Where I live, many of the houses were built by the same builder or at least using the same basic plan (I've even seen houses built 20 years later than mine with the same basic layout).
My wife and I purchased in 2015. A short bit after, there was some regret as prices were still falling.
I recently went to pick up my child at a classmate's house. They just purchased last year. I walked in and, sure enough, roughly the same house with minor differences in the layout...except it cost $300,000+ more.
Not sure how my kids are ever going to own a house in the US and I feel like I am locked into this house and mortgage forever.
In retrospect, we purchased near the bottom. Truly some generational "luck".
> I feel like I am locked into this house and mortgage forever.
Same.
We bought in Dec 2017, and were really conservative in choosing a home that we could easily afford - it was less than my annual income, on a half acre. It's five bedrooms but we really need more storage and just more "space" in general.
We don't plan to sell it in the foreseeable future. Even if we could find the home and property that we want, it just makes no sense. It would be a better financial decision to use the equity as a down payment on our next home and rent this one. Given that home prices have doubled since we bought, renting it at market rates here would pay for our existing mortgage, an equity loan, and ~$400 of positive cashflow per month.
EDIT: due to a missing 1/ in the parent I think i was arguing against the opposite of what the parent poster meant to convey, heh.
But that doesn't account for mortgage rates, or competition in down payments right?
If you make 5% more inflation adjusted than the person 5 years ago, but mortgage rates are 2x, than you're still way behind right?
And if all those who bought starter houses 5 years ago have a ton of equity to drop in the down payment to trade up, you might not even be able to buy a house where you can afford the monthly mortgage payment.
Price is only part of the story, what about in the mid 80s when the house was $105k but interest rates were double digits? I'm curious what kind of buying power the average household needed back then and how that compares to today.
In order for inflation alone to account for $300,000 delta in value they'd be spending so much on these houses that they would be fine financially by almost any metric.
Official inflation from 2015 to 2024 was around 33%. If the house cost 1mil, then the entire appreciation of 300k was due to inflation. If the house cost 500k - over half of the appreciation was due to inflation.
Calling it luck makes it sound like there are uncontrollable forces at work. However, these consequences are entirely downstream of artificial, man-made policies.
Insanely good if you have a home and a low rate (or refi into one)
Insanely bad if you don't have a home.
It's not a natural construct, it's an artificial loan that only exists because the fed is the counter party.
In an natural economy, mortgages would all be variable rate, or fixed rate but much higher than what is available today.
This would also mean that the housing rush of 2021 would have been crushed by rate increases in 2022/23. In fact there probably wouldn't have been much of a rush at all.
> In an natural economy, mortgages would all be variable rate, or fixed rate but much higher than what is available today.
> This would also mean that the housing rush of 2021 would have been crushed by rate increases in 2022/23. In fact there probably wouldn't have been much of a rush at all.
Interestingly, you described almost exactly how mortgages work in Canada: you pay more for a fixed rate, and even then, you can only get a fixed rate for a term of up to 10 years. And the average term is more like 5 years. People's mortgages have been going up now that interest rates are up. This was not impossible to predict.
And that certainly didn't stop the housing rush of the last 15 years.
According to a realtor association site [0] the 'Residential - All Types' price for 'Greater Vancouver' went from $466,500 in March 2009 to $1,196,800 in March 2024. That is a 2.57x multiple.
Fixed rate is reasonable product. But there should be cost involved in paying it back in higher interest rate environment. So if you payback early you would need to pay the delta between current fixed rate and one you have.
It's a reasonable product when it is priced correctly. It's not priced correctly when the one taking on the risk is also the one who can pull money out of thin air.
> it buys them from the banks and the banks know this going into the loans
This isn't how the mortgage market works. Qualifying mortgages are guaranteed by Fannie and Freddie. The Fed's participation in the mortgage market has been for liquidity, not credit, purposes.
Kill Fannie & Freddie and the 30-year mortgage goes away. Ban the Fed from buying mortgage securities and rates go up a bit.
> Kill Fannie & Freddie and the 30-year mortgage goes away.
Probably not; without them, the norm wouldn't have been created, but while rates for them may change those going away won't remove the expectation and, given the expectation, the market will find a rate af which it can fill it.
Mortgages in general will be less attractive, though.
> while rates for them may change those going away won't remove the expectation and, given the expectation, the market will find a rate af which it can fill it
Fixed-rate 30-year mortgages don’t exist, except for the very rich, in most of the world. The unsubsidised price of the instrument likely collides with popular conceptions of usury.
I don't follow. Jumbo loans exist now even without support from F&F, why can't smaller loans exist without F&F? F&F are not some charities, they make profit on their mortgage business. If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? I mean, there are plenty non-conforming loans, which are not jumbo, written right now. It's just hard to compete with the F&F on the conforming loan market so nobody does that otherwise there is nothing magical about conforming loans.
> If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)?
It doesn’t work without the implicit guarantee. If you run a neutral pricing model, you’d get a rate roughly double where they’re priced now. The only solution is to let the rate periodically reset.
> Whatever model you run is most probably wrong because jumbo loans are not priced double and actually are priced pretty close to the conforming loans
Modelling non-jumbo loans provided without support. I have a jumbo mortgage. I also had substantial assets when I took it out, substantial income and opted to put 25% down. Remove those factors and your credit component starts interacting with duration in complex ways.
Remove that part of the market--the massive number of guaranteed, conforming mortgages--and the securitisation and hedging infrastructure that supports jumbo fixed 30-year loans falls apart [1].
It's great that you have substantial assets but neither that, nor the article "model" anything. Also you are now changing your argument from "remove F&F" to "remove securitization and hedging infrastructure". As I already pointed out, if F&F did not exist, another firm could have done exactly the same securitization, as many do on non-government controlled markets right now.
I was showing why 30y-fixed jumbos exist as a result of F&F. You argued an incorrect connection between jumbos within the current system as a proxy for unsubsidised mortgages in a non-F&F system.
> if F&F did not exist, another firm could have done exactly the same securitization, as many do on non-government controlled markets right now
Show me a single one that does for fixed-rate 30-year mortgages to average Americans at scale. Or a single other country that does this.
F&F can do that at the scale they do because they have an implicit guarantee. That creates securitisation and hedging infrastructure for that product that niche firms, like those doing jumbos, can piggyback on. Take out F&F and there isn’t the mass market which means you lose the product. (And no, another firm can’t trivially mint an implicit guarantee from the U.S. government.) Going back to the original point of this thread: they’re far more critical to this process than the Fed.
Genuine question: have you or someone you know traded mortgages?
>I was showing why 30y-fixed jumbos exist as a result of F&F. You argued
I understood that. But showing that something is a result of something else needs some kind of logic, stating both things exist does not establish a casual relationship. You can try it for yourself by applying your own argument in the reverse direction: if your logic had been sound then it would also be true that F&F exist because of 30 years fixed jumbo loans.
>F&F can do that at the scale they do because they have an implicit guarantee. That creates securitisation
What? Securitization is turning something into securities, it's a process that is not caused by any guarantees, you can do it yourself.
Where I live in NYC, a relatively modest 3BR apt. is currently 2.5-3.5 million. Having invested for 15 years to eventually own a place, the recent combo of interest rates and home price increases feels like the ultimate rug pull. It seems inevitable that this will lead to a decline in birth rates and a host of other second order effects.
Buddhists at least believe this to be controllable.
It's the ultimate victim blaming religion - you're poor because you were a bad person in a previous life.
Very awkward to jokingly say "I wish I were a puppy" when I play with my dog and to see the look of abject horror on my Buddhist partners face. I'm told even wishing for something like that significantly increases my chances of becoming a dog in the next life - which is permanently an undesirable fate.
Huh, have you asked them if saying "I wish I was an enlightened super-being" carries similar fate-affixing virtues? Because if so it seems like a neat short circuit
Actuallu, Buddhists form that though very often as a part of their practice. The basic idea is that an action follows intention, so making this intention explicit helps.
yes, it does. It's essentially like reinforcement, where you keep telling yourself what you want, and learn how to get that. Eventually you work to get that.
It all starts with your wish.
As a free person, I can choose my religion and blame God for a change. The difference is that if you place locus of control further to yourself, that gives you (and not an external entity) enormous power. Yes, you might not be able to change what happened, but you can influence what is going to happen, even if it's not immediately obvious and if some links of the casual chain are hidden.
> It's the ultimate victim blaming religion - you're poor because you were a bad person in a previous life.
A slight misunderstanding, or an inconsiderate person may use it for victim blaming, but that's not what lays down. It gives guidelines that our actions have consequences, good or bad even if they are not immediately visible to us. On HN, people talk about the role luck plays in the success of startups. Two different people working hard, with brilliant ideas: one of them gets to build a billion $ company, while the other may go bankrupt. What we call luck, or randomness here is explained as karma (good, or bad deeds accumulated from earlier lives). Used with right understanding, and compassion, this provides good guidance for those who seek it.
Probably not a sympathetic audience here, but if you look back more than the relatively short timeframe of 20 years things are far more cyclical. I grew up with double-digit interest rates, so while everything was cheaper, financing was far more costly. The generation that's now looking to buy a house grew up with a financed lifestyle (via their parents) that was essentially interest free and not sustainable in the long term. I see a lot of people who believe their first home should look a lot like their family home: new, desirable location and affordable. This has never been realistic.
High interest on its own isn’t great but in some ways can be easier to grapple for first-time buyers, because while it does make for larger monthly payments it doesn’t raise the bar to entry the same way that high prices do with down payments. Low home prices with high interest can be manageable, as can high home prices with low interest. High prices and high interest is a tough combo.
On top of this, even if prospective buyers are considering less desirable neighborhoods further from place of work, the used car market is still a mess with anything that doesn’t already have a foot in the grave (and thus, is a reliable efficient commuter) carrying an inflated price, which chips away at the savings that can be had there.
House prices went down in the 80s (although were still quite unaffordable). Additionally, those who bought in the 80s got the ride the gravy train of lowering rates over the decades which massively boosted prices and allowed them to refinance.
Why blame the Fed? The low interest rates that made it easy to buy homes (driving up the price) also should have made it cheap to build homes which would have driven down the price. It was local regulations that prevented building homes.
Only because the younger renters aren't as involved in local politics as the older homeowners. SF, for example, is mostly renters and they could easily overturn NIMBY homeowners to make housing cheap and plentiful. Alas, they don't turn out and push politicians the way homeowners do, so here we are.
It takes under 8 months to get permits and build homes end-to-end in parts of the US. It taking years is a local problem. As long as demand runs much higher than supply, prices will keep growing.
Usually places with no regulation look a lot like Houston TX.
Do you know the situation depicted from the movie "Up" where there's a house surrounded by parking lots of malls and stuff? That's what low regulation building gets you. I'm not talking about NIMBYs, I'm talking about lax zoning laws.
Among other things, I think interest only mortgages are a completely degenerate financial product that shouldn't exist, the only purpose is so someone can leverage themselves to the tits on housing
Disagree. A mortgage is responsible debt, if you plan to live in the house for 30 years why not pay for it over that timeframe? And the house itself will usually appreciate if you take reasonably good care of it.
Zero-down, no-income-no-credit-check mortgages, OK yeah those were a problem.
Credit cards are the degenerate financial product that shouldn't exist, if anything is.
I'm in the negative for my opinion but I'll still bite.
People don't live in houses on interest only mortgages, they use them as leveraged investment vehicles to speculate, rent out, and then roll them into even more leverage as time goes on.
I have nothing against classic mortgages where you pay the principle off, I have one myself, but I will maintain my opinion that interest only mortgages shouldn't exist despite the unpopularity.
OK should have read your original comment more closely. I missed "interest only" on the first read.
But even on a traditional mortgage, in the early years the vast majority of the payment is interest. How much lower is the monthly payment on an interest-only loan? Are they easier to qualify for? Are the rates the same, or higher than, a traditional mortgage?
I'm not sure I'd want to ban types of financing for types of properties, that seems heavy-handed.
This depends on where you live, in some countries I believe they don't even exist, but I can speak for the UK where interest only mortgages are meant for landlords, you basically get a mortgage with a minimum of 25% deposit, none of the principle is paid off at any point, you rent out the property and collect the difference between your interest payment and the premium the tenant is paying.
They are normally inaccessible to people who don't already own their own property, even more so by the nature of the higher than usual deposit required, so it's an investment vehicle for already well off people to leverage more money into property and extract money from tenants
It puts upwards pressure on housing prices because you don't just get the family that wants to own a home or the occasional landlord who wants to own and rent out a second holiday house, it's a purely synthetic financial product that lets you take a house out of the market and arbitrage on the difference between your interest payments and the tenant's rent
It is not uncommon for people like this to own tens or hundreds of properties in their portfolio this way, and these are the people crying first and loudest when interest rates go up because their rental yields can no longer cover the interest only payments on the houses they "own". Whatever happened to being on the hook for bad investment decisions? They think they should get special treatment because they're providing a so called service to the tenants
Increasingly leveraged mortgages are "responsible" to own, but they are terribly irresponsible as policy. It's good to get in early on a ponzi scheme, but ponzi schemes are overall bad things to base an economy on.
Using the word "responsible" to describe something that is good for an individual but bad for society is... a choice.
I remember this one landlady complaining how her variable rate interest-only loan had rates going up so she had to increase the rent to cover it, and wasn't entirely possible...
Like why that sort of insanity was possible in first place. There should be something going towards principle. As not doing it means that increasing rates can be destruction.
Increasing available leverage provides an immediate windfall to asset-holders. This is why our economy errs so heavily on the side of encouraging too much leverage: the world is run by asset-holders, for asset-holders.
The most obscene part of this is when asset-holders try to blame the problem on their victims (the people who must pay higher prices for the pumped assets). The leverage is not generosity, it is a curse.
They become asset holders on worse terms. Now they must maintain their predecessor's degeneracy to simply not lose money. If they want to gain money, they must figure out how to impose even more degenerate terms on those beneath them. Ratchet goes click.
Eventually it implodes. People who got in early on the ponzi walk away with windfalls but the last generation is the largest generation and it gets to hold the bags.
> the last generation is the largest generation and it gets to hold the bags
You're describing a housing-price decline as if it didn't happen less than two decades ago. It's painful, because of the leverage. But a lot of Americans are uniquely equity rich in their homes right now. The missing pieces in your equation are (a) default, which wipes out the debt and (b) real economic growth. It's a tragedy that so much of (b) gets funnelled into real estate prices, but that's a policy choice and far from unsustainable in general. (Versus at specific price points.)
2008 was not a reversal in the secular decline in interest rates and increase in leverage. Quite the opposite, it just ushered in the next leg. While you are correct that (a)+(b) can keep the party going under all conditions we have seen for the last 40 years and likely for the next 10, the trouble is that if you hit the (a) default button too much people eventually get tired of the inflation and force you to deleverage and reduce prices (in real terms). This is the actual bust.
Or maybe replacing our workforce with robots is actually deflationary enough to make it different this time. Who knows.
One thing that this article glosses over is that mortgage rates and the rate of home valuation increase have a loosely inverse relationship, as most people judge what they can afford based on their monthly payment. So, when borrowing is cheap, home valuation increase typically accelerates, and when borrowing is expensive, home valuation increase typically contracts.
Obviously this effect is outweighed by supply/demand, and mortgage rates have a major impact on the size of the pool of buyers (and hence demand) as well.
The 30-year-fixed mortgage combined with the many federal backstops on house prices is the real American social security program. This is also accentuated by the lavish pro-borrower policies at the state and federal level that make foreclosure very difficult. And the asset is protected in bankruptcy.
If you do not buy in to the housing market, you are on the wrong end of every fiscal and monetary policy operating in the US.
One way to reduce the pressure on the housing market to act as a secret pension is to reform social security. It's ridiculous that such a heavy tax on workers pays out such a pathetic amount at the end. The way that it works, the payroll tax money just gets embezzled by Congress, and then a tiny amount is squirted back into the accounts of the taxpayers once they are done embezzling it. Housing is important for reasons beyond just providing a pension-equivalent combined with shelter.
However, there is little pressure to fix these things because the hidden housing benefit is so extravagant and so broadly held by so many voters. It really flips the switch on life to make it EZMode at the cost of mobility. There are still ways to screw up your life, of course, but you kind of have to go out of your way to do it.
I was born in the early 90s, was working in film in 2019, broke my back, joined a bootcamp three months later, got a job in 2020, got another 6 months later, and managed to find a house in April 2021 before things started climbing. The combination of back breaking, career changing, pandemic, oh yeah I also got married, and getting a house, all in an ~2 year period proves to me that I am indeed lucky
I wish that articles like this would talk about the fact that many people are living in vastly oversized houses for their needs, and incentives (beyond property tax) could be better aligned for older empty nesters to sell. The neighborhood where I grew up is mostly made up of the same single family homeowners who moved there 30 or 40 or 50 years ago to raise a family, and whose kids are now long gone.
I'm a Millenial; my partner is on the cusp of Gen X. In terms of fucked generations, I'd argue those born in the early 80s are our currently most fucked (followed shortly by Gen Z). This is the generation that had perfectly-spaced financial crises in the dot-com and then financial crisis that wiped out two decades of aborted starts towards wealth. (In contrast, younger Millenals got the ZIRP era to build wealth and buy assets.)
Gen Z just missed that run-up. (Unfortunately, it looks like a lot of my peers discovered their inner NIMBY the moment they signed their first mortgage cheque.) Alpha will be fine--they'll benefit from boomers unwinding their real estate to pay for senior care. Unfortunately, that's likely to financially impact us Millenial homeowners.
I was born in that time period. I would agree that in general people my age seem to be in a lot of trouble (I don't know about worst though, Gen-Z seems to be struggling a lot right now, and for them there's plenty of time for more fun economic struggles to happen).
I'm also not where I should be financially despite the lucrative field, compared to others in my field, due to several setbacks (and also in part because I never had a Silicon Valley job).
But thankfully I did choose the fairly lucrative field of software engineering, so even though I'm behind most other software engineers (including those younger than me), I'm still better off than most people around my age.
I also lucked out and finally bought my first house in 2018 before the big run up in prices. I had to get lucky on cryptocurrency to help afford the downpayment though (bought ~$300 worth of Ethereum at ~$20 and sold it at $1300 just before it crashed hard).
I'm not complaining, I'm doing alright, I'm just agreeing as a general generation thing.
Keep in mind though that I didn't buy a house until my late 30s. My parents, in contrast, bought their first house in their early 20s. Also they had me in their early 20s, and my brother in their late 20s. I'm in my 40s and I still haven't had children yet (might not ever at this rate).
Sorry, you said that you were falling behind your peers and that triggered me as someone who is considerably further behind on account of following conservative affordability advice.
> Alpha will be fine--they'll benefit from boomers unwinding their real estate to pay for senior care.
Huh? I assume a few private equity executives who own vast, national senior care businesses will benefit the most from the passing of the Boomers, followed by Millennial children of Boomers who die with assets (and despite Boomers being the wealthiest generation ever, there's plenty of inequality there as well) and without being drained by the medical industrial complex first.
If watching my grandparents go taught me anything, it's that all deaths suck, but the quick heart attack really rips the bandaid off so to speak.
And who do you imagine will buy these homes? Alphas struggling to save a down payment, or investment firms looking for more real estate to add to their portfolios?
> who do you imagine will buy these homes? Alphas struggling to save a down payment, or investment firms looking for more real estate to add to their portfolios?
Where do you think the investment firms get their money? Pensions. Pensions are the principal institutional investor's source of capital. As Boomers retire, pensions wind down. We're already starting to see them dump private equity [1].
I was born in 1980 and do not feel this at all. Sure, I hit some bad times in my 20s but that was a long time ago. Right now, I own multiple homes that are worth more than double what I purchased, financed all around 2%, with under 7 years until it's all paid off at current rate, and housing expense is less than 10% of my income.
In contrast, all of my younger sisters are much worse off right now. ZIRP may be great if you actually have money because you work in software, but most of my family is in construction. Hacker News loves to wax poetic about the trades, but the reality is its a non-stop boom/bust cycle and all my cousins and uncles have had LLCs go bankrupt over the years so many times I've lost count, to say nothing of those who got hurt and couldn't work, which usually ended up in giving in to drugs.
Amusingly enough, my oldest niece is the only Gen Z I know and she's also doing seemingly pretty well. Probably not buying any time soon but she just got her first solo apartment and landed a job within three weeks of graduating college, at my youngest sister's employer but getting paid $10k more a year than her.
It's important to be thankful for what you can. I suppose it depends on where you came from, but I was the last generation of Californian who experienced $11 per credit hour community college, which was how I started out and became the first person in my family to ever graduate college. Everyone holds a grudge against Boomers, and sure, my parents bought a $50,000 house when I was born they eventually sold for just shy of a million, but that took 40 years. I make that much money every three years. My dad got a nice, dependable job with a pension, which is wonderful, but he also did physical labor his entire life and can barely enjoy his retirement because his knees, hips, and back are all shot to shit.
We all experience both good and bad luck and I struggle to lament my generation. I'm just grateful to have been born in the late 20th century at all. I had a bad enough lung infection as a child that I'd have almost certainly not lived to see 5 if I'd been born before penicillin was discovered. That was the reality almost all of my ancestors lived with.
> grateful to have been born in the late 20th century at all
One hundred percent. Every generation today is blessed. To be clear, we’re complaining about owning an asset that has historically been a marker of the elite.
I feel this was largely predictable, and for one reason I almost never see mentioned - the millennial generation just being larger than the one before or after. Millennials are noted as being the largest generation since the boomers, and their coming of age as far as prime home-buying time coincided with the collapse of housing construction post-2008.
There's other things at fault, of course - zoning, economy, interest rates, etc. etc., but the current stress on the housing market lines up pretty nicely 80s-born millennials (particularly those that graduated into the great recession) finally hitting their stride and having the wealth to move out/stop renting/have kids, after most of a decade of that being suppressed.
I'd expect this to continue being a problem for the rest of the decade and peter off in the 30s - it feels like governments are taking action (years late as usual, but better than not); movements like YIMBY have matured, boomers are hitting the age where they start to pass, and housing construction has ramped up slowly in the last 8-10 years, and millennials will have mostly bought by then, with gen Z being the new, smaller crop of buyers by that point.
This is the primary way for citizens to acquire wealth too, and the primary source of boomer wealth. The politics of this thing transcends the current Red/Blue paradigm, at least until battle lines will get drawn with various policy prescriptions and the winner/losers of each of them chooses a side.
Will be the biggest issue facing American politics for the next 10+ years I think while the Boomers age and try to cash out.
It really is interesting to see how it does not fall along partisan lines. This leads to both good and bad surprises, where you find unexpected allies - as well as foes.
In the US the boomers are in for a world of hurt. Senior care is extremely low quality, increasingly scarce, and already unaffordable. The US medical system is completely unprepared for that entire generation to age out. It is already a crisis. At least they can spend down money from their homes to pay for some of it. The subsequent generations probably won't be as lucky.
Health care and senior care will end up being a massive wealth transfer from the boomers to the wealthy, as they finally turn their paper real estate wealth into hard dollars that they can spend. The financially lucky amongst their children will be those who have to experience the tragedy of their parents dying early enough to die healthy and leave their wealth behind.
Except that boomers have and are already cashing out, that wealth is used up because they didn't save and Social Security doesn't cover much. Reverse mortgages and Heloc loans destroy generational wealth. Nothing will be passed down to most kids.
My wife and I purchased in 2015. A short bit after, there was some regret as prices were still falling.
I recently went to pick up my child at a classmate's house. They just purchased last year. I walked in and, sure enough, roughly the same house with minor differences in the layout...except it cost $300,000+ more.
Not sure how my kids are ever going to own a house in the US and I feel like I am locked into this house and mortgage forever.
In retrospect, we purchased near the bottom. Truly some generational "luck".