New data from the National Association of Home Builders finds that about three in four households in Arizona would struggle financially to purchase a median priced home in the state.
The study looks at median home prices across the country along with interest rates and incomes to determine what share of households are priced out of the market. National numbers are telling. Almost 70%, 87 million households across the US would be over-extended if purchasing a home at the median price of $412,505. Today, only 2.9 million US households are above the income threshold recommended to purchase a house valued over $1.55 million. On the other end of the spectrum, 36 million, more than 10 times the number, 36 million households take home enough to comfortably purchase a house valued at under $150,000.
Data for Arizona paints a similar story.
At the time of the study in February 2022, a median-valued home in the state was priced at $464,413. An Arizona household would need an annual income of $102,987 to afford that. Nearly three-quarters of households are under that annual income, estimated to be 738,906 households out of 2,846,208.
I posted this article because I believe we're in a massive housing bubble that is on its way to popping, so if you're a well-paid software engineer I think you just need to be patient, save your...
I posted this article because I believe we're in a massive housing bubble that is on its way to popping, so if you're a well-paid software engineer I think you just need to be patient, save your money, and do not succumb to FOMO. The housing market is unsustainable as cheap money is coming to an end. A lot of "investors" are about to lose their shirts and people who've been overzealous in their home buying will be underwater. Back in 2006-2007, people were saying the same thing as we're hearing now... "buy now or be priced out forever."
Here's an article about California basically talking about the same thing, but trying to frame it in a more positive light. Essentially, 75% of Californians cannot afford a home in California. This is just not normal or sustainable. Save your money, wait, take a deep breath, rent a little longer. "Priced out forever" is meant to play on your emotions. Nothing is forever.
The issue this time around, as far as I understand it, isn't that tons of people are getting ARMs based off of fabricated income (as was the case in 2008). This time is more multifaceted. We have...
The issue this time around, as far as I understand it, isn't that tons of people are getting ARMs based off of fabricated income (as was the case in 2008). This time is more multifaceted. We have people who are massively overleveraging themselves, bidding prices up way over asking, waving all contingencies, just to get into a house. Waving contingencies is not smart nor normal. Neither is bidding $50K, $100K, or more over asking.
Next, we have iBuyers like Zillow who have tried to get into the real estate game, essentially flipping houses. They're using algorithms to buy houses sight-unseen, doing little or no work on them, and listing them at a higher price. It's not working out for Zillow. As it turns out, computers may not understand everything that goes into the valuation of a house. Zillow isn't alone in doing this. I've read stories about iBuyers buying up neighborhoods, paying over-asking, as a way to drive up prices. But if a place is too expensive and not as desirable as they thought, it's not a good bet.
There's also the trend of YouTubers and TikTokkers pushing investment schemes about becoming a landlord for the passive income. Go on YouTube and search about it. Its puts dollar signs in many peoples' eyes, prompting them to overleverage themselves, buy a bunch of houses, and try to live that dream. It's so pervasive, there are even ponzi schemes popping up catering to the exuberance. What happened with the story I linked, the grifters bought tons of blighted houses that were worth very little, sold them for way more than they were worth to new investors, managed them for the investors, collected rent from the tenants, and then paid the investors that rent. Except... the houses were empty and the rent being paid to the investors came from the sale of new houses. If this sounds interesting, I recommend reading this Reddit thread.
This all stems from the basically free money that the Fed has been handing out for years. But now inflation is really taking off, the Fed needs to get a handle on it by raising interest rates, and that's going to put massive pressure on the housing market. Even just a couple years ago, when the Fed tried to raise the rate, the stock market took a dump and Trump pressured Powell to back off. Now we're seeing the effects. Coupled with the continued supply chain issues, inflation is looking like it's going to continue to climb. The government is even talking about more stimulus checks because of the rising gas prices. I also believe they will have to do something about student loans. They were supposed to be turned back on May 1st, but that's not going to happen. They know it would suck so much money out of an economy that's running on fumes and cause many people to default.
This is all to say... things are too expensive, most people are broke (or massively indebted), and it's only a matter of time before it all comes crashing down. If you're in a good financial situation right now, stay the course, don't succumb to FOMO, and be smart.
Yeah, I'm not sure about the 2008 comparisons. In 2008 there was a lot of house flipping by individuals by taking mortgages from banks and selling the house for a profit and paying off the balance...
Yeah, I'm not sure about the 2008 comparisons. In 2008 there was a lot of house flipping by individuals by taking mortgages from banks and selling the house for a profit and paying off the balance on the mortgage at the same time.
Currently, while interest rates have been low, banks have still been cautious about signing off on mortgages (hence all the posts about how they can't get a mortgage with X credit score and Y income and have to rent forever etc etc). Variable rate interest mortgages have also become pretty unpopular.
I am somewhat doubtful that there'd be a crash. If you actually live in your house, and the value of your house plummets... your property taxes go down I guess? You feel fomo?
Maybe cooling off as other assets take the limelight.
I think this advice is going to be very geographically dependent. There are many places where values are inflated, but in regions like the Bay Area or the whole Acela corridor the issue is truly...
I think this advice is going to be very geographically dependent. There are many places where values are inflated, but in regions like the Bay Area or the whole Acela corridor the issue is truly just that they haven’t built enough of the types of places people want to live in, so the places that do exist are super duper expensive.
The interesting thing about the Bay Area, and places like it, is that it's gotten so unaffordable for lower and middle income earners, there may eventually be no one to staff the lower and middle...
The interesting thing about the Bay Area, and places like it, is that it's gotten so unaffordable for lower and middle income earners, there may eventually be no one to staff the lower and middle income jobs. I know it's a desirable location with plenty of amenities, but people who earn those kind of wages may soon have no recourse but to leave. Mountain towns have been experiencing this already, and I've seen several articles about various ski towns where local workers can't find any place affordable to live even an hour out of town. So for these areas with massively expensive housing, the issue could be more of a dearth of service industry workers which would result in a hollowing out of certain amenities. I would be interested in the take of any Bay Area residents concerning this.
Yeah, my friends who work service jobs in the Bay Area are universally unable to afford even a studio apartment without a second salary or other funds. That said, their support networks are here...
Yeah, my friends who work service jobs in the Bay Area are universally unable to afford even a studio apartment without a second salary or other funds. That said, their support networks are here and they don't have as much money, and so they've mostly hunkered down, cut other expenses, live in communal situations, or accept hour+ commutes. The friends who have been moving away are those in a more middle class economic range who can afford to move: programmers, financial professionals, wealthier retirees, etc.
Human beings have been leaving their support networks for greener pastures for as long as we've existed. Everybody's got a breaking point and, honestly, life in the Midwest is pretty good. This...
That said, their support networks are here and they don't have as much money, and so they've mostly hunkered down, cut other expenses, live in communal situations, or accept hour+ commutes.
Human beings have been leaving their support networks for greener pastures for as long as we've existed. Everybody's got a breaking point and, honestly, life in the Midwest is pretty good. This runaway inflation might kick some people in the pants hard enough to prompt them to try something different. You can't keep living a life in which it's impossible to get ahead. It gets too painful after a while.
Two things: If you look at the numbers released by the US Census, geographic relocation has dropped significantly in the last 20 years. Yes, people have been leaving their support networks...
Two things:
If you look at the numbers released by the US Census, geographic relocation has dropped significantly in the last 20 years.
Yes, people have been leaving their support networks forever. However, your statement seems to imply that the people who aren't moving are in some way not making rational choices given their own socioeconomic conditions when they choose to stay. Is that what you meant?
Yes, I am implying #2. But I understand that people want to stay where they are familiar for emotional reasons. At the same time, I've been dealing with some people close to me who often talk...
Yes, I am implying #2. But I understand that people want to stay where they are familiar for emotional reasons. At the same time, I've been dealing with some people close to me who often talk about much they hate where they live, complain about it constantly, but don't do anything about it. It gets frustrating as someone who has moved around a lot, leaving when a place no longer suits me. So perhaps I'm a little emotional about it. People are going do what they do.
I'm not complaining about it when I explain the situation as it exists for my peers. I'm describing the pressures they are experiencing and the relative attributes of the people who do and do not...
I'm not complaining about it when I explain the situation as it exists for my peers. I'm describing the pressures they are experiencing and the relative attributes of the people who do and do not move. I'm glad that you're in a situation where you can pick up and move when a place no longer suits you, but it's frustrating that it leaves you willing to criticize people who can't or don't make the same choices you can and do.
On the other hand, there may be a downturn that doesn't last, like in 2008. If so, home owners who aren't overextended and don't need to sell would still be okay. It seems like under those...
On the other hand, there may be a downturn that doesn't last, like in 2008. If so, home owners who aren't overextended and don't need to sell would still be okay. It seems like under those circumstances, the bigger risk is losing your job.
Also, local conditions vary even in a downturn. Some real estate markets got hit a lot harder than others.
I believe in 2008, if I remember correctly, Arizona was one of the places that was hit the hardest. Perhaps they're the canary in the coal mine? If 74% of Arizonans couldn't afford a house in...
I believe in 2008, if I remember correctly, Arizona was one of the places that was hit the hardest. Perhaps they're the canary in the coal mine? If 74% of Arizonans couldn't afford a house in Arizona, that's not a good sign. Of course, as you say, people who aren't overextended and keep their jobs will be okay if they don't need to sell. But I don't think it would be fun to be underwater on your mortgage. Last time around, we saw people strategically defaulting in some cases, walking away from their home even though they could pay. And with so many foreclosures for banks to get through, this could mean continuing to live in your house for a year or more without paying. The amount of money you could save doing something like that is certainly tantalizing to some. This has all happened before. The 'why' is just a little different this time.
I think the key indicator there is that AZ is a big retiree hotspot. FL is too and it was also hit hard by the crash. I think if your housing market has this dynamic where it attracts a lot of...
I think the key indicator there is that AZ is a big retiree hotspot. FL is too and it was also hit hard by the crash. I think if your housing market has this dynamic where it attracts a lot of people from outside, whose wealth and expectations diverge significantly from the norm in the area, it will have such a distortionary effect.
I would expect a similar dynamic in vacation hotspots like beach towns or skiing towns. A lot of the market gets taken up with second homes and investment properties.
Even as a well-paid software engineer I feel like I need to win the lottery to comfortably buy a home I'd like to own.
I posted this article because I believe we're in a massive housing bubble that is on its way to popping, so if you're a well-paid software engineer I think you just need to be patient, save your money, and do not succumb to FOMO. The housing market is unsustainable as cheap money is coming to an end. A lot of "investors" are about to lose their shirts and people who've been overzealous in their home buying will be underwater. Back in 2006-2007, people were saying the same thing as we're hearing now... "buy now or be priced out forever."
Here's an article about California basically talking about the same thing, but trying to frame it in a more positive light. Essentially, 75% of Californians cannot afford a home in California. This is just not normal or sustainable. Save your money, wait, take a deep breath, rent a little longer. "Priced out forever" is meant to play on your emotions. Nothing is forever.
The issue this time around, as far as I understand it, isn't that tons of people are getting ARMs based off of fabricated income (as was the case in 2008). This time is more multifaceted. We have people who are massively overleveraging themselves, bidding prices up way over asking, waving all contingencies, just to get into a house. Waving contingencies is not smart nor normal. Neither is bidding $50K, $100K, or more over asking.
Next, we have iBuyers like Zillow who have tried to get into the real estate game, essentially flipping houses. They're using algorithms to buy houses sight-unseen, doing little or no work on them, and listing them at a higher price. It's not working out for Zillow. As it turns out, computers may not understand everything that goes into the valuation of a house. Zillow isn't alone in doing this. I've read stories about iBuyers buying up neighborhoods, paying over-asking, as a way to drive up prices. But if a place is too expensive and not as desirable as they thought, it's not a good bet.
There's also the trend of YouTubers and TikTokkers pushing investment schemes about becoming a landlord for the passive income. Go on YouTube and search about it. Its puts dollar signs in many peoples' eyes, prompting them to overleverage themselves, buy a bunch of houses, and try to live that dream. It's so pervasive, there are even ponzi schemes popping up catering to the exuberance. What happened with the story I linked, the grifters bought tons of blighted houses that were worth very little, sold them for way more than they were worth to new investors, managed them for the investors, collected rent from the tenants, and then paid the investors that rent. Except... the houses were empty and the rent being paid to the investors came from the sale of new houses. If this sounds interesting, I recommend reading this Reddit thread.
This all stems from the basically free money that the Fed has been handing out for years. But now inflation is really taking off, the Fed needs to get a handle on it by raising interest rates, and that's going to put massive pressure on the housing market. Even just a couple years ago, when the Fed tried to raise the rate, the stock market took a dump and Trump pressured Powell to back off. Now we're seeing the effects. Coupled with the continued supply chain issues, inflation is looking like it's going to continue to climb. The government is even talking about more stimulus checks because of the rising gas prices. I also believe they will have to do something about student loans. They were supposed to be turned back on May 1st, but that's not going to happen. They know it would suck so much money out of an economy that's running on fumes and cause many people to default.
This is all to say... things are too expensive, most people are broke (or massively indebted), and it's only a matter of time before it all comes crashing down. If you're in a good financial situation right now, stay the course, don't succumb to FOMO, and be smart.
Yeah, I'm not sure about the 2008 comparisons. In 2008 there was a lot of house flipping by individuals by taking mortgages from banks and selling the house for a profit and paying off the balance on the mortgage at the same time.
Currently, while interest rates have been low, banks have still been cautious about signing off on mortgages (hence all the posts about how they can't get a mortgage with X credit score and Y income and have to rent forever etc etc). Variable rate interest mortgages have also become pretty unpopular.
I am somewhat doubtful that there'd be a crash. If you actually live in your house, and the value of your house plummets... your property taxes go down I guess? You feel fomo?
Maybe cooling off as other assets take the limelight.
Agreed. The heat death of the universe means this is completely false. The housing market must eventually decline.
Has that ever meaningfully happened in the United States? Aside from a relatively minor blip in 2008, it certainly hasn't in my adult lifetime.
In some areas even 2008 didn't decrease the cost of homes being sold, it merely stopped the increase for a year.
I think this advice is going to be very geographically dependent. There are many places where values are inflated, but in regions like the Bay Area or the whole Acela corridor the issue is truly just that they haven’t built enough of the types of places people want to live in, so the places that do exist are super duper expensive.
The interesting thing about the Bay Area, and places like it, is that it's gotten so unaffordable for lower and middle income earners, there may eventually be no one to staff the lower and middle income jobs. I know it's a desirable location with plenty of amenities, but people who earn those kind of wages may soon have no recourse but to leave. Mountain towns have been experiencing this already, and I've seen several articles about various ski towns where local workers can't find any place affordable to live even an hour out of town. So for these areas with massively expensive housing, the issue could be more of a dearth of service industry workers which would result in a hollowing out of certain amenities. I would be interested in the take of any Bay Area residents concerning this.
Yeah, my friends who work service jobs in the Bay Area are universally unable to afford even a studio apartment without a second salary or other funds. That said, their support networks are here and they don't have as much money, and so they've mostly hunkered down, cut other expenses, live in communal situations, or accept hour+ commutes. The friends who have been moving away are those in a more middle class economic range who can afford to move: programmers, financial professionals, wealthier retirees, etc.
Human beings have been leaving their support networks for greener pastures for as long as we've existed. Everybody's got a breaking point and, honestly, life in the Midwest is pretty good. This runaway inflation might kick some people in the pants hard enough to prompt them to try something different. You can't keep living a life in which it's impossible to get ahead. It gets too painful after a while.
Two things:
If you look at the numbers released by the US Census, geographic relocation has dropped significantly in the last 20 years.
Yes, people have been leaving their support networks forever. However, your statement seems to imply that the people who aren't moving are in some way not making rational choices given their own socioeconomic conditions when they choose to stay. Is that what you meant?
Yes, I am implying #2. But I understand that people want to stay where they are familiar for emotional reasons. At the same time, I've been dealing with some people close to me who often talk about much they hate where they live, complain about it constantly, but don't do anything about it. It gets frustrating as someone who has moved around a lot, leaving when a place no longer suits me. So perhaps I'm a little emotional about it. People are going do what they do.
I'm not complaining about it when I explain the situation as it exists for my peers. I'm describing the pressures they are experiencing and the relative attributes of the people who do and do not move. I'm glad that you're in a situation where you can pick up and move when a place no longer suits you, but it's frustrating that it leaves you willing to criticize people who can't or don't make the same choices you can and do.
I'm not trying to start anything. I hope your friends are able to better their lives where they want to be.
On the other hand, there may be a downturn that doesn't last, like in 2008. If so, home owners who aren't overextended and don't need to sell would still be okay. It seems like under those circumstances, the bigger risk is losing your job.
Also, local conditions vary even in a downturn. Some real estate markets got hit a lot harder than others.
I believe in 2008, if I remember correctly, Arizona was one of the places that was hit the hardest. Perhaps they're the canary in the coal mine? If 74% of Arizonans couldn't afford a house in Arizona, that's not a good sign. Of course, as you say, people who aren't overextended and keep their jobs will be okay if they don't need to sell. But I don't think it would be fun to be underwater on your mortgage. Last time around, we saw people strategically defaulting in some cases, walking away from their home even though they could pay. And with so many foreclosures for banks to get through, this could mean continuing to live in your house for a year or more without paying. The amount of money you could save doing something like that is certainly tantalizing to some. This has all happened before. The 'why' is just a little different this time.
I think the key indicator there is that AZ is a big retiree hotspot. FL is too and it was also hit hard by the crash. I think if your housing market has this dynamic where it attracts a lot of people from outside, whose wealth and expectations diverge significantly from the norm in the area, it will have such a distortionary effect.
I would expect a similar dynamic in vacation hotspots like beach towns or skiing towns. A lot of the market gets taken up with second homes and investment properties.