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PaperclipPerfector  8mo ago (text post)   3777 thread views

Small-Scale Question Sunday for August 27, 2023

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

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I’ve been seeing posts on social media about unaffordable the housing market has become (in terms of home price to income ratio). Many people who don’t already own a home are locked out of the home ownership market because the monthly mortgage payment and down payment required has increased a lot faster than the median wage since 2020.

What impacts will unaffordable housing have on politics? Do you think we might see a shift from identity-based politics to politics more focused on economic inequality?

I think people need to stop assuming that conditions that are clearly due to extraordinary circumstances will continue indefinitely. We know why buying a house is difficult now. Mortgage rates are high because the Fed has raised rates to get inflation under control, and home prices are not adjusting downwards because people don't want to move and trade in their 3% mortgages for 7% mortgages.

Sooner or later, one of two things will happen:

  1. The Fed will start lowering rates.
  2. People will start selling houses again because they can't hold on forever.

Ideally we would also build a lot more homes, but that would require better voters, so don't hold your breath.

Also, the home ownership rate is currently 66%. The only time on record when it's been higher is 1997-2011, and even then it was only a little bit higher (the 2020 spike was just an artifact of pandemic-era polling practices). The percentage of people who don't own their own homes is about what it's always been.

One thing with housing is that we have examples of localized unaffordability that are much more extreme than most national housing issues, so the local response should give us an idea of what a nationwide response might be. Think of areas like San Fran, Vancouver, London, or most notably Hong Kong. These are often areas where there is some control over house building rates or other local powers that could swing things.

Hong Kong is both the worst in terms of affordability and the one with more control over local issues, but what have we seen there? The only protests in recent years have been from pro-democracy groups. The residents have just accepted worse and worse housing. Even if you believe the CCP's control is a unique situation, it's not like we've seen differently in other overpriced metros.

San Francisco is among the urban centers that had unprecedented population declines during this time. From 2020 to 2021, the S.F. population fell to its lowest level since 2010, erasing a decade worth of population growth in a single year. Similar changes occurred in large cities across the country. New York, Washington, D.C., and Boston each saw outsize outmigration during this time.

Source: https://www.sfchronicle.com/projects/2023/maps-migration/

Some people aren't accepting worse housing they just simply move instead of waiting for conditions to improve. This migration then impacts politics because people bring their political beliefs with them, often causing shifts in the political climate of their new location.

Boomers dying, downsizing, moving into nursing homes are one part of things working out, and the geographic preferences of homeschool/work from home families are another, and gentrification of blighted urban areas are another. The economic decline/stagnation of some older working class suburbs won't be great, but the houses will be filled.

The real monthly median mortgage payment has been remarkably stable for decades, so I expect that home ownership will not remain "unaffordable" for long.

That chart is not actually the median mortgage payment, but what a mortgage for the median home sale price at current mortgage rates would be, correct?

Isn’t that just a clearing price? It wouldn’t reflect anyone who can’t get a mortgage. Which, for the last 10 years, has been an unusually high percent.

Combine that with the axis malfeasance on his income and homeownership plots, and I start to distrust the blog.

I am not sure why you say that an unusually high percent of people have been unable to get a mortgage for the last ten years. It seems unlikely, given mortgage rates over the last ten years. Do you have data on that?

I am usually quite critical of not starting the y-axis at zero, but when the point is that numbers have been generally within a narrow band, starting above zero is not misleading.

I’m looking at the homeownership rates in that page and noticing the dip since 2008. Those people are presumably not holding mortgages.

This reprt shows a dip and recovery in new mortgages, but a lasting collapse of refinancing. I’m not sure if I’m reading it right.

Well, of course it is not as high as in 2008 -- The years leading up to 2008 were the subprime years, in which they were giving mortgages to anyone with a pulse. You are looking at an outlier and thinking it is the norm.

My point is that the mortgage rate is confounded by those stats.

A stable median payment doesn’t just mean that the supply and demand curves haven’t moved. It can also mean they both moved up or both moved down. As long as the shifts are similar, the clearing price will stay level, even though the clearing quantity is changing.

Given that we know the supply contracted, and the price didn’t really change, demand must have contracted too. Makes sense, as people lost their jobs or otherwise got booted from the housing market. Fewer people were willing to pay a given price. Isn’t that the definition of “unaffordability?”

In other words, median mortgage rate measures clearing price. OP was instead asking about demand.

First, we dont know that the supply contracted. Certainly not over the last ten years. See data re existing home sales and new home sales

Second, I don’t know what you mean about people losing their jobs. The trend over the last 10 years has been the opposite.

Remember, we are talking about your claim that "for the last 10 years," there has been "an unusually high percent" of people unable to get mortgages.

Right. I was referring to the first graph from that Kevin Drum article: homeownership, ages 25-34. The rate plummets after 2008 for obvious reasons. That’s the unusually high percent who are not holding mortgages.

I’m not arguing against a crash (2008) and recovery (2016). I’m saying that it makes the median mortgage payment a bad indicator of affordability. It’s “remarkably stable” even when we know the housing market is freaking out.

That link shows mortgage rates going from 1500 (approx) in 2020 to 2500+ in 2023, while in the same time frame wages rose from 45k (approx) to 48k (approx). In order to restore affordability some combination of the following would have to happen:

  • Home prices fall
  • Mortgage rates fall
  • Wages rise faster than home prices

So when you say you don't think that home ownership won't remain unaffordable for long how do you think the affordability will be restored and how long will that take to happen?

It depends. If mortgage rates remain high, I expect real home prices to fall eventually, at least relative to income. Because home prices are in part a function of mortgage rates, and we have already seen some evidence of that happening.

What impacts will unaffordable housing have on politics? Do you think we might see a shift from identity-based politics to politics more focused on economic inequality?

Absolutely. The pro-housing political movements like California YIMBY and others are gaining quite a bit of traction as of late. Look at places like Canada to see the foment of pro-housing initiatives (although Canada is sadly quite authoritarian as of late.)

Housing has been growing in importance after the lull since 2008, and I'm convinced come 2028 it will be one of the top three issues politically.

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