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Low housing price mean less invest in a home. Its like anything it reflects low demand and no housing inflation. Over all that is not good. It also means less builders constructing houses and a aging market of homes. If one look its driven up rents to those who an least afford higher rents and certainly not a home.
Bank greed has nothing to do with housing prices, it's the availability of homes versus the number of people that need them. The higher the loan amount, the
more the bank makes, but that's a side effect. Here, for example, with little crime, great schools, and views of lakes, mountains and water, plus plenty of major job centers nearby, the prices are going up more than 10% per year.
There re still plenty of "affordable" homes, but they are in less desirable areas
There are several solutions for people that can't afford a nice area are:
1. Get the skills for a higher paying job
2. Go in together with family or friends
No one, including the government is likely to convince developers to build small houses on small lots, and give up most of their profit, nor will the government reduce the building code requirements to allow for lower building costs.
The way Americans can afford these things is by getting really big loans. But if the prices were lower, wouldn't that be better. Why make banks rich by paying 3-4 times the price of the asset over 30 years. If the prices were lower, you could save for 10 years and buy it.
Thoughts on this?
I did save for 10 years and did buy my home. Everyone does this. That is what people do. For some it takes longer and for others they can do it in less time. Unless you are stating that someone could pay off a home by saving for 10 years and paying cash. That is also a possibility. Some people have done exactly that. We didn't do that because when we bought back in 2010 prices were low and interest rates were low. The perfect time to buy a home. If we had waited to buy we would have still had to pay rent and would have watched homes increase in value. Who knew that prices would start to recover. We sure didn't. What we did know is that we could afford to buy and that is what we did. The result is an increase in value from just over $300,000 to now around $450,000 or so I am told by our realtor.
One of the problems I have with the American economy is the fact that everything costs so much. Just for the working/middle class. If you are rich, you can basically afford the things you want easily. If you are poor, you get food, clothing and other needs for free or at subsidized rates.
But for the middle class, it is almost impossible for most people to save all of the money they need to buy a house or even a car. This is not true even in third world countries, where people can and do save money to buy their houses. Albeit the houses may be smaller and less expensive than in the US.
The way Americans can afford these things is by getting really big loans. But if the prices were lower, wouldn't that be better. Why make banks rich by paying 3-4 times the price of the asset over 30 years. If the prices were lower, you could save for 10 years and buy it.
There was a story recently on public radio, where some pundit was defending Fannie Mae and Freddie Mac. He said that it would be catastrophic if housing prices plummeted. Supposedly that is what would happen if these two agencies were done away with. Borrowers would have to meet more stringent lending standards and housing prices would go down. IMO that would be great. Thoughts on this?
Ultimately a home is only worth what someone will pay.
Yes, low interest rates on mortgages are currently allowing some to buy "more home" than they otherwise would be able to (because the monthly payment is lower), but it is not the only reason home prices are where they are.
For one thing, a lot of middle class people are trying to skip the "starter home" phase entirely, and purchase a $200,000+ 4 bedroom home as their first home. That creates a demand, and prices rise.
In many cities (welcome to the midwest) there are a number of homes for <120K. They may not be in very desirable areas, or may require significat rehabilitation, or may be very small. But they exist.
That is within reach of most people of modest/average income.
Larger/nicer homes in better areas or with more expensive features (or better lots, or larger sizes) are also available, but cost more, but ultimately still only cost only what people are willing to pay.
As far as homes being "used" (lol!) - existing homes (like for like) usually sell for a slight discount over new construction, however that quickly disappears depending on location ("used" homes are often in very well established neighborhoods with premiums on property), construction materials (old home may be all brick, vs. new home siding) or "character" (crown molding, wooden stairs, hard woods, etc..) - which can drive the price of the existing home up and above that of similar sized new construction.
Ultimately a home is only worth what someone will pay.
Yes, low interest rates on mortgages are currently allowing some to buy "more home" than they otherwise would be able to (because the monthly payment is lower), but it is not the only reason home prices are where they are.
For one thing, a lot of middle class people are trying to skip the "starter home" phase entirely, and purchase a $200,000+ 4 bedroom home as their first home. That creates a demand, and prices rise.
In many cities (welcome to the midwest) there are a number of homes for <120K. They may not be in very desirable areas, or may require significat rehabilitation, or may be very small. But they exist.
That is within reach of most people of modest/average income.
Larger/nicer homes in better areas or with more expensive features (or better lots, or larger sizes) are also available, but cost more, but ultimately still only cost only what people are willing to pay.
As far as homes being "used" (lol!) - existing homes (like for like) usually sell for a slight discount over new construction, however that quickly disappears depending on location ("used" homes are often in very well established neighborhoods with premiums on property), construction materials (old home may be all brick, vs. new home siding) or "character" (crown molding, wooden stairs, hard woods, etc..) - which can drive the price of the existing home up and above that of similar sized new construction.
LOL, I wish homes here were that cheap. I was talking to my financial adviser and he told me that the sad reality is that many people where I live will probably need to sell their homes when it comes time to retire. I know my parents did that. I know many other people that did that as well. One couple we knew divorced, sold their home and the lady moved to Arkansas, a place they had visited and she knew she could find a nice home with the money from the sale of their home and still have some money to work with.
...and he told me that the sad reality is that many people where I live
will probably need to sell their homes when it comes time to retire. I know my parents did that.
Owning in high income areas during the prime earning years is akin to an "operating expense".
Continuing to own there once that income stops is tougher.
The difficulty for most has been getting started: the up front cash beyond mortgage payments.
Of late though it's even more difficult because that mortgage has become astronomical.
The original post makes it sound like: 1) the two housing agents make the home mortgage interest rates low, 2) the low interest rate is a deciding factor for the high housing prices, 3) the high housing prices are bad for the society, and 4) the U.S. has artificially high housing prices.
For 1), the government slashes an insurance on the mortgage and makes it a quasi-government bond. However, the long-term interest rates decide the underlying mortgage rate. Remember our rates in 70s? Despite the government guarantee, your mortgage rates were very high.
2) interest rate is part of the equation but not all of it. Other factors include supply of land, median income, and possible outside investors' interest. San Francisco, Boston and New York are all like that.
3). for middle class, the largest equity lies in housing. And a low growth housing market does no benefit for the wealth buildup, and it pulls away one important investment alternative.
4) the housing prices here, except for a few cities, are not high at all. 3-4x of income is a piece of cake compared to Canada, Australian, and a handful Eastern Asia counties, where the ratio can go beyond 10x.
Last but not the least, it is a personal choice to save up and pay cash to purchase a house. However, it may not be a feasible option for many households with kids who need security and low school turnover.
Owning in high income areas during the prime earning years is akin to an "operating expense".
Continuing to own there once that income stops is tougher.
The difficulty for most has been getting started: the up front cash beyond mortgage payments.
Of late though it's even more difficult because that mortgage has become astronomical.
That is for sure. I have friends in other parts of the nation and they are living good with the money that they make. We are getting by with our money. My wife has some family in Georgia and they have never lived here on the Coast or in any high cost of living area. When they heard what we make and what our home cost they thought we must have a big home and are rich. My wife had to explain to them that we are just getting by and don't live all that extravagantly. We live within our means but many times it does not seem like we are accomplishing much where we are. I know in time we will be ok with our retirement and home paid off. If we don't hit our goals of $3 to $5 million I doubt we will stay.
Start with the Big One:
Median house prices should reflect median household income...
this used to range in the 2:1 to 3:1 range; 2.5:1 being very common.
Things worked better for all when this was so.
One of the problems I have with the American economy is the fact that everything costs so much.
Then see a doctor and get some meds, because that will not change for the rest of your life.
BRICS let the Globalization Genie ouit of the bottle, and there's no putting it back. As the 2nd, 3rd and 4th World progress through the levels of economic development, they will consumer increasingly more, putting extraordinary demand pressure on all commodities.
Either adapt and alter your Life-Style accepting a lower Standard of Living or learn which parts of the human body are best to cannibalize.
Quote:
Originally Posted by kinkytoes
There was a story recently on public radio, where some pundit was defending Fannie Mae and Freddie Mac. He said that it would be catastrophic if housing prices plummeted. Supposedly that is what would happen if these two agencies were done away with. Borrowers would have to meet more stringent lending standards and housing prices would go down. IMO that would be great. Thoughts on this?
That's not a pundit, that's a pukit.
People like that are sick.
You can eliminate Fannie and Freddie and your life will be richer and far less complicated.
If you got rid of Fannie and Freddie then:
the government would no longer steal money from tax-payers to provide mortgage insurance
either the bank or the home-buyer or both would have to purchase private mortgage insurance
the bank is certainly free to obtain private mortgage insurance and build the cost into the interest rate, or as a fee, or as rolled-up into the monthly payment
the home-buyer is also free to purchase their own mortgage insurance
private mortgage insurance would never accept "no-doc loans"
private mortgage insurance would be very particular about their policies, loan documents and risk.
high-risk insurance would be available for the stupid.
neither private mortgage insurance nor high risk insurance would be keen on things like 2nd or 3rd Mortgages or on HELOCs.....those would increase your rates.
neither would be keen on "flipping" which would make speculation very costly, thus reducing it and reducing housing values to Market levels.
The values of all homes are artificially over-inflated by 50% to as much as 500% in some Markets.
Ending government created Interest Inflation and speculation will restore housing prices to Free Market levels.
Housing...
Mircea
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