Hilarious sure, but also sad and concerning. I'm tentatively alright with the idea of renting forever and never owning property... but with rent increasing and investors buying up more and more property, it looks like things will get uglier and uglier.
the insane mortgage rates we saw in the last few years really are going to be a generational redistribution of wealth that we'll talk about for the next century, I think. That might have been the last train out of town for the middle class to widely own housing in a lot of cases.
No idea about if it’s the last train out of town but home ownership in the US is extremely high[0] (it ought to be we subsidize it like crazy).
If you go back to 1900 you see home ownership rates in the US at less than half of households[1]
The interesting thing to me is how conflated home ownership has become with housing affordability. As we’ve doubled the numbers of home owners we’ve dramatically removed the options for housing.
Housing prices exploded to compensate for the negative real interest rates. The people who got the handouts were rich people who owned multiple houses and sold them off. For the most part others didn't get that hot of a deal. In effect it was a regressive tax that the poor paid for the rich by paying in inflation the cost to make multi-home owners rich.
If your payment is massively lower than your rent would be - you won.
Someone else is allowed to win, too.
It's a zero sum game, and the only losers have been renters.
That can change if there's a massive, sustained housing crash. But I won't hold my breath for that.
I'm willing to bet, like always, house prices won't decline. The value of the dollar will decline instead (because the Fed can just easily QE until the only people that lose are renters).
> The 30-year fixed rate mortgage at negative real rates is the biggest handout the world has ever seen.
Agree. I bought a house around a decade ago. Refied into a sub 3% rate. The house next door now rents for 2.5x my mortgage. That's 10s of thousands of dollars/year extra I have in my pocket.
Being able to afford 20% down on a mortgage is something affordable to less people every year. With rates increasingly quickly, it's not going to be much cheaper if prices fall too.
Maybe, in the back of peoples minds, we all know "The Fed" isn't magic and crisis do happen. So if this "guaranteed 2%" falls apart, it's going to freaking suck for a lot of people.
Can you elaborate on your last sentence a bit more? Just trying to get a more thorough explanation. I just got my first 30 year mortgage so, trying to make myself feel better I guess.
If you just bought, you don't have a negative real interest rate.
Your interest rate is probably 5% or so?
The real interest rate is probably 3% or so. That means your REAL interest rate is 2%.
When you inevitably get the chance to refinance at below 3% - your REAL interest rate will be negative.
The 30-year fixed mortgage is a product that would not exist without a government guarantee on Fannie & Freddie's debt. Even if you have a jumbo loan - it's only because of the MBS market created by Fannie & Freddie.
In essence, the tax payer is paying you for you to have a mortgage on your house - regardless of whether Fannie securitized your mortgage.
My interest rate is 2.7% - We've been in the house for close to a year now. Renting was going to be 700 more MINUMUM. I couldn't justify not buying but also feel..unsure about everything for obvious reasons.
I'll take a whack at it. You have your mortgage, and let's say the hypothetical payment is $1000/month. That is all you'll ever be obligated to pay each month in order to live in your house (we'll ignore property taxes for the moment). Whereas your neighbor rents her house for $1000/month. But next year her rent is $1050/month, and so on. In ten years, she'll pay on the order of 50% more to stay in that house. But you'll still be paying $1000/month, and will continue to do so for 30 more years.
But that's just how mortgages work, right? Lock into a rate, and have that for 30 years? Only in the U. S., AFAICT. Canadians will correct my details, but as one example in Canada one gets a mortgage for, say, five years at x%. After five years, go renegotiate? (Help me out here, Canucks; as soon as I went to write it out, I knew I had it wrong.) Anyway, point is, the "lock it in at 2.5% for 30 years" seems to be unique to the U. S., and assuming that your wages increase, after a period of years you will keep more money in your pocket than the neighbor that rents.
Yep Millennials, Gen X and Boomers have all been handed a once in a lifetime gift here. Each of those generations made out like bandits with low housing prices until the last few years and low interest rates.
Gen Z and the generations to come have a real reason to be pissed at the rest of us.
What gift would that be? Genuine question - I don't see what gift I received that is comparible to my in-laws purchasing their first home for 30k and flipping it for 100k not long after. I haven't had a gift close to that.
> purchasing their first home for 30k and flipping it for 100k not long after
In a lot of markets here (I’m Canadian) average people who bought average homes in the mid 2010’s (millennials) have already made over a million dollars. Most home owners make way more money from their home than their job. This will never happen to my generation.
In Australia at least there's a substantial gap between affordability for millennials and us Gen X'ers, reflected in homeownership rates. The trend only seemed to have been getting worse throughout covid (governments threw a lot of money into economic recovery, combined with super low interest rates, driving up house prices despite near zero immigration and absence of foreign students etc., though they're coming down now). Was that not true in the US? Gen Z are just coming into house- buying age now, though my own son is likely 8-10 years off from being a good position to afford anything at all, and without my help (or a lottery win), it's not going to be a house or even apartment anywhere close to where I live. But a lot could change in that time.
No idea about the US, I'm in Canada and housing has only gone off the rails in the past 4-5 years. So those 3 generations all had legit chances to buy a home at a reasonable price.
I'd assume every country is its own special mess:)
In Canada last year we had a stat released that said 1 in 5 Millennials that own property own more than one. This was inline with both GenX and Boomer stats.
Millennials are just as much a part of the problem as any other generation, assuming you think speculators are part of the problem.
"Speculators" sure, but most people who own multiple properties I wouldn't think fall into that category. We own a rental property - it's very much a long term investment, and we charge rent below market rate (it's still positively geared!). I don't believe our purchase locked out any first home buyers, it's a tiny 1BR flat, and priced at a point those just getting onto the property ladder could've afforded it (and outbid us).
If we do sell the property it'll be to help my Gen-Z son buy a house. Having had assistance from my own parents (a smallish interest free loan that I paid back within 5 years) that seems fair enough.
I would if I thought I was one! A speculator I'd see as the sort of person who regularly buys and sells property hoping to make quick cash. While there is some tax regulation to discourage that here (you pay a lot more in CGT if you sell quickly etc.), I still don't think we have the settings right, it's too easy to make money if you already have it, at the expense of houses not being available to people who actually want to buy a house they can live in (who are stereotypically couples thinking of starting families etc.)
Renting for life isn't the same thing as being indebted for life. You can move out at any time and the landlord doesn't have any hold over you. Doesn't sound much like peonage to me.
Yes...usually you sign an agreement for the year in Apartment Complexes for instance. They also raise the price each year and make you sign. I do not miss apartment living
Not a native speaker so I'm not sure what you call an apartment complex, but I've lived in apartments that were in complexes of multiple buildings and never heard of paying per year. That sure seems to suck.
Currently I'm unsure where I will/want to settle down.
I also manage to save some money monthly, which I invest in diverse markets. So my thinking is that at there isn't (or "shouldn't be") any rush for me to buy property.
But news like this obviously goes against that and will have me revisit the idea.
Other people are playing the "enrich themselves at the expensive of the collective" game, so you should too. The move in this situation is to seek out rent control. That will cap rent increases for you at like 5% a year in most places. If you are able to swing a few promotions at work while staying in this same place, you might come out well ahead of any potential rent increases and manage to start actually saving and investing money. This is the route to property ownership a lot of people I know in southern california are taking.
Well, the idea that owner will be saddled with serious repair and maintenance whereas renter on virtue of being a renter will just move out to house on next street risk free seems unsustainable to me.
Increasing rents are a kind of distributing risks of costly maintenance that renters doesn't want to care about.
I have no data for this but I'd imagine rents have increased substantially to make up for the eviction moratoriums. Several friends of mine who own an extra house (usually their parents) ran into the problem of being unable to evict a tenant, and also having the tenant refuse to pay (because the government told them it was ok). The only solution here is to raise rents to compensate and unfortunately this drives out would-be good tenants.
But yeah in general rents being more expensive than mortgages is a function of risk. Renting is generally less risky for renters are more and more risky for the owners, so it's only fair that the owners be compensated for the risk. The question is where do you draw the line on fair risk compensation vs outright usury. In states like California and New York it's getting to be insane. Even in the low CoL area I am in I have no idea how people pay $1000 for a shoebox studio.
Not all renters are renting because they want to. For some of us it’s the only option. I would have bought a home years earlier than I did if house prices were more affordable.
I mean you make fair point. But that's in general story of life. I also do not want expensive day care, expensive home therapies for my sick kid that insurance does not pay for, or exhausting commute to work with no option to work remote. Still here I am doing things I do not want to.
If I leave this apartment in a worse state (besides fair wear and tear) than it was when I started renting it, the cost of repair will be on me via a portion of my rental deposit that I won't get back.
Sure fair wear and tear does cost something to service/repair over time, but generally things seem to last.
I'd love to buy a house and take care of annoying/costly maintenance myself, but the cost of entry is 7 figures for a garbage home in my area. Sometimes I dream of fixing a fucked up pipe or replacing drywall, y'know?
In a competitive market (I'd say even the biggest investors own <10% of the markets they operate in), rents are bounded by competition. The bigger reason rents are going up is there is not enough supply for people to live in. Things like environmental reviews, zoning policy, mandatory low income units, and "historical" buildings make it very unappealing or impossible to develop new housing.
At the very least, replacing all SFH with townhouses would give 2x density increase. Removing the height limit on new construction and allowing rebuilds of old apartment buildings without excessive permitting would probably give another 3x increase.
LA for example is built into the 90% range of its zoned capacity today of 4.3 million people with a population of just under 4 million by official counts (higher in actually no doubt). Meanwhile, in the 1960s when homes in LA were actually affordable, the population was 2.5 million, with a zoned capacity of 10 million. That means if we want to make LA as affordable as it was in the 1960s, then we should zone the city for at least 16 million people, instead of 4.3 million people as it is zoned today.
That's insane. More fun LA facts. LA produced ~60k housing units out of a goal of ~80k over the last 8 years. Their goal for the next 8 years is 450k. They are starting at least 1 year late due to the COVID eviction moratorium. Right now you still cannot Ellis Act an occupied property to demolish it. I would wager that they will not meet their goal.
There's a lot of low hanging fruit in LA for redevelopment that won't even require a tenant to leave. For example on most arteries you have single story commercial buildings with no one living on the property. There's also a lot of generally derelict property I've noticed for a number of years in very prominent locations that are not being redeveloped for whatever reason. For example, this building has seen a few structure fires recently. If you go back to 2007, the oldest date on google street view, it looks exactly the same, so its been in this state of disuse for at least 15 years. This is not a bad location to build an apartment; you are immediately adjacent to a red line station and other buildings nearby along Vermont Ave have been converted in recent years to new 5 over 1 style apartments.
Ha, I know that building. There is always graffiti along the top. Didn't know it was empty. That's a 10/10, next to a metro stop and freeway entrance. I'd buy that in a heartbeat. Looks like it changed hands for 2.8m in 2019. Someone must just be sitting on it.
There is low hanging fruit but people with smaller pockets need to go after what is available. I looked at every multi family listing for months in LA until I found something that wasn't bleeding cash and was zoned for more units. Most listings were just unrealistic and had some hold out tenants. It turned out to be bleeding cash, but still a good buy.
Don't forget the surface parking lots too. Plenty of great locations in downtown LA or Hollywood and elsewhere are squandered. This includes a corner lot on Hollywood and Vine, which seems pretty prime.
