Today’s news of a sharp decline in new home sales has left many economists scratching their heads, trying to understand the trajectory of the US housing market. And here is what they are struggling with:With the homebuilder survey showing tremendous op…
If home ownership is the American Dream… then why do we need government to subsidize it?
Economists and the markets have been cheering the jump in housing prices and improving construction statistics. But for many Americans rising demand and higher house prices bring more bad news. Based on the latest data (report below) from the Joint Center for Housing Studies, Harvard University (JCHS), here are some sad facts about the housing situation in the US.
1. The number of homes for sale is still near record lows. That is driving up costs and quickly pricing many households out of the market.
2. The US actually has a large number of vacant homes that are not making it into the market. Vacant homes are often in areas with few job opportunities, making it impossible to renovate, sell, or rent. Many are in places like Detroit and simply will never be sold.
3. We are seeing the confluence of tight housing conditions and weak household incomes. As JCHS points out “most types of households have seen their real incomes decline over the past decade”. This is particularly true for growing households.
4. As a result, “the total number of households paying more than half their incomes for housing soared by 6.7 million from 2001 to 2011, a jump of 49 percent”. Note that this is a problem for both homeowners and renters.
5. Housing shortages (discussed here) and rapid renter household growth are driving up rents. At the same time, millions of federal rental subsidies for low income renters are set to expire in the next decade.
6. On top of all this is the fact that households are now forming at a rate of about a million per year. The market is demanding a million new residential units each year. Unless construction can keep up and prices decline or incomes rise (neither seems likely right now), this trend will drive up the number of households with “housing cost burdens” (already over 40 million – #4 above) – for both homeowners and renters.
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Where will higher mortgage rates raise monthly mortgage payments most?
These three charts from the real estate site Zillow.com depict how higher mortgage rates will affect monthly mortgage payments in different markets throughout the United States.
The charts are based on the percentage of income homeowners spend on their monthly payments, with a pre-housing bubble baseline of 20% of median household income.
The first chart shows how much more expensive than historical norms monthly payments will become in six of the priciest metropolitan areas when mortgage rates climb to 5%, assuming homes appreciate in line with Zillow projections.
Monthly payments in the San Jose metro area will increase the most (22% over the baseline) followed by Los Angeles (19%), San Diego (14%), San Francisco (11%), Portland, OR (7%) and Denver (1%).
How much do higher mortgage rates reduce home sales?
In 2013, Congress is expected to explore a number of tax reforms in order to address staggering deficits and a crippling $17 trillion in debt owed by the Federal government.
In spite of improvements in the housing market in the last couple of years, the trend away from “homeownership culture” in the US seems to be ongoing. This may be old news for some, but based on the quarterly data from the US Census Bureau, rental vacancies are around a decade low, …
A hedge fund hoping to capitalize on the comeback of Fannie Mae and Freddie Mac claims in a lawsuit the government illegally seized the profits of the two mortgage finance giants.
The suit, filed Sunday by Perry Capital LLC, says the government violated a 2008 law that put Fannie and Freddie into conservatorship, through an amendment changing the terms of the government’s bailout.
Stuck in a 6.5% mortgage? Would like to refinance, but don’t have sufficient equity in your home? Welcome to the wonderful world of “financial innovation”. You can do what some businesses do when they are in this situation: sell “shares” in your house to investors. The proceeds can reduce your mortgage amount, potentially allowing you to refinance or at least reduce your payments.