OT: Southern housing bubble?

[Boom Boom]

I don’t know that it has to do with not quitting their jobs as much as just change being hard. For most of them, they don't want to go from say a 3200 sq ft house to an 1500 sq ft house. They're usually comfortable with the idea of dropping a bedroom and bath, which doesn't move the needle much compared to the cost of moving. Even if they do want to downsize significantly, people tend to be pickier about a house they are buying than the house they are leaving, so they end up looking at houses that are more per sq ft. And I do know several people who are dealing with parents who probably should have downsized a while ago and now that they really need to be in a 1300 sq ft patio home, they are just at that age where they are stubborn and the idea of that kind of change is too hard, so it just ends up being suboptimal and something of a burden on their relatives until they die. I had relatives that wouldn't consider a 2,200 sq ft house with a smallish yard when they were downsizing. I can understand not being comfortable with a patio home or condo because of not having lived that close to neighbors before, but 2,200 sq ft for one couple that doesn't need to host a lot of out of town family at holidays seems like more than enough. Hell, 1,400 sq ft seems like more than enough if the layout is good.

I agree. I think the only Boomers downsizing are those moving to be near family. I also wonder how many of those are also trapped by mortgage rates. Not all Boomers were wise with their money, even with all the advantages they had.

I wonder how nursing home care is playing into this. For those relying on Medicaid, they can't sell the house.

 

[OG Goat Holder]

I agree. I think the only Boomers downsizing are those moving to be near family. I also wonder how many of those are also trapped by mortgage rates. Not all Boomers were wise with their money, even with all the advantages they had.

I wonder how nursing home care is playing into this. For those relying on Medicaid, they can't sell the house.

Crazy to me that boomers are trapped by interest rates. Even the worst with money should have paid their house off, or be very close, by now.

If you have less than 100K in a mortgage, and you’re 60 years old and presumably with no kids, and still working (and probably both still working if married), your interest rate should not be an issue. Pay the thing off.

 

[patdog]

Crazy to me that boomers are trapped by interest rates. Even the worst with money should have paid their house off, or be very close, by now.

If you have less than 100K in a mortgage, and you’re 60 years old and presumably with no kids, and still working (and probably both still working if married), your interest rate should not be an issue. Pay the thing off.

I think you're giving the vast majority of boomers way too much credit here. But yeah. Heading towards retirement while still making mortgage payments is pretty stupid and irresponsible.

 

[Perd Hapley]

Yeah, my parents. Traded up in 2006, more so than was advisable for their worth, forced to sell in 2020 due to illness. Sold it for what they bought it for, so out a ton on interest. Looked the property up today, it's up 35%.

That does truly suck for your parents. But I am happy for them and you that they still got to keep their equity (and their dignity) and didn’t have to foreclose.

The example I was referring to was more along the lines of young 2006 buyers who stretched themselves, and found themselves on the difficult end of the decision to either short sell or foreclose in 2009-2010….because they were underwater. They obviously had some personable accountability there, but no one could have really seen that coming in those 2006-2008 years.

I don't think this applies to people with little equity. Trading in a $400k mortgage at 3% for a $600k one at 7% causes yearly interest to go from $12k to $42k. When the rate goes down to 3.5 that comes down to only $24k. A difference of $2k per month. The change in home price mostly evens out, as they are selling one property and buying another.

I think it applies universally to a certain extent. I also don’t think we’re gonna see 3.5% on a 30-year mortgage ever again, so that’s not really in my purview as a possibility.

Say I’m a young renter, but I have a good job and $30,000 saved for a down payment. I want a $300k house (pretty much the bare minimum these days), but it’s a stretch for the monthly payment. I’m quoted a 7% rate. PMI let’s say is $150.

My monthly payment is $2,210.

Or, I decide to wait until rates improve. Election comes and goes, inflation keeps going down, whatever….Fed finally drops rates. So, a year from now I get a 5.5% quote. Cool! At that rate….with the same $300,000 house, my payment drops to $1947.

…..except it’s not the same $300,000 house. The rate drop boosts the pent up demand, pushing prices up again, and that same house (or an equivalent) is now listed at $350,000.

So then the monthly payment is right back at $2,157, just $53 cheaper per month than the $2,210 above. And, I’ve flushed another $15,000-$18,000 in rent down the toilet over that year I was waiting.

So like I said, zero sum game. You have to be unbelievably lucky and more or less predict a 0.5-1 basis point drop, get under contract, then not sign the paperwork until after it happens in order to not be affected by the yo-yo of interest rates vs. list prices. Doesn’t matter if you have equity or not, it’s the same principle.

That's the conventional wisdom....but it keeps not happening. I think its because Boomers may be finding themselves with more house than they need....but they are sitting on million dollar 401ks and aren't quitting their jobs....so why trade down?

The main reason to trade down at that age is reduced maintenance, upkeep, and property taxes. It keeps “not happening” right now because rates are still sky high….and even by trading down in terms of size but getting newer / nicer finishes and appliances….they would end up with the same payment or maybe even a higher payment. That won’t be the case when rates drop. They’ll have higher demand for their existing home where they have significant equity, and that will drive the price up. Whatever price increase they get is straight money in their pocket, and might be the difference between a small mortgage on their new property vs. being able to go straight cash. If they are true empty nesters, they will generally all want to downsize at some point. Only question is when.

I also don't expect younger homeowners to do the smart thing. In my experience 90% of Americans will buy as much as they can afford...or more.

I’m considering younger homeowners to be in that 35-45 demographic. Considering that most folks starting out in the world and starting to think about that first home purchase were in their mid-20’s around 2008, I think that’s the age group that was most profoundly affected by the fallout in a cautionary sense.

I’m in that particular age group myself. And I know in my particular neighborhood (which is fairly uniform in terms of home size and amenities), everyone around my age that is a homeowner is generally in a 2-income household. Ours is just primarily a one income household (mine). I do OK, but in no way do I kill it in terms of income compared to my area. But I’m still well under 20% as far as my mortgage payment vs. my monthly take home pay, whereas the recommended max % I think is considered to be 25% of your gross income (not take home). I think if we are able to manage that threshold in a single income household…..all my 2-income household neighbors should easily be doing the same.

So at least in my locality, that 90% estimate is a tad high. Of course your mileage may vary. I do think 2008 changed a lot of people’s perspectives.

 

[johnson86-1]

I agree. I think the only Boomers downsizing are those moving to be near family. I also wonder how many of those are also trapped by mortgage rates. Not all Boomers were wise with their money, even with all the advantages they had.

I think all the advantages they had party explains why so many of them were stupid with money.

I wonder how nursing home care is playing into this. For those relying on Medicaid, they can't sell the house.

One of many, many stupid rules related to medicaid/medicare. I understand the politics, but it's absurd that voters think it's somehow unjust to not be able to keep your house when the government is having to support you in old age. Really one of fairest ways to address the social security and medicare shortfalls would be to charge the estate for any amount paid by medicare or medicaid in excess of the contributed amounts. And to claw back any gifts made during the time of receiving medicare or medicaid.

That wouldn't be the easiest thing to do administratively, but it would be much more equitable than screwing over young people in general to cover the gap.

 

[Boom Boom]

That does truly suck for your parents. But I am happy for them and you that they still got to keep their equity (and their dignity) and didn’t have to foreclose.

True.

The example I was referring to was more along the lines of young 2006 buyers who stretched themselves, and found themselves on the difficult end of the decision to either short sell or foreclose in 2009-2010….because they were underwater. They obviously had some personable accountability there, but no one could have really seen that coming in those 2006-2008 years.

Plenty saw it coming. We were actually lucky, in the national economics sense, that most who should have bailed did not. Stubbornness and loss aversion to the rescue. If they had, the crisis would have been far worse. But, the flip side of that is those hold outs still don't have much equity.

I think it applies universally to a certain extent. I also don’t think we’re gonna see 3.5% on a 30-year mortgage ever again, so that’s not really in my purview as a possibility.

I think we will as soon as we have a recession.

Say I’m a young renter, but I have a good job and $30,000 saved for a down payment. I want a $300k house (pretty much the bare minimum these days), but it’s a stretch for the monthly payment. I’m quoted a 7% rate. PMI let’s say is $150.

My monthly payment is $2,210.

Or, I decide to wait until rates improve. Election comes and goes, inflation keeps going down, whatever….Fed finally drops rates. So, a year from now I get a 5.5% quote. Cool! At that rate….with the same $300,000 house, my payment drops to $1947.

…..except it’s not the same $300,000 house. The rate drop boosts the pent up demand, pushing prices up again, and that same house (or an equivalent) is now listed at $350,000.

So then the monthly payment is right back at $2,157, just $53 cheaper per month than the $2,210 above. And, I’ve flushed another $15,000-$18,000 in rent down the toilet over that year I was waiting.

So like I said, zero sum game. You have to be unbelievably lucky and more or less predict a 0.5-1 basis point drop, get under contract, then not sign the paperwork until after it happens in order to not be affected by the yo-yo of interest rates vs. list prices. Doesn’t matter if you have equity or not, it’s the same principle.

By "little equity", I meant homeowners with little equity, not renters. I should have clarified. I agree there's little reason to avoid buying a starter home (though a $200k home is definitely doable in MS, it just won't be brand new nor in a fashionable area).

The main reason to trade down at that age is reduced maintenance, upkeep, and property taxes. It keeps “not happening” right now because rates are still sky high….and even by trading down in terms of size but getting newer / nicer finishes and appliances….they would end up with the same payment or maybe even a higher payment. That won’t be the case when rates drop. They’ll have higher demand for their existing home where they have significant equity, and that will drive the price up. Whatever price increase they get is straight money in their pocket, and might be the difference between a small mortgage on their new property vs. being able to go straight cash. If they are true empty nesters, they will generally all want to downsize at some point. Only question is when.

I am starting to think that's just not going to happen, at scale. Even the few Boomers who find themselves needing to trade down to shore up their retirement....well they've never operated that way in their entire lives or they probably wouldn't be in that situation, right? I think Boomers that move for other reasons (better neighborhood, closer to family, etc) will scale down a little, but otherwise very few will do so. Most will stay in their large homes until the last one dies.

I’m considering younger homeowners to be in that 35-45 demographic. Considering that most folks starting out in the world and starting to think about that first home purchase were in their mid-20’s around 2008, I think that’s the age group that was most profoundly affected by the fallout in a cautionary sense.

Yes, but the mid and upper 20s kids are buying now too. It's part of the supply crunch, two generations buying in at the same time.

I’m in that particular age group myself. And I know in my particular neighborhood (which is fairly uniform in terms of home size and amenities), everyone around my age that is a homeowner is generally in a 2-income household. Ours is just primarily a one income household (mine). I do OK, but in no way do I kill it in terms of income compared to my area. But I’m still well under 20% as far as my mortgage payment vs. my monthly take home pay, whereas the recommended max % I think is considered to be 25% of your gross income (not take home). I think if we are able to manage that threshold in a single income household…..all my 2-income household neighbors should easily be doing the same.

I think this might be missing the "keeping up with the Joneses" types that overextend themselves. It's really next to impossible to know who is up to their eyeballs in debt and who is fully funding their retirement accounts and foregoing purchases.

So at least in my locality, that 90% estimate is a tad high. Of course your mileage may vary. I do think 2008 changed a lot of people’s perspectives.

 

[mstateglfr]

Crazy to me that boomers are trapped by interest rates. Even the worst with money should have paid their house off, or be very close, by now.

If you have less than 100K in a mortgage, and you’re 60 years old and presumably with no kids, and still working (and probably both still working if married), your interest rate should not be an issue. Pay the thing off.

The youngest Boomer is 60...so you referenced the youngest possible age for a boomer. Boomers are now 60-78 years old. Just worth mentioning for those not doing the quick math.

As for it being irresponsible that boomers are paying off mortgages still, I get that the concept is odd for many situations, but its also completely understandable for other situations.
A couple may have had their house paid off, moved to a more expensive location 10 years ago, and decided to take a mortgage to pay off the difference. That really isnt some crazy or rare scenario. Seems better to not touch investments that are making 12% interest in that decade, and instead pay a 4% mortgage.
10 years ago they sell a $220k house that is fully paid off and move to CA or WA where the average house purchase was $430k at the time. So they pay $220k and mortgage the remaining $210k, if their investments earn more in interest than they are paying in interest. Maybe they did a 15 year mortgage and have a few years left on it.


But actual real scenarios that make sense aside, even if someone has property that is paid off and wants to sell to downsize, they may decide it isnt worth it due to the interest rate they would pay on their new house. A lot of times a smaller house that is newer(less upkeep) and is intended to attract the elders of our society are a relatively high cost per square foot, and someone could have their $175k house paid off, but to get into a 1 floor new build it costs $225k. Again, this is a very real scenario and not some crazy or rare example.

 

[Boom Boom]

I think all the advantages they had party explains why so many of them were stupid with money.

True. No need to worry about losing a job, you just cold call a couple places and get one!

One of many, many stupid rules related to medicaid/medicare. I understand the politics, but it's absurd that voters think it's somehow unjust to not be able to keep your house when the government is having to support you in old age.

Not really. I don't think it's politics, just reasonable policy. People shouldn't have to be destitute to get basic Healthcare. The problem creeps in when it's not a modest home but a McMansion. Also, that there's basically no phasing in/out with wealth.

Really one of fairest ways to address the social security and medicare shortfalls would be to charge the estate for any amount paid by medicare or medicaid in excess of the contributed amounts. And to claw back any gifts made during the time of receiving medicare or medicaid.

No, the fairest way is to tax billionaires at least the same as us commoners.

They already claw back for 5 years PRIOR to receiving Medicaid.

The other problem is your argument is basically the people that got really sick and needed expensive care got "too good a deal" and need to pay back in. On money they did get a good deal, but it's still callous. Maybe some way to do it with arguably excessive end of life care, like a co-pay? Thats where most of the money goes.

That wouldn't be the easiest thing to do administratively, but it would be much more equitable than screwing over young people in general to cover the gap.

There's the rub. You'd have to uproot all of estate law to enable it, as there's just so many ways to game an estate. Maybe something targeted to the sale of the home though could work. Politically difficult as now you are instituting a "death tax", and we know how the right has ginned people up about that.

 

[OG Goat Holder]

The youngest Boomer is 60...so you referenced the youngest possible age for a boomer. Boomers are now 60-78 years old. Just worth mentioning for those not doing the quick math.

As for it being irresponsible that boomers are paying off mortgages still, I get that the concept is odd for many situations, but its also completely understandable for other situations.
A couple may have had their house paid off, moved to a more expensive location 10 years ago, and decided to take a mortgage to pay off the difference. That really isnt some crazy or rare scenario. Seems better to not touch investments that are making 12% interest in that decade, and instead pay a 4% mortgage.
10 years ago they sell a $220k house that is fully paid off and move to CA or WA where the average house purchase was $430k at the time. So they pay $220k and mortgage the remaining $210k, if their investments earn more in interest than they are paying in interest. Maybe they did a 15 year mortgage and have a few years left on it.


But actual real scenarios that make sense aside, even if someone has property that is paid off and wants to sell to downsize, they may decide it isnt worth it due to the interest rate they would pay on their new house. A lot of times a smaller house that is newer(less upkeep) and is intended to attract the elders of our society are a relatively high cost per square foot, and someone could have their $175k house paid off, but to get into a 1 floor new build it costs $225k. Again, this is a very real scenario and not some crazy or rare example.

Good Lord. I was just making a general point and using the best case as far as age.

 

[johnson86-1]

Not really. I don't think it's politics, just reasonable policy. People shouldn't have to be destitute to get basic Healthcare. The problem creeps in when it's not a modest home but a McMansion. Also, that there's basically no phasing in/out with wealth.

It's not that you have to be destitute to get basic healthcare. It's that you shouldn't get to have other people pay for your nursing home care when you still have money. I'm not saying you have to get rid of it to get care, but there shouldn't be an incentive to use a home to protect assets. The point of having assets is so that they can fund expenses.

No, the fairest way is to tax billionaires at least the same as us commoners.

They already claw back for 5 years PRIOR to receiving Medicaid.

The other problem is your argument is basically the people that got really sick and needed expensive care got "too good a deal" and need to pay back in. On money they did get a good deal, but it's still callous. Maybe some way to do it with arguably excessive end of life care, like a co-pay? Thats where most of the money goes.

I'm not just talking about healthcare, I'm talking about social security also. And it's not callous. The system was set up to screw future taxpayers. It is much less callous to take it out of an estate that the person no longer needs than it is to screw some young poor people in order to ensure some old people can that took more out of medicare, social security, and medicaid than they put in can gift money to their preferred young people . And realistically, the young people not getting inheritances are much more likely to be poor than the ones that are. .

There's the rub. You'd have to uproot all of estate law to enable it, as there's just so many ways to game an estate. Maybe something targeted to the sale of the home though could work. Politically difficult as now you are instituting a "death tax", and we know how the right has ginned people up about that.

I don't think gaming the estate would be an issue as much as encouraging people to spend down their savings. I don't think a welfare clawback would have a problem with the right. It'd have a problem with both sides, as both sides have lots of people fully committed to the delusion that social security and medicare are something other than a welfare program.

 

[mstateglfr]

Good Lord. I was just making a general point and using the best case as far as age.

I understand and even said I was just doing quick match for others that dont realize a 60 year old is a boomer.

 

[GloryDawg]

Interest rates are high but the actual cost to build a home is probably less here in the South. I guess it kind of off sets the interest. Builders need to build to make money. I guess the South is where they are.

 

[Boom Boom]

It's not that you have to be destitute to get basic healthcare. It's that you shouldn't get to have other people pay for your nursing home care when you still have money. I'm not saying you have to get rid of it to get care, but there shouldn't be an incentive to use a home to protect assets. The point of having assets is so that they can fund expenses.

These statements do not add up together.

I'm not just talking about healthcare, I'm talking about social security also. And it's not callous. The system was set up to screw future taxpayers.

It is much less callous to take it out of an estate that the person no longer needs than it is to screw some young poor people in order to ensure some old people can that took more out of medicare, social security, and medicaid than they put in can gift money to their preferred young people . And realistically, the young people not getting inheritances are much more likely to be poor than the ones that are. .

The best way to screw young people is to have them pay for old people's Healthcare and THEN tax their estates to pay for their Healthcare. At least with the current way they get the benefit at the end.

I don't think gaming the estate would be an issue as much as encouraging people to spend down their savings.

Oh, it's already an issue, just for people emptying assets to get eligible. There's no way it won't be a giant issue if you're clawing back money from the estate. People that have money will have the home in a trust or something, it's the poor who will take the hit.

I don't think a welfare clawback would have a problem with the right. It'd have a problem with both sides, as both sides have lots of people fully committed to the delusion that social security and medicare are something other than a welfare program.

Sounds like massive downstream effects for something with minor upstream effect. Usually a bad idea. It could spur spending down of assets, which might be a good downstream effect.

Medicare and SS are better described as insurance programs that are subsidized by the general populace. The main delusion is the subsidy, as the beneficiaries tend to believe they paid for their benefits.

 

[Perd Hapley]

Plenty saw it coming. We were actually lucky, in the national economics sense, that most who should have bailed did not. Stubbornness and loss aversion to the rescue. If they had, the crisis would have been far worse. But, the flip side of that is those hold outs still don't have much equity.

Good point.

I think we will as soon as we have a recession.

That’s debatable. Looking back to the worst recession of any of our lifetimes, it still took a whole 4 years from its beginning for 30YM rates to hit 3.5%, and that was at the height of the quantitative easing period which is now universally considered to have been wildly overdone by the Fed, and unhealthy for the long term economy. And even then, the stable bottom of that period was around 4%. It’s going to take some type of extraordinarily catastrophic event for us to see 3.5% any time soon. I don’t see it happening in the next decade plus - at minimum - and that’s a good thing.

By "little equity", I meant homeowners with little equity, not renters. I should have clarified. I agree there's little reason to avoid buying a starter home (though a $200k home is definitely doable in MS, it just won't be brand new nor in a fashionable area).

Either way, there’s no free lunch. Doesn’t matter if you’re a renter with $30k in the bank looking for a $300k house, or a decade-long homeowner with $330k in equity looking for a $600k house. It makes no difference. Overall, the relationship between rates and home prices can’t be cheated unless you just get really lucky.

Everyone thinks that when rates drop, they can either buy the same house they were eying for less money, OR they can buy more house for the same money they had budgeted for a lesser property. Neither is true. The only thing that changes is their equity, which doesn’t help them at all until 2 home purchases later, if there’s no downturn.

I am starting to think that's just not going to happen, at scale. Even the few Boomers who find themselves needing to trade down to shore up their retirement....well they've never operated that way in their entire lives or they probably wouldn't be in that situation, right? I think Boomers that move for other reasons (better neighborhood, closer to family, etc) will scale down a little, but otherwise very few will do so. Most will stay in their large homes until the last one dies.

Well, its about to get tested. I’ve already heard horror stories of boomer’s going six figures over list on offers just to live on the same street as their children and grandkids. So yeah, you’re right about that part. But that’s the well-off ones. The more typical case boomers will start getting theirs in the coming years…..and in more moderate fashion.

Yes, but the mid and upper 20s kids are buying now too. It's part of the supply crunch, two generations buying in at the same time.

But those mid-upper 20’s kids are, with very few exceptions, not yet homeowners. They are renters looking to break into the fold of home ownership, and they have probably the biggest hill to climb out of any of the past 3-4 generations in order to do so.

I think this might be missing the "keeping up with the Joneses" types that overextend themselves. It's really next to impossible to know who is up to their eyeballs in debt and who is fully funding their retirement accounts and foregoing purchases.

Its impossible to know with certainty….sure. But I can name 10 couples with 2-4 kids in my neighborhood that all bought in when home prices were 1/3 of what they are now, and are still in those homes 8-10 years later. None drive extravagent vehicles, go on European vacations, or play golf 5 days a week. Its a small sample size, of course.

 

[pseudonym]

It’s not a bubble until your kids age 12-17 have Airbnb portfolios.