TX_COWDOC said:

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Elections have consequences.

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For some.

And yet gen Z/young millenials will just be called lazy for this, as if we created the policies that led to this mess

TX_COWDOC said:

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Elections have consequences.

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A little bit of information from a guy in the field...

My subs, majority Hispanic and a lot left leaning, are asking if voting for the Republicans will help get business back. Everything is starting to slow down and they are starting to see why...

It's crazy I can get guys to show up then next day or the same day right now.

Architects are slowing way down too.

Hold on to your butts

Timing if everything. In April 2020 closed on a home with 15 year mortgage at 2.5% with $2K mortgage payment. Company relocated me. Closed on a house recently at nearly same value but not as nice or as good a location on 30 year mortgage at about $3K/month. Paying $2700/montg interest now vs $400/month.

Yep. It's wild, I haven't seen this in 10 or more years.

I keep telling everyone to squirrel away their checks and not buy any new tools they don't need. I gave an electrician a check Friday and he said he hasn't set a tpole in 3 months. Got a plumber with 8 roughs going right now. A framer that has 2 frames dropping in the next few weeks.

I think the bottoms going to drop out for a bit. I feel bad for these guys but I know that unless the decision makers in the big production companies get impacted personally then we are going to keep going with high prices and low inventory. It may be better in the long haul but it's probably going to suck soon.

does anyone have any hope that interest rates will come back down next year with an election coming in? hoping to refinance a couple of my properties to increase cash flow to increase other investments

highvelocity said:

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does anyone have any hope that interest rates will come back down next year with an election coming in? hoping to refinance a couple of my properties to increase cash flow to increase other investments

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Everything I've read leads me to believe thats a no.

They are not expecting to hit 2% inflation by end of next year. Mortgage rates are based more on 10 year Treasuries than the federal reserve rate.

Good to know. I'd love to read more about what really affects the rates if you have any links?

My assumption was they'd pull some artificial levers and call it "they've reined in inflation" and then it shoots through the roof in 2025

Agthatbuilds said:

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https://www.marke****ch.com/story/housing-affordability-hits-a-39-year-low-its-fair-to-expect-prices-to-weaken-expert-says-2e7963ad

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It's an unwelcome blast from the past home buyers are facing the most unaffordable housing market since the 1980s, according to a new report.

With mortgage rates at 23-year highs, the monthly principal and interest payment on a median-priced home hit a record high in October. That puts the U.S. housing market at its least affordable since 1984, according to a report by Intercontinental Exchange, or ICE ICE, -0.11%.

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The last time affordability was this bad in the 80s, rates were in the double digits and the average home was about 3.5 times median income, in stark contrast to today's price-to-income ratio of nearly 6-to-1."

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Returning the housing market to more affordable levels would require one of three things, ICE said: Either the 30-year mortgage rate needs to fall by 4.4 percentage points, the median household income needs to rise by 62%, or home prices need to fall by 38%.

But "none of which are likely to fully solve today's challenges alone, and none of which tend to move independently of one another," the report stated.

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One might say it's twice as hard to own a home than it was 40 years ago

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Seems like a missing element here are average house sizes being larger than in the 1980s by a good bit. That would partially explain that 6-1 vs 3.5 times gap.

Haven't we increased from something like 1,800 to 2,500 sq ft on average?

Yep, true on all accounts. My first house in 1979 was a 16.5%, FHA Graduated Mortgage. $49,950 for 1790 square feet- which was a scary amount of money and commitment for a guy three years out of college with a pregnant wife who about to quit her job.

whytho987654 said:

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And yet gen Z/young millenials will just be called lazy for this, as if we created the policies that led to this mess

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Elections have consequences. Yall voted vast majority in favor of the **** show.

Win At Life said:

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txaggie_08 said:

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Seeing any price decreases? We've been passively watching the housing market around Lake Buchanan for the last year or so, and prices have been decreasing over that time but not a ton. Not enough to make us bite.

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Definitely for ours. We heard the constant "multiple offers 30% over list price" back in 2021 and decided to prove them wrong by listing ours at an FU price, so it didn't sell. Problem solved. But, we've since found a waterfront elsewhere that we bought so got serious about selling it in 22, but that's exactly when all the buying stopped. We dropped ours another $100K and still didn't get an offer. We were the lowest $/SF around the whole lake. Even our realtor said WTF? We took it off the market and made $20K of upgrades. Just waiting for a week to get back up there and re-stage. Not sure what, or when, the next move is.

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We just bought a house on North Padre for about 6% less than it sold for in early '22. Listed our townhome and it is the lowest price/sf listing on the water right now and we've only had 2 showings in 3 weeks. Our neighbor moved out last year and had theirs sold in 3 weeks for 5K over asking.

Agthatbuilds said:

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https://www.marketwatch.com/story/housing-affordability-hits-a-39-year-low-its-fair-to-expect-prices-to-weaken-expert-says-2e7963ad

Quote:

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It's an unwelcome blast from the past home buyers are facing the most unaffordable housing market since the 1980s, according to a new report.

With mortgage rates at 23-year highs, the monthly principal and interest payment on a median-priced home hit a record high in October. That puts the U.S. housing market at its least affordable since 1984, according to a report by Intercontinental Exchange, or ICE ICE, -0.11%.

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Quote:

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The last time affordability was this bad in the 80s, rates were in the double digits and the average home was about 3.5 times median income, in stark contrast to today's price-to-income ratio of nearly 6-to-1."

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Quote:

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Returning the housing market to more affordable levels would require one of three things, ICE said: Either the 30-year mortgage rate needs to fall by 4.4 percentage points, the median household income needs to rise by 62%, or home prices need to fall by 38%.

But "none of which are likely to fully solve today's challenges alone, and none of which tend to move independently of one another," the report stated.

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One might say it's twice as hard to own a home than it was 40 years ago

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Actually, what is says is that 40 years ago housing affordability was even LOWER than it is today, or in your words HARDER to own a home in 1983 v 2023.

Rates will hold steady as Fed focuses on QT to hold inflation vs raising rates.

As another poster said above, size and features of the "average" home need to be considered.

In summary, the correct assessment is that home affordability is just as bad as the early 1980s, when rates were high but homes were substantially smaller, communities had few if any amenities, and local schools were an afterthought when choosing were to live.

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homes were substantially smaller

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Not only smaller, but substantially crappier as well.

Go look at a house built in the early 80s that has not been updated. Formica countertops, shag carpet that was bottom-of-the-line builder grade even then, cheap paneling on walls, low popcorn ceilings, one bathroom for 3 or 4 bedrooms, vinyl floor in the kitchen, minimum insulation in the walls and attic, and so forth.

What is considered basic entry level today would have been high-end luxury in the early 80s.

fka ftc said:

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UTExan said:

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One way to drive down home prices is by zoning for smaller homes (800-1000 sq ft) in areas that have space to build them. It would allow singles and young couples to purchase at 80-150k, get the tax advantages and start building a wealth base. Putting people in small crappy apartments with no ability to generate equity is stupid and hopefully, some smart town or city on the outskirts of a major metro area will figure this out.

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Even if you got the lot for free your numbers are not workable. Well, maybe in Colony Ridge.

Fun fact, VDLs exist in many older communities located within commuting distance, particularly in places like Houston.

I have spent copious amounts of times looking at the situation you describe. Even when the numbers work from an affordability, the market is simply not there (even entry level home buyers demand the best schools, newest features, short commute).

Resetting expectations is the biggest challenge.

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This.

I have torn down and rebuilt homes covering the last 120+ years along the Texas Gulf Coast. I can tell you without reserve that "starter" homes over the last 30+ years are much bigger and well-amentized vs houses in the periods before.

Also, one has to factor in not only the explosion of suburbs but the explosion of master-planned development that included inefficient uses of land, schools (particularly elementary) built on prime real estate in those communities, central community amenities, curbed streets, proper drainage, etc all things that people started to demand (once they saw it as an option) and all that incrementally increase the cost of home ownership.

You can blame the builders for building it, the communities for allowing and supporting those solutions but the overall blame is really on the consumer for demanding it.

But that is my perspective. I respect others see it a bit differently and just want to talk about how all the olds had it so good.

SockStilkings said:

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You can blame the builders for building it, the communities for allowing and supporting those solutions but the overall blame is really on the consumer for demanding it.

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The builders were building houses that reflected the artificially depressed interest rate that allowed the average consumer to afford homes that would otherwise put them in the formica countertop world. (And builders were making more profit).

This is not unlike when colleges up their tuition when they know that students can get higher loans.

Consumers clearly are going to seek the best they can get with their money. They could get more when the interest rates were low. And that is what is reflected. Should expectations change to reflect the current market? Yes, but those expectations should also be reflected by homebuilders (and their margins) and sellers. The market will ultimately settle all this out. But its going to take awhile. Real Estate always seems to lag behind the rest of the economy.

Quote:

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Yep. It's wild, I haven't seen this in 10 or more years.

I keep telling everyone to squirrel away their checks and not buy any new tools they don't need. I gave an electrician a check Friday and he said he hasn't set a tpole in 3 months. Got a plumber with 8 roughs going right now. A framer that has 2 frames dropping in the next few weeks.

I think the bottoms going to drop out for a bit. I feel bad for these guys but I know that unless the decision makers in the big production companies get impacted personally then we are going to keep going with high prices and low inventory. It may be better in the long haul but it's probably going to suck soon.

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Question for our homebuilders. Why is homebuilding slowing down? If there is a supply issue, isn't there a market to build new homes?

Or is it that with the interest rate being so high, the builders margins and risk or just too low?

If folks can hang on for a while, something's got to break. Right now no one wants to sell their house because they don't want to lose their low interest rate loan and/or they don't want to finance a new house with mortgages hovering around 8%.

But houses will start hitting the market one way or another. People die, move to nursing homes, get transferred, etc. Assuming that mortgage rates don't drop significantly, home prices will have to start coming down, although it may take awhile.

Count me as biased being in the business, or count me as knowing the business, but builders build to the market vs establishing it at a certain margin as you are suggesting.

I don't expect Texas to slowdown much. Still way underhoused but some of the slowdown is from builders having expensive lots to get through. Some builders may have to abandon those lots and they will be repriced and resold.

Then you will see the end price of house drop and demand, pace of building pick right back up.

Some markets outside of Texas and Florida may see a 2008 type market drop.

But I would not count on the Texas market dropping substantially in price.

Jabin said:

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If folks can hang on for a while, something's got to break. Right now no one wants to sell their house because they don't want to lose their low interest rate loan and/or they don't want to finance a new house with mortgages hovering around 8%.

But houses will start hitting the market one way or another. People die, move to nursing homes, get transferred, etc. Assuming that mortgage rates don't drop significantly, home prices will have to start coming down, although it may take awhile.

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Probably going to need a recession and increased unemployment.

And those who are disappointed about high cost of many things plus interest rates who did the vote for. Too many still voted for dems. Happy now?

fka ftc said:

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Count me as biased being in the business, or count me as knowing the business, but builders build to the market vs establishing it at a certain margin as you are suggesting.

I don't expect Texas to slowdown much. Still way underhoused but some of the slowdown is from builders having expensive lots to get through. Some builders may have to abandon those lots and they will be repriced and resold.

Then you will see the end price of house drop and demand, pace of building pick right back up.

Some markets outside of Texas and Florida may see a 2008 type market drop.

But I would not count on the Texas market dropping substantially in price.

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For the bolded, are you saying builders are not building now because they purchased lots at a high price, and they can't build on it for fear of the overall cost being too much for the market to afford?

I, very much admittedly, don't know about the homebuilding market. But aren't we really talking about the chicken or the egg? The market could demand more house because interest rates were so low and builders could build those houses as the market could support it. Wouldn't builders be happy to oblige that as that would increase their profit and margins? Just curious. I have no idea how it works on a nuts and bolts level other than "money is cheap, can buy more and can build more. Money expensive, can buy less can build less."

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Then you will see the end price of house drop and demand, pace of building pick right back up.

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Are you saying that once the expensive lots work through the system, building will pick back up?

hph6203 said:

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techno-ag said:

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What did we ever do back when the interest rates were near 18%?

Oh yeah, I remember. We saved up for 20% down, didn't buy more than we could afford, and refinanced when rates went down.

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You have to save 2.5x as long to purchase a home that costs 3x as much monthly. Interest rates are a portion of the equation, but they matter WAY less than price relative to income. Even at 0% interest rates it's more expensive/difficult to buy a home than it was in the early 80's.

1980
Median House Price: 47,200
Median Household Income: 21,000
20% Down: 9,440
Interest Rate: 17%
Tax: 864/yr (72.00/mo)
HOI: 250/yr (20.80/mo)
P&I: 539.00
Total Payment: 631.80
Down payment percent gross income: 45%
Total payment percent of gross income: 16%

2023
Median House Price: 416,000
Median Household Income: 81,500
20% Down: 83,200
Interest Rate: 7.5%
Tax: 7615 (634.59/mo)
Insurance: 2204 (183.67/mo)
P&I: 2327.00
Total Payment: 3145.26
Down payment percent gross income: 102%
Total payment percent of gross income: 46.3%

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Can you run these numbers for 1984? I'm curious about how much the housing market improved during Reagan's first term.

Really good question.

It's already happening. Austin saw one of the largest decreases in home prices in the country.

Tex117 said:

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SockStilkings said:

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You can blame the builders for building it, the communities for allowing and supporting those solutions but the overall blame is really on the consumer for demanding it.

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The builders were building houses that reflected the artificially depressed interest rate that allowed the average consumer to afford homes that would otherwise put them in the formica countertop world. (And builders were making more profit).

This is not unlike when colleges up their tuition when they know that students can get higher loans.

Consumers clearly are going to seek the best they can get with their money. They could get more when the interest rates were low. And that is what is reflected. Should expectations change to reflect the current market? Yes, but those expectations should also be reflected by homebuilders (and their margins) and sellers. The market will ultimately settle all this out. But its going to take awhile. Real Estate always seems to lag behind the rest of the economy.

Quote:

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Yep. It's wild, I haven't seen this in 10 or more years.

I keep telling everyone to squirrel away their checks and not buy any new tools they don't need. I gave an electrician a check Friday and he said he hasn't set a tpole in 3 months. Got a plumber with 8 roughs going right now. A framer that has 2 frames dropping in the next few weeks.

I think the bottoms going to drop out for a bit. I feel bad for these guys but I know that unless the decision makers in the big production companies get impacted personally then we are going to keep going with high prices and low inventory. It may be better in the long haul but it's probably going to suck soon.

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Question for our homebuilders. Why is homebuilding slowing down? If there is a supply issue, isn't there a market to build new homes?

Or is it that with the interest rate being so high, the builders margins and risk or just too low?

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There are not enough people who can afford to buy the home.

I dont build production homes. I build purely high end custom homes, so I cannot say why or what those production builders do or don't do. I know they've canceled many a homes because of market conditions.

I can tell you on the custom side, it's a cost problem. Inflation in the materials, and especially the labor, have eaten up margins. There's not a lot of ability to raise prices without pricing oneself out, in my experience. That 1.5 million home from 2019 is now 2.25 million or more.

Materials, save lumber, have either leveled out or continue to increase in cost, not come down. And labor remains extremely high. We build on the 500/sqft low end to 800/sqft high end sort of pricing and that market has shrunk considerably and turned into more remodels.

Jabin said:

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Quote:

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homes were substantially smaller

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Not only smaller, but substantially crappier as well.

Go look at a house built in the early 80s that has not been updated. Formica countertops, shag carpet that was bottom-of-the-line builder grade even then, cheap paneling on walls, low popcorn ceilings, one bathroom for 3 or 4 bedrooms, vinyl floor in the kitchen, minimum insulation in the walls and attic, and so forth.

What is considered basic entry level today would have been high-end luxury in the early 80s.

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I disagree. The production homes built today are mostly crap. It's lipstick on the pig. I went into a recently finished "high end" production or semi-custom in college station recently I was floored by how low end it was. This was a 750k home on a pretty small lot south of town

Yup. All of these high density, corporate builder neighborhoods are full of terrible quality buildings. Great as a starter home, but thats about all.

Jabin said:

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If folks can hang on for a while, something's got to break. Right now no one wants to sell their house because they don't want to lose their low interest rate loan and/or they don't want to finance a new house with mortgages hovering around 8%.

But houses will start hitting the market one way or another. People die, move to nursing homes, get transferred, etc. Assuming that mortgage rates don't drop significantly, home prices will have to start coming down, although it may take awhile.

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I'm north of DFW and we're still seeing 10% YOY price appreciation. We sold a 2,300 ft2 house exactly two years ago for $460k and it just resold for $550k in less than a week. The largest house in the neighborhood is north of 5,000 ft2 and, while the bigger houses stay on the market longer, everything eventually sells at these higher prices.

I get the sense people will be waiting longer than most think for price to trend downwards. At least in many Texas suburbs. A major credit crunch paired with a spike in unemployment may do it but who knows how long we will wait for that.

Agthatbuilds said:

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Jabin said:

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Quote:

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homes were substantially smaller

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Not only smaller, but substantially crappier as well.

Go look at a house built in the early 80s that has not been updated. Formica countertops, shag carpet that was bottom-of-the-line builder grade even then, cheap paneling on walls, low popcorn ceilings, one bathroom for 3 or 4 bedrooms, vinyl floor in the kitchen, minimum insulation in the walls and attic, and so forth.

What is considered basic entry level today would have been high-end luxury in the early 80s.

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I disagree. The production homes built today are mostly crap. It's lipstick on the pig. I went into a recently finished "high end" production or semi-custom in college station recently Imani was floored by how low end it was. This was a 750k home on a pretty small lot south of town

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I live in sort of an intersecting area of homebuilding. I work with builders who construct under long-term contracts at a mostly fixed price and scattered site, high-end single-family customs, and other guys who ran large public builders.

"Quality" is in the eye of the beholder. Correct that the market shifted from local tradesman who lived in town and were accountable for their work, known for their work, and made a living off reputation. Those days are long, long gone for a variety of reasons (immigrant trades / labor, production / cookie cutter building, etc. But they are gone.

Nowadays, quality is better defined as what is the best x can I get at y price in z location by b date. Trades do not live in town, warranties are worth about the paper they are on, and reputations hide behind LLCs.

It would be highly unfair to blame production homes / production builders to starter homes of yore whose trades now only do high-end customs.

Again, that's my take but it is well-informed.

Agthatbuilds said:

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Tex117 said:

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SockStilkings said:

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You can blame the builders for building it, the communities for allowing and supporting those solutions but the overall blame is really on the consumer for demanding it.

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The builders were building houses that reflected the artificially depressed interest rate that allowed the average consumer to afford homes that would otherwise put them in the formica countertop world. (And builders were making more profit).

This is not unlike when colleges up their tuition when they know that students can get higher loans.

Consumers clearly are going to seek the best they can get with their money. They could get more when the interest rates were low. And that is what is reflected. Should expectations change to reflect the current market? Yes, but those expectations should also be reflected by homebuilders (and their margins) and sellers. The market will ultimately settle all this out. But its going to take awhile. Real Estate always seems to lag behind the rest of the economy.

Quote:

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Yep. It's wild, I haven't seen this in 10 or more years.

I keep telling everyone to squirrel away their checks and not buy any new tools they don't need. I gave an electrician a check Friday and he said he hasn't set a tpole in 3 months. Got a plumber with 8 roughs going right now. A framer that has 2 frames dropping in the next few weeks.

I think the bottoms going to drop out for a bit. I feel bad for these guys but I know that unless the decision makers in the big production companies get impacted personally then we are going to keep going with high prices and low inventory. It may be better in the long haul but it's probably going to suck soon.

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Question for our homebuilders. Why is homebuilding slowing down? If there is a supply issue, isn't there a market to build new homes?

Or is it that with the interest rate being so high, the builders margins and risk or just too low?

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There are not enough people who can afford to buy the home.

I dont build production homes. I build purely high end custom homes, so I cannot say why or what those production builders do or don't do. I know they've canceled many a homes because of market conditions.

I can tell you on the custom side, it's a cost problem. Inflation in the materials, and especially the labor, have eaten up margins. There's not a lot of ability to raise prices without pricing oneself out, in my experience. That 1.5 million home from 2019 is now 2.25 million or more.

Materials, save lumber, have either leveled out or continue to increase in cost, not come down. And labor remains extremely high. We build on the 500/sqft low end to 800/sqft high end sort of pricing and that market has shrunk considerably and turned into more remodels.

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I was hoping you would respond. So, to summarize. At least with your end of the market, its a matter of increased costs to build (labor, materials, etc.) that if you completed the project, would put you in too high of a price?

Tex117 said:

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fka ftc said:

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Still way underhoused but some of the slowdown is from builders having expensive lots to get through. Some builders may have to abandon those lots and they will be repriced and resold.

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For the bolded, are you saying builders are not building now because they purchased lots at a high price, and they can't build on it for fear of the overall cost being too much for the market to afford?

I, very much admittedly, don't know about the homebuilding market. But aren't we really talking about the chicken or the egg? The market could demand more house because interest rates were so low and builders could build those houses as the market could support it. Wouldn't builders be happy to oblige that as that would increase their profit and margins? Just curious. I have no idea how it works on a nuts and bolts level other than "money is cheap, can buy more and can build more. Money expensive, can buy less can build less."

Quote:

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Then you will see the end price of house drop and demand, pace of building pick right back up.

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Are you saying that once the expensive lots work through the system, building will pick back up?

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Quote:

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For the bolded, are you saying builders are not building now because they purchased lots at a high price, and they can't build on it for fear of the overall cost being too much for the market to afford?

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Absolutely. Happens in every downturn. Not unlike forward-purchase commodities like oil, electricity, etc, builders buy lots from developers (or buy land to develop) and those are priced by the seller at that point in time (roughly). The builders / developers are left to hedge whether they can turn that dirt into a completed home to close to a buyer at a price the market will enjoy.

So builders who withstand the downturn make hay on cheap lots and lower prices, then increase their prices hoping got that sweet spot of low priced lots, high home prices and as the market matures that equation reverses. At a certain point, builder / developer either goes bankrupt (and the land / lots are discounted) or they sit on the lots (supply tightens but builder will not build at a loss, unless they prefer the previous option of brankruptcy).

Homebuilding cycles are sort of fascinating and follow much longer trends than interest rates and labor / commodity prices.

I dont disagree with you at all. It is indeed the eye of the beholder. And, those production homes are the types of homes needed.

Being involved in financing high end custom homes I have the opportunity to review a lot of budgets and it's astounding to see what cost $1-2-1.8MM 3 or 4 years ago now costs 1.8-2.8MM. In the past there were a significant number of thiese customs that came in under $1MM on construction budget but that's almost impossible now.