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PaperclipPerfector  5mo ago (text post)   3699 thread views

Small-Scale Question Sunday for November 12, 2023

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Anybody feel like telling a few stories about how the housing market might get better over the next couple years? I'm having a hard time seeing it and most people are more inspired by predicting doom than imagining the subtle signs of what an improving market would look like. Was out for a walk earlier with the wife and she mentioned how this one neighborhood we both like sometimes just bums her out now that she's accepted we're not going to be able to buy anytime soon. We've managed to save enough but even on lower end stuff, the monthly payments are insane and 2-3x what we're paying.

Anybody feel like telling a few stories about how the housing market might get better over the next couple years? I'm having a hard time seeing it and most people are more inspired by predicting doom than imagining the subtle signs of what an improving market would look like.

It's interesting how this could refer to prices going in either direction. Like, it would mean the opposite if said in 2008. I guess good just means not too volatile in either direction?

Ultimately my heuristic for being quite certain the situation will improve is an extremely simplified model, I guess you could call it entitlement, but I think it's justified:

Right now I cannot afford to buy a decent home anywhere that people would want to live. There are millions of home where I live. My household income is upper middle class. If you distribute these homes starting at the top and working your way down there should be more than enough to reach me and others like me on the totem pole.

Whatever exact mechanisms will apply to get there, people in my salary situation are supposed to be able to own homes. The market will have to correct and make it possible for me to buy a home because a second home is not worth as much to people higher than me than my first home will be to me, and people below me will not have the means to beat me on the market.

tl;dr : There are homes all over the place, maybe not for everyone but at least for everyone from the upper to the middle-middle class. If I, in the upper-middle class, cannot afford to buy one now, who can? They're not gonna remain empty.

The market will have to correct and make it possible for me to buy a home

The market can remain irrational longer than you can remain solvent.

If I, in the upper-middle class, cannot afford to buy one now, who can? They're not gonna remain empty.

Why not?

The market can remain irrational longer than you can remain solvent.

That quote refers to situations where someone is spending money in the hope that a market correction is incoming. I'm not spending money, I'm accumulating it.

Why not?

Because that is in no one's interest.

This isn't sustainable over the long term, my guess would be that likely home prices will move in response to this, but it's likely to take time.

Mathematically the prices will go down. I’m glad it happened, this model of ‘pay almost no interest, just take on multi-generational debt you’ll unload onto the next buyer’ was getting really stupid. That sort of mortgage was really rent by another name, because they didn’t own the house and couldn’t pay it back. You dodged a bullet there, now you might actually get to own a house some day.

What are you talking about? It takes 30 years to pay off a 30-year mortgage. Low principal and high interest is no worse than high principal and low interest, if the monthly payment is the same.

And according to the chart linked by /u/atelier, the average monthly payment had been going down in real terms until last year.

Low principal and high interest is far better than high principal and low interest. With high interest rates you can slowly remortgage as rates fluctuate, while with low interest rates if they are going to change they are likely changing up, which means remortgaging doesn't work and also you really don't want to sell your current house that you got on at a lower rate to move to a new one (even though it would be good for you and the economy as well) that comes with a higher rate, thereby discouraging people moving to where it is economically best for them.

Why do prices have to go down?

Also, higher interest rates that push prices down make housing more expensive, because interest payments plus opportunity costs of downpayments initially stay the same, but what follows is a decline in housing investment that decreases the supply, pushing the total costs up.

That doesn't help him since he is complaining about monthly payments as well, which will likely stay the same. When the interest rates go down again then the prices will rise at the same time.

The housing market isn't "improving" unless you're sitting on a bunch of liquid capital, which it kind of sounds like he is but he is going to have to eat the higher monthly payments.

Interest rates going down will likely mean the economy is in a downturn. It's anyone's guess what that will mean for prices.

When the interest rates go down again then the prices will rise at the same time.

Not at the same time, with considerable delay. We are right now in such a delayed phase, where sticky prices have not caught up to interest rates (only it’s about prices going down instead of up). I’d prefer interest levels to stay mid permanently, to stop this rollercoaster. My second choice is permanently high interest rates. Low interest rates ownership is fake, and transforms banks into landlords.

The obsession with monthly payments just strengthens the analogy to rent. If someone selling you a car or TV kept talking about your low monthly payments, you would recognize it as sleazy, would you not?

Not only is there no delay, but prices reflect expected future interest rate changes.

You seem to be implying that back in the day people paid off their mortgages before the thirty year term was up. Is this actually true? If not, then holding the term constant, yeah I'd prefer the lower payments, thanks.

According to American Nightmare (Randal O'Toole): Six-year house loans (with down payment of 0.5 percent, no fixed payment schedule, and the possibility of refinancing at the end of the term) were popularized around year 1889, and 12-year mortgages from building-and-loan associations (with down payment of 25 percent) also were popular. Sears's famous mail-order house kits could be obtained with 15-year mortgages (with down payment of 25 percent) around 1911 (zero down payment from 1917 to 1921). Longer-term mortgages weren't mainstream until 1948, when the federal government authorized the Federal Housing Administration (created in 1934) to offer 30-year mortgages (with down payment of 5 percent, or zero for veterans).

In The Jungle, Jurgis' mortgage was 20% down ($300) and $12 a month for eight years and four months (plus interest at 7% per year which the agent never told them about).

To put it another way - 30 year mortgages have been mainstream longer than six year mortgages were. unless fuckduck thinks that price/income ratios are going down to 19th century levels, the 30 year mortgage is here to stay and yeah the monthly payment is the important question.

It won’t stay, the trend is constantly increasing mortgage duration. People are already counting on parental help to get a 30y these days, so it will go to 60, two generations. It won’t stop until every purchase becomes an infinite payday loan. You’ll own nothing, and be happy.

Maybe we can’t get the price/income ratios down to the 19th century, but we can stop them from going up even further by lying less to the financially incontinent, by calling their cheap debt rent.

30 year mortgages have had a remarkably long life and I don't see them going away any time soon.

33% of homeowners have paid off their mortgages. People are not going from mortgage to mortgage perpetually all their lives - this claim has no basis in reality.

Shouldn't the Rule Against Perpetuities bar infinite mortgages?

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