6 ms·

Rate, price drops won't substantially improve affordability

giantg2 1y ago
Recent counterpoint being discussed. https://news.ycombinator.com/item?id=44750416 https://news.ycombinator.com/item?id=44750416
toomuchtodo 1y ago
> Rather, the only sustainable solution to the affordability crisis is not through a fall in prices or mortgage rates, but through building enough to close the housing deficit. Supply must meet demand, but the fundamentals make it impossible.
- toomuchtodo 1y ago
  Citation: https://youtu.be/7SOFoxXiLEQ https://youtu.be/7SOFoxXiLEQ
drewg123 1y ago
I really hate the title of that article. Of COURSE rate and price drops would improve affordability. What they are trying to says is that forecasted rate and price drops won't help. And I tend to wonder if they are correct in terms of price drops, at least in some markets. We seem to be gradually falling off the peak of the market in Miami/Ft. Lauderdale. Between people being pessamistic about the economy, RTO to jobs in the northeast, and foreign nationals leaving the country, demand is decreasing and so prices are dropping. They seem to be slowly heading for historical averages after peaks in 2022, and houses that don't drop their price from 2022-24 peaks are not selling. It feels very much like 2008 right now, and I'm really hoping we see some improvement in the next few years.
- jrockway 1y ago
  Doesn't Florida have an insurability problem that's becoming a crisis? At the end of the day, I'm guessing that most people price housing as mortgage + insurance. If insurance costs go up, the price of the underlying property has to go down in order to meet a monthly payment target. So some of that is probably already going on.
  - toomuchtodo 1y ago
    Yes. Florida has the highest insurance costs in the US. Many are going without insurance if they don’t have a mortgage that will force placement of insurance. > Florida currently has the most expensive insurance premiums in the nation. According to data by Insurify, a national insurance data collection group, Florida's projected cost of property insurance averages about $11,000 a year. > ValuePenguin’s study shows Florida’s property insurance has increased 72% in the last five years, with the number of homeowners who can’t get coverage through private insurers going up 400%. The US is currently spending ~$1T/year on climate costs. https://www.cfpublic.org/housing-homelessness/2025-01-10/central-florida-homeowners-join-rising-trend-opting-out-of-property-insurance https://www.cfpublic.org/housing-homelessness/2025-01-10/cen... https://www.newsweek.com/map-reveals-scale-florida-property-insurance-crisis-1920042 https://www.newsweek.com/map-reveals-scale-florida-property-... https://www.bloomberg.com/news/articles/2025-06-17/us-spending-on-climate-damage-nears-1-trillion-per-year https://www.bloomberg.com/news/articles/2025-06-17/us-spendi... | https://archive.today/EBmaI https://archive.today/EBmaI https://www.theguardian.com/environment/2023/oct/09/climate-crisis-cost-extreme-weather-damage-study https://www.theguardian.com/environment/2023/oct/09/climate-...
  - VWWHFSfQ 1y ago
    > most people price housing as mortgage + insurance I would go as far as to say it's actually mortgage + insurance + taxes in most states. Very likely to be paying anywhere from $5,000 to $10,000 in county + school taxes per year which by itself is enough to make the home suddenly unaffordable even if you bought it 10 years ago at a great price and rate.
    - ipython 1y ago
      + HOA fee (condo HOA fees can easily add up to several hundred $$ per month)
    - SoftTalker 1y ago
      Yep my taxes and insurance escrow payments are a larger part of my total monthly payment than the loan is.
  - 1y ago
- littlexsparkee 1y ago
  That's what the substantially is there for - yes, it would technically help but few can afford payments on a $1.2m SF home even if money were free
  - nyeah 1y ago
    Who is buying a home in SF? Can we come down to Earth?
    - littlexsparkee 1y ago
      It's just an example - most people live in major metros where the jobs are and those are the places the rate drops just wouldn't help much. What you said kind of makes my point of how jacked up the market is due to homeowners having done their best to slow production as much as possible, and our emphasis on housing as investment. It didn't have to turn out this bad.
      - nyeah 1y ago
        If it's meant to be an example, then it's wildly cherry-picked. Very few of the nation's homeowners live in NYC or SF. Even fewer home buyers are serious about those markets. The exceptions are often in co-ops where down payment %s are much larger. It is not accurate, it's not even rational, to use those markets as reference points for a national discussion.
        littlexsparkee 1y ago
        Of course it is. If jobs are in major metros but it's impossible to buy there and hard to rent even as a tech worker - what does that mean for the city (and all the people that are locked out of opportunity)? A study from Hsieh and Moretti estimated that looser zoning rules in elite cities could increase GDP growth by a third. Everyone's looking to AI for productivity gains but this is major money on the floor that, while getting more discussion at present, is not part of a national policy, to everyone's detriment.
- deleted 1y ago
  [deleted]
- quickthrowman 1y ago
  Rate drops will make affordability worse, you do understand that less interest just means more principal, right? If a mortgage payment is $1800 of interest and $700 of principal at 7%, a buyer is in the same position if rates go down to 3% and the payment is $1400 in interest and $1100 of principal (numbers are made up, I don’t have time to calculate the exact values). In the 2nd case, the home price would be higher and the lower rate would mean reduced financing costs, with the same TCO in the end. Bonds work the same way, as the yield goes up above what the bond was issued at, the face value of the bond decreases, only the housing market has limited supply so prices didn’t go down when rates went up. If yields go down, the face value of the bond goes up, just like with houses. The only thing that will lower housing values is more supply.
  - nyeah 1y ago
    For a fixed loan term and fixed price, less interest means lower payments. (But of course if you assume that prices will do whatever you want them to, then you can prove anything you want.) Bonds do not work like houses. Typically bonds pay out a fixed coupon rate and then 100 at the end of the term (fingers crossed).
    - neutronicus 1y ago
      Fixed loan term and fixed principal, yes. Grandparent is alleging that in a lower-rate environment sellers will raise prices until buyers' monthly payments are about the same as they are in this high-rate environment.
      - nyeah 1y ago
        Agreed, sure, alleging.
      - VWWHFSfQ 1y ago
        > alleging that in a lower-rate environment sellers will raise prices Didn't we see exactly this scenario play out in 2001-2005 and again during Covid? > Heading into 2020, affordability was increasing—even in the face of rising home prices—as buyers benefitted from historically low interest rates and steady income growth. > The national HOAM index fell from 101.94 in February 2021 to 98.22 in March 2021, indicating homes were no longer affordable for the median-income household. Rates dropped which caused a demand-side surge (because more people could afford the mortgage) which quickly turned into a market dynamic that caused home prices to increase beyond median affordability. https://www.atlantafed.org/economy-matters/community-and-economic-development/2021/06/03/low-interest-rates-inventories-affect-housing-affordability https://www.atlantafed.org/economy-matters/community-and-eco...
bombcar 1y ago
I see an affordability metric of "30% of income" I believe, but there's more to it than just that. Is it nice if an 18 year old working at McDonalds can afford a home? Certainly. But there's a world of difference between him being priced out of the market and a full-time well-compensated employee of a large company being priced out. (Basically, going with mean/median household income may not be the best metric - rate and price drops WILL help but won't be "enough". And the "costal cities" mentioned should just be abandoned; there's no hope and nothing will make them affordable. Instead, all sorts of "subsidies to rich people" should be stopped; once those cities have nobody willing (illegal or no) to do the "grunt work" they'll figure out how to fix the problem. As it is, "affordable housing" is usually just subsidizing the rich people so they can have employees to make their food, etc on the cheap.)
- gruez 1y ago
  >And the "costal cities" mentioned should just be abandoned; there's no hope and nothing will make them affordable. This will basically never happen because the reason why they're expensive is that they're desirable. Supply and demand. Expecting otherwise makes as much sense as "Nobody goes there anymore. It's too crowded" >Instead, all sorts of "subsidies to rich people" should be stopped examples? If you're talking about "affordable housing" programs, aren't those usually means tested?
  - rayiner 1y ago
    That's not quite an accurate statement about supply and demand. It's supply of the thing relative to demand for it. So a pretty niche product can be very expensive if supply is even more limited. So it's entirely fair to say that we should be figuring out how to decouple jobs from these costal cities. Lots of people wouldn't live in NYC if Wall Street was out in Topeka, Kansas instead.
    - gruez 1y ago
      >That's not quite an accurate statement about supply and demand. It's supply of the thing relative to demand for it. So a pretty niche product can be very expensive if supply is even more limited. Yes, veblen goods exist, but given that coastal cities also happen to be the most populous cities, and such cities have underbuilt their housing supply for decades, it's pretty obvious that the current housing crisis phenomena is simple supply and demand. >Lots of people wouldn't live in NYC if Wall Street was out in Topeka, Kansas instead. What's preventing Topeka, Kansas from becoming NIMBY and choking off housing supply after it becomes a desirable place to live? After all, silicon valley isn't in new york, it was in California.
xnx 1y ago
> Holding incomes, home prices and all other housing-related costs equal, Home prices move inverse to interest rates, so I'm not sure how useful this analysis is.
- quickthrowman 1y ago
  No they don’t, prices didn’t fall when rates went up because there is a limited supply of homes. If there were enough houses to go around, values would go up and down with interest rates just like bonds do. Prices absolutely will go up when rates fall though, that part still holds true with limited supply.
  - czinck 1y ago
    In addition to the current supply constraint keeping prices high, mortgages being fixed rate means higher interest rates don't really drive prices down (although lower interest rates do drive prices up). If you have a mortgage for $600k at 3% interest rate and rates go to 6.6% (like they are now), the naive loan math says your house is now worth $400k. Who has $200k in equity built up in their home and is willing to walk away from it? Virtually no one, so prices stay high until people get desperate to sell. This leads to the fun conclusion that raising interest rates might actually make inflation worse. Rent/rent equivalent is already 30% of CPI, so increases in housing costs have a big effect on overall inflation.
iJohnDoe 1y ago
Thanks Zillow for making a straightforward article. FWIW, real-life experience matches the article. Current interest rates shave off about $100k+ in affordability. Explaining where the interest rates need to be for most regions for affordability is an easy way to show the situation. I do agree that a major economic downturn would need to happen and unemployment would need to rise to change things. However, these numbers are always manipulated which keeps us on a trajectory that is hard to reconcile with reality for most.
rayiner 1y ago
I feel really bad for GenZ. My brother and sister and law are both in their early 20s (large age gap with my wife) and the housing market is a tire fire. I recently learned that the house across from us is being rented to three young women for $3,000/month. This is a 1,100 square foot cottage, built maybe in the 1970s, with a leaky roof and no basement in exurban Maryland. For comparison, our mortgage is around $2,000/month for a house three times the size, built in the 2000s, on a riverfront lot. And we're not boomers, we just bought the place in late 2016! It's a kinda dumpy neighborhood with a lot of better-off blue collar workers (cops, nurses, etc) and retirees. But prices doubled seemingly overnight during the pandemic! It's not like there's an employment boom happening here. We're right outside of Annapolis, which is a small city focused on the Naval Academy. Which is stable but hardly growing employment. A couple of the anchor employers (AT&T, Rockwell Collins) have been downsizing. We're an hour away from DC, and 45 minutes from Baltimore. Where the heck do these people work? Where is all the money coming from? It doesn't make any sense.
- dgfitz 1y ago
  Ft. Meade is a big employer in that area, Raytheon as well. Northrop Grumman is commutable from there, as is Annapolis junction and Columbia. Baltimore and DC can be commuted to from that area. DC would be rough if you don’t take the metro from somewhere. Not a great drive but I know a lot of people who did/do it. I live north east of the Baltimore beltway and recently started a new job between BWI and Arundel Mills, about an hour with no traffic, but I work remotely half the week. There are an absolute ton of jobs in your area. It’s much more sparse north of 695. Basically APG.
  - rayiner 1y ago
    I understand there’s jobs, but what’s causing the rapid growth in housing prices? Fort Meade has been here forever, and so have the defense contractors. It’s not like federal government or contractor salaries and headcount have been growing rapidly. And it’s not population growth. Columbia grew just 5% from 2010-2020. Anne Arundel has grown less than 1% annually for more than two decades.
delfinom 1y ago
The thing is, if/when rates drop, home prices will only go up. _faster_. If the pool of people able to spend more on a home increases, and the pool of houses remains the same, then there is only one direction anything goes.
quickthrowman 1y ago
Rate drops will make things way less affordable, it’s exceedingly obvious. If a borrower pays less in interest, the seller can ask for more money and the borrower will end up paying the same monthly payment, meaning higher home prices. This isn’t rocket surgery, it’s Econ 101.
- VWWHFSfQ 1y ago
  Very true. Rate drops have historically caused demand-side pressure (because more people can now afford the mortgage) which subsequently caused home prices to surge (20% during Covid!) despite no capital or material improvements to the homes or properties to justify the higher "value".
- littlexsparkee 1y ago
  do you mean affordable by sticker price alone? trying to square way less affordable with same monthly payment (which i would expect by way of the seesaw between interest cost and house cost). i guess it also matters which the consumer is more responsive to...
  - quickthrowman 1y ago
    Yes, affordable by sticker price, and for first-time homebuyers specifically. It matters less if you own property that has increased in value along with the rest of properties.
lvl155 1y ago
Prices will drop substantially over the next decade as (1) boomers die and (2) immigration comes to a halt.
- desert_rue 1y ago
  Don’t forget the population decline
- GiorgioG 1y ago
  Wrong. There is already pent up demand, boomers will not die fast enough to make a dent. Immigration is not a factor.
  - gertlex 1y ago
    And I suspect there's plenty of money at the top to profit off this, reducing the likelihood of such declines, too.
  - lvl155 1y ago
    Immigration not a factor? You mean the same people buying up $3M homes with cash?
    - GiorgioG 1y ago
      There is no shortage of $3M homes.
dehrmann 1y ago
Rates don't affect prices they way people think they do. People buy the mortgage they can afford, so low rates can raise home prices. This is 5x-10x leveraged, so it really moves prices. Home builders borrow to build, so higher rates hurt on the supply side. Currently, because people refinanced into 3% long-term mortgages, some people are stuck because they can't afford to move. This also hurts broader market dynamism because people aren't relocating as much. Same with job uncertainty. People aren't changing jobs because they're worried, but this is leaving companies with mismatched labor. And that's just rates. There's also supply. Mortgage rates should have never been 3%. The Fed targets 2% inflation, so loaning 10-to-30-year money at a real rate of 1% is silly. It really is free money. The problem is mortgage rates are linked to the 10y treasury yield, and that was moving for macro reserve currency reasons. Loans for home builders could be subsidized, but NIMBY policies are a larger issue. I don't know what to do about people locked into low mortgage rates. It's actually a Silicon Valley Bank situation, but at an individual level. If you can wait for the loan to mature (10y might be enough), you come out ahead, but if you have to sell early, you take a loss. We can't go back to free money, portable mortgages disadvantage new buyers, and people really don't want to realize these losses.
- SoftTalker 1y ago
  Yep, a big contributor to why houses got so expensive in the last 10-15 years is the low rates. Free money -> increased demand -> higher prices. If mortgage rates had been around 6-7% as they historically have been, prices would have stayed a lot more reasonable.
reducesuffering 1y ago
We need to break the chain of real estate speculation by building enough so you don't see 5-10% YoY real estate appreciation based on no improvements. The problem is there's so much FOMO in housing, because of the 7-9% yearly appreciation, that it causes people to keep piling in assuming whatever they buy at, they'll also average 7-9% eventually, in a positive feedback loop. When we build enough so we stop seeing that kind of appreciation, people will stop treating housing as a speculative investment asset they're going to be imminently priced out of, as they could always buy in the future when it's roughly the same price.
ridiculous_leke 1y ago
Isn't Austin going through a price drop at least for rent? That could offer a case study.

Recent counterpoint being discussed. https://news.ycombinator.com/item?id=44750416 https://news.ycombinator.com/item?id=44750416

toomuchtodo 1y ago

> Rather, the only sustainable solution to the affordability crisis is not through a fall in prices or mortgage rates, but through building enough to close the housing deficit. Supply must meet demand, but the fundamentals make it impossible.

toomuchtodo 1y ago
Citation: https://youtu.be/7SOFoxXiLEQ https://youtu.be/7SOFoxXiLEQ

drewg123 1y ago

I really hate the title of that article. Of COURSE rate and price drops would improve affordability. What they are trying to says is that forecasted rate and price drops won't help. And I tend to wonder if they are correct in terms of price drops, at least in some markets. We seem to be gradually falling off the peak of the market in Miami/Ft. Lauderdale. Between people being pessamistic about the economy, RTO to jobs in the northeast, and foreign nationals leaving the country, demand is decreasing and so prices are dropping. They seem to be slowly heading for historical averages after peaks in 2022, and houses that don't drop their price from 2022-24 peaks are not selling. It feels very much like 2008 right now, and I'm really hoping we see some improvement in the next few years.

jrockway 1y ago
Doesn't Florida have an insurability problem that's becoming a crisis? At the end of the day, I'm guessing that most people price housing as mortgage + insurance. If insurance costs go up, the price of the underlying property has to go down in order to meet a monthly payment target. So some of that is probably already going on.
- toomuchtodo 1y ago
  Yes. Florida has the highest insurance costs in the US. Many are going without insurance if they don’t have a mortgage that will force placement of insurance. > Florida currently has the most expensive insurance premiums in the nation. According to data by Insurify, a national insurance data collection group, Florida's projected cost of property insurance averages about $11,000 a year. > ValuePenguin’s study shows Florida’s property insurance has increased 72% in the last five years, with the number of homeowners who can’t get coverage through private insurers going up 400%. The US is currently spending ~$1T/year on climate costs. https://www.cfpublic.org/housing-homelessness/2025-01-10/central-florida-homeowners-join-rising-trend-opting-out-of-property-insurance https://www.cfpublic.org/housing-homelessness/2025-01-10/cen... https://www.newsweek.com/map-reveals-scale-florida-property-insurance-crisis-1920042 https://www.newsweek.com/map-reveals-scale-florida-property-... https://www.bloomberg.com/news/articles/2025-06-17/us-spending-on-climate-damage-nears-1-trillion-per-year https://www.bloomberg.com/news/articles/2025-06-17/us-spendi... | https://archive.today/EBmaI https://archive.today/EBmaI https://www.theguardian.com/environment/2023/oct/09/climate-crisis-cost-extreme-weather-damage-study https://www.theguardian.com/environment/2023/oct/09/climate-...
- VWWHFSfQ 1y ago
  > most people price housing as mortgage + insurance I would go as far as to say it's actually mortgage + insurance + taxes in most states. Very likely to be paying anywhere from $5,000 to $10,000 in county + school taxes per year which by itself is enough to make the home suddenly unaffordable even if you bought it 10 years ago at a great price and rate.
  - ipython 1y ago
    + HOA fee (condo HOA fees can easily add up to several hundred $$ per month)
  - SoftTalker 1y ago
    Yep my taxes and insurance escrow payments are a larger part of my total monthly payment than the loan is.
- 1y ago
littlexsparkee 1y ago
That's what the substantially is there for - yes, it would technically help but few can afford payments on a $1.2m SF home even if money were free
- nyeah 1y ago
  Who is buying a home in SF? Can we come down to Earth?
  - littlexsparkee 1y ago
    It's just an example - most people live in major metros where the jobs are and those are the places the rate drops just wouldn't help much. What you said kind of makes my point of how jacked up the market is due to homeowners having done their best to slow production as much as possible, and our emphasis on housing as investment. It didn't have to turn out this bad.
    - nyeah 1y ago
      If it's meant to be an example, then it's wildly cherry-picked. Very few of the nation's homeowners live in NYC or SF. Even fewer home buyers are serious about those markets. The exceptions are often in co-ops where down payment %s are much larger. It is not accurate, it's not even rational, to use those markets as reference points for a national discussion.
      - littlexsparkee 1y ago
        Of course it is. If jobs are in major metros but it's impossible to buy there and hard to rent even as a tech worker - what does that mean for the city (and all the people that are locked out of opportunity)? A study from Hsieh and Moretti estimated that looser zoning rules in elite cities could increase GDP growth by a third. Everyone's looking to AI for productivity gains but this is major money on the floor that, while getting more discussion at present, is not part of a national policy, to everyone's detriment.
deleted 1y ago
[deleted]
quickthrowman 1y ago
Rate drops will make affordability worse, you do understand that less interest just means more principal, right? If a mortgage payment is $1800 of interest and $700 of principal at 7%, a buyer is in the same position if rates go down to 3% and the payment is $1400 in interest and $1100 of principal (numbers are made up, I don’t have time to calculate the exact values). In the 2nd case, the home price would be higher and the lower rate would mean reduced financing costs, with the same TCO in the end. Bonds work the same way, as the yield goes up above what the bond was issued at, the face value of the bond decreases, only the housing market has limited supply so prices didn’t go down when rates went up. If yields go down, the face value of the bond goes up, just like with houses. The only thing that will lower housing values is more supply.
- nyeah 1y ago
  For a fixed loan term and fixed price, less interest means lower payments. (But of course if you assume that prices will do whatever you want them to, then you can prove anything you want.) Bonds do not work like houses. Typically bonds pay out a fixed coupon rate and then 100 at the end of the term (fingers crossed).
  - neutronicus 1y ago
    Fixed loan term and fixed principal, yes. Grandparent is alleging that in a lower-rate environment sellers will raise prices until buyers' monthly payments are about the same as they are in this high-rate environment.
    - nyeah 1y ago
      Agreed, sure, alleging.
    - VWWHFSfQ 1y ago
      > alleging that in a lower-rate environment sellers will raise prices Didn't we see exactly this scenario play out in 2001-2005 and again during Covid? > Heading into 2020, affordability was increasing—even in the face of rising home prices—as buyers benefitted from historically low interest rates and steady income growth. > The national HOAM index fell from 101.94 in February 2021 to 98.22 in March 2021, indicating homes were no longer affordable for the median-income household. Rates dropped which caused a demand-side surge (because more people could afford the mortgage) which quickly turned into a market dynamic that caused home prices to increase beyond median affordability. https://www.atlantafed.org/economy-matters/community-and-economic-development/2021/06/03/low-interest-rates-inventories-affect-housing-affordability https://www.atlantafed.org/economy-matters/community-and-eco...

bombcar 1y ago

I see an affordability metric of "30% of income" I believe, but there's more to it than just that. Is it nice if an 18 year old working at McDonalds can afford a home? Certainly. But there's a world of difference between him being priced out of the market and a full-time well-compensated employee of a large company being priced out. (Basically, going with mean/median household income may not be the best metric - rate and price drops WILL help but won't be "enough". And the "costal cities" mentioned should just be abandoned; there's no hope and nothing will make them affordable. Instead, all sorts of "subsidies to rich people" should be stopped; once those cities have nobody willing (illegal or no) to do the "grunt work" they'll figure out how to fix the problem. As it is, "affordable housing" is usually just subsidizing the rich people so they can have employees to make their food, etc on the cheap.)

gruez 1y ago
>And the "costal cities" mentioned should just be abandoned; there's no hope and nothing will make them affordable. This will basically never happen because the reason why they're expensive is that they're desirable. Supply and demand. Expecting otherwise makes as much sense as "Nobody goes there anymore. It's too crowded" >Instead, all sorts of "subsidies to rich people" should be stopped examples? If you're talking about "affordable housing" programs, aren't those usually means tested?
- rayiner 1y ago
  That's not quite an accurate statement about supply and demand. It's supply of the thing relative to demand for it. So a pretty niche product can be very expensive if supply is even more limited. So it's entirely fair to say that we should be figuring out how to decouple jobs from these costal cities. Lots of people wouldn't live in NYC if Wall Street was out in Topeka, Kansas instead.
  - gruez 1y ago
    >That's not quite an accurate statement about supply and demand. It's supply of the thing relative to demand for it. So a pretty niche product can be very expensive if supply is even more limited. Yes, veblen goods exist, but given that coastal cities also happen to be the most populous cities, and such cities have underbuilt their housing supply for decades, it's pretty obvious that the current housing crisis phenomena is simple supply and demand. >Lots of people wouldn't live in NYC if Wall Street was out in Topeka, Kansas instead. What's preventing Topeka, Kansas from becoming NIMBY and choking off housing supply after it becomes a desirable place to live? After all, silicon valley isn't in new york, it was in California.

xnx 1y ago

> Holding incomes, home prices and all other housing-related costs equal, Home prices move inverse to interest rates, so I'm not sure how useful this analysis is.

quickthrowman 1y ago
No they don’t, prices didn’t fall when rates went up because there is a limited supply of homes. If there were enough houses to go around, values would go up and down with interest rates just like bonds do. Prices absolutely will go up when rates fall though, that part still holds true with limited supply.
- czinck 1y ago
  In addition to the current supply constraint keeping prices high, mortgages being fixed rate means higher interest rates don't really drive prices down (although lower interest rates do drive prices up). If you have a mortgage for $600k at 3% interest rate and rates go to 6.6% (like they are now), the naive loan math says your house is now worth $400k. Who has $200k in equity built up in their home and is willing to walk away from it? Virtually no one, so prices stay high until people get desperate to sell. This leads to the fun conclusion that raising interest rates might actually make inflation worse. Rent/rent equivalent is already 30% of CPI, so increases in housing costs have a big effect on overall inflation.

iJohnDoe 1y ago

Thanks Zillow for making a straightforward article. FWIW, real-life experience matches the article. Current interest rates shave off about $100k+ in affordability. Explaining where the interest rates need to be for most regions for affordability is an easy way to show the situation. I do agree that a major economic downturn would need to happen and unemployment would need to rise to change things. However, these numbers are always manipulated which keeps us on a trajectory that is hard to reconcile with reality for most.

rayiner 1y ago

I feel really bad for GenZ. My brother and sister and law are both in their early 20s (large age gap with my wife) and the housing market is a tire fire. I recently learned that the house across from us is being rented to three young women for $3,000/month. This is a 1,100 square foot cottage, built maybe in the 1970s, with a leaky roof and no basement in exurban Maryland. For comparison, our mortgage is around $2,000/month for a house three times the size, built in the 2000s, on a riverfront lot. And we're not boomers, we just bought the place in late 2016! It's a kinda dumpy neighborhood with a lot of better-off blue collar workers (cops, nurses, etc) and retirees. But prices doubled seemingly overnight during the pandemic! It's not like there's an employment boom happening here. We're right outside of Annapolis, which is a small city focused on the Naval Academy. Which is stable but hardly growing employment. A couple of the anchor employers (AT&T, Rockwell Collins) have been downsizing. We're an hour away from DC, and 45 minutes from Baltimore. Where the heck do these people work? Where is all the money coming from? It doesn't make any sense.

dgfitz 1y ago
Ft. Meade is a big employer in that area, Raytheon as well. Northrop Grumman is commutable from there, as is Annapolis junction and Columbia. Baltimore and DC can be commuted to from that area. DC would be rough if you don’t take the metro from somewhere. Not a great drive but I know a lot of people who did/do it. I live north east of the Baltimore beltway and recently started a new job between BWI and Arundel Mills, about an hour with no traffic, but I work remotely half the week. There are an absolute ton of jobs in your area. It’s much more sparse north of 695. Basically APG.
- rayiner 1y ago
  I understand there’s jobs, but what’s causing the rapid growth in housing prices? Fort Meade has been here forever, and so have the defense contractors. It’s not like federal government or contractor salaries and headcount have been growing rapidly. And it’s not population growth. Columbia grew just 5% from 2010-2020. Anne Arundel has grown less than 1% annually for more than two decades.

delfinom 1y ago

The thing is, if/when rates drop, home prices will only go up. _faster_. If the pool of people able to spend more on a home increases, and the pool of houses remains the same, then there is only one direction anything goes.

quickthrowman 1y ago

Rate drops will make things way less affordable, it’s exceedingly obvious. If a borrower pays less in interest, the seller can ask for more money and the borrower will end up paying the same monthly payment, meaning higher home prices. This isn’t rocket surgery, it’s Econ 101.

VWWHFSfQ 1y ago
Very true. Rate drops have historically caused demand-side pressure (because more people can now afford the mortgage) which subsequently caused home prices to surge (20% during Covid!) despite no capital or material improvements to the homes or properties to justify the higher "value".
littlexsparkee 1y ago
do you mean affordable by sticker price alone? trying to square way less affordable with same monthly payment (which i would expect by way of the seesaw between interest cost and house cost). i guess it also matters which the consumer is more responsive to...
- quickthrowman 1y ago
  Yes, affordable by sticker price, and for first-time homebuyers specifically. It matters less if you own property that has increased in value along with the rest of properties.

lvl155 1y ago

Prices will drop substantially over the next decade as (1) boomers die and (2) immigration comes to a halt.

desert_rue 1y ago
Don’t forget the population decline
GiorgioG 1y ago
Wrong. There is already pent up demand, boomers will not die fast enough to make a dent. Immigration is not a factor.
- gertlex 1y ago
  And I suspect there's plenty of money at the top to profit off this, reducing the likelihood of such declines, too.
- lvl155 1y ago
  Immigration not a factor? You mean the same people buying up $3M homes with cash?
  - GiorgioG 1y ago
    There is no shortage of $3M homes.

dehrmann 1y ago

Rates don't affect prices they way people think they do. People buy the mortgage they can afford, so low rates can raise home prices. This is 5x-10x leveraged, so it really moves prices. Home builders borrow to build, so higher rates hurt on the supply side. Currently, because people refinanced into 3% long-term mortgages, some people are stuck because they can't afford to move. This also hurts broader market dynamism because people aren't relocating as much. Same with job uncertainty. People aren't changing jobs because they're worried, but this is leaving companies with mismatched labor. And that's just rates. There's also supply. Mortgage rates should have never been 3%. The Fed targets 2% inflation, so loaning 10-to-30-year money at a real rate of 1% is silly. It really is free money. The problem is mortgage rates are linked to the 10y treasury yield, and that was moving for macro reserve currency reasons. Loans for home builders could be subsidized, but NIMBY policies are a larger issue. I don't know what to do about people locked into low mortgage rates. It's actually a Silicon Valley Bank situation, but at an individual level. If you can wait for the loan to mature (10y might be enough), you come out ahead, but if you have to sell early, you take a loss. We can't go back to free money, portable mortgages disadvantage new buyers, and people really don't want to realize these losses.

SoftTalker 1y ago
Yep, a big contributor to why houses got so expensive in the last 10-15 years is the low rates. Free money -> increased demand -> higher prices. If mortgage rates had been around 6-7% as they historically have been, prices would have stayed a lot more reasonable.

reducesuffering 1y ago

We need to break the chain of real estate speculation by building enough so you don't see 5-10% YoY real estate appreciation based on no improvements. The problem is there's so much FOMO in housing, because of the 7-9% yearly appreciation, that it causes people to keep piling in assuming whatever they buy at, they'll also average 7-9% eventually, in a positive feedback loop. When we build enough so we stop seeing that kind of appreciation, people will stop treating housing as a speculative investment asset they're going to be imminently priced out of, as they could always buy in the future when it's roughly the same price.

ridiculous_leke 1y ago

Isn't Austin going through a price drop at least for rent? That could offer a case study.