Pure Insanity: The Housing Crisis Is Only Getting Worse

For a minute, The Juice decided to ever so slightly slow down our housing coverage. We figured that things have been consistently bad enough to not belabor the almost wholly negative point that the dream of home ownership is dead on arrival for a growing number of Americans. 

In our recent housing updates, we almost always attempt to pull the most interesting and/or shocking negative nuggets out of the crisis before at least trying to find a positive spin. Like we did yesterday in an installment entitled, In This Market, Are You A Winner Or Loser?:

If we are indeed turning into a nation of renters — and maybe we’re already there among younger people — at least renting saves you from the unexpected costs of home ownership. 

Instead of setting aside a few grand every couple of months in case something breaks, you can direct that money to the stock market.

Winner or loser. 

Winner, as in if you bought a home prior to or at the beginning of the pandemic, there’s a good chance you’re a winner. You have a relatively low mortgage interest rate and have accumulated a shit ton of home equity these last few years. 

Loser, as in you didn’t buy then and now, with things objectively out of control, you have little to zero chance of becoming a homeowner unless you’re willing to move to one of the dwindling number of affordable places in America. 

But, ultimately, that all comes down to negative self talk. You’re hardly a loser if you didn’t time the market well. Or if you have not been willing to bite on 7% interest rates. Marry the house, date the rate has not worked out as well as the irresponsible realtors who suggested the strategy had hoped. 

The Juice wrote about this more than a year ago now:

To entice would-be homebuyers to take the plunge, they’re using the pickup line, “Marry the house, date the rate.” 

Cute talk to say you can get the house you love today at a high rate and refinance later at a lower rate. 

But it’s not that simple. 

First, what if rates don’t come down anytime soon? Prior to spring 2022, we enjoyed nearly three years of sub-4% rates on a 30-year mortgage. In the previous decade, a rate of around 5% was more common. 

Second, even if rates come down, refinancing might not be the best option. Let’s say you take out a $750,000 mortgage today. After a couple years living with a monthly payment of approximately $5,000, you’ve barely put a dent in the principal. 

You’ll have to run math based on your own real or hypothetical situation to determine if refinancing is worth it. Closing costs on the refinance (typically 3% to 5% of the loan) may be so high that you won’t actually realize any monthly savings for years. 

Plus, refinancing may not even be possible after building only a couple years’ worth of equity.

First, rates haven’t “come down anytime soon.” As you read this, they’re still at 7% on a 30-year mortgage. Still. Imagine if you had taken on a $4,000 payment well over a year ago just to become a homeowner. If you were stretching it, there’s a good chance you tightened your budget to the point where it negatively impacted your quality of life. 

For the record, we got the $4,000 figure using a $500,000 property with a 10% down payment. So, we’re only talking a hair above the national median. Go to a more expensive metro area and that payment jumps to $5,800 (on a $750,000 home) or $7,700 (on a $1 million home). 

Second, even if rates came down, you would not have been able to wave your magic wand to get the bank to refinance your loan. It’s more complicated than exchanging a pair of tennis shoes.

Which leads us to the sad reality: The more things stay the same, the worse they get. The more the housing crisis intensifies and requires consistent coverage. Is it just us or is the media — and our government — not taking this crisis seriously enough? 

The state of housing in this country is a big deal. It’s an element that could really help further unravel America. 

That said, to the (somewhat) bright side, renting doesn’t make you a loser. In fact, it might make you a winner, especially when you factor in all of the variables outside of the platitude of becoming a homeowner. 

The Juice recently read a Realtor.com account of a couple who moved from Chicago to Bolivia, North Carolina, thinking they’d save a bundle and have a better quality of life. Turns out they were wrong:

They moved out of their 1,300-square-foot, two-bedroom apartment overlooking Lake Michigan into a 2,000-square-foot, four-bedroom house with a yard. That’s when they got their first inkling that this move might not save as much money as they’d hoped: Their new rent was $2,950 a month—which was $250 more than what they paid in Chicago.

Increasingly, with interest rates persistently high and prices steady (or worse), buying (or even, as in this case, renting) in the suburbs is no longer the clearly less expensive alternative to renting in the city. Spend a few hours searching Zillow like we do every week and you’ll see what we mean. 

But it’s about more than the housing payment comparison between the city and suburbia:

“It was 20 minutes to the grocery store, 30 minutes to get to a vet, 45 minutes for any kind of entertainment,” Karasin says.

He estimates he’s paid “thousands” of dollars in gas for the 10 months they lived in Bolivia.

“We got so spoiled in Chicago,” he says. “To be able to go to Wrigley Field for a ballgame, or to the aquarium or a museum. There is every kind of restaurant you want within walking distance. But in Bolivia, if you wanted a steak, it was 45 minutes for an average one. All the restaurants were just kind of OK. It was hard to justify the expense of driving to any of them.”

To add insult to injury, Karasin says the meals weren’t any cheaper than the delicious ones they got in Chicago.

Not so slowly, but definitely surely life across America costs one big arm and a leg. 

The latest data on housing prices, via Bill McBride’s Calculated Risk blog (see the link to Bill’s full story in the Freshly Squeezed section today), confirms that if you have a decent or better deal renting right now, you might be advised to keep it. Housing prices only continue to go up throughout much of the nation, especially in large metros. And, in the places where they’re off the peak, they still remain unaffordable for middle and even upper middle class masses:

On a seasonally adjusted basis, prices increased month-to-month in 16 of the 20 Case-Shiller cities. Seasonally adjusted, San Francisco has fallen 7.8% from the recent peak, Seattle is down 6.0% from the peak, Portland down 3.7%, and Phoenix is down 3.7%.

A 7.8% drop in San Francisco might get you a nice dinner. A 3.7% decline in Portland is probably good for a week’s worth of morning coffees. Of course, we’re (only half) joking to make a point. 

We’re in a housing crisis and we don’t think enough people are paying attention. And those with the power to do something are doing — basically — nothing. 

The Bottom Line: We hope people aren’t merely waiting for interest rates to fall. Because when they do, expect prices to smash all-time records again and again. If we’re waiting for millennials and Gen Z to inherit wealth, that’s also a bad idea. This will only serve to make the current inequality even more — well — unequal. 

At The Juice, all we can do is stay the course: Keep you updated on housing with a clear and sober view and provide ideas for how to best organize your investing and personal finance activities. So, tell a friend to subscribe for free and use the link at the bottom of this page to send us your thoughts on what you’d like to see us cover. 

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