Home Buying Tips

While the Federal Reserve kept the federal fund rate low and printed (and continues to print) money for the past 15 years, while they purchased trillions in mortgage-backed securities ($2,500,000,000 as of October, 2021), to “help” the economy, wages for a vast majority of Americans, have not gone up very much. 

Now, we are seeing the effects of this in our fragile economy. I’m seeing it as a real estate agent.

Keeping the rate so low, for so long, while printing trillions of dollars, has certainly helped the wealthy make a ton of money. I’m not making a case for or against capitalism or political-leanings but data doesn’t lie.

The trickle-down effect, to the average wage earner, did not keep up with inflation and certainly did not keep up with the increases to home prices. 

Let’s look at average incomes. 

When you open this link here – you’ll want to look at the first 2 graphs. By all means, look at all of them – https://www.advisorperspectives.com/dshort/updates/2021/10/25/updated-u-s-household-incomes-a-50-year-perspective.

The first two demonstrate the lower (average income earner) did not see a sizeable boost to income/purchasing power. However, the two top brackets of earners, especially the top percentile, saw pretty solid (awesome) increases.

Look at the skyrocketing income boost to the top tier of wages. You cannot compare them to the flatness of the lower income levels.

Now, I want to point out a great article written by someone who’s pretty smart, Vitaliy Katsenelson. I found his article on the same site: https://www.advisorperspectives.com/articles/2022/11/21/the-housing-market-is-worse-than-you-think – In this article, which is pretty tough to read as it demonstrates some pretty hardcore doom and gloom about the housing market, he does talk about this issue of affordability.

These are two quotes from the article:

“Let me put this in proper context – median annual household income in the US is about $75k, or about $60k after taxes. In other words, half your after-tax income is now going to servicing your mortgage if you bought today at peak home prices and rates.” 

“I hear this argument at times: “In the 1980s interest rates were higher than they are today, and we had a functioning housing market.” There is a substantial difference between then and now. Today the median house price in relation to median income is at the highest level in modern US history, even higher than it was at the height of the housing bubble in 2007. It is almost double the level of the early 1980s.“

As a real estate agent for over 15 years, I have witnessed mortgage rates go so low, that most professionals in my field, were more shocked than me.  

Mortgage loan officers, real estate attorneys and real estate agents in the business for 2 and 3 decades, were in awe of the low mortgage rates, especially in 2013, 2016-2017 and 2020-2021. 

On my Youtube Channel – I did a video short on housing supply and low mortgages that showcases the rates and their effect on housing into 2023 – check it out, it’s 1 minute long.

Prior to 2008, the average mortgage rate (30 year) fixed was around 8.5%. The mortgage rate had never gone below 5.24% (2003) before 2008 – https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart. 

So here we are with rates (currently as of November 22, 2022 ), at 6.65% for a 30 year fixed mortgage, and we are seeing the effects of the lacking wage growth throughout the country as “normal-average-middle-to-upper-middle-class” folks, just do not have the income to keep pace with housing prices.

The Federal Reserve has kept lending rates so low, for so long and the economy (businesses), haven’t increased wages. Hence, look at the extraordinary profits on Wall Street. You can’t make this stuff up.

(Oh by the way, everyone talks about how technology will change employment in the future, guess what, it already has…but I digress, back to the blog post).

Buyer’s are either capable of swallowing the $1,000 increase in monthly mortgage costs since rates have doubled since March of this year or they have been priced out of the market (for now).

Sure the mortgage rate has doubled – quickly, but the fact is, it’s still only 6.65%, well below historic averages (nowhere near high’s or even moderate high’s). 

What’s The Future Of Housing Look Like

1. I believe a blend of creative financing will help moderately, at least to help support those that can afford a home. For example, mortgage products that feature lower rates initially for the first 3 years of a mortgage and then go up later (not adjustable). This will help house prices stabilize somewhat.
2. Home prices will have to go down. They already have in many markets across Long Island slightly.
3. Homebuyers will learn to navigate the market out of necessity (i.e. buying smaller homes).
4. Homebuilders will offer financial incentives for buyers.
5. Assumable mortgages (FHA loans) with low 30 year fixed rates, purchased/refinanced in 2013-2021, may become a very “hot commodity” in combination with some kind of hybrid second-position financing to complete the deal possibly. This will help a lot of homebuyers and homeowners.
6. Beyond 2024 and into 2025/2026, national employment recovery will spur folks to move as mortgage rates begin to dip possibly lower from 2023/2024 highs.

So getting back to the article, written by a very smart guy, it does not dive into into any type of solutions, which in my life experience, people figure stuff out. The market responds better when businesses figure things out and they will.

I for one, would like to see those lower wage brackets move up and folks benefit from financial changes, but that’s just my personal opinion. I believe wages need to improve in the lower income levels and I don’t mean “hand outs” or whatever people call them. I simply mean, wages.

I don’t mean wages at fast food restaurants or other mainly “starter-jobs” either.

I’m talking about administrative assistants. I’m talking about a counselor who does drug and alcohol counseling. I’m talking about city police officers and firemen. I’m talking about people making $40,000/$50,000 and getting 2% raises for the last 25 years.

And I certainly do not mean that the government should set laws to force companies to simply pay higher wages either. Rather, I’d like to see smart incentives for companies to pay employees higher wages and not just 3 or 4% wage increases.

I’m talking about moving up the entire lower-bracket of employees and changing their bottom lines with robust wage improvement while perhaps giving the companies that choose to do this, get tax breaks.

The trickle-down effect of our country’s wealth creation needs to get to these folks (so they can buy houses from me! : )

The Bottom Line

Look, I’m a real estate agent. I help people sell and buy houses. I’m not an economist. However, my hope is, in reading this information, you rely on me to give you the straightest answers possible when it comes to your questions about moving (or buying/selling investment property). 

Some answers to home buyer woes right now are in my podcast – The Housing Expert’s Podcast with insights and strategies for you to buy with a strong workable plan and/or sell for the most amount the market will bear.

I’m an expert at pricing and marketing strategy as well as transaction negotiations. Feel free to contact me (631)831-9048 or schedule an appointment online.