The affordable housing crisis

[Ken_J]

I'm not sure how it is in other countries, but in the US right now housing costs for the vast majority of Americans is running in excess of 1/2 their monthly income on monthly rent. That's not taking into account things like utility costs, food, car payments and health insurance costs.

I'd like to think that with rental costs in the area Starting at 70% of a minimum wage workers monthly income for a studio with no utilities included. And two bedroom one bath houses on properties with no actual yard or garden space going for a quarter million dollars. That we have to be approaching a point at which the majority of the people in this country will be forced to start making a stand like they are in the 'great resignation, and work from home' push.

But secretly I fear that we just don't have it in us anymore. The fight response isn't there anymore.

in 2012 the statistic was that no person could afford a 2 bedroom apartment on minimum wage anywhere in the country. Now almost a decade later a studio apartment, or in fact a rooming house room, will cost minimum wage worker between 60 and 80 % of the income from a 40 hour work week. a One bedroom aparatement will cost around 90-100% of a 40 hour work week at minimum wage. That does not included utilities, food, or health insurance costs per month. and most employers I've seen will not give wage workers full time hours. 39.8 hours yes, 40, no. and in many cases the hours can drop to less than twenty at slower seasons like late february to early june. That is if they keep the employees at all, which if you work in a 'right to work state' is unlikely. They will often cut 1/3 -1/2 the workers for the slow season.

It's been bad for years, it's only gotten worse. and the cost of buying a home is insane, and in this area of the country even the rotting shacks go for 100,000 minimum. and the property taxes run 4-6 thousand per year. That was before this last year. Now, you just cannot buy one. full stop.

How much worse can it get. I keep thinking that surely we are at a breaking point. but people stubbornly refuse to break. more and more are slipping out of the system and the homeless population is growing, and the solution we see for that most often is police storming homeless encampments and destroying what little they have and forcing them to scatter and try again elsewhere until the next police raid.

[funkervogt]

House prices will eventually stop rising. It will take years longer for wages to rise enough to bring the real cost of housing down to where it was five years ago.

[R8Z]

Some articles to feed into the discussion:

Are Houses Less Affordable Than They Were in Past Decades?
https://www.ccsummerfield.com/blog/70/A ... st+Decades

As the chart shows, when adjusted for inflation, there were only two times in the last 45 years that it was less expensive to own a home than it is today.

- Last year: Prices saw strong appreciation over the last year and mortgage rates have remained relatively flat. Therefore, affordability weakened.
- 2010: Home values plummeted after the housing crash 15 years ago. One-third of all sales were distressed properties (foreclosures or short sales). They sold at major discounts and negatively impacted the value of surrounding homes – of course homes were more affordable then.

At every other point, even in 1975, it was more expensive to buy a home than it is today.

--------

Chart of the day…. or century?
https://www.aei.org/carpe-diem/chart-of ... r-century/

Various observations that have been made about the huge divergence in price patterns over the last several decades include:

a. The greater (lower) the degree of government involvement in the provision of a good or service the greater (lower) the price increases (decreases) over time, e.g., hospital and medical costs, college tuition, childcare with both large degrees of government funding/regulation and large price increases vs. software, electronics, toys, cars and clothing with both relatively less government funding/regulation and falling prices.

Blue lines = prices subject to free market forces. Red lines = prices subject to regulatory capture by government. Food and drink is debatable either way.

[R8Z]

I am not sure I agree with either articles above, but it's a starting point. It feels like (global) inflation is much stronger that it is currently implied.

[erowind]

.

[Ken_J]

[Tadasuke]

I think that accelerating techno-economic developments will make all costly services and goods exponentially cheaper in the future. Including housing. It's only a matter of time. Any rises in costs are temporary and will not go on forever. Dips below or jumps above the long-term trendline get corrected over time. That's how open market works and will work in the future. But I agree that currently the situation is definitely not good enough. It's not technology's fault, but policies' fault, at least in the USA. I predict HUGE changes in every sector during the second half of this century. Costs will be falling down like crazy. We will be moving into a world of abundance. By 2120 we will live in post-scarcity society.

[wjfox]

It will be interesting to see what difference 3D printing makes to housing/construction costs. Early indications are quite promising.

[caltrek]

Why It Is So Hard to Buy a House
by Felix Salmon
May 5, 2022

https://www.axios.com/2022/05/05/housin ... difficulty

Introduction:

(Axios) The proportion of homes being sold for cash — deals where the buyer isn't taking out a mortgage — hit a new high of 28% in March. That's the highest level we've seen since the post-crisis years, when a lot of home sales were foreclosures. (To buy a home out of foreclosure, you have to pay in cash.)

Why it matters: This is a sign that the housing market is still extremely tight, and that there's little hope high mortgage rates will bring down prices. After all, high borrowing costs do nothing to deter cash buyers.

What they're saying: "Cash sales are a sign of a hot market," says National Association of Realtors economist Gay Cororaton.

• If you want to win a bidding war, making an all-cash offer is strongly advised in many markets. But for the overwhelming majority of Americans, it's also impossible.

The bottom line: It's now harder than ever to move from one home to another with the same value. Not only will the new mortgage cost you a lot more than you're currently paying, but even winning the bidding war for a new place will be hard if you need any kind of financing.

caltrek's comment: "Little hope high mortgage rates will bring down prices." So, while the Fed's hiking interest rates may be checking overall inflation, it can actually increase the cost of buying a house - unless you are able to purchase with cash only.

[funkervogt]

“Our results also imply that the future path of housing costs may depend critically on the path of remote work,” the NBER paper added. “If remote work reverses, then there may be a general reversal in housing demand and potentially house prices. If remote work persists, we may expect important repercussions as increased housing costs feed into inflation and so affect the response of monetary policy.”

https://www.marketwatch.com/story/remot ... eid=yhoof2

[Xyls]

I am not sure I agree with either articles above, but it's a starting point. It feels like (global) inflation is much stronger that it is currently implied.

Keep in mind this is America specific. The housing crisis is far worse in other countries. Canada probably has the world's most intense housing crisis at the moment, and there are rumblings that it could set off a financial crisis globally if it were to get out of control.

Canada's market never reset like the American one did after the Great Recession and housing in Canada is almost twice as expensive as homes in the United States.

[Xyls]

Canada is the furthest along on interest rate rises. Everyone should be watching it to see how the housing crisis is going to go...

Canada's average home price slides to $746,000, sales plummet amid rising rates

https://financialpost.com/news/economy/ ... rate-hikes

Home prices across Canada appear to be slipping under the weight of rising interest rates, with the nationwide average home price falling to $746,000 in April, down 6.3 per cent from March’s average of $796,000, according to data from the Canadian Real Estate Association.

[raklian]

Canada is the furthest along on interest rate rises. Everyone should be watching it to see how the housing crisis is going to go...

Canada's average home price slides to $746,000, sales plummet amid rising rates

https://financialpost.com/news/economy/ ... rate-hikes

Home prices across Canada appear to be slipping under the weight of rising interest rates, with the nationwide average home price falling to $746,000 in April, down 6.3 per cent from March’s average of $796,000, according to data from the Canadian Real Estate Association.

I think the housing market is going to keep heating up in Canada as more people migrating there due to the effects of climate change. The current slide in prices is probably a temporary reprieve, allowing those who missed the opportunity to buy in earlier to get on the bandwagon to even higher prices.

[Xyls]

Canada is the furthest along on interest rate rises. Everyone should be watching it to see how the housing crisis is going to go...

Canada's average home price slides to $746,000, sales plummet amid rising rates

https://financialpost.com/news/economy/ ... rate-hikes

Home prices across Canada appear to be slipping under the weight of rising interest rates, with the nationwide average home price falling to $746,000 in April, down 6.3 per cent from March’s average of $796,000, according to data from the Canadian Real Estate Association.

I think the housing market is going to keep heating up in Canada as more people migrating there due to the effects of climate change. The current slide in prices is probably a temporary reprieve, allowing those who missed the opportunity to buy in earlier to get on the bandwagon to even higher prices.

Yes, part of the problem is that Canada takes in too many immigrants. The Liberal government has set immigration targets with no consideration for whether there is housing for them. Then you get the government saying we are going to take in all these refugees to look good to the media with no plan and now this is part of the result.

[funkervogt]

Here's an article from nearly three months ago predicting that U.S. mortgage interest rates could hit 5% by later this year.

Hale thinks we’re close to hitting 5%: “Even if rates slow their recent pace of increase, they’re likely to hit 5% by mid-year unless something big changes in the outlook,” she says. And Jeff Ostrowski, analyst at Bankrate, thinks it could happen even sooner. He notes that rates have been climbing sharply and hit 4.59% in Bankrate’s latest weekly survey of lenders. “It’s quite possible that the upward trend will continue and that the rate will hit 5% sometime this spring,” he says.

https://www.marketwatch.com/picks/inevi ... 1648838969

The reality is worse than they predicted: today, a 30-year conventional mortgage has a rate of 6%.
https://www.bankrate.com/mortgages/toda ... e-21-2022/

[caltrek]

European Union Tracks Highest Spike in Housing Prices in Nearly Two Decades
by Amanda Pampuro
July 8, 2022

Introduction:

(Courthouse News) — For 29.8 million koruna ($1.2 million), you can purchase an 872-square-foot rowhouse a five-minute drive from Prague. While the ad for this four-floor dwelling boasts forest access and potential, the home now costs about 7.45 million koruna ($310,000) more than it would have if bought last year.

While the central European country reported the second highest increase in house prices last year, housing prices across the European Union jumped 10.5% since last year marking the most drastic year-over-year increase in 17 years, according to data released by Eurostat on Friday.

Seventeen of the EU’s 27 members tracked annual house price increases greater than 10%.

Residents in Hungary experienced the greatest increases in annual housing costs, 20%, followed by Czechia, 25%, and Estonia, 21%. With an increase of only 1%, Cyprus reported the smallest increase in house prices, followed by Finland and Italy, both 4%.

Between the last quarter of 2021 and the first quarter of 2022, housing prices jumped an additional 2%.

Read more here: https://www.courthousenews.com/eu-tra ... decades/

[caltrek]

The Great Housing Divide: How Wealth Inequality in Denmark Starts With Property
by Mie Olsen
July 8, 2022

Introduction:

COPENHAGEN, Denmark (Courthouse News) — In 2018, the World Bank published a report on housing, mobility and welfare in European Union member states. Denmark was found to have one of the highest housing cost overburden rates in cities.

The report also said that homeowners are more likely to benefit from overall economic growth because, in general, renters see their increased salaries tempered by increases in monthly housing costs.

Since then, Denmark has experienced a housing bubble, as prices went up 21% since the first Covid-19 lockdown in 2020. While inflation and high interest rates have experts forecasting a price decline by the end of this year, homeowners in Denmark´s largest cities – Copenhagen, Aarhus, Odense, and Aalborg – still benefit from the high demand in a market with limited supply.

That’s according to housing expert Jørgen Munksgaard Rasmussen from the Knowledge Center Bolius. He described the dynamic as a “spiral.”

“It is a self-reinforcing spiral objectively contributing to an increase in wealth inequality. If you bought a flat in central Copenhagen for the price of 1 million DKK [about $140,000] 10 years ago and sell it for 3 million today, you suddenly have equity of 2 million. Parents can use the leverage to buy flats for their kids in attractive areas. So the investments and accumulation of wealth accelerate,” he said in an interview.

Read more here: https://www.courthousenews.com/the-g ... property/

[caltrek]

Fed's Rate Hikes Hammer Housing Affordability
by Matt Phillips
August 17, 2022

Introduction:

(Axios) The Federal Reserve has hit the brakes on the economy, in an attempt to slow inflation. Housing is where the rubber meets the road,
Why it matters: Since the pandemic, the hot housing market — and associated boomlets in renovations and new construction — have been key contributors to the post-COVID economic recovery. That's changing.

Driving the news: The number of newly started homes plunged in July.

• Starts of single-family homes fell 10% from the prior month, hitting their lowest point since June 2020 near the depths of COVID-era uncertainty.

How it works: Fed rate hikes have helped push mortgage rates sharply higher, making purchasing a new home much more expensive.

Additional extract:

The big picture: This might be a bad thing for economic growth and employment, but by slowing housing demand, the Fed hopes that house prices eventually start to edge lower.

Read more here: https://www.axios.com/2022/08/17/feds- ... rdability

[caltrek]

Mortgage Rates Hit 6% for First Time Since 2008 Housing Crash
by Herb Scribner
September 15, 2022

Introduction:

(Axios) Mortgage rates have reached 6% for the first time since November 2008, according to new data Freddie Mac released Thursday.
Why it matters: Rising mortgage rates could dissuade prospective homebuyers, and particularly first-time buyers, from pursuing ownership. The climbing rates have sent demand for mortgages plummeting compared to last year.

By the numbers: The 30-year fixed-rate average rose to 6.02%, which is higher than the 5.89% rate last week. A year ago, the figure was 2.86%, per Freddie Mac.

• Freddie Mac said the uptick might put "downward pressure on home prices," but any decreases won't be large because there's still a shortage of homes for sale.
• New mortgage applications have dropped nearly 30% since the same period last year, according to data from the Mortgage Bankers Association, obtained by CNBC.

Read more here: https://www.axios.com/2022/09/15/mortg ... t-housing

[caltrek]

Mortgage Rates Hit 20-year High at Nearly 7%
by Matt Phillips
October 11, 2022

Introduction:

(Axios) Mortgage rates are at their highest point since April 2002.

Why it matters: The recent surge in rates has slammed the brakes on activity in the residential real estate sector.

• Plunging housing affordability could also become a contentious political issue.

The latest: The average rate on the 30-year fixed rate mortgage hit 6.92%, according to Freddie Mac. Just a year ago it hovered around 3%.

Read more here: https://www.axios.com/2022/10/14/mortg ... ng-market