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The rate should be whatever the free market says it should be.
The fact that they can NOT sell government bonds at the current rates without having the Federal Reserve create money out of thin air to help buy the bonds proves it is artificially low and the rates have been suppressed.
The fact that the Federal Reserve has created money out of thin air to buy mortgages off of the banks to free up banks to make more mortgages loans is also artificial and has driven up home prices.
The fact that the Federal Reserve has created money out of thin air to buy up corporate bonds including junk bonds has artificially suppressed bond interest rates and kept inefficient companies alive that should be going through a cleansing process of bankruptcy.
This has cascading effects throughout the whole economy. It is artificial. It is not free market.
The way the OP feels is how I felt in 2006 or so. For every dollar I saved in 2006, it seemed like the housing market went up by 2 dollars. We might be in a housing bubble again. I'm not sure to be honest. The housing market doesn't seem to be growing at the same speed as last time.
Yeah, nationally mandated things like prices and perhaps something like wages make little sense when applied across this great and varied nation where costs can be 3-4x higher for the same apartment across towns in this country.
Things like food safety or FAA regulations and so forth? Sure.
Just not things that vary wildly with factors like climate, cost of living and so forth.
The problem is we have a faction of Americans that don't understand the economy, business, life etc. They only know what they feel, they can't imagine everyone and every place is not the same.
When Levittown was built as the prototypical postwar suburb after WWII those houses were selling for $8,000 new in 1949. Adjusted for inflation that would be around $86,000 in today's money. Show me where you can buy a brand new suburban house near a major city for that money today. The problem isn't that people are whiners who need to lower their expectations, it is that housing has gotten absurdly more expensive over the last 70 years. When the material conditions of life fall for people, that shouldn't be a reason to complain that people suddenly want too much. They just want what their parents and grandparents had.
The median home sales price in Levittown (PA, I assume) is $300K. For anyone who doesn't understand "median", it means 1/2 the homes sold above that and 1/2 the homes sold below that.
The median household income in Levittown in 2018 was ~$77K. That income level supports a mortgage - at 3.5% - of ~$350K.
That is the only stat that matters - does the area's MEDIAN household income afford the area's MEDIAN house?
For example, the median income in San Fran is $136K, but the median house price is $1.4MM. That income only supports a mortgage of $600K. SF is very "unaffordable".
The Federal Reserve artificially lowers interest rates and they buy mortgage backed assets via QE.
Both of these have inflated a housing bubble.
Biden's 15K for new home buyers will be an inflationary force upwards.
That is one proposal that better die on the vine. Frankly, whoever cooked it up shows they have no clue about economics. Well, clueless and somehow want to be more progressive than Obama and fulfill a Biden claim that he'd be the most progressive POTUS ever. "What did Obama do here? OK,let's do more!"
I don't know what property taxes are there, or whether insurance is really expensive, but ...
an FHA loan is $587/mo + TI. Even at 2% tax and a ridiculous (to me) $100/mo insurance, you're still talking less than $950/mo.
Quote:
Originally Posted by scarabchuck
Right. Plus utilities, a vehicle, groceries. Yeah, that is going to suck.....more incentive to attain a skill.
you're talking about needing a $38K household income to afford a $145K home. Whether it's a single professional a couple years out of school or a couple that are both FT hourly wage, they shouldn't have an issue affording that home.
Tell that to Trump. His wealth depended on foreign buyers who make ideal owners. They pay cash, hold title in trust, rarely live full time in the unit, pay their taxes and assessments on time.
The US is pretty much the only developed country that makes mortgage interest tax deductible. That almost certainly helps bid up house prices. Most economists will tell you that the deduction makes no sense from an economic perspective. It is a massive subsidy that becomes larger as you are able to take out a bigger mortgage. It is basically a give away to the upper middle class. Renters get no similar housing assistance from the tax structure. We should get rid of it. When conservatives talk about those who don't pay income taxes, a lot of those people are middle class people with big mortgages and a few kids. The working class renter with no kids is still paying in if they make $25K.
If we stop making interest tax deductible it will change the calculus of how big of a mortgage people want to take out, which will probably lead to smaller lots and more construction of the sort of smaller houses that are affordable to first time home buyers.
Less than 1/2 of mortgage-owers deduct their interest - and that was BEFORE the "standard deduction" increased.
Now, an argument can be supported to remove the rest of it, or limit it further, but let's remember ...
1. Look at the screaming over the $10K max on SALT. Maybe if we further limit MID to the first $10K
2. Just so we're clear, you're not trying to balance the budget with this - it's "only" ~$60B per year.
3. If you're in the wide "upper middle class" swath that pays 22-24% marginal rate ... you pay ~$20K in interest/year on the MAX $750K mortgage. So your tax effect is ~$5K. That might be a 2% affect on your income, on the high end.
4. Lenders don't calculate a debt ratio based upon the after-tax "cost". IOW, they don't say "oh, well, you get the MID so we'll approve you for more." It would have a psychological effect on a few borrowers/taxpayers.
you're talking about needing a $38K household income to afford a $145K home. Whether it's a single professional a couple years out of school or a couple that are both FT hourly wage, they shouldn't have an issue affording that home.
38k is more like $18 an hour...I thought we were talking about $15.
And what looks good on paper, isn't always the case in reality. My daughter is in the $16 an hour range, works overtime and we see how tough it is for her. She rents. Home ownership comes with a lot more responsibilities than just making the payment.
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make little sense when applied across this great and varied nation where costs can be 3-4x higher for the same apartment across towns in this country.
Not a smidge of reality there.
