A weekend topic starting with the Pagosa Daily Post. “As Colorado policymakers step up their efforts to address the state’s housing shortage, they’re encountering a similar problem: Colorado’s housing market, and the state and local policies that shape it, don’t always behave like they should. Nearly everyone agrees that it costs too much to buy or rent a home in Colorado these days. So why has it proved so difficult for state and local governments to simply pass measures that will increase the supply of housing? The answer, in large part, is the dark matter of housing politics — a truth that is rarely if ever directly acknowledged in legislative hearings or news stories but exerts a powerful influence on the policy outcomes we have been able to see. The truth is that for many Coloradans, the housing affordability crisis hasn’t been a crisis at all. It’s been a bonanza.”
“The total market value of all residential property in Colorado more than doubled over the last decade, from $483 billion in 2013 to well over $1 trillion today according to state data. Only a small portion of that increase came from the 300,000 or so units of new housing stock built during that period. The rest — an astounding windfall of nearly $500 billion in new wealth — simply accrued to the homeowners, landlords, lenders and investors who owned the state’s other 2.3 million housing units.”
CBS Boston in Massachusetts. “If you have been avoiding pricey Cape Cod rentals in the past then this may be your year to take a vacation. Prices have been dropping the last few years, and that trend is expected to continue. Cape Cod is teeming with rental properties. The Cape Cod Chamber of Commerce says there are more than 18,000 short-term rental properties on the Cape. They say that sum is more than in New York City. Part of the reason for the spike is COVID. People fled to the Cape and bought homes to escape pandemic lockdowns, but now that COVID has slowed down, and the Chamber says more people are renting or selling. This is increasing inventory and helping the price go down.”
“Desiree Antonio owns two properties. ‘That [Sandwich] one books really fast and has the last couple of years. This newer property, we have only had it just a few months. It’s not booking as fast, even though they have had some activity. That’s probably due to saturation in the market and economy,’ explains Antonio.”
The Tampa Bay Times. “Marley Price’s boyfriend likes to play video games in his spare time. She prefers to find potentially illegal short-term rentals and report them to code enforcement. Price, 27, has made a hobby out of reporting potential violators to St. Petersburg Code Compliance. She has filed at least 108 complaints since starting this work two months ago. According to the city, 88 of those properties reported by Price have received violation notices. ‘It’s not fun that I have to deal with that because the city doesn’t want to enforce their own codes. But I just feel like if not me, who?’ Price told the Tampa Bay Times. Price began filing complaints in February after her long-term neighbor died and his home was sold. She said a California couple bought the Disston Heights home and flipped it into a rental listed for $350 a night.”
From News4JAX. “A report released by the Northeast Florida Association of Realtors came with equal doses of good news and bad news. Housing became less affordable in St. Johns, Clay and Baker counties while it actually became more affordable to live in Nassau. Some News4JAX viewers are feeling the financial pinch. ‘I am a mother of 3, bought my home in 2022 and the property taxes and insurance has gone up so much I am currently facing foreclosure. I am a current Florida National Guard member and can’t make enough to keep up,’ one viewer wrote.”
Palo Alto Online in California. “Unfazed by fluctuations in mortgage rates, our local housing market is bustling. This year has seen a bump in inventory, attributed to the release of pent-up supply from 2023. Notable spikes in new listings have been observed across the board during the first quarter of this year: Palo Alto witnessed a 28% increase, Menlo Park soared by 38%, and Los Altos took the lead with an impressive 50% rise in new listings across single-family homes, townhomes and condos. A recent sale in Palo Alto exemplifies this upward trend in housing prices: A property in the city’s Professorville neighborhood, bought by the seller a year ago, was recently sold with a 16% markup. While this delights sellers, it’s also forcing buyers to quickly recalibrate their price expectations in this cutthroat market. Although the current median price remains 14% lower than the peak recorded two years ago, it’s poised to keep climbing as the spring season progresses.”
“Despite the fervor surrounding the housing market, approximately 30% of homes are struggling to find buyers. These lingering listings often fall into the high-end segment priced above $10 million or those labeled as ‘projects,’ requiring substantial renovations or complete rebuilds. Homes in the the ‘hot spot’ segment priced below $5 million that remain unsold are typically over-priced, missing the initial sale window.”
CBS Sacramento. “With major insurance companies announcing they would not renew California home insurance policies, some people in El Dorado County were left scrambling. Many community members said they’ve either been dropped from their policy altogether or they can’t afford the price anymore. ‘It just keeps climbing, and, I mean, it’s becoming a crisis,’ George Osborne, Camino resident, said.He said fire insurance has been an issue he has dealt with since the Camp Fire. ‘We had Farmers and then we went to Merced and Merced went bankrupt in Paradise. They had an oversubscribed amount of people, I guess,’ Osborne said. ‘We’ve got great neighbors, but it’s just becoming too much.’”
“Even if people end up wanting to sell their homes, longtime Pollock Pines realtor Bill Buetow said it may not be that simple. ‘Deals will drop out if you can’t qualify. The way you qualify now for buying a home, you have to submit a bid, an insurance bid, and they’ll take that into consideration,’ Buetow said.”
The Times Colonist in Canada. “Victoria’s Angela Mason joined a civil suit battling the province’s new short-term rental restrictions because she is ’devastated’ by the negative impact on her property-management business and on her personal unit in a historic downtown building. She predicts her entire income will evaporate under the new rules, slated to come into effect May 1. Mason runs Amala Vacation Rental Solutions Ltd. with Ryan Sawatsky, where client numbers have plummeted from 90 in the city’s downtown to fewer than 30. Their staff numbers have shrunk from 36, and Mason anticipates that the business will decline further. Her clients do not own multiple properties but have one unit for short-term rentals advertised on online platforms such as Airbnb, Mason said Friday. They typically hold the unit as an investment and it might be a retirement property, she said.”
“Mason, for example, said she cannot afford to buy a house so she rents a house for her family. In summer 2023, she bought a 500-square-foot studio condominium in the former Oriental Hotel in the 500 block of Yates Street to use as a short-term rental, as was legally allowed. It was to be an investment for her future. It’s a ‘cool space’ with skylights, but has no storage, Mason said. She said her legal right to rent the unit is being taken away. ‘I’ve done everything right. Nothing illegally.’ Asked where her income will come from in the future, she laughed ruefully and said: ‘That’s a great question.’”
The Courier Press. “Stubbornly high housing prices are one of the main reasons for the steep drop in young Canadians’ ‘sense of hopefulness,’ according to Statistics Canada. Given the state of the market, their hope seems unlikely be buoyed anytime soon. Last year, interest rates were the highest they have been in 22 years and inflationary pressures, especially shelter costs, remain strong. Together, inflation and interest rates are eroding Canadians’ purchasing power. Already, one in three mortgage-holders has been forced to stretch their amortization period beyond the standard 25 years, which means paying off the mortgage years later at higher cost. And longer amortizations contribute to higher housing prices, according to the Office of the Superintendent of Financial Institutions (OSFI), Canada’s banking regulator.”
“To address the crisis, the Department of Finance should investigate whether Canada’s banks along with Canada Mortgage and Housing Corporation (CMHC), the agency that guarantees Canadian mortgages, are sufficiently buffered to offer longer-term fixed rates than the conventional five-year term held by most homeowners. With interest and monthly payments renegotiated every five years, what Canadian banks call a ‘fixed-rate mortgage’ is really a variable rate loan with five-year resets. This provides much less risk protection than a long-term loan in which the interest rate and payment remain fixed for the life of the loan, which is the norm in the U.S.”
“The evolution of the 30-year mortgage in the U.S. began as one of the major interventions following the Great Depression, in which mortgage terms as short as one-year and fully repayable had created an avalanche of foreclosures. New Deal laws allowed funding for residential construction companies that also acted as lenders. Mortgages became collateral and were sold to investors as securities. By 1938, policy led to the creation of Fannie Mae (the Federal National Mortgage Association). As a government-sponsored agency it performs three functions. It buys up mortgages from the banks, freeing their capital and allowing them to pursue more mortgage sales; it bundles mortgages and sells them to investors; and it guarantees mortgages against default. Over the years, fixed mortgage terms stretched to 10 and 15 years.”
“In 1968, the Johnson administration re-organized Fannie Mae as a shareholder-owned, government-backed company. This led to the dominance of the 30-year mortgage. Today, more than 90 per cent of U.S. homeowners choose 30-year mortgages. Fixed rates over such a long term protect homeowners against future rate hikes, while also allowing refinancing if interest rates drop. When interest rate risk is assumed by more sophisticated mortgage buyers and investors who can hedge against market fluctuations, 30-year mortgages can stabilize a country’s financial markets.”
“Several reasons are commonly cited for why Canadian banks don’t extend loan periods beyond five years. First, banks’ retail deposits remain their core mortgage funding source. But only deposits with maturities of up to five years qualify for deposit insurance. To persuade depositors to accept longer deposit terms, banks would need to offer higher interest rates. These added costs would inevitably be passed on to borrowers. To balance a creditor’s assets and liabilities, argue the banks, a five-year term is needed. And Canadian banks don’t have the privatized government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac (the Federal Home Loan Mortgage Corporation) to securitize the country’s mortgages.”
The Globe and Mail in Canada. “The federal Liberals capped off a run of prebudget housing announcements with new pledges on Friday, including plans to crack down on mortgage and real estate fraud, to restrict the purchase of single-family homes by large, corporate investors and to provide low-interest loans of up to $40,000 for secondary suites. On Thursday, the government made announcements specifically aimed at new homebuyers, with a plan to allow 30-year amortizations – up from 25 years – for insured mortgages on newly built homes. Ottawa said extending the amortization limit for insured mortgages – those made with a down payment less than 20 per cent of the property’s purchase price – in these circumstances will enable more young Canadians to afford a monthly mortgage payment and will encourage new supply.”
“The government also said Thursday, without providing much in the way of details, that it will allow some existing borrowers to permanently extend their amortization period so that they can reduce their monthly mortgage payment to a level they can afford.”
“However, the CMHC and others have warned that longer amortizations could stoke housing demand and spur higher prices. Ottawa has already taken a number of steps to keep mortgage defaults at bay, such as pushing lenders to lower distressed borrowers’ payments with amortization extensions. This pushes default risk into the future.”
From Mises.org. “Bernie Sanders, Elizabeth Warren, and the Congressional Progressive Caucus recently sent an open letter to the chairman of the Federal Reserve, Jerome Powell, demanding lower interest rates. The letter is full of the economic illiteracy one would expect from progressives, especially those in Congress. For example, it misreads price inflation data and argues that the failure to lower interest rates endangers home affordability and increases income inequality. These assertions are false and easily disproven.”
“Artificially low interest rates lead to more of the same economic sickness—malinvestment, bloated government and personal debt, and a never-ending cycle of boom and bust that enriches the political class while impoverishing the average American. Congressional progressives state that homeownership is becoming unaffordable due to ‘persistently high interest rates.’ This is backward, like saying the overweight got that way by taking too many walks. While focusing on today’s slightly higher mortgage rates, progressives ignore what low interest rates do to home prices in the first place. Artificially low rates increase home prices, and pushing rates near zero, as the Fed did in 2020, increases home prices substantially.”
“In the last ten years, the Case-Shiller US National Home Price Index has doubled, a 7.2 percent annual rate of increase. Since wages have risen at a much-slower rate, affordability has plummeted. The ratio of the average home price to median household income has increased from roughly 3.5x in 2010 to more than 5.5x today. Both of these factors—slow real wage growth and higher home prices—are a direct result of artificially low interest rates. The progressive caucus has been conspicuously silent about this phenomenon despite their rhetoric in support of the working class.”
“As interest rates are suppressed, finance and adjacent industries crowd out honest endeavors, savings collapse, and psychological energy builds up in speculation as opposed to productive effort. Over time, this results in economic sclerosis—a drastic misallocation of resources marked by a rigid economy unable to grow, innovate, and adapt.”
“Very low interest rates benefit the wealthy and their financiers, who have access to credit and capital, while harming savers, the proverbial widows and orphans. The average American is thus harmed in two ways—things get more expensive, and earning a return on savings gets more difficult. In order to compensate for this lack of safe interest-bearing options, the average American is forced to ‘stretch for yield’ through speculation. This set of factors increases their risk of capital loss and puts them further into debt. As it stands, Americans are more in debt than ever before and less capable of pulling themselves out of it.”
“Progressives want low interest rates for the same reasons Republicans want them—to grease the skids for more asset bubbles and greater government spending that enriches them and their donors. As Murray Rothbard pointed out, ‘There is nothing more important to a bureaucrat and his organization than their income.’ However, low interest rates and asset bubbles don’t make nations richer. They simply move value from the future to the present, thus reducing future investment returns, depressing investment activity, and shifting the motivations of the populace from production to speculation.”
“Economist Frédéric Bastiat said that bad economists pursue small current benefits for large future disadvantages while good economists pursue large future benefits at the expense of small disadvantages in the near-term. Progressives in Congress are not just bad economists, they’re bad liars too.”