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This week, Felix Salmon, Emily Peck, and Elizabeth Spiers are joined by housing market analyst and real estate appraiser Jonathan Miller to answer all their burning real estate questions including what’s going on with mortgage rates, how do new luxury buildings affect prices, and why is rent so damn high?

In the Plus segment: Why do people want so much space?
 

TRANSCRIPT

Felix Salmon: Hello and welcome to the Felix lens. What a condo is! Episode of Slate Money, Your Guide to the Business and Finance News of the Week. I’m Felix Salmon of Axios. I’m here with Elizabeth Spiers. Hello. I’m here with Emily Peck. Also, Max is.

Emily Peck: High.

Felix Salmon: And we are here with Jonathan Miller. Jonathan, welcome. And tell us who you are.

Speaker 3: So glad to be here. I am an appraiser and market analyst based in New York that spends way too much time looking at housing numbers.

Felix Salmon: And so when you say market analysts, you’re not talking about stocks, you’re not talking about bonds, you’re talking about the things that we live in now.

Speaker 3: I’m talking about housing market analysts. And every summer I teach market analysis at Columbia.

Felix Salmon: So this is what we’re diving into today. We have a whole episode devoted to the housing market. We’re going to talk about mortgage rates. We’re going to talk about Yimby’s and NIMBYs. We’re going to talk about my favorite subject, which is why do people want so much space? And yes, we are going to talk about this weird, terminal, illogical bizarreness that the Americans have that according to, like whether you rent or own, it’s a different word for the same thing. It’s all coming up on Slate Money. So, Jonathan, we have so much to talk about, but we really do need to start with mortgage rates, because one of my favorite things to write about for as long as I’ve been a finance blogger 20 plus years has been this perennial question of what happened. What is the relationship between the house prices and mortgage rates? Do house prices really go down when mortgage rates go up? Do you have an opinion on this?

Speaker 3: Absolutely. One of the fallacies about the trajectory of home prices is this, say, an external event like rate spike sales activity drops like we’re going through now and inventory rises. And so therefore prices are assumed to fall immediately. And what I’ve learned throughout my career is that prices don’t fall immediately or, you know, correct immediately. And there’s a saying in real estate that prices are sticky on the downside because of the seller doesn’t have to sell and they don’t get their price, they don’t sell. And so there’s usually, you know, anywhere from a 12 to 24 month gap. You know, this situation we’re in now is a little weird. But prices, you know, I believe over the last bunch of recessions generally haven’t come down except for maybe the financial crisis and one other.

Felix Salmon: The 2008 crisis was exceptional in a lot of ways. And it was really led by real estate and people buying houses that they sort of had to sell because they were being foreclosed on.

Speaker 3: Right. Because they they had a pulse, right, to get back in the first place.

Felix Salmon: But for most people, selling a house is less of a necessity. Right? If you feel that you can’t get a good price, you just don’t sell it.

Emily Peck: The key right now, The Wall Street Journal calls it the golden handcuffs of the low mortgage rates that most people have now. I think it’s like eight out of ten people who have a 30 year mortgage are paying less than five, maybe even less than 4%. So no one wants to sell and walk away from really low a really low mortgage rate and then have to face one that’s like twice as much. So everyone, just if you.

Felix Salmon: Bought $1,000,000 house at a two and a half percent mortgage, which was really quite common not that long ago, and now you think to yourself, Oh, I would like to move, you know, over a town and I’ll sell my million dollar house and buy a different million dollar house. Like in principle, according to capitalism, if you buy if you sell something worth $1,000,000 and buy something worth $1,000,000, you should be like flat on the deal and just have to pay transaction costs. But in practice, you know, your mortgage rate is going to double and the amount of money that you have to pay for your house is going to be twice as much now as it, you know, is twice as much on a new place just because the mortgage is going up so much. And why would anyone want to do that?

Speaker 3: Well, I think there’s another calculus, too, is that because rates, in my view, were too low for too long, that million dollar house in the next town is now a million for. So on top of the million for with rates having doubled since the end of December, that’s a much more difficult financial decision.

Felix Salmon: Although presumably like your own house is now I’m only in for as well. Right. So you have more proceeds from selling your own place.

Speaker 3: Yeah, that’s the theory. But you know, the problem I think we’re going to be facing is, well, it’s not a problem. Actually. I think about it is home equity is like at record levels. Right. So we’re not looking at some weird financial market meltdown, but people are still going to stick with the old house until, you know, again, selling prices are sticky On the downside, you’re not going to be seeing, you know, discounting or rapidly discounted home prices in the foreseeable future. I don’t think.

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