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Priced out of home ownership

bbc.co.uk

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Re: Priced out of home ownership

#651

Post by asdefghyk »

tmnvix wrote: post #274

People intuitively jump to the conclusion that the problem is caused by a lack of building. While more building would help, a lack of it isn't the main cause of this problem. Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause? In my view this is symptomatic of a more fundamental issue - global asset price infla…

RE "problem is caused by a lack of building" In my opinion there needs to be more houses built so the vacancy rate rises from the present extremely low ( round 1%) to the long term average of around 3% house vacancy rate. This 3% vacancy rate is recognized as a fair equilibrium between renters and property owners. Furthermore such a rate helps stop property owners raising rents as much , as happened in recent years. This is in Australia, do not know about other countries. Alos with record low interest rates, my opinion is lots people over commixed to loans, without proper consideration if they could afford the loan when interest rates rise to the long term average of around 7%

Re: Priced out of home ownership

#652

Post by ben_w »

tmnvix wrote: post #274

People intuitively jump to the conclusion that the problem is caused by a lack of building. While more building would help, a lack of it isn't the main cause of this problem. Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause? In my view this is symptomatic of a more fundamental issue - global asset price infla…

I think it's a different problem entirely.

I've been looking at getting a house built, and that starts at about €200k*, but the land in Berlin is at least another €200k on top of that (and usually more).

If I was willing to live in the back end of nowhere, I can get the land for almost nothing, halving the total cost.

But then I'd be living in the back end of nowhere, and turning that into an interesting town (let alone city) would need some very expensive infrastructure to be built, just to support that many residents.

Make the infrastructure cheap, and you can build New Towns.

Most of the developed world seems to struggle with infrastructure during my lifetime, be it major roads, railways, sewage, electricity networks, or anything else.

* list price €100k but that's a cheat as it's the outer shell only, no plumbing or interior plastering

Re: Priced out of home ownership

#653

Post by mlrtime »

dan-robertson wrote: post #627
nostrademons wrote: post #615

Earlier quoted context omitted.

> I don’t know why prices are still up though – if interest rates being high was making housing unaffordable, one would expect prices to be down. This is counterintuitive, but also persistent across high-interest rate environments. I asked my mom what the housing market was like in 1980, when rates went up to ~20%, and she said "Prices were basically stable, but nobody was selling houses." Similarly, if you look at h…

I guess I was surprised by the increase mentioned in the article. Rereading, it says: “The median home sale price, external in the US has jumped by nearly 30% since the end of 2019” So I guess you could have the increase due to Covid effects (or whatever else happened around then) and then seller hesitancy due to high interest rates, even though most potential sellers don’t stand to lose much.

Sellers do have much to lose. I think you're saying they have 30%+ in equity so why not sell and use it? Well they have 30%+ equity AND low interest rates.

If they sell, they need to buy again at a higher interest rate. So they can sell at a profit but then monthly payments will be higher.

Anyway, this is only 1 scenario. Urban areas are hit hard NYC/SF and sellers are sitting out waiting for recovery, so they rent them out.

Re: Priced out of home ownership

#654

Post by AnimalMuppet »

tmnvix wrote: post #274

People intuitively jump to the conclusion that the problem is caused by a lack of building. While more building would help, a lack of it isn't the main cause of this problem. Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause? In my view this is symptomatic of a more fundamental issue - global asset price infla…

> In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit).

Maybe? 2008 happened. At that point, there was a policy choice: allow a deflationary collapse, or prevent it. If we allowed it, there would be a lot of ruined businesses and ruined people. There would have been a lot of people who lost their houses. Instead, we chose to prevent the collapse, and we wound up here, where people can't afford houses. That's almost the same place, except that 1) the numbers are higher, and 2) it happened gradually rather than in a shock. That is, people didn't lose their existing houses, but new families can't buy their first homes.

So is this better or worse? My impression is that, for all the problems, it's still better than a collapse in 2008 would have been. But given the situation in 2008, some damage was inevitable. This amount of damage 16 years later is actually pretty good, considering.

Re: Priced out of home ownership

#655

Post by Detrytus »

starbird3000 wrote: post #649
tmnvix wrote: post #274

People intuitively jump to the conclusion that the problem is caused by a lack of building. While more building would help, a lack of it isn't the main cause of this problem. Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause? In my view this is symptomatic of a more fundamental issue - global asset price infla…

Where I am there’s been a huge increase in houses being bought for cash by equity hedge funds, like 25% of houses going on the market. Nearby Kushner bought hundreds of houses in Baltimore. The impact of this is that house prices soared because no one can compete against a multi-billion-dollar company to buy a house, which artificially pushes up prices. Secondly, I’ve done a lot of engagement with policy makers and b…

> Where I am there’s been a huge increase in houses being bought for cash by equity hedge funds, like 25% of houses going on the market.

Is this increase in absolute number of sales, or increase in the percentage? Because, if the house affordability due to high interest rates goes down, one of the only buyers with money that remain are hedge funds. So, in the past you had 1000 homes selling per year, 100 of those going to hedge funds, now you have 400 total sales, with 100 going to hedge funds. The relative percentage of houses bought by hedge funds increases from 10% to 25%, even though the absolute number remains flat.

Re: Priced out of home ownership

#656

Post by alkonaut »

Why are 30yr fixed rate mortgages 7% and up so massively from just a few years ago? Shouldn't the interest on the mortgage be about the expectation of average interbank rates for the coming years, plus some margin? Sure interest rates shot up recently, but did banks go from believing we'd have 3% long term average to 7%?

My mortgage (not UK) are just fixed in various parts on various semi-short terms (3 months, 1year, 3 years etc). The shortest ones are basically the current interbank rate plus 1%. The 3 year one is the banks expectation of interest over 3 years, plus a small margin and so on. For 10 year or longer the current rates are 4%.

Why are interest rates so much higher for mortgages in the UK, despite often demanding longer fixed terms? Is the risk massively higher? (My loan uses the home as collateral but also future income, meaning if the home becomes worthless I'm still on the line for repaying the lone for as long as it takes, I can't just leave the keys and let the bank eat the risk).

Re: Priced out of home ownership

#657

Post by ta1243 »

alkonaut wrote: post #656

Why are 30yr fixed rate mortgages 7% and up so massively from just a few years ago? Shouldn't the interest on the mortgage be about the expectation of average interbank rates for the coming years, plus some margin? Sure interest rates shot up recently, but did banks go from believing we'd have 3% long term average to 7%? My mortgage (not UK) are just fixed in various parts on various semi-short terms (3 months, 1year…

There are no* 30 year fixed rate mortgages in the UK. The typical one is 5 years. I renewed last September for 5 years at 4.49% with about 80% LTV.

The problem buying a house for me was always getting the deposit together while paying rent. Most people in the UK seem to rely on gifts from parents.

* very few -- there are some very specialised brokers

Re: Priced out of home ownership

#658

Post by akskos »

Even if you can afford to buy a home it isn't necessarily economical accounting in the opportunity cost of capital. This ofc varies across different times and situations regarding interest rates, regulation on mortgages in your jurisdiction, house prices and rent prices.

Re: Priced out of home ownership

#659

Post by xyst »

tmnvix wrote: post #274

People intuitively jump to the conclusion that the problem is caused by a lack of building. While more building would help, a lack of it isn't the main cause of this problem. Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause? In my view this is symptomatic of a more fundamental issue - global asset price infla…

It’s a multitude of factors - limited supply in certain (most?) markets, “cheap money”, supply chain factors with certain common building materials, “corporate owned homes”.

One thing that has definitely not helped is hostile building codes that prevent density. In some cities in the US, building height is constrained by the nearest single family home. Then there’s the parking minimums for buildings that allocate more space for parking than for building space for people.

In Austin, TX (USA), you frequently see buildings with massive amounts of multilayered parking but a smaller fraction of the building used for residential or commercial space. Some “clever” developers have tried to disguise the parking structures as part of the building itself to hide this fact from public view.

Problem with America is that we think this is 1950 and we can scale by building more deadass suburbs, expensive regional highways, and further strain our limited pool of resources (water, sewage, electrical infra) to support suburban living without any consequences.

Re: Priced out of home ownership

#660

Post by alkonaut »

speeder wrote: post #104

I live in Portugal and here the situation is outright ridiculous. 1. There are a ridiculous amount of abandoned properties, when I walk the streets of major cities, sometimes more than half of the buildings even in expensive areas are boarded-up. 2. Meanwhile I am afraid of being homeless soon, I lost my job recently, and the unemployment benefit I can receive is literally half of my rent. Thing is, there is no "wors…

The empty properties are they owned or rented? If they are rented, are the tenants paying rent but just not using them? If they are owned, are the owners people who just used them for passive investment and don't rent them out? Otherwise I don't understand how rents can be so high?

If there are places owned that aren't in use then the political solution seems pretty easy: tax property ownership massively when unused. Make unannounced visits to properties to see if the owners claim of having a property that's lived in is true.

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