1706-W-Huron-St-60622/unit...
If other large cities change to be more like Chicago, then you might change your opinion of them.
As such builders will try, but once lumber prices go down a bit they will probably lower prices to attract customers. Plumbers and the like might get a little more many as they are harder to train up, but for the most parts there is enough competition that passing savings on to customers is going to happen.
Since Oct. of last year, the base price of our model has gone up $215,000 and every lot in this phase (phase 1) has now sold. I suspect at least half of that increase is materials, and the rest is due to market demand.
The market is just crazy and in talking to my builder he has said supply shortages could last through EOY and into next.
Even if it’s cheaper, is it worth to have a cheaper but obviously less durable building when compared to brick and mortar?
It’s always been baffling for my southern European mind.
That said the US historically had a lot of wood. Most everywhere. So it was cheap and light[1] easy to transport. And wood if it's kept dry is durable. My house is 70 years old. The wood framing is totally solid. Previous house is 115 years old. The framing is also solid.
[1] House built of wood is probably 1/4 the weight of a house built of masonry.
There are new developments in the states where they produce the frames for the various housing 'templates' off-site, and then ship it to the plots and build the house there, almost like a lego kit.
Boomer: "Well, the 401-K is up a ton. Can't seem to spend the cash pouring out. Let's upgrade the house and buy a second home somewhere nice."
Millenial: "We still have no savings because rent is insane and incomes have not kept up with inflation for decades as capital has played a larger role in growth than labour. We continue to have no long term security from a pension. I guess we'll just keep slaving away..."
I do understand that it isn't a representative picture, but among my friends, none of us have ever done so well financially in our entire lives.
Been great for me as well but outside of people in tech, I don't know too many in crypto as they didn't have the funds to risk in the first place. Nor do they have much stock exposure outside of their 401k.
Basically if you have a home loan from 2+ years ago & still have the same level of steady income, it probably makes sense to refinance.
At the risk of veering into financial advice, paying extra principle early is almost never a good idea. Instead, put that money aside into an investment account and use it to pay off the mortgage once the sum is greater than the balance.
Assuming markets beat your interest rate, you'll have a higher return and you have the emergency fund in case something catastrophic happens. If you pay that to the bank you can't get it back in an emergency, and you will only cut down on the front-loaded interest--which will likely be under market returns.
High net worth individuals it would hurt less as they usually have way more in assets such as stocks. But in the middle class, their stock exposure is often limited to their 401k or retirement plan.
I know quite a few people who had a downpayment in cash waiting to buy a house before this all started and are still looking. That value of cash went down quite a lot over the past year. Houses are up 40-50% YOY in some cases here (Arizona).
If wages don't go up though, this will also hurt the poor significantly.
Like any resource extraction industry, it goes boom, it goes bust, it recovers.
Raw logs are an input; it drives up the price for external industries dependent on lumber and drives them down for domestic industries, sacrificing raw material exports for more competitive intermediate and finished goods exports.
Since for the most part economic development depends on having exports as far toward the finished goods end of the raw material to finished goods spectrum, its not an insane strategy if you can deal with the short-term dislocations.
Shifting competitive advantage is harder than leaning in to your existing competitive advantage, but sometimes your existing competitive advantage is a long-term loser.
Today there is a housing shortage, & that's driving up prices. I'm sure there are some people hoping to flip their houses, but all I read is there is much more stringent mortgage requirements than before and in hot markets at least there are multiple offers. So it's similar in a vague way, but it's much different in it's the housing shortage that is driving a lot of the price increase today. Still, eventually I expect the shortage to ease, builders will make more houses, so that should lower the pressure or lower prices, eventually, at least somewhat.
If people aren't buying so many houses they can't afford, then shouldn't the problem of mass loans going back to the bank be avoided?
Structure designs have improved allowing cheaper/more sustainable framing to be used that are stronger. Allowing a range of materials from simple pine framing, to block etc. modern wood framing designs can withstand a lot better storm ratings than even 20 years ago. Especially when you add things like hurricane straps in the south etc.
Roofing materials last longer and are cheaper and more sustainable able than old cedar shingles etc. modern sheathing instea of using massive 2x6 or 2x8, asphaul shingles instead of cedar etc. both better, cheaper and more sustainable.
Siding is better and cheaper and last longer. Again comparing any wood siding to hardy board over time. Vinyl in the right climate as well.
Electrical the same. Proper sheathed copper wire over shit like knob and tube or cloth insulated wire is cheaper AND a whole lot safer. Same with modern breakers, including afci and gfci.
Plumbing? Modern shchedule 40 pvc is a lot cheaper, and more flexible than copper. And even modern pex (when done right)can be even better and allow a single plumber to hump hundreds of yards of the stuff with one arm.
Drywall is better than that old plaster lathe stuff in most cases.
Insulation? Spray in cellulose and foam is infinitely better and cheaper, allowing much higher r values and a single guy to install over even the common fiberglass batten stuff of 20 years ago that was awful if you breathed it in or got direct skin contact.
Windows? Double pane vinyl with gas insulation is worse than the single pane blown glass? Come on.
Sure. Regulations and codes are higher and more strict. But that comes with the cost of most of the materials being better and easier to handle.
The fact that it’s cheaper is a testament to how houses in general are much bigger than they were in the 50s. But anything you build will always need maintenance.
Fine, but if my investments tank I'll be getting a subpoena for your IP from HN, and then from your ISP for you, so I can sue you for issuing financial advice without a license, thus causing me significant material harm. /s
Actually you're right, that's a very good idea.
You do take a small productivity hit, so it isn't all smooth. Still there is plenty of opportunity to expand to meet demand.
If interest rates go up, real estate and equities prices come down, and US gov borrowing costs increase. Borrowing costs go up for zombie firms and they fail. How much appetite is there for any of that? The same as long term central back interest rate policy: zero.
https://en.wikipedia.org/wiki/Land_value_tax is the solution.
More realistic would be substantially increased taxes on non-primary residences.
I'm just sitting here wanting to build a new desk and some shelves, like I guess winter is a better time for projects anyway. Although I haven't actually priced plywood in my area yet, maybe the nice stuff has gone up comparatively less.
(and maybe LA will finally learn how to make multistory buildings out of something besides wood?)
I was going to build a greenhouse out of poplar but noped out of that design and went with a hoop house made from bent fence posts.
I talked with an attorney from San Francisco on a plane once. When they bought their first house, 70% of their income was going towards the house. Raises helped that become a more reasonable percentage over the year.
Fast forward a few years, their family grew and they wanted to be further towards the edge of the city. They sold the house at a huge profit and put that money towards a bigger house further out. Different perspective in different markets.
The cost of most household consumables is largely fixed, even as income scales. One can have expensive taste and increase that, but you can only spend so much on toilet paper and laundry detergent.
So yeah, you should make at least $137,500 if you want to buy a $275k house.
Take for example a $300,000 house w/ 4% mortgage. That works out to roughly $1,400/month. Even if you only make $75,000/year, it makes perfect sense to buy that house even if rents are a little lower than $1,400/month. (and current 30yr average rates bring that down to about $1225/month)
In my area, a small 2 bedroom house in a reasonably nice area will cost about $300,000, so the $1225 to $1,400/month rate applies. Renting a 2 bedroom apartment with less sqft for common spaces, in a similar area, will cost about $1800 to $2000. This is significantly more than is required to make up for property taxes levied on top of the mortgage when actually purchasing.
So I'm really not sure where you're getting your 2x figure. That's the sort of statement, absent context & explanation, that really doesn't add much to the conversation.
(On top of this, apartment complexes in my area have been nominally keeping monthly rates the same, but disaggregating utility costs from the rent, charging separately for heating, water, sewage, and garbage collection... at least for a year or two. After people get used to those additional fees, the complexes begin raising rents again too. I don't blame them too much, there's plenty of rental demand, but it changes the balance between renting & purchasing even more)
And in many markets, especially in big expensive cities like NY & SF, it costs more money to buy than to rent.
There are many things that I could know or believe that affect the calculus. For example I might get promoted next year and make more money or whatever.
California has the 10th highest foreclosure rate out of 50 states and Los Angeles is 5th for cities with a population over 1 million. NYC is in first.
The only times I see renting as a better economic option is when the monthly mortgage + property & utility costs are significantly more expensive than renting, AND there's an excellent chance of needing to relocate within the next 3-5 years before much equity is built up.
At earlier stages in a career, somewhat frequent relocations are common. But for a large part of the population who, especially as they age into their 30's+, want to stabilize such things in the interest of staying close to family, or make their own family, a greater level of geographic stability is very desirable and can be achieved without much if any career sacrifice if the location is strategically chosen, and buying a house at that stage almost always makes economic sense in the long term.
Of course there are some people who will always want to periodically uproot themselves every few years to new locales, and there's nothing wrong with that either, but I guess my point is that these differences in lifestyle choices significantly change where the economic balance falls.
On the other hand I have family that live in an area where apartment rents are much cheaper than the monthly TCO for buying, and even if you can afford to buy renting makes more sense (unless you need 3-4 bedrooms for a family) because rents are so much cheaper & it is better to put the difference between monthly costs into an index fund and build equity that way.
Another rule you can go with is the Rule of 28 if you prefer. These guidelines exist for a reason. Ignore at your own peril.
Lenders look at these things when considering giving you money. Using more leverage usually gives the bank a better deal than you.
They exist because of the economic context at the time and place that they were generated, which may not have been valid for much more than that immediate context.
If you can find and examine the mathematical assumptions about cost and risk that justify the rule of thumb against current conditions, then you can make an informed evaluation of whether or not it applies to the current situation. If you can’t, like folk remedies, the advice is as likely to harmful as helpful in your actual concrete circumstances.
There is peril in ignoring the specifics of your own individual economic circumstances. If you make $300,000/year and aren't carrying significant other debt then you can afford 4x salary for a $1.2 million house because the ratio of your non-housing expenses do not have to scale upwards with your salary. At 4% interest that's $72k/year, leaving ample room for spending on a comfortable life style while still saving 20% of your salary. In fact that is actually less than your Rule of 28. Alternatively, if you make $300k/year but have $80k in credit card debt and additional business debt made on a personal guarantee then even a 2x house may be too expensive.
Situations vary based on much more complex factors than the salary:$home ratio. Simplistic rules are a greater peril than individual analysis.
I'm just debt-free millennial with a fully paid off house and car looking to purchase investment property #2 on another 15-year mortgage while renting an apartment in Manhattan.
Mortgage rates are sub 3% today. That rule of thumb that’s “been around forever” existed when rates were 10%. Such a rule can not possibly be the same when the rate changes so dramatically.
The consistent rule is what percent of your take home you’re comfortable spending. Not many people - owners or renters - spend under 15% on housing.
I've also seen lots of people in the last two years who had made similar sound decisions who were then furloughed, or lost their jobs, or got sick, or got REALLY sick and ended up losing everything.
If you want to make higher risk bets, there are better avenues for it and certainly ones that you don't live in and risk losing.
I am also a millennial, but I spent 4x for my house but now have a fully paid-off investment home and a 10% equity mortgage on my primary residence only because of recent home improvements and the fact that the low interest rates mean my excess money is much better used investing in an index fund instead of paying that 10% out of pocket by cashing out the investments. I have zero other debt, not a dime, not on credit cards, not on anything.
There are multiple paths to financial stability that do not have to involve a single rule. I'm glad it worked for you, but circumstances differ greatly between people.
In a non-recourse state, you don’t really “lose everything”. You lose the house, when the bank gets around to foreclosing. If you recognize the problem before you have adverse marks on your credit history, it's pretty trivial to secure an apartment before you do, otherwise the challenge is finding a landlord willing to consider details of your circumstances in renting rather than just saying no because of the adverse credit.
> If you want to make higher risk bets, there are better avenues for it and certainly ones that you don't live in and risk losing.
What specifically is a better avenue, allowing both the use of leverage and the downside risk protection of buying a house in a non-recourse state?
Because, having been through pretty much exactly the negative scenario you describe—losing the house and, the cleanliness of my credit history—I don't regret it at all.
But you also haven't commented on the aspect of the scenario I presented where a 4x home was still under Rule 28.
No single rule can encompass complex multivariate systems. That is all I am saying here. Otherwise, how about we end it here: It's clear we both agree that financial stability is good and should be a part of any long-term plan, we may simply disagree on the specific parameters that allow for it, which is fine. I appreciate the thoughtful conversation-- HN is one of the few places on the internet where I find that possible.
