Will Housing Affordability Ever Return?

Question

How bad is the housing affordability crisis? We would need any 1 of these 3 things to fix it, according to Fannie Mae.
1. US incomes surge 60%
2. US home prices plummet 38%
3. Mortgage rates drop to 2.35%, (from about 6.5% now)
None of these seem remotely possible. The housing market is FUBAR. When the politicians in DC decide to help, you know we're going to pay a hefty price. How did we get to this? How do we get out of it?

Mike Dymski · Answer

How did we get here? Money printing...plain and simple...which created massive inflation driving up prices and interest rates. Our debt to GDP ratio is ~125% and growing. Asset owners are fine as their asset prices went up...non asset owners are not fine...and the economic divide widened a lot. It's a big problem that has led to social unrest, populism, and socialism.

How do we fix it? At a minimum, we have to stop the money printers and balance the budget. Is that likely? No. As a famous politician stated "we have to get re-elected" and austerity is desperately needed but unpopular.

How do we fix it?  At a minimum, we have to stop the money printers and balance the budget.  Is that likely?  No.  As a famous politician stated "we have to get re-elected" and austerity is desperately needed but unpopular.

Jules Aton · Answer

I think it is sort of like gas prices there will be some ebb and flow, especially based on supply and demand but overall never returning to what it was years ago unless as the baby boomers die off there becomes a surplus of RE. I also think our country has set standard of living and quality of life expectations so high that we have dismissed the idea of a starter home when in fact there are still ugly, less expensive properties out there if someone can tolerate living without quartz counter tops and central air condition....gasp,  I know.

Theresa Harris · Answer

Housing prices are up in many countries.  Incomes need to go up, but to deal with inflation which affects more than just housing.  Mortgage rates are about where they need to be and more normal.  Builders need to build more starter style homes AND people realize what a starter home is-not a 2000 sq ft home with high end finishes. They also need to be flexible in where they live, if they want to own-eg if you insist on living in NY city vs being flexible and moving to a less expensive city, you're going to have a higher chance of owning a home.

People also need to look at their finances and where the money is going-new cars, eating out frequently, expensive vacations, disposable life style, etc.  I'm in Canada and it is the same here though one big difference is our mortgage rates aren't locked in for the term of the mortgage.  We are used to renewing our mortgage every 1-5 years (can do 10 now) at whatever the current interest rates are.

Wyatt Ferm · Answer

Adding to what others have said here - we are not in an "everything bubble" as some have said. Housing is at all time highs, rents are at all time highs, college is at all time highs, groceries, entertainment, stock market, cryptocurrency, gold, silver etc, etc you get the point.

The reality is that we aren't in a bubble, the dollar has just been completely devalued through unprecedented money printing. It's not that the value of all of these things has sky rocketed, it's that the value of the dollar has crashed. So it seems very unlikely that the price of anything, including housing, will ever go back to what it was.

Jeremy Horton · Answer

They need to come up with a way that people can take their existing loans and use that towards a new purchase. No one is giving up their rates unless they absolutely have to - that's the people that can afford a house. The others simply can't afford a house.

Say for example I buy a a house for 300k at 2.5%. Assume I put 0% down.

Now I want to buy a new house for 500k but rates are now 6.5%.

There needs to be a way to buy the new house for 300k @ 2.5% (applying the loan balance from house 1) and then finance the remaining 200k @ 6.5%

They should allow you to do this with a maximum of two loans - like the example.

That all being said - I think they will get mortgage rates down in the next few years I don't believe prices will really fall (meaning more than 5% on average).

John Clark · Answer

Wage suppression since the 1970s.NIMBY.  Heightened standards (bigger, better materials, etc)

Population growth

Karen Margrave · Answer

In CA land prices, regulations that push up costs to build, fuel prices that affect everything manufactured and shipped on trucks or trains, regulations imposed on employers that push labor costs through the roof, insurance costs, make it very difficult to build new. Unfortunately the politicians do not grasp that, and think builders can wave a magic wand and build for less. In order for new construction to happen, we as builders have to find great deals on lots, and do as much of the work inhouse as possible. For buyers, insurance and utility costs are huge factors. The cost of living is so high that food, and utilities are beyond what anyone imagined. So until we get some pro growth, reasonable people with knowledge of cause and effect into office, California will remain a challenge. Not impossible, but challenging. Also, there are some opportunities out there, but you have to think outside the box, and be ready to jump on deals fast.

KC Krause · Answer

No simple answer...many theories on why & how?

Many areas to blame.1. Demographics aka Boomers (with 80% of all home equity!) living longer than ever.2. Home ownership has been a cornerstone of US Govt. policy for...ever! aka The American Dream!! No other country can so many people put down only 20% (3% VA!) & own a home - this has worked so long only because it is all backed by the US Govt. & Dollar.3. 2008 Global Monetary Collapse & 2020 Global COVID Pandemic created artificially low interest rates for too long to keep the 80's - Present Debt Economy GOing...

Some would call this affordability crisis Late Stage Capitalism

A. Late stage capitalism refers to the phase of capitalism characterized by extreme inequality, consumption-driven economies, and corporate dominance. It suggests that traditional capitalist structures are facing significant challenges or decline.

B. Late-stage capitalism often highlights issues like worker exploitation, political corruption, and the commodification of everyday life, suggesting a need for systemic change.

Nick Robinson · Answer

We are already witnessing home prices decline in many states across the country. It’s important to remember that lower interest rates don’t always translate into higher prices. Rates primarily reflect economic conditions, including growth and inflation potential.

The labor market has been weaker than many realize because most people focus on headline employment numbers without digging into the underlying details. For example, hours worked remain low, and hiring has been minimal or stagnant. Eventually, companies may become more aggressive in cutting costs, especially labor expenses.

Starting October 1st, partial mortgage payments will be significantly reduced due to stricter eligibility criteria: borrowers must be current on student loans and other debts and are limited to one workout option every two years. Additionally, new homes are being priced cheaper than existing homes, and the country’s second-largest homebuilder is offering concessions of up to 14% on top of that.

Given these factors, home prices have a higher probability of falling rather than rising. Interest rates are expected to continue declining in the near term. Regarding incomes, I anticipate higher unemployment, which will put downward pressure on aggregate income levels.

Will we face a recession on the scale of 2008? I assign that a low probability. However, the likelihood that the U.S. will enter a recession soon is quite high. Historically, home prices take time to adjust; for example, during the last recession, even after a 500-basis point rate cut in less than 18 months, home prices continued to fall until August 2012. So, it will be a mixture of prices and rates bringing the cost down and over time the idea is incomes come up to make homes more affordable. If you really want to see home prices go down get government out of loans. Like with student loans you are putting distortions in the market which is not allowing free market capitalism to work. That being said if government did not have any loan programs or subsidies/backing loans you would see massive corrections because no lender would give you the current terms for 30years.

Will Housing Affordability Ever Return?

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