Is this the beginning of the end for the housing "recovery"? (loan, real estate)
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I knew this was going to come up sooner or later. I do not understand why housing needs to be speculated on like stocks causing boom and bust cycles of such extreme proportions. I know housing is cyclical and goes up and down but this is downright ridiculous with 25% YOY climb followed by a 25% bust taking out everyone in the process.
Wondering if it's a good idea to regulate Wall Street's (and armchair investors on Main St.) involvement in the housing market since it's such an essential component to Main St. Most people are just looking to buy a home to live in, perhaps raise a family and have an asset that keeps up with inflation rather than looking at it as a get rich quick scheme.
Most people are just looking to buy a home to live in...
I'm not so sure.
Once upon a time median home prices were rarely more than 3X median income.
This 2.5:1 or 3:1 ratio USED TO BE the definition of a healthy market.
(that ratio is still the definition of healthy personal budget)
The financing aspect (interest, points, etc) was discussed separately.
What's changed though is that the prices have been allowed to rise so high
that even decent incomes are inadequate to buy in far too many markets.
Similar has happened with automobile prices.
As a consequence people have sort of given up on the idea of ever actually owning.
They seem resigned to the idea of perpetually making payments...
but never actually getting to the stage of owning before they trade in and start over.
On that basis absolute price really doesn't matter... only the payment amount.
This isn't good for anyone except the lenders and the salesmen.
You can still find the sort of homes that 2½-3 times median income used to cover back in the day. But not many want to buy them anymore. Among other things, people want central air, larger windows, and more closet space. Who can blame them?
Housing should be a long term investment. I'm not going to panic if my stocks drop 5% one year. Over the long run history is pretty clear. Lots of people don't get a 15 year or put 20% down.
What you have now is housing rising I price from 41/;2 years of no building and lowering prices that in many cases made people sit and wait; both buyers and sellers especially boomer who had their home paid for if they wanted to move in retirement. Now we see prices rising and rates going up and like to continue they are moving on buying. But many actually find few homes to choice from if wanting to buy existing in good shape. Its really hard to pass up the rates they are unlikely to ever see again in their lifetime if they can qualify for loan. I am not looking but sure wish this has been when I was buying at 7% which was low then.
Housing should be a long term investment. I'm not going to panic if my stocks drop 5% one year. Over the long run history is pretty clear. Lots of people don't get a 15 year or put 20% down.
Meant to add not putting 20% down or getting a 15 year can put you in a risky position.
House prices over the long run track inflation. That's when you look at real estate a very extended historical time series. The last 30 years have provided for higher than normal home price appreciation due to decreasing interest rates. This type of appreciation will not occur in the future.
What's happening now is basically a short squeeze in home prices. Many stayed on the sidelines while prices were falling. Those that bought at the peak are still waiting for prices to rebound and are sitting still until then. We've also seen commodity prices move higher since the home price peak in 2005. Builders still are waiting for higher price points to start building at normal levels to cover their costs and expected returns. Until this occurs, prices should continue to appreciate. Also, consider that U.S. real estate prices are much lower than other developed countries. This last point is mostly due to us being so spread out and willing to commute far distances.
I'm not so sure.
Once upon a time median home prices were rarely more than 3X median income.
This 2.5:1 or 3:1 ratio USED TO BE the definition of a healthy market.
(that ratio is still the definition of healthy personal budget)
The financing aspect (interest, points, etc) was discussed separately.
The ratio of home prices to income is meaningless.
Once upon a time, interest rates of 9% and higher were common...
At 9%, spending 20% of your income on principal and interest, with a 20% down payment, would get you a house 2.6x your income. At 4.5%, which is common today, spending 20% of your income on principal and interest, with a 20% down payment, will get you a house 4.1x your income.
Even with the recent rapid rise in rates, you can see how low interest rates have changed how much someone can afford to spend on a house for the same monthly payment.
As long as you are financing a home purchase, you can't discuss that aspect separately from the price, the two are inherently linked.
Even with the recent rapid rise in rates, you can see how low interest rates have changed how much someone can afford to spend on a house for the same monthly payment.
You are right, but interest rates are being heavily subsidized by the Fed right now because they are buying Mortgage bonds. The Fed is 90-95% of the mortgage finance market right now, if they stopped buying interest rates will jump to double digit figures since private lending does not have the appetite for mortgage risk. If rates were to rise to even a modest 7-8% which is very normal it would absolutely CRATER the housing market.
There was an study a while ago, I can't find the link but it pretty much said that absent the Fed's involvement in the market mortgage rates would be closer to 15% and it would be exceptionally difficult to qualify for a mortgage (even more than what it is currently) which means housing would be absolutely finished.
Which is why the Fed is in a huge dilemma, they can't exit nor can they keep buying. It's also the reason that the mere mention of an exit by the Fed sent huge panic in the markets.
Unfortunately due to other reasons interest rates cannot remain low for much longer, so this does not bode well for the housing market.
You are right, but interest rates are being heavily subsidized by the Fed right now because they are buying Mortgage bonds. The Fed is 90-95% of the mortgage finance market right now, if they stopped buying interest rates will jump to double digit figures since private lending does not have the appetite for mortgage risk. If rates were to rise to even a modest 7-8% which is very normal it would absolutely CRATER the housing market.
There was an study a while ago, I can't find the link but it pretty much said that absent the Fed's involvement in the market mortgage rates would be closer to 15% and it would be exceptionally difficult to qualify for a mortgage (even more than what it is currently) which means housing would be absolutely finished.
Which is why the Fed is in a huge dilemma, they can't exit nor can they keep buying. It's also the reason that the mere mention of an exit by the Fed sent huge panic in the markets.
Unfortunately due to other reasons interest rates cannot remain low for much longer, so this does not bode well for the housing market.
You have a link to the 15% study?
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