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Take the analysis a step further though, population density matters, not median income. Take the ownership cost, and the total supply of housing, now align that

Take the analysis a step further though, population density matters, not median income. Take the ownership cost, and the total supply of housing, now align that with the households (groups who would live in one housing unit) and align it to the right side of the income distribution. You will find that all housing is consumable by households for which their income exceeds the ownership costs. That is how the market works, the people who can afford houses buy them. If there are more people who can afford houses than there are houses, the prices adjusts upwards to capture that value, if there are more houses than people who can afford them, the price adjusts down to capture that value. There are no houses (typically) that are otherwise market acceptable that are not owned. What is more, it has been shown that if you add houses, that widens the overlap with incomes, starting from the "high" end and moving down. That is why Sunnyvale has authorized the building of thousands of new houses and apartments. Even trying to artificially hold units out for "low income" people results in fraud where low income people "rent" those houses and then sublet them out at market rate to recapture the value. We just convicted a woman of doing that and she isn't the only one.

ABCLAW 8y ago
>Take the analysis a step further though, population density matters, not median income. With respect, I'll maintain that it's an issue if the supporting cash-flow underlying the market can no longer, numerically, support the market pricing. >You will find that all housing is consumable by households for which their income exceeds the ownership costs. That's not what's going on in Vancouver's case and the numbers make it very, very clear. No one here is confused about supply and demand. If housing prices tracked 'people's ability to pay for housing', as you're positing, then the ratio of income to total ownership costs would remain reasonably linked. The issue is that demand isn't from 'households'. It's from REITs, speculators and foreign capital. You can feel free to look at the spread between total ownership costs and rental rates. In the most expensive cities the spread is largest. In other words, the rental rates have changed far less than the total cost of ownership, because there is very little ability for personal incomes to absorb the housing price increases. What's more, the correction isn't going to be quick, nor is it going to be soon. The only rational move as a real estate investor in most of these markets is to continue pumping capital and re-leveraging on the basis of accrued equity. When the bubble pops and speculators are suddenly underwater, they'll prune their portfolio and keep the accrued equity gains, which will put them very far ahead of those who didn't get in. This is why people advocate for regulatory intervention. Because the only way this train stops is when it slams into the concrete wall at the end of the track.
- throwaway082729 8y ago
  "The only rational move as a real estate investor in most of these markets is to continue pumping capital and re-leveraging on the basis of accrued equity." - Can you ELI5? I recently sold a home that I bought for $600k a while back in a decent school district for $1.15M and bought a $1.8M home near Sunnyvale. Was that a stupid thing to do?
  - mandelbrotwurst 8y ago
    Maybe some of that jargon went over my head, but I'm not convinced that his option for investors to "prune their portfolio and keep the accrued equity gains" ... "When the bubble pops and speculators are suddenly underwater" is practical. Are said investors not themselves speculators who would be underwater post bubble pop? If you have a high confidence that "the correction isn't going to be quick, nor is it going to be soon", then sure, it makes sense to lever up and take on more debt - IFF you're similarly confident that you can get out before prices drop! Re: your situation - I wouldn't call it stupid, but you do now have a ~50% larger share of your assets in your home, and so you're now that much more subject to future shifts in home prices in your area.
    - ABCLAW 8y ago
      >Are said investors not themselves speculators who would be underwater post bubble pop? Not really? A lot of the institutional money sloshing around is being invested as a de-risked hedge against more volatile returns. They don't really care if the market goes down temporarily, because their other options would have gone down even more. Additionally, there's a significant chunk of money that's being laundered through these home sales, so they don't really care if they lose 20%. They care that they can now show a source for the capital when they want to funnel it into other investments that have AML requirements. Home owners who are underwater have a disincentive to sell, but functionally unless their income is tied to their home valuation, they can just ride out the downturn, like most people do with their other equity holdings. It only sucks if you're forced to sell. That said, for the actual small to mid sized speculator, the 'being underwater' fears only hurt if you commence your leveraging the year before the bubble pops. You can just sell some of your portfolio to cover the loss and still end up ahead. The comparison is between owning 20% of 10 properties vs. 85% of 1. Even if your portfolio takes a haircut, the total volume of equity you build dramatically outstrips the more conservative approach.
sonnyblarney 8y ago
Van is a global housing market, not a local one, which throws out any kind of real microeconomics. If there weren't a huge number of foreign buyers, I think your point would make more sense. But it's complicated by zillions coming in from elsewhere.

ABCLAW 8y ago

>Take the analysis a step further though, population density matters, not median income. With respect, I'll maintain that it's an issue if the supporting cash-flow underlying the market can no longer, numerically, support the market pricing. >You will find that all housing is consumable by households for which their income exceeds the ownership costs. That's not what's going on in Vancouver's case and the numbers make it very, very clear. No one here is confused about supply and demand. If housing prices tracked 'people's ability to pay for housing', as you're positing, then the ratio of income to total ownership costs would remain reasonably linked. The issue is that demand isn't from 'households'. It's from REITs, speculators and foreign capital. You can feel free to look at the spread between total ownership costs and rental rates. In the most expensive cities the spread is largest. In other words, the rental rates have changed far less than the total cost of ownership, because there is very little ability for personal incomes to absorb the housing price increases. What's more, the correction isn't going to be quick, nor is it going to be soon. The only rational move as a real estate investor in most of these markets is to continue pumping capital and re-leveraging on the basis of accrued equity. When the bubble pops and speculators are suddenly underwater, they'll prune their portfolio and keep the accrued equity gains, which will put them very far ahead of those who didn't get in. This is why people advocate for regulatory intervention. Because the only way this train stops is when it slams into the concrete wall at the end of the track.

throwaway082729 8y ago
"The only rational move as a real estate investor in most of these markets is to continue pumping capital and re-leveraging on the basis of accrued equity." - Can you ELI5? I recently sold a home that I bought for $600k a while back in a decent school district for $1.15M and bought a $1.8M home near Sunnyvale. Was that a stupid thing to do?
- mandelbrotwurst 8y ago
  Maybe some of that jargon went over my head, but I'm not convinced that his option for investors to "prune their portfolio and keep the accrued equity gains" ... "When the bubble pops and speculators are suddenly underwater" is practical. Are said investors not themselves speculators who would be underwater post bubble pop? If you have a high confidence that "the correction isn't going to be quick, nor is it going to be soon", then sure, it makes sense to lever up and take on more debt - IFF you're similarly confident that you can get out before prices drop! Re: your situation - I wouldn't call it stupid, but you do now have a ~50% larger share of your assets in your home, and so you're now that much more subject to future shifts in home prices in your area.
  - ABCLAW 8y ago
    >Are said investors not themselves speculators who would be underwater post bubble pop? Not really? A lot of the institutional money sloshing around is being invested as a de-risked hedge against more volatile returns. They don't really care if the market goes down temporarily, because their other options would have gone down even more. Additionally, there's a significant chunk of money that's being laundered through these home sales, so they don't really care if they lose 20%. They care that they can now show a source for the capital when they want to funnel it into other investments that have AML requirements. Home owners who are underwater have a disincentive to sell, but functionally unless their income is tied to their home valuation, they can just ride out the downturn, like most people do with their other equity holdings. It only sucks if you're forced to sell. That said, for the actual small to mid sized speculator, the 'being underwater' fears only hurt if you commence your leveraging the year before the bubble pops. You can just sell some of your portfolio to cover the loss and still end up ahead. The comparison is between owning 20% of 10 properties vs. 85% of 1. Even if your portfolio takes a haircut, the total volume of equity you build dramatically outstrips the more conservative approach.

sonnyblarney 8y ago

Van is a global housing market, not a local one, which throws out any kind of real microeconomics. If there weren't a huge number of foreign buyers, I think your point would make more sense. But it's complicated by zillions coming in from elsewhere.