As I have previously noted, we bought a house for my sister-in-law in December. Because we were not going to live in the house ourselves, the interest rate, 3.75%, was 1.00% higher than if we had lied about it and said that we would reside there. Technically, it’s rental property for us, though we do not expect to make a profit on it. When we go to our eternal rewards, the ownership will pass to our children and our nephew.
We negotiated the interest rate in November, and closed in early December.
Today, in reading an article, Report: Majority of renters can’t afford to buy in their city, in The Washington Post, I saw referenced one I had missed last week:
Mortgage rates hit 5 percent, ushering in new economic uncertainty
Rates have risen faster than many economists had expected, and they are starting to temper the housing boom
By Kathy Orton and Rachel Siegel | April 14, 2022 | Updated April 14, 2022 at 2:41 p.m. EDT
Mortgage rates swelled above 5 percent for the first time in more than a decade — an unexpectedly rapid ascent that has begun to temper the U.S. housing boom and could usher new uncertainty into an economy dogged by soaring inflation.
The 30-year fixed-rate mortgage, the most popular home loan product, hit the threshold just five weeks after surpassing 4 percent, according to Freddie Mac data released Thursday. The average has not been this high since February 2011.
The run-up comes as the Federal Reserve has launched a major initiative to rein in the highest inflation in 40 years. Fed officials are betting that higher interest rates will slash inflation and recalibrate the job market. But their plan also rests on the assumption that higher rates will cool demand for housing, especially while homes themselves are in such short supply.
There’s more at the original.
From the first article cited:
- The average home in the U.S. costs seven times the average national household income.
- Homeownership is unaffordable for the majority of renters in 71 percent of metro areas.
- In 13 metro areas, 10 of which are in California, at least 90 percent of renters are priced out of owning a home. The three metro areas outside of California are in Cape Cod, Hawaii and Boulder, Colo.
- In the D.C. metro area, 70 percent of renters can’t afford to buy a home, according to Porch’s analysis. Their calculations found that the average home is priced at $526,296 and that 30 percent of households rent in metro areas. Those renter households have a median income of $56,400, while the median income needed to buy the average house in the area is $64,055.
There’s one obvious flaw here: the paper is comparing income to the “average” home, but may homeowners, including yours truly, first bought what would be considered a ‘starter’ home, which will cost well under the average home price. People buying more house than they could afford, along with the sub-prime lenders encouraged by the government, triggered the crisis in 2007-2008.
The key is to not enable people to buy more house than they can afford.
“The key is to not enable people to buy more house than they can afford.”
Because people are obviously too stupid to figure out what they can afford for themselves. I’ll never understand that. I’ve bought two houses in my life and both times, after getting approval for a mortgage, the realtor tried to convince me that I could afford a much more expensive house than the one I was purchasing. I get why the realtor would do that…more expensive sale, higher commission. Self-interest.
Knowing that, I ignored that advice and stayed within my budget.
That’s called “being an adult”. Why so many human beings are incapable of that all on their own regardless of what they’re being “enabled” to do is a bit beyond me.
One more point: Much of the ridiculous price of housing in major metropolitan areas is a direct result of the economically illiterate leftist policies of the governments there.
The people who live in those areas elect those governments over and over and over again.
Reminds me of the old joke: Guy at the doctor: “Doc, when I move my arm like this it hurts” Doctor: “Well, quit moving your arm like that”.
If they don’t like the high prices of housing in their areas, perhaps they should stop electing the people who’s policies cause those problems. Otherwise, they should shut up about it…I’m tired of hearing them whine about problems of their own making.
Sailorcurt wrote:
Sometimes people get big eyes.
The sub-prime mortgages of the early 2000s with their teaser adjustable rate mortgages allowed people to afford the first year of two of the mortgage, but as the rates went up, they lost that ability. The only way an ARM made any sense was if you planned to flip the place, and sell it within two years, but if you had to flip it, it shouldn’t have cost that much in the first place.
Then it all fell apart, and I personally know some overpriced homes that were just abandoned, and them had people come in and strip out cabinets, appliances and copper from them, leaving it to the banks which held the mortgages to worry about. There were so many of them that foreclosures, which would normally have begun after three months of missed payments, and take six to seven months to complete, were sitting for years before the banks took action. Too many foreclosures made the banks’ asset and liability sheets look bad; a ‘non-performing’ loan is still an asset, by some messed up accounting rules.
I was cutting the grass on the abandoned house next to me in Jim Thorpe. I did some research on it, found out why it was abandoned, and which bank held the mortgage. I made an all-cash offer on the place, because I was going to flip and resell it, but they weren’t interested in talking to me. Then, a year later, I called and told them that they should pay me to cut the grass. The bank said no, they’d take care of it, and thanked me for notifying them.
So, they spent more money than they’d have spent on me to send a crew up from who knows where every two weeks to cut the grass.
Banks got very stupid during that time.