"It’s like a doubling up. The homeowner goes to buy the next home, move up or move down. And because mortgages are so cheap, it’s a really good time to keep the first one as a rental unit. And so each year I go to buy a next one and I keep my first one. And so that’s one big phenomenon. And all of a sudden I’m a real estate investor. And at the same time, institutional money’s been cheap. There’s a lot of news about the big private equity funds buying up homes, but it’s actually the individuals who are driving most of it. So in the last decade we’ve taken 8 million homes out of the resale cycle and moved them into the investment rental part of the pool. And that’s, you know, 9% of all the single family homes."
This tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence. I bet a lot of those small time landlords are nervous about cash flow, and you could find one that's ready to get out.
I think the trick to "we buy homes" or whatever is they buy way under market. My neighbor sold for something like 150k, they fixed the place up and resold it for a little over 500k. Landlords aren't going to go that low.
I'm guessing they put in 100k or more go remodel. 290k wouldn't surprise me. They are still making a lot money, but they are also taking that risk. There is far more of it going on than should be, but people who need to move in a hurry might like it. The better such companies that have existed for years without the advertising have good working relationships with contractors and thus get both a better deal and faster service than you could: the contractors know who brings in busines. They also know which contractors are actually good as opposed to scams.
But the business doesn't support nearly the advertising that you see in normal markets. Call A qualified realtor with a dump house and they will call these people if your house is a hard sell. (If you know the fair value of your house you can avoid realtor fees selling direct )
I'm sure they put a lot of money in, these are old houses. I think they target less sophisticated sellers who don't have capital. She could've gotten a lot better deal if she put 20k - 30k in herself and fixed the major issues but she wasn't in a place to do that. A landlord with a few properties has more options and won't sell as low.
Although the books are old and the author discredited, the "Rich Dad Poor Dad" real estate investment series still have a large number of people trying to follow the author's advice. They and similar "pop culture investors" are the prime landlords in over their heads that would be likely to sell. But be able to negotiate potential nonsense, as they are over their heads and tend not to be rational about their investment.
> "There’s a lot of news about the big private equity funds buying up homes, but it’s actually the individuals who are driving most of it."
I realize there are a lot of "house flipper" shows on reality TV, but I don't buy this. I'm not receiving 20-30 phone calls and texts per week from "individuals" wanting to buy my house. I'm getting those calls from sophisticated commercial operations, who mask their phone numbers to include the same area code and first three digits as my own, etc.
Individuals aren't putting up "We buy houses! Guaranteed offer!" billboards every few hundred feet in my city.
I don't think that banks will even give individuals an endless series of mortgages. You can't declare rental income as "income" to qualify for mortgage loans.
Atlanta. The Southeast is booming, and Atlanta in particular is turning into a tech hub. There may be less pressure in areas that are seeing net migration outflows, but I don't think the U.S. has enough housing to cover our population increases anywhere.
Can confirm. I live in Atlanta and am about to write letters like the one from the article to the owners of a couple dozen properties in my neighborhood that I’ve identified as suitable for my family. Just as discussed, I’m not planning to sell my current home.
PSA: For anyone thinking of moving to Atlanta, don’t. It’s horrible here, go anywhere else. Save yourself from doom! /s
I think there needs to be a strong fiscal disincentive against owning houses for investment. Houses need to be lived in, preferably by the owner. I'm all for a punitive tax on empty houses or houses with ridiculously high rent.
One step forward would be to just disallow any tax deductions for renting. Next step, increase taxes on rented or empty housing.
In a few years, the market would settle with much more affordable prices for buying. But we still would have a problem that building new houses would stop to a halt due to low ROI, and renting market would heat again. For that, I'm not sure how to solve this.
Wether a house is rented or owned by the person occupying it doesn’t effect the basic supply/ demand dynamics of the market. Punitive taxes on landlords isn’t going to cause housing prices to come down because the cause of high prices is a housing shortage. There is no indication supply is being artificially depressed by people letting houses sit unoccupied.
The report [1] the article is referencing is talking about housing units so it's not just homes but apartments (and possibly rooms that can be rented as a unit?). Furthermore, the very same report gives the distribution of the vacant units, of which only 21000 could be possibly considered "hoarded" (this is assuming nobody does repairs and renovations, all rentals go up for rent as soon as the previous tenants move out, there is no corporate housing, no housing is involved in legal proceedings and the buyers move to the new house on the closing day), which makes 5% of total housing in SF. Does not look like a huge hoarding problem to me.
They already have this in Texas (homestead exemption) and Texas is one of the hottest markets for single family rentals. They are building entire suburbs that are rental homes only. Millennials as a group don’t want to live in apartments anymore because of the effects of Covid 19 causing people to be locked into their homes.
Same thing in Georgia (punitive taxes on any residential property beyond your primary home), and Atlanta is still one of the hottest housing markets in the nation.
The important thing to remember about current timber prices is that our punitive lumber tariffs are the only thing protecting us from the red threat from the North.
But not nearly as good as being able to buy it (assuming the single-family, multi-year home that the author is describing). Communities need both options, but the current climate leans far too heavily toward renting in situations when buying would be better for everyone.
The usual argument I see for renting being good is that up-front barriers make home buying hard for a lot of people and that transaction costs make it impractical for short tenures. If those were independently solved somehow would renting still have notable advantages?
* Other investments may outperform home equity, even taking into account imputed rent, especially if homes are sustainably affordable (read: have no return).
* Other investments may be less correlated with your earning potential.
* Risk of being underwater.
* Risk of an expensive, unexpected maintenance or repair item.
* Chores you are no longer paying for, you have to do yourself.
You can absolutely use rental income as income, the main thing is you generally need 1-2 years of experience running rentals. You can even use theoretical income from renting out a new purchase in some cases.
> All the banks care about is if the cost of the new mortgage is going to exceed your debt to income ratio.
Not exactly. The underwriting process is very different for full-time residences versus investment/rental properties. Rates are usually higher, debt/income ratio must be lower, and appraisals and cashflow analyses include rental market considerations.
Given this it's entirely reasonable to assume the rift between mortgage products for investment vs residence to widen. If congresspeople want to do something about perceived imbalance between residence and income real-estate, they could change federal subsidies or underwriting requirements for income properties making mortgages for income properties much more expensive and/or harder to get.
(Just realized a peer comment said something similar.)
That's not what the article is saying. You buy a house as your full-time residence, live in it for a few years, and then buy another as your full-time residence. The previous one is rented out. As long as you wait a few years, the bank holding the loan on the previous house doesn't care. That original, owner-occupied rate is locked in for the life of the loan.
> You can't declare rental income as "income" to qualify for mortgage loans.
You absolutely can. I did that. Bank was happy to consider money i make from renting out one of my houses as income when qualifying me for a mortgage for another.
This is definitely wrong in my city. Everytime something reasonable comes up for sales it sells in a couple hours and is back on the market in couple months with some cheap renovations for a ridiculous amount.
They buyer/seller is almost always listed as an individual and not a corporation.
>You can't declare rental income as "income" to qualify for mortgage loans.
You can, but [typically] not until you have a solid history (a few years) of that rental income and it will be lender dependent. You also can't typically use future/potential income from a property to qualify for a mortgage for THAT property but you could for a business loan. That business loan will have a much higher interest rate and likely require you to put up other collateral or personal guarantee.
What is described here (buying a chain of properties year to year) is unlikely for most people. You can’t use rental income when calculating your debt to income ratio. Unless you have a massive income or an equally massive pile of cash, you are going to quickly run out of lenders willing to lend to you in your entirely over-levered position. Also, you have to stay in a home for a certain number of years for it to be considered a “primary residence” and therefor able to be mortgaged with a low down payment. Otherwise in each transaction you’ll have to come up with 25-30% down.
> "You can’t use rental income when calculating your debt to income ratio."
Do you have a source for this claim? Based on personal friends who work in the lending / single family rental home space, I don't think that's correct. [0] [1]
If that's actually the case, and many of those mortgages are adjustable-rate, then we've learned nothing and another 2007 may be inevitable.
Fortunately, I still believe that the overwhelming majority of new rental units are being scooped up and placed on market by commercial entities, not individuals. You may have many individuals putting their second house up for rent, but I'm skeptical that banks are giving individuals a half-dozen loans in series. With the housing shortage as bad as it is (we're just not building enough to offset our population growth), I suspect that commercial entities would swoop in and buy up most second houses that individuals couldn't maintain anymore.
1. With a lease and/or two years of prior landlord experience you can use rental income both for existing and projected for new property.
2. For multi unit, if you’re owner occupied you qualify for FHA and therefore can put down as little as 3%
3. You only have to stay in your home for 6 months for refinance and 1 year for initial purchase. The guidelines are loose, and can relocate earlier depending.
That being said, it doesn’t really make sense since most properties in high cost of living areas don’t cash flow well to begin with.
Having purchased a multifamily recently I can confirm all of these are true.
I bought during the plummeting urban Covid rents. When looking for my mortgage a few banks told me their underwriters were temporarily directed to ignore all building income toward qualification.
I worked with a good mortgage broker and he had the option of 20+ banks that were happy to write a conventional loan using a ratio of the building’s income counting toward my qualification. I believe it was 80%.
Re: cash flow, I live in half the building, at current rents the two tenants pay 84% of the mortgage tax and insurance. The tax write offs more than make up for the rest.
Most or all of these type of landlords that I’ve spoken to strongly disliked to actively hated being a landlord. It’s very counter the “get wealthy slowly” narrative of being a landlord. Of course the financial aspects are true though they don’t mention them. This is in a location where good renters are a dime a dozen and building new units is pretty much impossible.
Being a halfway decent landlord is a miserable pain in the ass unless you live or work very close to your rental property. And even then, it's pretty easy to see several months income go up in smoke with even a modest renovation or repair.
The income is nice, but it's anything but "passive" unless your rents are so high that you can afford to pay a management company, and/or you are comfortable being a slumlord.
Yes and I’ve heard mostly complaints about management companies. All the classic principal/agent problems with the costs of bringing more people into the situation.
I've done the same (bought a house, kept the old one for rental) and used an agency as a middle man. They take care of collecting rent, and the day to day business if, say, a plumber needs to be called (I just have to sign off on it). This at a 6% fee of the monthly rent is quite worth it to avoid any hassle. The rent income also fully covers the mortgage of the new house so basically my living costs are for free.
Well yes, they all complain about being a landlord. However as you say, they never discuss the money side of things--just the hassle. Most landlords in a very bad year will break even, but in an average year will be in the positive. And of course you shouldn't even be looking at rental income in the short term--you should be looking at it as an asset that someone else pays for entirely and maybe slops a little extra cash to you in the short term and THEN when you're older and they've paid for your asset as a revenue generator. I've been looking at buying a rental even though the prices are insane right now simply as a source of reoccurring revenue when my wife and I are older and the loan has been paid off.
> This tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence.
I don’t think so as landlords are locked into a 3% fixed mortgage and have a profitable income stream.
Unless there’s some life event that requires them to sell, landlords are less likely to sell than regular homeowners.
There are tradeoffs everywhere. You have to assume that when stacking millions of people on top of each other everyone will not own a home. That's not a "policy" issue, it's just physics. If you want to live in city for whatever reasons, you just have to take that into consideration.
You'd have to find a builder. After 2008, that industry re-tooled and now there are considerably fewer builders working in residential development. And even those only want to work with developers on building new subdivisions, not work with individuals on single homes.
Re-tooled in the sense of adapting their organizations to pursue commercial development opportunities more so than residential development (e.g. hiring more people with networks and experience in that market).
The 2007-2008 crash wiped out a lot of over-leveraged residential developers, and individuals building single homes. From conversations I've had with people in that industry, their sense is that we learned next to nothing and that a repeat of that experience is inevitable. So commercial development became seen as more desirable and less risky.
Now that I think about it though, I haven't had any conversations since COVID! I wonder if the rise of remote work will have enough impact on commercial development to flip that calculus again.
We hired a builder about five years ago to build our home. What we found after talking with a dozen (or more) local custom home builders was that the math doesn’t make sense for lower-cost custom homes. A custom home, in this case, is anything that is not a part of a development or subdivision. The GC (general contractor/builder) charges about a 20% management fee on top of all costs that are paid to build the house. GC have minimal full-time staff of their own and use sub-contractors for most everything. Builders with really good reputations might charge up to a 30% management fee. The net income, after the builder’s operational costs (insurance, taxes, overhead) are 10% of the home cost if the management fee is 20%.
A builder can only take on so many projects per year. Typically three or four. The amount of work that goes into managing a $300,000 project (not including land) is mostly the same as one that costs $600,000 or $1,200,000. Why make $30,000 per project when there’s an opportunity for $60k or $120k?
After 2008, I believe banks started being much less willing to provide construction loans to builders, as many went upside down on projects when the market crashed. The bank doesn’t want to repossess a halfway-done new construction project, which is the hardest thing to resell. There are fewer speculative custom homes being built now, compared to before 2008. And builders are no longer taking any kind of risk on projects, so their customers need to acquire financing on their own.
Relatively few banks offer reasonably priced construction loans. We were required to have the land paid in full and also bring 30% as a down payment for the construction loan.
You could potentially build a cheaper home, but it is extremely unlikely. Individuals almost never have access to small enough plots of land for this to be feasible.
This really only works in the exurbs or rural areas.
You can't. That's why the prices are so high. The price of construction will be built into the price asked by the land owner such that the overall price is within bounds of an existing home, and usually more expensive as a new home is seen as a premium product.
Historically, new homes are more expensive than existing homes, as it was in the U.S. prior to the 1990s that a new home was an upgrade from an older home for the people purchasing the new home, and the older home would be purchased (or rented) at a lower rate than the new home, a process that has disappeared due to constriction on supply and nowadays has spawned the term "market affordable housing", as I have seen this term used by charitable organizations that historically focused on housing for the extremely poor, now change somewhat to advocating for housing that merely lower class can afford, as this class is slowly being pushed completely out of affording any form of housing outside of shared rooms.
I just wanted to chime in (since you're being downvoted) that this is exactly what I'm doing and I viewed things roughly the same way as you.
The difficult part is finding a reasonable plot of land. During housing booms (bubbles?) land also tends to be overpriced, and you need to be aware of local regulations (how far well water needs to be from a leach field, etc.)
In my case, I'll only be required to go into work twice a week at most in Boston, so I'm building the house 3 hours away in Maine. I enjoy the rural lifestyle and also have personal connections to a builder - I'm not saying this is for everyone necessarily.
In this type of climate new housing can be justifiably built to an incredibly high level of insulation with only some intentional (and controllable) fresh air allowed. ICF is better than wood if you plan windows ahead of time. Eventually this will save you money in heating costs when you live in New England.
Anyway, yes it's still possible to build houses in America.
There will never be a "normal" housing market until the government starts to treat it as the food market. That is, as an absolute life necessity that needs to to be heavily regulated and subsidized to ensure everyone has access.
Over regulation is a big part of how this mess was created in the first place. Go read about Stockholm’s housing U̶t̶o̶p̶i̶a̶ hellscape to see the future you’d create.
"Over regulation" is an absurd concept: laws are not simply "not enough" or "too much".
What really matters is *what* is allowed and prohibited and who benefits from it.
In many countries regulatory capture led to building and zoning laws that serve to the interest of large investors groups as well as small speculators.
People who have a home as necessity rather than an investment are put at a disadvantage.
Wether you like it or not owning a home is always an investment. Perhaps not a good one but an investment non the less. To act like there are two types of people and that one disadvantaging the other because of their preference is silly.
Unless the owner is letting the property sit empty it isn’t going to have an effect on the supply/ demand balance of housing. Where you live is always going to have financial consequences that can’t be ignored.
The only housing hellscape I had to deal with in my entire life has been renting in London. Thank God I finally managed to buy a flat, but I’ve been at risk of homelessness with a solid 6-digit salary, because landlords can evict you with 1 month notice for no reason (so guess what happens if the fridge breaks and they don’t want to replace it). Renters are vetted more than somebody who requested a mortgage, are not expected to have any privacy and may not pass the reference check if they had a severe disease (say cancer). The state of disrepair is appalling, professionals live in places where Sweden, as you mentioned Stockholm, wouldn’t house criminals or recovering addicts (as in somebody who can’t pay rent).
Going from this hellscape to whatever is going on in Stockholm would definitely be an improvement.
> Going from this hellscape to whatever is going on in Stockholm would definitely be an improvement
Are you sure?:
"Sweden has not built enough rental(s) ... meaning long queues for rent-controlled housing ... average waiting time was 9 years in 2020" [1]
"...fuelled a thriving sub-letting or "second-hand" market, with "first-hand" renters and owners alike offering apartments to tenants for very high prices, despite regulations designed to stop people being ripped-off." [2]
"70% of local authorities reported a housing shortage in 2020." [1]
"...strict rent controls discourage developers from building and individuals from renting out vacant properties..." [1]
"Generous mortgage tax breaks encourage households to buy property and the combination has forced up house prices and household borrowing to levels that threaten the economy" [1]
"Home prices have risen around 18% over the last year alone" [1]
"Regulations ... are also fuelling market instability" [2]
"'I have a lot of friends who are struggling - moving many times per year,' says Maria Grigorenko, a 29-year-old brand manager in Stockholm" [2]
Despite its complex challenges, Sweden is in a better position on housing than many other EU countries.
Only around 8% of Swedes live in households spending more than 40% of disposable income on housing, compared to 15% in the UK and almost 40% in Greece, according Eurostat data.
Swedes are also less likely to live with their parents than any other young Europeans.
But until recently, getting a well-maintained, rent-controlled apartment straight after school is something some Swedes have just taken "for granted", argues Liza, a 37-year-old tech worker, who didn't want to share her last name.
She moved to London from Stockholm last year, and believes Swedes complaining about housing shortages would do well to put their struggles in a wider context.
"In the UK, apartments are often super old and not of good standard, even though the rent would be much more than in Sweden."
No food is cheap because of our vast productive land and technology. I'm not denying that subsidizes don't exist. You can't just make general statements.
If you added up the entire market for all retail and food services-- we are talking trillions of dollars a year in sales. The subsidizes are small. Think restaurants, grocery stores, food processing, etc that are all in this category.
Food is also cheap the New Zealand, who doesn't subsidise at all. The US has fantastic soils, good weather, buckets of cheap capital, and an awesome transportation network (both natural and artificial); that's why food is cheap.
It's heavily regulated and subsidized in NZ and it's also lot more un-affordable here. Since a few years ago we've been allowed to withdraw our version of a 401k to buy houses, to give you an idea of how much the govt has been trying to prop things up.
When has the housing market ever been normal? It’s had periods of equilibrium. Is that a synonym for normality? If we are thinking it terms of common features over time, perhaps the housing market mostly appearing to be demented is actually normality.
When we had less regulation, the prices increases followed wage increases or inflation since housing was built and bought just so families could live in and wasn't a speculative/investment vehicle so others could get a return on their investment.
The author ignores one of the biggest issues, which is the secular generational trend of the millenials (the biggest generation ever) moving into prime housebuying years (30-40s) while the boomers (second biggest generation) are aging in place. That's also putting a squeeze on available inventory.
The author also ignores the USA's land use policy (other than a tangential nod to 'we aren't building enough' which could have many reasons).
Of course, there are many factors that the author mentions that are also adding stress to the housing market. It'd be interesting to read some research that attributes weight to each of them.
What if the everyday person, as a result of now having access to far more information than they did before (post Internet boom), acts in a different way?
Normal was when you could afford to buy a home with a blue collar income, you had time to mull over making an offer, you could visit the house more than once before buying, you could have inspection contingencies, and had plenty of houses to choose from.
Right, so before the information asymmetry was blown apart and the entire world was suddenly able to think about property as an investment. Hell, investment in general and the concept that a pension won't exist or won't be enough.
At least in London, this has been a problem for 20-30 years. For most young people, buying a house is becoming an impossibility.
Supply is increasing, but slowly, and there's a limit on how dense people want to have the city.
Demand side looks like the better area to focus. Reducing population would help significantly, combined with taxes/disincentives on second home ownership and vacant properties.
Unfortunately these policies are unpopular with governing parties because:
a) the politicians own property (and often more than one)
b) older people vote, and they tend to be doing well out of the situation
I see a lot of right wing VC folk on twitter calling for massive derugulation of the housing market to grow supply. However, I think there's a strong case to be made that housing and land are different from other parts of the market. People want green space, they don't want high rise everywhere. You cannot (for the most part) make new land.
So, I agree that this problem won't be solved for 20+ years. Declining population is probably our best bet to improve the situation. And of course, young people will move to cheaper areas, particularly when they start families.
Declining population is a commonality in the developed world.
Regulation pushing investment out of homeownership absolutely is needed. Granted, the population decreases headed after the baby boomer generation starts declining will be interesting at least in the US.
> At least in London, this has been a problem for 20-30 years. For most young people, buying a house is becoming an impossibility.
The real problem is that 70% of what we call London is square kilometres of single family homes, with not even a church within a 5km radius. This creates both scarcity of houses and overcrowding of the few areas worth visiting. A more European zoning system, with 4-5 storey buildings with stores on the ground floor, would greatly improve the lives of many. Now you either live in zones 1-2 (plus some exceptions) or you live in a non-place where the only thing that matters is the tube stop, if there is one.
I don't think declining population will change much, it's not going to be uniform. The remote villages/cities where all the kids leave as soon as possible will disappear once their ageing population die out. What's left of those villages will keep on migrating to the big cities, potentially even making the problem worse.
People evaluate large purchases - in part - on whether they can afford the monthly payment. Low interest rates and comparably high rents make people more willing to pay more for property.
Higher interest rates, which may be on the horizon, may put a damper on housing prices. However, I suspect that they'll have less of an immediate impact in the states, where fifteen and thirty year fixed rate mortgages are the norm. If inflation continues in Europe, it will be interesting to see what happens in countries where people generally borrow for ten to fifteen years at a time, and refinance once the mortgage term is over.
Housing is already very cheap in places no one wants to live in.
Housing is already affordable in the United States compared to other countries when you compare median house price to median income.
If you want to see where the United States is headed go look at London, Vancouver, Paris, etc.
As urbanization in the United States accelerates for many reasons, including climate change, I see house prices in desirable areas increasing even further.
Even if you do like for like the United States is much cheaper than Europe when comparing median income to median house price. Add in the highly subsidized mortgages and it’s a slam dunk in favor of the United States.
The housing crisis is a meme basically centered around 15 locales in the states.
> The housing crisis is a meme basically centered around 15 locales in the states.
Yes, because that's where the people are. The housing crisis heatmap is pretty much the US population heatmap ( https://xkcd.com/1138/ ). Houses are cheap in the vast emptiness of the rural US. The EU doesn't really have similar unpopulated areas.
Compare those who actually buy though. Comparing raw incomes and real estate prices doesn't make any sense either. Again - a bad comparison. There are many parts of the world that have highly inflated real estate prices compared to average incomes but no one in the median income buys them at those prices. Places like Taiwan and Singapore are even worse by those measures but clearly people can live there...
Do you think people in Manhattan on a $118k/yr income are buying real estate? (They're not)
Yeah Montana is actually wildly more expensive than Romania across the board. Some areas (like Big Sky) are on par with other luxury resort areas like Vail or Tahoe.
But I see the posters point, the US is larger and more diverse than one European nation.
>Housing is already affordable in the United States compared to other countries when you compare median house price to median income.
Ditto. As an European I envy how affordable real estate is in the US compared to Germany for example. My US boss at the time had bought a nice big house with a garden in the suburbs of the Dallas-FW area, way cheaper than something similar would have cost in the suburbs of Munich, where our office was.
Case in point, most of our US colleagues had big houses in Texas which they owned, while most of the Munich team lived in small apartments which they had to rent. Quality of life is nice in Munich, but the real estate market there is crazy compared how good the US has it.
The insane real estate prices in some parts of Europe are mostly due (besides the monetary policies, NIMBYsm, regulations, and inherited wealth) to the scarcity of land in that desirable location, and less about the quality of what's built on it. And I'm not even talking about beach front properties in the south of France.
Ive seen many old houses for sale in Germany for ludicrous money, that you'd basically have to tear down and build something livable.
>As an European I envy how affordable real estate is in the US compared to Germany for example
You're comparing apples to oranges. You're comparing one of the cheapest major cities in the US to one of the more expensive cities in Europe. According to Zillow the median home price in Dallas is just under $300,000 but the median home price in Seattle where I'm currently renting and trying to buy a home is 3 times that at $900,000. So please don't tell me how good I have it in the US with real estate. With how large and diversified the US is, a more fair comparison would be to compare Dallas real estate prices to say a city like Bucharest and compare Munich real estate prices to a major US city on the west coast (San Diego, Los Angeles, San Francisco, Portland, Seattle) or the northeast (DC, New York City, Boston).
In Seattle, the average sale price per square foot is $535 [1] while in Paris, the average sale price per square meter is 10208€, which is twice as high.
Prices in Paris are pretty much the same as the prices of SF, but the salaries are way lower (3x lower, and the taxes are almost as high as the ones in California).
So yeah, I'd say you have it pretty good in the US :-)
You're saying that the European equivalent of Dallas is ... Bucharest? Really?
ChuckNorris89's point is that his boss is able to afford owning a large home in Dallas, a major US city, while he and his colleagues in Munich can only afford to rent much smaller apartments in Munich, a major German/European city. Telling him that a "more fair comparison" would compare Dallas to Bucharest won't change the reality ChuckNorris89 is recounting.
>You're saying that the European equivalent of Dallas is ... Bucharest? Really?
Strictly in terms of how their cost of housing compares to their larger geographic areas (US and Europe), yes. Both are less than the median. In all other aspects, no. I personally haven't visited any European city that's as equivalently awful as Dallas.
My point was you can't just look at Dallas and assume that all real estate in the US is affordable and that everyone in the US looking for affordable housing has it easy. The problem is ChuckNorris89 took Dallas then applied it to the US in general in their comments.
It would have been equally incorrect if someone had said, "as an American I envy how affordable real estate is in Europe compared to California for example. I have a bunch of colleagues that live in Bucharest and they can live in very cheap houses while I'm stuck in a small, extremely expensive apartment in Los Angeles. Living next to the beach is nice in Los Angeles, but the real estate market there is crazy compared to how good Europe has it."
You're being disingenuous. Implicit in ChuckNorris89's comparison is that both Dallas and Munich are major cities, whether in their countries or on a worldwide basis. Both cities are, overall, pretty nice places to live. They are, roughly speaking, comparable. And yet, the cost of housing difference is significant. That was ChuckNorris's point.
Cool and Bucharest and Los Angeles are both major cities in their respective countries and on a worldwide basis and yet the cost of housing between the two is significant. So based on my anecdotal experience I can therefore conclude that all real estate is cheap in Europe. And if anyone challenges me on that statement I'll simply say that won't change my reality and then tell them they're being disingenuous. Or more aptly someone else will say it for me.
Still not comparable - Even in say Thessaloniki, the price of a large SFH in most cities in the US (we'll leave off NYC and SF) will be comparable to the price of an apartment in a block of flats. And then you have to think about income...
>Maybe make those places more attractive to live, to take the pressure off the high-demand places.
How? This is a catch-22 that every run down city is trying to solve and can't. People don't move in because the places have no good jobs, investments, infrastructure, teachers and doctors, while the investments, jobs, doctors and teachers don't come there because there's nothing waiting for them there.
I've seen the same in Europe. Most good jobs, schools, doctors, etc, are all coming only in the big cities where all the talent is, and all the young talent is moving into the big cities, where all the good opportunities are. Catch-22.
>Both sides would have to believe that the other side will show up too.
The "build it and they will come" fallacy has failed way more times than it has succeeded. Companies know it and employees know it. Only governments and politicians seem to think otherwise when their election is on the line.
I've seen it numerous times in my city. Every now and then there's big PR from the mayor and the university rector about how they'll turn $SMALL_EUROPEAN_COLLEGETOWN into a major tech hub, and years later down the line, no major tech companies have shown up. Rinse and repeat every ~4 years, while most grads and companies are moving to the capital city.
>There probably needs to be some sort of guarantee that they will.
Nobody can guarantee you anything for the future, neither governments nor companies. The only truth is the present we live in and that's why most migration, public and private investments mostly happen in big cities that were already popular and wealthy, while the smaller cities with no investments are dying a long and slow death. It's a rampant and often unfair inequality but that's the sad reality.
What could small town north Dakota do to make you want to move there? Fargo is maybe large enough to offer enough city life to attract you, but what could small towns actually do?
Small town North Dakota could partner with state and federal authorities to grant me some kind of visa as a highly skilled freelancer who wants to purchase property there, grocery shop there, go to the doctor there, etc.
I don't work for a company that can sponsor me. I'm not running a business that employs other people.
I'm just a person with a sufficient income, who wants live in small town USA and pay into the local economy for stuff I use.
>Housing is already very cheap in places no one wants to live in.
But this isn't a solution, it's a tautology. If people started moving there, they'd become expensive, too. The population level interpretation is that inflows should equal outflows everywhere, which is statistically impossible unless the government decides where you can live. Who wants that?
The increase in prices depends on the amount of demand relative to supply. If all the demand for land in coastal California was redirected to the land in rural Midwest/Northeast, there is so much supply that it would cause a much smaller increase in price.
And it very well maybe that there is no solution to the problem of people having to scrimp due to high real estate prices. People may inherently want to compete with each other and agglomerate into highly desirable areas.
That would be true if the lot size were the same as the high cost locations and home inventory could be created overnight.
In reality, as we are seeing in Idaho, despite large swaths of undeveloped land available, the homes are still skyrocketing in price due to lack of inventory.
The popular areas of Idaho are tiny compared to vast regions of flat land available in the middle.
Of course all of the demand directed all at once without adequate supply will result in price increases. But people incorporate the fact that some places will never have enough supply simply due to lack of sufficient land. In that sense, a house in a popular part of Idaho will always be more than a house in Iowa.
> The popular areas of Idaho are tiny compared to vast regions of flat land available in the middle.
This isn't a solution to the cost of living, and in fact it would make it much worse. If people were spread out evenly over Idaho, the cost of shipping goods and driving to work would explode, not to mention power transmission, broadband, sewers, etc. Ascribing the current situation to some "desire to be competitive" which somehow appeared in the past three decades and was absent in 1900, is not compatible with comparisons to our past or other countries' present.
Paris has roughly five times the population density of Washington, DC. We're not out of space. We're using it badly.
Meanwhile, there are parts of coastal California that aren't even expensive:
Yeah - the issue in the USA is that everyone here still thinks sprawl is sustainable. It’s not. Financially or climate wise - it’s not sustainable. It’s been cheap historically because the government subsidized it. It’s actually very expensive. (Roads and service lines cost a lot of money - go figure)
Idk why people keep thinking it’s a cheaper way to do things when we know that it isn’t. It’s like no one here has read any of those strong towns articles.
No one said it’s a solution, I’m simply describing reality, as you’ve also concluded.
Also the rate of increase is not fixed. Areas with more propensity for development will see smaller price increases compared to areas with less propensity for development.
It’s more complicated than simply supply and demand, though it does reduce down to that in the end
That's clearly untrue. You're claiming there isn't a systemic problem, I'm claiming there is.
>It’s more complicated than simply supply and demand
It's never more complicated than supply and demand; it's just that supply and demand are, themselves, both very complicated. If housing was just determined by such factors as climate and price, everyone would move to Silver City, New Mexico. Despite fantastic weather, relatively low prices and a beautiful mountain setting, it has seen a sharp population decrease over the last decade.
This isn't a matter of people being irrational, or "wanting" to live in "desirable" areas. It's a matter of people needing to live in productive areas. Denial won't make it go away.
The problem is your use of the word "wants". When I moved to San Francisco in 2014, it wasn't because I wanted to. I liked it there; I think San Francisco is certainly a desirable place to live, but that doesn't actually matter.
The fact is, in 2014, I was planning to move to Portland, which, in 2014, was much more affordable than it is today. But I found a job in San Francisco before I found anything in Portland. That didn't happen because I thought San Francisco was desirable, it happened because people, except for the very few who make a lot of money working remotely, do not move somewhere simply because they want to. Otherwise, I would have moved to Costa Rica.
"Housing is already very cheap in places where there are few jobs, poor services and little infrastructure." See the difference?
I’m not seeing the contradiction between your link and what I stated. Your link says more people will go to cities, which will increase demand and subsequently prices. Which is also what I said
According to the link it's because people have moved into cities that they are most at risk for climate-change-based disruption to their lives.
"The frequency of torrential rain and storm surges is on the rise in big, densely populated cities like New York, Mumbai and Jakarta, hitting those living in marginalised, informal settlements like slums the hardest."
Also, large cities tend to be on the coastal regions -- that's how they first became large cities, by being accessible to ports in many cases.
Why would climate change force people out of the Omaha suburbs to Manhattan? I just don't understand the logic here at all, but maybe I'm missing something.
I’m not claiming climate change will force people to cities, I’m saying climate change will reduce the amount of available places to live, resulting in urbanization of the remaining locales from migrants/refugees of climate change.
Ok, could be. Predicting the future is difficult, though. On most real-estate forums I followed in early 2020 the prediction was that Covid would cause real-estate prices to nosedive and the exact opposite ultimately occurred.
That was a dumb prediction. Climate change is guaranteed to change which places are livable in the United States. It’s anyones guess how much of an affect it will have, though.
A crash of 25% would take us back to..maybe summer 2020? A crash of 50% would take us back to...2015ish?
I don't think the Fed etc have the guts to allow a 80% drop, so that the 2 million dollar house would drop back to $400k, and become reachable for the majority of people
A house that's $2m today is that expensive because it's a highly desirable home, much more desirable than the vast majority of homes out there - probably in the top 5%. You can never make such homes reachable for the majority of people because there aren't enough of them - if there were, they wouldn't be $2m right now. 50%+ of people can never afford the top 5% of homes.
That's only really true if you are talking about specific houses and locations, while keeping everything else unchanged.
In general, houses are just as desirable as they were a few years ago when they were half the price. All that has materially changed is the supply and cost of credit.
The same thing works on the downside: broad price falls are not due to mass desirability changes. They are due to credit becoming harder to get and more expensive to repay on a monthly basis.
Finance 101: asset prices move inverse to the discount rate.
I never said macro price changes were driven by desirability changes - my point was almost exactly the opposite: The macro price is irrelevant. The top 5% of homes for sale will never be available to 50% of buyers. Price differences at a point in time signal relative desirability of homes. Over time, prices may go up or down, but the top 5% of homes will always be significantly more expensive than the median home.
That's a different point than what I think the OP was making, and it's not entirely accurate either (except in a relative sense). For it to be completely correct, buying power would have to move identically with prices, and it does not. There have been many periods and places in history where the median income earner can afford a top 20% home (but may not choose to), and many other periods where the median income earner can only afford a bottom 20% home, and may instead choose to rent. What we've seen over the past decades is an acceleration of price ahead of buying power, pushing more people into renting, and leading to an accumulation of multiple properties in the hands of a smaller number of wealthier people (or institutions like Blackstone).
1) Do your parents own their home?
2) Could people with similar jobs/savings/backgrounds get a similar house today?
Usually the answer to 1 is yes, and the answer to 2 is no. 95% of homes are priced like the top 5% of homes. A million-dollar mansion used to be, well, a mansion. Now a million-dollar house is "a detached house within a 45 minutes driving distance to downtown".
At the rate things are going, in a few more years I wouldn't even be able to afford the home that we got into in 2016. It's already "appreciated" by 60% with no signs of slowing down. Every home that sells in our neighborhood today sells inside of a weekend and for "record-breaking" amounts. It's hard for me to even describe the way that this makes me feel. I suppose that I should be happy because, wow, look at my "investment" go! But, I don't. I feel afraid for my family's future, especially so when it concerns my very young children. I imagine that this is similar to how people felt during the run-up to the 2008 crisis.
Part of this phenomenon reached Portugal during the pandemic, some people from "big cities" went to the interior to buy houses for cheap to then either rent their houses in the city or the other one acquired.
Basically they removed a lot of houses from the market from locals, making them reach prohibitive prices completely off the reality of what locals can afford... where will they go?
What's the value added from the new-comers to those markets? They are not developing new houses, they aren't creating new jobs, and they shop mostly in big supermarkets.
It's funny that we talk about manufacturing "dying" while productivity is still very high. Meanwhile, the construction industry is actually foundering and we shrug. "Guess China is buying all the cement." Which cannot explain international disparities at all.
We can build small projects out of wood just fine. But those smaller projects need to be supported by larger projects: airports, hospitals, roads. Our existing concrete (literally) infrastructure is overburdened, which drives voter demand for restrictions on move-ins. Stop moving to Atlanta, stop moving to Austin, stop moving to Sussex County, Delaware.
We shouldn't be overwhelmed every time a city grows. Wonks blame the voters, voters blame the wonks, a bridge in Pittsburgh falls into a river.
The history of many cities shows periods of rapid growth far exceeding Austin over the last decade. San Francisco's population grew by >20% every decade from 1850 to 1930. There is no general rule that says growing cities must be so expensive. It's a phenomenon in the US, right now, not everywhere, all the time.
Ah, great, another thing I wouldn't have access to in my lifetime despite being in the top 25% income bracket.
Capital accumulates in the hands of so few, it's just so fucked up and hurts to even think about. I'd settle in a hut in the forest, but I'm sure someone will try to evict me there too!
Eh or buy at a high price now and find yourself unable to sell when prices lower. The long term population trends in the US are decreasing. My guess is it’ll be driven by baby boomer population decline. It’d be interesting to look into that deeper.
Probably the best home buying scenario right now is to buy as little as you need. At least the eventual hurt is lesser.
I mirror GP though. I graduated into the Great Recession and couldn’t find work for many years. The work I did eventually find wouldn’t have afforded real estate, ever. Now that my incomes up to buy home territory (comfortably) there’s this huge land grab. Not going to start on things like family formation. Feels like chasing a hundred dollar bill that’s being pulled on a line away from me.
Every consider buying a home with like a 3% down payment? Many states have first time homeowner incentives; you can borrow against your own 401(k), etc
I see the housing market as part of wider transition.
I think it is clear we are moving to a technocracy - we will not own anything, we will receive a UBI, we will be provided for (as a low level) but this will come at the cost of freedom. Technocrats (aka billionaire elites) will take closer control of the world's resources and micro-manage us.
There are several issues before we actually enter that system. Firstly, it is required that we all have a biometrical-security-id to do anything. This part is already underway - we are starting to be convinced of the need to provide id (green pass, citizen scores or whatever) to go shopping, or even leave the house.
Another of the issues that those who would achieve technocracy face, is that as much as the billionaire class owns, there is still independent wealth. In raising house prices, they create a new conflict - the older generation that own their houses know what it means - independence, that they worked for it, etc. Mostly they cannot conceive of owning nothing. The younger generation are the opposite, they cannot conceive of owning anything, or even moving out of their bedroom - they face an interminable childhood. I can see how being provided with a 110 foot flat would be a step up. They are/will be fine with the older generation losing their wealth and having the government re-allocate those resources towards a small flat.
On the ground floor then, we will see a conflict between generations. The planned result is that we are all worse off, living in a smaller footprint, under close control. What little wealth is on the ground floor, will shift up and become owned by corporations. On the higher floors, corporations will own everything - all the property. Corporations are in fact owned by individuals - we do not see them, but these self-styled 'gods' will own everything.
This is not freedom - the direction of travel is more overt bondage for the general population. And mostly, in their ignorance, people will be happy at the outcome.
If we were really tackling inequity, we would be tackling those that own everything - but this is impossible given the secrecy of trusts, media blackouts, etc. Ownership should be entirely transparent - everything should be traceable. Corporations are merely a further cloak - corporations are owned too. Which individuals own Vanguard and Blackrock? But this will not be the solution we seek to resolve the problem.
Instead, we will fight amongst ourselves. We will cheer as new annual taxes (at 1%) are introduced on the value of a 'expensive' (read, inflated) property, or when reverse equity options are offered as the government buys up the housing stock. (Reverse equity will come with a legal agreement to prevent the purchase of another property.)
I hope this doesn't happen, but it seems that we have far to go individually - when we still believe the media, when we still believe that the government is there to help, we really haven't learnt much.
This narrative comes up a lot, back with NWO and FEMA black helicopters in the '90s all the way to the Great Reset and Davos Man in the modern day. Theodore Kaczynski also wrote about it. While it's hard to deny there might be those who are in favor of this, it's also hard to see that such an elaborate, well-engineered plan is actually in formation.
UBI? While that popular has gotten some currency in the last couple of years, in the U.S. alone it's been basically impossible to get a measly second round of one-time $2k (now 1.4k) stimulus checks out, much less a reoccurring program.
Biometrics? The concept of national ID has been DOA in the U.S. for decades. Despite the use of vaccination cards, which are plain paper, it is still no more politically feasible to pursue such policies. The U.S. has a culture that's uniquely individualist and anti-centralization, and this is bipartisan- the ACLU has resisted E-Verify because of fears of the creation of an onerous national ID system.
Being provided at a low level? The lack of affordable housing and the rise in visible homelessness contradicts that notion.
> On the ground floor then, we will see a conflict between generations. [...] What little wealth is on the ground floor, will shift up and become owned by corporations.
That is much more believable, that centralization of wealth leads to centralization of power. And we have seen this before in history, just look at the Gilded Age. But that is a very different thing from a carefully-engineered plan towards elite control. It isn't an intentional plan to squeeze out middle-class homebuyers, or to crush millennials with debt. It's simply a side effect of vast, blind, financial games. The ants are getting stomped upon by warring elephants.
People need to remember Hanlon's Razor. Instead of trying to ascribe calculated malice towards the powers-that-be, remember they are simply as clueless as the rest of everyone. They've simply been playing the game to win, and continuously rewriting the rules to keep winning. In such a case, technocracy is but a side effect, not an intentional social engineering project. Gibson, not Orwell.
its because theres nothing else to buy... bond yields are too low, no obv tech stocks to buy, etc... the financialization of housing around 30pct of the good suburbs around Minneapolis are not owner occupied and demand is strong from investors, whether blackrock or otherwise, to buy the rest
Color me unimpressed with the arguments laid down here. It boils down to low rates and looking at the recent past when rates were low. And let’s point out rates have been 0-.25% for a long time now.
Want to convince me? Pull in a Case-Schiller index comparison and some more technical, market level characteristic analysis.
What would be interesting is figuring out price/interest rate sensitivities for buyers of homes in this market. Does investment leave the market if rates make other asset classes more viable? Probably. At what point?
Edit-or tell me that the Fed can’t possibly raises rates for $goodReasons.
The notion of "normal" is dubious. For a decade preceding 2008, minimal verification of income or employment was required to buy a home (prices soared). Thereafter, the pendulum swung mightily in the other direction (having tried to purchase a home as a contractor, I can attest). Then the pandemic accelerated the migration to the suburbs for young families (prices soared).
If there are as many over-levered real-estate investors as the article suggests, a market downturn will yield foreclosures, and PE firms will feast once again.
There is no "normal." Only past, present, and future.
Not in the article and rarely discussed is the most powerful influence on the price of housing: lack of production.
Prices are a function of demand and supply. Oddly, the article seems to just drive right past this as the author discusses the problems related to people having nowhere to go, specifically when mentioning that if they sell their home for a tidy profit, they don't actually profit because they now have to go compete for a house. For all the arguments in the article, the following proposition seems like a reasonable evaluation: if Silicon Valley residents woke up tomorrow morning and discovered 5,000,000 new homes on the market, would that be predicted to influence the price? Of course it would, and that impact would be that prices would immediately plummet.
This is true because the housing we are talking about may also be called shelter, and the demand for shelter is highly inelastic. People will do a lot to maintain shelter, including going without many other consumer items, buying used vehicles and using them until they turn to dust, sharing housing, taking second jobs, etc. In effect, all of the things we seen the younger generations doing are all the things we can easily predict one to do in order to have shelter, though most are not aware of or otherwise unable to articulate these kinds of economic considerations.
Supply was only marginally restricted until somewhere around the early 90s, when states, counties, and municipalities began placing wholesale moratoriums on housing construction*. I can remember in the 80s as child driving through San Jose and seeing large orchards that are all now suburban housing. Looking around the valley, there has been no other housing development anywhere near that size, yet the net job growth in absolute numbers is many times higher.
Many of the valley central planners plan construction as if it's still 1980, where each residential unit has something like 3 bedrooms to be occupied by two adults and two children, but reality is more like 3-5 adults. The result is substantially higher traffic and inadequate services, notably in the grocery stores which I observed to never have enough parking spaces, long lines, and popular items frequently out of stock on the shelf. Long commutes to far away communities are another result, essentially the planners deciding that among the most efficient workforce on the planet must be the task of sitting in a car 3 hours every day, which commonly cuts into what would likely be a good night's sleep, making the workers yet less efficient.
The lack of shelter problem cannot be solved through anything other than increased production of housing. It is not a price problem. Prices are just the method we use to inform us on the situation of supply and demand for a product.
Older generations will fight this, tooth and nail, because much of their savings are wrapped inside of a product they are consuming. Younger generations, if they ever figure out what is going on, may become hostile to the other needs of older generations, which, in my opinion, is a far greater risk to the older generations than the loss of equity in their homes. This goes without having a discussion as to the immorality of forcing younger generations into conditions of economically-enforced cohabitation and homelessness purely so that older generations can enjoy the profit that comes with restricted supply on the assets they own.
I suppose this was a long-winded way of stating that the article's title claim is wrong, because there will likely never be a "normal housing market" short of some sort of large scale coordinated effort to substantially loosen or eliminate restrictions on construction.
* Especially in California, housing construction is largely limited in absolute number of "new residential units" (NRUs), which is different than the popular understanding of increased difficulty in approval of design (the latter exists, and has for a long time, but it is not as significant as absolute restriction).
> : if Silicon Valley residents woke up tomorrow morning and discovered 5,000,000 new homes on the market, would that be predicted to influence the price? Of course it would, and that impact would be that prices would immediately plummet.
It might also plummet because quality of life would go down as resources that cannot be replicated have to be divided amongst many more people. Same as tourist hotspots. Why would people already living there want more crowded trails, ski slopes, and beaches?
You are taking out of context a slice of my entire argument, which includes the fact that the resources are already being consumed. The people are already living there.
The choice of an outrageously high number of homes in the example is purely to demonstrate that the fallacious claim of housing just mysteriously increasing in price without any visible cause, often presented as some magical force within the universe.
It is, in fact, not possible to have such a scenario because such a construction project would require a lot of planning, so prices would actually begin to fall once the plans are put into place, likely reducing the overall number of units constructed as developers abandon plans, and the ultimate "clearing" price will drop to within some more reasonable bounds than the current price reflects.
Sorry, I did not mean to imply that I disagree with your post. Rather, I was trying to provide context for why existing land owners are incentivized to vote for restrictions on new construction, or even restrictions on higher density construction.
You are right that there is no normal. The US in the 1900s, especially western US, was probably a right place in the right time event where the parameters of the environment allowed for that number of humans to live at a certain quality of life, and the parameters have changed now that there are billions of more people in the world.
> You are right that there is no normal. The US in the 1900s, especially western US, was probably a right place in the right time event where the parameters of the environment allowed for that number of humans to live at a certain quality of life, and the parameters have changed now that there are billions of more people in the world, and probably tens or maybe even a hundred million more competitors.
There is a normal, and it is to allow housing to be constructed as desired. The whole number of people on the planet is not relevant. For example, if the same regulations had existed for centuries before, there would be no metropolises today, because all construction has been constricted, to include the formation of a new metropolis.
Take a look at some place like New York city in Google Maps, then look at San Jose, California. notice that San Jose has somewhere close to 1000 square miles of undeveloped land surrounding it. In fact, if you drive to San Jose going north on 101, the "Entering San Jose" sign is in the middle of nowhere and IIRC, you can't see anything resembling civilization other than the eroded star-thistle-saturated brown hills (they claim this is for "preservation" as if that is what things looked like before being settled).
I have been through this issue for myself many times in considering where I live, because I was always just behind the curve in Silicon Valley, so I left, as the minimum wage to live what I consider a normal American life is now $150k in that region, with housing ownership starting salary at $250k, which is ludicrous.
You have to work this back completely: at some point, there were no people. Then someone arrived and decided they would like to construct shelter for themselves in the form of a house atop some soil. Then more people arrived, and they decided to do the same thing. We arrive at the 1990s, and many people have this: shelter atop some soil. Philosophically, you cannot justify someone who has shelter atop soil being granted the privilege of owning the shelter over someone who would like to construct shelter atop their soil, other than to say they have greater rights than the other, which presents a rather different picture: the establishment of a caste system which also works to enrich those who already own shelter. Thus, the scenario today is the older generations directly profiting from the impoverishment of the younger generations.
I call this a great moral conundrum, and what is difficult about it is the older generations are in no way motivated to ever address this conundrum. They can live out their entire lives profiting from this highly immoral scenario, and not even think about it. It is why I believe that land owners in California and elsewhere with similar policies are among the most immoral people in modern history.
Push comes to shove, the only justification needed is might makes right.
The “normal” of allowing housing to be constructed as desired is rooted in property rights, which there are countless flavors of, all the way from the way Native American tribes allowed their members to live, to kings and queens to modern democracy and local zoning laws.
This applies across time also, as current generations can “take” from future generations (see water, clean air, farmable land, etc), but the whole who has a right to how much and when is a conversation fraught with disagreements on premise and assumptions.
It takes time to work through, but ultimately I don't find it very complicated because it comes down to the single issue:
Someone today has a shelter atop some soil and believes that someone else should not have a shelter atop some soil, and the person who currently has shelter atop some soil profits by preventing people from creating new shelter atop some soil.
People generally introduce the other issues that are outside of this narrowly defined immoral position.
The more articles predict continued doom and gloom, the more optimistic I become. Simply because that heuristic has made a fine Bayesian prior for most of my life.
A house is a decaying pile of materials in need of constant maintenance. People want to own their own, because it is cheaper than paying someone else to maintain their decaying pile of materials, with management and profit overhead.
Until people get over the idea that a depreciating, decaying pile of material is anything other than the lowest cost way to store your stuff and stay out of the elements, the market will remain irrational.
Only someone insane, or looking for a bigger fool, would count a house as an investment.
A house is a decaying pile of materials in need of constant maintenance.
Well, maybe your house is.
But in the general case -- it's that and "location, location, location" of course. On top of finite (in some markets highly constricted) supply. Plus, some are ... beautiful, well-designed, well-built, and/or historic (never to be made again). And finally, for very rich people, they have added functionality as value stores (particularly when favorable tax conditions come into play).
The factors taken together explain why houses and apartments are not only not completely insane as investments -- but in fact can be quite lucrative investments.
Everybody in here is arguing about real estate prices and not the actual article… Did anybody else notice some flaws in this argument?
He says the simplest explantion is the best to explain high prices. His simple explanation claims that inventory is at records low and home prices should be 20% higher because of this. But if you compare the inventory to the previous time last year, it’s not a significant difference. If there’s not a significant difference (at least not significant enough to explain a 20% increase in my opinion), then why have they increased?
The “creditworthiness of home buyers chart” shows that the higher creditworthy buyers are paying more for their homes, it doesn’t say they are any more creditworthy than they were in the past. This would make sense because home prices are at a high, as he so astutely pointed out. A more revealing chart would show how many high credit people there are.
201 comments
[ 1.7 ms ] story [ 245 ms ] threadThis tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence. I bet a lot of those small time landlords are nervous about cash flow, and you could find one that's ready to get out.
But the business doesn't support nearly the advertising that you see in normal markets. Call A qualified realtor with a dump house and they will call these people if your house is a hard sell. (If you know the fair value of your house you can avoid realtor fees selling direct )
I realize there are a lot of "house flipper" shows on reality TV, but I don't buy this. I'm not receiving 20-30 phone calls and texts per week from "individuals" wanting to buy my house. I'm getting those calls from sophisticated commercial operations, who mask their phone numbers to include the same area code and first three digits as my own, etc.
Individuals aren't putting up "We buy houses! Guaranteed offer!" billboards every few hundred feet in my city.
I don't think that banks will even give individuals an endless series of mortgages. You can't declare rental income as "income" to qualify for mortgage loans.
PSA: For anyone thinking of moving to Atlanta, don’t. It’s horrible here, go anywhere else. Save yourself from doom! /s
Depends. If you have a signed lease, some lenders will take some portion of that into account when considering lending you money.
In a few years, the market would settle with much more affordable prices for buying. But we still would have a problem that building new houses would stop to a halt due to low ROI, and renting market would heat again. For that, I'm not sure how to solve this.
https://www.sfgate.com/bayarea/article/how-many-vacant-homes...
Took me less than a minute to search this.
[1] https://sfgov.legistar.com/View.ashx?M=F&ID=10441217&...
Just pass those costs on to your tenants.
(I know a family that opened a concrete plant in 2016. They are now multimillionaires whereas before they were scrambling to keep afloat)
Canadians sure are a crafty lot.
* Other investments may be less correlated with your earning potential.
* Risk of being underwater.
* Risk of an expensive, unexpected maintenance or repair item.
* Chores you are no longer paying for, you have to do yourself.
They’ll def give an endless series of mortgages to an otherwise wealthy person who keeps paying them back by renting out the homes.
You absolutely can, it is income after all.
All the banks care about is if the cost of the new mortgage is going to exceed your debt to income ratio.
Not exactly. The underwriting process is very different for full-time residences versus investment/rental properties. Rates are usually higher, debt/income ratio must be lower, and appraisals and cashflow analyses include rental market considerations.
Given this it's entirely reasonable to assume the rift between mortgage products for investment vs residence to widen. If congresspeople want to do something about perceived imbalance between residence and income real-estate, they could change federal subsidies or underwriting requirements for income properties making mortgages for income properties much more expensive and/or harder to get.
(Just realized a peer comment said something similar.)
You absolutely can. I did that. Bank was happy to consider money i make from renting out one of my houses as income when qualifying me for a mortgage for another.
They buyer/seller is almost always listed as an individual and not a corporation.
You can, but [typically] not until you have a solid history (a few years) of that rental income and it will be lender dependent. You also can't typically use future/potential income from a property to qualify for a mortgage for THAT property but you could for a business loan. That business loan will have a much higher interest rate and likely require you to put up other collateral or personal guarantee.
Do you have a source for this claim? Based on personal friends who work in the lending / single family rental home space, I don't think that's correct. [0] [1]
[0]: https://www.valuepenguin.com/mortgages/claiming-rental-incom...
[1]: https://selling-guide.fanniemae.com/Selling-Guide/Originatio...
Fortunately, I still believe that the overwhelming majority of new rental units are being scooped up and placed on market by commercial entities, not individuals. You may have many individuals putting their second house up for rent, but I'm skeptical that banks are giving individuals a half-dozen loans in series. With the housing shortage as bad as it is (we're just not building enough to offset our population growth), I suspect that commercial entities would swoop in and buy up most second houses that individuals couldn't maintain anymore.
1. With a lease and/or two years of prior landlord experience you can use rental income both for existing and projected for new property.
2. For multi unit, if you’re owner occupied you qualify for FHA and therefore can put down as little as 3%
3. You only have to stay in your home for 6 months for refinance and 1 year for initial purchase. The guidelines are loose, and can relocate earlier depending.
That being said, it doesn’t really make sense since most properties in high cost of living areas don’t cash flow well to begin with.
I bought during the plummeting urban Covid rents. When looking for my mortgage a few banks told me their underwriters were temporarily directed to ignore all building income toward qualification.
I worked with a good mortgage broker and he had the option of 20+ banks that were happy to write a conventional loan using a ratio of the building’s income counting toward my qualification. I believe it was 80%.
Re: cash flow, I live in half the building, at current rents the two tenants pay 84% of the mortgage tax and insurance. The tax write offs more than make up for the rest.
The income is nice, but it's anything but "passive" unless your rents are so high that you can afford to pay a management company, and/or you are comfortable being a slumlord.
Edit-added “more people”
I don’t think so as landlords are locked into a 3% fixed mortgage and have a profitable income stream.
Unless there’s some life event that requires them to sell, landlords are less likely to sell than regular homeowners.
The 2007-2008 crash wiped out a lot of over-leveraged residential developers, and individuals building single homes. From conversations I've had with people in that industry, their sense is that we learned next to nothing and that a repeat of that experience is inevitable. So commercial development became seen as more desirable and less risky.
Now that I think about it though, I haven't had any conversations since COVID! I wonder if the rise of remote work will have enough impact on commercial development to flip that calculus again.
A builder can only take on so many projects per year. Typically three or four. The amount of work that goes into managing a $300,000 project (not including land) is mostly the same as one that costs $600,000 or $1,200,000. Why make $30,000 per project when there’s an opportunity for $60k or $120k?
After 2008, I believe banks started being much less willing to provide construction loans to builders, as many went upside down on projects when the market crashed. The bank doesn’t want to repossess a halfway-done new construction project, which is the hardest thing to resell. There are fewer speculative custom homes being built now, compared to before 2008. And builders are no longer taking any kind of risk on projects, so their customers need to acquire financing on their own.
Relatively few banks offer reasonably priced construction loans. We were required to have the land paid in full and also bring 30% as a down payment for the construction loan.
This really only works in the exurbs or rural areas.
You can't. That's why the prices are so high. The price of construction will be built into the price asked by the land owner such that the overall price is within bounds of an existing home, and usually more expensive as a new home is seen as a premium product.
Historically, new homes are more expensive than existing homes, as it was in the U.S. prior to the 1990s that a new home was an upgrade from an older home for the people purchasing the new home, and the older home would be purchased (or rented) at a lower rate than the new home, a process that has disappeared due to constriction on supply and nowadays has spawned the term "market affordable housing", as I have seen this term used by charitable organizations that historically focused on housing for the extremely poor, now change somewhat to advocating for housing that merely lower class can afford, as this class is slowly being pushed completely out of affording any form of housing outside of shared rooms.
The difficult part is finding a reasonable plot of land. During housing booms (bubbles?) land also tends to be overpriced, and you need to be aware of local regulations (how far well water needs to be from a leach field, etc.)
In my case, I'll only be required to go into work twice a week at most in Boston, so I'm building the house 3 hours away in Maine. I enjoy the rural lifestyle and also have personal connections to a builder - I'm not saying this is for everyone necessarily.
In this type of climate new housing can be justifiably built to an incredibly high level of insulation with only some intentional (and controllable) fresh air allowed. ICF is better than wood if you plan windows ahead of time. Eventually this will save you money in heating costs when you live in New England.
Anyway, yes it's still possible to build houses in America.
What really matters is *what* is allowed and prohibited and who benefits from it.
In many countries regulatory capture led to building and zoning laws that serve to the interest of large investors groups as well as small speculators.
People who have a home as necessity rather than an investment are put at a disadvantage.
The intentions and behavior of the buyer can be profoundly different.
Unsurprisingly, most countries have different regulations for first home buyer VS local investors VS foreign investors.
If anything it's silly not wanting to acknowledge the difference. Or perhaps a bit cheeky.
...which happens all the time, especially with large speculative investors.
> it isn’t going to have an effect
Besides, it's also plain wrong, obviously. Owners have an effect on the occupancy rate. The same house can be occupied by 2, 3 or 4 for example.
Going from this hellscape to whatever is going on in Stockholm would definitely be an improvement.
Are you sure?:
"Sweden has not built enough rental(s) ... meaning long queues for rent-controlled housing ... average waiting time was 9 years in 2020" [1]
"...fuelled a thriving sub-letting or "second-hand" market, with "first-hand" renters and owners alike offering apartments to tenants for very high prices, despite regulations designed to stop people being ripped-off." [2]
"70% of local authorities reported a housing shortage in 2020." [1]
"...strict rent controls discourage developers from building and individuals from renting out vacant properties..." [1]
"Generous mortgage tax breaks encourage households to buy property and the combination has forced up house prices and household borrowing to levels that threaten the economy" [1]
"Home prices have risen around 18% over the last year alone" [1]
"Regulations ... are also fuelling market instability" [2]
"'I have a lot of friends who are struggling - moving many times per year,' says Maria Grigorenko, a 29-year-old brand manager in Stockholm" [2]
[1] https://www.reuters.com/article/sweden-housing/factbox-dysfu...
[2] https://www.bbc.com/news/business-58317555
Despite its complex challenges, Sweden is in a better position on housing than many other EU countries. Only around 8% of Swedes live in households spending more than 40% of disposable income on housing, compared to 15% in the UK and almost 40% in Greece, according Eurostat data. Swedes are also less likely to live with their parents than any other young Europeans. But until recently, getting a well-maintained, rent-controlled apartment straight after school is something some Swedes have just taken "for granted", argues Liza, a 37-year-old tech worker, who didn't want to share her last name. She moved to London from Stockholm last year, and believes Swedes complaining about housing shortages would do well to put their struggles in a wider context. "In the UK, apartments are often super old and not of good standard, even though the rent would be much more than in Sweden."
In general, food in the US is not heavily regulated and that's why we have some of the cheapest and most varied foods in the world.
If you added up the entire market for all retail and food services-- we are talking trillions of dollars a year in sales. The subsidizes are small. Think restaurants, grocery stores, food processing, etc that are all in this category.
When we had less regulation, the prices increases followed wage increases or inflation since housing was built and bought just so families could live in and wasn't a speculative/investment vehicle so others could get a return on their investment.
The author also ignores the USA's land use policy (other than a tangential nod to 'we aren't building enough' which could have many reasons).
Of course, there are many factors that the author mentions that are also adding stress to the housing market. It'd be interesting to read some research that attributes weight to each of them.
I see this argument repeated everywhere and I still don't believe it. What, did these Millenials just crawl out of a swamp a week ago?
It was known 35.75 years in advance when 35 year old Millenials would turn this age (assuming they survived life to that point).
It's the world's most predictable situation. Are the same people who are surprised by this also surprised when it snows each winter?
What if the everyday person, as a result of now having access to far more information than they did before (post Internet boom), acts in a different way?
Supply is increasing, but slowly, and there's a limit on how dense people want to have the city.
Demand side looks like the better area to focus. Reducing population would help significantly, combined with taxes/disincentives on second home ownership and vacant properties.
Unfortunately these policies are unpopular with governing parties because:
a) the politicians own property (and often more than one) b) older people vote, and they tend to be doing well out of the situation
I see a lot of right wing VC folk on twitter calling for massive derugulation of the housing market to grow supply. However, I think there's a strong case to be made that housing and land are different from other parts of the market. People want green space, they don't want high rise everywhere. You cannot (for the most part) make new land.
So, I agree that this problem won't be solved for 20+ years. Declining population is probably our best bet to improve the situation. And of course, young people will move to cheaper areas, particularly when they start families.
Regulation pushing investment out of homeownership absolutely is needed. Granted, the population decreases headed after the baby boomer generation starts declining will be interesting at least in the US.
The real problem is that 70% of what we call London is square kilometres of single family homes, with not even a church within a 5km radius. This creates both scarcity of houses and overcrowding of the few areas worth visiting. A more European zoning system, with 4-5 storey buildings with stores on the ground floor, would greatly improve the lives of many. Now you either live in zones 1-2 (plus some exceptions) or you live in a non-place where the only thing that matters is the tube stop, if there is one.
Higher interest rates, which may be on the horizon, may put a damper on housing prices. However, I suspect that they'll have less of an immediate impact in the states, where fifteen and thirty year fixed rate mortgages are the norm. If inflation continues in Europe, it will be interesting to see what happens in countries where people generally borrow for ten to fifteen years at a time, and refinance once the mortgage term is over.
Housing is already affordable in the United States compared to other countries when you compare median house price to median income.
If you want to see where the United States is headed go look at London, Vancouver, Paris, etc.
As urbanization in the United States accelerates for many reasons, including climate change, I see house prices in desirable areas increasing even further.
The housing crisis is a meme basically centered around 15 locales in the states.
Yes, because that's where the people are. The housing crisis heatmap is pretty much the US population heatmap ( https://xkcd.com/1138/ ). Houses are cheap in the vast emptiness of the rural US. The EU doesn't really have similar unpopulated areas.
Manhattan, density of 70K per square mile.
Levallois-Perret, density of 67K per square mile.
Manhattan, $1.5K/sqft median price
L-P, $1,177/sqft median price
Manhattan median household income - $118,161
L-P median household income - $59,758.46
It's not even close...
Do you think people in Manhattan on a $118k/yr income are buying real estate? (They're not)
United states is cheaper compared to other countries no matter how you slice it.
Why don’t you just accept facts lol. People in other countries have to spend more of their income for housing.
Feel free to post data showing how affordable other countries are for their citizens
But I see the posters point, the US is larger and more diverse than one European nation.
Ditto. As an European I envy how affordable real estate is in the US compared to Germany for example. My US boss at the time had bought a nice big house with a garden in the suburbs of the Dallas-FW area, way cheaper than something similar would have cost in the suburbs of Munich, where our office was.
Case in point, most of our US colleagues had big houses in Texas which they owned, while most of the Munich team lived in small apartments which they had to rent. Quality of life is nice in Munich, but the real estate market there is crazy compared how good the US has it.
Ive seen many old houses for sale in Germany for ludicrous money, that you'd basically have to tear down and build something livable.
It is all about what the market can bear (and it can bear a lot these days, thanks to incessant money printing)
You're comparing apples to oranges. You're comparing one of the cheapest major cities in the US to one of the more expensive cities in Europe. According to Zillow the median home price in Dallas is just under $300,000 but the median home price in Seattle where I'm currently renting and trying to buy a home is 3 times that at $900,000. So please don't tell me how good I have it in the US with real estate. With how large and diversified the US is, a more fair comparison would be to compare Dallas real estate prices to say a city like Bucharest and compare Munich real estate prices to a major US city on the west coast (San Diego, Los Angeles, San Francisco, Portland, Seattle) or the northeast (DC, New York City, Boston).
Prices in Paris are pretty much the same as the prices of SF, but the salaries are way lower (3x lower, and the taxes are almost as high as the ones in California).
So yeah, I'd say you have it pretty good in the US :-)
[1] https://www.noradarealestate.com/blog/seattle-real-estate-ma....
Unless you made mistakes in the units of the stats you provided.
10.7 x $535 is $5,724 per square meter in Seattle.
Which is less than 1/2 of the $11,686 per square meter in Paris.
ChuckNorris89's point is that his boss is able to afford owning a large home in Dallas, a major US city, while he and his colleagues in Munich can only afford to rent much smaller apartments in Munich, a major German/European city. Telling him that a "more fair comparison" would compare Dallas to Bucharest won't change the reality ChuckNorris89 is recounting.
Strictly in terms of how their cost of housing compares to their larger geographic areas (US and Europe), yes. Both are less than the median. In all other aspects, no. I personally haven't visited any European city that's as equivalently awful as Dallas.
My point was you can't just look at Dallas and assume that all real estate in the US is affordable and that everyone in the US looking for affordable housing has it easy. The problem is ChuckNorris89 took Dallas then applied it to the US in general in their comments.
It would have been equally incorrect if someone had said, "as an American I envy how affordable real estate is in Europe compared to California for example. I have a bunch of colleagues that live in Bucharest and they can live in very cheap houses while I'm stuck in a small, extremely expensive apartment in Los Angeles. Living next to the beach is nice in Los Angeles, but the real estate market there is crazy compared to how good Europe has it."
Maybe make those places more attractive to live, to take the pressure off the high-demand places.
How? This is a catch-22 that every run down city is trying to solve and can't. People don't move in because the places have no good jobs, investments, infrastructure, teachers and doctors, while the investments, jobs, doctors and teachers don't come there because there's nothing waiting for them there.
I've seen the same in Europe. Most good jobs, schools, doctors, etc, are all coming only in the big cities where all the talent is, and all the young talent is moving into the big cities, where all the good opportunities are. Catch-22.
The "build it and they will come" fallacy has failed way more times than it has succeeded. Companies know it and employees know it. Only governments and politicians seem to think otherwise when their election is on the line.
I've seen it numerous times in my city. Every now and then there's big PR from the mayor and the university rector about how they'll turn $SMALL_EUROPEAN_COLLEGETOWN into a major tech hub, and years later down the line, no major tech companies have shown up. Rinse and repeat every ~4 years, while most grads and companies are moving to the capital city.
>There probably needs to be some sort of guarantee that they will.
Nobody can guarantee you anything for the future, neither governments nor companies. The only truth is the present we live in and that's why most migration, public and private investments mostly happen in big cities that were already popular and wealthy, while the smaller cities with no investments are dying a long and slow death. It's a rampant and often unfair inequality but that's the sad reality.
I don't work for a company that can sponsor me. I'm not running a business that employs other people.
I'm just a person with a sufficient income, who wants live in small town USA and pay into the local economy for stuff I use.
But this isn't a solution, it's a tautology. If people started moving there, they'd become expensive, too. The population level interpretation is that inflows should equal outflows everywhere, which is statistically impossible unless the government decides where you can live. Who wants that?
And it very well maybe that there is no solution to the problem of people having to scrimp due to high real estate prices. People may inherently want to compete with each other and agglomerate into highly desirable areas.
In reality, as we are seeing in Idaho, despite large swaths of undeveloped land available, the homes are still skyrocketing in price due to lack of inventory.
Of course all of the demand directed all at once without adequate supply will result in price increases. But people incorporate the fact that some places will never have enough supply simply due to lack of sufficient land. In that sense, a house in a popular part of Idaho will always be more than a house in Iowa.
This isn't a solution to the cost of living, and in fact it would make it much worse. If people were spread out evenly over Idaho, the cost of shipping goods and driving to work would explode, not to mention power transmission, broadband, sewers, etc. Ascribing the current situation to some "desire to be competitive" which somehow appeared in the past three decades and was absent in 1900, is not compatible with comparisons to our past or other countries' present.
Paris has roughly five times the population density of Washington, DC. We're not out of space. We're using it badly.
Meanwhile, there are parts of coastal California that aren't even expensive:
https://www.zillow.com/homes/Eureka,-CA_rb/
Idk why people keep thinking it’s a cheaper way to do things when we know that it isn’t. It’s like no one here has read any of those strong towns articles.
Also the rate of increase is not fixed. Areas with more propensity for development will see smaller price increases compared to areas with less propensity for development.
It’s more complicated than simply supply and demand, though it does reduce down to that in the end
That's clearly untrue. You're claiming there isn't a systemic problem, I'm claiming there is.
>It’s more complicated than simply supply and demand
It's never more complicated than supply and demand; it's just that supply and demand are, themselves, both very complicated. If housing was just determined by such factors as climate and price, everyone would move to Silver City, New Mexico. Despite fantastic weather, relatively low prices and a beautiful mountain setting, it has seen a sharp population decrease over the last decade.
This isn't a matter of people being irrational, or "wanting" to live in "desirable" areas. It's a matter of people needing to live in productive areas. Denial won't make it go away.
>>>> Housing is already very cheap in places no one wants to live in.
>>> But this isn't a solution, it's a tautology
>> No one said it’s a solution, I’m simply describing reality, as you’ve also concluded.
> That's clearly untrue. You're claiming there isn't a systemic problem, I'm claiming there is.
I have no idea who you’re even responding to.
The fact is, in 2014, I was planning to move to Portland, which, in 2014, was much more affordable than it is today. But I found a job in San Francisco before I found anything in Portland. That didn't happen because I thought San Francisco was desirable, it happened because people, except for the very few who make a lot of money working remotely, do not move somewhere simply because they want to. Otherwise, I would have moved to Costa Rica.
"Housing is already very cheap in places where there are few jobs, poor services and little infrastructure." See the difference?
Studies actually show the exact opposite.
"Rapid urbanization is making people more vulnerable to the impacts of climate change, according to a new UN report" [0][1]
[0] https://unfccc.int/news/rapid-urbanization-increases-climate...
[1] https://unfccc.int/resource/docs/2017/sbsta/eng/inf03.pdf
"The frequency of torrential rain and storm surges is on the rise in big, densely populated cities like New York, Mumbai and Jakarta, hitting those living in marginalised, informal settlements like slums the hardest."
Also, large cities tend to be on the coastal regions -- that's how they first became large cities, by being accessible to ports in many cases.
Why would climate change force people out of the Omaha suburbs to Manhattan? I just don't understand the logic here at all, but maybe I'm missing something.
I don't think the Fed etc have the guts to allow a 80% drop, so that the 2 million dollar house would drop back to $400k, and become reachable for the majority of people
In general, houses are just as desirable as they were a few years ago when they were half the price. All that has materially changed is the supply and cost of credit.
The same thing works on the downside: broad price falls are not due to mass desirability changes. They are due to credit becoming harder to get and more expensive to repay on a monthly basis.
Finance 101: asset prices move inverse to the discount rate.
1) Do your parents own their home? 2) Could people with similar jobs/savings/backgrounds get a similar house today?
Usually the answer to 1 is yes, and the answer to 2 is no. 95% of homes are priced like the top 5% of homes. A million-dollar mansion used to be, well, a mansion. Now a million-dollar house is "a detached house within a 45 minutes driving distance to downtown".
edit/ words.
Basically they removed a lot of houses from the market from locals, making them reach prohibitive prices completely off the reality of what locals can afford... where will they go?
What's the value added from the new-comers to those markets? They are not developing new houses, they aren't creating new jobs, and they shop mostly in big supermarkets.
https://www.vox.com/22534714/rail-roads-infrastructure-costs...
It's funny that we talk about manufacturing "dying" while productivity is still very high. Meanwhile, the construction industry is actually foundering and we shrug. "Guess China is buying all the cement." Which cannot explain international disparities at all.
We can build small projects out of wood just fine. But those smaller projects need to be supported by larger projects: airports, hospitals, roads. Our existing concrete (literally) infrastructure is overburdened, which drives voter demand for restrictions on move-ins. Stop moving to Atlanta, stop moving to Austin, stop moving to Sussex County, Delaware.
We shouldn't be overwhelmed every time a city grows. Wonks blame the voters, voters blame the wonks, a bridge in Pittsburgh falls into a river.
The history of many cities shows periods of rapid growth far exceeding Austin over the last decade. San Francisco's population grew by >20% every decade from 1850 to 1930. There is no general rule that says growing cities must be so expensive. It's a phenomenon in the US, right now, not everywhere, all the time.
Capital accumulates in the hands of so few, it's just so fucked up and hurts to even think about. I'd settle in a hut in the forest, but I'm sure someone will try to evict me there too!
Probably the best home buying scenario right now is to buy as little as you need. At least the eventual hurt is lesser.
I mirror GP though. I graduated into the Great Recession and couldn’t find work for many years. The work I did eventually find wouldn’t have afforded real estate, ever. Now that my incomes up to buy home territory (comfortably) there’s this huge land grab. Not going to start on things like family formation. Feels like chasing a hundred dollar bill that’s being pulled on a line away from me.
I think it is clear we are moving to a technocracy - we will not own anything, we will receive a UBI, we will be provided for (as a low level) but this will come at the cost of freedom. Technocrats (aka billionaire elites) will take closer control of the world's resources and micro-manage us.
There are several issues before we actually enter that system. Firstly, it is required that we all have a biometrical-security-id to do anything. This part is already underway - we are starting to be convinced of the need to provide id (green pass, citizen scores or whatever) to go shopping, or even leave the house.
Another of the issues that those who would achieve technocracy face, is that as much as the billionaire class owns, there is still independent wealth. In raising house prices, they create a new conflict - the older generation that own their houses know what it means - independence, that they worked for it, etc. Mostly they cannot conceive of owning nothing. The younger generation are the opposite, they cannot conceive of owning anything, or even moving out of their bedroom - they face an interminable childhood. I can see how being provided with a 110 foot flat would be a step up. They are/will be fine with the older generation losing their wealth and having the government re-allocate those resources towards a small flat.
On the ground floor then, we will see a conflict between generations. The planned result is that we are all worse off, living in a smaller footprint, under close control. What little wealth is on the ground floor, will shift up and become owned by corporations. On the higher floors, corporations will own everything - all the property. Corporations are in fact owned by individuals - we do not see them, but these self-styled 'gods' will own everything.
This is not freedom - the direction of travel is more overt bondage for the general population. And mostly, in their ignorance, people will be happy at the outcome.
If we were really tackling inequity, we would be tackling those that own everything - but this is impossible given the secrecy of trusts, media blackouts, etc. Ownership should be entirely transparent - everything should be traceable. Corporations are merely a further cloak - corporations are owned too. Which individuals own Vanguard and Blackrock? But this will not be the solution we seek to resolve the problem.
Instead, we will fight amongst ourselves. We will cheer as new annual taxes (at 1%) are introduced on the value of a 'expensive' (read, inflated) property, or when reverse equity options are offered as the government buys up the housing stock. (Reverse equity will come with a legal agreement to prevent the purchase of another property.)
I hope this doesn't happen, but it seems that we have far to go individually - when we still believe the media, when we still believe that the government is there to help, we really haven't learnt much.
Dunno about Blackrock but Vanguard is owned by it's own funds, so it's customers own it. It's basically a customer co-op.
UBI? While that popular has gotten some currency in the last couple of years, in the U.S. alone it's been basically impossible to get a measly second round of one-time $2k (now 1.4k) stimulus checks out, much less a reoccurring program.
Biometrics? The concept of national ID has been DOA in the U.S. for decades. Despite the use of vaccination cards, which are plain paper, it is still no more politically feasible to pursue such policies. The U.S. has a culture that's uniquely individualist and anti-centralization, and this is bipartisan- the ACLU has resisted E-Verify because of fears of the creation of an onerous national ID system.
Being provided at a low level? The lack of affordable housing and the rise in visible homelessness contradicts that notion.
> On the ground floor then, we will see a conflict between generations. [...] What little wealth is on the ground floor, will shift up and become owned by corporations.
That is much more believable, that centralization of wealth leads to centralization of power. And we have seen this before in history, just look at the Gilded Age. But that is a very different thing from a carefully-engineered plan towards elite control. It isn't an intentional plan to squeeze out middle-class homebuyers, or to crush millennials with debt. It's simply a side effect of vast, blind, financial games. The ants are getting stomped upon by warring elephants.
People need to remember Hanlon's Razor. Instead of trying to ascribe calculated malice towards the powers-that-be, remember they are simply as clueless as the rest of everyone. They've simply been playing the game to win, and continuously rewriting the rules to keep winning. In such a case, technocracy is but a side effect, not an intentional social engineering project. Gibson, not Orwell.
https://www.theonion.com/the-future-will-be-a-totalitarian-g...
Want to convince me? Pull in a Case-Schiller index comparison and some more technical, market level characteristic analysis.
What would be interesting is figuring out price/interest rate sensitivities for buyers of homes in this market. Does investment leave the market if rates make other asset classes more viable? Probably. At what point?
Edit-or tell me that the Fed can’t possibly raises rates for $goodReasons.
If there are as many over-levered real-estate investors as the article suggests, a market downturn will yield foreclosures, and PE firms will feast once again.
There is no "normal." Only past, present, and future.
Prices are a function of demand and supply. Oddly, the article seems to just drive right past this as the author discusses the problems related to people having nowhere to go, specifically when mentioning that if they sell their home for a tidy profit, they don't actually profit because they now have to go compete for a house. For all the arguments in the article, the following proposition seems like a reasonable evaluation: if Silicon Valley residents woke up tomorrow morning and discovered 5,000,000 new homes on the market, would that be predicted to influence the price? Of course it would, and that impact would be that prices would immediately plummet.
This is true because the housing we are talking about may also be called shelter, and the demand for shelter is highly inelastic. People will do a lot to maintain shelter, including going without many other consumer items, buying used vehicles and using them until they turn to dust, sharing housing, taking second jobs, etc. In effect, all of the things we seen the younger generations doing are all the things we can easily predict one to do in order to have shelter, though most are not aware of or otherwise unable to articulate these kinds of economic considerations.
Supply was only marginally restricted until somewhere around the early 90s, when states, counties, and municipalities began placing wholesale moratoriums on housing construction*. I can remember in the 80s as child driving through San Jose and seeing large orchards that are all now suburban housing. Looking around the valley, there has been no other housing development anywhere near that size, yet the net job growth in absolute numbers is many times higher.
Many of the valley central planners plan construction as if it's still 1980, where each residential unit has something like 3 bedrooms to be occupied by two adults and two children, but reality is more like 3-5 adults. The result is substantially higher traffic and inadequate services, notably in the grocery stores which I observed to never have enough parking spaces, long lines, and popular items frequently out of stock on the shelf. Long commutes to far away communities are another result, essentially the planners deciding that among the most efficient workforce on the planet must be the task of sitting in a car 3 hours every day, which commonly cuts into what would likely be a good night's sleep, making the workers yet less efficient.
The lack of shelter problem cannot be solved through anything other than increased production of housing. It is not a price problem. Prices are just the method we use to inform us on the situation of supply and demand for a product.
Older generations will fight this, tooth and nail, because much of their savings are wrapped inside of a product they are consuming. Younger generations, if they ever figure out what is going on, may become hostile to the other needs of older generations, which, in my opinion, is a far greater risk to the older generations than the loss of equity in their homes. This goes without having a discussion as to the immorality of forcing younger generations into conditions of economically-enforced cohabitation and homelessness purely so that older generations can enjoy the profit that comes with restricted supply on the assets they own.
I suppose this was a long-winded way of stating that the article's title claim is wrong, because there will likely never be a "normal housing market" short of some sort of large scale coordinated effort to substantially loosen or eliminate restrictions on construction.
* Especially in California, housing construction is largely limited in absolute number of "new residential units" (NRUs), which is different than the popular understanding of increased difficulty in approval of design (the latter exists, and has for a long time, but it is not as significant as absolute restriction).
It might also plummet because quality of life would go down as resources that cannot be replicated have to be divided amongst many more people. Same as tourist hotspots. Why would people already living there want more crowded trails, ski slopes, and beaches?
The choice of an outrageously high number of homes in the example is purely to demonstrate that the fallacious claim of housing just mysteriously increasing in price without any visible cause, often presented as some magical force within the universe.
It is, in fact, not possible to have such a scenario because such a construction project would require a lot of planning, so prices would actually begin to fall once the plans are put into place, likely reducing the overall number of units constructed as developers abandon plans, and the ultimate "clearing" price will drop to within some more reasonable bounds than the current price reflects.
You are right that there is no normal. The US in the 1900s, especially western US, was probably a right place in the right time event where the parameters of the environment allowed for that number of humans to live at a certain quality of life, and the parameters have changed now that there are billions of more people in the world.
There is a normal, and it is to allow housing to be constructed as desired. The whole number of people on the planet is not relevant. For example, if the same regulations had existed for centuries before, there would be no metropolises today, because all construction has been constricted, to include the formation of a new metropolis.
Take a look at some place like New York city in Google Maps, then look at San Jose, California. notice that San Jose has somewhere close to 1000 square miles of undeveloped land surrounding it. In fact, if you drive to San Jose going north on 101, the "Entering San Jose" sign is in the middle of nowhere and IIRC, you can't see anything resembling civilization other than the eroded star-thistle-saturated brown hills (they claim this is for "preservation" as if that is what things looked like before being settled).
I have been through this issue for myself many times in considering where I live, because I was always just behind the curve in Silicon Valley, so I left, as the minimum wage to live what I consider a normal American life is now $150k in that region, with housing ownership starting salary at $250k, which is ludicrous.
You have to work this back completely: at some point, there were no people. Then someone arrived and decided they would like to construct shelter for themselves in the form of a house atop some soil. Then more people arrived, and they decided to do the same thing. We arrive at the 1990s, and many people have this: shelter atop some soil. Philosophically, you cannot justify someone who has shelter atop soil being granted the privilege of owning the shelter over someone who would like to construct shelter atop their soil, other than to say they have greater rights than the other, which presents a rather different picture: the establishment of a caste system which also works to enrich those who already own shelter. Thus, the scenario today is the older generations directly profiting from the impoverishment of the younger generations.
I call this a great moral conundrum, and what is difficult about it is the older generations are in no way motivated to ever address this conundrum. They can live out their entire lives profiting from this highly immoral scenario, and not even think about it. It is why I believe that land owners in California and elsewhere with similar policies are among the most immoral people in modern history.
The “normal” of allowing housing to be constructed as desired is rooted in property rights, which there are countless flavors of, all the way from the way Native American tribes allowed their members to live, to kings and queens to modern democracy and local zoning laws.
This applies across time also, as current generations can “take” from future generations (see water, clean air, farmable land, etc), but the whole who has a right to how much and when is a conversation fraught with disagreements on premise and assumptions.
Someone today has a shelter atop some soil and believes that someone else should not have a shelter atop some soil, and the person who currently has shelter atop some soil profits by preventing people from creating new shelter atop some soil.
People generally introduce the other issues that are outside of this narrowly defined immoral position.
Until people get over the idea that a depreciating, decaying pile of material is anything other than the lowest cost way to store your stuff and stay out of the elements, the market will remain irrational.
Only someone insane, or looking for a bigger fool, would count a house as an investment.
Source: I'm a home owner.
Certain markets have been amazing from an appreciation point of view - for example, the Toronto area housing market has been on a 25 year bull run.
Well, maybe your house is.
But in the general case -- it's that and "location, location, location" of course. On top of finite (in some markets highly constricted) supply. Plus, some are ... beautiful, well-designed, well-built, and/or historic (never to be made again). And finally, for very rich people, they have added functionality as value stores (particularly when favorable tax conditions come into play).
The factors taken together explain why houses and apartments are not only not completely insane as investments -- but in fact can be quite lucrative investments.
He says the simplest explantion is the best to explain high prices. His simple explanation claims that inventory is at records low and home prices should be 20% higher because of this. But if you compare the inventory to the previous time last year, it’s not a significant difference. If there’s not a significant difference (at least not significant enough to explain a 20% increase in my opinion), then why have they increased?
The “creditworthiness of home buyers chart” shows that the higher creditworthy buyers are paying more for their homes, it doesn’t say they are any more creditworthy than they were in the past. This would make sense because home prices are at a high, as he so astutely pointed out. A more revealing chart would show how many high credit people there are.