ReportWire

Tag: housing costs

  • Gen Z housing hacks for the return-to-office era – MoneySense

    [ad_1]

    Even as the Bank of Canada’s rate cuts make headlines, affordability challenges continue to squeeze Gen Z and younger millennials from both sides: rising rents and record-high housing costs.

    “The return-to-office push has really redefined what ‘affordable’ means,” says Rishard Rameez, CEO and co-founder of Zown, a buyer-first real estate platform designed to help renters transition into ownership “faster, and with a lot less stress.”

    Zown’s model is built for transparency, combining salaried realtors, trusted lenders, and instant pre-approvals. “Our goal is to put buyers first, not the system, by giving them more transparency, more support, and even up to 1.5% of the home purchase price back at closing,” Rameez explains. “So far, we’ve supported over $300 million in transactions and helped thousands of Canadians take that next step into homeownership with confidence.”

    The return-to-office squeeze

    As more companies call employees back into the office, whether hybrid or full-time, young renters are being forced to rethink how—and where—they live. “A lot of young renters who moved to smaller cities during the pandemic are now faced with either long commutes or higher rents if they want to be closer to work,” says Rameez. “Many are choosing smaller spaces downtown, splitting rent with friends, or even taking on micro-apartments to cut travel time.”

    The financial strain of this shift goes beyond rent alone. “People are factoring in the total cost, not just rent, but transit, groceries, and time, and trying to find a balance between affordability and quality of life.”

    Those unable to pay downtown prices are commuting longer distances to get to and from work each day. “We’re seeing a growing number of renters priced out of downtown who are now choosing longer commutes instead,” he says. “Many young professionals who work in the city are coming in from places like Hamilton, Kitchener, and even Niagara. They’re spending hours each day commuting—time that could otherwise be spent with family or on personal pursuits.”

    Best savings accounts in Canada

    Find the best and most up-to-date savings rates in Canada using our comparison tool

    Despite the grind, many find the math still adds up. “For those who drive, the cost of parking and gas still often works out cheaper than renting downtown, which shows just how unaffordable the [Toronto] core has become.”

    According to Rameez, this isn’t just an economic shift—it’s psychological. “People want flexibility, not just geography. During the pandemic, many prioritized space; now, they’re prioritizing access.”

    Article Continues Below Advertisement


    Housing affordability’s double burden

    Even with the central bank easing rates, “affordability is still constrained by limited supply and high demand,” Rameez says. “The problem is structural; we simply don’t have enough homes being built fast enough. When rates fall, demand jumps back up almost instantly, pushing prices higher again.”

    And for renters, “The effect is even more muted because rent prices aren’t tied directly to borrowing costs. What we’re seeing is people earning the same but paying more for everything: housing, food, and transportation, which leaves very little room to save.”

    That squeeze has created what Rameez calls a “double burden”—the simultaneous pressure to keep up with rent and save for a down payment on a home. “There’s a recent report showing that nearly half of young Canadians are now spending more than 50% of their income on rent, which leaves very little room to save for a down payment or build an emergency cushion,” he says. “They’re caught in a loop where rent keeps rising faster than wages, so even the most disciplined savers feel like they’re standing still.”

    To make matters worse, “Many homeowners 55 and up are choosing not to downsize because they either can’t find suitable alternatives or don’t want to give up their low mortgage rates,” he adds. “That’s keeping much-needed housing stock off the market and making it even harder for younger buyers to find entry points.”

    Still, Rameez sees opportunity in the cracks. “We’re seeing a lot of renters now debating whether it makes more sense to own, particularly because condo prices have softened. In some cases, the cost to own is only a few hundred dollars more than renting, which is making buyers take a closer look.” He notes that Zown has seen “a 15–20% increase in interest from first-time buyers in the downtown condo segment, something we haven’t seen in quite some time.”

    Related reading: Mortgage guide for Gen Z: The true costs of home ownership for young Canadians

    Creative housing hacks are on the rise

    For those still renting, flexibility and creativity have become survival tools. “Co-living is definitely back, but it looks different now, furnished, managed, and community-driven,” says Rameez. “We’re also seeing flexible lease models where people can move between cities or properties within a network. It’s ideal for younger professionals who want stability without being locked in.”

    Compact living is also on the rise. “Micro-apartments and modular housing are also gaining traction in urban centers,” he adds. “It’s about efficiency, using space smarter, not necessarily smaller.”

    Multi-generational living, once considered a last resort, has quietly gone mainstream. “A few years ago, living with parents was often seen as a fallback; now, it’s a financial strategy,” says Rameez. “It allows younger Canadians to save, pay off debt, or build their down payment faster.”

    [ad_2]

    Alicia Tyler

    Source link

  • AI startups are leasing luxury apartments in San Francisco for staff and offering large rent stipends to attract talent  | Fortune

    [ad_1]

    The AI boom is bringing a wave of startups to San Francisco, and employees are receiving generous benefits in one of the country’s priciest housing markets. 

    Roy Lee, CEO of AI tech startup Cluely, which makes software for job interviews and work calls, told The New York Times that he leased eight apartments for employees in a recently-built luxury complex situated just a one-minute walk away from the office. The rents in the 16-story building range from $3,000 to $12,000 a month. 

    “Going to the office should feel like you’re walking to your living room, so we really, really want people close,” Lee told The Times on Thursday.

    Flo Crivello, CEO of Lindy, another AI startup, said he offers his approximately 40 employees a $1,000 rent stipend every month if they live within a 10-minute walk of the company’s office.

    “People are so much happier and healthier when they live close to work,” he told The Times. “This makes them stick around for longer, perform better and work longer hours.”

    The AI boom has drawn a flood of money and talent to San Francisco, inflating rent in the process. The Bay Area has attracted 70% of AI venture capital funding nationwide since 2019, according to data from Pitchbook. 

    Across the U.S. and Canada, the pool of tech workers with AI skills jumped more than 50% to 517,000 from mid-2024 to mid-2025, according to a September CBRE report. The San Francisco Bay Area, New York metro and Seattle are the top U.S. markets for AI-specialty talent, accounting for 35% of the national total, the report said.

    Meanwhile, fully remote working arrangements for open positions have declined, and more employers are adopting hybrid arrangements requiring tech talent to spend three or more days in the office. In San Francisco alone, 1 out of every 4 square feet of office space was leased by an AI company over the last two and a half years, according to CBRE.

    Tightness in the office market is also seen in the residential sector. Over the past year, apartment prices in San Francisco rose 6%, on average, more than twice the 2.5% increase experienced in New York City and the highest rate in the nation, according to real estate tracker CoStar data cited by The Times. In hot spots like Mission Bay, near OpenAI’s headquarters, rents climbed 13% recently.

    Average rent for a San Francisco apartment is now $3,315 a month, just below New York City’s, the nation’s highest at $3,360.

    A September report from real estate tech company Zumper said San Francisco’s housing market bucked the national trend of flat or falling prices and instead saw the strongest annual growth across the country for two-bedroom rent, which surged 17.1%. One-bedroom rent climbed 10.7%, the third-highest increase in the nation, the report said.

    The report points to a “perfect storm” of tech-sector hiring and stricter return-to-office mandates driving more renters into the city as well as supply-chain constraints. The city’s vacancy rate has fallen back to pre-pandemic levels, and new housing construction is at its weakest pace in a decade, the report added.

    Will Goodman, a principal at Strada Investment Group, which developed the luxury complex where Cluely leased its eight apartments, told The Times that half of the 501 units in the complex were leased within two months of its May opening.

    “Honestly, I’ve never seen anything like it before,” he said

    [ad_2]

    Nino Paoli

    Source link

  • Now is the worst time to flip a home. It hasn’t been this bad in nearly two decades | Fortune

    [ad_1]

    It pays less and less to buy and flip a home these days. From April through June, the typical home flipped by an investor resulted in a 25.1% return on investment, before expenses. That’s the lowest profit margin for such transactions since 2008, according to an analysis by Attom, a real estate data company.

    Gross profits — the difference between what an investor paid for a property and what it sold for — fell 13.6% in the second quarter from a year earlier to $65,300, the firm said. Attom’s analysis defines a flipped home as a property that sells within 12 months of the last time it sold.

    Home flippers buy a home, typically with cash, then pay for any repairs or upgrades needed to spruce up the property before putting it back on the market.

    The shrinking profitability for home flipping is largely due to home prices, which continue to climb nationally, albeit at a slower pace, driving up acquisition costs for investors.

    “We’re seeing very low profit margins from home flipping because of the historically high cost of homes,” said Rob Barber, Attom’s CEO. “The initial buy-in for properties that are ideal for flipping, often lower priced homes that may need some work, keeps going up.”

    The median price of a home flipped in the second quarter was bought by an investor for $259,700, a record high according to data going back to 2000, according to Attom.

    The median sales price of flipped homes was $325,000, unchanged from the first quarter, the firm said.

    A chronic shortage of homes on the market and heightened competition for lower-priced properties are also helping drive up investors’ acquisition costs.

    Home flipping profits have declined for more than a decade as home prices rose along with the housing market’s recovery from the housing crash in the late 2000s.

    Consider, in the fall of 2012, the typical flipped home netted a 62.9% return on investment before expenses, Attom said.

    Even as home flipping has become less profitable, such transactions remain widespread.

    Some 78,621 single-family homes and condos were flipped in the April-June quarter, accounting for 7.4% of all home sales during the quarter — a slight decline from both the first quarter and the second quarter of 2024, according to Attom.

    The U.S. housing market has been in a sales slump since early 2022, when mortgage rates began to climb from pandemic-era lows. Sales of previously occupied U.S. homes sank last year to their lowest level in nearly 30 years. Sales have remained sluggish this year as mortgage rates, until recently, remained elevated.

    As home sales have slowed, properties are taking longer to sell. That’s led to a sharply higher inventory of homes on the market, benefiting investors and other home shoppers who can afford to bypass current mortgage rates by paying in cash or tapping home equity gains.

    With many aspiring homeowners priced out of the market, real estate investors — whether those looking to buy and rent or home flippers — are taking up a bigger share of U.S. home sales overall.

    Some 33% of all homes sold in the second quarter were bought by investors — the highest share in at least five years, according to a report by real estate data provider BatchData.

    Between 2020 and 2023, the share of homes bought by investors averaged 18.5%.

    All told, investors bought 345,752 homes in the April-June quarter, an increase of 15% from the first quarter, but a 12% decline from the same period last year, the firm said.

    Even so, investor-owned homes account for roughly 20% of the nation’s 86 million single-family homes, the firm said.

    Fortune Global Forum returns Oct. 26–27, 2025 in Riyadh. CEOs and global leaders will gather for a dynamic, invitation-only event shaping the future of business. Apply for an invitation.

    [ad_2]

    Alex Veiga, The Associated Press

    Source link

  • Deloitte Canada predicts more economic growth, benchmark rate below 3% in 2025 – MoneySense

    Deloitte Canada predicts more economic growth, benchmark rate below 3% in 2025 – MoneySense

    [ad_1]

    In the company’s fall economic outlook released Thursday, it forecasts the central bank’s interest rate will fall to 3.75% by the end of this year and a neutral rate of 2.75% by mid next year. 

    Meanwhile, it expects the economy to grow moderately as softer labour market conditions persist, especially as many home owners have yet to face higher rates when they refinance their loans.  

    “We do think that we’re going to be in for a decent year next year,” said Dawn Desjardins, chief economist at Deloitte Canada. 

    It appears Canada will successfully skirt a recession despite the impact of higher borrowing costs on the economy, said Desjardins. 

    “It’s hard to argue that the economy is just skating through this period of higher interest rates. But having said that, the overall numbers themselves continue to show the economy is expanding,” she said. 

    “Yes, the labour market has softened, but I don’t think we’re in any kind of crisis in the labour market at this time.”

    Higher interest rates impacting economic growth, labour market

    The Bank of Canada has cut its benchmark rate three times so far this year as inflation has eased, and signalled more cuts are coming. 

    Inflation in Canada hit the central bank’s 2% target in August, falling from 2.5 in July to reach its lowest level since February 2021. 

    [ad_2]

    The Canadian Press

    Source link

  • Where to buy a home for under $1 million in Canada – MoneySense

    Where to buy a home for under $1 million in Canada – MoneySense

    [ad_1]

    But if you have some flexibility around where to live, there are cities and neighbourhoods in Canada where homes can be had for less than seven figures—lots of them, in fact. All but five of the 45 cities and regions analyzed by our partner Zoocasa in this year’s Where to Buy Real Estate in Canada report had benchmark prices below $1 million (as of the end of 2023).

    See the list of Canadian cities and regions below, in order of most to least affordable (followed by neighbourhood data for Toronto and Vancouver). You can sort the data in each table by tapping on the column headers, or filter results using the last row. You can download the data to your device in Excel, CSV and PDF formats. 

    Canadian cities and regions with a benchmark price under $1 million

    Prohibitively high prices around Greater Toronto and B.C.’s Lower Mainland can obscure the fact that the national average home price was a tad under $735,000 in 2023, according to the benchmark Zoocasa used in its analysis.

    And even in the regions with benchmark prices above the $1-million threshold, the survey demonstrates there are more affordable neighbourhoods to be found. It should be noted our statistics do not differentiate between housing types, so don’t expect to find detached homes for these prices in these cities. But it’s still possible to get a toehold in the market with a condo or townhouse for less than $1 million, sometimes a lot less.

    You’re 2 minutes away from getting the best mortgage rates in CanadaAnswer a few quick questions to get a personalized rate quote*You will be leaving MoneySense. Just close the tab to return.

    Where to get a home for less than $1 million in Toronto

    Our survey turned up no less than 106 neighbourhoods in the city of Toronto with benchmark prices below $1 million—the most affordable being Tandridge, with a benchmark price of just $484,269.

    Toronto neighbourhoods

    With prices like those, you might assume there’s something wrong with these neighbourhoods. Consider that a lot of them are coming up in the world. Tandridge, along with Rivalda Heights, Keelegate, Humbergate, Cook Village, Duncanwoods, Morningside, Woodbine Downs, South Steeles, Glenfield, Chapel Glen, Dorset Park, Glen Long and Mount Olive have all seen price appreciation of 50% or more over the past five years. Yorkwoods and University Village have both gone up more than 80%, and Beaumond Heights, an astonishing 113%!

    Beyond those in the city of Toronto, we count an additional 65 neighbourhoods across the Greater Toronto Area where the benchmark price was below $1 million at the end of 2023.

    Greater Toronto Area neighbourhoods

    How much would a typical home in Toronto’s Tandridge neighbourhood cost you in monthly mortgage payments? Using a mortgage payment calculator, we find that with the minimum down payment of $24,213 and a mortgage of 25 years, you’d be looking at a monthly payment of $2,685—based on the lowest available five-year fixed mortgage rate on June 13. Add in taxes, insurance and fees, and you’d need a total of $40,706 in cash to close the deal. With 20% down ($96,854), the monthly payment would be $2,240 on a 25-year amortization.

    Where to get a home for less than $1 million in Vancouver

    In the city of Vancouver, which represents less than one-quarter of the Metro Vancouver population, we counted just six enclaves with benchmark prices under $1 million.

    [ad_2]

    Michael McCullough

    Source link

  • When are costs for a U.S. property tax-deductible in Canada? – MoneySense

    When are costs for a U.S. property tax-deductible in Canada? – MoneySense

    [ad_1]

    It sounds like you sold or are planning to sell a property in the U.S., Bob. To cut to the chase, selling costs, like a realtor commission, would be deductible on your Canadian tax return.

    This assumes the property is taxable, which is typically the case for a foreign property. Interestingly, a property outside Canada can qualify as your principal residence. But this would be unusual for a Canadian resident, whose Canadian home would typically be more valuable than a foreign one, and therefore, more appealing to claim as your principal residence.

    Do you have to report the sale in Canada?

    Assuming the property in question is a vacation or rental property, the sale would be reported on your Canadian tax return. In addition to your selling costs, Bob, your acquisition costs, including legal fees, renovations or improvements, can reduce your capital gain.

    Your capital gain would be calculated based on your net sale proceeds minus the acquisition cost, including renovations. You have to convert these amounts from U.S. dollars to Canadian dollars based on the applicable exchange rates.

    The Canada Revenue Agency (CRA) says you should report foreign income or expenses based on the Bank of Canada exchange rate on the date of the transaction. It will accept a different rate for the transaction date if the source is:

    • Widely available
    • Verifiable
    • Published by an independent provider on an ongoing basis
    • Recognized by the market
    • Used in accordance with well-accepted business principles
    • Used to prepare financial statements (if any)
    • Used regularly from year to year 

    Bloomberg L.P., Thomson Reuters Corporation, and OANDA Corporation meet these criteria and are “generally acceptable” to use, according to the CRA.

    U.S. tax implications of selling property in the U.S.

    The U.S. property sale will also have U.S. tax implications, even if you’re not a U.S. citizen. When a Canadian sells real estate in the U.S., they must file a U.S. tax return with U.S. capital gains tax potentially payable. This is a common requirement in other countries as well.

    The U.S. tax paid can qualify as a foreign tax credit to reduce your Canadian tax payable, Bob, to avoid double taxation.

    [ad_2]

    Jason Heath, CFP

    Source link

  • The cost of owning a home is officially the highest on record, Redfin says. Here’s how bad it is out there

    The cost of owning a home is officially the highest on record, Redfin says. Here’s how bad it is out there

    [ad_1]

    The average 30-year fixed mortgage rate reached 7.50% this week, the highest all year. It’s because of a “hotter-than-expected inflation report and the Fed’s confirmation that interest rate cuts will be delayed,” Redfin’s data journalist, Dana Anderson, wrote today in a housing market update. 

    But it’s not only mortgage rates; home prices are rising too. The median home sale price rose 5% over the last year in the four weeks ending April 14, to $380,250. It’s lower than the all-time high reached in June 2022 in the pandemic housing boom, but only by $3,095, according to Redfin.

    “The combination of high mortgage rates and prices have brought homebuyers’ median monthly housing payment to a record $2,775, up 11% year over year,” Anderson wrote. 

    Data released today shows that existing home sales dipped 4.3% from a month earlier and 3.7% from a year earlier. “Home sales are stuck because interest rates have not made any major moves,” NAR’s Chief Economist Lawrence Yun said in a statement accompanying the release. 

    Things didn’t seem like they could get much worse. Already, home prices swelled more than 50% in a matter of four years; the salary Americans need to afford a starter home has nearly doubled since the start of the pandemic to almost $76,000 a year; the typical household makes almost $30,000 less than what’s needed to buy a median-priced home; and renting will be cheaper than buying for years (and don’t be fooled, rents are still high). 

    It’s not clear when or if mortgage rates will drop, but they might never fall to the historical lows seen throughout the pandemic. Toward the end of last year, some forecasts predicted mortgage rates would end the year lower than last year, and there was at one point anticipation of three interest rate cuts this year, but that no longer seems likely. Federal Reserve Chair Jerome Powell said it himself earlier this week, that interest rates aren’t coming any time soon. “Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work,” Powell said. 

    Sometimes it can seem like a never-ending cycle. When mortgage rates are high, relative to what they were years before, people stop selling their homes. No one wants to lose a 3% mortgage rate, let alone for one that’s 7%; it’s why existing home sales fell to their lowest point in nearly three decades last year. But when people stop selling their homes, there’s less supply, and really not enough to meet demand when coupled with our existing housing crisis (and still, fewer homes are being built). So it becomes about simply supply and demand dynamics; more demand than supply pushes home prices up, worsening affordability. Redfin’s data shows there’s more than three months of supply; in a healthy housing market, four to five months of supply is the norm.

    The median home sale price only declined in one of 50 of the most populous metropolitan areas, according to Redfin. That was in San Antonio, and it was still just a 1% decline. Whereas, one metropolitan area saw its median home price increase almost 25%: Anaheim. 

    Some expect home prices to continue rising, although it varies by how much. Zillow sees home prices increasing less than 2% this year, but Capital Economics sees them climbing 5% this year. And none of this accounts for insurance woes, the sort of dark horse in the housing market that seems to be becoming more and more of an issue, especially in California and Florida. 

    Maybe the pivot spring season, or simply this year’s mini version, is coming to an early end—or maybe, the housing market isn’t really thawing meaningfully.

    Subscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up for free.

    [ad_2]

    Alena Botros

    Source link

  • There’s a flicker of life in the housing market as average mortgage payments plummet nearly $400 over 2 months and buyers start to stir again, Redfin says

    There’s a flicker of life in the housing market as average mortgage payments plummet nearly $400 over 2 months and buyers start to stir again, Redfin says

    [ad_1]

    Following a painful year for the housing market that saw mortgage rates shoot up to just over 8% after years of historically low rates, monthly mortgage payments have finally fallen back down to their lowest level in nearly a year, according to a newly released Redfin report. But it’s still rough, as Las Vegas agent Shay Stein told Redfin for the report. “Two years ago, buyers would have cried about a 6% mortgage rate. Now, they’re happy they’ve dropped down to the mid-6’s.” 

    The median mortgage payment was $2,361 during the four weeks ending December 31, down $372, or 14%, from October’s all-time high, Redfin’s data journalist, Dana Anderson wrote. She cited a change in the weekly average mortgage rate, which fell to 6.61% at the end of December from a 23-year high of 7.79% in late October. The falling mortgage rates coincide with concerns over the economy subsiding in the wake of cooling inflation, as seen by falling yields for the 10-year Treasury Yield. In short, the cheaper the yield, the less the market is seen to be worrying about inflation in the future, and that’s good for cheaper mortgage rates.

    The average 30-year fixed mortgage rate is currently sitting at 6.76%, so it’s still a far cry from the 3% rates that filled the pandemic, but it’s much better than an 8% mortgage rate. Consider this: last October, a typical homebuyer would have spent more than 40% of their income on their mortgage payment, according to an earlier Zillow report; that was an all-time high, although Zillow’s data only goes back to the 1990s.

    That being said, demand is starting to pick back up. Apart from lower mortgage rates, new listings are up nearly 10% on an annual basis. That’s an indication that the lock-in effect, which refers to homeowners that have locked in low mortgage rates and refuse to sell for fear of losing those low rates, could be easing up. There’s now close to four months of supply, which is considered balanced—but given it’s on the lower end of the scale, it still indicates conditions associated with a seller’s market, as Redfin suggests. 

    Homebuyer demand index ticks up

    Redfin’s homebuyer demand index, which measures requests for home tours and other services, is also up 10% from the previous month, its highest level since August, Anderson wrote. Additionally, while pending home sales are down over 3% year-over-year, it’s the smallest decline in two years, according to Redfin. 

    “There have been more tours and more offers on my listings since mortgage rates started declining,” Stein said in the report. 

    But it’s not all good news. In the four weeks ending December 31, the median home sale price was $363,371, a 4.4% increase from the previous year. That is also the biggest increase since October 2022, according to Redfin. The median asking price has also increased 4.3% year-over-year to $359,236.

    In early December, Redfin chief economist Daryl Fairweather shared her outlook for this year’s housing market. One of her predictions was that home prices would fall 1% year-over-year in the second and third quarters and be flat in the first and last quarters of this year. Still, that small decline, “will mark the first time prices have declined since 2012, when the housing market was recovering from the Great Recession, with the exception of a brief period in the first half of 2023,” she wrote at the time. 

    Another prediction was that mortgage rates would gradually decline, falling to about 6.6% by the end of year. However, affordability isn’t necessarily set to improve a whole lot given home prices rose substantially during the pandemic fueled housing boom and mortgage rates have still more than doubled in just a few years. “Home prices will still be out of reach for many Americans, but any break in the affordability crisis is a welcome development nonetheless,” Fairweather wrote. 

    And while monthly mortgage payments have fallen to their lowest level in nearly a year, they’re still up more than 5% from a year earlier. 

    Subscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up for free.

    [ad_2]

    Alena Botros

    Source link

  • Inflation Fears Explain A Seeming Housing Market Mystery

    Inflation Fears Explain A Seeming Housing Market Mystery

    [ad_1]

    Housing has become increasingly expensive. According to the National Association of Realtors, mortgage rates on average have risen by more than a full percentage point over the last 12 months. The average price of a home has inched up as well. Taken together and measured against household incomes, the statisticians at the Association estimate that affordability of home ownership for the average American has plummeted nearly 10% over the past year and today sits at its lowest level since 2011. Economics 101 would tell us that demand should slack off. Yet, home sales continue to rise. The Census Bureau reports that sales of privately owned houses fell off a bit in October, the most recent period for which data are available, but remain some 18% above year-ago levels. Sales have held up in defiance of standard price theory because Americans are still very concerned about inflation.

    Indeed, the behavior of the housing market, more than any other economic gauge, announces that Americans, though aware of easing rates of inflation recently, are concerned that the economy is far from out of the woods on this matter. They fear a rising cost of living and exhibit that fear by flocking to the best inflation hedge available to them — home ownership — and secure it even if it means stretching their household budget to the limit. Few homeowners can quote the numbers, but the history of the last great inflation guides their decisions. From the mid-1970s to the mid-1980s, the crushing burden of 6.2% inflation a year tracked by the Bureau of Labor Statistics was still bested by an 8.7% rise in residential real estate values recorded by the Census Bureau. The 2.5 percentage point difference more than made up for the burden of paying mortgage rates that rose to double digits during that time.

    For others, the logic of ownership is compelling in yet a different way, even if it means paying high mortgage rates and stretching the household budget to do so. Once the house is secure, whether financed with a cash purchase or a fixed rate mortgage even a high-rate one, the family has fixed the price of a major budget item – shelter – a great comfort when people fear that all other prices will rise unpredictably. For those who remain wary of inflation – and that is most people outside the White House – the peace of mind purchased this way is well worth the budget strains. Affordability might prevent a purchase as large or in as desirable location as hoped, but these benefits justify sliding down the pricing distribution. And this kind of buying has held up demand, despite rising costs.

    Pricing might have given way despite this support for demand were it not that supply has also declined. It seems that existing owners, especially those who purchased at the very low mortgage rates that prevailed until last year, have no desire to walk away from such advantages. If for some reason, they need to change residences, they cling to the original mortgage and the house to which it is attached and rent the property, encouraged further by the 11% rise in national rents recorded between 2021 and 2022. They then rent in their new location until conditions for a new purchase are more favorable. Then they sell the old house to buy a new one. At the same time, homebuilders, the Census Bureau reports, have cut back on the construction of single-family houses, some 4.4% over the last year, and some, noting the earlier rise in rents, have turned to the construction of rental properties. Together, this shift by builders and the relative slowdown in the supply of owner-occupied dwellings available for sale has held up prices in this area of the market while causing a sudden halt this year in what was a powerful uptrend in rents.

    As is so often the case, the matter is more complex than simple supply-demand-price considerations, especially in a product like housing that lasts for a lot longer than a haircut. If and when inflation fears fade and the Federal Reserve begins to lower interest rates, matters will seem equally perplexing as this confluence of motivations works in reverse.

    [ad_2]

    Milton Ezrati, Senior Contributor

    Source link

  • ‘To buy or not to buy, that is the question’: BofA reveals rent is cheaper than mortgages in all but two of 97 major metros

    ‘To buy or not to buy, that is the question’: BofA reveals rent is cheaper than mortgages in all but two of 97 major metros

    [ad_1]

    This housing market has Bank of America economists in a Shakespearean mood about the eternal debate: The slings and arrows of buying versus renting. In a recently released Hamlet-esque research note, “To buy or not to buy, that is the question,” BofA economists found that buying, to paraphrase the prince of Denmark, is an outrageous fortune these days. 

    Mortgage rates have created a sea of troubles for homebuyers, hitting the once-unthinkable 8% mark before falling for weeks in the wake of cooler-than-expected inflation reports and the prospect of an end to the Federal Reserve’s rate hiking cycle. While that’s nobler in the mind in terms of affordability, home prices have still risen substantially in just three years, and consumers don’t think it’s a good time to buy, the economists said, citing a University of Michigan consumer sentiment survey. The economists also suggested that buyers should anticipate the undiscovered country of a higher-for-longer rate environment (echoing other investment banks who have said as much.)

    At the same time, rents have gone up substantially as well—only recently has rent growth slowed as the rental market softens. “It clearly has not been a buyers’ market due to low affordability, but the situation has not been all that much better in the rental market,” they wrote in the note. 

    ‘Rent was still cheaper than mortgages in all but two’

    The BofA economists took a look at the rent versus buy conundrum, comparing rent and mortgage payments (they included property taxes in their calculation, but excluded home insurance, utilities and maintenance costs). Nonetheless, their analysis found that “rent was still cheaper than mortgages in all but two of 97 major Metro Areas,” as of October, despite the fact that both rents and mortgage payments have gotten more expensive, relative to median income, since the pandemic. It’s not hard to understand this, given that the whips and scorns of the pandemic let millions perchance dream of a different way of life—and a different housing situation, sending home prices up more than 40% nationwide and fueling a rent spike that has settled down faster than the buying market.

    There’s the rub: It’s worse in some places than others. Along the west coast, economists found it more expensive to purchase a home than rent in cities like Los Angeles, where as a percentage of median income, mortgage payments and tax are 83% and rent is 41%; or San Jose, where it’s 80% versus 26%; or San Francisco, where it’s 71% versus 29%; or San Diego, where it’s 74% versus 38%; or Seattle, where it’s 55% versus 25%. 

    But there’s also cities like New York, where it’s 62% versus 43%. Meanwhile, New Orleans and Jackson, Mississippi, are the only two cities that are less expensive to buy than rent, according to their analysis.  

    Realtor.com’s recent rental report, published in late-October, found that for the fifth straight month, rents dropped. “It’s become more economical to rent than to buy in nearly all major markets,” Danielle Hale, chief economist at Realtor.com, said in a statement, at the time. An earlier report showed the cost of buying a starter home was significantly more expensive on a month-to-month basis than the cost of renting a similar-size home; that was true in 47 of the top 50 metros. 

    The equity question

    But then BofA’s pale cast of thought turns to the question of equity. When you buy a home, you build equity over time, all the while the value of your home appreciates. Your home becomes a sort of cash reserve into which you can tap. None of that is true for renting, but that doesn’t mean it’s not a viable option, particularly at this moment.  

    “A similar story applies to the United States as a whole,” they wrote. “Despite the costs of renting and homeownership both increasing, renting is more affordable than owning. On a national basis, rents have increased from 23% to 26% of median U.S. household income, while the ratio of mortgage payments to income has grown from 19% to 32%.”

    The data suggests a housing market that has become “more burdensome” on the average buyer than pre-pandemic—one that’ll take some time before achieving a balance between supply and demand. The investment bank expects the Fed to cut rates next year, and after, they wrote, housing activity should pick up amid improved demand and supply. That being said, the economists expect both existing home sales (which are at their slowest pace in over a decade) and new home sales to “warm up” in the second half of next year, along with more building to support housing starts. In other words, BofA is betting against conscience making (housing) cowards of us all.

    Subscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up for free.

    [ad_2]

    Alena Botros, Nick Lichtenberg

    Source link

  • Housing math just isn’t mathing, a Fed president says, ripping into NIMBYism and homes that are ‘increasingly unattainable for too many workers’

    Housing math just isn’t mathing, a Fed president says, ripping into NIMBYism and homes that are ‘increasingly unattainable for too many workers’

    [ad_1]

    The math isn’t mathing. Hopeful homebuyers earnings just aren’t adding up to the cost of housing—leaving people desperate to break into the market. You don’t expect to hear that from a central banker, though. Cue Tom Barkin, president of the Federal Reserve Bank of Richmond, who gave a speech on Wednesday at the 2023 Virginia Governor’s Housing Conference. The obvious problem with the housing market, he said, is that it’s “becoming increasingly unattainable for too many workers.”

    “Take teachers, for example,” Barkin said. “The math all too often just doesn’t work for them.” Here are his sums: Middle school teachers in 2022 made a median salary of just over $60,000, Barkin said, which means that they could afford a $228,000 house, assuming a traditional 20% down payment. The problem, though, is that the median price for a starter home last year was $299,000—“And that’s on the off chance you could even find one.”

    Barkin was speaking to the area his bank serves, but his observations apply to housing markets across the country, where hopeful homebuyers are taking on astronomical monthly payments thanks to decades-high interest rates and ever-increasing prices. Indeed, monthly payments are up 60% year-over-year, according to a recent report by real estate data and analytics firm Black Knight. That’s a whopping $871 more per month, on average.  

    In fact, the average monthly principal and interest payment for borrowers on a 30-year fixed rate loan in July 2023 was more than $2,300—the highest average principal and interest payment on record, per the report. What’s even more of a shock, though, is that one-fourth of homebuyers pay at least $3,000 per month, Black Knight data shows. This is placing more and more folks into the house poor bucket, with many spending upwards of 60% of their paychecks on their mortgage.

    To make matters worse, wages and home prices aren’t growing at the same pace. Average hourly earnings have increased 21% since 2019, Barkin said, but the S&P CoreLogic Case-Shiller Home Price Indices shows a 48% jump during the same time period. 

    “The math has been getting worse,” he said. “At the same time, of course, mortgage rates rose from 3.9% to almost 8% today. Why did prices spike so much? Demand and supply.” 

    How to make ‘the math work’ and take on the NIMBYs

    Barkin outlined a few ways to make “the math work” in his speech, mostly tied to improving housing inventory, which is down 8.1% year-over-year, according to the National Association of Realtors. Barkin suggests that communities need to “rally together” to make the case that housing is “integral to economic growth.” And that brought him to the scourge of inventory: the NIMBYs.

    A famous phrase in housing circles, the “not in my backyard” homeowner has been famous for blocking development in their neighborhoods for decades, perhaps most famously in Northern California’s Bay Area. Barkin said the problem is widespread. “NIMBYism is real, and failing to secure buy-in from the community adds time, cost and uncertainty,” he said. “How do leaders rally their communities? They articulate the case for housing.”

    Rental math also doesn’t add up

    While all housing markets are different, it’s still generally cheaper to rent than buy because of high mortgage rates, home prices, and the amount needed for a down payment, Barkin noted. 

    “Many younger millennials and Gen Zers are saving up by staying home with their parents or even renting with friends to put together a down payment on a home,” Maureen McDermut, a realtor with Sotheby’s International-Montecito, previously told Fortune. “As ‘starter’ homes have largely gone by the wayside, it is almost essential to do this for most.”

    But rent prices also continue to rise on a national scale, Barkin said. There are fewer deals to be had. 

    “The math for renting also isn’t great. Supply and demand hit the rental market, too,” Barkin said. “In 2021, rents spiked as national rental vacancy rates dropped to levels not seen in almost 40 years.”

    The same teacher he used as an example would have faced a median asking rent of $1,643 per month in 2022 “already a stretch for their budget,” Barkin said. Now, that price is up 22% to $2,011, he said, citing data from Rent, a rental software development company.

    The math isn’t likely to change for prospective buyers in the near future. Mortgage rates hit 8% in mid-October, and have been dropping some since then. But buyers hoping to see a drastic drop anytime soon are out of luck, economists and housing market experts say. In fact, Capital Economics, a London-based research firm known for its housing market forecasting, said in late October it doesn’t expect rates to fall significantly for at least the next two years.

    “While we still expect mortgage rates to decline, they are unlikely to fall below 6% before end-2025, muting any recovery in house purchase demand and sales volumes,” Thomas Ryan, the U.S. property economist for Capital Economics, previously told Fortune. Other experts don’t expect to see the 2% and 3% mortgage rates of the pandemic era.

    How to make the math work

    But building more inventory—and fighting the NIMBYs—won’t come easy. Communities need to realize that they’re competing for developers, Barkin said, suggesting implementation of more tax incentive programs to renovate and rehabilitate older residential and commercial properties to help with housing inventory. Securing land is also a barrier to building more housing, so Barkin suggests focusing on changing zoning laws, investing in viable homesites, and leveraging unused land. 

    Lastly, Barkin also suggests addressing construction costs, which are “way up.” Developing smaller homes or factory-built homes could help drive down construction costs, he said. Unconventional partners can make affordable housing projects happen, he suggests, including foundations, employers, colleges, and churches.

    “We all know housing availability is limiting communities. The key is more supply,” Barkin said. “As I said upfront, this is a math problem — but one where potential solutions are beginning to multiply.”

    Learn how to take control of your personal finances with Get Your Due, our six-week email bootcamp. Sign up for free.

    [ad_2]

    Sydney Lake

    Source link

  • A couple in L.A.’s film industry make over $100k combined but have given up hope of buying a house: ‘It’s impossible if you’re not rich’

    A couple in L.A.’s film industry make over $100k combined but have given up hope of buying a house: ‘It’s impossible if you’re not rich’

    [ad_1]

    When Emily Blake moved to Los Angeles from North Carolina, she lived in a two-bedroom apartment. She doesn’t remember how much her rent was; all she knows is she could afford it on her school teacher salary. Now, in her mid-40s, she and her husband are living paycheck to paycheck, unable to move out of their rent-controlled apartment, and they can’t even imagine owning a home in the city. 

    Blake and her partner both work in the film industry; she’s a freelance script supervisor and he’s an assistant to a visual effects agent. Together, they made slightly over $100,000 last year. They are lucky enough to have a great deal on a rent-controlled apartment in Echo Park, a fashionable neighborhood in the eastern part of the sprawling megacity where her husband has been living for seven years. Since Blake moved in a little over a year ago, they split the rent of $1,750 per month. So why do they feel trapped and hopeless of ever buying a house? “We can’t leave,” she tells Fortune.

    “We would never be able to find an apartment for this rate, it just doesn’t exist,” she says. They used to think about buying a house, but that was before the Pandemic Housing Boom drove prices to an absurdly unaffordable level, including a mortgage rate shock that’s still playing out. 

    Blake and her husband should be well positioned, since they make more than the median household income and pay well under the median rent. The median household income in the city is $69,778, per the Census Bureau, while the median rent for all bedroom and property types in the city is $2,895. But just look at the average home value in Los Angeles of $923,739. Hypothetically, at a 7% interest rate on a 30-year fixed mortgage, a monthly payment on a $900,000 home would be roughly $4,790, before taxes and insurance. 

    “We would love a house, we want a house so badly,” Blake says, but “it’s not possible…you have to make over $200,000 a year in order to buy a house now.” Maybe if they left L.A., they could do it, and the average home value nationally is in fact much lower, at $348,539. But that would require leaving their industry behind, and even that is looking shaky now.

    Blake and her husband haven’t been on strike like the Hollywood actors and writers, but they may as well have been. Blake is a member of the International Alliance of Theatrical Stage Employees, but she hasn’t worked any industry gigs since the strikes shut down production across the industry. She says she’s very lucky, having found temp jobs that pay the bills, like subtitling for a post-production house and editing a web series. Still, she’ll likely make less this year than last because there’s hardly any work. “Everybody I know in my union has been absolutely struggling to find work since about November, so we were already kind of hurting before the strike started.” 

    The industry is changing, Blake says, which speaks to why writers and actors stopped working. It’s been getting harder and harder to make a living freelancing because of how short seasons are now. “I’m not making enough money, and he’s making okay money—it’s still not house money,” she says. Her husband also has student loans, which makes it harder for them to save. (She didn’t share the amount of his student loans, and he didn’t speak with Fortune.) Blake has some money saved from her share of a house that she sold after a previous marriage and a divorce, but she says that isn’t close to a down payment in the current climate. 

    Choosing between a career and the ability to buy a house

    She and her husband want to be able to set up a workshop where she can craft, and he wants more space to work on starting his own business. They could move to a handful of cities if they want to continue working in the film industry, but one of those is New York, where the average home value is $736,314 and the average rent is $3,539. 

    “Unless we change careers and move out of L.A., I don’t see how we’ll ever afford a house, the prices just keep going up,” Blake says. “And every time rent control is on the ballot … it ends up getting voted down, and it’s very frustrating because rent keeps going up.” 

    In reality, home prices across the city are down from their peak, but they’re up substantially since the onset of the pandemic. As for rent control, it was on the ballot in 2018 and 2020 for California voters, but in both cases, those measures failed. It’ll be on the ballot again next year, but the majority of the state’s voters are homeowners, who may be less concerned about rents. 

    Blake says they’re not struggling to pay their rent, but they are living paycheck to paycheck. They can pay their bills, and occasionally go out with friends, but there’s no money left over—which has made it nearly impossible to afford to rent a bigger apartment, one that may not be rent-controlled, or buy a house in the city. 

    “We have dreams, we have plans,” Blake says. “I’m a little old, but we’ve discussed having kids, there’s still time, [but] time is going to run out because we don’t have anywhere to put them…we just really want a house. That’s the American dream, right? Get a house, start a family, have a thriving career, and that used to be possible a few decades ago.” 

    Blake says that, like a lot of other people, she’s waiting for the housing market to crash, so she can afford a home. She and her partner keep walking around their neighborhood, looking at all the houses, and she says she’s at the point where she’ll buy any house they can afford, regardless of what condition it’s in. “We can always fix it up later,” she says. The cheapest homes they’ve seen in the surrounding neighborhoods are still around $600,000.

    “We’re both in a position where we have to choose between our careers and everything else, because again, I want to keep doing my job, he’s trying to sort of level up,” Blake says. “But, it’s really hard. It’s just all very hard all the time.”

    They ask themselves, “is this just forever? We just live in this apartment until we die?”

    “We have a culture here … but, if you want to upgrade your life in any way, if you don’t want to just keep existing, you gotta leave.” They keep waiting for something to change, Blake says, but it just keeps getting worse. 

    “I feel like, now, you have to be rich to buy a house,” in Los Angeles, Blake tells me. “It’s impossible if you’re not rich.”

    [ad_2]

    Alena Botros

    Source link