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Nobody’s Selling, Nobody’s Buying In America’s Frigid Resale Housing Market
Sales of previously-owned US homes rose for the first time in months, but the pace remains lethargic on good days and moribund -- pallidly frigid -- on all the others.
Thursday's update, covering July, found the NAR's gauge of existing home purchases rising 1.3%, better than the marginal advance economists expected.
Still -- and as the figure below makes abundantly clear -- this is an uphill battle. There's scant evidence to suggest the market's turning any corners.
Since the Fed started hi
is the median price rising due to sales moving more upmarket and drying up in the budget segment? that would explain rising prices amid low sales
https://fred.stlouisfed.org/graph/?g=1sZaY
Case-Schiller is rising, so it’s not a mix effect.
If the government wants to get the housing market moving- all they have to do is allow an exemption (above what is already provided for in the current tax code) on capital gains for Federal/state income tax purposes. I am guessing there are a significant number of older people who would have to pay capital gain taxes on a sale, therefore, they are choosing to stay in their homes through end of life- because at that point, the basis steps up to fair value under the estate laws and no one has to pay capital gains taxes.
It makes no financial sense where I live to buy a house if a person is currently renting. I am currently selling a nice rental (too big for a rental) for $600k. Rough mortgage payment is $3800/month.The people that were renting paid $2200/month. No taxes, no maintenance, minimal property insurance costs for them. Given wages and maintenance costs here, I don’t think there is much capital appreciation in the next 5-10 years either.
It’s the same in my market. I would pay approx 75% more to own the apartment I currently rent, but only if I had the approx $140k in free cash for the 20% down payment to avoid the mortgage insurance.
I take the extra cash I save (by renting) each month and put it in my retirement fund. The math just works out better.
I couldn’t afford to live where I am, but I’ve been here for 15 years; bought in 2009, and locked in a 2-handle in 2020.
You’re making the right decision for now, but as circumstances change, I’m sure you’ll keep abreast.
But you can’t lever up 5:1 or 10:1 in your retirement fund investments. A house is a highly levered investment funded by a non-recourse, heavily subsidized, loan that also has shelter and income potential, and favorable tax treatment. It is a pretty unique sort of investment vehicle.
Caveat: not saying if this is or isn’t a good time to make that investment. And there are big differences between buying a house and buying a condo.
Yeah, John’s right. The idea that it’s “better” to rent relies on a tortured interpretation of the word “better.” For the math to make sense on a very strict interpretation of the word “better,” mortgage payments would have to be astronomically higher than rents. A conventional US mortgage is indeed one of the most unique financial instruments on Earth: It allows regular people to lever up five times (and in some cases a lot more) on an asset they otherwise could never afford. That asset also happens to be a literal roof over your head. Generally speaking, if you can buy, you should. Sure, you’re “saving” $1,000/month by renting instead of paying a 6.5% mortgage on an inflated home value, and yes, that money can earn 5% in an MMF, but no one should kid themselves: You’re not actually “saving” anything. Quite the opposite: You’re burning up $2,500/month that would otherwise be going towards home equity which is (eventually) liquid if you’re willing to pay whatever the HELOC rate is.
However, the post-pandemic environment has raised legitimate questions about this otherwise unequivocal calculus. It’s now the case that a twentysomething making $100,000 or more has to choose between building equity in a home they neither want nor enjoy living in versus renting an apartment they actually like. That’s a serious issue. We shouldn’t put young, successful adults in a situation where they have to make that choice. Not to say everyone making six figures should have a mini-mansion as their first home, but when you force someone who’s, say, 28 years old to choose between buying a cookie cutter, Hardie board box (as I’m always keen to describe new builds these days) in the suburbs and renting one of these trendy, new renovated downtown spaces with a ton of amenities and a great location, we shouldn’t be surprised when they choose to rent, particularly when it’s $1,000/month cheaper and cash yields 5%.
H, I also was thinking about the contrast between the new and existing house markets. I was initially musing if new and existing inventory and sales shouldn’t be combined for a clearer look at conditions. But the two “products” are so different, they really are two distinct markets. At least in the places I’ve lived, new housing developments are in the suburbs/exurbs, far from where many young people like to be, and painfully anodyne. Today they are increasingly also small and cheap(ly built). I confess I am an old house snob, but some of the entry-level new housing developments look like self-storage for people.
Forgive a brief climb on a tired soapbox, but there is a way for young people to get close-in location, housing with character, and attainable prices. You just have to be willing to spend the next year of evenings and weekends sanding, stripping, nailing, painting, wiring, and generally fixing up the tattered old house that less determined buyers passed up. Institutional buyers won’t touch these, and high rates have temporarily damped demo/redevelopment and flipper activity, giving sweat equity an opportunity.
They are (almost literally) self-storage for people. They’re God awful. Which is why I deride those tract builds every chance I get. And if you’ve ever seen them in the construction stage, the idea that they’re worth $400k or more is completely laughable. We’re basically telling young adults that if they want to build wealth, they have to spend every night in a kind of jail — i.e., living in identical two-story storage units — until they have enough in home equity to trade up to a home that’s at least $750k (or $1 million in major metropolitan areas or $2 million in the most expensive locales).
One thing to note is the growing backlash against institutional fund-owned rental house fleets, typically mis-described as “hedge funds buying houses”, see for example Harris’ housing policy as regards owners of >50 rental houses but I think the resentment is increasingly bipartisan. A material portion of homebuilders’ business has become “build to rent” developments for those institutional funds.
Also on the general topic of housing, a prospective buyer in certain areas should consider property insurance expense. While I think insurance’s overall contribution to inflation is set to ease – i.e. the “hard market” is starting to soften – but for homeowners in some specific hurricane, flood, wildfire, etc, exposed areas the premium increase or cancellation notice will remain a real risk. It is a climate change thing, and this Bloomberg article https://www.bloomberg.com/graphics/2024-flood-fire-climate-risk-analytics/ supports suspicions that the insurers do not, in fact, have changing climate risks “figured out”. Which means insurers will continue to re-price or shed that risk. Since insurance is a requirement for mortgages, the homeowner is a captive. State-run last-resort property insurance programs appear to be shaky; their ability to pay claims from a really major event is unclear. This doesn’t matter for most of us, but for a few of us it matters a lot.