4 ms·

https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA Overpriced and due for a correction

epistasis 8y ago
There's a couple reasons it could be over priced. If it's a bubble, then we could be due for a correction. If it's a shortage, and it certainly looks more like a shortage from my vantage point in California, there wont be a huge fall in prices unless there's a large economic decline.
- helen___keller 8y ago
  Probably both a bubble and a shortage. I can't speak for California, but in Boston rents are high and mortgages to sustain the same units are much much higher. Regardless of the existence of a housing shortage, this is bubble economics. In a zero-speculation environment, the total cost of homeownership should be comparable to the cost of renting. Without speculation, market prices in places like Boston mean investment properties are absolutely horrid investments because they have little or no return (when you factor in the total cost of managing the property and the opportunity cost of the capital used to purchase the property). The fact that despite this most properties are rented means that landowners are banking on rents rising to meet current prices (or they aren't confident they can sell at current "market price" in a short amount of time - real estate can't be easily liquidated with a click like stocks can, plus there's tons of overhead costs involved in trying to liquidate real estate) Or to put it in other words, the high rents in boston reflect the current housing shortage and the higher home prices in boston reflect the expected continuation of the housing shortage (backed by the reality that population here is increasing faster than housing is being built)
  - pjmorris 8y ago
    Actually, rents should not just be about equal to mortgages+maintenance but higher, because they are more liquid - it's easier and cheaper to finish or exit a lease than it is to sell a house, and that's worth something.
pjmorris 8y ago
I wish. The trick, I think, is that the monetary base has been adjusted to keep housing prices high. See, e.g., https://fred.stlouisfed.org/series/BASE https://fred.stlouisfed.org/series/BASE Overlay the graphs to see the relationship. IMO, one of Quantitative Easing's chief purposes was to keep the artificial housing debt taken on in the run-up to 2008 in place by having the Fed pay what the original borrowers could not. That QE money is now floating around the system, keeping all kinds of asset prices high. And what can be done once can be done twice.

epistasis 8y ago

There's a couple reasons it could be over priced. If it's a bubble, then we could be due for a correction. If it's a shortage, and it certainly looks more like a shortage from my vantage point in California, there wont be a huge fall in prices unless there's a large economic decline.

helen___keller 8y ago
Probably both a bubble and a shortage. I can't speak for California, but in Boston rents are high and mortgages to sustain the same units are much much higher. Regardless of the existence of a housing shortage, this is bubble economics. In a zero-speculation environment, the total cost of homeownership should be comparable to the cost of renting. Without speculation, market prices in places like Boston mean investment properties are absolutely horrid investments because they have little or no return (when you factor in the total cost of managing the property and the opportunity cost of the capital used to purchase the property). The fact that despite this most properties are rented means that landowners are banking on rents rising to meet current prices (or they aren't confident they can sell at current "market price" in a short amount of time - real estate can't be easily liquidated with a click like stocks can, plus there's tons of overhead costs involved in trying to liquidate real estate) Or to put it in other words, the high rents in boston reflect the current housing shortage and the higher home prices in boston reflect the expected continuation of the housing shortage (backed by the reality that population here is increasing faster than housing is being built)
- pjmorris 8y ago
  Actually, rents should not just be about equal to mortgages+maintenance but higher, because they are more liquid - it's easier and cheaper to finish or exit a lease than it is to sell a house, and that's worth something.

pjmorris 8y ago

I wish. The trick, I think, is that the monetary base has been adjusted to keep housing prices high. See, e.g., https://fred.stlouisfed.org/series/BASE https://fred.stlouisfed.org/series/BASE Overlay the graphs to see the relationship. IMO, one of Quantitative Easing's chief purposes was to keep the artificial housing debt taken on in the run-up to 2008 in place by having the Fed pay what the original borrowers could not. That QE money is now floating around the system, keeping all kinds of asset prices high. And what can be done once can be done twice.