Housing Bust Update: It’s Not Just the Cost of Buying, It’s the Cost of Owning
Home prices are at all-time highs, and — amazingly — are still rising. Compare today’s average price to that of 2007, which is generally thought to be the peak of America’s biggest-ever housing bubble:
And mortgage rates, which were supposed to fall when the Fed started easing in September, are instead rising. 7%, here we come.
Life is clearly hard for those who have to buy a house these days. But for a lot of people who did, at some time in the past, manage to buy a house, there’s another problem: The cost of keeping that house is skyrocketing, putting homeowners in a bind. They can’t sell because no one can buy, but they can’t stay put because the costs of doing so are becoming ruinous. Here’s an excerpt from a recent Charles Hugh Smith post on this topic:
The soaring costs of home ownership are changing the metrics of unaffordability in important ways.
Traditionally, the primary cost of home ownership everyone tracks is the mortgage payment, the famous monthly nut of principal and interest, which of course goes up with the purchase price and the interest rate of the mortgage.
As we all know, both the purchase price and the interest rate have gone up significantly, pushing the mortgage payment as a percentage of median household income up to levels that exceed the previous peak in Housing Bubble #1 circa 2006-08.
But the mortgage payment isn’t the only cost of owning a home. All the other costs that were relatively affordable in decades past are now skyrocketing. Gordon Long lists the six basic categories of home ownership expenses: mortgage, property taxes, insurance, utilities, maintenance and repair and home-related services.
Anecdotally, we’re hearing accounts of basic home insurance jumping from $3,000 to $13,000 annually in high-risk regions. We’re also hearing of insurers abandoning high-risk areas and entire states, leaving homeowners with few options for insurance. In response, some homeowners are “self-insuring,” i.e. they have dropped insurance coverage.
The problem with this option is that should the worst-case scenario come to pass, as a general rule the federal disaster relief agencies will pony up a maximum of $40,000 to the uninsured–far from enough to rebuild or repair a severely damaged house.
Insurers are not in the charity business. Once their losses run into the billions of dollars, they jack up rates to restore profitability. Recall that insurance is a global enterprise, and so the cost of our insurance is partly based on the cost of the reinsurance the big carriers purchase globally. If reinsurance rates rise, everyone’s rates rise accordingly.
Unsurprisingly, homeowners are responding by raising the deductibles in their policy to lower the annual cost. This is a hybrid of “self-insurance,” as homeowners with high deductibles have to have the cash in hand to fund the cost of repairs up to the deductible ceiling.
If you think the rise in the price of groceries is eye-popping, check out property tax increases, which are pushing 30% nationally. Since local governments depend on property taxes for a significant percentage of their revenues, we can expect these taxes to remain “sticky” even if housing valuations decline.
The costs of maintenance and repair are soaring as well as the costs of construction materials and labor have increased, along with the other costs of doing business. Just as the cost of a sandwich or burger seems to be about $15 everywhere, the cost of any home project other than fixing a leaky faucet seems to be $10,000 or more now: tree pruning: $10K, roof repair, $10K, and so on.
The soaring costs of home ownership are changing the metrics of unaffordability in important ways. It’s not just the initial purchase price that defines what’s affordable and what isn’t; so too do the costs of owning the house after our name is on the property tax rolls.
Home Prices Have to Crash
This is clearly an unsustainable market where something has to give. Taxes and insurance premiums have to plunge (dream on), mortgage rates have to plunge (possible but only in some kind of crisis), or home prices have to fall by 30% or more (bordering on “sure thing”).
Having said all that, why does President Trump want Greenland so badly (other than as retribution for not being awarded the Nobel Peace Prize)?
He insists it’s for national security, but, as I mentioned earlier, the U.S. military already has broad access to the island, as spelled out in the 1951 agreement signed by the U.S. and Denmark. Further, Greenland is under the protection of NATO, of which the U.S. is a member. If Russia or China tried to attack it, Article 5 of the treaty would be triggered, activating NATO forces.
Recent reporting suggests that some of Trump’s wealthiest backers see Greenland not as a military outpost or mining play, but as a blank slate. According to Reuters, influential tech investors—including Peter Thiel and Marc Andreessen—have pitched the idea of turning parts of Greenland into a so-called “freedom city,” offering a low-regulation, quasi-autonomous hub for next-gen technologies.
When their domestic yields spike, Japanese capital returns home. That means selling U.S. assets: stocks, bonds, ETFs. That selling pressure cascaded through the global financial system.
Social spending in Europe has roughly doubled in the past 30 years. But only in 2025 has defense spending returned to levels last seen when the Berlin Wall was still standing.
Treasury Secretary Scott Bessent estimated on NBC’s Meet the Press over the weekend that the US has spent 22 trillion dollars on its commitment to NATO. Or, roughly two-thirds of the U.S.’s $38 trillion in national debt.
Social spending in Europe has roughly doubled in the past 30 years. But only in 2025 has defense spending returned to levels last seen when the Berlin Wall was still standing.
Treasury Secretary Scott Bessent estimated on NBC’s Meet the Press over the weekend that the US has spent 22 trillion dollars on its commitment to NATO. Or, roughly two-thirds of the U.S.’s $38 trillion in national debt.
Trump boarded Air Force One this morning for the World Economic Forum in Davos, Switzerland. It’s been one year to the day since his second inauguration. At this year’s summit — already set to break attendance records with 65 heads of state and over 850 global CEOs — Greenland is top of the agenda.
“We’re going to do something on Greenland whether they like it or not,” Trump told reporters earlier this month.
