exactly. The 30 year fixed-rate mortgage does not exist in nature. It is a creature of the GSE's. Remove the GSE's from the equation or diminish their financial wherewithal, no more 30 year fixed rate mortgages (except for those who don't actually need mortgages at all). In the future, mortgages available to the average borrower will be for 10, maybe 15 year intervals at best, and many will be variable rate. Everybody will have to live with refi risk.Originally posted by Huck
Which is, I believe, the way that it was prior to the mid-20th century. 'Back to the future', so to speak.
Mike
Exactly MGK
What this all comes back to can be summed up in that refrain you always get from brokerage houses, "Past performance is not indicative of future results." Most of what us Xers know - and even what those older than us know - about urban planning and housing markets comes from our own experiences over the last 20 or 30 years, maybe 40 years for our parents. We grew up under a 50% government-subsidized housing finance system. Everything we just take for granted - like housing prices will increase every year, like fixed-rate financing will always be available on terms that sovereign countries can't even get, like we can ignore the need for urban-scale programming and capacity-balancing because if you build it they will come (so much so that planning schools basically stopped teaching planning estimation and land-use programming somewhere around 1990), like sprawl knows no economic bounds, like real estate is a capital appreciation not a yield game (as Trump once famously said), like you can afford and should buy a house as soon as you have a stable job and a spouse, like you'll actually have a stable job.. all this is from living in a government-subsidized welfare bubble, with a housing market that hasn't seen real price discovery anytime in our lifetimes and is now unwinding from decade-after-decade of government-fixed price distortion. Nothing here NEEDS to happen, and it probably won't going forward. Now, we can try to get our politicians to try to recreate this world for us for a little longer.. at immense cost and damage to the economy, but at some point soon it's all going to stop, it's all going to unwind, and it's just going to end up in yet another bubble. If we try to force things back into a bubble, then the bubbles will just burst with increasing frequency, and we'll all just get poorer over time.
One way or another, at some point and probably soon, what most of us will have to look forward to is a tiny rented apartment or house, with roughly as much as space per person as was the case in 1945-55 (the last time the housing market was actually doing price discovery on its own), and we'll be scrounging to make rent on it hand-to-mouth, day-by-day. Levittown, Long Island homes were 750 sq ft each, at 7-8 DU/DUA. They were typically inhabited by families with 4 people. Back to the future, except the lot the tiny house sits on is gonna be a lot smaller, because there's now that many more people.
I would be happy with a 50/50 mix in home owneship vs. rental.
I think a 50% home ownership rate is sustainable.
"I'm very important. I have many leather-bound books and my apartment smells of rich mahogany"
Here is another interesting table of data to inform this discussion. It lists home values from 1940 to 2000 by state and also averaged for the country as a whole. It would be interesting to link these figures with both the homeownership rates I linked to earlier and household incomes over this same span of time. Also interesting would be the role dual income households play in all of this.Some have speculated that the rise of two incomes has served to further inflate home values over time.
The purpose of life is a life of purpose
Elizabeth Warren wrote about this in her book The Two Income Trap. . She is a liberal feminist but clearly linked the increase of women in the working world to the fast rise in housing and education costs. To summarize, some woman got a good job so the family bought a nicer house in a good school district. Every other family then had to have two incomes to afford the best school districts to keep up. WHile I may not agree with her politics, it was a really good book.
Which would be supremely sad if that had happened because, in terms of real, chained, inflation-adjusted dollars, the household incomes of the young worker cohort (under 30) has declined by 23% since 1973 (actually, all cohorts have declined in real terms - an average of 8%.. that cohort has done worse than the others). That would explain something of the explosion in leverage.. they thought they'd have more money because their spouses started working, but they actually wound up poorer... and severely in debt to boot.
Very interesting table. Given that real median household incomes have stagnated since the late-1970s, there's no reason why there should've been any increase in housing values at all since... if builders had been free to respond to demand with the right product types, changing to reflect changes in lifestyles and increasing land-scarcity. Instead, we saw home prices double and, given that people aren't making any more money, we made up the difference with debt... and we wonder why the bubble burst.
Last edited by Cismontane; 09 May 2012 at 7:21 PM.
When I lived in Europe in the 1980s the way housing worked is the way I see a good way for the US (maybe more of CDN) to go: few SFD houses, many MFD with 3-4 units and two units usually had long-term families and the basement-attic would be singles or child-free couples. Larger cities had many apartments and SFA as well. I have a distant buddy traveling there now sending hundreds of pictures, much the same still.
Surely we can live in hovels if we continue to let the plutocrats take our money and resources, but I'd prefer for that not to happen even with a globalized world where they can hide and control resources from anywhere.
We can do better."The two great aims of industrialism — replacement of people by technology and concentration of wealth into the hands of a small plutocracy — seem close to fulfillment." -- Wendell Berry
True, but it is hard for me to imagine wanting that much flexibility when I get to my 50s, 60s and beyond. (I'm in my 30s now, and renting)
Renting is definitely the reality for many more people right now and probably for years to come, but I have my doubts about how many of them think it is the "new American dream."
As I learned looooong ago - no matter how much a government will try to skew any market in any way, that market will *ALWAYS* ultimately win out. The big question with the end of the 20th century's USA federal government meddling in the residential markets (ditto with local government meddling - see: 'local zoning laws'), how will the politicians who control those local zoning laws react to this now underway 'Back to the Future' situation?
IMHO, however that plays out, it will be very entertaining.
Mike
Couldn't have said it better myself; great post! Back to the future indeed...
As a Millennial I suspect I'm going to be a lot poorer than my parents. I'm OK with that; I'm just not OK with all the detached older suits who keep telling us "get a career, start a family, and have some kids!* Buy a split-level rambler already! C'mon, the economy needs you!" Well, if college debt haunts almost all young people (it's not just a side effect of frivolous "XYY studies" degrees; even the 'noble' engineering grads suffer; BTW what will we do once the whole STEM gimmick results in an oversupply of those?!), if the notion of a stable lifelong career is fading away (we will be job-chasing for the rest of our lives), and if so many other things remain volatile (medical expenses, transportation costs, etc.), then isn't it ludicrous to assume that the next few decades will be anything like the 1950s-1990s?
I don't think older people really understand how the whole suburban thing might have been a one-time phase: Yeah, in a postwar era where gov't mortgage subsidies made it cheaper to buy than to rent, where you could work for GE for 40 years and get a handsome pension, where your job stability allowed you to raise a family in confidence, it made total sense to buy a house for your family to settle down and stick around in! But these days? If a Millennial catches a short gig and instinctively knows that he/she can be dumped at any time, why would he/she buy a house? If you had no choice but to take some no-benefits temp job, then why would you buy a house, have some kids, get fired, and then have to find a way to offload your house so you can move to another area to snag another ephemeral job? Renting becomes way more attractive in this situation: you have more flexibility if you desperately have to chase jobs. This uncertainty was so much less of an issue in 1960.
I think the whole 'Millennials love urbanism' meme is badly misrepresented: it's probably not due to social preferences and personal frivolities so much as we subconsciously realize that an urban setting may be far more conducive to living in uncertain times in which you have to chase jobs and engage in constant uprooting. And the volatility of transportation costs only reinforces this shift: maybe that's why young people are also putting off driver's licenses and driving less, because they're increasingly too poor to have cars! No one really wants to talk about the steady impoverishment of younger generations in a straightforward, honest manner. And no, reinflating a housing bubble or deluding ourselves that Facebook, Apple, or "high tech" and "green" meds and eds will lead us into another boom won't solve the deep structural problems/shifts at play here.
*BTW when poor young people do have kids, these are the same graying professional observers that feign outrage when the younguns start using food stamps and social assistance: "Why did you have kids if you can't afford to take care of them?"
Last edited by marcszar; 11 May 2012 at 11:46 AM.
Two more articles on this subject for those interested:
http://articles.latimes.com/2012/may...tmare-20120506
http://www.sfgate.com/cgi-bin/articl...BU551OD1PL.DTL
In my corner of the world, rents have increased 7% in Alameda County, 15.8% in San Francisco, 15.6% in San Mateo County, and 12.5% in Santa Clara County.
Sounds like the big cities need to consider emergency measures to expedite approvals of rental building new construction applications. Density bonuses for rentals? With jobs starting to recovery, you don't want to jeopardize growth because there aren't enough places for people seeking jobs to live.
IMHO, a lot of the problems in places like that are due to limits established in local zoning laws and the red tape involved in getting a needed change in zoning and then the actual final approval for nearly ANY development proposal, especially if it includes a higher unit density than was there before. Some of those are very draconian (think: 'NIMBY!').
Mike
The rapid rise in rents in the 1989s convinced a lot of us that you needed to buy a place if you had the resources. For those living in places that are experiencing high rent increaes, the same thing may well happen.
For those who can afford to buy, of course.
It's not just a matter of approving new developments. The city of Boston has approved perhaps as many as ten thousand units but the developers can't get financing or are afraid the economy may slow again. So the approved developments sit as vacant lots. Most cities have extended approvals of projects that were cancelled or postponed as the recession hit. These are still sitting there idle as well.
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