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Foreclosures are on the rise. Here’s what that says about the housing market

EO 11110

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Are you sure?

I'm a huge 'reversion to the mean' guy as well. But the way I look at things is that the mean value of paper currency is pretty close to zero.

So surely swapping it for anything else at all, at any price, is a good idea?

How are house prices doing in terms of gold? Think the median house is still around 200 oz - no?

never sure. just best guess

the best measure imo is wages vs house prices. when house prices run away from wages --- it's just a matter of time until that gap closes. i doubt that wages are going to catch up - so that leaves the other side to make the adjustment

canada/australia have defied this for a good while. would be interesting study on how they kept the balls in the air for so long
 

RebelYell

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never sure. just best guess

the best measure imo is wages vs house prices. when house prices run away from wages --- it's just a matter of time until that gap closes. i doubt that wages are going to catch up - so that leaves the other side to make the adjustment
This has been a sensible rule of thumb for a long time because most homes were owned by the people that lived in them and therefore their ability to pay for those homes governed the price. However I'm not certain this remains a key factor.

The nature of our society/economy is changing (or at least might be changing) from one where a large middle class owns much of the property to one where an oligarch class owns the property and a serf class pays rent. The bailouts of 2008 and even more so 2020/21 transferred unprecedented amounts of wealth from the middle class to the oligarchy within a system that results in wealth steadily flowing in that direction in any case. If BlackRock buys all the homes (and Bill Gates buys all the farms), it doesn't matter whether or not they are affordable to ordinary people. In such a society all that matters is how cap rates compare to interest rates...

canada/australia have defied this for a good while. would be interesting study on how they kept the balls in the air for so long
See above. The US still has more of a middle class than most places, but this is definitely headed in the wrong direction fast now, although we could argue about the extent to which it has already occurred.
 
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Usury

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never sure. just best guess

the best measure imo is wages vs house prices. when house prices run away from wages --- it's just a matter of time until that gap closes. i doubt that wages are going to catch up - so that leaves the other side to make the adjustment

canada/australia have defied this for a good while. would be interesting study on how they kept the balls in the air for so long
Wages have shot up too. Housing isn’t an isolated bubble….EVERYTHING costs more…housing, food, fuel and yes labor.
 

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Wages have been dropping forever in France...

I worked last month grinding and polishing stainless steel in a shop for minimum wage... $10/hr in the paycheck.
 

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I don't know how many people they have in a lot of these huge apartment complexes they have recently built around here but many of them will probably never own their own home.
 

WillA2

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I am seeing higher rates but I'm not seeing prices go down or even slow as suggested in the Zillow article. But I'm in a state that people are moving TO, not FROM. I think Zillow is based in Seamolecular.

You nailed it. Where you are located will determine a great deal about how the housing market will go.
 

WillA2

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Wages have shot up too. Housing isn’t an isolated bubble….EVERYTHING costs more…housing, food, fuel and yes labor.

Wages have been inflated, but they haven't gone up in terms of wealth generation or purchasing power.
 

EO 11110

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Wages have shot up too. Housing isn’t an isolated bubble….EVERYTHING costs more…housing, food, fuel and yes labor.

yes, but scale matters. housing has blown away wages. now throw in the adjustment for MUCH higher mortgage rates. we are at/near the peak for this housing cycle
 

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Mrs. and Baby Old and I went up to look at a house in New Hampshire. 2,800 square feet, great location, nice lot. But the north side of the house has not enough space between the ground and the wood. The clapboards are rotten and no doubt the sill is compromised. They are asking 399k and our realtor told us if we like it we should offer 450. 450 for a house with a rotten sill? We could come up with the cash but this is bizzaro world. I’ve talked my wife out of it, this has all the makings of a blow off top.
 

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yes, but scale matters. housing has blown away wages. now throw in the adjustment for MUCH higher mortgage rates. we are at/near the peak for this housing cycle

Interest rates have doubled in about 18 months. I expect they will revert back to their normal trend line and go below 3% again within the next 18 months. Also, I expect rents will increae. I also expect wages to rise. Both of those will make housing more affordable, either on an absolue or relative basis.
 

Fiat Metaler

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Is the Fed really subject to such accountability or will they just make up their own numbers and forge ahead?

The White Flight I'm seeing is unprecedented in our history. Since 2019, homes and lots are up around 450% in Flathead County and 350 to 400% in the rest of Western Montana, with no end in sight. I doubt interest rates would even have any effect on this trend, they will continue to flee the hostile areas. How can we predict where this trend will go when there are no historical figures or formulas to factor in White flight?

I don't know about the Fed's accountability, but even a Fed accountant is going to have a hard time with their numbers. They bought a ton of mortgage backed securities when rates were below 3%, and now wiht rates above 5% they claim they are going to start quantitative tapering. Transalation - they are going to crystalize the unrealized losses they have on those mortgage bonds. By the way, they hold something like $2.7T of MBS.

Flathead county - I have a relative who is a home builder over in Big Fork. That is not white flight, its Canadians leaving the even hotter Canadian housing market.
 

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Flathead county - I have a relative who is a home builder over in Big Fork. That is not white flight, its Canadians leaving the even hotter Canadian housing market.
I've heard some are Canadian, but the ones I spoke to and supported by what realtors told me, they are coming from US cities because they feel safer here. Besides, Canadians have the same Bolshevik problems we do, so their arrival is linked to White flight as well. Meanwhile, the mass media says city folks are moving here because they think there's less risk of getting covid here.
 

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I've heard some are Canadian, but the ones I spoke to and supported by what realtors told me, they are coming from US cities because they feel safer here. Besides, Canadians have the same Bolshevik problems we do, so their arrival is linked to White flight as well. Meanwhile, the mass media says city folks are moving here because they think there's less risk of getting covid here.

One of the reasons my relative moved there 15 years ago was because your drinking water was the purest. Most places in the U.S. use recycled toilet water from the folks upstream. Its purified to have no live bacteria, but they don't bother to filter out the pharmaceuticals.
 

EO 11110

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I don't know about the Fed's accountability, but even a Fed accountant is going to have a hard time with their numbers. They bought a ton of mortgage backed securities when rates were below 3%, and now wiht rates above 5% they claim they are going to start quantitative tapering. Transalation - they are going to crystalize the unrealized losses they have on those mortgage bonds. By the way, they hold something like $2.7T of MBS.

Flathead county - I have a relative who is a home builder over in Big Fork. That is not white flight, its Canadians leaving the even hotter Canadian housing market.

think frbny is letting the mbs 'run off' - meaning not selling nor buying. just holding through maturity

recent history has shown frbny wants to benefit (nyc shysters) as much as possible -- so frbny is always trying to go as low as possible. with this in mind, the rise in rates imo will be temporary - they'll reverse and go lower after they get the pin action (prices fall) that they are gunning for

hence i'm slowly buying fixed income type stuff as rates across the spectrum rise. after asset prices fall the reversal will come
 

RebelYell

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This has been a sensible rule of thumb for a long time because most homes were owned by the people that lived in them and therefore their ability to pay for those homes governed the price. However I'm not certain this remains a key factor.

The nature of our society/economy is changing (or at least might be changing) from one where a large middle class owns much of the property to one where an oligarch class owns the property and a serf class pays rent. The bailouts of 2008 and even more so 2020/21 transferred unprecedented amounts of wealth from the middle class to the oligarchy within a system that results in wealth steadily flowing in that direction in any case. If BlackRock buys all the homes (and Bill Gates buys all the farms), it doesn't matter whether or not they are affordable to ordinary people. In such a society all that matters is how cap rates compare to interest rates...


See above. The US still has more of a middle class than most places, but this is definitely headed in the wrong direction fast now, although we could argue about the extent to which it has already occurred.

I was thinking about this some more over the last 24 hours and the more I think about this, the more I think that the relationship between prices and average wages has broken and should not be used as a guide.

The US has been different to most of the rest of the Western world for a long time now (decades), and we have seen house prices rise to the point of unaffordability for large portions of the population in one western country after another. It's not just Australia and Canada - look at the UK where a typical small house on the outskirts of London costs ~ $2million and wages are lower than here in the US. The prices don't fall back because the average wage earners are no longer the buyers. Instead housing has become - to a significant extent - an investment in these countries and the buyers are investors (foreign and domestic) as often as occupiers. I was talking to a friend from the UK the other day - half the houses in his street in an average sized town in England were not owned by the occupants.

I believe we are definitely seeing this happen in the US now, and it will continue to accelerate going forwards.
 

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I was thinking about this some more over the last 24 hours and the more I think about this, the more I think that the relationship between prices and average wages has broken and should not be used as a guide.

The US has been different to most of the rest of the Western world for a long time now (decades), and we have seen house prices rise to the point of unaffordability for large portions of the population in one western country after another. It's not just Australia and Canada - look at the UK where a typical small house on the outskirts of London costs ~ $2million and wages are lower than here in the US. The prices don't fall back because the average wage earners are no longer the buyers. Instead housing has become - to a significant extent - an investment in these countries and the buyers are investors (foreign and domestic) as often as occupiers. I was talking to a friend from the UK the other day - half the houses in his street in an average sized town in England were not owned by the occupants.

I believe we are definitely seeing this happen in the US now, and it will continue to accelerate going forwards.

so you are calling today's market a buy, no?
 

Fiat Metaler

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think frbny is letting the mbs 'run off' - meaning not selling nor buying. just holding through maturity

Yes, that is what I expect will happen. Its the most the Fed can really do. But they have made some statements that hinted at selling their entire $2.7T portolio of MBS. It was probably the prospect of those bonds being dumped which bumped mortgage rates to 5% so quickly.


But there is no one large enough to buy even a meaningful fraction of those, and selling them will crystallize the Fed's losses. Also, its position is so large, as it sells its going to hurt the prices of its existing portfolio. Its basically painted itself into a corner.

If the Fed does dump those bonds then rates could go even more nuts, but if it turns out that they will just let them run off then rates might come back down to 3% rather quickly.

 

DodgebyDave

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A dark side to capitalism......and What description shall we apply to communism?

I would call it a goddamn Greek tragedy!

100 dead, 2 world wars, Marx, Lenin, Stalin, Pol Pot, Idi Amin, Papa and Baby Doc, Che, Jim Jones
 

RebelYell

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so you are calling today's market a buy, no?
I believe that the price/wage ratio will cease to be a reliable guide for future direction of prices. But that doesn't make me a buyer - it just makes me not a seller-for-that-reason.

I think there are other good reasons to be cautious in the short term. If the fed tightens as it has stated it intends to, that may well hit cap rates and leveraged real estate investors harder than wage earners.
 
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RebelYell

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A dark side to capitalism......and What description shall we apply to communism?

I would call it a goddamn Greek tragedy!

100 dead, 2 world wars, Marx, Lenin, Stalin, Pol Pot, Idi Amin, Papa and Baby Doc, Che, Jim Jones
I hate these types of comparison because I believe they play into the hands of our enemies.

Capitalism vs Communism is a false dichotomy.

The correct choice is Freedom vs Slavery. Looked at that way, one can see that Communism is always slavery and that Capitalism can be a feature of either a free or a slave society.

There is no dark side to Freedom which in turn requires Capitalism. But Capitalism can equally be part of a government controlled, monopolistic slave society (basically largely what we have today) which does indeed exhibit a dark side.
 

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Yes, that is what I expect will happen. Its the most the Fed can really do. But they have made some statements that hinted at selling their entire $2.7T portolio of MBS. It was probably the prospect of those bonds being dumped which bumped mortgage rates to 5% so quickly.


But there is no one large enough to buy even a meaningful fraction of those, and selling them will crystallize the Fed's losses. Also, its position is so large, as it sells its going to hurt the prices of its existing portfolio. Its basically painted itself into a corner.

If the Fed does dump those bonds then rates could go even more nuts, but if it turns out that they will just let them run off then rates might come back down to 3% rather quickly.


Shocked, this is what people mean when they say the Central Banks have ruined their bond markets. They don't have a market anymore, it was all just dependent on them buying. People would punt, ie buy it on the market thinking they would just sell to the central bank. As Soon as they say they are going to sell the punters panic, and sell ahead of the central bank selling. The ECB has completely fubared ALL of their bond markets and they are the only buyers. That's why they Can Not raise rates. It would implode even faster than our MBS rates.

Which by the way just hit 5.25%. Highest since I've been at my real estate job.
 

EO 11110

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Which by the way just hit 5.25%. Highest since I've been at my real estate job.

5 percent brings back memories of the last bust. remember cd's paying that much at the local credit union in the months before the meltdown

my dumbass bought callable cd's in my brokerage acct. which of course were called when the thing blew up and frbny started cutting
 

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affordability is worse than 2007?

1649723377590.png
 

EO 11110

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1649723507062.png


this is all happening against a backdrop of severe economic malaise in America. Instead of relying on the traditional "Misery" Index (which relies on the 'unemployment rate', which in turn is entirely dependent on the participation rate), we go straight to the source and create an 'alt-Misery' Index (combining the inflation rate and the percent of Americans not participating in the workforce). It is currently at 40 year highs of 'Misery'

The Fed's own survey findings today that "Perceptions about households' current financial situations compared to a year ago deteriorated in March, with more respondents reporting being financially worse off than they were a year ago. Respondents were also more pessimistic about their household's financial situation in the year ahead, with fewer resondents expecting their financial situation to improve a year from now."
 

Voodoo

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5 percent brings back memories of the last bust. remember cd's paying that much at the local credit union in the months before the meltdown

my dumbass bought callable cd's in my brokerage acct. which of course were called when the thing blew up and frbny started cutting

That's kinda how I got started investing. Props to my father. He bought me a CD or something, I don't even know but I should ask to see if he remembers. But anyway, it was in my name and I'd get checks in the mail all the time. As a kid I would get checks for $127.50 for quite a few years. I just found out it was a 5-year Treasury STRIP (maybe Coupon Bond?) at 13%... That was probably the second best investment he ever made.

I thought that was pretty cool, probably hurt my working career a little though, lol.
 
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Fiat Metaler

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affordability is worse than 2007?

View attachment 254147

Your chart shows only the year over year change in affordability, not the absolute affordability. This chart, which is about a year old, shows it on an absolue scale: Not how housing became "unaffordable" from 2005 to 2008 and how far above that we are now.

Affordability.png


The National Association of Realtors calculates its housing affordability index by looking at incomes, home prices, and interest rates all together.

A reading of 100 means the average income can afford 100% of the average home price. A reading of 150 would mean the average income can afford 150% of the average price.

Historically, affordability has hovered around 130. With the recent price increases, and since that chart was created, its come down to about 135. But that is still better than the historical average.

Also, the country underinvested in housing for the last decade. From this I expect housing supply to be met by an even greater housing demand for quite a long time.

Housing Starts.png
 

WillA2

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Your chart shows only the year over year change in affordability, not the absolute affordability. This chart, which is about a year old, shows it on an absolue scale: Not how housing became "unaffordable" from 2005 to 2008 and how far above that we are now.

View attachment 254150

The National Association of Realtors calculates its housing affordability index by looking at incomes, home prices, and interest rates all together.

A reading of 100 means the average income can afford 100% of the average home price. A reading of 150 would mean the average income can afford 150% of the average price.

Historically, affordability has hovered around 130. With the recent price increases, and since that chart was created, its come down to about 135. But that is still better than the historical average.

Also, the country underinvested in housing for the last decade. From this I expect housing supply to be met by an even greater housing demand for quite a long time.

View attachment 254151

Many of these charts are not very truthful until they are adjusted for inflation. It takes more money to buy the same thing without there necessarily being an increase in demand.
 

RebelYell

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Many of these charts are not very truthful until they are adjusted for inflation. It takes more money to buy the same thing without there necessarily being an increase in demand.
I'm obviously not the guy who posted the chart, and I haven't checked the source - but it seems to me a measure which compares price to income is independent of inflation.
 

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Many of these charts are not very truthful until they are adjusted for inflation. It takes more money to buy the same thing without there necessarily being an increase in demand.

does it take more money or promises to pay more money? seems there are too many dumb promises being made - think of the average dumbass shopping this market. it's a minefield for a midwit
 

Fiat Metaler

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I'm obviously not the guy who posted the chart, and I haven't checked the source - but it seems to me a measure which compares price to income is independent of inflation.

The second chart is the number of housing starts, its an absolue number.

The first chart comes from NAR data that you hear cited on the news. So its as truthful as the data.

Yeah, the NAR is the naional association of realtors and they are biased, but if you look at the trends in the data over time, even biased data, it provides a lot of information. As I noted, the chart was prepared a year ago and the last index reading is 135 - there is a year's worth of decline not on the chart, but 135 is still above "normal."

A little googling will tell you how the NAR concocts the affordability index. It looks at median home prices, median incomes, interest rates, etc. The whole point is to account for inflation and changing prices/wages. I'm not going to defend their data but I will say your criticism mostly misses the mark.

I do have some strong opinions but I have reasons for them, which I have tried to explain. I think we are re-living the 70s. In the beginning of that decade, we had an oil supply shock and inflation and low growth the entire decade. The number of housing starts tells us that there is probably pent up demand and limited supply. The affordability index tells us that prices have further room to move up. So I think housing prices are going to continue to rise for many years even though they are already expensive.
 

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What happens in the future remains to be seen. I don't think housing prices will fall; they may pause for a while, but I expect that over the medium and long term will continue to rise.

I draw slightly different conclusions than you do for three reasons.

Affordability is still good. I will point out that your reference to housing affordability is merely the change in affordability, not the absolute affordability. If you look at a longer tem time series, housing is still "affordable" and has lots of room to move (i.e. we haven't even reverted to the mean yet). Also, the houses being sold now are larger, safer, more energy efficient, more open/better use of space, etc. which would warrant hedonic adjustments (but are not in the data).

Interest rates can't go up any further, or the Fed will become insolvent. They may even come down some over the medium term.

There are no alternatives. You either buy, rent, or live with someone else like a family member. Sure, house prices have risen substantially and quickly, but the alternative is to rent. For now, there is a disconnect between housing prices and rents. One could interpret this as housing prices being extended. Another interpretation is that rent increases are lagging home price increases. If the latter is correct, then rents are going to rise substantially. I think the pressure of rising rents creates a floor under housing prices, especially at the entry level end of market. At the high end of the market, the Fed's policies are creating a lot of wealth and people are trading up. The middle priced houses have the most opportunity for softness but I'm still seeing strength there - people are working from home and want a larger, nicer place.

I am seeing higher rates but I'm not seeing prices go down or even slow as suggested in the Zillow article. But I'm in a state that people are moving TO, not FROM. I think Zillow is based in Seattle.
What happens when you buy into a place, and that place becomes unsuitable? Say, by region - New York and Wisconsin, two place I've lived at, both have morphed into Medical Tyranny locales, totally unsuitable for freedom-loving people.

Say by proximity to work? You care able to work at home. Ain't Zoom wonderful? What happens if, either by caprice of the bosses, or by failure of the network...OR by loss of your job in the Grate Reset...you can't DO it?

Or the backwater area you select, suddenly becomes in the eye of the pasty-faced "environmentalists" who close your roads and condemn your village well. It's happened, and in the US.
 

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... all the thriving towns that became worthless after
- the railways bypassed them
- the interstates bypassed them...
- the industries moved abroad
- the section 8 folk moved in
 

Casey Jones

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... all the thriving towns that became worthless after
- the railways bypassed them
- the interstates bypassed them...
- the industries moved abroad
- the section 8 folk moved in
Take your world. France.

The only happy memories my father had of WWII, were, the liberation of Paris. He wasn't on the front lines; he was in the rear, with orders to relieve other platoons on the rapidly-retreating German front. But he went through with the Allied liberation forces, and for a day or so, partook in festivities.

He wanted to get back SOOOoooo...BADLY. And in 1975, that chance came. He was a professional engineer, but had been out of his field for ten years, with a career change. With non-success, he had to shift back. He was accomplished but his work was far in the past, and his knowledge base obsolete.

Nonetheless. He was hired by a Midwestern petrochemical company, which had a contract to build an operation in France, part-owned by the French Government. He was chosen to be the company liaison for the project, in Paris.

It was an 18-month assignment, and he absolutely loved it. By day he worked, and reported that his French hosts were pleasant and enthusiastic. By night he took lessons in French, at a local university; and on days he wasn't in class he'd walk the streets, looking at famous places and architecture...and talking to people at random. He found the legendary snootiness of the French, melt away when he tried to use his French...once they heard him try, they became sympathetic and helpful and open. He had photos, and stories...strangers, of shopgirls and the local police constables.

He abandoned plans of retirement in remote Upstate New York, and tried to figure a way he could do it in Paris. It was not to be, for many reasons...

...that said, I doubt there's few Americans, or even French people, who're enjoying Paris today. The "migrant" "crisis" - importing the unwashed, to persecute those Little People whom the Elites so hate...whether in Paris or Boise.
 

RebelYell

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The second chart is the number of housing starts, its an absolue number.

The first chart comes from NAR data that you hear cited on the news. So its as truthful as the data.

Yeah, the NAR is the naional association of realtors and they are biased, but if you look at the trends in the data over time, even biased data, it provides a lot of information. As I noted, the chart was prepared a year ago and the last index reading is 135 - there is a year's worth of decline not on the chart, but 135 is still above "normal."

A little googling will tell you how the NAR concocts the affordability index. It looks at median home prices, median incomes, interest rates, etc. The whole point is to account for inflation and changing prices/wages. I'm not going to defend their data but I will say your criticism mostly misses the mark.
I'm not following your argument here. My point was that if you measure affordability by comparing prices to incomes, then inflation doesn't really affect the comparison since both are measured in $ so it doesn't matter how much less the dollar is worth this year than last.

To make this clearer, let's say:
- last year the average wage was $100 and the average house payment was $30. Affordability (wage/payment) = 3.1
- this year the average wage is $200 and the average house payment is $50. Affordability is 4
It doesn't make any difference wheither inflation was 67% or 100% (or any other number) because both the numerator and denominator are measured in the same unit.

I also just had a quick look at the NAR methodology here: https://www.nar.realtor/research-an...stics/housing-affordability-index/methodology and there is no mention of inflation. The index is simply a measure of how much of the median family's income is necessary to qualify for a mortgage on the median house price assuming a 20% down payment.

So I think my comment was entriely on the mark. Note that my comment wasn't intended as a criticism of the NAR affordability measure but a just a quick response to Will when he said "Many of these charts are not very truthful until they are adjusted for inflation." pointing out that that specific chart was independent of inflation.
 

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The NAR defines affordable as the degree to which a typical family can afford the monthly mortgage payments on a typical home.

It uses median household income, median home, and mortgage rates as factors in its calculation.

Here is a link to the precise affordability calculation.

Affordability Details

  • Compared to the prior month, the monthly mortgage payment increased by 6.1% while the median family income rose modestly by 0.4%.
  • Compared to one year ago, affordability declined in February as the monthly mortgage payment increased by 30.4% and median family income rose by 3.6%.
  • The effective 30-year fixed mortgage rate1 was 3.83% this February compared to 2.86% one year ago
  • The median existing-home sales price rose 15.5% from one year ago.
I note that compared to March of 2021, the affordability index declined 39.8 points from 170.4 to 135.4.

That's a decline of 22.7%.

I do not have access to data that goes back further but I got this post idea from a Tweet by Charlie Bilello.

Lowest Level Since 2008

The US Housing Affordability Index has moved down to its lowest level since 2008. This is based on February data when mortgage rates were over 1% lower than they are today. The result: current affordability is much lower, plummeting over the last 2 months.

Charting via @ycharts pic.twitter.com/o2ySiv0hsr
— Charlie Bilello (@charliebilello) April 14, 2022
"The US Housing Affordability Index has moved down to its lowest level since 2008. This is based on February data when mortgage rates were over 1% lower than they are today. The result: current affordability is much lower, plummeting over the last 2 months."

Inflation Has Eaten Up Nearly 100 Percent of Hourly Wage Gains Since 1973

Accounting for CPI inflation, wages for production and nonsupervisory workers is nearly the same today as February of 1973.

For details, please see Inflation Has Eaten Up Nearly 100 Percent of Hourly Wage Gains Since 1973.

Mortgage rates are now above 5 percent and inflation jumped again in March. Expect another big decline in affordability next month.

People get about 25% less house than a year ago on a mortgage payment basis.

Affordability is certainly way down and falling, but I would prefer a measure that looks at resales of the same home vs median price for a more accurate comparison.

Regardless, many people who were trying to buy a few months ago are now out of the bidding, priced out.

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Yes, in the last 12 months homes have become less affordable because prices have risen and rates have risen, and wage increases have not come close to matching these increases. But your 12 month chart seems to obfuscate the fact that the current index of 135 is still well above the historical average of 130, and well above the 100 index mark for affordability.

affordability-png.254150
 

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homebuilder etf vs sp500, one year. investor sentiment re house builders has soured markedly

1650162898036.png


5 years

1650163024547.png
 

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Yes, in the last 12 months homes have become less affordable because prices have risen and rates have risen, and wage increases have not come close to matching these increases. But your 12 month chart seems to obfuscate the fact that the current index of 135 is still well above the historical average of 130, and well above the 100 index mark for affordability.

affordability-png.254150
The 100 index mark would imply that the median family would exactly qualify for the median mortgage and no more.

It's not exactly a minimum below which the index cannot fall, but it's certainly not an average value and an affordability index of 100 would be very negative for future prices absent a huge change in the structure of society such that a much larger percentage of the housing stock was being purchased by a landlord class as opposed to owner-occupiers.
 

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It's not exactly a minimum below which the index cannot fall, but it's certainly not an average value and an affordability index of 100 would be very negative.

You are missing the long-term perspective.

Even though affordibility has changed suddenly and signficiantly in the past 2 years, houses are still very affordable. Even if the index dropped to 100, the median family could still afford the median house; its not like they would need to setlle for below median house.

The index currently is at 135. Historically its averaged around 130, and for a 12 year period from 1993-2005 it was in a very narrow range around 130. Following the housing market crash in 2006, homes became very affordable. They recent substantial price increases are just getting us back to average.

The other important point is that there has been an under-investment in homes for about a decade, based on below average number of housing starts. That means there is pent up demand and limited supply. Its going to take years to work through that.
 

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You are missing the long-term perspective.
I'm just looking at how the affordability index is calculated and what that implies from a purely mathematical perspective. When the affordability index hits 100 that means that the median family is maxed out on their mortgage to buy the median home. They cannot qualify for a larger one.

It is very difficult for the affordability index to fall much below 100. It's not impossible for various reasons, including
- poorer families are less likely to buy a house at all so the median house buying family is likely a little bit wealthier than the median family
- people build up equity over time and so can put down more than 20% as they get older
- wealthy people buy more than one property
- etc.

But nevertheless an affordability index of 100 is pretty close to being a lower bound. If the affordability index were 99, that would imply that the median family could not qualify for the median mortgage.

If the nature of our society changes such that the people buying these houses are not average families then this index will no longer be (as) useful, and it may well be that the affordability index could fall below 100. But historically housing in this country has largely been owner occupied - and that means that the prices cannot rise above the mortgages families can qualify for.

This is why the long term average affordability is about 130. People typically buy houses with mortgages which are a little below the maximum they could qualify for.

Even though affordibility has changed suddenly and signficiantly in the past 2 years, houses are still very affordable. Even if the index dropped to 100, the median family could still afford the median house; its not like they would need to setlle for below median house.
See above. Many people do not want to, and are reluctant to, get the absolute maximum mortgage they could qualify for.

The index currently is at 135. Historically its averaged around 130, and for a 12 year period from 1993-2005 it was in a very narrow range around 130. Following the housing market crash in 2006, homes became very affordable. They recent substantial price increases are just getting us back to average.
I agree with this. I was restricting my point to the very narrow one that 100 represented something that approximates to a maximum price, not something that is likely to get hit often if at all (absent societal changes which admittedly may well be happening).

The other important point is that there has been an under-investment in homes for about a decade, based on below average number of housing starts. That means there is pent up demand and limited supply. Its going to take years to work through that.
This is also possible. I haven't looked at how this is calculated to see if I agree with the conclusion, but I agree that most experts certainly seem to subscribe to this idea.