[HN Gopher] More on housing price inflation (2021)
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More on housing price inflation (2021)
Author : jseliger
Score : 28 points
Date : 2022-01-22 18:01 UTC (4 hours ago)
(HTM) web link (recoveringtradfichad.substack.com)
(TXT) w3m dump (recoveringtradfichad.substack.com)
| devops000 wrote:
| You need to take into calculation the Mortage interest rate and
| plot the average monthly payment instead the average selling
| price. You'll find different result.
| chiefalchemist wrote:
| > And obviously, on average, we're blasting way past anything
| seen in 2005-2008.
|
| Perhaps, but what's different this time is:
|
| 1) There are more institutional buyers. 15 yrs ago, I would
| presume, less than today.
|
| 2) Mind you Zillow wasn't prepared, but others certainty are.
|
| 3) With that said, I'd imagine instutional buyer are drolling for
| an implosion. The small fish would have to bail and the big fish
| are there waiting to snatch up all they can
|
| Last time it was negligence. The fact it's repeating so soon
| makes it feel far more intentional.
| theincredulousk wrote:
| Well that is exactly what happened last time it imploded -
| private equity sitting on loads of cash waiting for an
| opportunity got one. They were buying houses like they came in
| 24-packs from Costco.
|
| I'm not sure what the "split" among institutional investors is,
| but afaik most of them want the houses to rent them and create
| a revenue stream, not flip them for a one-time profit. So
| inflation doesn't really help them either; e.g. it means they
| pay more taxes, and requires more upfront capital for the same
| revenue stream unless the rent they can charge increases in
| lock-step % (which maybe it does). The fact that the underlying
| asset appreciates in value is more than just gravy, but don't
| think it's the point for them. I think they are doing it
| because it is almost an obvious investment from a risk-return
| profile compared to other options.
| conductr wrote:
| I've owned 5 personal properties during the charted timeframe and
| Zillow and the like constantly has a 10-20% error rate between
| their valuation calculation and what the market value actually
| is. It has been under/over but rarely correct. I very recently
| sold a rental home for $100K less than Zillow, Redfin, and
| Realtor.com think I should have ($500k vs $600k, where $500k is
| actually near all time record high within 1 square mile of its
| metro area). Anyways, it's hard for me to trust this enough to
| make any conclusions given what I've seen from their data.
| prionassembly wrote:
| What would be an acceptable error rate?
| erwincoumans wrote:
| Can't wait to see an implosion. The current house prices are
| ridiculous, especially in the bay area
| hanoz wrote:
| Don't get your hopes up. I've been waiting twenty years for
| non-ridiculous house prices in the UK. It's only got worse and
| worse. And successive governments have proved willing to do
| anything it takes to keep it that way.
| ChuckNorris89 wrote:
| _> And successive governments have proved willing to do
| anything it takes to keep it that way._
|
| That's basically political NIMBYISM and is in every
| government in Europe (And I guess in the US, Canada,
| Australia, etc.) and it makes sense they would do that as the
| politicians themselves plus the majority of the population
| (over 50%) in every country owns some form of real estate, so
| they have a vested interest to make themselves and over 50%
| of their electorate richer on paper since it's a good way to
| get votes and support for your policies. Those less than 50%
| who don't own anything can go screw themselves basically
| since being a minority in terms of votes, they don't have the
| democratic power to change anything in their favor, so the
| housing policies reflect their lack of leverage.
|
| The ship will only change course when(if) the percentage of
| the owning class dips significantly below 50%, causing the
| democratic power to shift to those who don't own anything and
| we might start seeing things like larger taxes on your second
| homes or larger inheritance taxes.
| l33tbro wrote:
| How much property the elite class own has little to do with
| it. Politicians love housing prices going up because it
| means more money (debt) flowing into the economy through
| new loans / fractional reserve banking. This eventually
| increases consumption in other areas and increases GDP.
| Government is then able to say "hey look how well we're
| managing economy" when facing re-election.
| tmnvix wrote:
| Are you sure over 50% own real estate?
|
| Usually when I hear this stated, people seem to mean that
| over 50% live in an owner occupied residence.
|
| I doubt that the commenter above who has moved back in with
| parents to save on rent considers themselves to own real
| estate (even if they may someday inherit it).
| gsibble wrote:
| Unlike 2008 where people were over-extended and buying up
| investment properties, this price increase is caused by an
| overall shortage of housing. The demand is there as are the
| people willing to pay the prices. I don't think we're going to
| see an implosion anytime soon.
| tmnvix wrote:
| Do you not think that if the ratio of people to properties
| remained the same, but interest rates declined, then prices
| might also go up?
|
| I don't think that a supply shortage gets to the crux of this
| problem. I think a more significant factor is availability of
| credit.
|
| It's worth considering that a credit fueled speculative boom
| creates excessive demand.
| ChuckNorris89 wrote:
| _> Unlike 2008 where people were over-extended and buying up
| investment properties, this price increase is caused by an
| overall shortage of housing. The demand is there as are the
| people willing to pay the prices._
|
| What if the people paying the prices now are also over
| extending themselves just like the others did in until 2008?
|
| Considering how much low-interest money the banks are handing
| out to everyone now it certainly looks like it to me.
| t3rabytes wrote:
| 2008's problem was also that banks didn't have much
| oversight/regulation on what they had to verify when
| writing new loans. That is not the case today -- lenders
| are far more strict on what criteria you have to meet for a
| new mortgage.
| theincredulousk wrote:
| For all of these people "over extending" it is hard to
| imagine anything besides an economic implosion that causes
| mass unemployment among homeowners. If COVID didn't already
| do that, what will? What's the catalyst? Increasingly it
| seems the only reasonable catalysts are global-scale
| disasters like a meteor impact, super volcano eruption,
| world war, a pandemic (much) worse than COVID, etc..
|
| Given the amount of investors involved now (and since the
| mortgage crisis) buying up properties to rent, I could see
| one trigger being (some reason) that causes it to no longer
| be a good (or optimal) investment, and them dumping huge
| inventory onto the market. The government cracking down via
| regulation on investment ownership (or mass ownership) of
| single-family homes could be one route to that, although
| somehow that doesn't feel likely to happen.
|
| It is not the same this time where people with a credit
| score of 450 were buying multiple homes. This time the
| people "over extending", in my experience, are on
| relatively solid financial ground. In my opinion almost
| anyone that is borrowing 500k+ (because they don't have it,
| not because it's financial strategy) are "over extending".
| They are in fact exposed to risk of default, but that
| doesn't at all correlate to the probability of default. The
| real risk, meaning probability of occurrence, is most
| likely pegged to the risk of them losing their source of
| income, which could (and seems for a while now) in reality
| to be quite low.
|
| Anecdotally, many I know that are "over extending" could
| afford to be out of work for months and not lose their
| home. Either through their own savings, or safety nets in
| the form of their now retired baby-boomer parents sitting
| on substantial nest eggs. Very common since all it took for
| the boomers was to make some average stock investments and
| own a home to easily become relatively rich over the past
| 30 years.
|
| I would be interested most to know the % of current
| homeowners that could make mortgage payments for 3-6 months
| if one or more jobs in the household were lost. I guess
| that would be a decent proxy for how likely any implosion
| of the housing market would be, if it would be triggered by
| owner-occupants defaulting.
| Zigurd wrote:
| When I went digging for reasons for both high prices and for
| whether to expect a large correction, I came up with this
| answer: New home construction failed, over at least the past
| decade, to keep up with population.
|
| I, too would welcome a correction. One of my kids has not
| bought a house yet. It would be nice if they had an easier
| time doing so. Small corrections might happen regionally,
| based on regional shifts in population. But it is unlikely to
| happen nationally. I also do not have much hope that remote
| workers moving to low cost locations will make enough of a
| dent in demand in high prices areas.
| HideousKojima wrote:
| We sold my grandparents house in the bay area for $1.6 million
| about 6 years ago, it sold again for $2 million last year, and
| Zillow currently estimates it to be worth about $2.3 million.
| My grandparents bought the place in the 60's for under $50,000,
| if I recall correctly.
| Plasmoid wrote:
| We're not building enough housing.
|
| Every other reason for why housing prices are climbing so much is
| at best a `yes-and`.
|
| Housing starts per capital have been trending slightly downward
| since the 60's. Recessions have cut house construction harder,
| deeper, and for longer than in the past. The net result is an
| increase in prices, except after 2008. Housing construction was
| tanked to the lowest amount on record and has taken 10+ years to
| get back to historic levels. We're missing 10 years of housing
| construction at a national scale.
|
| The is exacerbated in major cities which have severely
| restriction new housing construction both by imposing direct
| housing caps and onerous new construction taxes, and indirectly
| by changing the building code. California requires housing to
| have solar panels, that is a $15000 cost that new buyers must pay
| that older owners don't have to pay. LA wants to ban wood
| construction, the most accessible, carbon neutral housing
| construction option out there.
|
| If you want housing to be affordable, you need to increase
| housing production by 50% and keep it there for years.
| tmnvix wrote:
| I really don't think building more housing will fix this
| problem (though it would be a good thing).
|
| Consider the case of New Zealand.
|
| According to Statistics New Zealand in 1991 there were
| 1,307,000 private dwellings and 1,252,600 households. A
| difference of 4.16%.
|
| In 2017 there were 1,855,500 private dwellings and 1,734,800
| households. A difference of 6.5%.
|
| During this time household sizes decreased and house price
| increases were far in excess of inflation. In 1991 the average
| house was NZD173,000 (in 2016 dollars). In 2016 it was
| NZD495,000.
|
| In my opinion, what caused this was massive financial
| deregulation and easy credit.
|
| As I said elsewhere in this thread, consider that a credit
| fueled speculative boom creates excessive demand. Not all of
| these excess purchases will become a primary home. When
| speculation is rampant houses will more likely be:
|
| - Second homes or holiday homes
|
| - Undergoing extensive renovation
|
| - Listed as short term accommodation
|
| - Kept empty while owners reside overseas
|
| - Simply left empty or land banked
|
| - etc
| rndphs wrote:
| Interest rates are so low compared to inflation that in many
| places the real rates for mortgages are negative. This means that
| just having a mortgage increases your wealth more than it
| decreases it (because the value of the mortgage decreases over
| time faster than the interest accrues). We are in a very weird
| situation where the price of loans is being subsidized so heavily
| by central banks that you are literally better off getting a
| mortgage for a house than buying it with your own cash.
|
| This has an obvious big impact on the price of houses.
| ReactiveJelly wrote:
| That's why I got a mortgage.
|
| The bank offered a surprisingly low rate, and I looked at my
| FIRE research and thought, "Eh I can probably beat that in the
| market" and so the money that would have been frozen in the
| house (if I had bought in cash) is growing in index funds,
| hopefully faster than the mortgage is consuming it.
|
| It's fucking weird. I think all these are true at once:
|
| - Renting is not inherently bad
|
| - A force is slanting the market away from "rent" and towards
| "buy"
|
| - Too many people have an emotional stake in home ownership as
| its own end, and they would be better off seeing it as a
| tradeoff made coldly.
|
| - Because the market has been slanted so badly for so long,
| these people are correct, but for the wrong reasons. They'll
| say that renting is throwing money away, because you don't get
| equity, but they won't say that equity is also throwing money
| away because of opportunity cost. They have never lived in a
| market where renting was actually allowed to compete with
| buying.
|
| - Part of the reason buying is favorable might simply be that
| it's a proxy for credit score and wealth, and anyone making a
| loan would give a cheaper rate to a wealthier person. Since
| renters tend to have less money, they have to pay more in case
| they default. It's not fair, but I don't expect markets to be
| fair.
|
| I think it's all an extended effect of the "White Flight".
| Having forgotten its racist roots, it's still got a strong
| emotional core of "Cities are full of crime and poor people.
| Renting is for poor people who are too dumb to save their
| money, and so they have it chipped away by rent." Or a leftist
| would say "Rent is inherently exploitative because landlords
| make money doing nothing."
|
| It's a weird horseshoe when my far-right Baby Boomer parents
| agree with 2020 Twitter communists that home ownership is its
| own end, whereas I only see it as a means to an end.
|
| The only time I rented an apartment, it was a fabulous
| experience. The only flaw was that it cost too much per square
| foot. And the ambient noise was high, because it was closer to
| the city core. Other than that, I really miss my old apartment.
| JRGC1 wrote:
| In Canada, currently ~8.6% of houses are vacant (1.3 Million
| Homes) https://www.canadianrealestatemagazine.ca/news/study-
| estimat...
|
| Interest rates are at historic lows https://wowa.ca/bank-of-
| canada-interest-rate
|
| Interest Rates and House values are strongly correlated.
| https://investfourmore.com/interest-rates-housing-prices/
|
| When rates go up, prices will come down.
|
| The average house in my small town is $799,999. 2 hours from
| Toronto. A small 1 bedroom, 1 bath, built prewar with no
| basement, is going for $300,000 in a bad part of town with a tiny
| lot. The house across the street sold for $240,000 three years
| before the pandemic. Today, it's quite possibly would go for
| $600,000+. This all might make sense in a high density area
| but...
|
| When looking at a satellite image, 95% of the land around my
| immediate area is farms/forests. The average price of that land
| is $10,000 per acre. That's a 100% increase since the beginning
| of the pandemic(Avg. 5k before).
| omarhaneef wrote:
| I don't believe it is the case that interest rates and house
| values are strongly correlated. In theory they should be
| (inversely) correlated, but in practice, they have not been.
| Even the article you link to says:
|
| "As you can see there are some points where it appears interest
| rates may have correlated with a price drop, like in the late
| 2000s. Those of us who were in real estate at the time know
| there were many other issues as well. Lending was horrible,
| there was record new building and tons of foreclosures,
| basically the opposite of what is happening now. I think most
| people in the industry would say increasing interest rates were
| not the main factor that caused the crash.
|
| I think the more telling sign is from the 1980s and 1970s where
| interest rates rose to astronomical highs! The prime rates were
| more than 20% at one time. It is important to know that the
| first graph is not what mortgage rates were. Mortgage rates
| that people get on their houses are not directly tied to the
| prime rate. The chart below shows what mortgage rates were."
| granshaw wrote:
| Do they really go down without a recession though? Feels like
| just the rate of appreciation will decrease or go to zero, but
| not negative...
| Teknoman117 wrote:
| I'm personally just wincing at how much rents have gone up
| outside the cities with the urban flight due to the pandemic.
|
| I decided not to renew my lease and moved back in with my parents
| (who I'd seen maybe two dozen times since I started working) to
| accelerate saving the money for a down payment on a house. Now
| I'm pretty much there, but I still haven't convinced myself that
| I see myself still working in the same place in 5 years so I
| haven't been seriously looking for a house.
|
| Meanwhile, the asking rent for most of the apartment complexes
| around where I work has gone up nearly 25% since I left a year
| ago. I was paying $2k/month, now they want $2.5k -> $2.8k for the
| same exact apartment. It's just bonkers to me. Great for whoever
| owns property, bad for whoever doesn't...
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