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Homes "unaffordable" in 99% of nation for average American
(www.cbsnews.com)
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this post was submitted on 01 Oct 2023
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This situation has turned into a real cock for so many people.
The place I got my mortgage through sends out emails regularly with updates on my home value, current rates, and other assorted stuff. I originally bought this house at the tail end of 2020. It's not the best house around, still needs work, but it had the room we needed, was in our budget (220), and the payment was low because the rate was great (2.75). Our original plan was stay here a bit, get rid of some debt, and then maybe try to find what we'd like to be our forever home, wherever that may be (we're 44).
That idea went south in a hurry. What once probably wouldn't have been worth sinking extra money into to fix, may now be the only choice. The aforementioned newsletter has a section where it shows what you could "save" at current rates by refinancing or taking cash out. The most recent one said I could "save" -$213400, meaning if we refinanced to take cash out to fix things up right now, it would cost us the entire price of the home yet again, on top of what the home and interest will already cost. Where a home in the 400's was achievable before, our home in the 200s would nearly not be now.
I feel terrible for people having to try to achieve home ownership at this point, or probably for the rest of the decade. On the one hand, I understand how fortunate I am to have gotten in when I did, and to have a home period; on the other, like many, I'm now essentially trapped, which has the ripple effect of keeping both rates and prices high because most people aren't going to trade a sub-3% mortgage for 7%+, assuming they can even find a place to go at this point.
Add in corporations branching out into a new area to do their level best to eliminate the concept of ownership for the majority of people, and politicians focusing on the more serious global issues like who goes in which bathroom, and my hope for the future couldn't be squashed any further if you put it in a hydraulic press.
Real estate will crash, eventually. Hard to predict exactly when and why, but if history is any guide, a market crash eventually is practically inevitable. It could conceivably happen relatively quickly for any number of reasons, but crash it will.
That doesn't necessarily mean it will become readily affordable - when real estate goes south, a lot of other stuff will be crashing with it. History books are full of monumental calamity. There's no reason to expect that to change.
This time is different. The new business model isn't selling homes - it's single family rental.
I coordinate all development projects in one of the fastest-growing cities in the county, and 100% of new single-family projects proposed since 2021 have been build-for-rent.
Why sell someone a house when you can rent it to them forever AND increase the price every year.
Practically all housing development is financed with borrowed money against the property. Given the build-to rent model, the party at the end of the cashflow stream relies on rent checks being paid every month to remain solvent. When the rents stop being collected, at some critical point, some loan that is reliant upon that rental stream will default. When that happens, the properties are called in by the borrower and auctioned off at foreclosure.
Now yes, the major lenders, developers and speculators will spread their risk as much as possible by diversifying their portfolios and try not to be caught short by a problem in any specific market. But when there is a some kind of macroeconomic shock, ALL the markets will suddenly contract and be flooded with foreclosed properties and other rapidly depreciating assets. That's more-or-less what happened in 2007. Massive liquidity injections and historically low interest rates supposedly saved us from a prolonged financial catastrophe then - but there were still a LOT of foreclosures. I also think we are still seeing that situation playing out today. Current housing markets are unsustainable in a climate of higher interest rates. This will all come crashing down, probably sooner than most people expect. When it happens, it happens fast - and of course the reasons will seem obvious with hindsight.
By the way, perhaps you're being ironic - "This time is different" is the defining catchphrase when looking at historical financial crashes: https://www.economist.com/media/pdf/this-time-is-different-reinhart-e.pdf
I'm not saying a crash definitely won't happen, but these BFR projects are a different beast than what we had in 2008. There are lots of reasons this isn't as financially risky.
The biggest factor is how they're being financed. They're mostly doing public financing where the lender is the municipality and it's paid back with extra taxes attached to the development agreement. The interest in these deals is usually 0%. The idea is that the government makes is money off of the tax money from the residents.
If the development falls through the government will just put a tax lien on the property for the past-due portion of the 25-year 0% deal that will be bought up cheap and fast by the next group.
Interesting. Thank you for the very enlightening info. So the local government is providing interest-free loans to developers for BFR projects, when prevailing rates are over 5 percent?
If the scope of BFR subsidization is as large as indicated then it's probably buoying the housing market. A quick search found this glowing report on the BFR "boom".
https://rei-ink.com/the-build-for-rent-evolution/
Real estate developers getting free government loans from public treasuries. What could possibly go wrong?
The housing market isn't going to crash. New homes aren't going to flood the market and demand for homes will not fall. As long as we have a growing population the price of homes will also increase.
Yes, there is finite supply and ever-growing demand, however the price of real estate ultimately reflects both the buyer and lender's confidence that the mortgage payment will be met. This can be affected not only by interest rates but by labor market conditions and other factors.
If there is a sudden surge in interest rates in response to some kind of inflationary shock, or the credit market becomes suddenly much more restrictive in terms of lending standards, then housing prices will most certainly fall, simply because the pool of potential buyers at a given price level is smaller.
When pressures on the housing market are coupled with leveraged loans on variable rates going upside down, people will begin dumping their real estate investments. These factors compound to cause a sharp reduction in price. In 2007-8 metro home prices declined up to 50% from their earlier peaks - but seem to have increased about 200% since the bottom, roughly, to where they are today That's quite a considerable appreciation and seems unlikely to be sustained. Maybe I'm wrong - we're just shooting the shit on Lemmy - but looking at what's happened before, real estate seems overheated - but it may well keep on boiling for all I know.
And corporations will be right there to buy it all up and further make it worse.
It should be fucking illegal for corporations to own single-family homes, full stop.
A more elegant solution would be to slap on a massive tax for houses that are not the primary homestead of the owner. Make it possible for companies to build and sell, but make it super expensive to sit on them or rent them out.
With houses being sold at 3x what they were just a few years ago in my area, it's more profitable to leave half the houses empty than to sell them at a reasonable cost.
I could get on board with that, as long as you account for situations where you might have bought a second house and moved, while still trying to sell the first. Technically you would still own two houses and I'd hate to see individuals punished for merely trying to sell their old house.
Hey are you me? We moved temporarily to a place with a far longer commute with the plan that we'd ride out the silliness of the market for about 5 years. That was in 2017. They'll fucking bury me here lol.