Posted on 02/27/2025 8:05:50 AM PST by SeekAndFind
Home ownership has been the foundation of middle-class stability and security for so long that it defines middle-class status as much as income. From the end of World War II in 1945 on, the deal was simple: buy a house and you'll build equity that's even better than a savings account because you get the tax break of deducting mortgage interest and you get a roof over your head at a cost that's equal to or even lower than renting a house. Once you've paid off the mortgage, the costs of ownership drop, enabling a secure retirement.
Every one of these assumptions has either crumbled or is now in doubt. A recent report in The Guardian sketches out the forces undermining housing as the source of security:
'I feel trapped': how home ownership has become a nightmare for many Americans Scores in the US say they're grappling with raised mortgage and loan interest rates and exploding insurance premiums.
"I've come to view home ownership and healthcare as destabilizing forces in my life," said Bernie, a 45-year-old network engineer from Minneapolis. To finance owning his and his wife's $300,000 home and saving for the future, the couple was foregoing medical and dental treatment of any kind and cutting back on expenses everywhere, he said, despite a pre-tax household income of more than $250,000.
Let's break down what's changed:
1. The non-mortgage costs of ownership are no longer predictable or affordable. For decades, the cost to insure one's home was modest and predictable, not changing much year to year. Now that insurers are losing billions of dollars as a result of increasingly extreme weather events, rates are rising even in places outside flood, fire and hurricane zones.
Insurance rates are doubling or tripling in a few years, and insurers are leaving markets entirely or increasing the deductible that must be paid by the owners before insurance kicks in, and reducing the coverage.
Property taxes are soaring in many locales. Property taxes were another cost that was relatively modest and predictable. Those conditions no longer apply in many locales: local governments are jacking up property taxes, and / or soaring home valuations are pushing taxes up to nosebleed levels. (I just looked up the annual property tax on a friend's house in California: north of $18,000 a year. And no, it's not a mansion in Malibu, and he bought it 20 years ago.)
The costs of home repairs and maintenance are also skyrocketing. The average age of homes in the U.S. is around 40 years, but closer to 50 years in slow-growth states. As the quality of materials and construction have slowly declined, even houses that are 25 years old or less may require costly repairs--especially if construction defects were undiscovered until major damage had been done.
Routine work such as trimming large trees that pose risks to houses now cost a small fortune. The Guardian article noted estimates for a new roof of $60,000, a sum that equals the construction cost of an entire new house two generations ago. Eye-watering costs of materials are now the norm.
Again, the major changes are not just in costs, but in the loss of predictability. What was modest in cost was not just modest, it was predictable. Now the costs are far higher and future costs cannot be assumed to be affordable.
2. Mortgage costs are also higher, and there's no guarantee interest rates will fall back to 3.5% mortgage rates. As this chart illustrates, the cost of servicing today's mortgages is significantly higher than in years past.
3. Those who locked in low mortgage rates are trapped in their current homes, as they can't afford to move and pay interest rates that are 50% to 100% higher than the low rates they secured years ago. The Federal Reserve intervened massively in the private mortgage market in the post 2008 era, effectively socializing the mortgage market as the means to push mortgage rates down to encourage "growth."
The Fed's intervention helped inflate Housing Bubble #2, just as the subprime excesses of the early 2000s helped inflate Housing Bubble #1. These distortions were intended to fuel home buying, but they also fueled massive increases in housing valuations.
4. The total costs of ownership--the monthly nut including mortgage and other costs--now exceeds the peak in Housing Bubble #1. Buying a house now is not a guaranteed pathway to financial security, it's a wager that valuations will continue to soar ever higher, generating capital gains that will offset the decades of higher costs of ownership.
5. The triple-whammy of soaring valuations, mortgage rates and other costs of ownership has made housing unaffordable in many locales. By any measure, housing affordability has declined to levels that equal or exceed the trough of Housing Bubble #1.
The Case Shiller National Housing Index offers a snapshot of Housing Bubble #2.
6. Land, materials and labor are no longer cheap. In traditional economics, the high costs of housing can be reduced by reducing demand or increasing supply. Increasing supply at affordable prices is far more challenging now than in the postwar decades. The easy-to-build land was built out long ago, and high-rise condominiums come with higher construction costs and the uncertainties of common-area expenses, which in some cases skyrocket to equal or exceed the costs of ownership.
Proponents of building more housing in urban / suburban areas--YIMBYs--yes in my back yard--face hurdles of geography, aging infrastructure, parking, and the high costs of insurance, mortgages, materials and labor, along with many restrictive zoning and planning regulations designed to maintain the status quo.
As for reducing demand: the population of the U.S. was 265 million in 1995, and it's now 345 million: an increase of 80 million people, roughly the same as the entire population of Germany (83 million).
7. The costs of housing have opened generational and regional divides. Boomers and Gen-Xers who bought homes decades ago in the 1990s or early 2000s locked in much lower purchase prices and had multiple opportunities to refinance mortgages at lower rates as the Fed interventions pushed rates down. Recent buyers have no equivalent set of built-in advantages.
Regional divides are increased. A modest home purchased in a middle-class urban area decades ago has increased 10-fold in some areas and not even kept up with inflation in others. The winners are now sitting on a million dollars in equity, a windfall the less fortunate did not reap.
As the urban winners cash in their equity and move to desirable towns, they quickly bid up housing to the point local residents can no longer afford to buy a home in their hometown. And since the wealthy also snap up housing as investment properties--short-term vacation rentals--households that would be considered middle-class by income are doomed to being renters.
"Middle class" is no longer middle-class, it's a seat in the casino that most exit as losers.
8. Renting is no longer a cheaper option. Rents have soared along with home prices, and once again, the predictability of future costs has vanished: rents can increase 30% overnight, just as insurance and property taxes can leap up far beyond anyone's projections.
Bottom line: with the loss of predictability, we've also lost any sense of future financial security. Buying a house is now a wager: a wager that the costs of ownership won't stair-step up to eat us alive, and a wager that valuations will continue to rise, offsetting the high costs of ownership with future capital gains.
Should Housing Bubble #2 pop--and all bubbles eventually pop--then homeowners will be dealt a future of ever-higher costs of ownership even as their equity diminishes. Those sitting on a wealth of equity now may find the assumption that this equity is predictably permanent is itself a wager.
The middle class was fundamentally defined by predictable financial security and social stability. Now everything is a wager with unknowable odds. Rather than being a source of stability, housing is now a source of instability for many--and potentially for every homeowner, should costs of ownership continue increasing as Housing Bubble #2 pops.
Did I just read that this struggling couple pulls down a quarter of a million?
If you don’t have a job, you can’t afford a home.
Families now need two solid incomes and a PLAN to become home owners.
Those who locked in low mortgage rates are trapped in their current homes, as they can't afford to move and pay interest rates that are 50% to 100% higher than the low rates they secured years ago.
Well, yeah. For some of us, the whole purpose of locking in low mortgage rates was to move into a home that would be the last one we ever occupied. I'm still trying to figure out who is in the receiving end of the financial disaster (for them) that my mortgage has created -- paying 3% on a 30-year fixed-rate mortgage while inflation rates have exceeded that almost since the day I closed on the home.
Me: Hmmm....we've been told over and over that our fertility rate is below replacement rate...so what could have cause this increase in population which increased housing demand .... hmmmm could it be the tons of illegal immigration and their anchor babies?
The “bag-holder” that owns the long term 3% mortgage are large entities who are convinced they will be bailed out by .gov if they fail—since they are “too big to fail”.
They pulled it off thanks to the Uniparty in 2008.
They may not get so much joy this time.
This is why Trump cutting the cost of government is important, there are many that believe government is the solution and must grow and be fully funded. Well their wrong, this article discusses the direct and indirect costs of our massive government.
A few thoughts:
1) Housing demand (and cost) will drop when we have stopped govt subsidizing of millions of illegal aliens and sent them packing.
2) While I abhor ‘low cost housing’ forced into all new construction, you people starting out need to set their sights on starter homes. Too many think they can step right into a mansion they cant afford and dont need.
3) Interest rates go up and down. You cant time the market if you want to get invested in a home. You buy in to what you can afford as soon as you can afford it. If rates go up, you win. If rates go down, you refinance and win. But you keep building equity all the while. The sooner you can start this the sooner its paid off, or the more equity you have going into your next home purchase.
You have an interesting point. If the lenders are silent, perhaps something is going on.
We have seen how taxpayer money has flowed to specific causes through entities like USAID. This has explained, at least to me, news outlets that don’t care about ratings or viewership, among other things.
Corporations have seemed giddy in embracing DIE. You mention embracing being underwater on a loan.
Something does not smell right.
The writer works to make a case against owning a home that’ cobbled together in the style liberals use when they want to make a point that’s not really valid.
I own my home outright but spend $64,000 a year on just property taxes ($32,000) utilities ($25,000) and insurance ($7,000).
I have substantial equity, but can’t sell because sales tax would take too much. So I am forced to hold on it and leave it to my kids when I pass so that the basis will reset allowing them to sell without having to pay taxes on the appreciation.
Even worse - you do not even own the house you finally managed to “buy.” Someone else holds the massive mortgage you had to take
And above all, the REAL owner is state and local government. You own tax on that, in perpetuity and forever increasing. Don’t pay that, and your home will be seized.
You are simply a debt slave
One of the biggest reasons to get rid of 50 million illegals.
This article is a summary of the obvious. What is not so obvious is that money, effort and other assets directed into housing is money that is not directed into other worthwhile industries and activities.
Housing may not be the wisest investment a society can make. All the effort, capital, and natural resources used differently and without artificial stimulation, might be a net gain for America.
There’s sales tax on a home sale when you sell a home?
Your points are valid.
another one is few have the skills of home ownership anymore. We did our own work and the cuts the cost of home ownership maintenance in half.
A bit of a burst is already happening around here.
We have an insane Property Appraiser who is illegally jacking up property taxes, in some cases nearly doubling them. She is changing property designations from residential to commercial, which allows the increase, and if the homeowner doesn’t contest it within the short time allowed, it becomes permanent.
This has led to greatly increased monthly payments, which the homeowners can often not afford, so they have to sell...fast. Thus we have homes that were valued at $450K being listed at $350K and still not selling.
Stuff is gonna hit the fan, and soon.
Which says it’s not cost of house but their spending habits
$250K after taxes does not go that far.
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