If you get into the smaller towns, like 5k and under, permits are rarely required. At least in my neck of the woods. For larger towns, that would be a good thing to check.
Housing market
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On a side note.
We didn't pass our initial inspection after a kitchen renovation because we didn't have a smoke detector up in a bedroom.
I mean, sure, it's a good idea to have a working smoke detector, but it had absolutely nothing to do with the kitchen renovation.
Inflation has been coming down, and I think Powell's strong words are meant to convince people the Fed is serious. But he is hoping that seriousness is enough to keep inflation coming down without raising rates. But I do think they will raise again if needed - they DO mean business. It will be probably 18 months from now until a rate decrease, at minimum, if everything goes just right.
I can tell you what a "healthy" housing market is:
1. if you are a buyer, rates are low and prices are NOT asset-bubble high
2. if you are a seller, rates are low and prices ARE asset-bubble high
3. if you are a realtor, rates are low AND DON'T YOU KNOW NOW IS THE BEST TIME TO BUY (OR SELL)?!?!
Inflation hit so hard, that you knew that we either had to take a hard hit, or stretch it out over a long period of time. Many economists believed we would be seeing rate drops late this year. I say it will happen second quarter of next year, it is an election year so they want good news.
Part of the problem with house prices for new home buyers is peoples' expectations. "My starter home must have a 3 car garage, be less than 10 years old, preferably new build, with a big yard and at least 3 bathrooms." Note I said part of the problem. Couple that with greedy builders who have no desire to build smaller, lesser margin properties and boom, here we are.
We'll see regarding the rate hikes, there are a lot of different opinions on that. There's some optimism they'll come down due to the current spread between the 10 year T note & mortgage rates - historically this spread is around 170 bp higher, currently it's about 300 bp due to the economic uncertainty. Honestly I'm just being optimistic so I don't have another slow year next year.Although we were due for that after 2020-early 2022.
Million dollar question regarding the market "health". The real estate market is the most imperfect market that there is (heterogenous goods, so much emotion involved in SFR purchases, etc.) so it's almost never "healthy" in the eyes of a lot of economists & other people who look at this for a living.
In my opinion there just needs to be some sort of event which brings in a bunch of inventory to the market, the shortage of supply is creating a really difficult environment for most buyers right now. How this event happens? Who knows. Possibly by a recession & people needing to sell homes, which is obviously not ideal for most.
People also need to probably come to terms with the fact that we're not going to see +/- 3% mortgage rates for the rest of our lives - this new "high rate" environment is new to so many people that have bought homes over the past 15-20 years, so there is a prevalent feeling of "there's no way I'm selling my house with a 2.5% 30 fixed rate". This makes perfect sense, I'm not planning on getting rid of mine either. However, life does happen & factors such as needing to upgrade/downsize, move, death, divorce, etc. always take place.
The issue with continuing to increase rates is this "shock" feeling of elevated rates will only be exacerbated. Also, at some point, affordability has to come into the picture - if rates go up to 9-10% it's going to be hard to afford a home for most people.
I'm mostly just spit balling here. I keep up with it because it affects my job, but I'm not close to an expert. If you're looking for a good podcast on the housing market, BiggerPockets puts one out called "On the Market" that is pretty good.
Good luck to you and the industry! We were lucky to buy our ‘forever home’ in early 2021 at 3.25% interest.
What are the prospects of really increasing supply through new building? From what I understand, housing starts are really increasing, but still far off from what would make a real impact on the market. For builders, I get it - overbuild and profits tank (and realize profits may tank regardless of market crashes). Any role for government policies there, other than fighting against local NIMBY zoning and regulations?
Inflation has come down, yes, but not back to the target rate. The Atlanta Fed and its Taylor Rule model suggests even the extensive rate hikes so far have been fundamentally a half-measure.
I'm sure Powell would prefer to use bluster and the Fed's historical reputation as an inflation hawk to make up the difference. It might work. Chaining down the inflation without totally wrecking equity markets and causing a collapse in housing prices and in the labor market would be quite a magic trick.
But it might not. I think there's pain still coming.
I also think Powell is trying to put off some of the harder decisions and actions until after early November 2024. He wants a superficially "good" economy with hot equity and labor markets and tolerable but above-target inflation until that point. Once we're past the election, then run up the Jolly Roger.
I don't think this is an attempt to show favoritism for one or the other political party. I think it is a mixture of wanting to keep the economy "calm" until after the election... goodness knows our electoral politics are enough of a hurricane right now even without a recession or financial crisis... and this is a historical pattern by the Fed. They do their dirty work when they're most insulated from political pressures.
And they're never safer than the first year of a second-term administration.
2018 - Bought an existing 19 yr old home with a finished basement. Prior owners added a nice deck & added a garage stall (permits pulled for those) in the 5 years they owned the home. We found a non-working outlet in the basement, which lead to tearing out the ceiling sheetrock and the discovery of a fire hazard electrical wiring job the original homeowners did on their own. (Permits were not required if owner did the work). Prior owners knew there were electrical issues, but didn't look into it. We ended up hiring an electrician to fix the work and, since the ceiling was opened up, also brought in HVAC to change the home from propane to natural gas, plus add a heat/AC register to the main bedroom's bathroom. HVAC discovered it had never been tied in to the system. SMH.
2021 - We were house hunting. Found a place we loved that pretty much fit most of our criteria. Before we were scheduled to look at the house, our realtor sent the disclosure sheet. We noticed right away the owners marked "no" for permits for finishing the basement and additional garage. We had our realtor ask if permits were required (100% confident they were in that area) and why they weren't pulled. Seller's realtor responded that permits were required, but not pulled - the owner was a contractor and hired quality contractors to do the work. Major red flags for us. We told our realtor to remove that home from our list.
I think that makes sense, but isn’t that part of the reason we got here? When the economy was doing well in the latter half of Trumps term, the fed didn’t raise rates to levels in line with what the economy was doing. Then when the **** hit the fan in 2020, there weren’t many levers they could pull to help since rates were so low already.
Yep. This wishy-washiness catches up with you eventually.
We need a DNGAF hardass like Volcker something terribly.
It would hurt in the short term but yield long-term benefits.
There is nothing magic about 2% inflation and no reason to believe it leads to better long term outcomes than 3 or even 4%.
Lowering rates in late 2019 was probably a mistake but:
1.) we were still in an historically unique period with low growth and low inflation despite fed rates near 0
2.) we’re now quibbling over what, 1% difference in fed rate going into an historic worldwide pandemic that completely reshaped the worldwide economy
The fed is limited in what it can do to effect the economy - calling for hardline austerity is a sad and misinformed callback to oversimplified economic models that treat humans as perfectly rational actors.
And a $166,800 today =/= a $166,800 house in 10 years. The point is you can't save fast enough relative to increasing home prices at $5/day.
Just saw this pop up on threads - apparently new builds are trending smaller over the last 5 years. I think that’s good news
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How is it greedy for builders to maximize revenue and profit?
Are we all angry GM doesn't build a Cavalier and it's all Tahoes and Pickups?
Their business is to make money. It isn't a public work to provide housing.
I've said for years and years that there is very little difference in cost-of-living outside housing. What you spend for individual items will vary, but viewed as a basket of goods excluding housing those differences offset. If housing is expensive, homelessness is higher.
The "trickle down" theory of real estate - that builders build big/expensive homes for wealthier buyers, who then open up a cheaper house for new/younger buyers - doesn't work when those same wealthy people are renting or improving the cheap houses for income. In the long run we need a big infusion of affordable housing that people can buy to build equity - not cheap apartments/government housing.
I am going to sidestep the points about fiscal policy (TCJA, the various COVID relief bills) and concentrate on monetary policy *now.* Those fiscal measures (wise or not) are all water under the bridge.
I said 150 bp to 250 bp, so as much as 2.5%. Which, on the high end, would mean a ~45% increase in rates. Imaging taking a 30-year fixed from its present 7.23% up to 9.75% or so.
I agree with you an economy can prosper under different inflation rates. Heck, the British economy of the late 19th Century (and the U.S. one to some similar extent) grew quickly under strongly deflationary conditions as industrialization and increased silver production flooded markets with cheap products.
What makes effective monetary policy isn't as much the (somewhat arbitrary, more on that in a moment) target rate chosen. What makes it work is consistency and commitment to the target. Lenders and debtors negotiate terms with the knowledge they need to adjust nominal APRs to a real APR by subtracting the predicted inflation rate. When that target is known and adhered to, this is easy. When it is unknown, you leave room for a great deal of uncertainty about how these loans are going to work out and market efficiency would decrease.
Those markets work better when they know the real time-value of money.
As for the 2% target, I believe the idea was always...
(1.) Inflation is a regressive transfer of income. It is easy for the relatively affluent, college-educated professionals who post here (at least from what I've gleaned of CF's socioeconomics) to scoff at 2% versus 4%, but that a real impact when compounded for low-income people who don't have sources of income that are indexed to beat inflation (e.g., equities, real estate, etc.) the way the affluent can.
(2.) 2% is low enough to be "tolerable" for #1 but not so low it would leave the Fed with no room to maneuver if something disastrous (such as a fun pandemic!) were to inevitably happen.
I never said the Fed's job was easy. I'd be a bit more hawkish than they've been so far. And I think they will be come late 2024 and early 2025 (adjusting for whatever change in conditions by then).
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Absolutely - supply isn't keeping up with demand, its pretty much that simple.
A LOT of that has to do with local regulations and restrictions. e.g. it's a lot easier to build in Des Moines than LA, for example. Some of that is simply land availability, but a lot of big cities (from London to NY to LA) have lots of restrictions and regulations that make building take longer, cost more, or just prevent it outright.
Economist article from 2020 highlighting 3 main drivers (rising labor and material costs, local regulations and NIMBYism, and builder consolidation)
Economist Housing 2020
And a much more recent Op-Ed from NY Mayor calling for (essentially) de-regulation to promote building.
NY Mayor Op-Ed
As an aside, I think one thing that would help in the US, is more acceptance of ownership of "flats" like in Europe. We have our townhomes here, but imagine a 4 or 6 story building instead, with a dozen or so apartments, but you OWN your own apartment and the HOA deals with the roof, maintenance, etc. That creates a lot more places to live, at a lower cost, and small enough footprint to fit into a city. We have them, but I think more would be useful. I suppose more of anything would be useful...
Re: 150 to 250 bp further rise
No serious people currently expect a further red rate increase of even 100 bp, let alone 150 or 250. You can pick whatever over-simplified model you like (Taylor rule - sure, why not), no one wants to see the rate that high. The markets seem to think the rate really won’t go any higher (https://www.atlantafed.org/cenfis/market-probability-tracker). We are already seeing signs that the labor market is slowing significantly
Re: inflation and low-income workers
In the past year we have FINALLY seen real wages rise for low income workers. This counters a trend of DECADES of income erosion for low wage workers, even in much lower inflation environments. IE there is no evidence this current bout of inflation is hurting the working poor, quite the opposite in fact!
Re: inflation hawkishness
We know the impact of fed rate hikes is significantly lagging. Inflation hawks are wanting to increase the chances that something in the economy fundamentally breaks and the causes a recession. Who gets hurt in this scenario? Certainly not people who are sitting in fat stacks!! I’d much rather let it ride with low skill labor-cost driven inflation that trigger a recession that will predominantly hurt the most vulnerable among us