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”).
By 2026, all four supports will demonstrate that they’ve weakened simultaneously. As true as it may or may not be, it’s not likely to be understood, let alone covered by old-school national media.
Debt narrows choices. War hardens politics. False bureaucratic authority substitutes for something, trust, maybe. Nationalists will be more than willing to fill the vacuum.
Europe’s fracture will feel gradual. Policy coherence will erode further. Markets will adapt and look to the Middle and/or Far East to finance the Ponzi finance on display in New York and London.
Our forecast will feel obvious in hindsight and controversial in advance — the hallmark of a Grey Swan.
Most analysts we speak to are thinking in terms of the history of Western conflict.
They expect full-frontal military engagement.
Beijing, from our modest perch, prefers resolution because resolution compounds its power. Why sacrifice the workshop of the world, when cajoling and bribery will do?
Wars, technology races, and political upheavals — all of them rest on fiscal capacity.
In 2026, that capacity will tighten across the developed world simultaneously. Democracies will discover that generosity financed by debt carries conditions, whether voters approve of them or not.
Bond markets will not shout so much as clear their throats. Repeatedly.
Taken together, the seven Grey Swans of 2025 behaved less like isolated events and more like interlocking stories readers already recognize.
The year moved in phases. A sharp April selloff cleared leverage quickly. Policy shifted toward tax relief, lighter regulation, and renewed tolerance for liquidity. Innovations began to slowly dominate the marketplace conversation – from Dollar 2.0 digital assets to AI-powered applications in all manner of commercial enterprises, ranging from airline and hotel bookings to driverless taxis and robots.
