It certainly doesn't help that political responses to housing (lack of) affordability are commonly demand-side price games (limiting rent increases, subsidizing loans, tax rebates) that feel good but actually cause harm because they worsen the real problem shown here which is that demand growth outpaces supply growth.
Or… the market has been enabled to spend more by elaborate and ever-expanding finance products, which in-turn underwrite pensions and other institutional investments, and that has inflated prices.
Would there be as much viable demand at a given price point if you could only get a "salary x4" mortgage like you could 15 years ago? Or x2, 25 years ago? We're x10 now.
Not controlling lending is the biggest economic failure of the past century.
What is "viable" demand supposed to mean? "Homes"/"Housing units" includes rentals. Mortgage salary ratios are irrelevant here. Do the nonviables just get to live on the street and like it? All you need to do is look at total housing units vs total families to see that demand growth naturally outpaces supply growth because we don't build enough to keep up with population increases.
> All you need to do is look at total housing units vs total families to see that…
… homebuilding outpaces growth of "family units"!
In the UK you can track ONS census data back in decades and +1m families, +1.1m households. In the US 2011-21, it's +5m families, +10m homes. Bigger surpluses wouldn't hurt —and I would happily believe there are markets where this isn't true— but this idea of market drought causing inflated prices is too simplistic.
What has changed is that banks have leant far more aggressively in the past 30 years. If they hadn't, homes in high demand areas would be demanded by relatively fewer people, prices wouldn't be so buoyant.
By "viable" I meant the price point a market bear. There's your SAD.
Another change is the proportion of owner-occupied: absolute number in the UK has stayed relatively static, while the number of private landlords has exploded. Two thirds of those privately let properties are on mortgages that again, are a financial product that has been far more aggressively stretched in the past 30 years.
High ratio mortgages have lifted this. They allow us to afford more, so the market can charge more at the same level of demand. That means we all have bigger mortgages, the banks make far more in repayments.
It's a long game and banks have won. We even bailed them out when it bit them in the arse. What's worse is they lie about the reasons in order to build more, lend more with this idea that it will magically become more affordable. No amount of building can ever be allowed to depress these prices because our institutions depend on a constant rise.
I don't have a solution. Creative sale restrictions for newbuilds (eg everlasting price capping, return to state, etc) might be the only way to have a lasting affordable housing stock but as things are, we're only a major financial crash away from the banks being able to take 20% of all mortgaged properties when people can't keep up with repayments, and one more after that to take another 20%. That's where we're heading.
The article literally says the exact opposite. If you're going to disregard the article's data and analysis, I think you need to show your sources so we can look at them together. It seems likely that we're getting tripped up on category definitions, though. The US population grew by over 21 million people from 2011 to 2021 while the average number of people in a US household dropped from 2.58 to 2.51, so it can't be only 5 million families in a relevant/meaningful sense. Atomicizing families that don't actually live under the same roof is disingenuous. An adult moving out of their parents' home becomes their own separate family unit for the purposes of real estate.
Though if you want to talk about the steady decline of the average US household size, we can certainly do that. It seems applicable. More people total and fewer people per household does turn into needing more households.
Question for anyone who may know from experience: where are all the people coming from? It's a question everyone in my home city keeps asking after seeing all the new developments, and never really investigating an answer I guess.
They keep squishing in apartments and tract housing everywhere there's a postage stamp of land, and it's sold the next day. Even wayyy out in the rural county. My very quiet road was a traffic nightmare by the time I moved on.
The media/government report we're at or below the replacement birth rate, and while immigration exists, the people moving in aren't all exclusively immigrants by appearance. Further, the city reports modest growth on the census.
So, where are all the people coming from? I have to assume it's mostly elsewhere in the city due to census numbers, but no idea from where or how that makes sense.
While the birth rate is currently below replacement rate, it wasn't 20-30 years ago when the now new homeowners were being born. US birthrate hit a local maximum in 2007, so that will continue to add pressure to housing demand over the next several years. Furthermore, life expectancy grew over the baby boomer population, so people are staying in their houses longer than before. Eventually we will get over this hump as the boomers pass away, and new homeowners decrease due to lower birth rate, but that doesn't help today.
Is your home city not one of the big HCOL cities? If so, I assume it's people fleeing them. I live in San Antonio and hear all the time about people coming here, often without even a job lined up. I was talking to someone in a bar the other week about how she had come in from Hawaii. Her husband had found a job before they moved, but it seems like they were going to move even if he hadn't.
It's a decent sized city in the midwest, and not HCOL.
I thought about that, but the census only reports 6% growth between 2010 and 2020. Unless the census is grossly wrong, which is entirely possible I suppose.
While this isn't a complete answer, remote work has let people move away from tech hubs and spread out more to small towns. Idaho has seen rapid increases because of people moving from California and Washington now that they can work remotely. Big money also buys a lot of real estate. Around where I used to live, Berkshire Hathaway bought almost all the houses in the area.
My first home (bought 2014) is up 100% and my second home (bought 2019) is up 55% over purchase price.
It's unsustainable for this country to think that houses can be both (1) an appreciating investment and (2) affordable.
But in order for us to find long-term price stability, people like me must make peace with the idea of our houses _never_ appreciating beyond inflation.
How much did you "make" on your investment once you account for the ton of fees that are involved in housing though? If your house doesn't go up at least 5% a year, you are already losing money once you account for HOA, insurance, taxes, repairs etc.
I would bet you would have had a better outcome renting and investing in the SP500 instead.
Except that you don't have a 5:1 leverage, not even close once you account for the fees. The math is surprising. I recommend the NYT Rent or Buy calculator.
There is also absolutely zero chance that you will get a 22.5% chance return on your house over 40 years. Those have been the crazy covid returns that will most probably be reverting to the mean over the next few years.
"House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024"
Except if it's your primary residence, you can get close to 30:1...
The fees on $1m homes are usually less than 1.5%. It's essentially 5:1 unless you're investing in very low value homes which are a completely different type of investment - that you're usually going after cash-flow instead of appreciation.
> House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024
4.63% on 5:1 leverage is... 23%... And you cherry picked at the start of a recession...
I'm disputing the fees that are removing at least 3 or even 4% a year, and that is on top of the interest. (I'm in the housing industry and I can tell you for a fact that everybody underestimate the fees until the tax increase, insurance increases and you need a new roof)
Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you?
You quickly realize that in order to make the math work you need your house to go up AT LEAST 5 or even 6% a year. In the current environment your house even needs to go up close to 8/9% a year to just break even.
And you are right that you use leverage so if it goes up above those numbers you start to make up equity very quickly. But there is almost no chance those type of returns will hold in the future.
> Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you?
This is not how it works.
You would have to pay rent.
You'd take the opportunity cost of the difference in rent vs the cost of your house after the mortgage interest deduction (discounting principal, since that isn't a cost).
If it's an investment - you'd consider your cash-flow and principal.
It is the best one I have found so far. Even in the ZIRP era, I couldn't find places that made sense buying based on that calculator. Nowadays it is even more clear cut that buying doesn't make sense financially (it could make sense for you if you put a ton of personal value on owning).
> I would advise to use the rent or buy calculator
I've used it. It's not good.
If you asked someone to make a calculator that makes renting as attractive as possible - it would look similar to the NYT calculator.
It's not surprising this calculator comes from a city where the majority of people rent, and is read mainly by "elites" who live in areas where more people rent...
At the time, I lived in LA in this exact calculator convinced me that housing was a horrible investment in 2013.
Had I bought then instead of had my money in the S&P my net-worth would almost be triple what it is now.
Luckily, I'm doing fine either way, and did buy and lock in a 2.7% interest rate, after learning this calculator has some serious flaws and building a much more realistic spreadsheet to model it...
Most home made calculator/spreadsheet completely gloss over all the fees and details. But also most people have already emotionally decided to buy and want to pretend they did the math to justify their decision.
It assumes home prices will rise equal to inflation which hasn’t been true in recent years
It doesn’t allow you to add monthly utilities for renting but assumes 100$/month for buying. I personally have never rented a place where all utilities were covered
It assumes quite high property taxes compared to what I pay
It assumes market returns of 4.5% which is true in a long term sense but not really in the short term
It assumes rents will increase 3% per year, configurable but not true in recent years
It factors in closing costs so I guess it’s assuming you will sell at the end of the period? This is a somewhat strange assumption to me. At the end of the period I could borrow against the value of the house without selling it for instance.
I think it’s a really good tool though I wish it had just a few more options to tweak, and that the defaults got updated to reflect current rates perhaps
The buy vs rent calculator is good, I’ve used it before.
In my particular case, I hoped to live in the same place for multiple decades, and correctly guessed that my city was on a strong growth path, and was able to get once-in-lifetime interest rates.
Obviously if those factors changed housing would be a worse investment. But as it is, those are two of the best financial decisions I’ve ever made.
Well...the substantial difference is that I could borrow at 3.6% and 2.7% respectively.
On my first home, I put $5,000 down on a $96,000 house. I owe $40k (15-year mortgage) and it's worth $180k. Subtract $20k in seller costs, and $20k in expenses over the past decade and I have $100k in equity.
That is about 6x better than just investing the $5k in the S&P.
How could you only put 20k$ of expenses over the last decade? That doesn't even cover close to the principal and interests on your mortgage. You also don't account for the time-value of money.
In this case you might get slightly ahead than a simple boring SP500 investment, but those returns are the outlier and it would be extremely unlikely to repeat in the future (especially with the current interest rates)
I didn’t include P+I because when it was my primary residence it’s just my housing cost (which I can’t otherwise invest) and now as a rental those are paid for out of rental income.
Regardless, my original point is that the returns outpace inflation, which I consider a political-social problem given the number of parents who are currently explaining to their kids that buying a home is a “good investment.”
Use the NYT Rent or Buy calculator. Most home made math don't account for the ton of fees/taxes/insurances and the time-value of money, and the exceptional returns of the SP500.
I have yet to find a single place that would have been worth it long term versus renting (Bay area, which is a VHCOL) while you do the correct math.
The problem of your math is that you are assuming rentals are equal from one place to another as long as the price match. I can tell you that's not true. My old 3BR apartment in a very desirable school neighborhood went from $2K to $5K now. My old neighbor still paying that price because their kids are in the school. They are kicking themselves right now for not buying when the rate was lower. Now, they are desperate to buy anything in the area.
I'm looking for a house now and the market is crazy, every house is subject to a bidding war and selling for at least 25% over asking, which sucks for folks who don't have the cash on hand to pay the difference (since the bank only covers so much). There is no way this is sustainable.
I looked into building a house and while its certainly possible its so expensive that everyone is trying to talk me out of it.
Why is it so expensive to build? is it mostly building materials or labor? Is usable land shrinking? Solve that problem and the houses will build themselves.
At the same time the new houses I'm seeing getting built in my area are a demonstration of the phrase "money can't buy taste". We have all this land to build and we choose to continue building badly-designed single family homes, mainly catering to the ultra rich in order to best recoup the building costs. I'm not against single family inherently but we should try more diverse housing options. It would be nice if we could switch it up and change zoning laws to allow mixed housing in new developments: imagine a set of small apartment blocks with retail on the ground floor, surrounded by well-planned single family units that emphasize walkable spaces and community. That would practically be as close to utopia as we could get in this country but nobody seems to have the vision to push that forward.
I can help a little as I went through the same decision a while ago. In the end, I decided to buy a house someone else had built as I don't like tract housing, as it gave me a bit of the best of both worlds - I got a well built custom house, but didn't pay out the nose for it.
There are a lot of factors that play in, certainly labor, but the biggest unique costs I think were the permitting and utility tie ins. When you can bulldoze 10 acres and build 80 houses at once, the cost amortizes way down on everything, including those. When you buy land and want someone to build on it, they have to do all of that work just for your one house.
I personally don't think it's worth it to build a house, unless you already own the land, want something really custom, plan to live there forever, or just have the extra money to spend. The day after it's built, it's not worth the money you spent on it, typically. Of course, over time, that changes.
All of that said, I stepped inside about a dozen 2023 new builds across three builders, and was absolutely mortified by their build quality. Dozens of nail pops, soft spots in floors, misaligned doors, broken rafters, and even a roof truss that wasn't connected to anything on one end.
Thanks, that was very helpful. I agree, a lot of new construction is really shoddy and put together in a hurry. Naturally I would want to avoid that but you're right, building yourself isn't worth it unless you're ok with waiting for the market to catch up with you, or you're able to build a bunch of houses at once (which a lot of developments do)
Do we really have a housing deficit? If you look at prices they indeed go up because nobody wants to sell and too many people have been wrongly convinced that buying is always a good idea.
If you look at rent on the other hand it has stabilized in most location. I was even able to negotiate a rent decrease last summer.
I'm not convinced we have a housing deficit. But I'm convinced that too many people are blindly buying at whatever prices, driving the prices irrationally up.
Comparatively to the increase in house prices, rents have definitely stabilized. It is now clearly better to rent in most of the US than buy an equivalent house. Use the rent or buy NYT calculator
There's been a 13% rent hike in the similar townhomes to one that I am staying in. I wasn't thinking about buying in this VHCOL area but now I am forced to.
Even with a 13% increase you are probably still better off renting if you are in a VHCOL area. I'm in the bay area and at this point my rent could go up 100% and I would still rent. My rent is 3900$/month. The value of my townhouse is 1.9m$. (Palo Alto area). It would make zero sense to buy even if the rent was 8k$/month
Yeah tough decision for me. My rent is $4500. Equivalent townhouse is now being advertised at $5300. I can easily see this go up to 6000-7000 in 3-4 years. If I lock in a condo at the same price ($6000-$7000) right now, provided no housing or economic crash, I'll be in a much better position down the line.
My concern is that the market incentivizes building at the higher end. People who can "only" afford a 4m home will be helped by the home builders who will build plenty of 3m homes but the people who can only afford 400k are getting very few homes built for them.
Yeah, but if the interest is sub-3% on a mortgage that's like half value of the hose, you can probably rent the sub-3m home at a profit while it appreciates.
Friendly reminder - Data released by Zillow, Redfin, and the likes is not regulated in any capacity. They choose the narrative that best fits their wallets.
100%. I have been following the housing market for the last few years. So-called data is all over the place. It really feels that all those companies have a narrative in mind and are nitpicking the data to fit the narrative.
I have rarely seen so much narrative-driven BS as in the housing market. The realtors being the absolute best at coming up with a reason why it is always the perfect time to buy or sell.
Even then, there's absolutely to denying that inventory has gone down and prices has gone up in last few years and it created an affordability crisis for many.
Prices went up because the federal reserve system has been playing very funny games. Old lessons often have to be repeated.
Elastic money will perpetually confuse people, as it takes the discussion out of reality. This is not a simple "supply/demand" problem. It is artificial booms/busts that were instigated by the fed.
Home inventory is up 13% from last April with 1.6 million homes available. Builders are starting to go under water and are trying to flush inventory. 90 day delinquent
credit card bills are at a 12-13 year high.
Reality is that the lies keep coming. The most simple and effective propaganda that exists is repetition. The affordability crisis is real, but inventory has not decreased and there is no "shortage"
2) Around 5% of Americans own at least a second home (https://www.statista.com/statistics/228894/people-living-in-...) and given a US population of about 340M and, given the very kind presumption that: people *only* own a second home and every group that owns a second home has 2 people in it, that'd be 340M * 2.5% = 8.5M second homes.
3) "Investor Homes", which according to ( https://todayshomeowner.com/blog/guides/are-big-companies-bu... ) tend to be the small houses that people want to buy account for about 22% of purchases *per year*; and they probably aren't selling them, so year over year that takes quite a few properties off the market.
We have *a lot* of spare homes if we incentivized real humans that will live in those properties themselves buying properties and more importantly disincentivized or even punished people and companies from owning second, third or more houses. Yes, many of those houses might be in undesirable places; but among 16M "just lying empty" and 8.5M "second homes", we could probably take a *huge* bite out of "4.5M" homes.
edit: I've edited the text twice now and I can't seem to get italics working, blah.
I misread that as 30% less housing. I stand by what I said though. It looks like Raleigh housing supply took a dip during the pandemic followed by a large swing climb back up and now it looks fairly stable.
People who are crossing the border illegally are never going to come close to qualifying for a mortgage, at least in next 5-10 years.
But a different kind of immigration does affect the crisis, and it is on the other end. You can fast track permanent residency by investing money, around $1m, into a US business. So every corrupt technocrats, police and army higher ups, politicians, gang leaders, unscrupulous business people I know of from my native developing country own multiple houses for themselves, their spouses and kids in US and Canada. This is what is making homeownership more and more unaffordable for average Americans.
The link is about the number of people Border Patrol caught, and thus won't be using US housing (or will be doing so legally as refugees). It's safe to assume there are others who don't get caught, but it provides no information about whether this is increasing, decreasing or forms a significant portion of the population growth.
From 2007 to 2019 the estimated number of unauthorized immigrants was slightly declining[1], at the same time that the population of the US as a whole (and the housing shortage) was growing, so it certainly wasn't a significant part of the problem then. From 1990 to 2007, the unauthorized migrant population grew about 500k/year relative to about 3M/year total. Even unauthorized migrants accounted for 17% of the population like they did then, which is debatable, that still wouldn't account for all of the discrepancy between housing growth and population growth. So it is fair to ask for numbers that actually support the parents position.
Furthermore, the housing supply is supposed to be responding to demand. Its failure to do so is a problem regardless of where that demand is coming from. It has been clear that we have had a growing housing shortage for decades, but it took a generation of population turnover and insanely unsustainable prices before political pressure grew to the point to change regulations and allow the housing market to be able to even begin to respond. Without the migrant population growth there is a very good chance we would have still allowed the problem to get just as bad before we finally responded, it just would have taken a bit longer.
This talks about "encounters" at the border which really means how many people are caught at the border and are waiting for a hearing. To make the claim you want to make, you would need to know how many of those people actually get hearings and are admitted into the country.
Asking why there isn't enough housing is like asking why water is wet. The answer is state/local government regulation.
There's an old saying "your margin is my opportunity" and I suspect that the current crop of homes that are built have decent margins, but in a deregulated market an entrepreneur could come in offer more affordable housing options with lower margins.
You can see this in vehicles. Nobody complains about the vehicle affordability problem because there are far fewer regulations in the transportation industry (don't get me wrong, there are regulations, but not a constraining as you see in the housing market). There's a vehicle at every price point. You got bikes, then ebikes, mopeds, scoters, motorcycles, sub compacts, compacts, full size, trucks, suvs, and all the way to crazy expensive sports cars.
You don't see that in house because affordable housing is not a good business. It's impossible to offer options at the lower end of the market because of zoning laws, environmental impact regulations, a difficult permitting process, nimby's, and affordable housing politicians that are really big proponents of affordable housing except "they have question about this particular housing project."
Here is a terrific video that everyone should watch that shows how insanely difficult it is to make affordable housing. A
Sometimes what you need is less government regulation, not more.
edited sentence "You don't see that in house it's not a good business." to You don't see that in house because affordable housing* is not a good business.
Housing is actually a good business. Otherwise everyone starting from upper middle class families to trillion dollar hedge funds would not clamor to get into it. Also, there might be regulations, but there is also lots of incentives and tax benefits which makes up for it.
Of course it's a good business. Just not at the price points people can afford.
Watch the video I liked to above. It's about a person that owns a laundromat in SF who wants to convert the building to affordable house. He basically wants to do the right thing, but the regulations make it impossible. It was EYE OPENING for me.
Trillion dollar hedge funds only got into housing recently when they realized NIMBYs would severely limit new construction. Before that speculating on housing didnt make sense.
