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> Rather, the only sustainable solution to the affordability crisis is not through a fall in prices or mortgage rates, but through building enough to close the housing deficit.
Supply must meet demand, but the fundamentals make it impossible.
Citation:
I really hate the title of that article. Of COURSE rate and price drops would improve affordability. What they are trying to says is that forecasted rate and price drops won't help.
And I tend to wonder if they are correct in terms of price drops, at least in some markets. We seem to be gradually falling off the peak of the market in Miami/Ft. Lauderdale. Between people being pessamistic about the economy, RTO to jobs in the northeast, and foreign nationals leaving the country, demand is decreasing and so prices are dropping. They seem to be slowly heading for historical averages after peaks in 2022, and houses that don't drop their price from 2022-24 peaks are not selling. It feels very much like 2008 right now, and I'm really hoping we see some improvement in the next few years.
Rate drops will make affordability worse, you do understand that less interest just means more principal, right?
If a mortgage payment is $1800 of interest and $700 of principal at 7%, a buyer is in the same position if rates go down to 3% and the payment is $1400 in interest and $1100 of principal (numbers are made up, I don’t have time to calculate the exact values). In the 2nd case, the home price would be higher and the lower rate would mean reduced financing costs, with the same TCO in the end.
Bonds work the same way, as the yield goes up above what the bond was issued at, the face value of the bond decreases, only the housing market has limited supply so prices didn’t go down when rates went up.
If yields go down, the face value of the bond goes up, just like with houses.
The only thing that will lower housing values is more supply.
For a fixed loan term and fixed price, less interest means lower payments. (But of course if you assume that prices will do whatever you want them to, then you can prove anything you want.)
Bonds do not work like houses. Typically bonds pay out a fixed coupon rate and then 100 at the end of the term (fingers crossed).
Less interest means that buyers can ask for a higher price for their home and the buyer will have the same mortgage payment as they would with a lower priced home and a higher mortgage rate.
The buyer is paying the same TCO in the end so they’ll accept the higher ask from the sellers due to limited supply and the TCO being equal. The Fed is about to start cutting rates so you can watch this happen in real time over the next few years.
Bonds work that way if you hold them to maturity, but the face value is continuously being repriced as rates fluctuate. You don’t have to sell, but that’s how bond pricing works.
Fixed loan term and fixed principal, yes.
Grandparent is alleging that in a lower-rate environment sellers will raise prices until buyers' monthly payments are about the same as they are in this high-rate environment.
Much love to whoever downvoted this absolutely drab and incontrovertible comment. Stand up for what HN means to you.
That's what the substantially is there for - yes, it would technically help but few can afford payments on a $1.2m SF home even if money were free
Who is buying a home in SF? Can we come down to Earth?
It's just an example - most people live in major metros where the jobs are and those are the places the rate drops just wouldn't help much. What you said kind of makes my point of how jacked up the market is due to homeowners having done their best to slow production as much as possible, and our emphasis on housing as investment. It didn't have to turn out this bad.
Doesn't Florida have an insurability problem that's becoming a crisis?
At the end of the day, I'm guessing that most people price housing as mortgage + insurance. If insurance costs go up, the price of the underlying property has to go down in order to meet a monthly payment target. So some of that is probably already going on.
Yes. Florida has the highest insurance costs in the US. Many are going without insurance if they don’t have a mortgage that will force placement of insurance.
> Florida currently has the most expensive insurance premiums in the nation. According to data by Insurify, a national insurance data collection group, Florida's projected cost of property insurance averages about $11,000 a year.
> ValuePenguin’s study shows Florida’s property insurance has increased 72% in the last five years, with the number of homeowners who can’t get coverage through private insurers going up 400%.
The US is currently spending ~$1T/year on climate costs.
https://www.cfpublic.org/housing-homelessness/2025-01-10/cen...
https://www.newsweek.com/map-reveals-scale-florida-property-...
https://www.bloomberg.com/news/articles/2025-06-17/us-spendi... | https://archive.today/EBmaI
https://www.theguardian.com/environment/2023/oct/09/climate-...
> most people price housing as mortgage + insurance
I would go as far as to say it's actually mortgage + insurance + taxes in most states. Very likely to be paying anywhere from $5,000 to $10,000 in county + school taxes per year which by itself is enough to make the home suddenly unaffordable even if you bought it 10 years ago at a great price and rate.
You also need to include property taxes.
> Holding incomes, home prices and all other housing-related costs equal,
Home prices move inverse to interest rates, so I'm not sure how useful this analysis is.
No they don’t, prices didn’t fall when rates went up because there is a limited supply of homes. If there were enough houses to go around, values would go up and down with interest rates just like bonds do.
Prices absolutely will go up when rates fall though, that part still holds true with limited supply.
In addition to the current supply constraint keeping prices high, mortgages being fixed rate means higher interest rates don't really drive prices down (although lower interest rates do drive prices up). If you have a mortgage for $600k at 3% interest rate and rates go to 6.6% (like they are now), the naive loan math says your house is now worth $400k. Who has $200k in equity built up in their home and is willing to walk away from it? Virtually no one, so prices stay high until people get desperate to sell.
This leads to the fun conclusion that raising interest rates might actually make inflation worse. Rent/rent equivalent is already 30% of CPI, so increases in housing costs have a big effect on overall inflation.
We need to break the chain of real estate speculation by building enough so you don't see 5-10% YoY real estate appreciation based on no improvements.
The problem is there's so much FOMO in housing, because of the 7-9% yearly appreciation, that it causes people to keep piling in assuming whatever they buy at, they'll also average 7-9% eventually, in a positive feedback loop.
When we build enough so we stop seeing that kind of appreciation, people will stop treating housing as a speculative investment asset they're going to be imminently priced out of, as they could always buy in the future when it's roughly the same price.
The thing is, if/when rates drop, home prices will only go up. _faster_.
If the pool of people able to spend more on a home increases, and the pool of houses remains the same, then there is only one direction anything goes.
Thanks Zillow for making a straightforward article.
FWIW, real-life experience matches the article. Current interest rates shave off about $100k+ in affordability. Explaining where the interest rates need to be for most regions for affordability is an easy way to show the situation. I do agree that a major economic downturn would need to happen and unemployment would need to rise to change things. However, these numbers are always manipulated which keeps us on a trajectory that is hard to reconcile with reality for most.
I see an affordability metric of "30% of income" I believe, but there's more to it than just that.
Is it nice if an 18 year old working at McDonalds can afford a home? Certainly.
But there's a world of difference between him being priced out of the market and a full-time well-compensated employee of a large company being priced out.
(Basically, going with mean/median household income may not be the best metric - rate and price drops WILL help but won't be "enough". And the "costal cities" mentioned should just be abandoned; there's no hope and nothing will make them affordable. Instead, all sorts of "subsidies to rich people" should be stopped; once those cities have nobody willing (illegal or no) to do the "grunt work" they'll figure out how to fix the problem. As it is, "affordable housing" is usually just subsidizing the rich people so they can have employees to make their food, etc on the cheap.)
>And the "costal cities" mentioned should just be abandoned; there's no hope and nothing will make them affordable.
This will basically never happen because the reason why they're expensive is that they're desirable. Supply and demand. Expecting otherwise makes as much sense as "Nobody goes there anymore. It's too crowded"
>Instead, all sorts of "subsidies to rich people" should be stopped
examples? If you're talking about "affordable housing" programs, aren't those usually means tested?
> If you're talking about "affordable housing" programs, aren't those usually means tested?
In the dumbest ways possible and usually not continuously. One of my recurring points of advice to founders in New York is to use your year of no income to score a stabilised apartment. More directly, affordable housing is usually used to justify broader construction restrictions. This is why the largest landowning families in New York and San Francisco tend to support them.
Other than that, the OBBBA tax cuts, mortgage interest deduction, carried interest deduction and conservation easements should each count as subsidies for the rich.
That's not quite an accurate statement about supply and demand. It's supply of the thing relative to demand for it. So a pretty niche product can be very expensive if supply is even more limited.
So it's entirely fair to say that we should be figuring out how to decouple jobs from these costal cities. Lots of people wouldn't live in NYC if Wall Street was out in Topeka, Kansas instead.
Yes - they are means tested. But why do "poor people" need to live in (insert rich city here)? Why can't the city be entirely filled with millionaires?
Because someone needs to work there. So just as Walmart employees being eligible for EBT allows Walmart to pay employees less so does affordable housing indirectly subsidize the city.
Without those artificial bandages on the problem, the costal expensive cities would run into a crisis - everyone is a Google or Apple employee, and there's nobody to do any work for under $100/hr. Either they'd have to pay baristas $100/hr, or they'd have to go without, or build a high-speed commuter rail that could bring them in from Bakersfield where prices were reasonable.
(By abandoned I mean "stop trying to fix it" and just let the prices go insane.)
> examples?
I might consider the mortgage interest tax deduction to be a subsidy to the rich, considering how much you have to be making to buy a house and how much interest you need to be paying to make it worth itemizing your deductions.
> of a large company
In a functioning economy, that would have zero bearing on this calculation. Your compensation should be based on your value, not the economies of scale of the corporation you happened to get yourself into.
> But there's a world of difference between him being priced out of the market and a full-time well-compensated employee of a large company being priced out.
I mean, the only difference is between who you consider worthy of having a household. Only "well-compensated employee" like us? Or also people working as fast food cooks and helpers?
I’m fully onboard houses being so cheap high school kids can get them.
But there are degrees of unaffordability.
Recent counterpoint being discussed.
Isn't Austin going through a price drop at least for rent? That could offer a case study.
Rates don't affect prices they way people think they do.
People buy the mortgage they can afford, so low rates can raise home prices. This is 5x-10x leveraged, so it really moves prices.
Home builders borrow to build, so higher rates hurt on the supply side.
Currently, because people refinanced into 3% long-term mortgages, some people are stuck because they can't afford to move. This also hurts broader market dynamism because people aren't relocating as much. Same with job uncertainty. People aren't changing jobs because they're worried, but this is leaving companies with mismatched labor.
And that's just rates. There's also supply.
Mortgage rates should have never been 3%. The Fed targets 2% inflation, so loaning 10-to-30-year money at a real rate of 1% is silly. It really is free money. The problem is mortgage rates are linked to the 10y treasury yield, and that was moving for macro reserve currency reasons.
Loans for home builders could be subsidized, but NIMBY policies are a larger issue.
I don't know what to do about people locked into low mortgage rates. It's actually a Silicon Valley Bank situation, but at an individual level. If you can wait for the loan to mature (10y might be enough), you come out ahead, but if you have to sell early, you take a loss. We can't go back to free money, portable mortgages disadvantage new buyers, and people really don't want to realize these losses.
Yep, a big contributor to why houses got so expensive in the last 10-15 years is the low rates. Free money -> increased demand -> higher prices.
If mortgage rates had been around 6-7% as they historically have been, prices would have stayed a lot more reasonable.
I feel really bad for GenZ. My brother and sister and law are both in their early 20s (large age gap with my wife) and the housing market is a tire fire. I recently learned that the house across from us is being rented to three young women for $3,000/month. This is a 1,100 square foot cottage, built maybe in the 1970s, with a leaky roof and no basement in exurban Maryland. For comparison, our mortgage is around $2,000/month for a house three times the size, built in the 2000s, on a riverfront lot. And we're not boomers, we just bought the place in late 2016! It's a kinda dumpy neighborhood with a lot of better-off blue collar workers (cops, nurses, etc) and retirees. But prices doubled seemingly overnight during the pandemic!
It's not like there's an employment boom happening here. We're right outside of Annapolis, which is a small city focused on the Naval Academy. Which is stable but hardly growing employment. A couple of the anchor employers (AT&T, Rockwell Collins) have been downsizing. We're an hour away from DC, and 45 minutes from Baltimore. Where the heck do these people work? Where is all the money coming from? It doesn't make any sense.
Ft. Meade is a big employer in that area, Raytheon as well. Northrop Grumman is commutable from there, as is Annapolis junction and Columbia.
Baltimore and DC can be commuted to from that area. DC would be rough if you don’t take the metro from somewhere. Not a great drive but I know a lot of people who did/do it.
I live north east of the Baltimore beltway and recently started a new job between BWI and Arundel Mills, about an hour with no traffic, but I work remotely half the week.
There are an absolute ton of jobs in your area. It’s much more sparse north of 695. Basically APG.
I understand there’s jobs, but what’s causing the rapid growth in housing prices? Fort Meade has been here forever, and so have the defense contractors. It’s not like federal government or contractor salaries and headcount have been growing rapidly.
And it’s not population growth. Columbia grew just 5% from 2010-2020. Anne Arundel has grown less than 1% annually for more than two decades.
https://www.nar.realtor/newsroom/first-time-home-buyers-shri...
IIUC the age of the mean home buyer is 56! (T_T)
As> Where the heck do these people work? Where is all the money coming from? It doesn't make any sense.
I moved from Florida to a small rust belt city after being out of work for an extended time. I desperately had tried to avoid moving, but honestly I was pretty enamored by the idea of low rent
I have been thoroughly disappointed. Especially seeing the rates people are trying to rent fucking shared rooms for.
I don’t get it though. A lot of these apartments are far beyond average wages. Even if I could afford it,
So had the same question as you. Who the hell is living in these. I certainly know many who could afford to, but they have much better options.
If I can pay $2000 a month to live in a rotting rust belt city, I can probably afford to go somewhere much nicer with a much better market at the same price.
I asked my girlfriend about it, as she’s lived here her whole life and she expressed that the only person she know who’s lived at one of these apartments was an ex who was a trust fund baby. But there cant be enough of them that they’re tilting the market.
Rate drops will make things way less affordable, it’s exceedingly obvious. If a borrower pays less in interest, the seller can ask for more money and the borrower will end up paying the same monthly payment, meaning higher home prices.
This isn’t rocket surgery, it’s Econ 101.
Very true. Rate drops have historically caused demand-side pressure (because more people can now afford the mortgage) which subsequently caused home prices to surge (20% during Covid!) despite no capital or material improvements to the homes or properties to justify the higher "value".
do you mean affordable by sticker price alone? trying to square way less affordable with same monthly payment (which i would expect by way of the seesaw between interest cost and house cost). i guess it also matters which the consumer is more responsive to...
Yes, affordable by sticker price, and for first-time homebuyers specifically. It matters less if you own property that has increased in value along with the rest of properties.
Prices will drop substantially over the next decade as (1) boomers die and (2) immigration comes to a halt.
Don’t forget the population decline
Wrong. There is already pent up demand, boomers will not die fast enough to make a dent. Immigration is not a factor.
And I suspect there's plenty of money at the top to profit off this, reducing the likelihood of such declines, too.
Immigration not a factor? You mean the same people buying up $3M homes with cash?