[HN Gopher] Making sense of what's going on in the housing market
___________________________________________________________________
Making sense of what's going on in the housing market
Author : wyldfire
Score : 135 points
Date : 2021-04-21 14:39 UTC (8 hours ago)
(HTM) web link (cobylefko.medium.com)
(TXT) w3m dump (cobylefko.medium.com)
| JanisErdmanis wrote:
| There are multiple contributors who have made the housing market
| as it is now. The general trend which characterizes the situation
| is that wages of average folk are rising at A% whereas the
| housing prices with B%. At the beginning of the 1970s, a teacher
| in the UK earned decent housing in 5 years, whereas today, it
| would take around 40 years under a mortgage.
|
| In practice, we see that wages had stagnated over the last
| decades. From a political perspective, it is a change of economic
| philosophy from supporting consumer demand to supporting the
| supply of producers. On the other hand, there is a factor of
| migration. People coming from lower-income regions are putting
| pressure on local folks to negotiate wage increases, partly also
| supplemented with not fully accepting immigrants in labor unions.
|
| The factors which make B% high are the increase of loans VS wages
| and guaranteed state protections for nonperforming loans to
| squeeze everything out of the debtor. Then there are urbanization
| and speculation on it. Common folk more likely getting better
| loan conditions in places where it is expected that the property
| price will grow. That, in turn, stimulates urbanization and vice
| versa.
|
| Also, a factor is capital scarcity in the housing market. In the
| environment where central banks are buying stocks of
| nonperforming mega corporations to refloat them (optimistically
| saving pension funds), there is no better investment than owning
| such a stock. Hence the housing market is incentivized to serve
| those whose income grows with B% or known also as the wealthy 1%.
| wallacoloo wrote:
| HN: unaffordable housing is among the top-5 problems facing my
| generation. Where are the career opportunities? What are the
| specific startups and companies working to decrease the cost of
| housing who might hire me on?
|
| I understand much of this is an issue of policy (e.g. zoning),
| but that doesn't mean there aren't other avenues by which to
| attack the problem either.
| saint_abroad wrote:
| > The system may be fundamentally broken, but the market is not.
| This gives me some level of confidence in saying that as of April
| 2021, I don't believe that we're in a housing bubble.
|
| Markets have the remarkable ability to function right until the
| very moment they crash.
|
| If functioning markets really were to preclude bubbles then, by
| definition, bubbles would only form in non-functioning (crashed)
| markets. This is, of course, ridiculous.*
|
| *That is, unless non-functioning markets can somehow be
| distinguished without the hindsight of a crash.
| AdmiralAsshat wrote:
| So we're not in a bubble, we're just fucked. Cool.
| 01100011 wrote:
| No, I think boomers with assets are doing fine. Everyone else
| is fucked.
|
| I don't want to push the generational narrative too hard(I'm
| 46), but it does seem like that generation is willing to do
| everything they can to keep the party going until they die.
| After they're gone, it will be up to my generation and younger
| to figure out what to do with the _massive_ debt and distorted
| economy. From what I can see, they just don 't give a shit.
| AdmiralAsshat wrote:
| Yes, perhaps I should have clarified that by "we" I meant my
| generation (I'm a millennial).
|
| And as someone with a significant chunk of savings who still
| can't afford a house, the possibility of being both left
| without my own property _and_ having my life-savings
| essentially rendered moot by runaway inflation is deeply
| concerning.
| 01100011 wrote:
| That's exactly the situation I find myself in. I'm 46,
| divorced and remarried. I joined a FANG and lost my soul so
| I could have a chance after starting over from scratch at
| 43. I now have $200k in the bank, which is awesome and I am
| thankful for it. But it's nowhere near enough to buy a
| house. I'm already running out of steam, mentally speaking,
| and can't make the safe bet that I'll be able to keep my
| FANG job for even another year or so. I guess I just put it
| all in a TIPS ETF and hope it works out? IDK... Meanwhile I
| just have to watch while the rich get richer and the folks
| in the middle get pounded.
| the-dude wrote:
| _This time it is different_
|
| FTA : _While the market looks a lot like 2005-2008 on the
| surface, the underlying fundamentals today are very different
| from back then._
| JackPoach wrote:
| "Not a bubble" is exactly what people think, when there's a
| bubble. Otherwise there would be no bubble. People find ways to
| rationalize why 'this time it's different'. Sometimes it is,
| sometimes it's not.
| encoderer wrote:
| In my experience, bubbles are made from greed not ignorance.
|
| In 2007-8 there was a lot of acknowledgment of the real estate
| bubble but there was always somebody to say well real estate
| isn't really a national market so it won't all pop at once. Ha.
|
| Similarly everybody knew it was a bubble in 1999. That's why
| you had companies rushing to ipo like lemmings off a cliff.
|
| Personally I don't think we are in a bubble right now and all
| the early bubble callers (since 2013 or so) have no credibility
| left.
| TheAdamAndChe wrote:
| In my opinion, we are in a bubble now. In stocks, P/E ratios
| are extremely high, and many companies are IPOing, many more
| than two years ago. All asset pricing is going through the
| roof, and money is chasing money. Speculative assets have
| become trendy again with cryptocurrencies, ARK, and memes
| like dogecoin.
|
| We're all flush with cash and either terrified of inflation
| or riding a euphoria of asset inflation.
| strgcmc wrote:
| On the point about IPOs, this would seem to back up the
| idea that, a boom in IPOs has correlated with recessions
| and crashes soon after, in the past ~20 years:
| https://www.statista.com/statistics/270290/number-of-ipos-
| in...
|
| A drop in IPOs seems like a lagging indicator (they will
| drop off after the economy has cooled off), but it's not
| clear to me if a boom in IPOs is a leading indicator or
| not.
| lotsofpulp wrote:
| > either terrified of inflation or riding a euphoria of
| asset inflation.
|
| Why not both?
|
| At this point, the biggest risk I see is a materials
| shortage that the Fed can't fix by adding zeros in a
| database. Such as gas prices spiking, or food shortages, or
| some other critical infrastructure failing.
| Supermancho wrote:
| The lumber shortage is forcing homes to be built largely
| with pressed wood. Ironically this makes home building
| even more expensive, as pressed wood prices have
| skyrocketed... passing traditional lumber because of
| availability issues.
| fumar wrote:
| What do you do to prepare for a crash? I follow the asset
| and commodity price increases. But, I can't see the next
| logical step. Save more money that is worth less over time?
| Are we on a train towards hyperinflation that can't be
| stopped?
| jdsully wrote:
| Ignorance was a theme of many past bubbles. In the 20's it
| was the common man not understanding stocks. In the 80s it
| was "Savings and Loans are just banks, they're safe!". '08 it
| was "They wouldn't give me a mortgage if it wasn't a good
| decision". In all bubbles you see a few shrewd hawks and
| millions of lemmings - that's where all the money comes from.
|
| In this scenario its, "There's nowhere else to put my money",
| but not having a better alternative doesn't necessarily make
| it a good investment.
| robotron wrote:
| There is a lot of greed driving home sales right now. Every
| homeowner I know has at least considered making bank in this
| market. The only thing stopping them is they'll then need to
| buy a home cheaper and further out or lose that profit.
| Cd00d wrote:
| Completely off-topic, but I was _just_ watching a YouTube
| video about lemmings with my 6 yo to answer some questions
| she was asking.
|
| Lemmings to not commit suicide from cliffs, en masse. This is
| a myth that came about from a _staged_ incident in a Disney
| documentary about the arctic wilderness. It 's completely
| made up.
|
| Was an interesting 5 or so minutes:
| https://www.youtube.com/watch?v=2fHYNMvcAhc
| vladimirralev wrote:
| It's not greed. The chair of the Fed sat on national
| television and said they flooded the system with cash and
| will not stop until everybody gets it while ignoring any
| stretched valuations or inflation signals. All bubbles are
| policy decisions by the Fed to spark risk-taking and
| optimism, guided by the "less than honest" intermediaries on
| Wall St.
| JackPoach wrote:
| Greed needs rationalization too.
| AnimalMuppet wrote:
| My definition of a bubble is not just prices going up. It's not
| even people investing based solely on prices going up, rather
| than on the merits of the investment. To me, it's only a bubble
| when people are investing solely because the price is going up,
| _using borrowed money_.
|
| And that's why bubbles are dangerous. When they pop, they don't
| just destroy the investors. They can destroy the lenders, which
| can damage the overall economy.
| JohnWhigham wrote:
| This isn't 2006 Las Vegas or some shitty 50 year old Florida
| suburb propped up by tourism, we're talking about every major
| metropolitan area that has jobs. People are buying because
| rates are rock-bottom, yes, but also because that's where the
| jobs are. This _is_ different from last time, and aside from
| the Fed raising interest rates (and boy do they need to), there
| 's no end in sight to the insanity.
| emodendroket wrote:
| This is a little like "they thought Gailileo was a crank." Yeah
| but they thought a lot of other people were cranks and you
| don't know them because they were.
| spaetzleesser wrote:
| Isn't there just way too much money floating around and people
| have no productive uses for it? Looking at the stock market and
| the housing market this seems to be the most reasonable
| explanation.
| lazypenguin wrote:
| This article did little to convince me we're not in a bubble. The
| housing supply argument doesn't hold up to me, as older people
| leave their homes newer people should be able to take there
| place. Base asset prices increasing because interest rates are
| down? Sure that's finance 101. All asset classes (houses, stocks,
| cryptocurrency) only ever increasing in value? That's too good to
| be true.
| subpixel wrote:
| This is not an article, it is a content marketing piece written
| by a property developer.
| dazc wrote:
| ...as older people leave their homes newer people should be
| able to take there place.
|
| Here in the UK, older people have not been leaving their homes
| because of covid lockdowns which is one of the reasons why
| there is a shortage of houses to buy. The one exception is
| retirement apartments.
| PragmaticPulp wrote:
| > The housing supply argument doesn't hold up to me, as older
| people leave their homes newer people should be able to take
| there place.
|
| Not only are populations growing, but there is a net migration
| toward high demand areas.
|
| Look at real estate listings in many smaller Midwest cities and
| you'll see large inventories of very nice, very affordable
| homes. Older people are moving out but no one is there to buy
| them.
|
| Meanwhile, many popular cities are fully built out. It's
| musical chairs with existing housing inventory, plus a few high
| density reconstruction projects here and there.
|
| We thought remote work would enable people to move away from
| expensive cities, but it turns out many people choose to live
| in popular, high-demand areas once they no longer have to live
| near their office.
|
| As long as supply is fixed and demand continues to grow, prices
| will go up.
| meragrin_ wrote:
| > Look at real estate listings in many smaller Midwest cities
| and you'll see large inventories of very nice, very
| affordable homes. Older people are moving out but no one is
| there to buy them.
|
| Not in my small Midwest city. Many houses are being sold in
| hours. Most of the time I see a new realtor, it is already
| sale pending. I have little doubt houses are being sold
| without being put on the market. There are realtors asking
| around my neighborhood if anyone is looking to sell because
| they have buyers interested in the area.
| sidlls wrote:
| I don't know where you're looking. I'm looking in relatively
| small midwestern towns (Illinois, Michigan, Wisconsin,
| Minnesota) and I see listing for homes valued 20% greater or
| more compared with last year. A small four-plex that would
| have listed at $400k and sold for $380k (or so) last year is
| likely to have listed over $500k and may sell over-asking
| this year. It's ridiculous.
| beiller wrote:
| But in almost all 1st world countries, the demand is
| shrinking (negative population growth in all countries). Not
| to mention the top heavy population in Americas that is
| approaching EOL (Baby Boomers) which will rapidly shrink the
| demand in the next 10 years. But it actually appears from
| sales data that demand is increasing by a great deal. My
| hypothesis: speculators have been driving this market for
| quite some time in order to try and escape the inflation they
| thought "is coming any minute" since 2008.
|
| Here in my city, the rents are decreasing since COVID started
| and the prices keep skyrocketing. It also supports my
| hypothesis. Investors are just buying up properties and
| renting them out, lowering rents everywhere. It may come to a
| head sooner rather than later, once someone finds the
| mortgage is way higher than the renter is paying. But even
| then, I think many owners are willing to take a hair cut on
| their mortgage because they feel like "the market has
| performed so well, its worth it". But how long?
| ska wrote:
| > (negative population growth in all countries).
|
| This does not seem to be true, most of them have small (<
| 1%) but positive growth I think.
|
| What were you basing it on? Some of them have negative
| birth rates, but that isn't the same thing - and to lead to
| an overall decline in population immigration would have to
| be reduced by more than the delta.
| refurb wrote:
| _Look at real estate listings in many smaller Midwest cities
| and you'll see large inventories of very nice, very
| affordable homes._
|
| What? No, it's the opposite. Suburban and rural homes have
| seen major price jumps in the past year while the most
| expensive cities have stagnated or dropped. For example
| Western MI has seen more price growth than the city of SF in
| the past year.
| kfarr wrote:
| As the others are commenting I half agree with your comment -
| there is a supply issue in high density areas AND there is a
| supply issue in low density areas.
| zapita wrote:
| Some areas in the country experience major population growth
| because that's where the jobs are. In those areas not enough
| older people leave their homes to compensate for the influx of
| new residents. It's not even close.
|
| The housing supply argument is completely accurate.
| zepto wrote:
| > In those areas not enough older people leave their homes to
| compensate for the influx of new residents. It's not even
| close.
|
| This is true. The question is, why would they? Generally,
| with a few exceptions like Florida, the places where the jobs
| are are _also_ the best places to be old.
| almost_usual wrote:
| Especially in places like the Bay Area where there is a huge
| influx of global talent.
| lotsofpulp wrote:
| > All asset classes (houses, stocks, cryptocurrency) only ever
| increasing in value? That's too good to be true.
|
| Not if the supply of money is increasing. Also, different
| regions of the US are experiencing very different levels of
| changes in price.
| smalltalks wrote:
| > The housing supply argument doesn't hold up to me
|
| Strongly disagree with you , I'm in Europe. I'm in the 25%
| richest of my state , I can't manage to rent a home because
| every time I contact a landowner for a property to rent there
| is 30+ person who applied before me within 4 hours...
|
| Covid-19 has created a "remote economy" boom as well as
| accelerated household project to move to another state and
| acquire a property or just to invest in real estate.
|
| Thus real estate market is performing just as expected... As
| long as the supply does not meet the demand the price goes up.
|
| For crypto it's different , 99% of crypto transactions are
| speculation base. It's by design.
| KptMarchewa wrote:
| >Strongly disagree with you , I'm in Europe. I'm in the 25%
| richest of my state , I can't manage to rent a home because
| every time I contact a landowner for a property to rent there
| is 30+ person who applied before me within 4 hours...
|
| Why won't landlords raise prices then?
| ChuckNorris89 wrote:
| _> Why won't landlords raise prices then?_
|
| Rent control?
| aazaa wrote:
| This article totally neglects the alarm bells blaring in late
| 2019/early 2020. The Fed lost control of an obscure but crucial
| corner of the bond market (the repo market), slinked away from
| Quantitative Tightening with its tail between its legs after a
| timid venture into normalizing its balance sheet, and was
| generally starting to brace for impact.
|
| Then, the pandemic and a Niagra Falls of liquidity. Unprecedented
| in all of American history with the possible exception of WWII.
|
| The country has just fought a war. Wars bring inflation and price
| bubbles. In the aftermath, prices normalize and the speculators
| get washed out. And by that point, almost everyone is a
| speculator.
|
| The question is not whether evidence for bubbles can be found in
| every corner of the economy, but to what lengths will the country
| go to keep the music playing.
| scsilver wrote:
| I wonder if the US can manage to drop the load onto the weaker
| recovering economies. At the end of the day, are you trading
| your depreciating dollar for another currency? To me, it seems
| like the US can keep the music playing until the rest of the
| world gets out of their shutdowns.
| almost_usual wrote:
| The nation is seeing extreme increases in price, maybe that's a
| bubble. HCOL areas like the Bay Area, LA, and Seattle I doubt are
| in a bubble.
|
| There has been a lot of liquidity injected into the market. A
| portion of it has gone to tech stocks and people wanting to hedge
| against inflation. Guess who gets that liquidity when they vest?
|
| Last year buying a home in the Bay Area was something I planned
| to do in a few years. A year later I own a home.
|
| I'm not the only one, there are tons of all cash offers out there
| right now.
|
| You need 40-50% liquid of the home you're making an offer on
| right now to be competitive. No contingencies, cover appraisal
| gaps, etc.
|
| I honestly don't care if it's a bubble at this point. If my home
| value drops 50% whatever I have a home where I want to be. I have
| equity and other investments like I did while renting.
| helen___keller wrote:
| > The nation is seeing extreme increases in price, maybe that's
| a bubble. HCOL areas like the Bay Area, LA, and Seattle I doubt
| are in a bubble.
|
| I generally agree. The highly paid workers living in these
| regions continue to be highly paid, and the quantity of housing
| continues to be constrained.
|
| I think a lot of small/medium cities will see corrections if
| lumber prices go back down. There will be a building boom, new
| subdivisions will flood the market and drive prices back down
| on the fundamental costs of producing housing. In larger
| cities, we're too space constrained (and building high density
| is illegal) so this feedback loop has been broken and will
| continue to be broken, thus prices are set by whatever can be
| afforded with a local wage.
| euthuxnetux wrote:
| This article is completely ignorant.
|
| Bubbles aren't defined by, as some commenters suggest (not TFA),
| poor lending practices. Please see investopedia's excellent
| article on asset bubbles [1].
|
| Houses require maintenance, they go out of style, newer buildings
| have more amenities, etc. In general they retain their value
| well, but they do become used over time. Historically (hundreds
| of years) the value of property is highly associated with income,
| which is highly associated with inflation. Real estate is
| conventionally considered to be an asset class that maintains its
| value relative to inflation.
|
| Presently, enormous amounts of money have been poured into real
| estate. Housing costs are now disconnected from the ability of
| people to afford it, or from the potential of the property to
| extract rents. Price-to-Income ratios and Rent-to-Income ratios
| are completely out of line right now.
|
| TFA repeats the complaint that housing supply is the issue
| because wealthy people and financial instruments are buying all
| the housing and letting it sit empty to appreciate in value. In
| other words, TFA claims that speculation on housing price
| increases is evidence that there is no asset bubble. The fact
| that there is widespread speculation on the price increase of an
| asset class is, in fact, evidence of a bubble, which is why I
| called the article ignorant.
|
| The fact is that ~11% [2] of housing in the US is currently
| vacant. But this isn't just a US issue. If this was a supply
| constraint it would be a geographically local problem. It's not.
| It's not even isolated to a single nation. Housing prices are
| exploding globally [3]. This is a speculative asset bubble. The
| fact that it's not a bubble based on unaffordable leverage
| doesn't mean it's not a bubble.
|
| Finally, it's impossible that this issue resolves without a crash
| [4]. Since we've had inflated prices for maybe a decade now, I
| expect that it will take somewhere between 5 and 10 years after
| the crash for prices to normalize. Put it another way: do you
| expect housing prices to increase exponentially forever? If not,
| do you expect prices to remain the same, adjusted for inflation?
| In other words, have we reached the maximum ability of people to
| afford houses, and this is just the new price? If neither of
| those things are true, then there is only one other option.
|
| [1] https://www.investopedia.com/articles/stocks/10/5-steps-
| of-a... [2] Total Housing Estimate -
| https://fred.stlouisfed.org/series/ETOTALUSQ176N Vacant Housing
| Estimate - https://fred.stlouisfed.org/series/EVACANTUSQ176N [3]
| https://betterdwelling.com/canada-says-property-bubble-not-g...
| [4] https://betterdwelling.com/canadas-property-bubble-is-now-
| so...
| AnimalMuppet wrote:
| Interesting. Investors parking money in real estate because
| returns are so low everywhere else, and thereby 1) reducing the
| stock available for people to live in, which 2) makes everyone
| bid up the price of the stock available, which 3) makes it have
| been a really good investment.
|
| But I quibble a bit with your source [2]. That shows the amount
| of vacant units up sharply since 2020, but still lower than any
| point from 2005 to 2019. That doesn't seem to support your
| point, because this price run-up has been more than just the
| last year.
| mycologos wrote:
| Links [2] and [3] suggest that the proportion of housing that's
| vacant is, as of the end of 2020, well below its level for the
| 2010s. So it doesn't seem like there's been an increase in
| speculating in (and _not using_ ) housing?
| nkurz wrote:
| You make some excellent points, but your comment would be much
| better without the first line. The article isn't "completely
| ignorant". It may have parts that are wrong, it might be
| misguided, or the conclusion may be unjustified, but there are
| many parts that are insightful and accurate. Calling it
| "completely ignorant" undermines the strength of your rebuttal.
| euthuxnetux wrote:
| You're right, that was probably unnecessarily inflammatory,
| and isn't a good way to communicate persuasively. I thought
| I'd justified the statement later, and that would be
| sufficient. I'll try to allow what I communicate to stand on
| its own going forward.
| bogomipz wrote:
| Indeed this does seem to be global in nature. There's been no
| shortage of articles recently about the same level of mania in
| both Australia and New Zealand as well:
|
| https://www.domain.com.au/news/frustrated-home-buyers-leave-...
|
| https://www.aljazeera.com/economy/2021/3/23/bb-new-zealand-g...
| shanecleveland wrote:
| Many are arguing we are not in a bubble because it is different
| than the last bubble. What defines a bubble? Is it simply that
| prices drop from a high after significantly increasing?
|
| If the conditions that they argue are resulting in current prices
| ease (supply, material, labor shortages are a few listed here),
| and prices drop, isn't that a bubble?
|
| I guess they could simply plateau and return to "normal" growth
| patterns.
| yardie wrote:
| As anyone recently or currently going through the house shopping
| process this is nothing like 2007. Buyers are competing against
| other buyers with seemingly unlimited cash offers. Which is
| nothing like the subprime, stated income loans prior to the
| financial crash. You have to be in great financial shape to even
| qualify to buy a home. And then you have to do it timely enough
| to beat other offers. There is more cash moving around these days
| and not a lot of places to put it. Conservative banks, investors,
| and pensions are placing them in the few sure things left on the
| market, bonds and property.
|
| Also, inventory is drying up because construction has been
| heavily affected by the pandemic. Now that the warehouses have
| been exhausted it's just starting to ripple through supply
| chains. While the millions of lives lost were felt immediately
| the long tail of JIT supply chains means we'll be feeling the
| effects a hell of a lot longer.
| Balgair wrote:
| I'm currently in the market and I can affirm that it is _super-
| bananas_.
|
| With Covid rules, you get ~15 minutes to view a property. You
| basically have to decide to put an offer down as you are
| walking out the door. My SO and I saw a place we liked and were
| considering an offer. Before we could even drive home, the
| place had gone under contract. Our location has homes on sale
| for ~36 hours, starting Thursday at noon (it seems that's the
| time most have settled on). You cannot sleep on this decision,
| there just isn't the time to do so.
|
| Sellers will get ~14 offers, all very much over asking. A
| property listed for ~$450k go for ~$550k now. ~$650k go for
| ~$800k. Three years ago, that same house was ~$400k.
|
| To be competitive, you must waive inspections outright. Health
| and safety objections used to be a thing, but it's so
| competitive that you just can't anymore. Inspectors are booked
| for showings as a result, with ~15 min to check on things.
|
| All cash offers are ~1/3 offers, per what my RE friends say. If
| you are doing a mortgage, the new time to close is ~20 days,
| not 30. Banks/credit unions are not having a fun time with such
| a crunch, as buyers are walking away for higher rates due to
| the time crunch and the very low rates to begin with.
|
| Appraisal gaps are ~18% or so. Meaning that the bank will
| appraise the house for about the listed price still, but buyers
| must state they will cover the gap in price. That is ~18% more
| than what the bank will give out. Thus the 20% downpayment
| becomes the appraisal gap coverage. A lot of people are going
| to 5% down-payments or less.
|
| Open-ended escalation clauses are a thing to. You just put in
| the contract that you'll automatically bid ~$5k over the next
| person, no ending, no need to contact. As such, things are
| getting pretty wild when more than one party has that in their
| contract.
|
| They really cannot build houses fast enough, and those that are
| come with special taxes that are ~2x the normal ones, forever.
| This is due to the need for materials that Coivd has affected
| and the speed needed just to lay the pipes and roads. Again,
| inspections are waived to stay competitive.
|
| Like I said, it is _super-bananas_.
|
| EDIT: This tiktok is only a _tiny_ bit hyperbolic about the
| current state of things:
| https://www.tiktok.com/@johnsonfiles/video/69529306172982919...
| vannevar wrote:
| I'd really like to see the breakdown between investors and bona
| fide homebuyers. The main reasons supply is low is that a)
| people don't want too move in the middle of a pandemic, and b)
| construction was slowed. This should mean that the proportion
| of investors and first-time buyers is higher now than pre-
| pandemic, and who is more likely to win the resulting bidding
| war? Investors, or the young people trying to but their first
| home. I believe that the lions share of the housing spike is
| being driven by speculation, and eventually, the market will
| run out of "the greater fool" and you'll be left with mostly
| real home buyers, and prices will fall back to earth.
| refurb wrote:
| Cash offer doesn't necessarily mean the buyer has cash. There
| are services like https://www.flyhomes.com/ that will make a
| man all cash offer then help you refinance it.
|
| In addition, if you waive all financing and appraisal
| contingencies that's often called a cash offer as you're
| obligated to close even if you can't get financing.
| whytaka wrote:
| I'm confused about this point. Why does the seller care about
| cash offers? Even if the offer requires a mortgage, the
| seller gets the cash from the lending bank, do they not?
| jbay808 wrote:
| In practice it means that the offer isn't conditional on
| their financing being approved.
| yardie wrote:
| Banks are conditional and have 30 days. Cash offers have no
| conditions, literally sign, wire money, and hand over the
| keys. Conventional loans, backed by HUD, need to go through
| a process. Because ultimately it's HUD who owns these loans
| and they are, well, slow as any government bureaucracy.
|
| Before these times, cash offers came with a slight 5-15%
| discount because of the convenience and speed. Now, cash
| offers are overbidding other cash offers who are
| overbidding conventional loans. This happens in the hottest
| markets; South Florida for example.
| Balgair wrote:
| > Banks are conditional and have 30 days
|
| Depends. The new timeline is ~20 days to close in this
| market. Banks are getting huge pressure to up the tempo.
| Interest rates are so low that an extra 0.5% is worth it
| for the faster close.
| LunarRover wrote:
| Insane when you consider South Florida's future with sea
| levels. Some geologists think it has less than 50 years
| to go. https://www.newyorker.com/magazine/2015/12/21/the-
| siege-of-m...
| yardie wrote:
| As long as the problem is 30+ years away most banks don't
| particularly care about sea level and water table rise.
| On a 30 year mortgage they will have recovered their
| money. Now, when it's 10-20 years out that's when you'll
| see banks being more cautious. And by then it will be
| someone else's problem.
| hardtke wrote:
| It's not just convenience and speed. In hot markets, the
| appraised values can't keep up with market prices (since
| the comps are a half year old). If the buyer doesn't have
| resources well above the minimum to make up for the
| difference between the appraised value and the sales
| price, it's likely a loan cannot be approved. Before
| 2009, appraisers would just appraise at the sale price
| because the real estate agent that hired them wouldn't
| hire them again if they didn't.
| Balgair wrote:
| Where I am, the appraisal gap is is ~18% of the sale
| price. So the houses are listed at ~$450k, get 12 offers
| for ~$530 in 36 hours, and get appraised at ~$450. Such
| is the competition, that buyers have to just pay the gap
| outright, turning the 20% downpayment into the appraisal
| gap.
| aphextron wrote:
| >Before 2009, appraisers would just appraise at the sale
| price because the real estate agent that hired them
| wouldn't hire them again if they didn't.
|
| Appraisals are made by the lending institution. That
| would be a very obvious conflict of interest otherwise.
| hardtke wrote:
| Most mortgages are made by mortgage originators who
| resell them. If I remember how it worked before the
| crash, the agent, mortgage originator, and title agent
| would work together to make the deal happen. There were
| some kickbacks. The mortgage originator would hire the
| appraiser directly. Now the appraiser is assigned by a
| 3rd party, with one consequence being that appraisers
| generally don't know the nuances of local markets and are
| unable to properly price in a hot market.
| lolinder wrote:
| Two things:
|
| 1. There's no financing to approve. Pre-approvals fall
| through all the time, and the seller knows that. They'll
| take cash to avoid having to start over.
|
| 2. Appraisals are coming in low right now because prices
| are changing so quickly that finding good comps is hard,
| and lenders cannot or will not loan for more than the
| appraised value. This could lead to the seller having to
| either start over or accept a lower amount. A cash offer is
| usually not contingent on an appraisal.
| meragrin_ wrote:
| > as you're obligated to close even if you can't get
| financing.
|
| How is that a good thing from a seller's perspective?
| ProfessorLayton wrote:
| "Can't get financing" for an offer doesn't necessarily mean
| _no_ financing. A bank won 't loan 1.1x (or whatever the
| offer is) for a property appraised for 1x, so an offer
| without a financing contingency means the buyer has to
| cough up .1x in cash to make up the difference.
|
| It means the deal is more likely to close and not get held
| up by financing, and the seller might pick it over a
| slightly higher offer that does have a contingency.
| Cd00d wrote:
| Well, they get to keep the down payment. That smoothes out
| a lot of frustrations due to the delays associated with
| starting over.
| akomtu wrote:
| You're only obligated to pay the fee (usually 2% of the
| purchase price). A buyer won't magically produce a million
| dollars if he can't get financing.
| emodendroket wrote:
| I think people who have a home are also largely taking a wait
| and see approach and not trying to move, which constrains
| supply further.
| runeks wrote:
| Who's buying all the houses, then?
| jhayward wrote:
| Private equity.
| munificent wrote:
| Renters in smaller apartments craving more space now that
| they are stuck at home 24/7.
| emodendroket wrote:
| Aren't there a significant number of first-time buyers?
| milkytron wrote:
| Millennials, apparently. The generation has a huge
| population that is at the prime home buying age (nowadays).
| Being stuck at home with parents or in an apartment is not
| where a lot of people wanted to be during a pandemic.
| Combine that with low interest rates, and also investors
| that see property as a relatively safe asset.
|
| The wait and see camp is probably most people, but those
| that aren't comfortable with their home situation and being
| stuck in it are likely itching to move.
| noofen wrote:
| More cash because everyone with half a brain knows this money
| printing won't hold the market up forever, and they're
| terrified of runaway inflation.
|
| The insane market speculation going on is also a symptom of
| this. It's reasonable to assume USD is losing 8-10% of its
| value every year from 2020 onwards, thanks to Fed policies. I
| know about their bullshit CPI numbers, and anyone who is
| gullible enough to believe "there is no inflation" deserves
| what's coming.
| [deleted]
| dragonwriter wrote:
| > It's reasonable to assume USD is losing 8-10% of its value
| every year from 2020 onwards, thanks to Fed policies.
|
| Since dollar prices of final goods and services can be
| tracked, and don't show that trend, its not reasonable at
| all; nominal price levels of goods and services haven't
| generally increased by about ~2.5x over the past decade.
|
| > I know about their bullshit CPI numbers,
|
| CPI is BLS, not the Fed. And its a whole lot less bullshit
| than what you're spreading right here.
|
| > and anyone who is gullible enough to believe "there is no
| inflation" deserves what's coming.
|
| The idea that inflation might be coming at some indefinite
| point in the future is, of course, unfalsifiable, and its
| been a constant refrain from the same segment of society for
| as long as I've been alive.
|
| The claim that there has been massive inflation since 2010,
| OTOH, is both falsifiable and false.
| lotsofpulp wrote:
| >The claim that there has been massive inflation since
| 2010, OTOH, is both falsifiable and false.
|
| Depends where you live and what lifestyle you live. If I
| took the total amount spent on all the things and services
| I have purchased over the years and compared them to their
| price in 2010, I would have spent far less in 2010.
| Spending on land, healthcare, retirement savings, taxes and
| education eclipse the total spent for everything else.
|
| Is that not inflation (for me, at least)? All I know is
| that to buy the things I need or want to buy in the future,
| I need to ensure I am earning more and more because I am
| betting the price will be higher in the future. At least
| it's been true during my adult life of ~15 years.
| randomopining wrote:
| Your statements are contradictory. If there will be 8-10%
| inflation then people will park their money in assets like
| stocks, thus keeping the market up.
| thorwasdfasdf wrote:
| I do agree the CPI vastly undercounts inflation but we loose
| credibility when we through out numbers so far off from
| reality. 8-10% is realistic for real estate over the last
| year or two. But, we need to look at longer term trends to
| establish inflation as a huge problem.
|
| Even 4% actual inflation would be very very high, as that
| would be 2% per year over CPI, which would compound to 80%
| over the CPI in just 30 years or so.
|
| Let's take a look at some actual values: - the big mac index
| shows inflation at about 4% for the last 20 years. - Cape
| shiller housing index for US has been showing inflation at
| about 4% over the last 20 years. This is a real problem that
| will affect rents as well because the rent to own ratio
| spread can't continue to increase forever.
|
| - housing of course is now 10%+ over the last year.
|
| And yes, those quality adjustments made by the boys in the
| labor department are very questionable: I don't know how they
| sleep at night.
| Analemma_ wrote:
| > It's reasonable to assume USD is losing 8-10% of its value
| every year from 2020 onwards, thanks to Fed policies
|
| Are you willing to bet money on this claim? Because I will
| happily take the other side of that wager. It is absurd.
| intergalplan wrote:
| Houses around here have been going up in price 5-10% year
| over year around here since, like, 2012 or 2013.
| Foreclosures aside (now long gone, but widely available for
| a few years), they never dropped all that far from their
| '08 peak, really, either. I'm in probably a third- or two-
| and-a-halfth-tier US city, so this isn't NY or SF or CHI or
| LA or even Austin or Denver. New housing is going up _fast_
| and _everywhere_ , and has been non-stop aside from a very
| brief period after the '08 bubble. 2020 happened, and the
| prices went up _even faster_ , and everywhere in the city,
| not just in certain areas.
|
| WTF is going on, if not inflation? (serious question, I'd
| like to know what other explanation there could be)
| kart23 wrote:
| don't think so. look at canada's housing market, look at
| NZ. those markets are truly insane compared to the US,
| and they're not printing a ton of money or experiencing
| major inflation. housing has become a good investment
| simply because the supply isn't great enough in desirable
| areas, and people with money recognize it. inflation is
| up, but not on the scale you claim.
| wcarss wrote:
| I dunno about NZ, but Canada printed pretty hard for
| COVID relief[0,1].
|
| Regarding inflation, anecdotally food etc prices in
| Toronto seem _much_ higher this year than last, and did
| last year too, but the CPI data doesn 't share my
| opinion.
|
| 0 - https://betterdwelling.com/canadas-money-supply-is-
| growing-a...
|
| 1 - https://economics.bmo.com/en/publications/detail/76f0
| b0ca-c0...
| anthony_barker wrote:
| Maybe Toronto will reach peak crane?
|
| https://i1.wp.com/www.denverpost.com/wp-
| content/uploads/2021...
| intergalplan wrote:
| Our groceries seem to be at least 2x what they were in
| '05. Meanwhile, if anything, our tastes have gotten
| _cheaper_ and we 're better at bargain-shopping.
|
| US CPI tells me they should only be 35% higher. LOL.
| Bullshit.
| intergalplan wrote:
| Right, but, all other assets seem to be doing exactly the
| same thing.
| jdsully wrote:
| Canada's M1 is up 27%, M2 up 20% over the last 12 months.
| They aren't printing nearly as much as the US but it's
| still dramatic vs prior years.
| boringg wrote:
| Money laundering raising comps and everyone else then
| using those comps to justify prices. Incredibly cheap
| money, and everyone wanting to live in a house instead of
| condo/apartment. Demand is >> supply - limited supply
| means the prices rise. Doesn't explain everything but
| certainly points to some of the what I will say is
| insanity in the market.
| bordercases wrote:
| I like this view because it integrates the supply and
| demand factors in the prices.
| emodendroket wrote:
| Isn't that the question the article tries to answer?
| intergalplan wrote:
| Yeah, and I'm trying really hard not to read it as "it's
| inflation but for some reason we're going to not use that
| word once in this whole article", but can't. They write
| about a bunch of things that _sure seem_ inflationary (
| "borrowing money is basically free"--OK, right, so why
| would that be, and why would it stay so cheap so long,
| and what effect does that have?), and then also write
| about how middle-class folks are pulling lots of money
| out of the stock & bond market to buy houses, so that's
| why houses are getting more expensive... but the market's
| gone up like crazy over the last year! It's not like it
| even had a _normal_ year, _despite_ , you know, a
| pandemic, and all this supposed shifting of money from it
| to housing. Crypo's booming. Approximately _all_ asset
| prices are booming.
|
| If all assets are going up, seemingly nonsensically, what
| is that? It's a really, really broad-based bubble, or
| it's the leading edge of an initially-unbalanced-but-
| surely-it-won't-stay-that-way inflationary wave, no?
| treis wrote:
| It's probably not going up quickly in the suburbs or
| other less desirable areas. The problem that happens in
| pretty much every city is that the local government
| prevents development. And now that cities are becoming
| more desirable you have an ever growing number of buyers
| chasing a relatively fixed number of homes.
|
| It's not inflation. It's classic supply and demand.
| intergalplan wrote:
| > It's probably not going up quickly in the suburbs or
| other less desirable areas.
|
| I assure you, they are. Also you're way out-of-touch with
| common sentiment if you think the suburbs aren't
| desirable, if for public school quality if nothing else
| (for the record: I hate the 'burbs). Source: I've bought
| several houses in my city (serially, I'm [sadly, in the
| current market] not a property investor or landlord)
| since the '08 crash, all in the 'burbs, keep up with a
| couple real estate agents, and have had many friends and
| family buy all over the city over the same time period,
| including within the last year. There's been non-stop,
| extensive housing construction for damn near a decade
| now, and prices are still doing this. People are being
| bid out by over-asking cash offers on day two of a
| property being on the market in _very_ mediocre areas.
| Lots are selling over-asking in the same manner. It 's
| nuts.
|
| Also, if it's not inflation and is "classic supply and
| demand": what's up with _all other assets_ then? If
| demand for all assets is up, such that prices are all way
| up, _even and especially through 2020_ , what do you call
| that? Housing was just an example.
| [deleted]
| noofen wrote:
| I am betting money on this claim, 90% of my net worth is in
| equities and BTC/ETH.
| bottled_poe wrote:
| It's too much risk. It may work out, but unless you know
| something the rest don't, it is just gambling.
| noofen wrote:
| I understand how it can look that way. But from my
| perspective, being long USD is a much more dangerous
| gamble. I'm young and have a high risk tolerance, we will
| see.
| concreteblock wrote:
| Choosing to allocate most of your net worth in, e.g.
| cash, is a gamble too.
| bottled_poe wrote:
| Holding cash is worse than a gamble, it's a guaranteed
| loss.
| trimbo wrote:
| It seems like equities do not (long term) perform well
| relative to currency in inflationary markets because
| companies' costs also rise. Apple, e.g. would be spending
| more per unit iPhone and would eat margin or require a
| price increase, which leads to fewer sales etc.
|
| There are exceptions, like energy companies, for example.
| IIRC Exxon went up in the 1970s while the market as a
| whole stayed flat and lost value relative to the USD.
|
| At the extreme, in the Weimar republic, the stock market
| did what the US is doing today... until the stocks
| flatlined relative to the currency[1].
|
| [1] - Haven't read it but sources that claim this point
| to this book (I just bought it though, it's only $3):
| https://www.goodreads.com/book/show/8567383-when-money-
| dies
| [deleted]
| thaeli wrote:
| In the long term, everyone with more debt than assets is on
| the other side of that wager.
| undefined1 wrote:
| for those downvoting you:
|
| Home Values +8%
|
| Money Supply +24%
|
| Stock Market +23%
|
| Oil +80%
|
| Corn +69%
|
| Steel +145%
|
| Wheat +25%
|
| Coffee +34%
|
| Cotton +35%
|
| Copper +50%
|
| Lumber +126%
|
| Soybeans +71%
|
| this is over the past year.
| gruez wrote:
| Who should I believe, a government agency conducting a
| methodical survey of the country's economy, or some guy
| with a list of numbers that's possibly cherry picked?
| undefined1 wrote:
| up to you. you can look at the real world prices
| yourself, or ignore that in favor of the entity that has
| incentive to downplay inflation.
| gruez wrote:
| But I don't because it literally takes an entire
| government agency to do it right. The incentives might be
| misaligned, but the BLS is a large enough entity that if
| there really were problems with their methodology, it
| would be publicized. Short of that, I'm more inclined to
| believe the BLS over a random commenter.
| jjav wrote:
| > But I don't because it literally takes an entire
| government agency to do it right.
|
| It doesn't really. If you track your expenses
| consistently over the years (gnucash et.al.) you can
| trivially plot the increase in cost of living and the
| acceleration of that increase last handful of years.
| noofen wrote:
| Yes, of course, because government agencies have your
| best interests in mind.
| gruez wrote:
| As opposed to random hn commenters who possibly have an
| agenda?
| noofen wrote:
| Random HN commenters might have an agenda (what would it
| be?). Government agencies definitely have an agenda.
| edoceo wrote:
| everybody has agenda. its why its a lame point in a
| discussion. I think its called "ad hominem"
|
| https://bookofbadarguments.com/
| gruez wrote:
| >Random HN commenters might have an agenda
|
| They're also anonymous, so you should assume the worst.
| This is especially true when the supporting evidence is
| suspect (ie. a bunch of arbitrary picked numbers). On the
| other hand the BLS's methodology is documented
| (https://www.bls.gov/opub/hom/cpi/), so I'm willing to
| give them a pass even though their incentives might be
| skewed.
|
| >(what would it be?)
|
| their beliefs? "agenda" here doesn't have to be something
| nefarious. an anti-vaxxer's agenda is anti-vaccine, but
| that doesn't mean they're scheming to get everyone
| infected.
| programd wrote:
| For those commenters who are skeptical of the numbers,
| sources can be found here:
|
| https://tradingeconomics.com/commodities
|
| The numbers below are one year commodity price gains, as of
| today rounded to the nearest tick (view the individual
| graphs, 1 year timeframe as % gain):
|
| Crude Oil +25%
|
| Corn +70%
|
| Steel +50%
|
| Wheat +25%
|
| Coffee +35%
|
| Cotton +20%
|
| Copper +60%
|
| Lumber +200%
|
| Soybeans +70%
| techrat wrote:
| When you throw numbers out like this, you best provide your
| source in the comment.
| athinggoingon wrote:
| These numbers are cherry-picked. CRB-index is down 60%
| since its all time high:
| https://tradingeconomics.com/commodity/crb
| paulpauper wrote:
| Pundits have been making this argument since 2010 about
| runaway inflation and about prices being unsustainable. Yet
| prices keep going up and inflation remains low. Maybe it is
| best to just ignore those people. There is no evidence either
| of USD decline either. Foreign currencies, especially
| currencies of emerging markets, have fallen considerably
| against the dollar in recent years.
|
| If there is runaway inflation, real estate would be a good
| hedge. Inflation is not really a concern for Americans
| because all global wealth tends to be measured in US dollars
| anyway. It's not like Americans become poorer due to
| inflation, because all their wealth is denominated in
| dollars.
| wallacoloo wrote:
| > Yet prices keep going up and inflation remains low.
|
| I'm struggling a bit with this. Isn't "inflation" defined
| as the state where prices for the same good keep going up?
|
| It seems to me you're focused quite narrowly on currency
| inflation, which like you point out isn't that much of a
| concern for the average American. What they care about is
| inflating prices of the things necessary for a decent
| living: food, housing, utilities, clothing, etc. "I have to
| do more work to afford the same things". Colloquially,
| that's the fear most people are referring to when they
| discuss "inflation". Maybe people who have actually lived
| through inflationary spirals think of it differently
| though.
| giantg2 wrote:
| I think there's some disagreement on whether the CPI is
| really an accurate representation. For example,
| healthcare can vary wildly and can be very expensive.
| FredPret wrote:
| "Yet prices keep going up and inflation remains low" <-
| this is logically impossible.
|
| Also, fiat currencies can fluctuate against each other and
| still go down as a group. The Dollar can get "stronger" by
| losing value slower than other currencies. From a straight-
| forward point of view, wealth is denominated in dollars.
| But in reality, it's denominated in value, in good things
| you can buy.
|
| By this definion, we're all richer than Crassus in some
| ways, affording things like global connectivity and
| vaccines with ease. In land, gold, and influence old
| Crassus was still in a league of his own, however.
| euthuxnetux wrote:
| Once anything ends petro-dollars the USD is toast.
|
| Belt-and-Road has a decent chance of succeeding here, imo.
| sidlls wrote:
| On what do you base that opinion? To hear the Chinese
| government you'd think Belt-and-Road is next to
| perfection in terms of infrastructure, while oppositional
| organizations tend to portray it as a relatively hastily
| rolled out, poorly constructed shambles. The truth is
| likely in between. And regardless, you still have to show
| how that might cleave petro from USD.
| euthuxnetux wrote:
| Fair.
|
| Definitions: There are two sources of demand for USD. One
| is the ability to purchase oil, and the other is
| organized international crime. I would consider crime a
| fair-weather investor, so the big demand for USD is
| really based on the ability to purchase oil.
|
| First, examine the history of shipping tonnage [1].
| Observe how quickly Chinese ports have come to dominate
| all world shipping. This is representative of the general
| trend of global supply chains coming under the
| centralized control of the Chinese government. Nothing
| presently happening in the US will improve our trade
| balance in the near term.
|
| Second, examine the beneficiaries of belt-and-road [2].
| All of these countries will have an incentive to have
| reserves of CNY. Some of these countries are significant
| oil exporters. If oil exporters start hoarding and
| regularly trading in CNY, then it's a small stretch for,
| at least some of them, to start trading oil for CNY.
|
| Third, since oil is fungible, any nations trading oil for
| CNY will peg oil to the Yuan in addition to the Dollar.
|
| Fourth, the governments of some nations, notably Iran,
| publicly believe that petro-dollars have motivated the
| government of the US to engage in warfare in and near
| their countries. They are furthermore publicly opposed to
| this, and publicly supportive of China ousting US
| hegemony.
|
| Then, my argument. Belt-and-road gives a large number of
| nations a reason to hold and trade in CNY. It's a small
| stretch for some of those nations to start trading CNY
| for oil as well. Belt-and-road nations will have an
| expanded connection to the Chinese military, and success
| of belt-and-road is a face-saving issue for the Chinese
| government. That means efforts to oppose it could spark
| military tensions with the Chinese. This makes it
| plausible that wars to preserve petro-dollars are
| unlikely to succeed in belt-and-road nations.
|
| There is almost no international demand for USD to
| acquire US produced goods or labor. This means USD is
| unlikely to succeed in an environment where it has to
| compete with CNY as a reserve currency for oil.
|
| [1] https://en.wikipedia.org/wiki/List_of_busiest_ports_b
| y_cargo...
|
| [2]
| https://en.wikipedia.org/wiki/Belt_and_Road_Initiative
| thorwasdfasdf wrote:
| We need more data on what prices really are. things like
| the big mac index, that measure prices independently and
| actually report just the prices, without quality
| adjustments. This will give us a good upper bound on what
| inflation actually is, instead of having to rely on the
| CPI's questionable "adjustments"
| FredPret wrote:
| Technological improvements make this so hard to measure,
| even if we ignore the temptation to game the numbers.
|
| New products, better products, many old products replaced
| by new ones... it's so much more complicated than the
| classical economics textbook case of guns & butter.
| svachalek wrote:
| Shadowstats tracks the inflation numbers using the
| government's old formulas (pre-gaming)
|
| http://www.shadowstats.com/alternate_data/inflation-
| charts
| fshbbdssbbgdd wrote:
| These numbers don't seem plausible. Compared to nominal
| GDP statistics, they would imply negative real growth
| since 1980. This is incompatible with some periods of low
| unemployment that occurred since 1980 (eg. the late 90s).
| It implies that the US has constantly been in a recession
| for decades. Also conflicts with other hard-to fake stats
| like increased power generation and freight shipping
| since 1980.
|
| Edit: found this quote from the creator of Shadowstats
| that they don't actually calculate their own inflation
| numbers, but instead add a fudge factor to the official
| numbers.
| http://econbrowser.com/archives/2008/10/shadowstats_res
| bondarchuk wrote:
| Wow, thanks for digging that up, shines a very different
| light on the shadowstats site which gets thrown around a
| lot (and I'm guilty as well..).
| saint_abroad wrote:
| > It's not like Americans become poorer due to inflation,
| because all their wealth is denominated in dollars.
|
| What of the nearly 40% of Americans that can't cover a
| surprise $400 expense, due to having no wealth?
| pirate787 wrote:
| That 40%/$400 thing is fake news.
|
| https://www.cato.org/blog/it-true-40-americans-cant-
| handle-4...
| rootusrootus wrote:
| I think it is interesting that the writer of that article
| pointed out that the total adds up to 143% because
| multiple choices were allowed, but then argues that the
| real number [of people who can actually afford $400] is
| 86% by adding two of the choices. The entirety of the 36%
| could potentially be included in the 50%.
| saint_abroad wrote:
| Reality is more nuanced than that.
| https://www.politifact.com/factchecks/2019/jan/29/howard-
| sch...
|
| The survey actually states, "Four in 10 adults, if faced
| with an unexpected expense of $400, would either not be
| able to cover it or would cover it by selling something
| or borrowing money." https://www.federalreserve.gov/publi
| cations/2018-economic-we...
|
| Nevertheless, that doesn't strike me as having wealth.
| jandrewrogers wrote:
| The key point is that most of the people "borrowing
| money" have the means to pay cash but choose not to. It
| is a question of how they could pay, not if they could
| pay.
|
| I borrow money all the time when I could easily pay cash.
| Credit is more convenient and doesn't cost me anything.
| Similarly, I have a car loan even though I could have
| paid cash for the car. It is sensible finance.
| sumtechguy wrote:
| borrowing money right now to buy something is not a bad
| idea... (i think) If they have just printed a ton of cash
| (they did) that means at some point it will correct.
| Meaning you in the long term _might_ beat the interest
| rate if inflation gets higher than that. just an idea.
| bombcar wrote:
| "How would I pay a $400 bill" will always be "charge it"
| unless there's a cost associated- getting a check or cash
| from the bank is a hassle.
| edoceo wrote:
| a loan (with interest?), on a depreciating "asset", which
| obligates higher risk-premium (ie:insurance) does not
| seem sensible to me (and never has when I run the
| numbers).
| jandrewrogers wrote:
| It absolutely makes sense as a matter of elementary
| finance to use a loan when interest rates are low rather
| than paying cash -- I was buying a car regardless. The
| interest rate on the loan is far below my average rate of
| return investing the same amount of cash. The profit on
| the invested cash exceeds the loss from loan interest; I
| get to keep the remainder.
|
| Similarly, I put all of my daily expenses on credit. I
| pay off all of that credit at the end of the month. I am
| still borrowing money but I am paying no interest on it.
| jeffreyrogers wrote:
| If the numbers were really that off in the past wouldn't
| quality of living be much less than it is for most people in
| the US? I am skeptical of inflation staying low in the
| future, and I think they do sometimes make questionable
| quality adjustments in the inflation data, but if inflation
| was actually much greater than they've claimed you would see
| a gradual immiseration of the population.
| danhak wrote:
| *immiseration of those who don't hold assets
|
| Which is precisely what's been happening. Just take a walk
| around any major urban center in the U.S. There is misery
| in the streets. The opioid crisis is another manifestation
| of the same despair. Historic civil unrest, "eat the rich"
| / "billionaires shouldn't exist" rhetoric heating up. Etc.
| etc.
| emodendroket wrote:
| But none of those things are very recent.
| danaris wrote:
| It's been happening gradually over the course of the last
| 40-odd years.
| noofen wrote:
| > if inflation was actually much greater than they've
| claimed you would see a gradual immiseration of the
| population.
|
| Have you been watching the news lately? Keep watching.
| Violence and deaths of despair are skyrocketing and will
| continue to.
| bottled_poe wrote:
| I don't believe that. Any data sources?
| wcarss wrote:
| > you would see a gradual immiseration of the population
|
| good point, there's basically no evidence[0,1,2,3,4,5,6,7]
| of misery across the american population.
|
| 0 - https://en.wikipedia.org/wiki/George_Floyd_protests
|
| 1 - https://en.wikipedia.org/wiki/2021_storming_of_the_Unit
| ed_St...
|
| 2 - https://en.wikipedia.org/wiki/List_of_mass_shootings_in
| _the_...
|
| 3 -
| https://en.wikipedia.org/wiki/Capitol_Hill_Occupied_Protest
|
| 4 - https://en.wikipedia.org/wiki/QAnon
|
| 5 - https://en.wikipedia.org/wiki/Militarization_of_police#
| Unite...
|
| 6 - https://en.wikipedia.org/wiki/Student_debt#Social_and_p
| oliti...
|
| 7 - https://www.cdc.gov/drugoverdose/epidemic/index.html
| bottled_poe wrote:
| Had a look at those. I see a lot of political discourse,
| which is certainly related to economic prosperity, but
| only vaguely... Has the quality of life declined in the
| US? Have future prospects generally declined? If either
| of those is yes, we could be in big trouble..
| lotsofpulp wrote:
| On a zoom call with a group of ~12 friends from
| undergraduate school, there was an awkward moment where
| one of the friends jokingly congratulated 2 of the 12 on
| being able to afford a homes (recently purchased) and
| start families.
|
| In mid 30s, all women, all have bachelors and have been
| employed long term, 3 of the 12 are married, 2 of the 12
| have children, another 4 are paired up with long time
| partners, but there was a palpable unease and underlying
| depression about the future income prospects and lack of
| security about where they would be able to live.
| reducesuffering wrote:
| Years ago, buying a home seemed like something you can
| easily share and celebrate with acquaintances. Recently
| buying a home in the Bay Area, I felt that's passed and I
| try not to bring it up. I don't feel any satisfaction
| from celebrating or bringing up something that 20 people
| in a gathering have very dim prospects of ever affording,
| and questions about it make me feel uneasy about their
| possible uneasiness.
| refurb wrote:
| Ok, try doing that in the late 90's and see what happens.
| paulpauper wrote:
| you can do this for any snapshop of time, it is only now
| that socia media makes events that decades ago would have
| gone ignored, major news.
| jeffreyrogers wrote:
| By this definition France and 1990s Seattle would be
| terrible places to live.
|
| The opioid epidemic is potentially a real indicator of
| immiseration (not the same thing as misery btw), but I
| don't know much about it.
| wcarss wrote:
| Interesting -- "immiseration", as far as I know,
| originates with 19th century socialist theory regarding
| rising misery among the working class due to relatively
| lower wages as capitalists accumulate wealth and
| subjugate them[0,1]. Granted, the term is obscure and
| jargonesque enough that in modern use it does generally
| mean, specifically, "impoverishment". Which in other
| words could be called misery from economic causes.
|
| Please, allow at least a little breadth in the scope of
| rhetorical wordplay: immiseration is fundamentally _about
| misery_ , and the links I gave are examples of the broad
| misery felt by the average American. That misery is not
| sourceless: my entire point is that that misery is due to
| the increasing relative impoverishment of the average
| person.
|
| On the surface it is _just misery_ , but when you think
| about the causes, it is apparent that it is
| _immiseration_ , in the jargon sense: the people are
| poorer than they have ever been, and they are visibly
| angrier and more upset because of it.
|
| 0 - https://en.wikipedia.org/wiki/Immiseration_thesis
|
| 1 - https://en.wikisource.org/wiki/Das_Kapital_Volume_One
| /Chapte...
| AnimalMuppet wrote:
| I see very little connection between the George Floyd
| protests and increasing relative impoverishment of the
| average person.
| noofen wrote:
| Lots of young people with nothing but time on their
| hands?
| wcarss wrote:
| The George Floyd protest and the Capitol Riot are each
| outpourings of rage, directed at "the system". One was
| directed at the ongoing and increasing seeming
| criminalization of simply _being_ Black in America, and
| one was directed at what the people involved thought was
| an unfair and stolen election, designed to take from them
| what little they have. Different people, different
| plights, different ideas: same root cause.
|
| Happy, wealthy, comfortable, safe people who believe a
| bright future is in store do _not_ take to the streets,
| burn buildings down, and get into large scale fights with
| their local police force. They don 't throw bricks
| through coffee shop windows, hang out in tear gas clouds,
| or crowd up during a pandemic.
|
| Their willingness to do so, over clearly expressed
| feelings of hopelessness and loss of control or
| participation in the system, over a feeling that they are
| losing out overall, it's coming from a place of
| desperation. It is coming from a place of misery. You've
| got to be pretty miserable if you think fighting the cops
| sounds good.
|
| I'm sorry that you see very little connection there. It
| may unfortunately be that you see very little overall, or
| that you're intentionally looking away.
| AnimalMuppet wrote:
| Ignoring your gratuitous insults in the last paragraph...
|
| > Happy, wealthy, comfortable, safe people who believe a
| bright future is in store do not take to the streets,
| burn buildings down, and get into large scale fights with
| their local police force. They don't throw bricks through
| coffee shop windows, hang out in tear gas clouds, or
| crowd up during a pandemic.
|
| Yeah, see, they could be wealthy, and still not _safe_
| because of skin color. _That 's_ the point of the George
| Floyd protests. If you see people like yourself getting
| shot by police for reasons that seem absurd, over and
| over, you don't feel safe. You don't believe in a bright
| future. You aren't happy. And economics has very little
| to do with it.
| wcarss wrote:
| I'm sorry. I didn't mean to be _gratuitous_, nor
| particularly insulting to you.
|
| I wanted to acknowledge the possibility that our
| respective political beliefs, whatever they may be, might
| lead us to look for different types of issues in
| different places as root causes.
|
| My own beliefs lead me to characterize choosing to
| believe that economic inequality is not integral to the
| Black experience in America as tantamount to wilfully
| ignoring a root component of the problems people face. If
| that belief is insulting to you, we may tragically be
| living in different worlds of experience, and might not
| ever have a meeting of the minds. That's what I was going
| for.
|
| Despite that concern, from what you said, it seems like
| we might actually agree on a lot -- as you put it,
|
| > If you see people like yourself getting shot by police
| for reasons that seem absurd, over and over, you don't
| feel safe. You don't believe in a bright future. You
| aren't happy.
|
| That sounds spot on to me, and I absolutely agree that
| the fear of violence affects wealthy Black Americans too.
|
| Regardless, the outpouring of rage from the community
| certainly transcended _just_ the fear of violence from
| police. Violence is one particularly horrifying aspect of
| how the system hurts people, but people are being crushed
| all over, and people are mad about all of it.
|
| Here is one quick example[1] of this being stated,
| sourced in one of the Wikipedia pages I originally linked
| (which explicitly lists "inequality and racism" as a
| cause of the George Floyd protests). This article is an
| interview with the Surgeon General of America, and says:
|
| > The surgeon general pointed to Covid-19 disparities and
| other health care gaps among communities of color
| including maternal mortality rates and the opioid crisis,
| saying these issues and the frustration surfacing across
| the country are intermingled.
|
| > "It's on the top of my mind as a black man, as a
| father, as a brother, as a son," Adams said.
|
| The brutality of the police is certainly the salient,
| focusing point of the protests, but the overall causes
| and broad outpouring are larger than that. The protestors
| have often called out the broad systemic aspects of
| racism, like healthcare access, home ownership rates,
| debt levels, access to quality education, and investment
| in communities of colour. Those sorts of things impact
| Black people's lives daily on scales far greater than
| police brutality, and they are economic issues at heart.
|
| Police violence is uniquely horrific in its instances,
| and is the central igniting issue here, but the issues as
| a whole are much bigger than it alone.
|
| 1 - https://www.politico.com/news/2020/06/01/surgeon-
| general-pro...
| AnimalMuppet wrote:
| Sounds like we agree a great deal, then. I certainly
| agree that economic inequality is an integral part of the
| problems faced by blacks in America.
| noofen wrote:
| 27 unarmed black men were shot by police in the US 2020.
| Most liberals think the number is 1,000+, and a large
| portion think it's 10,000+ [1]. Maybe you should factor
| this in to your analysis?
|
| [1]: https://www.reddit.com/r/stupidpol/comments/lq7kvq/a
| _recent_...
| AnimalMuppet wrote:
| I tried to be careful in how I worded what I said. If I
| were black (I'm not), and I saw news accounts over and
| over about police shooting blacks for what (at first
| report) seemed to be trivial reasons, I would not feel
| safe. The number doesn't have to be statistically
| significant; the reasons can be better than they appeared
| at first report. None of that matters. What matters is
| that the media is beating into my head that this is going
| on, so I _think_ I 'm not safe. Doesn't matter whether I
| am or not. If I think I am unsafe, everything I said in
| my post follows. (Including the main point - that this
| isn't about economics.)
| tomp wrote:
| Policy shouldn't be made based on people's _feelings_.
|
| After all, most people feel safer driving than flying.
| They're simply, wrong.
| AnimalMuppet wrote:
| We were never talking about _policy_ , so I don't know
| why you bring that up. We were talking about the George
| Floyd protests, and whether it was caused by peoples'
| poverty.
| giantg2 wrote:
| One doesn't have to be black to feel unsafe. We also have
| to define the term unsafe. It depends on how often the
| issue is occurring and what that individual's risk
| tolerance is.
| thorwasdfasdf wrote:
| > If the numbers were really that off in the past wouldn't
| quality of living be much less than it is for most people
| in the US?
|
| Yes. Absolutely. I saw an interview of someone who talked
| about living in the 60s. He was saying how a painter could
| own a home, afford a wife and six kids with no problem
| without the wife even working a 2nd job. Today, a single
| painter could barely afford himself, let alone a family of
| six and a house. I know it's anecdotle, but the difference
| is so vast and stark, I think it's obvious there's been a
| huge difference in quality of life over the last 60 years.
| jeffreyrogers wrote:
| I understand this argument, and I am somewhat in
| agreement with it. But here's where I'm skeptical. Where
| I live, there are some homes from this time period. They
| are very small, around ~1000sq ft. Maybe slightly bigger.
| Now people want much larger homes. They tend to have at
| least two cars and possibly more if they have kids. They
| go out to eat much more frequently and spend a lot more
| on entertainment.
|
| Obviously, some of that you can't avoid. No one is making
| 1000 sq ft brick homes anymore for new homeowners, so you
| don't have an option of a small, cheap home in many
| areas. You only have the option of the bigger, more
| expensive home. But some of it is a personal choice. I
| think there is something to the argument you're making,
| but I also think people are underestimating the frugality
| of people in the past.
| AnimalMuppet wrote:
| "Frugality of people in the past". Or, looked at from the
| other side, "extravagance of people today".
|
| Or, more neutrally, our standards and expectations have
| changed from the 1960s. If you want the 2020 life on the
| kind of job that got you the 1960 life, you're in for a
| disappointment.
| kec wrote:
| You're getting cause and effect backwards. New
| construction small homes don't exist because they aren't
| as profitable for developers to build not because there
| isn't demand for them.
|
| I can guarantee you there are effectively zero
| millennials living with their parents or with roommates
| in a small apartment who would turn down the chance to
| own an affordable small home.
| maxsilver wrote:
| > No one is making 1000 sq ft brick homes anymore for new
| homeowners, so you don't have an option of a small, cheap
| home in many areas. You only have the option of the
| bigger, more expensive home
|
| The bigger home is inherently cheaper, though. (At least,
| in the US).
|
| A ~1800sqft new home (the average new low-end build out
| here in the midwest) takes way less resources and labour
| to construct than that old 1000sqft brick home did.
| Houses today are made out of the cheapest plastic and
| twigs (many don't even have a single piece of real wood
| in them anymore). Houses back then used bricks and real-
| wood timber (expensive to purchase, expensive to move,
| expensive to lay, etc). Your old brick house probably had
| expensive copper pipes, new builds use plastic PEX straws
| so cheap they're practically disposable, and so on.
|
| Homes built today are made using far less labour, less
| materials, and far cheaper materials than before. If land
| and asset valuations had stayed consistent, homes today
| would be drastically cheaper than before. Yes, homes are
| "bigger", but those extra open empty spaces cost
| practically nothing extra, the fixed costs are mostly
| fixed and the variable costs are trivial.
| dragonwriter wrote:
| > No one is making 1000 sq ft brick homes anymore for new
| homeowners
|
| Well, the single-family detached suburban California home
| I bought as new (not complete when we signed)
| construction in 2006 was 997 sq. ft. on 0.1 acres, so
| other than "brick" that was certainly possible to find
| new not that long ago.
| sudosysgen wrote:
| But 1000sqft homes still exist and they are still wildly
| unaffordable.
| bluGill wrote:
| I'm in the process of moving (new job), and so I'm
| looking for houses. There are 1000sqf houses that aren't
| trashed for $100,000. I'm expecting to spend $500,000 for
| a 2500sqft house anyway, and only part of that is houses
| close to work are bigger. (there was a 1200sq ft house
| near work for $250k - not that I would have bought
| something that small)
| thorwasdfasdf wrote:
| Yes, average home size has increased, but that's mainly
| for NEW homes, not existing homes.
|
| You have to remember, those new homes are only bought up
| by about 1% of the population. So, to say that 1% can
| afford much larger homes is not saying much about the
| other 99%.
| randomopining wrote:
| So maybe there will be a ramp up of home-building etc after the
| suppliers re-adjust? Thus in 2 years you could see a drop in
| prices?
| putnambr wrote:
| With all the newly inflated home values, I don't expect
| planning and zoning committees to be able to approve anything
| other than single family housing.
| jollybean wrote:
| "Buyers are competing against other buyers with seemingly
| unlimited cash offers. "
|
| So this should be the alarm bell that contradicts the argument.
|
| In 2008 the Fed took what was then seen as a 'generational'
| bump in assets on it's balance sheet, namely _bad real estate_
| , effectively bailing out banks and home-owners, and arguably
| exasperating inequality.
|
| But the money printing going due to COVID has dwarfed
| everything, to the point of multi-generational consequence, and
| what we might argue is a 'New Financial World Order'.
|
| The Central Bank realignment due to COVID may be as significant
| as the start/end of Bretto-Woods etc. because the degree of
| social intervention is on an unimaginable scale. Aside from the
| 'raw numbers' it means social intervention and governmental
| direction of the economy like we have not seen since WW2 but
| this time without the obvious and easy infrastructural and
| educational adjustments to make: in the 1950's there were no
| highways - so they got build, and nobody had College degrees so
| getting former Officers/NCO's into College was a no-brainer.
|
| Interest rates have been going down, and historically lower
| since the end of Bretton Woods, and they are now in the range
| of where it's causing considerable strain with massive
| leveraging, negative central bank overnight rates etc..
|
| The result of this is a 'primary driver' of the Housing Boom,
| and it's the same thing happening in almost all asset class.
|
| Or in other words: we are playing flirting dangerously with
| real, scary inflation, it's just happening in our homes so we
| think it's all good.
|
| COVID has caused us to 'look the other way' with regards to
| financial reality, which is understandable, but that can't go
| on forever.
|
| I am not a supporter of Crypto, BTC or any of the like, and I
| generally loathe the anti-fiat fanaticism etc. because I don't
| think these arguments are data driven or made in good faith,
| however, COVID has brought a lot of credibility to the fiat
| debauching concerns.
|
| Housing prices are one element of that.
| treesrule wrote:
| Joe Wiesenthal on twitter sometimes has some good anti-anti-
| fait shtick. https://twitter.com/TheStalwart
| UncleOxidant wrote:
| > Or in other words: we are playing flirting dangerously with
| real, scary inflation, it's just happening in our homes so we
| think it's all good.
|
| Home prices have gone up way more than incomes over the last
| 10 years. Economists don't seem to want to call it inflation
| until incomes are rising. I'm glad I bought a house for $180K
| in 2011 that's worth $360K now 10 years later, but I really
| wonder how folks who are entering the market now are able to
| deal with the much higher monthly payment. That's going to
| divert spending away from other parts of the economy for
| quite a while.
| gruez wrote:
| >Home prices and rents have gone up way more than incomes
| over the last 10 years
|
| Home prices, maybe. But rents (aka housing)? AFAIK it's
| kept pretty consistent: https://www.aei.org/wp-
| content/uploads/2020/01/cpi2020-875x1...
| cryptonector wrote:
| The things to compare are not home prices vs rents but
| home monthly payments vs rents. Having a mortgage is like
| renting capital, after all.
| UncleOxidant wrote:
| Depends on location. I was charging $850/mo for a
| detached 3BR/2BA house in 2010. I'm charging $1500/mo for
| the same now - and I could easily be charging $1800/mo,
| but I like the renters and don't want to lose them.
| pnutjam wrote:
| Looking at an old lease of mine, in 2007 I paid $959 for
| this 3bd/B style. Now they are at least $1360.
| https://www.sunblest.com/floorplans.aspx
|
| These are the best value apartments in this area. The new
| ones they built down the street have a $3300 list price
| for a 3bd.
|
| This is an affordable midwest area.
| pnutjam wrote:
| To clarify, the raise is about 8% over the regular
| inflation rate.
|
| The bigger issue is the fact that all new stuff is not
| significantly different or better, but almost 3 times the
| price. The floor is falling out.
| [deleted]
| castlecrasher2 wrote:
| >I was charging $850/mo for a detached 3BR/2BA house in
| 2010.
|
| Out of curiosity, what was the comparable rent in
| 2005/before the crash in 2008?
| putnambr wrote:
| My rent went up 5% two years ago, another 5% a year ago,
| and we just renewed at +33%. The housing crisis is
| hitting the rental market.
| stainforth wrote:
| Why should landlords extract more from their renters,
| just because they can?
| putnambr wrote:
| That's exactly it, maximizing profit. Lots of rental
| units, at least in my area, aren't owned by individuals
| anymore. They're owned by corporations or private equity
| who have an obligation to their shareholders to maximize
| profit. If I stop renting, someone else will pick up the
| bill.
|
| The landlords' operating costs haven't gone up
| significantly either. They own the property outright, the
| same maintenance crew is around, they're down a leasing
| agent and manager from a year ago, and property tax
| increases are capped in this city. Any rent increase they
| can push beyond inflation directly lines their pockets.
| quickthrowman wrote:
| > I really wonder how folks who are entering the market now
| are able to deal with the much higher monthly payment.
|
| I'm simply choosing not to play, I'll keep renting my place
| for $9900 a year in a metro area of 3.5 million, I'm not
| tripling my housing costs just to get 'equity', I'll dump
| the extra 20k a year into VTI and come out ahead in the
| long run, equities don't require roofs or furnaces.
| bluGill wrote:
| Maybe. IF the inflation predictions are right this time
| your rent will jump to $50k/year, while the mortgage of
| those who bought stays the same, so they have the money
| to invest not you.
|
| That is a big if, and there are lots of different ways
| things can turn out. God doesn't advise me, so only time
| will tell what really happens...
| [deleted]
| totalZero wrote:
| Equities can also drop 50% in a matter of weeks. Be
| circumspect about the risks that you willingly choose for
| yourself.
| meragrin_ wrote:
| > And then you have to do it timely enough to beat other
| offers.
|
| This is an understatement. My mother's neighbor sold their
| house within 2 hours of it going on the market and for $20k
| over the asking price just last week. There are realtors asking
| around my neighborhood if anyone is getting ready to sell
| because there are buyers looking to purchase in here. This is
| even with developments going up like crazy. This is in a
| northern state away from the big cities.
|
| > Also, inventory is drying up because construction has been
| heavily affected by the pandemic.
|
| Not around here.
| yardie wrote:
| > Not around here.
|
| If the builders haven't locked in their supply chain yet
| you'll see it in the coming months. At the moment there is
| very little slack in the supply chain.
| commandlinefan wrote:
| > My mother's neighbor sold their house within 2 hours of it
| going on the market
|
| I have to wonder, though - where are the people who are
| selling their homes moving to? They're stuck in the same
| insane buying spiral everybody else is.
| Balgair wrote:
| Typically, they put in a clause where they rent out the
| house until they can find other housing. This may go on for
| 1-2 months.
| robotron wrote:
| My two-layers out suburb of an attractive city had a coworker
| sell their starter-esque home purchased a few years ago for
| $350k sell for $620k-ish in the matter of three days.
| Meanwhile, I'm languishing hoping to buy my first home before
| I'm too old. About to permanently give up.
| paulpauper wrote:
| One of the best pieces of financial advice I have learned is, is
| to ignore all predictions of bubbles. They are almost always
| wrong or premature. Even if you sell, prices may never fall to
| where you sold even if the bubble bursts. For example, had you
| sold your stocks in 1996 because of fears of a stock market
| bubble, when the market did crash in 2000-2003 and again in 2008
| it would never revisit the price you sold. You would have also
| missed out on all the dividends. Pundits also said Facebok was a
| bubble in 2012 after it went public and Google in 2004 too and
| Amazon and Tesla, etc. .The list goes on.
| petercooper wrote:
| Even the smartest and savviest of people read the tealeaves
| wrong sometimes: https://signalvnoise.com/posts/2585-facebook-
| is-not-worth-33... .. or.. does this just prove what a bubble
| it is!? ;-) More on this one at
| https://twitter.com/benedictevans/status/1261617044648329216
| reducesuffering wrote:
| Ouch, not the finest moment of DHH on that one. He said FB
| wasn't worth $33B, meanwhile they're set to make that much
| just in profit this year!
| jzymbaluk wrote:
| It really strikes me that we've basically re-invented old-school
| landed aristocracy on a small scale in our big American cities.
|
| anyone who was lucky enough to have bought a home 25+ years ago
| in a city like San Francisco or Seattle or Boston or NYC is a
| millionaire now, and home ownership is completely out of reach
| for the average inhabitant of a city. Buying a home is a pretty
| big reach even for very high earners, like the average audience
| of HN.
|
| Ultimately, housing cannot be both A) an appreciating, scarce
| investment and B) equitably and humanely distributed.
| Cd00d wrote:
| It's worth noting that a lot of people continue to borrow on
| their homes or take out equity.
|
| I bought a home outside NYC in the fall, and the owners got
| very little cash out of the deal, in spite of having been here
| for 35 years.
|
| Which means, that many of those that look like millionaires now
| may be struggling to keep up with property taxes and can't
| afford to relocate near comparable.
| [deleted]
| bluGill wrote:
| As an advocate of houses as an investment, I've always been
| against A, except to the extent that the appreciation matches
| inflation, and even then it should only match inflation because
| you don't count the investment in keeping it "nice"
|
| Houses are an investment in shelter over your head. They work
| out well long term if you live in them long term, but you
| should never look at what they are worth if you sell, except
| when calculating your net worth. Even then a renter should have
| a higher net worth because rent is increasing with inflation,
| while the house payments are not: the renter needs to have more
| to cover future rent.
| UncleOxidant wrote:
| Are we running out of people with the incomes to support the
| higher monthly payments? That's what we have to be asking. A
| house across the street from me just sold in a couple of days for
| $555,000 ($20K over asking). Previously sold in 2018 for
| $424,000. The similarly sized house next to it sold for $149,000
| in 2012. This is looking pretty bubbly to me.
| aphextron wrote:
| >The similarly sized house next to it sold for $149,000 in
| 2012. This is looking pretty bubbly to me.
|
| But 2012 was also the absolute bottom of the worst housing
| slump in US history. If you averaged out the appreciation of a
| median priced home at the beginning of the housing bubble in
| 1998, which was $175,000 [0], at 3.8% annually, the historical
| average [1], until 2021, the median price would now be just shy
| of $400k. We currently stand at $350k median price, and that's
| with a generational tailwind of millennials (the largest
| generation in US history) now _just_ starting to buy homes. The
| fact is that it 's still the single best financial decision an
| average person can make, even at what seem like inflated
| prices.
|
| [0] https://dqydj.com/historical-home-prices/
|
| [1]
| http://www.fedprimerate.com/new_home_sales_price_history.htm
| cryptonector wrote:
| Monthly payments stay level even if principals go up, as long
| as interest rates go down.
| Ancalagon wrote:
| We are probably not yet running out of buyers, because interest
| rates are low (and hence monthly payments are low). In a way,
| right now is a bad time to buy if you have cash in hand
| _because_ interest rates are low causing prices to skyrocket
| and the overall amount of money you would spend on a mortgage
| to increase over a 30 yr period.
|
| Despite this, I think whales and normal people are buying
| property all over the place anyways because its one of the few
| safe, good remaining investments left, and as the article
| pointed out, people prefer investing in their own homes more
| than any other asset.
| hardtke wrote:
| >90% of Americans prefer their primary residence as an investment
| over the stock market. People are likely to move funds from
| savings and the stock market into their homes, as they believe
| this to be the best strategy.
|
| The way the housing market is structured, it is a vastly superior
| investment for most Americans. Housing is the only asset where
| every American can be highly leveraged with a fixed downside. As
| a house buyer you need only 10-20% down and can mortgage the
| rest. So if the house price goes up 10%, your return on principle
| is more than 50%. In California and some other states, first
| mortgages are non-recourse -- if there is a short sale the
| homeowner is not personally liable for the difference between the
| sale price and what is owed on the loan -- this is not true if
| you buy equities on margin. For these reasons, historically the
| returns for Americans of modest means has been astronomically
| larger than the returns on equities. The "all cash" phenomenon is
| partly investors realizing there are excess returns in this
| market.
| aphextron wrote:
| >As a house buyer you need only 10-20% down and can mortgage
| the rest.
|
| Or less. Zero down mortgages are absolutely a thing right now.
| You can get $250k of margin on an appreciating asset for
| nothing more than your signature, credit score, income history,
| and a few thousand in closing costs. There's truly nothing that
| even comes close in terms of wealth building for an average
| person.
| pbuzbee wrote:
| Any advice for someone looking for their first home?
|
| Based on this article and others I've read, it seems like many of
| these factors (low interest rates, limited new supply, etc.) are
| likely to continue for at least the next several years. The only
| change that could help a first-time buyer would be if the end of
| the pandemic leads to favorable conditions (reset preferences,
| end of eviction moratorium, etc.). I feel like I could wait
| another 3-5 years for it to flip towards a buyer's market, but
| that's certainly not guaranteed and who knows how high prices
| will have gone in the meantime.
| pomian wrote:
| location. find some other place. where the community has what
| you need, and what you like. As with many other things such as
| fads, sometimes all you have to do, is look across the street.
| It's also mud if a long term thing. So think about what a
| community could look like in the future. If it is run down, but
| people are renovating, that's a good sign for the future.
| stagger87 wrote:
| I just bought and sold a house in a very hot market. The things
| that people are doing right now to stand out in my market were,
|
| - Get pre-approved.
|
| - Write a personalized letter why they should get the home.
|
| - Offer above list price and be willing to pay above appraisal
| (part of your offer).
|
| - Put your offer in right away. Most people who viewed my home
| put in an offer within a few hours of seeing it.
|
| - Forgo an inspection to get a faster close date.
|
| - Pay cash if you can.
|
| - Buy new construction, we bought new construction and didn't
| have to compete with anyone. It costs a little more up front,
| similar to a new car I imagine, but we plan on staying >10
| years if we can help it.
|
| As long as you are financially secure I wouldn't wait for a
| better market. IMO it doesn't matter if the market is high or
| low, it only really matters if you leave the market.
| robotron wrote:
| > we bought new construction and didn't have to compete with
| anyone
|
| In my market this isn't the case. Some builders are having
| literal blind auctions on small lot starter homes - after the
| X months wait list gets you there.
| almost_usual wrote:
| > Write a personalized letter why they should get the home.
|
| In CA realtors are trying to push back on this. They claim
| fair housing law risk.
|
| I don't see any risk though if you're the first offer.
| lolinder wrote:
| Right now you're almost certainly not the first offer, and
| even if you are, they'll have 5+ more by the end of the
| day. This means that your letter could theoretically be the
| deciding factor in which offer they pick, which does have
| the potential to run against fair housing laws.
| [deleted]
| scelerat wrote:
| The best time to buy is ten years ago. The second best time to
| buy is now. (to paraphrase a proverb)
|
| You really can't predict. low interest rates are awesome.
| MuffinFlavored wrote:
| > I feel like I could wait another 3-5 years
|
| > who knows how high prices will have gone in the meantime.
|
| Devil's advocate but the average person might also have 3-5
| years more of savings + cost of living salary raises by then
| bombcar wrote:
| If the area you're looking at has land supply (I.e, empty
| lots and not all built up) I would wait - there is a new
| house supply crunch caused by inflated materials cost caused
| by drops in production during covid.
|
| Those at least should level out at some point and supply in
| those areas increase.
|
| All bets are off in built up metro areas. Be sure you won't
| have regrets if you end up having to stay there 10+ years.
| almost_usual wrote:
| Agreed. Timing the housing market is like trying to time the
| stock market.
|
| If you can afford a home, want to buy one, and it's in a
| location you want to be in, it makes sense to buy.
| pjbk wrote:
| Reminded me a bit to the classical NY Fed paper before the
| subprime crisis [0]. Each bubble is different as much as each
| bubble is the same. I guess the main invariant is that what goes
| up must come down at some point, because of "reasons" and
| principles of human nature on complex individual and group
| behavior. Usually those are only clear after the fact.
|
| [0] -
| https://www.newyorkfed.org/research/epr/04v10n3/0412mcca.htm...
| ragle wrote:
| Whether or not we are in a bubble is increasingly the wrong
| question to be asking in an age where failure for sufficiently-
| large institutions is no longer permitted.
|
| The question used to be pretty simple: "has a sufficient portion
| of the market been priced out to the extent that demand
| collapses"?
|
| As we've seen in equities / derivatives (and increasingly,
| commodity) markets - the answer to that question is now
| perpetually "lol, number go up" because large investment banks
| have essentially infinite access to free money and will be bailed
| out if they get in trouble.
|
| On a long enough timeline the end result of this is that more and
| more Americans write their rent checks to institutional
| investors. [1]
|
| Sure, many Americans own their homes now (or have a nice cushion
| of equity). But what happens as wage growth continues to stay
| relatively flat while cost of living rises dramatically and folks
| need money for medical bills or their kid's college tuition (or
| w/e)? They sell and become renters.
|
| There's a pretty bleak future for American housing absent
| regulation in this space.
|
| [1] -
| https://www.theatlantic.com/technology/archive/2019/02/singl...
| pc86 wrote:
| What exactly are you proposing be regulated?
| ragle wrote:
| Ownership of single-family residential properties by large
| financial institutions should be limited to their traditional
| role - i.e. custodial ownership of a home for the duration of
| a mortgage.
| anonuser123456 wrote:
| How about we just let people build more and let the market
| be liquid and efficient?
| musingsole wrote:
| > more and more Americans write their rent checks to
| institutional investors
|
| Homes as a wealth vehicle has been the standing wisdom for a
| while. That being less and less true (by virtue of requiring a
| higher and higher degree of wealth to even play) is scary in
| that there isn't an immediately obvious alternative with nearly
| the same odds. Also scary in that a lot (a lot a lot) of rules
| have been written and enshrined with the assumption of that
| fading wisdom.
|
| At what point does it cross a type of pandemic level where
| fighting it isn't the best strategy but mitigating it and
| finding alternatives is the only route forward?
| treesrule wrote:
| I mean, regulation is why the housing market is so bad (SFZ
| environmental review etc), so really what we need is forced
| deregulation.
|
| Edit: Some people might have misunderstood what I said so
| here's what I mean: What we really want is states to force
| localities to reduce zoning restrictions on new construction
| pibechorro wrote:
| Ding ding ding ding!
| techrat wrote:
| Because deregulation did wonders for telecoms, energy
| companies in texas, boeing, subprime mortages, etc...
| pibechorro wrote:
| Deregulation hand in hand with allowing things to fail is
| the answer. The issue here is the constant bailouts. We
| live in a fake economy.
| minikites wrote:
| The economy wouldn't crater if these massive institutions
| failed? I find that hard to believe.
| treesrule wrote:
| I mean, there are specific regulations we can point to that
| are making houses and housing more expensive, I don't see
| how "allowing people to build more houses" could
| destabilizing living?
| techrat wrote:
| Deregulation in this case wouldn't lead to "allowing
| people to build more houses" but "allowing people to
| build more * _unsafe*_ houses. "
|
| Regulations are written in blood.
| inglor_cz wrote:
| Less safe does not mean unsafe. Marginal gains in safety
| after a certain threshold may not be worth it. People
| wear helmets on bicycles, but no one wears a helmet just
| walking around.
|
| Several years ago I read a German interview with a
| construction engineer who complained about the industrial
| lobby that pushes more and more regulations that,
| incidentally (/sarc), increase a (forced) demand for
| their products.
|
| He gave several examples, of which I remember one. It is
| now law in Germany that new homes with French windows
| must have extra strong glass in them. The reason? What if
| a toddler on a tricycle ran into the glass and suffered
| serious injuries or death?
|
| _Now_ , said the engineer, _there are no cases in
| Germany of this actually ever happening, or at least we
| do not have any records of them_. But this what-if
| theoretical scenario increases construction costs of new
| German homes by a thousand euro or so. (And increases a
| basically guaranteed demand for products of a few
| certified safety glass vendors A LOT!) Take forty or
| fifty such extra requirements together and their
| cumulative effect on price of the finished home starts
| being significant.
|
| But no one wants to be known as a potential child killer,
| so it is not worth opposing such measures.
|
| The level of safety gained by such measures is
| nevertheless dubious. People didn't die in homes built to
| the less stringent standards of 1990 like flies.
| techrat wrote:
| > People wear helmets on bicycles, but no one wears a
| helmet just walking around.
|
| When you start off with a false equivalence...
| rank0 wrote:
| I disagree. Why can't you relax zoning restrictions
| without relaxing safety requirements?
| floor2 wrote:
| Oh come on. Obviously people aren't clamoring for
| bringing back asbestos or dumping sewage into the street.
|
| Regulations are written for a wide range of reasons-
| legitimate safety issues, quality of life concerns,
| propping up values, funneling money to groups favored by
| the politicians or bureaucrats crafting the rules,
| political grandstanding against imaginary problems,
| particular rules favored by coordinated special interest
| groups, etc.
|
| I once lived in an area where several suburbs all met,
| you could drive a few blocks and cross imaginary lines
| separating different legal cities. They had different
| regulations for minimum lot size, how close structures
| could be to the property lines, how trees on the property
| needed to be handled, whether you could put two separate
| structures on one property, etc. Obviously none of these
| things impacted safety, but did impact density, home
| prices, etc.
| danaris wrote:
| Based on your subsequent comments, it seems like what you
| specifically mean is "reduce (probably zoning-based)
| restrictions on the construction of new residential
| buildings".
|
| Phrasing this as "forced deregulation" is...not going to get
| people to recognize what you actually mean, because 95% of
| the time, when people say they want "deregulation," what they
| mean is they want big businesses to be allowed to exploit the
| middle and lower classes however the hell they want with no
| consequences.
|
| If you do, in fact, mean specifically "reduce zoning
| restrictions on new construction", I suggest using phrasing
| like that, because it'll communicate your intention much more
| clearly. (If you don't, then I have misunderstood you, and
| apologize for the confusion.)
| treesrule wrote:
| thanks!
| minikites wrote:
| Why do you think entrenched power needs to be entrenched
| further? Our current situation can be traced back to
| deregulation:
|
| https://en.wikipedia.org/wiki/Financialization#Deregulation_.
| ..
|
| >The securities that were so instrumental in triggering the
| financial crisis of 2007-2008, asset-backed securities,
| including collateralized debt obligations (CDOs) were
| practically non-existent in 1978. By 2007, they comprised
| $4.5 trillion in assets, equivalent to 32% of U.S. GDP.
| treesrule wrote:
| This is a total nosequitor, building more apartment
| buildings would make apartments cheaper, being allowed to
| build two houses on your one house lot would make houses
| cheaper etc. Like do you have a reasonable path from
| "people have more latitude to build on their own property"
| to putting families or individuals in a dangerous financial
| situation.
| Cd00d wrote:
| I find it suspect that environmental regulations are the
| driver of housing market issues.
|
| That's a claim you should be substantiating and not making a
| blanket statement about.
| treesrule wrote:
| Fair enough, let me find you a good article on the subject
| treesrule wrote:
| See here for example:
|
| Basically anyone can just maliciously sue if they don't
| like a development and force a length environmental review
| process.
|
| https://www.theatlantic.com/ideas/archive/2021/03/signature
| -...
|
| Also just as an aside, I'm in favor of large, expensive
| intervention for both climate change and the environment in
| general but Environmental review at least in California is
| basically worth nothing compare to investing a billion
| dollars in solar cell research or building a nuclear power
| plant.
| scrose wrote:
| In NYC, people call for multi-year environmental reviews to
| stall putting in something as good for the environment a
| new bike lane. Not sure where you live, but if you just
| look up where SEQR is referenced NYS lawsuits or sit in any
| local CB meetings on buildings and zoning, you'll see it
| often come up around both buildings and bike lanes as a way
| to kill momentum on a project for years.
| dionidium wrote:
| Maybe not environmental review, specifically (which differs
| quite a bit state to state), but zoning and onerous
| building regulations more generally are a significant
| factor. At this point the burden is really on detractors to
| explain why artificially limiting supply for decades didn't
| affect prices.
| [deleted]
| frgtpsswrdlame wrote:
| An article about housing on hacker news, let's see, let me put on
| my Carnac hat and guess this article is about zoning. Anyways, I
| think the pandemic has shown that the monomaniacal focus on
| zoning reform isn't actually well suited to what people want out
| of their housing. Hasn't this pandemic pretty well proved that
| when people aren't at the office they want a little more space?
| And not just inside but outside too. Yards are nice, people like
| yards, the single family lot in the suburbs _is_ the American
| dream. I think the focus on zoning always takes the same
| rhetorical trick, "Build where people want to live" and abuses
| the hell out of it. Do people actually want to live in highrises
| in megacities? Or do they just do it so they can land a decent
| job? Maybe the problem isn't moving more housing into cities,
| it's moving more jobs out of them. The zoning reform people only
| ever look at one side of that equation.
| zepto wrote:
| _This_ x 100. It's a _good_ thing is development of nice places
| to live and work is pushed out of the current center so that
| _more of the country is livable_.
| devingoldfish wrote:
| > Hasn't this pandemic pretty well proved that when people
| aren't at the office they want a little more space?
|
| Yea, and they want a pool and a free pony too. Given that
| people can't all get the housing they want, how do we solve for
| the housing problems we've run headlong into? Building more
| housing is absolutely a meaningful way to attack the problem,
| and zoning reform is a part of that.
|
| > Do people actually want to live in highrises in megacities?
| Or do they just do it so they can land a decent job?
|
| Of course jobs are the driver here, but that means that
| incidentally, yes they do want to live in high-rises in
| megacities. There's no real sign of large cities releasing
| their hold on productivity and good paying jobs, the current
| remote work in a pandemic thing not withstanding.
|
| > The zoning reform people only ever look at one side of that
| equation.
|
| As someone who has faced the SF Bay Area housing crisis over
| the last ten years, I'd be fine with people moving out. But
| it's not a realistic solution, given that the good jobs are
| still here. Not to mention, there's not much we can do to
| reverse the economic incentives that bring people to places
| like San Francisco, but there is something we can do about
| local zoning rules. So it's entirely rational that people focus
| on building housing in these cities rather than trying to
| convince people not to move here in the first place.
| scelerat wrote:
| Count me among people that bought a house in 2020 (late December)
| partially because of the "practically free" cost of borrowed
| money due to low interest rates.
| dcow wrote:
| Anyone want to start a city with me? Find some overlooked land
| near decent water and with good fiber and explicitly build out
| with unregulated zoning and minimal city planning. City only owns
| utilities and emergency services. Municipal fiber. A remote work
| hub.
|
| I have no idea how but willing to figure it out as we go. The
| idea has been crossing my mind more and more frequently of late.
| bombcar wrote:
| Sounds like Houston.
|
| I'm surprised someone hasn't bought a rail line with one end in
| a major metro and the other an hour away in empty land and just
| built a rail suburb.
| pomian wrote:
| Great idea! So many nice communities across the country. I
| often wonder why more companies don't just take over - giving
| their employees quality of life options.
| lkrubner wrote:
| There is only one real question here: why is that 1916-1980 Fed
| stimulus would tend to raise wages, whereas since 2000 Fed
| stimulus has no effect on wages but instead becomes asset
| inflation?
|
| The Fed increased the money supply last year. A lot. So asset
| prices are going up. That much is straightforward. But in another
| era the same stimulus would have manifested less as asset
| inflation and more as an increase in wages. The only important
| question is why that has changed. As we saw in 2019, even very
| low unemployment no longer leads to rapidly rising wages. What is
| holding wages down?
| Sammi wrote:
| Lyn Alden does a deep dive into money printing and inflation
| and describes the difference between the money printing in the
| past and what is going on now:
|
| https://www.lynalden.com/economic-japanification/
| dragonwriter wrote:
| > There is only one real question here: why is that 1916-1980
| Fed stimulus would tend to raise wages, whereas since 2000 Fed
| stimulus has no effect on wages but instead becomes asset
| inflation?
|
| Because recent Fed monetary policy occurs in a different fiscal
| policy environment, and fiscal policy has a lot more impact on
| distribution of returns than monetary policy.
|
| > What is holding wages down?
|
| 4 decades of fiscal (both tax and benefit) policy starting with
| Republicans and then joined by Clintonian Third Way Democrats
| which has focussed on taking support away from the poor and
| working class and concentrating gains in the narrow, major
| investor class in the notional hope that those at the bottom
| will get trickled-down-upon by the wealthy (a hope which has
| been realized more in the form of golden showers than showers
| of gold.)
| intergalplan wrote:
| I think they're right (kind of).
|
| I think we're in a bit of a bubble.
|
| But I think the main driver is severe asset inflation, so when
| the bubble pops we'll find it only unwinds a year or two, at
| most, of the insane price-growth we've seen... well, ever since
| the recovery from '08, actually.
| tengbretson wrote:
| The article says that single family zoning rules are causing the
| shortage that drives up the price we're seeing right now. So they
| argue that the solution is to open up those restrictions so that
| more multi-unit buildings can be built and that this will "break
| the restrictions on homeownership in America." Multi-unit
| buildings are _overwhelmingly_ more common to be rentals than
| occupant-owned condos, so how is this a solution that actually
| increases people 's ability to own their homes?
|
| Seems like its just a bait-and-switch in favor of landlords.
| burlesona wrote:
| It would be a lot easier and more marketable to take the more
| run down single family homes that have become too expensive for
| most people and do rebuilds that turn that lot into two homes.
| The financial model for a developer is easier too, you do the
| transaction and you're done, as opposed to needing to be a
| landlord for a long time, or find just the right kind of
| investor to buy a 4-unit apartment (which is really rare).
|
| There is an entire spectrum of housing types that are generally
| referred to as the "missing middle," which are common in old
| cities and European cities but virtually non existent in post-
| ww2 America.
|
| That's what removing or relaxing single family zoning should
| allow.
| woah wrote:
| Why would someone want to own a home?
|
| 1. Tap into an ever-rising, yet completely safe investment
| asset with massive leverage.
|
| 2. You can get more space owning than you can renting.
|
| 3. You have more certainty (can't be evicted, etc)
|
| 4. You enjoy home improvement as a weekend hobby.
|
| 1, 2 and 3 are ponzinomics.
|
| 1. This is obvious, and the main factor. It is only true
| because of the artificially constrained housing supply. Without
| this artificial scarcity, housing wouldn't increase in price
| any more than copper or pork bellies. Spending all of your net
| worth and going deep into debt to invest in a single pig farm
| would be considered very foolish and undiversified. Investing
| in a single housing property would be the same without the
| artificial market distortion. Existing homeowners have created
| this market distortion by pushing through ever-tighter zoning
| regulations at the local level. They are always ranting about
| conspiracies of "landlords" and "developers". Businesses that
| increase the housing supply are their natural enemy.
|
| 2. This is related to the factor above. You can't really get
| more space buying than renting, you just feel that it is safer
| to spend a large portion of your income on a mortgage since
| it's such a "safe investment".
|
| 3. Eviction wouldn't be an issue in a market with sufficient
| supply. Your rent wouldn't go up any faster than inflation, and
| might even go down. A landlord wouldn't want to evict you any
| more than a business would want lose you as a customer.
|
| 4. I guess I will have to concede that renting is a worse
| option for hobbyist carpenters.
| ryandrake wrote:
| I think you're really missing the mark on 4. This is not
| about enjoying home improvement as a hobby, it's about being
| allowed to improve your own living conditions.
|
| I can do whatever I want with my property, within building
| codes, without having to ask a landlord. Want to knock down a
| wall, upgrade the stove to gas, build a shed in the backyard?
| You have the freedom. If my faucet is leaking, I don't have
| to beg someone to send a plumber.
| tengbretson wrote:
| Wouldn't any refutation of points 1, 2, and 3 as ponzinomics
| also apply to landlords?
| woah wrote:
| Housing should be a low margin, boring business. Smalltime
| landlords buying, renting, and flipping properties on
| leverage is another symptom of a distorted market.
| pbronez wrote:
| I saw some analysis a while back that said 2-3 story garden
| apartments are the most economically and environmentally sound
| level of density to shoot for. Would be neat to see those
| available as condos. You could double or triple density without
| pricing people out or creating urban environmental problems.
| MuffinFlavored wrote:
| > I saw some analysis a while back that said 2-3 story garden
| apartments
|
| A big part of the "American dream" of homeownership (for me
| at least) is to not have any connected walls to anybody else
| (no condo, no apartment, no townhouse). I am going to guess a
| lot of people feel similar to me. 2-3 story garden apartments
| might be efficient, but I am willing to bet a lot of families
| selfishly want a single family home.
| woah wrote:
| Then they will need to get used to driving 3 hours a day
| mdorazio wrote:
| More units available means lower rental prices (in general),
| which means renters _should_ be able to save more money to
| purchase a home later. There 's a big assumption baked in there
| that condos & houses don't get snapped up by existing landlords
| or rise in price faster than the savings rate of renters. But
| that's the thinking.
| stonkdonk wrote:
| Yeah I don't get it. People want to buy a home so that they
| have more space and privacy, including outdoor space. Sure,
| some condos have roof decks, balconies, or shared yards, but so
| do rentals.
| asciimov wrote:
| I live in what used to be a very affordable metro. After years of
| saving and getting out of debt, I am finally able to buy a house.
| Well I would have been under normal market conditions.
|
| When I moved to my neighborhood 7 years ago the average price of
| a 1500sqft home was 130K. Prices on those homes have gone up
| slowly up over the years but the last 18 months where price have
| skyrocketed. Those same homes are now being listed for 240-250k
| and closing above asking.
|
| I've had multiple realtors in my area tell me, that unless I have
| an extra 50k available beyond my down payment it is unlikely that
| I will be able to buy right now. Why? None of the houses are
| being appraised for as much as they are listing, so you have to
| cover that gap and then you will want to offer 20K+ over asking
| to make sure you get the house.
|
| The last few homes that I have looked at already had offers on
| them before they were put on the market. These homes open on a
| Saturday and close Sunday evening with 15-20 offers. And who
| exactly are getting these homes? Out of towners, usually from the
| west coast, with cash only offers.
| refurb wrote:
| I get the sense identifying a bubble is similar to identifying
| alcoholism.
|
| If you find yourself having to spend time explain to people why
| you're not an alcoholic there is a good chance you are one.
| 2020aj wrote:
| We might not be in a true bubble, but the set of circumstances
| that have lead to the market increase have been a "perfect
| storm". I think once we get to the other side of the pandemic
| much of what is driving housing prices will revert to or trend
| towards precovid norms. It's likely there will be a market
| correction when (if) that occurs, so it's a bit missing the point
| to say "well technically it's not a bubble".
| bondarchuk wrote:
| One thing I don't understand. I hear a lot of stories about a
| house being sold within a few days (or hours..) for $x over
| asking price. In these cases, why do sellers not wait for a few
| weeks, or list the house for a higher asking price?
| bick_nyers wrote:
| I could be wrong, I am by no means well versed in this, but I
| think they are limited by appraisals and inspections. If the
| house gets appraised significantly less than the offer, I
| believe that the buyer can leave their offer, effectively
| wasting two weeks of the seller's time. The goal then is to get
| a cash offer that goes through an expedited process where an
| appraisal is not needed. In addition, for all of the sellers
| that believe we are in some degree of a bubble, they want to
| hurry to sell before it pops/deflates.
| shanecleveland wrote:
| I believe this is correct. And even if the buyer is willing
| to pay the price, the bank may not be willing to offer the
| mortgage over the appraisal amount. Cash is king, but not all
| offers for the same price are equal, such as VA loans with
| requirements and such.
|
| Pre-2008 crash, lenders could pick their appraiser and it was
| easier for them to have the appraisal match up with the
| asking price. The lender was likely selling off the loan,
| anyway.
|
| Appraisals are now assigned to a pool. Doesn't mean there are
| not any shenanigans though. They all still know each other.
| MuffinFlavored wrote:
| I think the theory is "if you list it at a lower price, it'll
| incite a bidding war".
| oh_sigh wrote:
| It isn't really a bidding war, it is everyone guessing at
| what the next best offer is and trying to beat it. I never
| understood why, if you have 20 offers on a house and $500k is
| the best, the realtor doesn't go back to the other 19 and say
| they need to offer at least $505k, and repeat the process
| until there is a single offer remaining.
| sushid wrote:
| Risk reward ratios are skewed for the realtor. It might
| make sense for the owners but it's easier to forgo the
| extra $150 you get as the realtor and just close the deal
| right now as is.
| jxidjhdhdhdhfhf wrote:
| If the buyer is paying with a mortgage, then the bank will only
| lend based on what they appraise the house as worth.
| ativzzz wrote:
| Same here. I've never bought a house so I don't quite know the
| details about it, but if people are getting 15-20 offers on a
| house within 24 hours of it going on sale, why not just raise
| the price?
| bombcar wrote:
| List it low, get 20 offers over the price, pick the
| highest/best one.
|
| Holding it open for longer is unlikely to get higher ones -
| it's basically an auction.
| jhauris wrote:
| I suspect many times the seller is also a buyer of a new house,
| and facing the same kinds of competition. So they need to close
| quickly on their sale to cover the close on the buy.
| jeffreyrogers wrote:
| One thing I find odd about the current housing market is how many
| people aren't paying rent right now.[0] Once evictions are
| allowed again surely that is going to have some impact on prices.
| Especially if, as many people suspect, many of these homes are
| investments rather than owner occupied. Maybe it won't affect the
| housing market much though because the problems are mainly in
| low-income housing? That seems like a sketchy assumption.
|
| [0]: I couldn't find a good number for this in my quick search
| for it, but I remember seeing something about how a fairly high
| percentage of renters aren't paying rent currently.
| burlesona wrote:
| There is also a ton of commercial real estate operating in
| "extend and pretend" mode. It seems unlikely that all of that
| just stabilizes with no drama. But I think the policies of the
| moment are not really aimed at solving that problem, they're
| aimed at delaying the worst of the housing crisis until the
| worst of the pandemic crisis is behind us.
| bko wrote:
| > as the stimulus packages have been targeted towards basic
| infrastructure and assistance programs for lower income groups.
|
| This made me chuckle. If anyone is curious, this is where the
| money went [0]. To say that the money was focused on lower income
| groups is laughable. 2.9 out of 12 trillion allocated went to
| asset purchases, basically buying treasuries and mortgage backed
| securities. How many lower income groups hold treasuries?
|
| [EDIT] If anyone is curious about an alternative view, I've been
| kind of obsessed on this topic over the last few weeks are wrote
| about it extensively [1] and tried documenting the ridiculous
| rise in asset price levels to levels much higher than even that
| of pre-covid [2]. To say that there's nothing going on when
| nearly all asset prices are 30+% past their pre-covid peaks is
| ridiculous.
|
| [0] https://www.covidmoneytracker.org/
|
| [1] https://mleverything.substack.com/p/where-did-
| the-12-trillio...
|
| [2] https://mleverything.substack.com/p/where-did-
| the-12-trillio...
| snikeris wrote:
| I liked this guy's take:
|
| "Two Centuries Of National Debt In One Year: Putting 2020 In
| Perspective"
|
| http://danielamerman.com/va/ccc/H3TwoCenturies.html
| nightski wrote:
| Isn't this how the fed injects money into the government? By
| printing it and buying government securities?
| jerry1979 wrote:
| The Fed also bought (continues to buy?) private bonds, which
| keeps the cost of money low for big players.
|
| https://www.cnbc.com/2020/12/16/fed-decision-
| december-2020-f...
| bko wrote:
| Correct. My assertion is that the Fed overshot this by
| increasing the money supply by ~24% in a single year, causing
| all asset prices to skyrocket (see link in original post).
| All the money sloshing around the market is exactly what
| makes it a bubble. Nearly all assets and industries are
| considerably higher in valuation despite having a much
| grimmer outlook with everything that has happened over the
| last year
| reedjosh wrote:
| If it's a bubble how do you see it crashing? Would a move
| from asset prices to inflation of everyday goods do it?
| Guest42 wrote:
| My opinion is that the stock market is setting the tone
| for what is going on and that at some point the major
| players might want to cash out their position causing
| stock prices and consumer sentiment to drop. Although I
| wonder if it's more profitable for them to cash out
| slowly as prices keep getting pushed up thanks to the
| relative lack of a bond market and other manipulations.
| dlkmp wrote:
| Increasing interest rates.
|
| I don't know enough to estimate the likelihood of that
| happening but it seems like the obvious danger.
| pirate787 wrote:
| Higher rates are the solution, not the danger. The danger
| is the economic waste from artificially lowering rates,
| causing bubbles and massive misallocation of resources.
| bko wrote:
| That's a tough question to answer. I think it will come
| down to consumer prices but there are a lot of other
| things that can skew that. For instance, businesses don't
| want to raise prices so sometimes they'll cut corners to
| reduce costs. You've seen this in chocolate bars where
| the typical bar shrinks over the year and then eventually
| introduce king size to allow for some price inflation.
|
| Measuring cpi is also incredibly complicated. I was
| shocked it's been so low forever considering over 50% of
| the index is housing, healthcare and education, three
| products for which we've seen high price growth for
| decades. So the official number may be "managed"
| especially considering that trillions in pensions and
| social security cost depends on it's reporting.
|
| But the money supply grew so fast, i don't think any
| massaging of the data will be able to hide it
| indefinitely
|
| There's no political will for things like higher interest
| rates or reduced spending, among either political party.
| The new generation has never seen mortgage rates in
| double digits
|
| I see future price controls and other draconian measures
| to try to deal with the fallout. Example is gas lines in
| 1970s. It'll eventually hurt the real economy as
| artificial scarcity from price controls hurts business.
|
| Only thing is somewhat certain about is something will
| happen. This seems insane that a unit of account can just
| grow 25% in one year with no signs of stopping with no
| consequences
| prichino wrote:
| Bitcoin will happen. This injection of money can be seen
| as a cashout of the current system, selling as much USD
| as the market can take while it is still possible.
| semi-extrinsic wrote:
| It's not just politicians and "the new generation" who
| don't want double-digit mortgage rates. Surely it is also
| regarded as a present impossibility by the banks.
|
| I mean, barring massive inflation, a double-digit
| mortgage rate would put so many home owners in default
| that it would make the global financial crisis of 2008
| look like a birthday party for small children.
|
| The "something will happen" part I agree with. I think we
| will need to come to terms with the fact that our world
| has crossed the inflection point on the S-curve that all
| growing populations are confined to. And that will mean
| dismantling current financial mechanisms such as
| "interest rates".
|
| I'm dead serious - I don't know how the financial system
| will look like in 2100, but I'm convinced that "interest
| rates" as we know and use them today will be something
| taught only in "history of economics" class.
| jchrisa wrote:
| If we are asking the big questions, it's worth
| considering what the macro-economic impact would be if
| taxation was ended, and the government funded itself
| solely through printing money. The discourse is all about
| lowering the tax burden on the rich so they can innovate.
| But my intuition is without taxes, the rich would be hit
| harder with inflation than the middle class. So even a
| strong progressive taxation system can be seen as a
| giveaway to the rich.
| lotsofpulp wrote:
| Most US mortgages are fixed rate mortgages, so increasing
| mortgage rates would not affect the monthly payments
| people have to make for their homes, therefore it would
| not cause home owners to default (in the US).
|
| In May 2019, adjustable rate mortgage applications were
| only 6.2%:
|
| https://www.mba.org/2019-press-releases/may/mortgage-
| applica...
| bogomipz wrote:
| Sure, there has been very little reason to take out an
| adjustable rate mortgage when you can lock in a
| historically low rate which has been the case the last
| couple of years. However ARMs were one of the things that
| caused the market to collapse in 2008 and as rates tick
| back up over time it's likely that they could become an
| attractive option again. The other thing is that at some
| point people need to sell and what is barely affordable
| to so many now at 3% will surely become unobtainable for
| many more when rates are 7 or 8%. At some point doesn't
| it turn into a mobility crisis as there's less and less
| people who can afford to buy.
| bko wrote:
| > I mean, barring massive inflation, a double-digit
| mortgage rate would put so many home owners in default
| that it would make the global financial crisis of 2008
| look like a birthday party for small children.
|
| Not necessarily. The percentage of new mortgages that are
| ARMs (adjustable rate) is very low.
|
| > ARMs accounted for just 2.6 percent of mortgage
| applications in recent weeks and fell to 2.2 percent this
| week, according to the Mortgage Bankers Association.
|
| Not sure about existing supply but I think it would be
| single digits as well. And most ARMs are longer (e.g. 7-1
| or 10-1) meaning the floating rate portion doesn't kick
| in until 7 or 10 years in (respectively). Mortgage rates
| have been low so long I imagine most people with older
| arms refinanced long ago or built up enough equity where
| they'll be able to refinance at higher rates if they had
| to.
|
| So existing mortgage holders wouldn't be hit with higher
| costs. However the valuation of their home would likely
| tank making a lot of mortgages effectively underwater
| (you owe more than the asset is worth). You will see a
| lot of people do strategic defaults or try to re-
| negotiate their balance. If I owe 500k on a home worth
| 450k, I might be fine with it, but if the home was only
| worth $250k, I would definitely consider a "strategic
| default", walk away from my mortgage, take a hit on my
| credit and buy essentially the same home at half the
| price. But lenders aren't stupid more realistically
| they'd negotiate down my balance and there would be
| federal programs to encourage refinancing.
|
| https://www.bankrate.com/mortgages/arms-disappear-from-
| mortg...
| quickthrowman wrote:
| > This seems insane that a unit of account can just grow
| 25% in one year with no signs of stopping with no
| consequences
|
| The equation of exchange is MV=PQ, not M=PQ. The velocity
| of money (V) is falling right now as the money supply (M)
| is growing, that's why increasing the money supply hasn't
| had consequences (yet).
|
| https://en.m.wikipedia.org/wiki/Equation_of_exchange
| akomtu wrote:
| Owners of the stores that sell everyday goods compete for
| the same housing.
| onlyrealcuzzo wrote:
| It's not a bubble. If there's 25% more money, money is
| worth 25% less. It's not a bubble when things cost 25% more
| - it means your pay stayed the same - but the money is
| worth 25% less. This is great if you own assets and employ
| people and have "capital gains". It's not so great if you
| don't own assets and "earn income".
| loonster wrote:
| It also means you pay taxes on wealth that was never
| created.
| onlyrealcuzzo wrote:
| It also means more people are pushed into higher tax
| brackets and pay more of their income in taxes. It's
| great if you're making 50% more money than 10 years ago.
| But if dollars are worth 50% less - then you're breaking
| even. And if your effective tax rate when from 28% to 35%
| - you're actually behind.
| semi-extrinsic wrote:
| Yes and no - unless the cost of food, gas, electricity,
| housing and clothing also increased by 25%, it's hard to
| argue the dollar is worth 25% less.
|
| Come to think of it - if the things that are
| predominantly bought by the 1% are devalued by 25% due to
| stimulus increasing the supply of money, but the things
| that are bought by everyone are not becoming much more
| expensive, isn't that empirical proof that trickle down
| economics doesn't work?
| briefcomment wrote:
| Good point on your second statement.
|
| On your first statement, it's less that the dollar is not
| losing value, and more that scarce items are gaining
| value compared to non-scarce things. So your Netflix
| subscription is staying the same, but the house near the
| coast has doubled. Inflation is never the same across the
| board. All it means is that a smaller group of people are
| laying claim to the scarcest items, and they are crowding
| out the hopes of an increasing number of people to one
| day be able to afford those scarce items.
| 09bjb wrote:
| Yes and...crucially, assets are 25% more expensive to
| buy. I.e. if assets are things that are "bought by
| everyone" and not just by the 1% or .0001%, then the
| dollar is worth 20% less for that purpose.
| whytaka wrote:
| Presumably, to decrease the money supply, the mechanism
| must be the same but in reverse: selling treasuries and
| private assets back into the market for cash and then
| eliminating its existence.
|
| If the securities don't sell for much more than it was
| bought, accounting for fractional reserve banking, the
| money supply increase is effectively permanent.
|
| So if we take in the permanence of the increased money
| supply, can we really say we are still in a bubble if the
| value of the dollar against securities is simply lower?
| RobertoG wrote:
| The fed just credit the account of the government. The
| securities buying part is just a legal requirement.
| jasode wrote:
| _> By printing it and buying government securities?_
|
| They also printed money to buy billions $ worth of
| _corporate_ bonds like General Electric Ford, GM, AT &T, etc:
| https://www.google.com/search?q=%22federal+reserve%22+buys+c.
| ..
|
| Example list: https://www.investopedia.com/the-fed-s-
| corporate-bond-portfo...
| RobertoG wrote:
| I think you are confusing monetary policy with fiscal policy.
| Aunche wrote:
| First of all, when did $12 trillion did allocated?
|
| You can either choose to count spending or liquidity injection.
| Otherwise, you are double counting. If the government spends $3
| trillion in stimulus financed entirely by debt, that dries up
| the liquidity for businesses, which creates a liquidity trap
| that sends us into another Great Depression. To think of it
| another way, the treasury could have just printed $3 trillion
| to pay for the stimulus without issuing bonds, which would have
| a similar effect.
| rank0 wrote:
| Actions from the federal reserve are not part of the stimulus
| packages though right?
|
| Stimulus packages are legislation passed by congress vs
| independent actions taken by the Fed.
| cryptonector wrote:
| Wait, it's been $12 trillion??
| weeblewobble wrote:
| More like $6T. OP seems to be counting Federal Reserve
| actions as "stimulus packages" which is pretty non-standard
| if not outright wrong
| paulpauper wrote:
| You have to think indirect effects though. Staving off a bond
| market crash probably is a good thing even if it does not
| directly help poor people. Ill-liquidity in the corporate bond
| market makes it hard to raise capital, which means less hiring,
| and hurts workers of all incomes. A bond market crisis is bad
| for everyone.
| bko wrote:
| I agree to an extent. But that amounts to basically "trickle
| down economics" that protects the incumbents (large banks,
| many of which are foreign, mortgage issuers, etc). Notice how
| you don't really see any new banks being created? Why are
| bank stocks up 30% from pre-pandemic levels?
|
| Put this into context. The 12 trillion in new spending/money
| allocation due to covid results in $36,000 for every man,
| woman and child in the United States. The government could
| have cut a 5 figure check to every person in America to deal
| w/ the fallout, or a fraction of the people most affected.
| Instead we decided to give it to large institutions. And
| we're arguing over 1,200 vs 1,600 stimulus checks.
| Aunche wrote:
| Handing everyone a check directly increases inflation.
| There is no increase of the supply of goods, so everyone
| would competing for the same things and prices, raising
| prices. Poorer people spend more money paying off debt or
| purchasing consumer goods, so most of that money flows
| straight to the top anyways. Since this money comes
| straight from the money printer rather than through taxes,
| this means that the wealth gap gets exacerbated through
| stimulus checks.
|
| Purchasing assets introduces liquidity, but isn't
| equivalent of handing people money. The Fed receives the
| equivalent value in the form of debt.
| ska wrote:
| This is key. GP is right that a bond crash would hurt
| everyone, but generating stimulus and routing it away from
| the working people is just trading pain now for more pain
| later - the bill will come due. There's no magic here.
| lend000 wrote:
| Market corrections are natural and useful. Every time we
| print huge sums of money to rescue equities and make debt
| cheaper, who benefits?
|
| Those with a high ratio of assets/credit to living expenses.
|
| While market corrections create a higher degree of short term
| pain, allowing them for the last five decades would have gone
| a long way in preventing the increase in wealth inequality.
|
| It doesn't make sense that investing in SPX is a guaranteed
| long term 10%/annum investment while nominal GDP growth is
| under 3%. It's an engineered phenomenon and benefits those
| who already have a lot of assets.
| maxerickson wrote:
| Is it reasonable to conflate the actions taken by the Federal
| Reserve and the phrase "stimulus package"?
|
| I tend to default to not doing it, as "package" has some
| implication of legislative action, and the Fed is somewhat
| separated from the rest of government.
|
| Like in your comment, Congress didn't allocate the money the
| Fed used for asset purchases, the Fed did.
| keyboardCowBoy wrote:
| 2.3 million homeowners are in forbearance. It's been over a year,
| people are getting use to NOT paying.
|
| Banks just also flat out STOPPED foreclosures. So we have
| millions of homes in forbearance and we don't know the true
| number of loans that are delinquent. Meanwhile in some markets
| prices have gone up 30 percent in 1.5 years which for a normal
| first time home owner means higher loan costs, bigger down
| payment and more interest. We also have homeowners who WANT to
| sell but won't until we get back to a normal market. If interests
| rates go up, we start foreclosing, homeowners start selling, and
| all those millennials who regretted overpaying for their homes
| start selling ALL at once, we could easily be in a buyers market.
| zukzuk wrote:
| Up here in Canada, there is absolutely no doubt that we're in a
| bubble. By every measure we're in trouble... consumer debt
| levels, income-to-price and price-to-rent ratios... This
| infographic has been making the rounds and pretty much sums
| things up: https://twitter.com/i/status/1377353707478601729
|
| Even the apologists who previously tried to to explain this in
| terms urbanization, desirability, immigration, etc have
| capitulated.
|
| It remains to be seen whether we're just an odd case (along with
| maybe NZ and a few others), or a canary in the coal mine for our
| neighbours to the south, but the situation here at this point is
| virtually guaranteed to end badly for everyone involved.
| milkytron wrote:
| From my understanding, Canada's housing market is largely being
| influenced by foreign investors. I've read that lots of foreign
| investors are buying homes in cash, over market rate, and then
| letting them sit vacant.
|
| If Canada's laws don't discourage this and others see it as a
| safe way to store their wealth, this could be a possible
| explanation for the insane rise in home costs compared to other
| countries.
| 908B64B197 wrote:
| > I've read that lots of foreign investors are buying homes
| in cash, over market rate, and then letting them sit vacant.
|
| This is used to launder illegally acquired assets that are
| brought in the country. Then as a bootstrap toward acquiring
| western passports.
|
| > If Canada's laws don't discourage this
|
| It encourages it. Out of control immigration quotas as well
| as lax regulations regarding birth tourism and a liberal-
| party friendly immigrant base has made it a no brainer for
| the current party to keep the bubble expanding.
| sidlls wrote:
| It's what drives the price increases in the Bay Area in
| California, as well. When 20% or more of the purchases in a
| given year are by foreign persons, it is problematic. They
| don't live here, they buy properties and let them sit vacant
| or rent them out. We need to basically prohibit ownership of
| anything but a primary residence by any entity that isn't a
| citizen or permanent resident (corporate entities would
| qualify if 100% of their true beneficial owners meet the same
| standard).
| railsgirls112 wrote:
| Hasn't that been the case in places like NYC for a bit now? I
| remember reading about like single digit occupancy rates in
| massive luxury apts. I'd imagine that would have only
| increased but would love a check on my understanding.
| ggjjjttt wrote:
| My impression is that everyone involved has crossed the rubicon
| of moral hazard. Even a 30% crash won't be enough for the
| majority of people: https://betterdwelling.com/canadian-
| property-bubble-nears-sy...
| iamthepieman wrote:
| I am currently going through the process of selling my current
| home and buying a new one. Last year, my real estate agent said
| she would list our house at 180k. I'm in a rural area so that's a
| modest 3 bedroom which needs some work on the bathrooms but is
| otherwise pretty nice.
|
| We just signed a contract without ever listing our house for
| 220k.
|
| We're buying a house that was listed at 230k in February of last
| year but didn't sell and was rented out. It was listed again
| recently and we made a full price offer for 259k. As far as I'm
| concerned, we're still coming out ahead because we got 22% more
| for our house and are only paying 13% more for the house we are
| buying.
|
| I was in the market for a house in 2007/8 as well and the market
| feels completely different. We might still be in a bubble but the
| underlying market is NOT the same and the causes of the bubble
| (if it is one) are different.
|
| in 2007 there was not as limited housing supply. There was bad
| money being used to buy houses via overfinanced buyers and banks
| willingness to lend to them.
|
| Today, there are cash offers all over the place. Lower income
| buyers are being priced out of the market. Also labor and
| material prices for new houses are skyrocketing which is
| increasing the demand and prices for existing housing inventory.
| jcpham2 wrote:
| Currently living in my second home financed ~2010 post-crisis
| 369,000 or so. Looking at 500-600 listing.
|
| First home was a 1000 sq ft'er and I've rented it for 11 years.
|
| Just closed on a new home 505,000 10k over asking, 4 other
| offers, never listed on MLS. We beat a higher offer because I
| wrote a hand written thank you note. (psy-op evilness). No
| contingencies other than appraisal and home inspection. Home
| was on the market for 18 hours, we made an offer after 4 hours.
| Market is nuts. Rural Southeast USA.
| theNJR wrote:
| I started house shopping in 2019 in a high cost of living suburb.
|
| Prices seemed high. The market seemed frothy. I was very cocky
| and told my agent I wasn't in hurry. Prices would surely
| normalize. We must be in a bubble! Everyone seemed so irrational.
|
| COVID hit and I was beyond smug. See, Mr. Agent, I told you.
| World wide pandemic will burst the bubble and I'm going to get a
| house for nothing.
|
| $450/foot houses are now $650/foot. We've been priced out of
| multiple neighborhoods.
|
| If you don't have an offer on a house within 3 days of the first
| showing, don't even bother.
|
| Add $100k to the listing price to even begin thinking if you can
| get the house.
|
| And then pray you aren't up against 5 all cash buyers.
|
| Meanwhile, I've had the down payment sitting in a savings account
| for three years and its buying power decreases every month.
| Should have YOLOed into BTC. Would have turned into one of those
| damn all cash buyers.
|
| Fun times.
| ggjjjttt wrote:
| At the very least, convert the down payment to USDC or DAI.
| Decent interest rate ~8% APY. Of course, this might not be
| enough...
| goldenchrome wrote:
| Ouch. You didn't even have to do anything crazy with that money
| (like YOLO BTC). If you just kept it in VTSAX your down payment
| would have gone up 57% in the last three years.
| theNJR wrote:
| I thought housing was going to tank, so obviously I thought
| the market was going to tank too :(
| DC1350 wrote:
| It could be worse. You could be Canadian
| insert_coin wrote:
| _"Any man who must say 'I am king' is no true king at all."_
|
| -GRRM
| mberning wrote:
| "Investors" aka speculators are pouring into the market and
| gobbling up what little supply exists. They are trying to
| monopolize and destroy the secondary housing market in a similar
| way to how carvana, vroom, carmax, and others have taken over the
| used car market and are now demanding insane prices for used
| cars. Zillow and others are all in on the current feeding frenzy.
| If it continues unabated the only houses you will be able to buy
| private party will be low end hovels. Everything else will be
| owned by the Zillows of the world and command a kings ransom to
| purchase.
| lend000 wrote:
| As wild as the housing market currently feels, I tend to agree
| with the author that we are nowhere near 2007 levels of
| overextension. Here's a chart that complements the data presented
| by the author, showing that there is still relative demand for
| housing as a place to live at current prices, relative to the
| last few decades: https://fred.stlouisfed.org/series/RRVRUSQ156N
|
| So there are two problems. One is addressed by the author: build
| more homes. There aren't enough. Can the federal government do
| this? Probably not; it's more of a local zoning thing.
|
| But while the author touches on high construction costs, they
| miss an opportunity to identify the most dangerous root cause:
| inflation.
|
| While CPI might say the US has only experienced 2.6% inflation
| since the pandemic began, that number is faulty beyond repair.
| Random length lumber futures are up 200% since the pandemic
| began. Copper and soybean futures are both up 60%. Industrial
| steel is up 133%. Industrial silicon is up 70%. Sunflower oil
| +114%. Wheat +20%. Platinum +29%. Gold +20%. Aluminum +32%.
| Energy futures +30%. Natural gas +42%. SPX is up 25%, despite
| almost certainly being less productive. You get the idea.
|
| Historically, there is a modicum of hysteresis to prices at the
| early onset of hyperinflation, especially in a large economy like
| the US with multi-year contracts at pre-defined prices. But when
| the raw materials are are growing in price by 30%+/annum for all
| of your products, consumer prices are sure to follow.
|
| This is a historic moment. While the government has had to choose
| between more severe short term recession and long term
| debt/wealth inequality many times before (and usually chosen the
| latter pair), the decision in 2021 feels different. Inflation is
| already here. The money printing has been unprecedented, and the
| only way to avoid real inflation will plunge millions into
| unemployment. Do we have the political will to forestall a major
| inflation catastrophe?
| scsilver wrote:
| Isnt hyper inflation on the order of 1000% and not 100%? I
| think we are looking at somewhere below hyper inflation, but I
| definitely agree CPI is not showing it. Its not like we lost a
| war or have impossible debts to pay to our enemies. Everyone
| else is in the same boat. Do you really think we will see hyper
| inflation like Zimbabwe and Germany? Im foreseeing large
| inflation in previously cheap COL areas and low inflation in
| the already expensive places like SF, NY, DC.
|
| It seems like the asset in shortest supply is where can I store
| my money against inflation.
|
| Vacation home housing is one of the best products for that.
| lend000 wrote:
| Yes, hyperinflation is a universal regime-ending event, but
| 50% annual inflation (a more plausible target while the USD
| is the world's reserve currency) is no joke, and would be on
| a completely different level than stagflation of the 70's.
| How it would play out in the world's largest economy is
| anyone's guess. Replaced hyperinflation with "major
| inflation" in my conclusion.
| hnarn wrote:
| I'm not an economist and don't claim to understand what's
| happening, but what I do know is that I considered entering the
| market before the pandemic but abstained because I felt the
| prices were inflated by all this "free money" from cheap loans,
| and I was competing with people who seemed to have no limit on
| what they wanted to pay. Then, the prices went up by more than
| 20% during _one year_ , a period where most economies stalled and
| went into recession.
|
| I'm not touching this with a ten foot pole, I don't care if I
| have to rent for decades. I'll spend my money on something else
| in the meantime.
| JKCalhoun wrote:
| > This isn't just suburbs, as has been historically been
| associated with single family zoning. Major cities like Seattle,
| Charlotte, and San Jose dedicate 81%, 84% and 94% of their land,
| respectively, to SFZ.
|
| Live in San Jose: I can't imagine if they increased the density
| of the housing without also going gangbusters on light rail or
| some other means to keep the freeways from just getting any more
| congested than they already are.
|
| Rush _hour_. Now there 's a quaint term.
| Schweigi wrote:
| Higher density would mean you could live closer to work which
| solves some of the congestions problems. Because of the big
| sprawl commutes are long and it's harder to make efficient
| public transport. But you're right, how to go there after
| everything is already sprawled out is a good question.
| 01100011 wrote:
| Their solution is ADUs(accessory dwelling units), which amount
| to putting sub-par 'granny flats' into the backyards of
| existing suburban sprawl. That's more or less a bribe to the
| homeowners to allow densification without changing the
| fundamental carrying capacity of a neighborhood. Homeowners,
| who are already likely wealthy due to asset appreciation, are
| now able to become landlords. Of course this won't change the
| fact that you'll need a car to commute, so traffic and parking
| will get worse.
| Shadonototro wrote:
| you are, but you don't know it since you are inside
| m0llusk wrote:
| One of the more robust ways to detect a bubble is by constructing
| a price index that summarizes market activity without getting
| distorted by short term changes. Perhaps the most respected
| housing price index is Case-Schiller house price index which
| currently indicates the market is somewhere between 150% to 200%
| above historic valuations. Since housing is something all need
| and is generally supported by incomes there is no reason to think
| that the current relatively high prices are robust and will
| endure. This article also points out that there is an imbalance
| between demand and supply which means that any large scale
| increase in supply is likely to moderate demand and market
| prices.
| anthony_barker wrote:
| Crane count image is interesting... Toronto has almost as much
| construction as the rest of north america!
|
| https://i1.wp.com/www.denverpost.com/wp-content/uploads/2021...
| bogomipz wrote:
| I feel like there's some relevant factors not really mentioned in
| the article, and each of these could have consequences.
|
| Unlike in 2008 there is now a limit to how much interest you can
| write off on your loan. That limit is $750K. Anything you
| mortgage above that you can no longer deduct from your taxes.
|
| Housing has appreciated in some markets up to 11% in the past
| year. This in no way seems sustainable. As a new home purchaser
| your will not likely not see that same rate of appreciation.
|
| If you do sell your house then you likely need to buy something
| else. That means that you will also need to compete in that same
| cut throat buyers environment and you will also need pay much
| more in taxes on your new even more expensive house. I also think
| that there's many people who will need to sell first before they
| can buy because whatever they are going to buy also got much more
| expensive and so would not be able to get a loan without first
| selling.
|
| Some of the shortage is also likely due to Boomers who in a
| normal year would have downsized going into their retirement who
| understandably did not as they would be concerned about strangers
| walking through their houses during a pandemic. Once the pandemic
| subsides there will likely be a boost in supply as these folks
| resume the normal downsizing cycle.
|
| There's a lot of people who fled the cities for the "country
| life" because of the pandemic. And while a lot of these people
| will probably stay, I think there's a lot of people who will
| decide that "country life" was not for them and head back to the
| cities in kind of reverse flight when the pandemic recedes. This
| will likely have ripple effects in those suburban markets that
| experienced a hot money influx over the last year.
| bombcar wrote:
| Another major change is that for most people of moderate income
| the standard deduction is now so high that there's no point in
| itemizing mortgage interest.
| [deleted]
| [deleted]
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