So, rents are at least involved in basically all of the relative aggregate changes of home values over time. One question is, what influences the slope of the line (factor number 3 from Part 4). And, look, I’m a finance guy at heart. Discount rates are hugely important in asset values. I get it. It’s the first thing I look for in any valuation. I would be happy to give interest rates a prominent role in the slope of that line. I just can’t manage to find it.
In a high inflation environment, the tax advantages of housing also have to be taken into account. Capital gains on most homes are 0%, interest is tax deductible for some, and although this has changed recently so were property taxes.
Yes, more posts that look at the rents/interest rate/house price trifecta. Please don't worry about being repetitive---think of how many times doctors have to tell patients to lose weight and quit smoking.
I'd like to share a story from the 2009-2011 period which could help demonstrate the weirdness that I think reinforces your point. My aunt was going through a divorce and trying to get sole custody of her house. She had to get some sort of a bridge loan to buy out her ex and could only get a 5 year note with a nosebleed rate---even though official rates were low NOBODY was doing normal lending. She took it because a) she had no choice and b) she expected her home value to increase and she'd be in a good refi position in a few years. She was right, fortunately.
I want to believe this time is more "normal" because 30 year notes are reflecting ostensibly tighter policy, but will demonstrate more market-based churn over the next year. For example, home sellers in high priced neighborhoods will cut prices to attract buyers who are negotiating from a standpoint of having to deal with high rates. But, these cuts will be in the range of 5-10% which isn't fire sale territory.
I am old enough to remember the high interest rate period before 1986. That is when a lot of mortgages with negative amortization were invented to enable borrowers to reduce their initial monthly payments. Teaser-rate ARMs and such got a lot of negative press during the Great Financial Crisis, so I don't think they will come back soon.
As an aside, would you be available on Monday evening to discuss the state of the economy and the housing market on a Zoom call with about a dozen people in the audience? If so, email me. arnoldsk at us dot net.
In a high inflation environment, the tax advantages of housing also have to be taken into account. Capital gains on most homes are 0%, interest is tax deductible for some, and although this has changed recently so were property taxes.
Yes, more posts that look at the rents/interest rate/house price trifecta. Please don't worry about being repetitive---think of how many times doctors have to tell patients to lose weight and quit smoking.
I'd like to share a story from the 2009-2011 period which could help demonstrate the weirdness that I think reinforces your point. My aunt was going through a divorce and trying to get sole custody of her house. She had to get some sort of a bridge loan to buy out her ex and could only get a 5 year note with a nosebleed rate---even though official rates were low NOBODY was doing normal lending. She took it because a) she had no choice and b) she expected her home value to increase and she'd be in a good refi position in a few years. She was right, fortunately.
I want to believe this time is more "normal" because 30 year notes are reflecting ostensibly tighter policy, but will demonstrate more market-based churn over the next year. For example, home sellers in high priced neighborhoods will cut prices to attract buyers who are negotiating from a standpoint of having to deal with high rates. But, these cuts will be in the range of 5-10% which isn't fire sale territory.
I am old enough to remember the high interest rate period before 1986. That is when a lot of mortgages with negative amortization were invented to enable borrowers to reduce their initial monthly payments. Teaser-rate ARMs and such got a lot of negative press during the Great Financial Crisis, so I don't think they will come back soon.
As an aside, would you be available on Monday evening to discuss the state of the economy and the housing market on a Zoom call with about a dozen people in the audience? If so, email me. arnoldsk at us dot net.