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Mortgaging Millions
The rate America's legions of frustrated renters would hypothetically pay to finance homes that've shot up 30% or more in less than half a decade fell again over the last week, according to Wednesday's update from the MBA.
That's the good news. The bad news is that at 6.50%, they still look entirely onerous to younger American families who don't remember the last time money wasn't free. And rates are still far too high to facilitate a wholesale thawing of a market that remains largely frozen.
Those who are waiting on the sidelines to purchase a home (renters) are not only waiting for mortgage rates to come down further, but they are also going to wait for prices to decline- which there is a reasonable chance of happening as more and more existing homeowners decide to sell.
Therefore, there may not be a rush for first time homebuyers to buy homes, even if mortgage rates start with a 5. It is reasonable to think that waiting will result in lower home prices.
In the meantime, a “rent vs. buy” cost analysis decidedly favors renting – at least in CA, where my adult children live. As an aside, CA is going to have to address the inequity of how real estate taxes are handled (Proposition 13) or the younger generations will be resentful that they are shouldering a disproportionate burden of real estate taxes.
Why are people waiting to sell if they are not planning to buy?
And if they are planning to buy, how does them selling free up housing stock?!
I think prices head higher as rates come down. Until we see a surge in new builds, which lower rates will help but that takes time, I don’t see how the housing ‘deadlock’ is solved.
I’m a (fairly recent) California homeowner, and I hate prop 13 with a passion. It’s a massive transfer of wealth from younger people to older people, but it’s in the self-interest of existing owners to keep the status quo so at best we have to keep chipping away at it. Frankly, the combination of prop 13 and local zoning laws massively distorts California’s real estate market, but defenders always trot out the tired old trope of kicking granny out of her house because she won’t be able to afford property taxes. Never mind the million dollars of equity granny is sitting on while paying $1,000 year in property taxes while the young neighbor next door is paying 10x that and was barely able to scrape together a downpayment because granny pulled up the ladder behind her.
What really fascinates me about this situation is the utter silence on the gigantic windfall that California will collect if nothing changes. At some point, the revenues (from real estate tax collections) will far exceed the costs.
I can’t wait to ReFi my 5 handle
If supply and demand increase simultaneously, not that they would necessarily increase by the same amount, then prices would move mostly sideways from where they are now, no? Mortgage rates may become cheaper, but houses would likely not. Of course, a meaningful recession could change everything.