It's been a month or two since I've done this, so here, once again, is a chart showing the average monthly mortgage payment for houses sold in the US. This time I'm showing it as a percentage of income:
As you can see, mortgage payments for newly purchased houses were pretty steady from the end of the Great Recession up through the start of the pandemic. Then they dipped, recovered, and in January of this year suddenly went through the roof. This was due to a combination of (a) rising home prices, (b) rising interest rates, and (c) flattening income growth.
This chart goes through May. We won't have data for June for another few weeks.
That's disheartening. I remember owning a house in the mid 1970's. Mortgage interest rates were somewhere around 8.5% if I recall. We bought a tiny house as it was all we could afford.
I can see things returning to those really bad times. I hope I'm wrong.
Bad times? The mid 70s couldn't possibly be as bad as 2022 for general housing affordability, especially in your neck of the woods.
Right?
For residential housing markets to get back to normal, we'll need to get hedge funds out of it. Maybe not completely--but out of competing with first time home buyers to turn stock into a rental properties and buying up trailer parks to jack up fees.
At least shipping is starting to get back to normal, so people might be able to finish there homes they can not afford.
When I hear the words "private equity" I reach for my gun.
Welcome to the Tiny Home movement.
You may be joking, but I remember the house one of my aunts lived in. It was one of the flotilla of small houses for returning veterans, and even their furniture was smaller than usual ... and MUCH tinier than what is in stores today. I didn't see it until after they'd added another bedroom, but that brought it up to 930 sq ft, per Zillow. Yet she and her husband raised three children there. Not surprisingly, they were all very neat and put everything away promptly.
Not joking. In 2018, the International Residential Code added Appendix Q, Tiny Houses.
It defines a tiny house as, "a dwelling that is 400 square feet (37 m2) or less in floor area excluding lofts."
If you measure it out when including a sleeping loft, it's equivalent to the basic postwar 1-bedroom bungalow.
States are starting to require local jurisdictions to "upzone" residential zoning to allow for multiple houses on a single plot. We're going to get tiny villages of tiny homes and it's going to be glorious.
I thought the glorious future was supposed to be tiny apartment/condo homes, in the name of greater energy efficiency.
What, and have to deal with an HOA board that won't let you rent out your place and fines you for putting stuff on your door?
Once again: you're looking at average mortgage payment (which will be skewed upwards) vs. median income.
You can't do this and try to make claims about affordability. It's not that the point is incorrect (we really do have an affordability problem that's driven by constrained supply), it's that the method is incorrect - and the entire spike on the right can be explained by interest rates, really. For basically the entirety of this graph, interest rates were incredibly low.
Also, given that mortgage lenders can't/won't approve front-end debt to income ratios of much more than 30% for most people, this particular comparison especially moot.
(Front-end DTI is the mortgage payment only compared to income, while overall DTI includes that as well as "back-end", which is every other kind of debt/monthly payment.)
Besides, the graph doesn't explain the fact real mortgage rates aren't any higher than 2010-19 periods. It's a pandemic based comparisons are irrelevant.
I will add my interesting tidbit about the sale of my house in San Jose. Bought in 1971 for 34.6. Sold in 2022 for 2.25M. Mortgage payment around 10K. Back on the market as a rental for 4K. WTF!!! Has the world gone mad????
Well if it was an all cash sale, 4K per month works out to 2.2% income a year. Besides, I don't suppose the rental market would support 10K a month.
Oh, and congratulations, you're a millionaire now.
but then you have to find a place to live...
They can always move to Texas. ☹️
In “big picture“ terms moving to Texas isn’t necessarily a bad thing. Texas is one of several states which would need “bluing” if Democrats wish to advance their desires/agenda.
Nope. That is your agenda. My agenda with the Democratic party is far different.
Kevin, will you PLEASE give us a "Block" button or boot this jerk on your own?
👍👍👍👍👍
+100
A block or mute button would make the experience much better.
You should be blocked. Much like Zionist losers that bombed Georgia's Tablets, death is coming to zionism.
Rick, you make a good point. And, the major cities tend to be more liberal, so in many ways day to day life would be okay.
Unless you want an abortion. Or to have your political views represented in any meaningful way in the state legistature.
Hence why the state(s) need(s) bluing...
At my age there is no amount of money than can fix me. It does secure my wife, her and my children and grandchildren.
Has a loan.
Gigantic down payment? Or just a bad businessman?
Money can't fix many things. I'm sorry that includes you. It must feel good to know your family is taken care of. BTW, we bought our first house in 1972. Good times.
Down was 1M.
Sold in 2022 for 2.25M. Mortgage payment around 10K. Back on the market as a rental for 4K. WTF!!! Has the world gone mad????
Why is that mad? SF Bay Area real land is a pretty good investment, no? They're not making more of it, and there's no realistic prospect of a vast increase in density.
A cash buyer who plunks down 2.25 million would likely be covering their costs with 50k a year coming min. And of course there's the prospect of continuing appreciation over time. Safe place to park one's cash if you ask me.
Anyway, congratulations on your windfall. That's a nice return!
Are these numbers based on national data? Housing costs and income vary widely from market to market.
The median prices aren't all that different. Ditto for new versus existing house sales, though new houses are more expensive.
https://www.huduser.gov/portal/ushmc/hd_home_prices.html
The real interesting thing shows up when one follows the link and chooses data by Region. The Northeast and West prices took off the 1980s and have stayed high while prices for the South and Midwest have risen but by nowhere near as much. An economist would argue that people pay a premium to live in the Northeast and West rather than the South or Midwest. Then again, one can also see this same pattern in an electoral map. (Then again, there's also the geological map which in many countries (e.g. US, France, England) shows that sedimentary rocks make people more conservative.)
Sure, from a Jungian sense, they see the debt games. Their problem is not seeing the fall back on them. Once it goes, they are the new Oakies. Look at 2008-9 man.
My advice to them???? Boost candidates in local races. Destroy the national party within, force northern Republicans out. Voting Republican does nothing for you. When those debt markets go, whooo weeee boy, it is over.
Gee, it is really odd that people like to live in scenic places. Who knew? And gosh, having interesting neighbors to chat with is attractive to a certain demographic (you know, the right half of the Normal Curve of Distribution).
Thus the "lifestyle premium" in Blue States.
It's mostly the ability of the affordable regions to bring new housing online, not their "disadvantage" in terms of physical beauty or lifestyle, that makes them more affordable relative to the West Coast and Northeast. California experienced gargantuan population growth over the course of most of the 20th century. Those people needed to be housed, and they were: California used to have a gigantic construction industry. So did New Jersey, which saw a 50% increase in population in the 25 years after WW2.
Places like Georgia, Texas, Florida, Arizona and the Carolinas are what California used to be like: fast population growth and the necessary high rate of housing construction to accommodate that growth.
Related to cmayo's comments:
Median mortgage payment, June 2022:
https://www.rocketmortgage.com/learn/average-mortgage-payment It goes on to provide that information per-state.
The current situation is not stable - something has to give and probably house prices will have to come down. The rise in mortgage rates means that the average bid for houses from people who buy on mortgage will be lower, at least if lenders base the amount of mortgage granted on income (if they don't then we may have another bubble as people keep buying houses they can't pay for). Sellers won't get their asking price and will have to accept lower offers. It may take some time for sellers to realize this, but because of the recent runup in prices most can still get what would have been an excellent price a few years ago.
There is also potentially a matter of supply and demand for lenders. Do lenders want to do business or not? If they do, why would they continue to set mortgage rates so high that no one can afford to get a mortgage to buy a house? How long-term rates are set is complex (in a way), but there are reasons why mortgage rates may come down or at least not keep climbing.
So there are reasons why housing activity is not actually very sensitive to mortgage rates themselves. The data show this, for example
https://www.mortgagenewsdaily.com/data/mortgage-applications
The purchase index (scroll down) is what is relevant.
It's all so very local though, the market is still very hot in the DC area, a tear down in my neighborhood sold for over 650,000, the good houses around 900,000 or more.
Here is a graph of Mortgage Debt Service Payments as a Percent of Disposable Personal Income, which looks very, very, different from Kevin's and, in fact, suggests that mortgage payments are still at an all-time low. Even if part of the difference just existing vs. new mortgages, it doesn't seem to square up. Can anyone explain it?
https://fred.stlouisfed.org/series/MDSP#0
FRED and Kevin have different agendas?-) That said, the FRED graph covers only through Q122 so is currently a quarter behind. Not clear that explains the discrepancy with Kevin's hockey-stick chart though.
I think you hit the nail on the head--most people who have mortgages would have refinanced over the past number of years at historically low rates and locked them in, i.e. not variable rate mortgages. Those who still have variable rate mortgages will see payments go up, but that will still lag rates available to new home buyers. And Kevin is looking at mortgage payments for new purchases, so it's not just rates that affect payments, but the high cost of the homes too.
Few people are paying at the hockey-stick rate - that is just for new purchases at median income. In fact mortgage rates were at record or near-record low levels for ten years up to second quarter 2022 so the great mass of homeowners probably have historically low mortgage payments. But Kevin's graph is what is pertinent to the market now.
Kevin's curve does not show the quantity of sales or sales with/without mortgages. As the mortgage-price curve goes above lenders' limits remaining buyers will have higher income than the median or will not need a large mortgage. Keep in mind that a lot of people are buying homes with the money from selling their old ones, and they probably got a good price for the old ones. Kevin's curve mostly pertains to new homebuyers.
Thanks everyone! It's probably too late for anyone to see this, but here's perhaps a more relevant graph from FRED that suggests that housing had been too cheap and just now (in May, same endpoint as Kevin's graph) has median price reached affordability parity, i.e., "Value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. "
https://fred.stlouisfed.org/series/FIXHAI (wish they showed more than a year of data)