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On the contrary, housing is more affordable now than at any time in the last 40 years, except for the period right after the 2008 crash. Higher prices are more
by runako 5y ago
On the contrary, housing is more affordable now than at any time in the last 40 years, except for the period right after the 2008 crash.
Higher prices are more than offset by lower mortgage costs. Money got cheaper faster than housing got more expensive. Most people who are not rich are buying money with a house kicker in 30 years, so the cost of money is the important factor.
https://ritholtz.com/2021/08/how-expensive-are-houses/ https://ritholtz.com/2021/08/how-expensive-are-houses/
- adam_arthur 5y agoArticle is dated. Mortgage rates are up over 1% since then, and slated to continue rising rapidly. Affordability will be just about record lows at 5%. Inflation adjusted home prices have already surpassed the 2000s peak, and are a few std deviations above historical norms. If inflation doesn't abate, we can expect 6% mortgages in the near future.
- runako 5y agoThis is absolutely all correct, and also supports the basic argument that houses are not wildly more unaffordable now than they were in (say) 1990.
- adam_arthur 5y agoAffordability is almost as bad as the 2000s peak already. If you judge by housing payment relative to income
- runako 5y agoWould you mind sharing a link to your source? I would love to update my mental cache? Thanks!
- adam_arthur 5y agoI'll try to find the chart I saw on this recently. But here's home price relative to median income, which is at a record. Then apply logic that mortgage rates are 4.1% now and likely to be 5% soon. https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco... 2000s affordability was still worse at the peak, but will shift quickly if mortgage rates continue to rise. Anyway, will edit when I find
- runako 5y agoInteresting, I have not seen Bankrate & Nerdwallet differ by this much before. (Bankrate is reporting rates in the range around 3.5%.)
- adam_arthur 5y agohttps://www.mortgagenewsdaily.com/mortgage-rates https://www.mortgagenewsdaily.com/mortgage-rates ^ is the source most in the industry use for the current rate. It tends to be the most up to date
- runako 5y agoJumbos at a half point below conforming. Is that normal? They are reporting 30-year fixed jumbo below a 5/1 ARM. Is this just a dislocation?
- adam_arthur 5y agoJumbos are usually below non jumbo conventional. https://www.builderonline.com/money/mortgage-finance/heres-why-jumbo-loans-have-lower-interest-rates_c https://www.builderonline.com/money/mortgage-finance/heres-w...
- runako 5y agoThank you!
- hackerfromthefu 5y agoI don't think rates are going to go up like they came down, maybe ever again unless there's some kind of bretton woods reset. This is because of maths and the inverse effects of downward and upward shifts. - If you borrow $100 at 5% your interest is $5pa, which matches your discretionary repayment ability. - Rates drop to 3% and you can afford to borrow $167 at 3% for the same $5pa. This is a 2% or 40% of total drop. - New buyer buys in at cost of $167. - To make it somewhat realistic lets say inflation comes along and income rises, now you have $6pa repayment ability. - With a larger $167 loan, your $6 repayment can afford a rate rise to only 3.55%, this is a .55% rise or 18% total increase. . So while the rates dropped 2%, a rise of more than .5% bankrupts all the new buyers. The government is sensitive to this because many people just bought together at the new prices and low rates, and it becomes untenable when large amount of the population lose their homes at once. The same dynamic applies to business loans, government balance sheets. US is an outlier with 30 year fixed loans, the rest of the world basically does loans on variable rates or fixed for maybe 5 years a time.
- adam_arthur 5y agoThere is more resistance to the upside, for sure. But the free market sets the long duration interest rate. If core inflation persists at 5%, rates will surely rise to compensate. They are mostly held low right now due to belief that CPI spike is transitory. You're right that once rates rise sufficiently, it creates recession risk, which then puts downward pressure on rates. But we can likely get to 3% on the 10y and 5% mortgages before hitting that ceiling. Keep in mind how sharply rates rose in the 70s. Though at the time debt burdens were not very high, for sure. But persistently high inflation will lead to a similar effect. We are seeing strong signs of a wage price spiral starting to form in the data