It’s Impossible To Buy A $200k Home Anymore

The Daily Escape:

Mt. Hood sunrise – February 2023 photo by Mitch Schreiber Photography

Happy Valentine’s Day for those who celebrate! If you don’t celebrate, find someone or something to give a little bit of love to.

In all of the hype about the Super Bowl and Rihanna’s halftime show, you may have missed that homes selling for less than $200k have basically disappeared in America.

John Burns, a real estate consultant, reports that they are now 0% of the new home market. They were 40% of the market 10 years ago. Burns also says that $500k+ new homes have grown from 17% of the market to 38% of the market during Covid. He provides this handy chart showing how average home prices have changed since 2010:

At the same time, sales of homes going for $500k or more (red line) have shot up from less than 10% to nearly 40% of the new homes market and represent the largest share of new home sales.

This isn’t great for Millennials looking to buy their first homes, or for retirees who have to downsize. It also explains why many first-time homebuyers are angry.

It’s not only the $200k and under segment that has fallen off a cliff. New homes going for between $200k – $300k now make up just 11% of the total, down from 80% of all new home sales in the year 2000.

Ben Carlson shows Federal Reserve new home price data going back to 2000 that breaks down new homes price points more clearly. He says that those being sold for $750k and up have gone from less than 1% to more than 10% of the market.

A few reasons for the shifts: First, we’re not building enough new houses anymore. Second, we’ve seen changing tastes drive demand toward larger homes, helping move the market to a new floor in home prices. Inflation didn’t help either.

We overbuilt in the 2000s housing bubble, and that led to more than a decade of underbuilding ever since. There was a brief spike during the pandemic housing craze but that has abated with mortgage rates rising so rapidly in the past year.

In 2002-2006, we were building around 120,000 new homes per year. In 2022, it was more like 65,000 units per year. Tastes have changed as well. Houses today are substantially larger than they were in the 1950s, 1960s, and 1970s.

In his book The Fifties, David Halberstam talks about how the housing market played a huge role in the rise of the suburbs following World War II. Then houses were about 1,300 square feet. In the 1970s, the median size of a new home in the US was 1,525 square feet. Today it’s around 2,500 square feet.

Tastes have changed. People want bigger houses. They want open floor plans for entertaining, bigger bedrooms with more bathrooms, and more storage space for all of their stuff.

It’s also true that homebuilders aren’t incentivized to build starter homes anymore. In the 1950s the government helped out the troops and their families. With the GI Bill, the federal government took some of the risk that homebuilders wouldn’t be able to find mortgages for all the new houses they were building.

Local zoning regulations have made it difficult to get approvals to build new homes. So builders have moved upmarket in home size to justify those upfront expenses. Starter homes aren’t as profitable as they once were.

There’s a big change in the buyer’s market as well. The WSJ quotes John Burns: (emphasis by Wrongo)

“You now have permanent capital competing with a young couple trying to buy a house.” Burns estimates that in many of the nation’s top markets, roughly one in every five houses sold is bought by someone who never moves in.”

The Atlanta Journal-Constitution in an article last week entitled: “American Dream For Rent: Investors elbow out individual home buyers. Metro Atlanta is ground zero for corporate purchases, locking families into renting’. The Journal says a generational housing shortage, inflated construction costs and a surge in consumer demand all contributed to the historic rise in prices.

But there’s little doubt that a flood of cash from institutional investors has exacerbated it. They quote Maura Neill, a realtor in Alpharetta:

“They go after every listing under $500,000…it’s like clockwork…The property gets listed and, sight unseen, they make offers within an hour.”

This is late-stage capitalism at work. Young working couples are increasingly shut out of buying homes. America is failing them. It would be helpful for families to build equity by purchasing homes instead of renting.

Pricing families out of home ownership carries risks to a cohesive society.

We should have a federal tax policy that disincentivizes ownership of multiple single-family homes, by investment funds. The way to remedy this is to steer investors to other assets that don’t directly impact individual welfare to the same degree as single family housing.

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Available Housing Drives Growth in Jobs

The Daily Escape:

Snow near Boulder, CO – November 2019 photo via

Last week, in our town’s Mayoral race, each side had a signature issue. For the Republicans, it was roads. For the Democrats, it was affordable housing. Wrongo has served on the town’s municipal roads committee for three years. He’s also attended a few town workshops on affordable housing. The incumbent Republican Mayor won in a landslide.

Did that mean that affordable housing was a non-issue? Not really. Like most of Connecticut, our town has a sharp income divide. And despite having among the most affordable housing in Litchfield County, we have elderly poor and younger middle-income people vying for limited multifamily housing stock.

The major problem is a concern that affordable housing equals more kids in our schools, and more infrastructure. The reality is that the incremental real estate taxes that landlords would pay the town will not offset the increased costs of schooling and infrastructure.

But, the town also desires greater economic development. New businesses and jobs are important to increasing our tax base. We’re not alone in this. Consider the city of San Jose, CA. The Silicon Valley region has added about 385,000 new jobs over the past five years, but only approved about 60,000 housing units. From Vox: (emphasis by Wrongo)

“Communities sometimes mobilize in opposition to some kind of new project, but this…happened when someone proposed building some offices near a new football stadium in Santa Clara, California, is mind-boggling: San Jose has taken the rare step of publicly opposing the project, saying it would add far too many jobs, exacerbating the region’s housing shortage.”

It’s difficult to believe that we’ve reached a point in our economy where creating new jobs can be construed as bad for existing residents of an area.

The Bay area isn’t overbuilt with housing. San Francisco is less densely populated than Brooklyn, NY. Santa Clara County, where Silicon Valley is located, is significantly less populated than the Long Island suburbs. The fear is that meeting the need for housing will lead to many lower income residents living in high-rise buildings.

Or take New York City, where Amazon was shocked when the public said that Amazon could take their 25,000 new jobs and shove them. (brackets by Wrongo)

“It’s only natural that Amazon saw its promise to create 25,000 jobs as a blessing, for creating jobs is most [all] of what we have ever asked of American companies. But given the realities of our economy…. it’s also only natural that many New Yorkers wanted nothing to do with it.”

Promises of 25,000 new jobs in NYC sounded much different in 2019 than it would have sounded in 2009. If you’re among the sea of NYC hotel and restaurant workers, you know you’re never likely to be qualified for one of the jobs Amazon promised to create in your backyard. And since it would be built in an area where many hourly workers live, they naturally opposed what would have driven their costs of housing even higher.

Amazon already had 2,000 employees in NYC in November 2018, when the HQ search concluded. Despite not building a NY headquarters, that number has grown to 5,000 in the past year. Amazon’s continuing jobs expansion in NYC makes the case that those who fought against the state’s $3 billion dollar incentive package were correct.

No economic problem is simple, and neither are their solutions. Here is a good rule of thumb: When things are complicated, inputs are messy. Some factors may cancel out other factors.

And in the case of trying to increase economic growth in a given city or town, an available, skilled workforce in numbers sufficient to meet the new business needs is primary. Available housing is huge as well. These two inputs exist in a feedback loop. Our towns can’t grow if workers can’t find housing.

Freezing housing stock in a growing economy helps those who enjoy higher Socio-Economic Status (SES). Our cities are seeing an outflow of lower SES’s and an inflow of higher SES’s. This is making housing costs in our second-tier cities move closer to what they have become in NYC and LA.

Exurban ring towns like Wrongo’s are seeing inward migration, mostly of middle and lower SES’s who routinely commute long distances for work. That adds local spending on goods and services, but puts pressure on local housing stock and on schools.

The landslide results in our town’s election was a vote for better roads, and against changing zoning requirements to add affordable housing. Indirectly, it also was a vote in favor of lower economic growth, just like what happened in San Jose, CA.

But we shouldn’t be confused with Silicon Valley.

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Where Can The Working Class Afford To Live

The Daily Escape:

Quilotoa Crater Lake, Ecuador. You get there by bus, and it takes six hours to walk around it. 

The Senate is trying to pass their worst possible health care idea. They have already passed a $700 billion military budget, more than even Trump wanted. And they are trying to pass a $1 trillion tax cut for their buddies. Will any of that help you? No.

They should be focused on improving the lives of working class people, but they can’t be bothered with that, because they have no desire to accomplish it. Things are just fine the way they are for Senators.

Wrongo has been remiss by not turning you on to howmuch, a site that creates visualizations about money, and in-depth tools about what things cost in the US. You should spend time checking them out. They created this very interesting chart about where working class people can afford to live in the US:

Source: howmuch

Each bubble represents a city. The color corresponds to the amount of money a typical working-class family would have left over at the end of the year after paying for their living costs, such as housing, food and transportation.

The darker the shade of red, the worse off you are. The darker the shade of green, the better off you are. The size of the bubble has meaning — large and dark red means the city is totally unaffordable. Bigger dark green bubbles indicate a city where the working class can get by. So, where are the best places from a financial perspective for a working-class family to live? These are the top five cities with the net surplus remaining after living expenses:

  1. Fort Worth, TX ($10,447)
  2. Newark, NJ (($10,154)
  3. Glendale, AZ ($10,120)
  4. Gilbert, AZ ($9,760)
  5. Mesa, AZ ($7,780)

The worst five cities are:

  1. New York, NY (-$91,184)
  2. San Francisco, CA (-$83,272)
  3. Boston, MA (-$61,900)
  4. Washington, DC (-$50,535)
  5. Philadelphia, PA (-$37,850)

Yes, a typical working-class family would need to make an additional $91K+ per year in NYC just to break even on a reasonable standard of living. And most job creation is taking place in cities, so the challenge for anyone, working class or higher, is how to afford living in one of them. There are exactly zero affordable cities on the West Coast. More from howmuch:

Of the ten most populous cities in the country, the only place where you can enjoy a decent standard of living without taking on debt is San Antonio. Out of the top 50 largest cities, only 12 are considered affordable. Low-wage workers are better off in smaller cities.

Kevin Erdmann, who blogs at Idiosyncratic Whisk, says the problem is that most coastal cities have closed access to housing, while inland cities have open access. Open access cities have relatively liberal housing and zoning codes that allow for new building, including relatively low-cost housing. Houston is the most prominent example. Closed access cities artificially reduce supply of housing, driving prices up. NYC is the most prominent example. From Erdmann:

You can tell what type of city it is just by looking through the newspaper. In open access cities, people complain that poor people are moving in and taking away jobs, pushing down wages. In closed access cities, people complain that rich people are moving in and bidding up rents.

People in red states have experienced high in-migration of low income people, both natives and immigrants. Poor people are leaving the closed access cities.  So, to someone living in a closed access city, it seems racist for people to focus their ire on Mexican immigrants.

And think about what happens if folks in a bad neighborhood manage to do the hard community work to make it somewhat livable. In New York or Los Angeles, the minute that a neighborhood becomes safe, the plots that hold those $100,000 duplexes will be worth $500,000, and the neighborhood will gentrify.

Rinse, lather and repeat, and the cycle starts again.

Can a working-class family live comfortably in your town? If so, can they find work?

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