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America's Housing Problem: Buying And Renting Are Both Unaffordable
In Q1, the average down payment on single family homes, condos, and townhomes fell to just 14.8% — the lowest level since Q1 2012.
As discussed here on Sunday, this is the inevitable result of a move by FHFA to lower the minimum down payment on loans backed by Fannie and Freddie to 3% from 5%. This had the knock-on effect of prompting FHA to cut premiums in order to retain market share. The idea, of course, is to make the homeownership dream a reality for as many Americans as possible irrespective of whether or not they can actually afford their mortgage payments. After all, “it’s only right.”
As it turns out, the FHFA’s best efforts at resurrecting the same type of underwriting standards which precipitated the housing bubble haven’t been enough to transform what has become a nation of renters back into a nation of owners. Leaving aside — for now anyway — the issue of whether the homeownership rates that persisted pre-crisis were realistic, the factors impeding new home buying in America will be familiar to those who frequent these pages: student debt and lackluster wage growth. Meanwhile, rising rents are squeezing renters, making it even more difficult to scrape together enough for a down payment. WSJ has more:
Last decade’s housing crisis has given way to a new one in which many families lack the incomes or savings needed to buy homes, creating a surge of renters and a shortage of affordable housing.
The U.S. homeownership rate is now below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage more Americans to buy homes. Conventional wisdom says the rate, now at 63.7%, is leveling off to where it was for decades before the housing-market peak.
But this is probably wrong, according to research from the Urban Institute, which predicts homeownership will continue to slip for at least the next 15 years.
Demographics tell the story. The Urban Institute researchers predict that more than 3 in 4 new households this decade, and 7 of 8 in the next, will be formed by minorities. These new households—nearly half of which will be Hispanic—have lower incomes, less wealth and lower homeownership rates than the U.S. average..
Fewer than half of new households formed this decade and next will actually own homes. By contrast, almost three-quarters of new households in the 1990s became homeowners. The downtrend would push the homeownership rate below 62% in 2020, and it would hold the rate near 61% in 2030, below the lowest level since records began in 1965.
The declines reflect a surge of new renter households, which is boosting rents. Together with tougher mortgage-qualification rules, this will leave households stuck between homes they can’t qualify to purchase and rentals they can’t afford, says Ron Terwilliger, who spent two decades running Trammell Crow Residential, one of the nation’s largest apartment developers..
A related concern is that qualified households will be unable to move from renting to owning as housing-cost burdens, slow wage growth and student debt make it harder to cobble together even a modest down payment.
“America is blissfully unaware of this,” says Lewis Ranieri, the financier who co-invented the mortgage-backed security, which allowed large numbers of baby boomers to become homeowners beginning in the 1980s. “We’re rapidly running to a crisis in less than 10 years.”
In other words, between Fannie, Freddie, the Fed, and Wall Street's securitization machine, the US created a bubble which drove the homeownership rate to levels not commensurate with economic realities (i.e. incomes, FICOs, etc). Invariably, the bubble burst, turning a nation of homeowners to a nation of renters and demand for rentals has naturally driven up rents.
Meanwhile, Fed policy has failed to boost aggregate demand and in turn, wage growth remains in the doldrums for the vast majority of workers...
...while new graduates are unable to buy homes because 1) the "strong" jobs market is a BLS fabrication, and 2) they are weighed down by record student debt...
...and homes purchased by flippers are increasingly being sold not to new occupants, but to landlords...
* * *
What the above suggests is that for many Americans, buying is out of the question and renting is becoming increasingly unaffordable as the entire household formation "upside case" is now collapsing on itself, something we've discussed on a number of occasions. Recall the rise in "parental co-residence rates":
Note that this situation has the potential to become self-fullfilling. That is, as homeownership becomes increasingly unrealistic, demand for rentals will only increase, driving further increases in the cost of rental housing. The question then becomes this: what happens when a family that can't afford a down payment can no longer afford to pay the rent?
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Everything is awesome though. The talking head Realtor on the local channel this morning said now is the best time to buy. I heard it on the News so it must be true!
OT: E-Cash is here...
http://money.cnn.com/2015/06/08/technology/abra-bank/index.html?iid=ob_homepage_tech_pool&iid=obnetwork
The answer to your final question is found on an increasing number of street intersections. Many former middle class now begging for food. Not going to be any fix for this, short of collapse. Can't come soon enough at this point. The injustice is reaching levels only ever seen in the worst historical analogs.
Perhaps all these unfortunate people will be given an Obama box?
This will self correct when empty houses start costing the "owners" a fortune.
The turnover in housing in the next few years will be enormous.
If I *ever* borrow money again, it will be for an ASSET with postitive CASH FLOW, not a property tax yoke with a roof. Debt only makes sense when it is to invest in something productive that pays for itself with cash flow .... debt is a yoke when simply used for consumption.
Now, paying cash for a house on the other hand ... oh, right ... American middle class ... never mind ...
Regards,
Cooter
'The question then becomes this: what happens when a family that can't afford a down payment can no longer afford to pay the rent?'
Oh that's easy, they realise that they're working for nothing, start to work for real money and shy away from the government fake ponzy ripoff scheme...
Something like gold.
Fire insurance claims will become enormous.
Very Robust!
The premse does not make sense as the market supply and demand will eventually ballance out. Meanwhile, people will share houses and live with parents. Builders will build smaller more efficient apartments to capture the group. (Eg. Tube hotels in Tokyo)
https://www.google.com/search?q=tube+hotels&rlz=1C2CHWA_enUS627US627&biw...
And we will see the rise of giant corporations that own the rental-housing market the way ADM owns agriculture and CVS owns the pharmacy biz, originating from and backed by Wall Street. Small landlords will find themselves forced out of business by taxes and regulations that favor the big players.
It'll be a repeat of the 10th century in Europe, where horsemen started building castles everywhere. Soon they were able to confiscate peasant land and forbid them from hunting and fishing in the woods. The new era of castellans has begun.
Wells Fargo is already doing just what you forecast...
And here I thought I was the only one wishing for collapse...
AB-so-LUTE-ly!
If you're not buying the million-dollar homes the local newspaper shows on the front page of the Local section every day, you WILL be SORRY! :^)
I wonder how many newspaper owners also have real estate businesses. More than a handful, I would guess.
5.
they are all desperate for the monthly cash flow that heralds "good" collateral
That must have been a rerun from 2008 or 2001 or 1965 or...
If I was 25 and living with my parents I know exactly what I'd do ... There's a decent Chase repo/foreclosure I know of that's been empty for 6 years ... I'd just talk to the neighbors (they're tired of this thing sitting empty and covered in vines) to make sure they're cool and have the utilities turned on in my name...
Answer: Lower the standard of living of Americans some more! Why do they need so much anyway?
Let's put everybody in those tiny little 300 sq.ft houses Michael Bloomberg has been pimping, or warehouse everybody in Public housing beehives like Agenda 21 is scheduled to do to us via UN sustainability mandate.
Some fucker will always chime in....you know...less is more. Yeah...well sometimes less is less. That is why it is called less.
The fucker doing the chiming in is usually some asshole like Bloomberg.
>>> The question then becomes this: what happens when a family that can't afford a down payment can no longer afford to pay the rent?
They will double up.
Two families to a house. Just as they did during the previous great depression.
The rental crash will happen next. The damage done to all those who bought investment property to squeeze the former owners forced to rent should be severe.
Not really.
You expect everything to return to normal with a crash.
But remember, in a lot of parts of the world, housing and 1 meal a day costs 110% of the monthly income.
That means, if they’re lucky, theyll only go hungry 3 days a month.
and those are th lucky once.
Housing will keep rising in cost. Food will keep rising in cost.
Untill there’s nothing left of the monthly budget.
I see your point, SD, but Americans are really mobile compared to most cultures.
I see a massive exodus from the shitty cities as inevitable.
Couldn't agree with you more.
Something I've been seeing recenetly, within the last 3 months, as people I know leaving all the major cities to move back to small towns in the midwest as they have peaked in the metropolitan areas.
Shoot I'm planning on it myself here in the next few months.
The dissolution of borders plus the endless stream of war refugees ensures that NOWHERE will be pleasant or safe, anymore.
Syrians are being resettled in Idaho, look it up.
To where? Rural America is more fucked job-wise than Urban America. Sure, rent/RE might be cheaper, but the jobs are fewer and pay less.
That's mostly why folks put up with cities in the first place.
HenryHall is right. Learn to live with others. It's much easier and more enjoyable than you think. Western egos prevent it. We are the exception. It's coming; regardless.
The urban sewers/plantations are anachronisms that need to be ended, but the Demoncraps have spent 50+ years building them up as a political base.....they won't stop the parasitical subsidies and familial/cultural destruction and disintegration until the money really runs out and the hordes of savages engage in the chaos, plundering, pillaging and raping that they have been conditioned to believe is their "right".
Powder is dry.
Loaded some mags tonight myself.
SD, I don't expect anything to return to normal I expect we are in completely uncharted territory here and may never see what we considered normal again. Ever.
What I do expect is for rental prices to crash as liquidity evaporates. Friends/family sharing a place to live will be quite common. Rents can't be paid if there is no money to pay them with.
Before the last housing crash I was saying it was a bubble that would burst and leave millions homeless. General reply received was "that's impossible, those people need to live somewhere". Thinking the same applies to outrageous rental prices...
Rental rates have a floor set by Section 8 and immigrant housing subsidies.. So in the near future, many of us will be doubled up while paying for Section 8ers and immigrants to have their own nice place to live.
When did the USA become Bangladesh? FFS what is our population density? Fucking wide open spaces all over the fucking place...fucking empty malls...fucking McMansions with two people living in it.....and people have to share accomodations. Yep...makes sense.
Quite a freak show, isn't it?
I think it written on the statue of liberty.
SEND MY YOU’RE DAUGHTERS AND THIS WEEKS RENT IS COVERED!
Yep. This is increasingly common, as shown by the piece here a week or so ago showing the skyrocketing STD rates. As ugly a trend as I've witnessed in my time.
Correct, even more fun when that happens is when the "law" starts arresting / charging people for doubling up, since it is illegal in most place for more than 3 unrelated people to live within a household.
I see these new micro-apartments popping up around Denver for $900 you can rent a 300sq ft apartment in the sky high. Or you can spend nearly $1M dollars to purchase a 951 square foot house here (http://www.zillow.com/homedetails/2960-Birch-St-Denver-CO-80207/13283611...)
But remember there is no bubble, the world is great, and you now have health care. Because Obama.......(do I even need to put a /sarc on that?)
Hey Senor, we already do that down here in the strawberry fields of FLorida. We livin 5 families to a trailer! We livin da high life bro!
I've seen you in th eplastic chair in the front yard of the trailer drinking your Modela and wait for the Van with the 12 year old Mexican Ho's to come around...
Na fuck that.
I look for desparate people, perhaps those that are terminally ill anyway to off some politicians....
A little pay back for their children's hardships.
The house next door to my parent's home had 2 married couples living in it until one of the couples screwed up and got pregnant and the second couple moved out after the baby was born. Of course the couple with the new child could no longer afford the payments and had to sell.
Welcome to ZWO occupied Amerika.
Where the subjects will be used until they're used up.
"Government Housing." That's the answer to this question.
America is going down the path of a 3rd world country unless it breaks up.
America is like Europe and there’s a lot of Greeces and Italy’s in it.
Never been to Detroit have you ?
Must. Remember. This.
Several of my neighbors spent significant amounts of money doing complete rebuilds or significant upgrades to their properties over the last 2-3 years.
I know for fact that many of them have variable rate loans on their REFI's. They don't have 2'nds for the most part because banks want collateral instead of equity. These are $1.5-3 million homes with ocean views. Old school neighborhood with 1/3-1/4 acre land.
The bond markets look like they're pricing rates with or without Mr. Yellen. Just imagine the payment increase on a loan of $1mm{30 year term} for every 50-100bps.
Perhaps I could interest your neighbours in some fire insurance. Maybe they can all take up smoking and become narcoleps watching the PMS newshour with the ashtray next to the bed.
Oh dear...I must have dosed off and dropped my virginia slim on the mattress. Oh well.
lol. It's actually a mixed group over the last 3-4 years. We've got some "stock option babies" in the hood. They're the ones that plant bamboo under the power lines.
My roomate almost killed all of us doing that shit. Years ago and he was a drunk. Luck allowed another to wake up and see it and throw water all over the mattress.
Funny, the PBS newshour is more dangerrous than people think. Especially so if you are drunk.
Like it says in the warning on some packs... smoking can kill
Quickly if you fall asleep while smoking in bed.
Look on the bright side - preferrable to the slow way.
The right way to do it is with a long burning candle set up so that it ignites something after many hours,, no liquid accelerants,, hay, a foam item perhaps...
A.K.A. the DV01 of a Tijuana Donkey Show ...
Regards,
Cooter
it's the recovery, stupid
I honestly believe that a return to extended family living will greatly benefit the moral and cultural fabric of society as a whole. Isn't it nice that the bankers are driving us in that direction. They do care, after all.
Big guv should just mandate that all housing shall be easily affordable to all while at the same time property "values" shall continue to the moon. I don't see anything wrong with that idea. </sarc>
Common core agrees!
owebomba may not pay your mortgage but he will pay your rent
Live with mom and dad till your 40 bitchez!
mom's with benefits http://www.nydailynews.com/news/crime/pa-teen-blackmailed-mom-sex-report...
How do you fuck your girl friend in Mom and dad's house ?
Honestly, you share transportation to some extent, share cooking, cleaning, etc. It results in more personal free time and more valuable time with loved ones or close friends. Choose a structure that allows several quiet spaces for alone time when you need it. I grew up in boarding schools and I miss it. We need to re-aquaint ourselves with our fellow humans. They're good people.
Fuck people.
who doesn't love a summer bubble...after it expoldes I am going to squat in $10 Million House in the hamptons....after reading who jumped!
what about NIMBY zoning regs etc?
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." -- Attributed to Jefferson
Liberty is a demand. Tyranny is submission..
...mis-attributed to Jefferson.
The terms inflation and deflation were not in the economic vocabulary during Jefferson's life.
But nevertheless, it is his gist.
And Islam means submission, it is depressing what much of the planet supports.
But Jefferson was damn right, somehow we have ended up in a situation where we no longer own our nations.
Insurance, HOA and property tax costs are passesd onto tenants.
What the fuck hapens when these go so high nobody can afford to pay rent? The property owner is double fucked.
A house is a great way to get rid of a lot of money. It's the drain that your wallet circles everyday. It belongs to everyone but you. You live there and babysit the "investment" for everyone else: The federal government for taxes levied on it, the municipality for taxes levied on it, and all the permit fees if you want to improve it, the bank for interest levied on it, Blowe's and the Homely Depot or whatever home improvement company that empties your bank account for all the money you spend on it for maintenance, the utility companies that apparently you have no choice but to hook up to, even if you put up solar panels and don't need them; the insurance company that charges you every year to live in fear that something may happen to it, even though it's likely nothing ever will, and the real estate agents, who are more than willing to share your ghost profits at the time of sale. You don't benefit from it, it costs you. Everyone else benefits from it. Socialism built right into the structure from day one. Welcome to the big lie of "investing" in a home.
And, the big fucking comes when you actually sell the house and Im not including the 6% to RE agent, of any closing costs.
Those 1985 dollars you sunk when they actually still bought something are treated as todays dollars and profits to the IRS. You have six months to do a like kind exchange and buy another house or pay the difference of what you sell the house for minus the intial price of the home is considered profits/income. They casually forget to run a PV?FV calculation on the profits and taxes due and pretend that those 1985 invested dollars are the same as 2015 dollars that won't buy shit.. PAY UP SUCKA, THIS IS THE HOTEL CALIFORNIA AND YOU CAN CHECK OUT ANYTIME YOU LIKE BUT YOU CAN NEVER LEAVE.
There may be a squeeze on renters, but nothing compared to homeowners. Been renting in the same place for over 5 years (15 years since I last owned a home). Rent has not gone up ever (knock on wood). I always pay the rent at least a week before it is due, never call the landlady about stupid small shit that needs fixed (I fix it myself). The landlady brings us Christmas presents and calls occasionaly to make sure everything is ok. Quick pay makes for quick friends.
No plans on moving unless there is a big job change. Have a few more years before my kids graduate high school, then I'm free to go wherever I want and don't have to worry about trying to sell some property and who will be in line to get their cut regardless if a profit is made or not.
TOO MANY PEOPLE!
Europeans came to North America because, in North America, but not in Europe, almost any hard-working young man could acquire enough land to grow food to feed his family, with food left over to barter for materials to build a house, and on and on. But, in 2015, way too many people are crowded into North America for that. If I remember correctly, at the time the USA was created, there were about 1 million European-Americans in North America (or was it 1 million European-Americans + 1 million slaves), and today there are 330 million? Of course, there were also Native Americans, but nobody knows how many, but maybe not more than a couple million, since diseases started to wipe them out from the day the first Spaniard set foot in North America, and continued with the March of Progress of European-Americans across the USA and Canada. Still, say 4 million then and 330 million now. LAW OF SUPPLY AND DEMAND. Same amount of land, but 80 times as much population, and therefore much higher demand for land, and therefore much higher rent.
The name of the game is no longer who can be most productive. It is now, who can be most efficient at farming the government.
63.7% own their own households? However the bar for what passes for a house in some states . . . . . in parts of Europe some of those construction are called sheds ( shacks ). Do you count mobiles?
If where you sleep represents value to anyone at all other than yourself, then it's a home and can be looted and taxed. And they will.
More Section 8 Vouchers coming right up. Qualify, or end up on the street.
"what happens when a family that can't afford a down payment can no longer afford to pay the rent?"
The answer to this question is easy. The landlord lowers the rent, or if the venture becomes unprofitable he sells at a loss.
But we know what actually happens.
It's always the best time to buy, you fucking moron.
...Sheesh, I would like to just point out that one of the charts is nonsense. Mean is the same as average. My guess is that the chart should read median and average. Nevertheless, the chartist has already indicated he is mathematically illiterate, so you may as well re-label the chart unicorns and rainbows for all i care.
At this stage of the game truefacts we've given up on attention to detail.
Simple. You can't afford to pay what it costs to house a wife and children, you don't marry or have children.
Seeing to it that white people who constitute potential competition for supervisory jobs reproduce as little as possible has been a priority for our masters for a long time. Nobody in a position to do anything about it cares to get serious about limiting immigration or scrapping zoning laws that make it impossible to build new housing stock at prices working-class whites can afford. They'll happily use taxpayer funds to pay for your abortion, though.
Reminds me of Japan...
House flipping speculators and out-of-town, out-of-country landlords rule the day. The never-ending chase for yield has now reduced the float of existing houses that are "correctly" priced to buy or rent. People have to really ante-up to get a place.
I was at a tax-deed sale for an unnamed county. Speculators bought up (and bid up) all the rentable homes. The few people in the audience who had cashiers checks in hand, hoping to buy a home to fix up and LIVE IN got sniped by the deep-pocket "investors."
It's one thing to get your cash in hand and a credit score; its another to go head-to-head against foreigners and greedy speculators. A sad day for those looking to start out or re-start their lives. Too much script money chasing hard assets now.
In a word, CHINA.
They should take their down payment and buy gold...then wait patiently...
"The question then becomes this: what happens when a family that can't afford a down payment can no longer afford to pay the rent?"
They slave away harder?
They run faster to fall behind slower?
/whipcrack
"The question then becomes this: what happens when a family that can't afford a down payment can no longer afford to pay the rent?"
They move into YOUR house. Don't forget that.
Another detail in unaffordability of housing, higher property taxes; for example adding another $400/mo to the monthly payment...in many places.....also high water bills....like $600/person/year in Boston area
I work at a water company and I notice lots of people still buying up houses... collecting a bunch of extra houses 2008-2010 would have been a good idea, but now they are starting to get underwater again.
Some of the owners are having trouble paying their water bills for some reason, almost like they thought they would have flipped the house(s) by now and couldn't find any buyers at the levels they're asking for or renters besides horrible ones that end up having to be evicted and leave the place a mess, so are just stuck with a money sink or multiple money sinks.
And there's also 10 million vacant homes? Aside from all these multiple owner houses, because the housing industry just had to keep buiding houses.
By the time most are sold or affordable, they'll have to be demolished and rebuilt because they'd be 15 year old McMansions about to cave in from shitty construction.
I am starting to find that 'owning' my own farm 'free and clear' is becoming unaffordable.... they call it property taxes...
A dear friend of mine lost his beach front home in Maine. His mom died and left it to him as his inheritance, paid-for and in the clear. But the state kept raising his property taxes until he could not afford them (his wife is very ill, and the costs of her health care take priority), so he was forced to sell. He had been hoping to bequeath the home to his son.
This is why I roll my eyes when people suggest that I "buy farmland and get out of the city." The 60-IQ idiot Rawles advocates this.
Owning property in the US makes me a tax magnet for would-be rulers at every level, so I sold everything.
The only folks I see improving their financial situation with real estate are the vendors.
14 acres in Costa Rica with two houses, a garage, and a barn....prop taxes under $1,000/year. Add in another $1,000 or so for services that would have been covered by prop taxes in the US (garbage, road maintenance, etc) and you're still far better off.
If you are running a self-sustaining farm that you own free and clear, you shouldn't have to have another job just to pay property taxes.
property taxes are fundamentally unconstitutional. the idea of paying tax to own propety flies in the face of al the Founders held dear.
transaction tax, consumption tax, sales tax, import/export tax, even a loan tax (tax the mortgage as a way of funding the legal system to enforce lenders convenants etc). but once you own it...it should not be taxed....always surprises me at how in new england, they go right for the property tax every time.
One more thing:
People in CA wanting a home to live in who've saved up and both A) qualify for a mortgage and B) have enough for a respectable down are fundamentally SCREWED because cash buyers from Shenzhen, Guongzhou, Shanghai, Beijing, et al are bidding the prices into the stratosphere with cash they need to launder.
Walk into any Cathay Bank and immediately you'll see full-size posters enticing Mandarin-speaking clients to buy solely for the purpose of becoming a landlord, "even if you are not a citizen!"
Americans are being fisted out of their own country, by their own rulers. If I wasn't seeing it with my very own eyes, I wouldn't believe such a thing was even possible here.
I can only tell you what happened in the last recession in the UK.
So many idiots bought into the buy-to-let meme that it created a massive glut of rented housing. Rental prices fell, landlords went bust, and rents were relatively cheap for about a decade until the cycle restarted.
What has altered the balance in landlord's favour since is a huge increase in immigration. That won't last either.
http://1.bp.blogspot.com/-mS3qmVpagZg/UuNmy7xgtzI/AAAAAAAByNM/gkk7y_0tl9...