The Wall Street Journal is inexplicable. Take a look at this headline/chart combo from today's paper:
The chart is clear as day: Boomers in the Reagan era were stuck well into "unaffordable" territory for more than six years. Millennials, by contrast, spent 15 years with wonderful, super-affordable housing and since then have been barely in unaffordable territory for one year.
So where does the headline come from? The story is an endless hodgepodge of unrelated data, but its main point seems to be that back in the '80s interest rates were high but housing supply was fine. Today housing supply is tight so we're all doomed.
Which might be true, I suppose, if housing supply stays tight forever. Which it won't. New home building (and sales) are at a fairly normal rate right now, about the same as in 2019. The problem is that existing homes aren't being put on the market at the usual rate. But there's no reason to think this will last forever, and when it turns around housing supply will ease. Then, when the Fed finally lowers interest rates, mortgages will return to normal levels.
But I guess that's not a very interesting story.
NOTE: I should add that the Journal's data is actually more optimistic than I expected. I thought housing affordability really was in the dumpster at the moment, but it's not. It is in weak shape by historical standards, but it's only barely below the 100% mark. That's not as bad as I thought.
there's a lot more existing homes than new construction and people in existing homes won't sell because their rates are half of current rates, so i don't see supply easing until those two rates approach parity or new construction fills the gap (which will take years)
on top of that, regional mobility is much worse now than it used to be; no one can afford to move from cleveland to LA because the cost of housing is prohibitive
remote work could address some of this but a lot of c-level types think remote workers are uppity prima donnas who need to be brought to heel
and yes i understand kevin's take on remote work and the reduction in efficiency
but that efficiency always seems to be calculated on the assumption that a 7% bump in productivity that comes as a result of a commute that adds 25% to someone's workday is 'free' since companies never pay for that extra 25% but that 7% drops directly to their bottom line, gratis
workers certainly don't see it that way
none of this is good for the economy in a macro sense
people in existing homes won't sell because their rates are half of current rates, so i don't see supply easing until those two rates approach parity
It feels intuitive that a dearth of existing homes on the market should constrain supply and put upward pressure on prices—zero doubt. But I question if the impact is very high. Why? Because in the vast majority of cases, people selling homes in the US are themselves in the market for housing in the US. The principal exceptions are folks (mainly retirees) jettisoning second residences, or those emigrating, or those who are deceased. This has to be a tiny percentage of the market. Most would-be sellers don't fit these categories. In other words, removing most people from the pool of sellers also removes them from the pool of buyers.
Thus, while home buyers have fewer existing homes on the market from which to choose, in theory they definitely should have less competition, because of all the potential home buyers who are locked into low mortgages, and thus aren't out there themselves looking for a house to buy.
I completely agree about the new needed supply, though, We're down several million housing units from where we need to be.
good points
another issue wrt sellers being buyers is the mix of properties; young couples with kids who would like to trade up from starter homes vs retirees looking to trade down once they become empty nesters
i think the rates mismatch impacts the first more than the second since retirees are more likely to pay cash when moving to a smaller home
It's not just the rates, tons of millennials are still living at home because they can't afford rents in their area. Most parents aren't going to sell housing out from under their kids.
The other thing is, with the steep increase in home prices those sellers are probably not going to need a mortgage on their next house (or if they do, they pulled out too much equity in the first place).
OT...
jordan chiles should tell the IoC that her iron-clad policy regarding the time limit for the return of olympic medals is 1 minute 4 seconds after it was issued
"So where does the headline come from?"
Innumeracy of the journalistic kind. There is a lot of it around, and we appreciate your pointing it out unflaggingly.
Kevin has simply assumed his conclusion.
The WSJ explains that a supply shortage problem is very different than a high interest rate problem.
Kevin responds that this is misleading and deceptive because let's imagine that the supply problem goes away. In this case there is no longer any reason to worry about supply shortage problems because we have assumed there are no more supply problems.
Voila!
Well ok then!
1) Shortfalls in supply drive prices higher, according to classical theory. Why does housing remain relatively affordable? 2) Supply shortages are not that different from high interest rates in terms of consequences: prospective buyers either have to wait for the market to change, or settle for something less than they originally sought.
1) 'Relatively' is doing a lot (all?) of heavy lifting here.
Imagine this same argument being made to try to hide the increase in food costs over the last few years: While it appears that food costs have increased dramatically, spending on food as a % of income is now roughly equal to where it was in the 1990s, so if we draw a chart and ignore the time period from the late 90s to 2020, we can ask why actual price increases havent changed the fact that food is still relatively affordable. Standard theory says that higher prices should result in higher prices!?!?
2) This is not true. These are 2 very different stories. Literally every homebuyer or potential homebuyer benefits directly from lower rates. The impact is also quite large. Buyers receive much lower monthly payments and sellers likely receive more equity. This will also benefit homeowners who dont want to sell but can refinance or get a HELOC. It will also happen almost immediately.
But more supply and resulting lower prices is quite different. Most of the above benefits do not accrue when supply falls.
More supply is a good thing, but it wont look or work like lower rates.
Just wait for the dead boomer housing boom!
The dead boomers kids may need it for their own home. It never hits the market.
Not to mention that the transfer of wealth from boomers to their kids will go, largely, to kids who are already affluent. Sure, some kids who weren't homeowners will inherit a house, but most will already own homes. They might sell it or keep it as a second house, but we're so short on housing that even any influx of supply from boomers leaving their homes is unlikely to solve the housing deficit.
unless the parents home is in a trendy vacation spot most kids will likely sell the home and either bank the cash or use it to move up in a better home for themselves
It will take another 5 years, but the sell-off will start eventually. It may mostly affect markets that are high, but not insane, though. In really tight markets (lots of urban CA, New York), I can imagine a lot of people holding onto inherited homes. But most places will see Boomers or their heirs choosing to sell, and that will mean lots of larger homes hitting the market.
Just wait for the dead boomer housing boom!
I feel this is a misconception, albeit a common one. There's no demographic rubicon that, once crossed, will usher in a "boom" of anything related to dying or retiring boomers. These things are gradual. The oldest boomers are already seventy-eight. They've been gradually moving out of bricks and mortar for a while now. Yes, the number of boomer deaths will continue to accelerate. But that's exactly it: it will be a gradual acceleration. At no point is it going to feel like a tsunami. At no point will there be an explosion of extra houses on the market, courtesy of children selling their deceased parents' homes. One very basic facet of this we can see quite clearly is the fading demographic heft of the baby boom generation: as big as it was, it was smaller in sheer number than the millennials, and it has declined precipitously as a share of population. In 1970 baby boomers accounted for about 40% of the population. Now they're down to about 22%.
This is very true.
Additionally, boomer deaths won't cause any sort of boom due to the simple fact that there's rather a lot of variability in the age in which people die. Far more so, say, than when they are born, or even when they reach "retirement age." You only turn 65 once, but, having done so, you could die at 66, or 106, or anywhere in between.
"... Millennials, by contrast, spent 15 years with wonderful, super-affordable housing and since then have been barely in unaffordable territory for one year."
So in other words things are a lot worse now than they have been for 15 years. Seems like this might have some political significance,
Looks like the inverse of the prime rate.
I'm sorry, Kevin, but this is BS. Lowering the interest rate will not move the housing needle, housing is flat out overpriced. A 15% or more haircut on pricing is what will move the needle.
Housing is overpriced from a combination of under building from the financial crisis of 2008 combined with the short term rental boom.
Let's look specifically at Cass-Shiller since 1988
https://fred.stlouisfed.org/series/CSUSHPISA
You see that huge spike starting in 2020? That was second mortgages, specially being bought for short term rentals.
https://www.redfin.com/news/second-home-purchases-soar-coronavirus-pandemic/
That massive influx of investor cash pushed prices up anywhere that was a desirable place for remote workers to camp out at.
Now that the short term rental demand is cooling, prices are dropping everywhere except places with permanent demand. With rental demand dropping along with prices, investors are starting to flee. Couple this with a lot of cities now limiting or outright banning short term rentals and you get a much needed pricing correction.
https://www.reuters.com/markets/us/second-home-sales-slide-pandemic-era-vacation-hot-spots-2023-10-30/
You've got this narrative but I'm not convinced that short term rentals and second mortgages more generally are anything more than a symptom rather than a cause.
The "haircut" that you say prices need (I don't think nominal housing prices will ever be allowed to go down by any appreciable amount) can only occur by MASSIVE amounts of building. Like, think on the scale of creating 5 million housing units overnight massive (back of the envelope math says we're short 4.5M units as of 2022), if not more. (https://zillow.mediaroom.com/2024-06-18-The-U-S-is-now-short-4-5-million-homes-as-the-housing-deficit-grows)
Basically, for every 100 households in the USA, there are only 96 housing units.
Oh yeah, and - homelessness is a housing market problem.
I did mention that under building is part of the problem - but you can't remove a couple million housing units (apartments, condos, houses) from the inventory without putting a major dent in the supply of units available for people to LIVE in.
Most of the current homeless problem that doesn't involve drugs or mental illness is because there are no rentals available because they're all Airbnb's now.
If Amazon and other eCommerce platforms can figure out how to calculate and pay sales tax to thousands of jurisdictions, there's no reason with the short term rental platforms can't charge tourism taxes, occupancy taxes, and local affordable housing taxes on their short term rental units. Making short term rentals a less attractive option would dampen enthusiasm for them. Cut into profit margins enough and a lot of of them will stop being viable side hustles.
People in short-term rentals are living there. The demand is what makes it exist.
If they can't rent it, they'll just own residences instead.
I'm sorry, but this is flatly and completely not true: "Most of the current homeless problem... is because there are no rentals available because they're all Airbnb's now."
No, most of the homelessness problem is HOUSING IS TOO EXPENSIVE. Apologies for the all caps, but it's just literally that simple.
"Lowering the interest rate will not move the housing needle"
Really? If you look hard, can't you see some correlation between mortgage rates and affordability in Kevin's chart?
Mortgage rates may never return to the record lows of 2020-2022 and maybe not to post 2009 rates, but there should be some reduction in the near future and that might push affordability above the arbitrary 100% line.
Many commenters seem to be unaware that higher prices spur building, which then limits prices. House prices don't go into runaway spirals.
Except when they do. Austin, Texas is spiraling. The area we are shopping in California is getting $100k to $150k price drops constantly. Every listing we are following has at least one price reduction.
Rates won't solve for homes that are $250k above where they should be based on normal appreciation. Falling prices spur investors to get out of the business, which increases inventory and pushes prices down further.
Florida is a different problem with the massive rise in home insurance, but CA and Texas are not far behind.
This chart is nonsensical. Too many 'average' and 'median' whereby extracting the wages earned in the Bay Area wages to buy houses in the Central Valley was always a losing proposition.
I dunno. In my neighborhood we've had more houses for sale this year than in the past several years combined.
You're still in la-la land with this one. You're bound and determined to believe that there is no housing crisis, that housing isn't in the middle stages of a process of being excessively commodified/financialized as a vehicle of wealth creation/extraction for the tippy-top, and that generations younger than yours don't actually have it worse than you did when you sailed into adulthood on the tailwinds of the greatest era of prosperity for (white male) residents of a particular nation in the entire history of humanity. Good grief.
Millennials didn't spend 15 years in a "super affordable" housing market - few Millennials had the capital to get a mortgage until recently, even if the monthly payment would have been affordable. Then the COVID price spike hit when Millennials were in prime homebuying stage - they reached the goal only to have the goalposts moved on them. Also, it's sophomoric to say that people trying to buy houses today and enter the housing market for the first time don't have it bad because there were 15 years of easy money and financing BEFORE they entered the market. Seriously, just think about what you're saying for a second.
Housing prices really are out of control, and we really are still under-supplied by many millions of units that weren't built from 2008-2022. I'm not convinced we even returned to the long-term average in housing starts, and we are CERTAINLY still below the required long-term trendline given that population grows and housing needs to be replaced, not just maintained: https://fred.stlouisfed.org/series/HOUST
Interest rates right now are merely applying a leaky tourniquet to a gushing double amputation.
I'll also note that this says families. What are Millennials NOTORIOUSLY not doing? Forming families at a historical rate. Getting married and having kids costs money. Young folks are delaying these milestones until later in life for financial reasons at a greater rate than those who preceded them. (https://www.pewresearch.org/short-reads/2021/10/12/u-s-household-growth-over-last-decade-was-the-lowest-ever-recorded/ for just one easy source on this)
Add to this my evergreen reminder that housing costs have outpaced inflation by a large amount in the last decade when the rate of growth in housing cost bifurcated from the rate of inflation after mirroring it for decades before that (a fact which I think I learned from one of your very own charts!). That's the impact of the housing starts bust.
And then there's the "and furthermore...", which is that the chart highlighted here is national median income vs. national median house price, no? That's a bupkis measure that can't tell you shit about what you're purporting to put forth as an argument in this post.
The housing crisis moves in relative slow motion. It's difficult to see. But it's fucking there, man. It's getting really tired and a little bit offensive to see an affluent white guy who got his (in spades) tell the rest of us that it's not as bad as we're actively experiencing every day.
You really need to GTFO with that shit instead of pretending that actually you're the one who understands there isn't a problem with housing today when, instead of actually understanding (or making the effort to understand) the economics and forces involved, all you're doing is just giving in to your urge to be contrary about whatever news about housing contradicts your personal feelings on a given day. It's really easy to find and see the data that supports the news you're seeing but feel isn't true - you're just refusing to look at it.
This.
Kevin has become the far-right psuedo economist/evangelist who sees the need for tax cuts in every chart, no matter what the chart actually says.
Uhh... Just because he's mixing numbers here doesn't really track with your weird assertion about taxes.
sure it does. Kevin's repeated bad takes on housing (supply, prices and affordability) are similar in both spririt and approach to the persistent calls for tax-cuts by the true believers.
This post is a great example as the info that Kevin provides doesnt actually support the position he has taken in dozens of posts on the topic.
At this point I'm just going to copy/paste every time he posts some bullshit about it.
The house my parents bought in 1959 cost $25000 or so. Suburbs of Cincinnati Ohio. We sold it probably 12 years ago for about 140 and it sold a couple of years ago for well over 300. Sure, it’s updated with new kitchen cabinets and refinishing of the floors etc. But that’s a lot of appreciation for 60 plus year old house. Maybe 140 was a bargain back then, but even so. That seems like a lot.
google factoid
In 1960, the median home cost $11,900, while the median income was $5,600, indicating a price-to-income ratio of 2.1. By contrast, in 2019 the median home cost $240,500 with an estimated median income of $68,703, a price-to-income ratio of 3.5
And today the median home price is around $425,000 while the median income hasn't changes nearly as much, meaning the ratio is now something like 6x -- with considerable regional variation of course, so YMMV.
It's a simple fact: in most cities and towns across the country where younger people have any interest in living and starting families, a traditional home is simply unaffordable without a major assist from your parents or something like that. In any coastal city, fugeddaboudit.
Twelve years ago was the bottom of the housing market. I sold a house in 2012 - prices were way, way down from 2006 (down 35% in my midwestern city). The house I moved into cost us far less than what the previous owners had paid in 2004. My parents bought a house in Southern CA at about the same time and got an unbelievable deal.
Buying a house in 2011/2012 was like buying stocks in 2009 - there was nowhere to go but up for buyers, and everyone selling took a big hit.
Median salary and median house price...where, exactly? A nation-wide statistic in a country as complex and diverse as the US really doesn't mean anything.
I don't think Kevin is "I've got mine Jack-ing" this, we all know he loves to be a contrarian, and as a SoCal contrarian his personal experience is that housing has been "expensive" for his entire adult life.
The rabbit hole which would be interesting to see is if someone (and from what I have gathered, Case Schiller is not it) can add the concept of, oh, I don't know, not only jobs, but jobs within 20 miles or something like that? If you really wanted to flex, you could go with "within a 45 minute commute" as some people driver even farther if they can do it on a US freeway.
That's how whether something is "expensive" is measured. In a country the size of the US I agree with all the posters above that these averages are worthless. It is of no help to twenty somethings in SoCal that if they only were willing to move to a place 25 miles outside Pittsburgh they could find a place for $100K. That house might as well be on Mars.
Its the fatal flaw, really, in US "we all want our little piece of the least dense part of the US we can get" housing policy, as opposed to say, Europe generally, where cities, and townhouses and apartments and condos are a function of a layout set up when people had to walk or ride a horse at 5 mph through a city. Once a city is dense enough, adding more units is much easier than in the US, where replacing single family homes with any time of multi family housing is a huge lift.
All of your "yeah well but what about" numbers are easy to find and do not support Kevin's argument.
You can get the jobs/commute data by simply looking at commute times, which are still below pre-pandemic highs but climbing again. The Census has been tracking commute time since 1980. And then there's this, which shows that post-pandemic commute distances have spiked compared to pre-pandemic: https://econlife.com/2024/06/commuting-time-2/
Also, there's this which highlights the top/bottom cities or metro areas (not sure what it's counting, didn't dig deep enough) for commuters per 1000 and for time spent commuting. https://www.marketwatch.com/guides/insurance-services/us-commute-trends/
And this. https://www.bankrate.com/insurance/car/commuting-facts-statistics/#average-commute-time-by-state
greetings from texas.
i agree that housing is relatively affordable by historical benchmarks. still, it doesn't cheer my niece when i tell her that my next door neighbors 40 years ago had a 30-year mortgage with a rate of 12.5% or that her grandparents got a loan to build their own house a few years earlier with a rate of 14% for 7 years.
it's all perspective. from the pov of a retired man with no debt, the housing market looks fine, just fine. from that of a 20-something buying her firast house--not so much.
Thanks to the current housing market, we all get to read stories like this one: https://www.businessinsider.com/millennials-cant-afford-house-six-figure-income-portland-oregon-2024-8
I guess "I can't buy the giant expensive house I want" is a form of housing unaffordability.
The only part that I find somewhat interesting is that they are planning to rent a while longer instead of buying a smaller home now. That suggests they think housing prices will moderate fairly soon. These stories usually involve people who say housing will never be affordable for them, so maybe sentiment is shifting a little.
1) Business Insider is not the best of sources.
2) Are you aware that because of the shortage of housing and how long it takes to get new housing built, new construction is incentivized to be as big and as expensive as possible? That's capitalism and profit motive at work.
3) The people in your link are literally not "I can't buy the giant expensive house I want" - the ENTIRE point of the article is that they refuse to be house-poor. They do NOT want a giant expensive house, they want a house that doesn't cost more than 30% of their take-home income. While I think that's a tough bar to meet (the threshold for being considered housing burdened is 30% of gross income, not net income, and results in something closer to a 50% of net income threshold), it's not all that unreasonable. Unfortunately for them, I don't think the housing market is going to "become reasonable again." It will have ups and downs, but the long term trend is only going to get worse for them unless there are drastic policy shifts.
Basically, they need a recession that drops real estate values to be able to buy a house. I wouldn't be holding my breath.
I also think they made a critical mistake by not wanting to buy "a home they didn't love" given that once you own it you can change it, but I guess personal preferences and all that.
> existing homes aren't being put on the market at the usual rate. But there's no reason to think this will last forever
It seems reasonable to me that most existing homes would be rented out instead of being sold. You get an income flow; you don't need to pay taxes on the sold home; you keep the equity in the home.
We'ld love to buy the house that my son is renting (if we could afford the mortgage), but why would the owners sell the house and forego the rents it is producing? Here in the San Francisco Bay Area, the owners are getting around 2.5% return from rent, and another 7.5% or so from appreciation. And the property taxes remain low.
Does Prop 19 figure into California's housing problems? To the extent that I understand it, it seems like it would really depress property sales.
By the way, I know of a 1978 construction house with hardwood floors and solid wood inside doors about to come on the market here. More than 1900 sq ft with 2 baths and 3 bedrooms and a two car garage on a 3/4 acre lot. Enclosed back porch/sun-room not included in sq ft. Single story. Cul-de-sac. Wood burning fireplace. No restrictions on what you do with your lot. Nice neighborhood but lake rights will cost you $175/yr. Property tax under $1000. Zillow says we should let it go for $250k.
Any of y'all want to offer $500k?