I'm not sure if a fix would be so easy. Housing prices have been rising everywhere, even in small cities like my home town, where a decent amount of construction is going on.
I think that the biggest reason for growing housing prices are the currently low interest rates.
There are two factors that cause rising prices (due to low interest rates):
1) It's more affordable than ever to borrow money, so people are willing to pay higher prices, and even people with little savings can afford to buy a home. At 8% interest rates nobody would be able to afford current prices. This means that sellers can ask much higher prices.
2) Since interest rates are so low, people are increasingly looking at the housing market as an investment opportunity. Aspiring homeowners now have to compete with deep-pocketed investors leading to a further increase in prices.
So I think that housing prices would naturally fall if interest rates went up. (Of course, for young people without savings this makes little difference; they would likely end up paying just as much due to higher financing costs.)
> I'm not sure if a fix would be so easy. Housing prices have been rising everywhere, even in small cities like my home town, where a decent amount of construction is going on.
Yeah, this doesn't get enough attention. Everyone's so focused on NYC / Boston / San Francisco / Seattle / Denver, that they're missing that this problem is happening almost universally, in the vast majority of markets across the US.
I live in a very small city in flyover Midwest that commonly hits the top ten "affordable places to live" lists, and has the lowest average incomes of any market in the entire US. Despite all of that, even here our costs have skyrocketed. Monthly rents have doubled over the past five years.
It's feels like another housing bubble, but this time everyone is refusing to let it pop.
So I think that housing prices would naturally fall if interest rates went up.
The problem is that falling house prices put people "underwater", and rising interest rates put people on variable rate mortgages in arrears. This inflicts a huge amount of pain on middle class floating voters.
Yes, I think this is a huge problem -- if interest rates rise again, a lot of people will suffer. Therefore policy makers have a big incentive to keep interest rates low.
I don't know how this will end, but I don't think that the current low interest situation, which incentivises credit and discourages saving, can be stable in the long run.
Both of those things encourage economic growth, though. Until we come up with some better way of meeting our demand-side needs, rates are going to stay low.
Well that's the downside of variable rate, yes, but that's more of a feature than a bug.
Locking in the interest rate costs a little bit more (in the form of a higher fixed rate), so perhaps the folks taking the variable rate weren't financially prepared to handle those terms in any case?
I think one way to soften the blow could be to make all property sales, even your first home that you live in full-time, fully capital-gains taxable. Homes need to be seen less as investment vehicles.
Not sure if you're being sarcastic, but the whole point of making the changes to the capital gains taxes is so that it only affects people who sell. The old ladies will simply be earning less profit when they _sell_ their homes, there would be no "huge tax bill" while they are still living in them.
I think that the biggest reason for growing housing prices are the currently low interest rates.
There are two factors that cause rising prices (due to low interest rates):
1) It's more affordable than ever to borrow money, so people are willing to pay higher prices, and even people with little savings can afford to buy a home. At 8% interest rates nobody would be able to afford current prices. This means that sellers can ask much higher prices.
2) Since interest rates are so low, people are increasingly looking at the housing market as an investment opportunity. Aspiring homeowners now have to compete with deep-pocketed investors leading to a further increase in prices.
So I think that housing prices would naturally fall if interest rates went up. (Of course, for young people without savings this makes little difference; they would likely end up paying just as much due to higher financing costs.)