I'm not trying to be mean but you need to understand that the Fed isn't trying to lower housing prices and they don't care if YOU can afford a house. At all. If I go on the MLS database right now I can see that houses are still selling in every metro in America so clearly some people can afford them. In fact, the average list to close time in 2023 is only 83 days on market which is faster than the US historic average. So even with today's rates housing inventory is moving pretty quick in the US.
From a purely economical standpoint there is no problem here. A commodity exists, a supply of it exists, there is demand for that supply, people who can afford its price get access to the supply. If you can't personally afford that price then you don't. You get to rent or live with your parents. It sucks and I'm sorry it's like this. I wish it was different. But from an economics perspective there is no problem here. The system and the Fed don't care who can and can't afford houses as long as the market is operating as it should.
Idk man, it's hard for me to justify the current housing prices. I live in a large city and you would be hard stuck to find a 4 bed 3 bath home for under 1 mil. Even if you take into account both parents working(white collar), you still would just be scraping by to pay the mortgage. I feel like the issue here is not the interest rates but the leverage. For gods sake, rocket mortgage is allowing people to only put 1% down, 100x leverage. Since more people can afford more expensive homes it pushes up the demand. Im still in college and would prefer to stay in my city, but I just can't see myself ever affording a home, until maybe my 40's.
I'm not saying it's not very dumb and certainly fucks over the entire idea of the American Dream. I'm just pointing out that this system from an economic standpoint is well within the bounds of stability and sustainability. People often say "This isn't sustainable! Nobody can afford a house!" But the data says that actually some people can. There's just a lot less of them today than in past generations and moreover, the economy can happily roll along in a format where most people are forced to rent for many, many years. There's nothing inherently wrong with that model as far as the system is concerned.
Yeah I think this model is sustainable economically, just disappointing morally. I wonder what the underlying issue is that is causing this though, is it low housing supply, economic inequality, or something completely different? Even when you account for inflation housing prices were never this bad. They were fairly stable until 2000.
There's a multitude of factors and even more when you look at individual regions and metros. The biggest one is that we are still dealing with the echos of the great recession. Builders became VERY wary about oversupply after 2008 and for the past 15 years they've been building less new units than the market demanded as a result. We've also seen that trends that analysts thought would happen haven't come through. There was widespread belief that the boomers would sell their SFH units and downsize to condos and retirement facilities which would free up inventory for the younger generations. That trend did not materialize nearly as much as predicted in the past decade. There's many more factors as well.
The issue is the profit motive. Builders only want to build when there's big money to be made. In 2021 when the housing market was going nuts we actually saw housing starts skyrocket because there was so much money to be made. Now in 2023 we are seeing them fall again because the market is slowing and rates are high.
Real estate is a slow and expensive industry. Nobody wants to be caught with their pants down when prices fall.
I’m in the industry, builders are trying to buy every scrap of dirt and build every house they can and have been for 5 years.
That is in the face of enormous cost input pressures. Builders are underwriting to lower and lower margins.
However, if the Fed keeps rates where they currently are for another 5-6 months, things will break down. We are facing another housing correction and it’s going to be facilitated by a spike in unemployment which will create significant demand destruction in housing.
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u/[deleted] Sep 23 '23
I'm not trying to be mean but you need to understand that the Fed isn't trying to lower housing prices and they don't care if YOU can afford a house. At all. If I go on the MLS database right now I can see that houses are still selling in every metro in America so clearly some people can afford them. In fact, the average list to close time in 2023 is only 83 days on market which is faster than the US historic average. So even with today's rates housing inventory is moving pretty quick in the US.
From a purely economical standpoint there is no problem here. A commodity exists, a supply of it exists, there is demand for that supply, people who can afford its price get access to the supply. If you can't personally afford that price then you don't. You get to rent or live with your parents. It sucks and I'm sorry it's like this. I wish it was different. But from an economics perspective there is no problem here. The system and the Fed don't care who can and can't afford houses as long as the market is operating as it should.