- The fact that Housing Bubble 2 is now even more magnificent than the prior housing bubble, even while real incomes have stagnated or declined for all but the top earners, is another sign that the Fed, in its infinite wisdom, has succeeded elegantly in pumping up nearly all asset prices to achieve its “wealth effect.” And it continues to do so, come heck or high water. It has in this ingenious manner “healed” the housing market.
- But despite the current “buying panic,” the soaring prices, and all the hoopla round them, there is a fly in the ointment: overall homeownership is plunging.
- The homeownership rate dropped to 63.4% in the second quarter, not seasonally adjusted, according to a new report by the Census Bureau, down 1.3 percentage points from a year ago. The lowest since 1967!
The question is what the Fed should do about. Part of the problem is that Congress has been so intransigent on doing anything like fixing the unemployment rate, that the Fed has been the only player in trying to right the economy over the last 8 years. And what can they do? Manipulate interest rates and print money. Not much else, and unfortunately, we're finding out what the negatives of long term 0% rates produce. I wonder what the long term consequences of this trend are going to be. Even though housing isn't a very good way to make money, it is a very good way to store money (as prices more or less track inflation over a decades timescale). $1000 toward rent is 100% expenditure, but $1000 toward a mortgage is at least a little money still in your possession (provided you don't refi all your equity away). And of course the interest to principle ratio drops as the mortgage matures. I fear that a whole generation of lifetime renters are going to be particularly fucked when they reach retirement age, and they have nothing of value to sell. Hopefully interest rates will begin to rise significantly in the near future, and prices can adjust downward in a moderate way. The underlying causes of bubble 1 and 2 are very different, so hopefully they same catastrophe won't ensue when prices eventually decline.
Hopefully not, if they've been putting their mortgage - rent = savings into a retirement account every month. I fear that a whole generation of lifetime renters are going to be particularly fucked when they reach retirement age, and they have nothing of value to sell.
While I technically could have afforded to buy a house, month-to-month living would've required a pretty strict budget and also for me to stop aggressively paying off my other debts - car loan, student loans, a medical bill, etc. Generic, general financial advise for money management is that debt should be paid down first, and then savings should be built. Now, I admit I don't follow this 100% as I'm not comfortable without some kind of "emergency fund" in cash, but as a whole I subscribe to that idea and it's sound. The longer you have debts the more interest you pay and the more it costs you, and there's no way typical savings can accrue enough interest to offset that. So, debts first, saves more money in the long run. What I'm trying to say here is that the $600/month that is not going towards the mortgage I didn't get, would not and could not intelligently have been turned into $600 worth of savings each month. I doubt that most Americans, especially the under-35 age group who have dealt with the increase in student loans and indebtedness, have situations that are much different from mine. Even paying off my debts as aggressively as I do it'll be 5 years before I project to end my student loans, and that is only about $15k of debt. American consumerism encourages a lifestyle of debt. Choosing not to take on even more debt via a mortgage doesn't mean that you suddenly have free money, it just means that your money can go to those other places you owe it. Debt is one very accepted lifestyle here nowadays.
Buying a house is actually cheaper in many areas right now on a per month basis, if you have a down payment. That's the way retail investors have been able to become landlords in the first place. But even if that weren't the case, nobody makes that calculus.
From a 2014 Forbes article: Of course, this probably doesn't include maintenance costs, which can be steep.Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas. In fact, buying is 38% cheaper than renting now, compared with 35% cheaper than renting one year ago.
Yeah, but Forbes is full of shit and you know it. Let's take my neighbors downstairs. They're teachers. They've got student loans. They live in a 2 bedroom condo with their 3-year-old son and their nine month old twin daughters. This is obviously an untenable situation so it's a good thing they were able to get their inlaws to loan them a 20% downpayment on their $350k condo in 2008. But now it's 2015 and they need another bedroom. And while their condo will likely sell for $500k (they actually got an offer of $75k over ask - but they had to do some chicanery with cash payments and the like because the bank won't actually loan that much over appraisal), the 3-br replacement for their condo is $650-700k. Take out some closing costs and the like and even though they've got a foot on the property ladder, they have to ask their parents for more money for another down payment. Forbes is basically saying "If you have six figures of liquidity, mortgages are easy to get" which is about the greatest "no shit sherlock" of a statement any financial journal has ever made. I'm looking in my building. Same exact floorplan, except they have the shitty deck while I have the dope one. There's a 3BR down the hall going for the bargain price of $550k ('cuz it's rough - and it'll still go for wildly over ask). And if I can put $110k down, I'll only pay $300/mo more to live there than I do here!Nationally, buying is 38% cheaper than renting with a traditional 20% down, 30-year mortgage. Buying is an even better deal with a 15-year mortgage, but not as favorable with less money down.
Sure, and that's a big part of the problem--that with the advent of large student debt and stagnant wages (plus untenable inflation in the rental market), no one can afford to save up for a down payment anymore. I'm not arguing that buying is easy; I was just responding to the previous poster's claim that people should be putting the difference between rental and mortgage payments into savings. I'm trying to make the assertion that the difference isn't there, and that this is just one more reason people with less money are buttfucked right now. I think we're on the same side here.
'k. I stand by my statement: even with a down payment, prices are so exuberant right now that it's cheaper to rent even without the externalities. That may not have been true in 2014 but it's been a damn ski jump around here and every market I monitor is chockablock with renters bitching about house prices.
I dunno, man. The street is absolutely batshit beside itself over the notion that Yellen might throw 25 basis points in September. A quarter point. I think what's going to happen is radically increasing income inequality. You're right - everyone under 35 is gonna be mondo fucked when they're "everybody under 65." I'll bet by the time the Millennials hit their 40s we'll see inheritance taxes and steep marginal tax rate increases on the $200k set. But I'll bet it's ten or more years out.
Yeah, because it means the eventual unwinding of the gravy train that they've had for the better part of a decade. Youngsters these days don't even know what a savings account with a return looks like. It's ancient history. It shouldn't be. Who the hell would even buy a 5 year CD at 2% (which as of writing this is what Ally is offering, and I'm told they're the good one) when you can make 10, 20, 30% in the market if you have a little luck? I would be scared too if my business were dependent on people throwing money at me because they don't have anything else to do with it.The street is absolutely batshit beside itself over the notion that Yellen might throw 25 basis points in September.
I've been wanting to move out of the U.S., but every country I'm interested in immigrating to requires me to have success in an in-need career field (the jobs I used to have, have disappeared with the changing economy) and a college degree. Irony in play. Cruel irony.
Honestly? You're exactly the guy who should probably go work in Kuwait/UAE/Riyadh/etc. You look native. Just do me a favor - don't sign a contract longer than 12 months. I think you'll find that they pay extraordinarily well because it's a really ooky environment. Whatever you do, don't surrender your passport.
And you know what? Doing time in Saudi may very well improve your outlook on your options here. It may also get you added to the terror watch list but let's be honest - lineage like yours you've been there since you turned 18 so that ain't no thang. I say go. There are opportunities to be had and experiences to internalize.
This is pretty interesting. I own a condo, and the pressure I see is the pressure to move around to further my career. Ironically, a lot of that pressure comes from within the company, and a long term outcome is I'll probably leave the company when I succumb to the pressure. But when I look at owning, selling and buying, it's a monumental pain. Renting, though, is so easy. Just don't renew your lease, rent a van and you're off to a new job in a new city. I like the stability that owning gives me, but that stability comes with a price. My theory is that metaphorical price, in addition to actual price, weighs on young people.
That's absolutely by design. Homeownership is a concept that's been pushed on Americans since WWII... and it makes sense when you consider that housing is the only appreciating asset most people will ever own. However, as the only appreciating asset most people will ever own, there's a lot of pressure from the lampreys to get you into a 2nd mortgage, a HELOC, a payment greater than you can afford, etc. Combine that with derivatives - whereby investors aren't trading your mortgaged assets, they're trading on your ability to retain your mortgaged assets - and all of a sudden, people with lots of money are getting still more of it by putting your assets in jeopardy. My wife has owned our house since 2000. We're in a good place. And for the past seven years, we've rented it out. It's been a net win... but that's only because she purchased back when prices were more in line with fundamentals. In other words, we could rent it for right about what the mortgage was. We've been profiting only for the past couple years. Wanna see a scary graph? I mean, the San Fran thing is batshit but even the national curve is crazy. http://wolfstreet.com/2015/06/21/housing-bubble-2-san-francisco-vs-america/
SF is such a pigfuck, blood orgy of money that I'm not sure it's really even meaningful to compare it to the rest of the country. I wonder what CA looks like when the Bay Area is removed from the data. I'm sure it's still wacky, but not nearly as bad. I also wonder what's going to happen when everyone's boner finally subsides and we all realize that Uber really isn't a $40 billion company, and that FB doesn't really command 20% of all internet users' screen time. SF is a bubble that needs some good old fashion popping. Mostly I feel bad for the work-a-day types who live there. WTF does a server do when a one bedroom postage stamp puts you back $2500/mo?
Dude. Dude. 1100sf 2br condo with $400/mo HOA fees? $550k. That's my neighborhood. That's my building. That's the unit I lived in until 2013. Literally. That's in the cheapest neighborhood in the westside. Everybody I know is moving to the Valley, where a similar setup is only $450k. I know people talking about moving to Palmdale. San Fran is a leading indicator. Ain't nothing so batshit as the tech sector right now, and ain't no housing prices so batshit as tech housing prices. It's not like Uber's cratering isn't going to impact the rest of the economy. Wanna see $5 BILLION dollars in market cap go away in two sentences? “We haven’t done a great job at aligning the entire company around our total audience strategy. We’re in the process of implementing a stronger discipline of direct ownership and accountability.” It's lame - I'm about to take my money out of my ratcheting index funds and start to play the ponies with it. Nothing stupid - just better index funds and some diversification. But the more I look at things these days, the more I realize that if it were 2007 I'd be even more eager to hide my money in my bomb shelter. I may just leave things where they are and wait for this shit to settle itself out.
I have a friend working for Google who is paying $4900/month for a two bedroom apartment over the hill from Mountain View. That is close to $60K a year JUST TO PAY RENT. I've lived in that insanity and my mind still has a trouble thinking about this. To put the cost of living in perspective, his rent every year is about what my house COST. My mortgage including escrow is less than his HOA fee. There is a lot to say about how living in the Ohio Valley sucks; the cost of living is not one of them.
Yeah, there was an... okay house in my neighborhood. 2800sqft, no view of the ocean, built in the '70s. $1.6m. I decided what the hell, let's see what $1.6m will buy where I want to live. Yeah. That was pretty much when I started going "since I don't want to live in LA, and since I don't have to live in LA, why do I live in LA? 60 more days.
Wow. For that money you could get a 500+ acre farm and the stuff to do something with it about 40 minutes out of the city. With the Internet, the stuff I want to buy is all online and can ship right to me. And the community of people I want to hang out with is smaller, more dedicated and honestly more involved in my hobbies. I'd not mind moving back to San Diego, but the price of living out there can go fuck itself.
Even though I'm Canadian, the situation is similar in Vancouver: the house that my folks bought for $150K back in 1992 is worth close to $1M today--and what most buyers in White Rock (suburb of Vancouver) do is buy the property, then tear down the house & rebuild. In Vancouver, the biggest issue is that overseas buyers are purchasing properties at exorbitant prices, pricing Canadians (residents and citizens) out of the market. A UBC study recently showed that 15% of downtown condos in Vancouver are sitting empty, with their owners simply not living in them. Some commercial property is being exclusively marketed towards overseas purchasers. It's rare that people my age are able to afford to purchase a home here. A condo, perhaps, but the huge difference in housing prices between 20 years ago and now are pushing many young professionals out of the area. Many other countries have laws that limit foreign ownership of property, but in Canada, we really don't. It's unfortunate. (And probably off-topic, given that the topic is American home ownership, but I wanted to contribute, dammit.)
Oooh! I love this game! I remember when the Hong Kongers came. They showed up, bought a house to establish citizenship and went back to Hong Kong. And all of a sudden, everything was expensive. If it makes you feel better, they're now doing it everywhere.... but Vancouver was definitely a leading indicator.
We've saddled a whole generation of people who should be buying homes with mountains of student loan debt. And then we get tone deaf people my age and older complaining that these "kids" are living at home, not buying cars, not buying houses and not getting married. Then add in that the jobs that would normally be there for the 2/3 of people who don't go to college are either gone or disappearing and golly gee, I wonder why people in their 20's are not buying houses. I hang out with people in their late 50's to early 70's who flat out do not get this. AT ALL. My dad got out of the Air Force and had people lined up offering him jobs. He got the equivalent of $45,000 a year, his health care was paid in full, the union gave him an education and his house cost less than 4/5 his yearly income. People in their 20's now are actually WORSE off buying a home. Forbes had an article a while back on how some 20-somethings are pissed that they cannot put down roots as they have to be mobile to chase jobs. They may work two years in Dallas, then three in Denver, then to Chicago before they are in a more stable employment. Can't do that if you have to unload a house every few years. Add in the new fact of life that if you want a raise you change companies instead of stick with a single company and grow with them. I'm glad that I am not in my 20's now knowing what I do now. I'm also glad that I chose to move somewhere in the middle of the country where I can pay $350 a month for an 1100 square foot house on an acre, and yet that took a lifetime of hard work and sacrifice and some pure dumb luck to pull that one off. I wish the job situation out here was better so that more of you nice people would move out this way.