It Will Never Be a Good Time to Buy a House


Earlier this year, I moved from San Francisco to New York with my dogs, kids, and husband. My family rented an apartment. And once we figured out that we liked it here and wanted to stay, we looked to buy a place.

For roughly 11 minutes, before realizing that literally any other activity would be a better use of our time. Brooklyn has 1.1 million housing units. Just a dozen of them seemed to fit our requirements and were sitting on the market. All of the options were too expensive. And that was before factoring in the obscene cost of a mortgage.

New York, in housing as in many things, is an extreme example. But the brutal mathematics is much the same across the country. At this time 15 years ago, real-estate agents had 2.2 million vacant housing units available to show prospective buyers. That number has dwindled and dwindled and now sits at just 732,000, despite the country having added 30 million people to its population. The Case-Shiller index of home prices sits near its highest-ever inflation-adjusted level; houses are unaffordable for middle-class families across the country. Rural areas are expensive. Suburbs are expensive. Cities are absurdly expensive. Nowhere is cheap. That’s in part thanks to mortgage rates. The monthly payment on a new home has increased by more than 50 percent in the past three years, as 30-year mortgage rates have climbed from less than 3 percent to nearly 8 percent.

It’s a terrible time to buy a house. But that news, bad as it is, seems to convey some promise: Someday, things will change and it will once again be a good moment to buy. You just have to wait. I’m sorry to tell you that the bad news is even worse than it sounds. It’s not going to be a good time to buy a house for a really long time. How long? I put that question to a few housing economists and real-estate experts. Their response? Who knows. A decade. “Maybe in 2030, we would start to see some relief,” Daryl Fairweather, the chief economist of Redfin, told me, before noting that 2030 was so far in the future that she could not make any kind of informed prediction.

The problem is twofold. We have a long-standing housing shortage. And we have a frozen housing market. The latter is making the former worse, and it will take years for things to even out and ease up.

The fundamental issue is that the country does not have enough homes where people want them, a consequence of a decade-plus of underbuilding after the Great Recession. Freddie Mac has estimated that the country is short 3.8 million starter homes; Realtor.com puts the deficit at 2.3 to 6.5 million total housing units; the National Association of Realtors and Rosen Consulting say it’s 5.5 million. Whatever the number, it is big. The shortage has driven up costs for buyers and renters alike—most spectacularly in megacities such as Los Angeles and New York, but pretty much everywhere at this point.

Enter the pandemic. When COVID hit, the Federal Reserve pushed interest rates down to scratch. This led to a huge surge of home sales, with the volume of deals hitting its highest level since the collapse of the real-estate bubble. Buyers scrambled to take advantage of low mortgage rates. Sellers scrambled to take advantage of soaring prices. (Many sellers, of course, are buyers too. People trade up or downsize, and are more likely to do so when borrowing costs are low.) Folks relocated to take advantage of their employers’ new work-from-home policies.

Enter inflation. Prices for everything went up because of ample demand (families were spending their “stimmies”) and stifled supply (COVID-related supply-chain problems were causing shortages of everything from couches to semiconductors). The Federal Reserve jacked up interest rates to cool down the rate of price growth. This led to a huge run-up in mortgage rates and a crash in home sales. Would-be buyers decided to rent instead of buy. Would-be sellers decided to stay put instead of moving, because why give up a 3 percent mortgage rate for a 7 percent mortgage rate? Very few units hit the market, so prices stayed high.

This is the uncomfortable equilibrium the market finds itself in today. Nobody’s selling because nobody’s buying. Nobody’s buying because nobody’s selling. Nobody can afford to sell. Nobody can afford to buy. Prices are high; mortgage costs are high. Rents are high, too, and there’s not a huge amount of rental inventory. Everyone’s stuck and paying more than they want to.

Things should calm down when the Fed eases up on borrowing costs, right? Wrong. Things will not calm down. “Once mortgage rates drop, that will reactivate the housing market, leading to more demand. With a limited supply, that would only lead to higher prices,” Fairweather told me. In other words, millions of would-be homebuyers will flood into the market, bidding one another up and pushing poorer purchasers out. More homeowners will feel motivated to sell, giving up their 3 percent mortgage rates for offers above their imagined asking prices. But nobody expects the return of a buyer’s market or anything like it.

The underlying problem remains the underlying problem. The housing shortage persists. High borrowing costs have intensified it, because so many developers and home builders take out loans to complete their projects. Until housing production ramps up for an extended period of time, until there’s considerably more supply relative to demand, things are not going to feel good. They can’t.

Many states and municipalities have passed laws to promote housing development in the past three years—easing zoning restrictions, allowing high-rises near transit hubs, and preventing owners from stopping development to protect their own home’s value. “They probably are going to move the needle on housing supply,” Fairweather told me. But building those new units will take time, time in which demand for new homes will keep growing too.

What is a family looking to buy a place to do? Buy in cash, if you happen to be rich enough to do that. (A bananas statistic: This spring, two out of every three buyers in Manhattan paid cash.) Buy and refinance when you can, if you happen to have the risk tolerance and financial room to do that. Buy with as large a down payment as you can muster to cut your mortgage costs. Or just rent. For the next decade. Forever.



This article was originally published by a www.theatlantic.com . Read the Original article here. .