Soaring lumber prices add to the cost of a new home(cnbc.com)
cnbc.com
Soaring lumber prices add to the cost of a new home
https://www.cnbc.com/2021/04/30/soaring-lumber-prices-add-36000-to-the-cost-of-a-new-home.html
147 comments
High prices in some areas is about the price of land and not about construction prices.
Residential REITs need to profit when they buy a house. An individiual homeowner doesn't, they can pay more if they want to. And individual homeowners get subsidized loans, and in many states subsidized property taxes, they can have a much lower monthly payment, and afford to offer a higher sale price. So for move in ready homes, the seller will almost always go with an owner occupant.
The real problem is with investors buying homes that aren't move in ready. Rehab loans are expensive and risky, individual buyers can't compete with investors, and the sellers are the ones with the short end of the stick.
Residential REITs need to profit when they buy a house. An individiual homeowner doesn't, they can pay more if they want to. And individual homeowners get subsidized loans, and in many states subsidized property taxes, they can have a much lower monthly payment, and afford to offer a higher sale price. So for move in ready homes, the seller will almost always go with an owner occupant.
The real problem is with investors buying homes that aren't move in ready. Rehab loans are expensive and risky, individual buyers can't compete with investors, and the sellers are the ones with the short end of the stick.
Private Equity funds are using homes as a store of funds - to diversify their holdings and as a long term move. This can be in cash or financed, but they can afford to eat the loss because there is excess capital right now. It's been this purchasing for years that is contributing to the crunch right now.
From an article in September: "Blackstone Group, which blazed a trail for Wall Street in 2012 when it formed Invitation Homes and became the largest owner of single-family rental homes in America, has returned to a familiar watering hole." [1]
It's another way to milk the middle class.
[1] https://www.housingwire.com/articles/blackstone-gets-back-in...
From an article in September: "Blackstone Group, which blazed a trail for Wall Street in 2012 when it formed Invitation Homes and became the largest owner of single-family rental homes in America, has returned to a familiar watering hole." [1]
It's another way to milk the middle class.
[1] https://www.housingwire.com/articles/blackstone-gets-back-in...
The Federal government has a TON of subsidies for first time buyes and even more for veterans.
The issue is part land scarcity driving up the cost of land and part the transition of our economy out of production and into consumerism.
Building has never been cheaper, and even quality has improved, including working through some pretty bad materials changes (like PEX plumbing, or chinese drywall).
We no longer really do nearly as much blue collar work as we used to, and many of the unskilled blue collar jobs have seen ridiculous wage stagnation. Companies have offloaded that to China, Mexico, Vietnam, etc, where they havent automated it.
Heck our population doesnt WANT those jobs. Theres a TON of demand for trades work and more are retiring than filling those gaps, but our society has pushed hard to posit that college is the only path to success and trades work is to be looked down upon.
Add to that our population has never been higher. In fact its growth has stagnated the worst since the Great Depression based on the intials of the 2020 Census, which is not a good omen.[1]
https://www.pbs.org/newshour/nation/census-texas-gains-congr...
The issue is part land scarcity driving up the cost of land and part the transition of our economy out of production and into consumerism.
Building has never been cheaper, and even quality has improved, including working through some pretty bad materials changes (like PEX plumbing, or chinese drywall).
We no longer really do nearly as much blue collar work as we used to, and many of the unskilled blue collar jobs have seen ridiculous wage stagnation. Companies have offloaded that to China, Mexico, Vietnam, etc, where they havent automated it.
Heck our population doesnt WANT those jobs. Theres a TON of demand for trades work and more are retiring than filling those gaps, but our society has pushed hard to posit that college is the only path to success and trades work is to be looked down upon.
Add to that our population has never been higher. In fact its growth has stagnated the worst since the Great Depression based on the intials of the 2020 Census, which is not a good omen.[1]
https://www.pbs.org/newshour/nation/census-texas-gains-congr...
I am under the impression that the change to PEX was good? It sure was adopted fast.
Do you mean it was a significant change?
Do you mean it was a significant change?
There’s been a number of lawsuits involving PEX over the years. Namely defects etc that are failure prone and once installed is a nightmare to repair/replace. And once failed is equally costly to fix.
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Total building costs are more expensive than ever. Regulations, IBC, and consumer feature demand dictate it to be so. I don't know what you're talking about. Quality also hasn't improved, only marginal cost of production of materials has dropped. The actually structural integrity of those materials has worsened over time.
I’m sorry I’m gonna disagree.
Structure designs have improved allowing cheaper/more sustainable framing to be used that are stronger. Allowing a range of materials from simple pine framing, to block etc. modern wood framing designs can withstand a lot better storm ratings than even 20 years ago. Especially when you add things like hurricane straps in the south etc.
Roofing materials last longer and are cheaper and more sustainable able than old cedar shingles etc. modern sheathing instea of using massive 2x6 or 2x8, asphaul shingles instead of cedar etc. both better, cheaper and more sustainable.
Siding is better and cheaper and last longer. Again comparing any wood siding to hardy board over time. Vinyl in the right climate as well.
Electrical the same. Proper sheathed copper wire over shit like knob and tube or cloth insulated wire is cheaper AND a whole lot safer. Same with modern breakers, including afci and gfci.
Plumbing? Modern shchedule 40 pvc is a lot cheaper, and more flexible than copper. And even modern pex (when done right)can be even better and allow a single plumber to hump hundreds of yards of the stuff with one arm.
Drywall is better than that old plaster lathe stuff in most cases.
Insulation? Spray in cellulose and foam is infinitely better and cheaper, allowing much higher r values and a single guy to install over even the common fiberglass batten stuff of 20 years ago that was awful if you breathed it in or got direct skin contact.
Windows? Double pane vinyl with gas insulation is worse than the single pane blown glass? Come on.
Sure. Regulations and codes are higher and more strict. But that comes with the cost of most of the materials being better and easier to handle.
The fact that it’s cheaper is a testament to how houses in general are much bigger than they were in the 50s. But anything you build will always need maintenance.
Structure designs have improved allowing cheaper/more sustainable framing to be used that are stronger. Allowing a range of materials from simple pine framing, to block etc. modern wood framing designs can withstand a lot better storm ratings than even 20 years ago. Especially when you add things like hurricane straps in the south etc.
Roofing materials last longer and are cheaper and more sustainable able than old cedar shingles etc. modern sheathing instea of using massive 2x6 or 2x8, asphaul shingles instead of cedar etc. both better, cheaper and more sustainable.
Siding is better and cheaper and last longer. Again comparing any wood siding to hardy board over time. Vinyl in the right climate as well.
Electrical the same. Proper sheathed copper wire over shit like knob and tube or cloth insulated wire is cheaper AND a whole lot safer. Same with modern breakers, including afci and gfci.
Plumbing? Modern shchedule 40 pvc is a lot cheaper, and more flexible than copper. And even modern pex (when done right)can be even better and allow a single plumber to hump hundreds of yards of the stuff with one arm.
Drywall is better than that old plaster lathe stuff in most cases.
Insulation? Spray in cellulose and foam is infinitely better and cheaper, allowing much higher r values and a single guy to install over even the common fiberglass batten stuff of 20 years ago that was awful if you breathed it in or got direct skin contact.
Windows? Double pane vinyl with gas insulation is worse than the single pane blown glass? Come on.
Sure. Regulations and codes are higher and more strict. But that comes with the cost of most of the materials being better and easier to handle.
The fact that it’s cheaper is a testament to how houses in general are much bigger than they were in the 50s. But anything you build will always need maintenance.
This is a great summary of material and construction improvements over the past decades. I get frustrated that housing is not the same engineered quality and does not improve as quickly as consumer electronics, but it is improving.
Median incomes are irrelevant to housing developers. All that they care about is whether there are enough customers to buy their products. The developers typically don't lend to customers so the only risk is that demand might collapse in the middle of a project. A lot of small developers went bankrupt during the last recession because they had borrowed to build new projects and then couldn't sell the completed homes.
The federal government wouldn't really be able to prevent REITs from buying up homes.
The federal government wouldn't really be able to prevent REITs from buying up homes.
> The federal government wouldn't really be able to prevent REITs from buying up homes.
Why wouldn't it? If this was bad enough the government could just pass limitations on it. Hell, the government could probably ban REITs overnight if that was wildly popular.
Why wouldn't it? If this was bad enough the government could just pass limitations on it. Hell, the government could probably ban REITs overnight if that was wildly popular.
If you want to support individual home ownership against well-capitalized REITs, I think you basically need local governments to impose some kind of vacancy tax and/or an non-owner-occupancy tax. Otherwise individuals will never have the financial firepower to keep up.
If that's your goal, you should also support the mortgage interest deduction (to put owner-occupied borrowing on the same footing as commercial borrowing) and the deductibility of state/local real estate taxes on your federal return (for the same reason).
Even if the industry is unpopular there's not that much appetite for legislatively killing it at the drop of a hat because everyone knows that's not a good precedent to set.
More realistic would be substantially increased taxes on non-primary residences.
More realistic would be substantially increased taxes on non-primary residences.
> Median incomes are irrelevant to housing developers.
That's a bunch of horse hooey, as the customers in all housing markets (outside of a few global cities) are all local. Median income + credit conditions = how much buyers can afford.
> The federal government wouldn't really be able to prevent REITs from buying up homes.
Of course not, but no matter what kind of black magic Blackstone is weaving, they cannot get a more than a trivial number of people to rent a 3BR apt for $10K / month (approx price for nice 3BR in Manhattan). Once again, the population's median income is the driver.
That's a bunch of horse hooey, as the customers in all housing markets (outside of a few global cities) are all local. Median income + credit conditions = how much buyers can afford.
> The federal government wouldn't really be able to prevent REITs from buying up homes.
Of course not, but no matter what kind of black magic Blackstone is weaving, they cannot get a more than a trivial number of people to rent a 3BR apt for $10K / month (approx price for nice 3BR in Manhattan). Once again, the population's median income is the driver.
The financial/economic forest is way overgrown and no one wants to be the one to set it on fire.
I agree. Politicians have weak incentive to push back I assume?
If you do, you put average people at REITs out of work. This isn't a terrible thing if you ask me, because not much of it is real estate specific. REIT HR people can find work at other companies, developers and salespeople, too. But it's not a good look, I suppose?
Real estate is a real problem that no one seems to want to touch. "The rent is too d*mn high!"
If you do, you put average people at REITs out of work. This isn't a terrible thing if you ask me, because not much of it is real estate specific. REIT HR people can find work at other companies, developers and salespeople, too. But it's not a good look, I suppose?
Real estate is a real problem that no one seems to want to touch. "The rent is too d*mn high!"
A fun question we kick around and model in a financial forum I participate in is, “How much insolvency occurs economy wide for every 100 basis points (1%) the Fed increases their interest rate target?”
If interest rates go up, real estate and equities prices come down, and US gov borrowing costs increase. Borrowing costs go up for zombie firms and they fail. How much appetite is there for any of that? The same as long term central back interest rate policy: zero.
If interest rates go up, real estate and equities prices come down, and US gov borrowing costs increase. Borrowing costs go up for zombie firms and they fail. How much appetite is there for any of that? The same as long term central back interest rate policy: zero.
No, if interest rates go up, the acceleration of real estate and equities prices will slow. There are too many real factors which are causing the acceleration of housing prices for interest rates hikes to totally cancel it out.
Interest rate hike would probably cascade to a recession blowing up realestate in the process
REITs are not the problem. Land speculation is the problem. Worst part is that the gov promotes this, and voters eat that shit up as well("Your mortgage is an investment").
https://en.wikipedia.org/wiki/Land_value_tax is the solution.
https://en.wikipedia.org/wiki/Land_value_tax is the solution.
> but I do know that in particular areas of the US, you just straight up cannot afford a home anymore on median income
Correct. The national median income is insufficient to purchase a home in the most expensive cities in the country. That seems reasonable?
The national median household income is about $65,000. That’s enough to afford a mortgage of somewhere in the $300,000 to $350,000 range.
Is that enough for San Francisco? Absolutely not. But that will buy you a nice house in the vast majority of the country.
California has garbage housing policies. San Francisco is even worse. You can buy a lovely place in Dallas, Kansas City, Atlanta, etc on national median income.
Correct. The national median income is insufficient to purchase a home in the most expensive cities in the country. That seems reasonable?
The national median household income is about $65,000. That’s enough to afford a mortgage of somewhere in the $300,000 to $350,000 range.
Is that enough for San Francisco? Absolutely not. But that will buy you a nice house in the vast majority of the country.
California has garbage housing policies. San Francisco is even worse. You can buy a lovely place in Dallas, Kansas City, Atlanta, etc on national median income.
> Correct. The national median income is insufficient to purchase a home in the most expensive cities in the country. That seems reasonable?
It's not clear if the GP was referring to national median income. My interpretation was that they may have been referring to local median income. Is the median family income of SF ($136k, I think) enough to buy a home there?
It's not clear if the GP was referring to national median income. My interpretation was that they may have been referring to local median income. Is the median family income of SF ($136k, I think) enough to buy a home there?
People have different definitions of "affordable." To me, a gross $65,000 household income, less after taxes, is not enough to be able to afford a home within that price range. It's probably closer to below $275,000.
I do agree with you regarding location, though.
I do agree with you regarding location, though.
Completely agree. A lender in Iowa told us they approve up to 35% of gross income. Not certain if that was total servicing all debts, or their limit on the mortgage percentage payment. 65k could buy a ~300k house at a 3.25% interest rate.
I talked with an attorney from San Francisco on a plane once. When they bought their first house, 70% of their income was going towards the house. Raises helped that become a more reasonable percentage over the year.
Fast forward a few years, their family grew and they wanted to be further towards the edge of the city. They sold the house at a huge profit and put that money towards a bigger house further out. Different perspective in different markets.
I talked with an attorney from San Francisco on a plane once. When they bought their first house, 70% of their income was going towards the house. Raises helped that become a more reasonable percentage over the year.
Fast forward a few years, their family grew and they wanted to be further towards the edge of the city. They sold the house at a huge profit and put that money towards a bigger house further out. Different perspective in different markets.
That works until the bubble pops, and then really only for for families with high incomes. In your example, let's assume its 70% of take-home (it has to be after tax, or they would literally have nothing left). Taking home 300K, it's easy to live off of 90K. Taking home 100K, it's harder to live on 30K a year. Taking home 65 and doing that, it's not going to happen.
The cost of most household consumables is largely fixed, even as income scales. One can have expensive taste and increase that, but you can only spend so much on toilet paper and laundry detergent.
The cost of most household consumables is largely fixed, even as income scales. One can have expensive taste and increase that, but you can only spend so much on toilet paper and laundry detergent.
You should never buy a home that costs more than 2x your yearly income.
So yeah, you should make at least $137,500 if you want to buy a $275k house.
So yeah, you should make at least $137,500 if you want to buy a $275k house.
I mean that feels pretty simplistic. Like most things, it depends.
There are many things that I could know or believe that affect the calculus. For example I might get promoted next year and make more money or whatever.
There are many things that I could know or believe that affect the calculus. For example I might get promoted next year and make more money or whatever.
Or laid off, or get into an accident.
In which case the equity you've built up in a house can help serve as a cushion, either by obtaining a home equity loan or if circumstances don't allow that because you don't have a paycheck you can cash out the equity by selling the home. Absent on economic downturn, even if you sell within the first 1-2 years you should be able to roughly break even and then downsize to a cheaper apartment.
The only times I see renting as a better economic option is when the monthly mortgage + property & utility costs are significantly more expensive than renting, AND there's an excellent chance of needing to relocate within the next 3-5 years before much equity is built up.
At earlier stages in a career, somewhat frequent relocations are common. But for a large part of the population who, especially as they age into their 30's+, want to stabilize such things in the interest of staying close to family, or make their own family, a greater level of geographic stability is very desirable and can be achieved without much if any career sacrifice if the location is strategically chosen, and buying a house at that stage almost always makes economic sense in the long term.
Of course there are some people who will always want to periodically uproot themselves every few years to new locales, and there's nothing wrong with that either, but I guess my point is that these differences in lifestyle choices significantly change where the economic balance falls.
The only times I see renting as a better economic option is when the monthly mortgage + property & utility costs are significantly more expensive than renting, AND there's an excellent chance of needing to relocate within the next 3-5 years before much equity is built up.
At earlier stages in a career, somewhat frequent relocations are common. But for a large part of the population who, especially as they age into their 30's+, want to stabilize such things in the interest of staying close to family, or make their own family, a greater level of geographic stability is very desirable and can be achieved without much if any career sacrifice if the location is strategically chosen, and buying a house at that stage almost always makes economic sense in the long term.
Of course there are some people who will always want to periodically uproot themselves every few years to new locales, and there's nothing wrong with that either, but I guess my point is that these differences in lifestyle choices significantly change where the economic balance falls.
You can easily spend more than the equivalent of 2x your annual income by renting, in terms of higher monthly cost, than by purchasing a home.
Take for example a $300,000 house w/ 4% mortgage. That works out to roughly $1,400/month. Even if you only make $75,000/year, it makes perfect sense to buy that house even if rents are a little lower than $1,400/month. (and current 30yr average rates bring that down to about $1225/month)
In my area, a small 2 bedroom house in a reasonably nice area will cost about $300,000, so the $1225 to $1,400/month rate applies. Renting a 2 bedroom apartment with less sqft for common spaces, in a similar area, will cost about $1800 to $2000. This is significantly more than is required to make up for property taxes levied on top of the mortgage when actually purchasing.
So I'm really not sure where you're getting your 2x figure. That's the sort of statement, absent context & explanation, that really doesn't add much to the conversation.
(On top of this, apartment complexes in my area have been nominally keeping monthly rates the same, but disaggregating utility costs from the rent, charging separately for heating, water, sewage, and garbage collection... at least for a year or two. After people get used to those additional fees, the complexes begin raising rents again too. I don't blame them too much, there's plenty of rental demand, but it changes the balance between renting & purchasing even more)
Take for example a $300,000 house w/ 4% mortgage. That works out to roughly $1,400/month. Even if you only make $75,000/year, it makes perfect sense to buy that house even if rents are a little lower than $1,400/month. (and current 30yr average rates bring that down to about $1225/month)
In my area, a small 2 bedroom house in a reasonably nice area will cost about $300,000, so the $1225 to $1,400/month rate applies. Renting a 2 bedroom apartment with less sqft for common spaces, in a similar area, will cost about $1800 to $2000. This is significantly more than is required to make up for property taxes levied on top of the mortgage when actually purchasing.
So I'm really not sure where you're getting your 2x figure. That's the sort of statement, absent context & explanation, that really doesn't add much to the conversation.
(On top of this, apartment complexes in my area have been nominally keeping monthly rates the same, but disaggregating utility costs from the rent, charging separately for heating, water, sewage, and garbage collection... at least for a year or two. After people get used to those additional fees, the complexes begin raising rents again too. I don't blame them too much, there's plenty of rental demand, but it changes the balance between renting & purchasing even more)
Home ownership is more than just the cost of your mortgage.
And in many markets, especially in big expensive cities like NY & SF, it costs more money to buy than to rent.
And in many markets, especially in big expensive cities like NY & SF, it costs more money to buy than to rent.
Precisely, which is why the "don't buy a home more than 2x annual salary" doesn't seem like a good rule: there are too many variables. Where I am, total cost of ownership for a small two bedroom house is generally slightly less than the cost of 2 bedroom apartment that is also smaller, and comes with the benefit of building equity. A clear advantage (in my mind) if you're going to stay there for a few years because you'll build at least a little equity and average property values will increase at least a little bit. In my case I have a moderate sized home and pay about than 70% of the rent rates for anything nearby with the same # of bedrooms & about 500sqft smaller, even after property taxes, utilities, and average monthly maintenance costs.
On the other hand I have family that live in an area where apartment rents are much cheaper than the monthly TCO for buying, and even if you can afford to buy renting makes more sense (unless you need 3-4 bedrooms for a family) because rents are so much cheaper & it is better to put the difference between monthly costs into an index fund and build equity that way.
On the other hand I have family that live in an area where apartment rents are much cheaper than the monthly TCO for buying, and even if you can afford to buy renting makes more sense (unless you need 3-4 bedrooms for a family) because rents are so much cheaper & it is better to put the difference between monthly costs into an index fund and build equity that way.
It's not even my rule. The 2x rule is older than shit...Just as time has gone up people are stretching it to 2.5x and 3x.
Another rule you can go with is the Rule of 28 if you prefer. These guidelines exist for a reason. Ignore at your own peril.
Lenders look at these things when considering giving you money. Using more leverage usually gives the bank a better deal than you.
Another rule you can go with is the Rule of 28 if you prefer. These guidelines exist for a reason. Ignore at your own peril.
Lenders look at these things when considering giving you money. Using more leverage usually gives the bank a better deal than you.
> These guidelines exist for a reason.
They exist because of the economic context at the time and place that they were generated, which may not have been valid for much more than that immediate context.
If you can find and examine the mathematical assumptions about cost and risk that justify the rule of thumb against current conditions, then you can make an informed evaluation of whether or not it applies to the current situation. If you can’t, like folk remedies, the advice is as likely to harmful as helpful in your actual concrete circumstances.
They exist because of the economic context at the time and place that they were generated, which may not have been valid for much more than that immediate context.
If you can find and examine the mathematical assumptions about cost and risk that justify the rule of thumb against current conditions, then you can make an informed evaluation of whether or not it applies to the current situation. If you can’t, like folk remedies, the advice is as likely to harmful as helpful in your actual concrete circumstances.
[deleted]
Hey, what do I know?
I'm just debt-free millennial with a fully paid off house and car looking to purchase investment property #2 on another 15-year mortgage while renting an apartment in Manhattan.
I'm just debt-free millennial with a fully paid off house and car looking to purchase investment property #2 on another 15-year mortgage while renting an apartment in Manhattan.
This is just math. You don’t have to earn $200,000/year to afford a $400,000 property. Borrowing $400k costs about $2000/mo. Call it $2500 with taxes and maybe an HOA. That’s about $30,000/year, or 15% of $200,000. Take home on 200 will be north of $150.
Mortgage rates are sub 3% today. That rule of thumb that’s “been around forever” existed when rates were 10%. Such a rule can not possibly be the same when the rate changes so dramatically.
The consistent rule is what percent of your take home you’re comfortable spending. Not many people - owners or renters - spend under 15% on housing.
Mortgage rates are sub 3% today. That rule of thumb that’s “been around forever” existed when rates were 10%. Such a rule can not possibly be the same when the rate changes so dramatically.
The consistent rule is what percent of your take home you’re comfortable spending. Not many people - owners or renters - spend under 15% on housing.
There's also a risk management calculation here. Sure the easy money and high leverage works if your life circumstances only change for the positive.
I've also seen lots of people in the last two years who had made similar sound decisions who were then furloughed, or lost their jobs, or got sick, or got REALLY sick and ended up losing everything.
If you want to make higher risk bets, there are better avenues for it and certainly ones that you don't live in and risk losing.
I've also seen lots of people in the last two years who had made similar sound decisions who were then furloughed, or lost their jobs, or got sick, or got REALLY sick and ended up losing everything.
If you want to make higher risk bets, there are better avenues for it and certainly ones that you don't live in and risk losing.
Okay, that's fantastic. I am honestly glad that you are doing well, there's no reason that many more people couldn't also have that financial security. But your personal anecdotal experience does not demonstrate that 2x should be the universal rule.
I am also a millennial, but I spent 4x for my house but now have a fully paid-off investment home and a 10% equity mortgage on my primary residence only because of recent home improvements and the fact that the low interest rates mean my excess money is much better used investing in an index fund instead of paying that 10% out of pocket by cashing out the investments. I have zero other debt, not a dime, not on credit cards, not on anything.
There are multiple paths to financial stability that do not have to involve a single rule. I'm glad it worked for you, but circumstances differ greatly between people.
I am also a millennial, but I spent 4x for my house but now have a fully paid-off investment home and a 10% equity mortgage on my primary residence only because of recent home improvements and the fact that the low interest rates mean my excess money is much better used investing in an index fund instead of paying that 10% out of pocket by cashing out the investments. I have zero other debt, not a dime, not on credit cards, not on anything.
There are multiple paths to financial stability that do not have to involve a single rule. I'm glad it worked for you, but circumstances differ greatly between people.
There is no one size fits all, there is no inherent peril in ignoring these general rules. The age of the rules are irrelevant, whether you use expletives to describe them or not.
There is peril in ignoring the specifics of your own individual economic circumstances. If you make $300,000/year and aren't carrying significant other debt then you can afford 4x salary for a $1.2 million house because the ratio of your non-housing expenses do not have to scale upwards with your salary. At 4% interest that's $72k/year, leaving ample room for spending on a comfortable life style while still saving 20% of your salary. In fact that is actually less than your Rule of 28. Alternatively, if you make $300k/year but have $80k in credit card debt and additional business debt made on a personal guarantee then even a 2x house may be too expensive.
Situations vary based on much more complex factors than the salary:$home ratio. Simplistic rules are a greater peril than individual analysis.
There is peril in ignoring the specifics of your own individual economic circumstances. If you make $300,000/year and aren't carrying significant other debt then you can afford 4x salary for a $1.2 million house because the ratio of your non-housing expenses do not have to scale upwards with your salary. At 4% interest that's $72k/year, leaving ample room for spending on a comfortable life style while still saving 20% of your salary. In fact that is actually less than your Rule of 28. Alternatively, if you make $300k/year but have $80k in credit card debt and additional business debt made on a personal guarantee then even a 2x house may be too expensive.
Situations vary based on much more complex factors than the salary:$home ratio. Simplistic rules are a greater peril than individual analysis.
if home prices keep surging on a real basis , a 30-year morttgage becomes attractive proposition, especially given how cheap it is to borrow .
Does anyone remember this type of home buying craziness is what happened just before the bust of 2008?
It's different this time ;-) In 2008 there was a lot of new construction that wasn't yet sold, and people bought houses out in the boonies sometimes, but they got loans they could never pay for - expecting the house would appreciate and they justify a new loan, or sell it soon for more money. Prices fell and they couldn't get a new loan or pay their old loan.
Today there is a housing shortage, & that's driving up prices. I'm sure there are some people hoping to flip their houses, but all I read is there is much more stringent mortgage requirements than before and in hot markets at least there are multiple offers. So it's similar in a vague way, but it's much different in it's the housing shortage that is driving a lot of the price increase today. Still, eventually I expect the shortage to ease, builders will make more houses, so that should lower the pressure or lower prices, eventually, at least somewhat.
If people aren't buying so many houses they can't afford, then shouldn't the problem of mass loans going back to the bank be avoided?
Today there is a housing shortage, & that's driving up prices. I'm sure there are some people hoping to flip their houses, but all I read is there is much more stringent mortgage requirements than before and in hot markets at least there are multiple offers. So it's similar in a vague way, but it's much different in it's the housing shortage that is driving a lot of the price increase today. Still, eventually I expect the shortage to ease, builders will make more houses, so that should lower the pressure or lower prices, eventually, at least somewhat.
If people aren't buying so many houses they can't afford, then shouldn't the problem of mass loans going back to the bank be avoided?
Has anyone looked at the cost of food or gas lately? Interest rates need to go up. It is beyond stupid that I was able to refinance my house at 1.75% on 15 year loan in December. My previous loan was 4% on a 30 which already was extremely low. It’s giving people free money who don’t need it. Side effect is the inflation that punishes the poor even more.
Anecdotally agree 100% with this. I notice that the grocery prices for food that I typically purchase have either risen noticeably (by as much as 12% for certain Asian food items) and/or are suffering from shrinkflation (e.g., when I make breakfast for me and my wife, I was not able to fit four bread slices on an IKEA plate that I use at home; but starting a couple of weeks ago, the bread slices--same brand and still paid the same price of $1.50/bag--now fit perfectly on the IKEA plate and this is not just because of the abnormally small batch of bread. I have bought bread two weeks in a row to know for sure that the sizes have shrunk).
This. I've seen several sectors where prices are going up, and everyone always points to narrow causes particular to that sector for prices going up. But everyone seems to ignore the fact that when you add trillions of dollars to the economy one of the most understood results is that it increases inflation.
Precisely... my loan was actually too small to qualify for the lowest rates, according to research & some friends in the business, rates like 1.75% were mostly for $250k+ loans, but I was still able to refinance a line of credit we'd used to expand out house years earlier to such a lower interest rate that we're saving more than 20% off our previous monthly payment & about $50k off the total life of the loan (assuming we do an extra payment toward the principal every once & a while, which we were doing anyway).
Basically if you have a home loan from 2+ years ago & still have the same level of steady income, it probably makes sense to refinance.
Basically if you have a home loan from 2+ years ago & still have the same level of steady income, it probably makes sense to refinance.
> assuming we do an extra payment toward the principal every once & a while
At the risk of veering into financial advice, paying extra principle early is almost never a good idea. Instead, put that money aside into an investment account and use it to pay off the mortgage once the sum is greater than the balance.
Assuming markets beat your interest rate, you'll have a higher return and you have the emergency fund in case something catastrophic happens. If you pay that to the bank you can't get it back in an emergency, and you will only cut down on the front-loaded interest--which will likely be under market returns.
At the risk of veering into financial advice, paying extra principle early is almost never a good idea. Instead, put that money aside into an investment account and use it to pay off the mortgage once the sum is greater than the balance.
Assuming markets beat your interest rate, you'll have a higher return and you have the emergency fund in case something catastrophic happens. If you pay that to the bank you can't get it back in an emergency, and you will only cut down on the front-loaded interest--which will likely be under market returns.
At the risk of veering into financial advice...
Fine, but if my investments tank I'll be getting a subpoena for your IP from HN, and then from your ISP for you, so I can sue you for issuing financial advice without a license, thus causing me significant material harm. /s
Actually you're right, that's a very good idea.
Fine, but if my investments tank I'll be getting a subpoena for your IP from HN, and then from your ISP for you, so I can sue you for issuing financial advice without a license, thus causing me significant material harm. /s
Actually you're right, that's a very good idea.
Line of Credits typically go off of prime which is why you didn't get the lowest rate. Most institutions do something like prime + x%. If it was a 15 year fixed or 3 year ARM, then you most likely would've gotten an awesome rate.
We were refinancing a currently open (and fixed rate) line of credit we no longer needed into a lower interest traditional mortgage.
Why pay off the principle when there are investment grade assets that pay higher return than the interest you’re paying. Not sure what they are now but municipal bonds were paying between 3% and 4% last year which is tax free. Interest rates being so low is just crazy.
Does inflation punish the poor more? It punishes people with savings, and people with savings are generally not poor. Inflation also helps anyone with a loan (because that loan just got "smaller"), and people with a lot of debt are generally poor as well.
It does punish them because minimum wage isn't indexed to inflation.
Right now I'd say probably the middle class it hurts the most. They would have more cash savings.
High net worth individuals it would hurt less as they usually have way more in assets such as stocks. But in the middle class, their stock exposure is often limited to their 401k or retirement plan.
I know quite a few people who had a downpayment in cash waiting to buy a house before this all started and are still looking. That value of cash went down quite a lot over the past year. Houses are up 40-50% YOY in some cases here (Arizona).
If wages don't go up though, this will also hurt the poor significantly.
High net worth individuals it would hurt less as they usually have way more in assets such as stocks. But in the middle class, their stock exposure is often limited to their 401k or retirement plan.
I know quite a few people who had a downpayment in cash waiting to buy a house before this all started and are still looking. That value of cash went down quite a lot over the past year. Houses are up 40-50% YOY in some cases here (Arizona).
If wages don't go up though, this will also hurt the poor significantly.
I think it is not yet obvious if it will hit the poor or the middle class the most.
> Some builders have said they are slowing production in the face of exorbitant costs, but single-family housing starts were up 41% in March year over year, according to the U.S. Census. Builders are clearly trying to ramp up production as fast as they can to meet soaring demand.
For the next several months we'll be in a period of base effects. That means that year over year comparisons are going to look alarming.
Think back to what was happening one year ago. The economy almost completely shut down. Return to "normal" is going to give a lot of weird readings.
Articles like this should point this out, but don't. They should note, for example, the % drop in single-family housing starts YoY for 2020 for comparison.
The article hints at the phenomenon, but fails to actually quantify it. This leads to a more sensationalistic article that might attract eyeballs, but does a poor job of informing.
For the next several months we'll be in a period of base effects. That means that year over year comparisons are going to look alarming.
Think back to what was happening one year ago. The economy almost completely shut down. Return to "normal" is going to give a lot of weird readings.
Articles like this should point this out, but don't. They should note, for example, the % drop in single-family housing starts YoY for 2020 for comparison.
The article hints at the phenomenon, but fails to actually quantify it. This leads to a more sensationalistic article that might attract eyeballs, but does a poor job of informing.
You’re not wrong about housing starts, but as far as the lumber prices goes it’s not a base effect. The price was already increasing pre-covid and covid shutdowns accelerated the trend.
From what I've heard, this is mostly a function of...
1) Lumber mills shutting down because of weak demand and tariffs.
https://www.woodworkingnetwork.com/news/woodworking-industry...
2) Curtailment of remaining production because of coronavirus
https://www.woodworkingnetwork.com/news/canadian-news/corona...
3) The housing market going a little nutty
https://www.vox.com/22264268/covid-19-housing-insecurity-hou...
4) I imagine record low interest rates also contributed
1) Lumber mills shutting down because of weak demand and tariffs.
https://www.woodworkingnetwork.com/news/woodworking-industry...
2) Curtailment of remaining production because of coronavirus
https://www.woodworkingnetwork.com/news/canadian-news/corona...
3) The housing market going a little nutty
https://www.vox.com/22264268/covid-19-housing-insecurity-hou...
4) I imagine record low interest rates also contributed
Also:
- WFH people fleeing high COL cities, buying fixer-uppers, and paying whatever to renovate
- Rolling covid shut-downs of companies that make wood products like OSB glue or treated wood chemicals
- Freight costs
- Trailing effects from a bad fire season and the Texas ice storm repairs
- Tariff repercussions
- Russia is planning to stop exporting raw logs next year. They are about 12% of the worlds supply.
- Speculators profiting off the volatility
- WFH people fleeing high COL cities, buying fixer-uppers, and paying whatever to renovate
- Rolling covid shut-downs of companies that make wood products like OSB glue or treated wood chemicals
- Freight costs
- Trailing effects from a bad fire season and the Texas ice storm repairs
- Tariff repercussions
- Russia is planning to stop exporting raw logs next year. They are about 12% of the worlds supply.
- Speculators profiting off the volatility
>- Russia is planning to stop exporting raw logs next year. They are about 12% of the worlds supply.
Why would they do this? Is this a way of getting back at the US for sanctions? Seems like they're shooting themselves in the foot.
Why would they do this? Is this a way of getting back at the US for sanctions? Seems like they're shooting themselves in the foot.
> Why would they do this?
Raw logs are an input; it drives up the price for external industries dependent on lumber and drives them down for domestic industries, sacrificing raw material exports for more competitive intermediate and finished goods exports.
Since for the most part economic development depends on having exports as far toward the finished goods end of the raw material to finished goods spectrum, its not an insane strategy if you can deal with the short-term dislocations.
Shifting competitive advantage is harder than leaning in to your existing competitive advantage, but sometimes your existing competitive advantage is a long-term loser.
Raw logs are an input; it drives up the price for external industries dependent on lumber and drives them down for domestic industries, sacrificing raw material exports for more competitive intermediate and finished goods exports.
Since for the most part economic development depends on having exports as far toward the finished goods end of the raw material to finished goods spectrum, its not an insane strategy if you can deal with the short-term dislocations.
Shifting competitive advantage is harder than leaning in to your existing competitive advantage, but sometimes your existing competitive advantage is a long-term loser.
Does it feel like we have squeezed a critical part of our infrastructure here allowing it to close down or go bankrupt? This could have lasting affects for decades.
When something goes bankrupt they don't necessarily send in the prohibition-like police with axes to bust up all the machines and stuff or something.
So basically people in the US voted for higher prices, so that they can keep their job that can't compete on international markets, and they got what they voted for.
> Lumber tariffs had prices already rising a year ago, but then when the pandemic hit, production shut down. The expectation was that housing demand would dry up for a long time. But instead, after a brief pause, it came roaring back.
How can this be the case when lumber prices are surging in Canada as well? You'd expect that if the price was in response to tariffs then the origin country would be flooded with supply?
How can this be the case when lumber prices are surging in Canada as well? You'd expect that if the price was in response to tariffs then the origin country would be flooded with supply?
The big bottleneck is mill capacity (as evidenced by the fact that timber prices have not increased much). Unexpected high demand is driving most of the rest of it. Both of those affect Canada as well. Tariffs are only a small part of the overall cost increase.
If this is the case, then lumber should be backwardated right now.
checks the futures market
And indeed it is. May trades 40% above Nov on CME.
So if you want to buy a rural house, you can just....wait until a couple of years after the pandemic?
I don't know why you would rush to build a house right now, unless you want to live in technocrat-favored places like Austin and Denver that are seeing demand creation due to permanent WFH among Big Tech companies.
checks the futures market
And indeed it is. May trades 40% above Nov on CME.
So if you want to buy a rural house, you can just....wait until a couple of years after the pandemic?
I don't know why you would rush to build a house right now, unless you want to live in technocrat-favored places like Austin and Denver that are seeing demand creation due to permanent WFH among Big Tech companies.
My understanding is the Canadian government put limits last year on how much timber could be cut. So their prices were going up no matter what.
Mills are the issue, not timber. There's an excess of raw timber right now, all of the wood from the wildfires in the PNW last year is being salvaged currently.
it's not just firewood supplies (not sure how much that impacts the market, and the PNW has a more or less permanent fire season each year now anyhow) - The market has been glutted with raw timber for a decade. There has been a huge oversupply for quite a while. This continues to today - just because lumber mills are making money hand over fist doesn't mean raw timber producers are.
Marginally profitable mills shut down/go bankrupt when tariffs are introduced, and unlike AWS instances cannot be spun up on demand.
Does it feel like we have squeezed a critical part of our infrastructure here allowing it to go bankrupt? This could have lasting affects for decades.
Canadian lumber has always been a political football for American politicians to kick around whenever they needed to score some points, so we're used to this sort of thing.
Like any resource extraction industry, it goes boom, it goes bust, it recovers.
Like any resource extraction industry, it goes boom, it goes bust, it recovers.
They don't necessarily melt down the machines and recast them as ingots in a bankruptcy.
Production slowed down - less wood was cut. Then demand didn't drop as much as expected and so the supply is down a bit.
I wouldn't buy a house now if I could help it. It only seems reasonable because of extremely low rates. That is also the same thing driving equity valuations in our field to historically unusual levels. This is partially driven by market and partially driven by monetary policy, and it really can't go much lower than it is. Rate increases have a large increase on the present value of a mortgage of stock.
I didn’t bet on this, have excess funds and pulled the trigger last month and closed on a home where I want to be. I don’t think I’d care if the price dropped 50% tomorrow, I’m where I want to be in the long run and my rate is a near record low.
Buy a house because you want one, and because you like the specific house. Just not because it's an investment or FOMO. If you pay $100,000 more than you would at a 100 higher basis points, but you live in it 20 years you will certainly build back equity and hedge yourself against rents to make up the difference.
There are places where home prices are just getting back to where they were in 2006, though. You can certainly end up underwater on a mortgage and stuck. Property taxes, insurance, and maintenance are high fixed costs with a home.
There are places where home prices are just getting back to where they were in 2006, though. You can certainly end up underwater on a mortgage and stuck. Property taxes, insurance, and maintenance are high fixed costs with a home.
The universe is determined to keep as many millennials from buying homes as it can.
>The universe
That's a funny way to spell government appointed central bankers who fix the price of money.
That's a funny way to spell government appointed central bankers who fix the price of money.
You cannot blame CBs. I despise the current monetary policy as much as the next person but this is a function of society. We have stopped believing in “no pain no gain”. We think that everyone should be gifted a painless utopian existence in which nothing bad ever happens.
Darwinian forces always win.
Darwinian forces always win.
I'm not sure you fully understand the experience of the typical young adult in this country right now. I'd say the phrase 'all pain no gain' is closer to reality. Compared with even the last generation (who had it pretty bad compared to the generation before them) the opportunity to have a reasonable standard of living is greatly reduced.
millennial home ownership rates is only slightly below boomers when matched for age
Where do you get that, because this article says otherwise:
> Millennials are less likely to be homeowners than baby boomers and Gen Xers. The homeownership rate among millennials ages 25 to 34 is 8 percentage points lower than baby boomers and 8.4 percentage points lower than Gen Xers in the same age group.
https://www.urban.org/sites/default/files/publication/98729/...
> Millennials are less likely to be homeowners than baby boomers and Gen Xers. The homeownership rate among millennials ages 25 to 34 is 8 percentage points lower than baby boomers and 8.4 percentage points lower than Gen Xers in the same age group.
https://www.urban.org/sites/default/files/publication/98729/...
Not according to this article: https://www.washingtonpost.com/business/2020/01/20/millennia...
"When baby boomers hit a median age of 35 in 1990, they owned nearly one-third of American real estate by value. In 2019, the millennial generation, with a median age of 31, owned just 4 percent... that gap will probably narrow by the time they see 35. But they’re not likely to reach 30 percent of the housing market — or even the 20 percent attained by the smaller Generation X at the same point in their lives."
"When baby boomers hit a median age of 35 in 1990, they owned nearly one-third of American real estate by value. In 2019, the millennial generation, with a median age of 31, owned just 4 percent... that gap will probably narrow by the time they see 35. But they’re not likely to reach 30 percent of the housing market — or even the 20 percent attained by the smaller Generation X at the same point in their lives."
As the article notes, much lumber production shut down believing COVID would significantly impact demand, but that was really not the case except for a very short period of time.
In my area in particular, I live outside of a city hit hard by COVID, and that had lots of workers who could transition to WFH. The combination means that city dwellers have flocked to the local suburbs in massive quantities, often buying up the cheapest houses & either immediately expanding them or simply knocking them down completely to rebuild from scratch. As a result, not only is it difficult to find local contractors available for even minor home improvements, local property values have spiked as much as 30% over the last 14 months. This has been greatly assisted by mortgage interest rates that as incredibly low-- I just refinanced and saved about 20%/month on my mortgage and an overall $50,000 saving over the life of the loan.
In my area in particular, I live outside of a city hit hard by COVID, and that had lots of workers who could transition to WFH. The combination means that city dwellers have flocked to the local suburbs in massive quantities, often buying up the cheapest houses & either immediately expanding them or simply knocking them down completely to rebuild from scratch. As a result, not only is it difficult to find local contractors available for even minor home improvements, local property values have spiked as much as 30% over the last 14 months. This has been greatly assisted by mortgage interest rates that as incredibly low-- I just refinanced and saved about 20%/month on my mortgage and an overall $50,000 saving over the life of the loan.
A lot more builders should be looking into steel framing. Light gauge steel has also gone up, but nowhere near as much as lumber. For the typical project, it's probably cheaper now than wood framing. Especially when you take into account that steel framing can be pre-cut at a factory with CAD software, requiring much less skilled labor onsite.
And steel makes a much better frame. Fire resistant, termite free, mold free, holds up better in earthquakes and floods, stronger, doesn't rot, doesn't warp. The problem with the construction industry takes way too long to adapt new patterns, even long after shifting technology and economics makes it compelling.
And steel makes a much better frame. Fire resistant, termite free, mold free, holds up better in earthquakes and floods, stronger, doesn't rot, doesn't warp. The problem with the construction industry takes way too long to adapt new patterns, even long after shifting technology and economics makes it compelling.
Steel framing also has a tiny fraction of the r-value of wood. It might seem like the framing element is irrelevant but it adds up quickly. A layer of R-19 batt insulation is 63% less restive to heat transfer (effectively R-7.1) when installed in an assembly of 2x6 metal studs on 16" centers, compared with R16 in the same assembly in wood.
I see this in new construction in my area and have wondered about having a electrically conductive frame. Any danger there? Also how do you mount anything if you don't have wood studs?
A lot of wood framing is being done at factory and then assembled on site.
I wonder how these prices factor into the regular inflation calculation.
Even last year, when I was buying lumber from Home Depot, they cancelled parts of my order, raised the price on certain items by almost 20% and never added them back.
I had to fight them for a week and it took over a month just to get a fairly modest amount of lumber delivered.
Even last year, when I was buying lumber from Home Depot, they cancelled parts of my order, raised the price on certain items by almost 20% and never added them back.
I had to fight them for a week and it took over a month just to get a fairly modest amount of lumber delivered.
So about 0.3% of the price of an SF Bay Area home?
At least in this area, the price has a lot more to do with NIMBYism than the cost of materials.
At least in this area, the price has a lot more to do with NIMBYism than the cost of materials.
There's essentially no new housing being built in the Bay in general, so I suppose the cost of lumber is moot.
This is the real problem IMO. We need more dense condos like Chicago, where the median condo price is 268k versus other large cities where it is almost double that.
This is just people being taking advantage of their housing...investment/tax shelter/savings plan that is bidding the price up.
Look at something like this zero red flags that I can see for $219k that is much cheaper than in most other large cities, housing doesn't have to be this expensive. https://www.redfin.com/IL/Chicago/1706-W-Huron-St-60622/unit...
This is just people being taking advantage of their housing...investment/tax shelter/savings plan that is bidding the price up.
Look at something like this zero red flags that I can see for $219k that is much cheaper than in most other large cities, housing doesn't have to be this expensive. https://www.redfin.com/IL/Chicago/1706-W-Huron-St-60622/unit...
Condo prices have gone down in the Bay Area since COVID. The problem is everyone wants a SFH suburban lifestyle in the Peninsula, Marin, or East Bay hills. That’s a luxury and you’re going to pay a premium for it.
But are still EXTREMELY expensive relative to most of the US, not because of materials costs.
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If you had the money and power to solve this problem how much housing would you build in the Bay Area?
I'd make SF and all the large costal cities look like this https://upload.wikimedia.org/wikipedia/commons/a/a4/Hong_Kon.... That is enough density to have a condo cost 100k instead of 500k. Sure there will be a decent amount of taxes and HOA fees, but that would turn housing into a utility rather than a government subsidy for the middle class. Also you could wire fibre to each unit and solve the internet speed problem for these NIMBYified cities.
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Why must it be "need more dense condos like Chicago" when you can just move to Chicago?
If other large cities change to be more like Chicago, then you might change your opinion of them.
If other large cities change to be more like Chicago, then you might change your opinion of them.
Problem is - lumber prices are about the same across the country. In SF Bay area and some middle of nowhere, where such lumber increase makes a significant difference.
Lumber prices are not the same nation wide because lumber is not thaaaaat expensive to manufacture per volume/weight so shipping costs to get it from mill the mill to the end user are a larger and larger portion of cost the farther from the mills you get.
I just compared prices of 2x4 and construction grade plywood between Lowes location in SF area and Austin area. They are pretty much the same. I agree, distance from the mill will matter, but not to a significant degree (not 3 times for sure)
IME big box store prices are 2-3x that of a real lumberyard for low volumes. I don't think they're reflective of the rest of the market, especially at high volumes. When you're talking an order of 100 or 1000+ board feet from a lumberyard, it's a completely different story. I've had situations where the last mile delivery fee alone was 25% of the cost, not including the cost to get it to the lumberyard in the first place.
That’s besides the point. Divide both numbers by 2-3x and the argument stands.
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What's even crazier is that the builders are identifying that even with the increased price for lumber, demand is still there—people are willing to eat the cost. I don't imagine builders will be decreasing their prices after there being plenty of lumber supply.
It doesn't take much to start a construction company. Most of them have foremen who are perfectly able to quitting and starting their own company. Both the new and existing company will hire a few new people (zero experience needed, start today at $18/hr - or some wage that gets people in) and so there are more in construction overall.
As such builders will try, but once lumber prices go down a bit they will probably lower prices to attract customers. Plumbers and the like might get a little more many as they are harder to train up, but for the most parts there is enough competition that passing savings on to customers is going to happen.
As such builders will try, but once lumber prices go down a bit they will probably lower prices to attract customers. Plumbers and the like might get a little more many as they are harder to train up, but for the most parts there is enough competition that passing savings on to customers is going to happen.
Unless they are colluding that's not how a free market works. If supply is truly plentiful, someone will be willing cut prices to gain sales. Others will then have to follow or watch their customers disappear.
Doesn't that assume that you can scale relatively quickly? Otherwise the effect can stay marginal.
You can though. Most of the labor is in skills that are easy to teach. You can take your half your seconds and promote to foremen, the other half as seconds under the old seconds. The foremen get the old third line as seconds, and you hire all new third-line people. There are a few people who aren't worthy of, or don't want that promotion, but overall the limit is how fast you can convince inexperienced people to work for you. This process can repeat yearly. You can also work more overtime - money talks to a lot of young people.
You do take a small productivity hit, so it isn't all smooth. Still there is plenty of opportunity to expand to meet demand.
You do take a small productivity hit, so it isn't all smooth. Still there is plenty of opportunity to expand to meet demand.
With residential construction, most of the jobs are being contracted and subcontracted out, so promoting new foreman, etc. isn't even overhead the builder worries about. They just get new crews bidding on jobs out of nowhere
You are at least half right. The new crews are not out of nowhere though - the builders know who the good foremen are, so when those foremen go on their own they will take them. Builders don't just take bids from anyone, they call the companies they always use to bid on a job. The builders often keep the same crews busy year round: there is no bidding, just at the end of one job they tell the crew where the next job is. When a builder has more work than crews they contact their current sub contractors and ask if any want to expand.
I recently met with a builder who said exactly this: prices are up quite a bit, but he expects they'll be sticky and stay high.
it's likely still cheaper than buying into the overpriced housing market right now
My family moved into our newly built home in the northern suburbs of Pittsburgh in Oct. of last year. We were part of the first group of buyers in a relatively new plan of higher-end homes.
Since Oct. of last year, the base price of our model has gone up $215,000 and every lot in this phase (phase 1) has now sold. I suspect at least half of that increase is materials, and the rest is due to market demand.
The market is just crazy and in talking to my builder he has said supply shortages could last through EOY and into next.
Since Oct. of last year, the base price of our model has gone up $215,000 and every lot in this phase (phase 1) has now sold. I suspect at least half of that increase is materials, and the rest is due to market demand.
The market is just crazy and in talking to my builder he has said supply shortages could last through EOY and into next.
Honest question: why are houses in the US primarily built with wood? Is it just because it’s cheaper?
Even if it’s cheaper, is it worth to have a cheaper but obviously less durable building when compared to brick and mortar?
It’s always been baffling for my southern European mind.
Even if it’s cheaper, is it worth to have a cheaper but obviously less durable building when compared to brick and mortar?
It’s always been baffling for my southern European mind.
Depends on where you are in the US. There are a lot of brick and stone buildings in the northeast. Florida because of hurricanes they tend to build houses out of cinder block. In California because of earthquakes they tend not to build with masonry.
That said the US historically had a lot of wood. Most everywhere. So it was cheap and light[1] easy to transport. And wood if it's kept dry is durable. My house is 70 years old. The wood framing is totally solid. Previous house is 115 years old. The framing is also solid.
[1] House built of wood is probably 1/4 the weight of a house built of masonry.
That said the US historically had a lot of wood. Most everywhere. So it was cheap and light[1] easy to transport. And wood if it's kept dry is durable. My house is 70 years old. The wood framing is totally solid. Previous house is 115 years old. The framing is also solid.
[1] House built of wood is probably 1/4 the weight of a house built of masonry.
It goes up much quicker and requires less highly skilled tradesman to build and to maintain.
There are new developments in the states where they produce the frames for the various housing 'templates' off-site, and then ship it to the plots and build the house there, almost like a lego kit.
There are new developments in the states where they produce the frames for the various housing 'templates' off-site, and then ship it to the plots and build the house there, almost like a lego kit.
A wood frame is much better in earthquakes; it just happily flexes. Steel is an alternative but until the plague was more expensive than wood.
At least in my area, brick houses are actually less durable because they crack on our shifty soils
I'm from the suburbs of Chicago and brick and mortar are very very normal there.
For my gf (in the usa), it's aesthetics. Though I look at brick and think "longevity." Perhaps historically it was cheaper/easier to use local wood and that image stuck with people?
Nothing is built with brick anymore. If you see a newer than 1940s brick house, its a stick frame (wood) with a layer of brick outside it for aesthetics. Also people associate brick with longevity, but as several of my friends in old ass brick row homes, their foundations are crumbling, and are usually in need of serious structural repair. Brick isnt bomb proof like people think it is. Its even more susceptible to long term stress from wind shear.
Relic from boom after WW2, many houses needed to be build fast.
Sheet of plywood last year = $8, this year = $54.
What are the specs on this "sheet of plywood" that was $8 any time within the past decade? Maybe some crappy OSB? Or one of those precut 2x2 panels?
7/16" OSB went from $8 to $55 in Los Angeles. ACX is around $75 now.
Rough.
I'm just sitting here wanting to build a new desk and some shelves, like I guess winter is a better time for projects anyway. Although I haven't actually priced plywood in my area yet, maybe the nice stuff has gone up comparatively less.
(and maybe LA will finally learn how to make multistory buildings out of something besides wood?)
I'm just sitting here wanting to build a new desk and some shelves, like I guess winter is a better time for projects anyway. Although I haven't actually priced plywood in my area yet, maybe the nice stuff has gone up comparatively less.
(and maybe LA will finally learn how to make multistory buildings out of something besides wood?)
These prices are nationwide (and apparently international?). I think it is worst for construction grade material but I haven't called a real lumber yard to get prices on hardwood or cabinet grade plywood.
I was going to build a greenhouse out of poplar but noped out of that design and went with a hoop house made from bent fence posts.
I was going to build a greenhouse out of poplar but noped out of that design and went with a hoop house made from bent fence posts.
If we're using anecdata, I've seen $20 plywood sheets going for $40 which is double the normal price, but not 7x.
I think it depends on region. I've heard of $20 sheets going to $70+ in California, and I could see someone who is close to production in Oregon seeing an increase from <$10 to >$50.
Where was a sheet of plywood ever $8? Even a sheet of masonite has been over $8 for years...
Gen-X: "We've got all this extra cash because we couldn't fly anywhere or go on cruises. Let's build our dream home in the mountains."
Boomer: "Well, the 401-K is up a ton. Can't seem to spend the cash pouring out. Let's upgrade the house and buy a second home somewhere nice."
Millenial: "We still have no savings because rent is insane and incomes have not kept up with inflation for decades as capital has played a larger role in growth than labour. We continue to have no long term security from a pension. I guess we'll just keep slaving away..."
Boomer: "Well, the 401-K is up a ton. Can't seem to spend the cash pouring out. Let's upgrade the house and buy a second home somewhere nice."
Millenial: "We still have no savings because rent is insane and incomes have not kept up with inflation for decades as capital has played a larger role in growth than labour. We continue to have no long term security from a pension. I guess we'll just keep slaving away..."
While not representative, I would imagine that for most millennial HN users, 2020 was their best year in terms of financial gain: roaring stock market, wfh and CoL savings, insane crypto boom, record level bonuses, etc.
I do understand that it isn't a representative picture, but among my friends, none of us have ever done so well financially in our entire lives.
I do understand that it isn't a representative picture, but among my friends, none of us have ever done so well financially in our entire lives.
It's been a K shaped recovery. Certainly a lot of people have benefitted and did even better than past years despite the pandemic, but for a lot of others they haven't.
Been great for me as well but outside of people in tech, I don't know too many in crypto as they didn't have the funds to risk in the first place. Nor do they have much stock exposure outside of their 401k.
Been great for me as well but outside of people in tech, I don't know too many in crypto as they didn't have the funds to risk in the first place. Nor do they have much stock exposure outside of their 401k.
Bitcoin enters the game.
I anticipate that mortgages will continue to push past 30 years into a strange 45-year+ territory, and we'll begin to see Japan-like multi-generational mortgages. Actually, in reality this is already happening, because people buying homes past the age of 37 (think retirement at 67, but these people are still working and trying to figure out estate handling late in the game) are passing on their mortgage to their children. I am personally seeing this with my friends. No headroom for paid off inheritances!
Alternatively, if the federal government does not prevent it from happening, residential REITs will buy them all up and force people to rent.