When I bought my first house, mortgage rates were at 18%. We put 30% down with help from my parents. The owner, who was the aunt of a friend, gave us a 5 year loan at 12 %. We felt so very lucky. We knew that buying a house was the best investment.
In California, Proposition 13 that passed in 1978 had created a boon for commercial property owners who sell much less frequently than home owners. Described as a savior for senior citizens on fixed incomes, it threw local governments into a structural fix somewhat resolved by the state raising income taxes and giving most of it back to local governments. It changed peoples’ behavior. They stayed in their homes longer which affected the housing market. New buyers pay current property tax rates which can be 5x their neighbors.
Fast forward to the low interest rates of the 2020’s. Everyone who could, refinanced to a 3% or lower rate and no one sells now who doesn’t have to. Renting is cheaper (not cheap), and potential new buyers see more value investing in the stock market if they have anything left over after buying gas and food.
7% rates would have been amazing when I bought my first house. Everyone knew that property values go up in California. They also go down at times. In migration from other states and foreigners fueled 30 years of increasing values. Current government policies make it difficult for anyone to come to the U.S. to visit or to live.
Wherever new housing is built, interest rates matter to all of us. As do gas and food prices. We can’t ignore the effect government actions have on us as individuals and companies.
Issues this complicated can’t be ignored. They need all of us to lean in to address the underlying drivers and make some hard choices.
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