Some things I think of about the housing market:
How affordable is housing for the majority of Americans? The rule of 50/30/20 says that you must spend around 50% of your income on supplies (housing, transport, health care, etc.), 30% of your income on wishes (going out for dinner, travel, entertainment, etc.) and 20% of your income to savings or paying off debts.
Within the 50% bucket, a good rule of thumb says that you have to spend around 30% on your monthly housing payment. There is clear what nuance is involved, depending on where you live, and so on.
Redfin Has a new report that shows that many households have difficulty staying within the limits of this rule based on current house prices and mortgage interest:
A household in the average income should spend 39% of their income on homes to buy the average priced house. But there is good news: that is a decrease of 40.5% last year, probably because the incomes have risen while house prices have hardly been stimulated (the median American house sales price has only risen 1% year after year).
While only about a third (34.6%) of the home statements are affordable for the typical American household, that is somewhat an increase of 33.2% a year ago.
This is not a good news for potential home buyers, but what about all the people who already have a house?
If you had a real estate pre-2021 and locked in a mortgage of 3%, your monthly housing costs are probably considerably lower than 30%.
Consider yourself happiness if you have enclosed extremely low housing costs. Those days have disappeared for a long time.
Will the housing activities bloom during the next recession? The housing activity remains weak according to historical standards:
Nobody wants to refinance with the rates that are so high and nobody wants to buy a house with the prices that are so high.1
We’ll get another recession. Maybe in a year. Maybe in 7 years. Who knows?
When an economic contraction occurs, we will probably see lower rates. These things are not scientific, but the mortgage interest rate has fallen by an average of about 1-2% during past recessions.
If that happens this time, I think you will see an explosion of housing activities of pent -up supply and demand that has been on the sidelines. We could also see a large increase in cash-out refis and heloc’s if the rates are at more reasonable levels because nowadays there is so much equity in houses.
People here would be very confused, but the housing market has already completed a recession, so it would not surprise me to see us lead the next one.
Why do we make it so easy to start a business and difficult to build more housing? I think this is more a rhetorical question.
Look at the number of business applications in America:
The fact that we went through a pandemic and it led to a tree in new business applications is one of the things that make this country great. Starting a business is relatively easy.
Building more housing is a process that is full of hassle.
It makes no sense.
Shall we ever see actual policy changes that encourage more construction? There are many reasons why housing has become priceless for so many people.
The simplest explanation is that we do not build enough housing.
For some reason, this has not become much of a political issue. Politicians have not done much to relieve the pain of higher housing costs. That can change.
The road to the Housing Act is the first dual legislation on housing construction that is approved by a senate committee in more than ten years.
The general idea behind this act is that we have to reduce the regulations in the development of homes and get rid of all the bureaucracy that makes it so difficult to build more. It is one of the most extensive accounts in years to confront the home crisis by reforming regulations, building innovation and affordability initiatives.
There are many details that still have to be smoothed out and the Senate still has to vote on this, but it is the first piece of good news on the front of the housing facility that I have heard in years.2
We currently get a lot of deregulation in other parts of the financial system, but housing is where we need it the most.
I hope this actually happens and we build more housing.
Continue reading:
Housing market Adel
1There is clearly some activity going on. In the past 12 months there were approximately 3.9 million existing home sales. That is just far below the 5.2 million average number this century.
2Cardiff Garcia has a great podcast on the road to Housing Act with Alex Armlovich. That is worth listening:
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