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When will it finally crash? Housing prices has reached a level of nonsense again. Back in 2007, there was a report of some guy spending an astronomical $800,00

• kaonashi 7y ago
  qe is just overnight rate maintenance in the post-2008 world if you're looking for a 'black swan' economic collapse event, look for a lot of outstanding debt and the possibility of an interest rate spike on that debt
  • blackrock 7y ago
    A lot of outstanding debt? Student Loans. You need to make as much money as a doctor to afford housing. So did everyone become a doctor in the past 10 years? Personal Auto Loans, although this seems rather localized. Business Loans used for stock buy-backs, so executives could pay themselves a nice bonus. Can some of these businesses really pay back those loans? Municipal bonds used for funding construction in areas with no economical viability.
    • uwuhn 7y ago
      >You need to make as much money as a doctor to afford housing. So did everyone become a doctor in the past 10 years? Plenty of people who aren't doctors can make doctor money now. Just look at tech.
      • blaser-waffle 7y ago
        > Plenty of people who aren't doctors can make doctor money now. Just look at tech. > Plenty Plenty of tech folks make north of six-figures and often do better than most, but neurosurgeons make $800k, and plenty of mid-level medical types can pull $300K+. I personally know a dentist making "in the ballpark of 400" (his words) in the Washington DC 'burbs. There are certainly IT/CS gigs paying north of $600K -- they're discussed all the time here on HN -- but those don't really exist outside of SV and maybe a handful of other areas, and generally require a pedigree that, while not a Med School, are still fairly non-trivial. Your ITT-Tech trained Active Directory Admin isn't going to make anything near GP or Dermatologist money -- most tech, even with real degrees and certs, wont.
        • uwuhn 7y ago
          Specialized surgeons in the US are the top 1% of the field, especially if they own their own practice. That's really not a fair comparison. Especially when you account for artificial control/capture of supply and demand through the American medical system, which includes everything from schooling through residencies, all the way up to employment and licensing. Lots of doctors make under $200k. I would say the majority do, because the majority don't own their own practices (partly nor in whole). Most doctors in the US are just salaried internists. I think more than 10% of SWE with experience in the US are making that much or more when you account for compensation that is not pure salary.
          • wayoutthere 7y ago
            > I think more than 10% of SWE with experience in the US are making that much or more when you account for compensation that is not pure salary. I live in a big US city. We have one large tech employer which pays engineers ~125-150k (they max out at 200k for principals in specialized areas). At almost every other company in town, the going salary for a developer is 80-100k. The latter type of job is far more representative of engineering jobs in the country. We told everyone "go do STEM and make bank at Google!" Meanwhile there aren't enough of those top-end jobs to go around, and a lot of folks who didn't go to a name-brand university or have friends in the right places work for (comparatively) little money.
    • rayiner 7y ago
      > Student Loans. You need to make as much money as a doctor to afford housing. So did everyone become a doctor in the past 10 years? Only in a handful of cities.
      • heavyset_go 7y ago
        The jobs that pay well enough to afford housing elsewhere are in those cities.
        • rayiner 7y ago
          Not at all. Median household income in Kansas City is $45,000. The median home price is $192,000 (4x income). Median income in San Francisco is slightly over double at $95,000. But the median house price is more than quadruple, at $1.7 million (18x income). Median household income in Manhattan is $85,000. Median home price is $1,000,000 (11x income). DC is a bit better. Median income is $85,000 and median home price is around $620,000 (7x income). Of course it goes without saying the median house in Kansas City is bigger than the median houses in those cities. Also, the income difference is less than a factor of two for the same person. 57% of people in San Francisco have a college degree, versus 45% of people in Kansas City. So part of the difference in median income is due to the difference in education, not the difference in local salaries.
          • moneywoes 7y ago
            Knowing this, do most people just move to the Bay for a short period of time?
            • imtringued 7y ago
              Americans are moving away from the bay area. Those who stay have immigrated from another country.
          • thedaemon 7y ago
            I don't think anyone chooses Kansas or Missouri (depending on which Kansas City you are talking about) as a place to move to.
    • kortilla 7y ago
      > Business Loans used for stock buy-backs, so executives could pay themselves a nice bonus. Can some of these businesses really pay back those loans? That’s not a thing. The debt taken on for a stock buyback would depress the stock price as much as the purchase would increase the price.
• raintrees 7y ago
  At risk of stating what I think is the obvious: Either when the faithful change their minds, or when the USD is no longer so devalued. Money is based on faith, as well as the value of other assets like real estate (including precious metals). I purchase multi-family rentals to be short the US dollar. My assets slowly gain value (while cash flowing) as the Federal Reserve continues its stimulus efforts (currently called Not-QE), which in turn devalues the currency.
  • onlyrealcuzzo 7y ago
    I think positive cash-flow rental property is an interesting hedge for this problem. Rents are unlikely to decrease substantially, even if house prices do, since they've historically been much less volatile. If rates go negative, house prices will likely increase A LOT. You're in for a HUGE windfall. If rates stay low, house prices will likely track inflation. Even if they track inflation, you're leveraged. You still have a very high yielding bond. If rates go up, you're stuck with the property, but you still have a decent yielding bond.
    • raintrees 7y ago
      If rates go up, I have also locked in a lower rate of financing using the banks money, typically 75% where I invest. And we hold our properties for the long term, as we get tax consideration for almost 3 decades. Depreciation is a powerful tool to amass an investment base faster, and 1031 exchanges can postpone the tax from sales of the properties if and when we do sell. Lastly, that event would be similar to the game of Monopoly, i.e. trading in 4 houses for a hotel. Another merit is positive cash flow is now. If I were to continue to enjoy financial deals like I negotiated for our first 4 doors, $600K is all that is needed for control over enough assets to bring in $8K a month in cash flow. In the US, currently cash flow/investment returns can be received with a lower tax base than earned income, again making it more powerful. Subject to change, of course, but I work with what exists now and hopefully let the future work out how it will.
• mhuffman 7y ago
  > When will it finally crash? Housing prices has reached a level of nonsense again. Well, it is obvious when it will crash. It will crash when it becomes less worth it for people to pay those prices. When other cities become hot-spots of high-paying jobs, people will leave San Francisco for those jobs and the price of housing will decline.
  • woah 7y ago
    As the article says, this is not just SF.
• jp555 7y ago
  Net negative interest rates do very strange things I guess?
• conanbatt 7y ago
  I am also cautious of the current market optimism. But I remember the doom bringers claiming the stock would tank in 2013!
  • sportanova 7y ago
    Also 2011, 2012, 2014, 2015, 2016, 2017, 2018, and 2019. They'll be right at some point, but it still won't be profitable
• anonu 7y ago
  If the GFC was any indicator, it won't ever really crash. The US government will always backstop this market. Too much of people's lives depends on this asset
  • kgwgk 7y ago
    Do you mean that there was no crash then or that it won’t happen again?
    • api 7y ago
      It means any housing crash will be shifted onto other things like the value of the dollar, higher taxes, etc.
    • anonu 7y ago
      There was unarguably a crash. Something similar to the GFC will happen again. But everything bounced back. With the support of TARP and other government assistance programs. That's the difference here: The recovery.
• TomMckenny 7y ago
  It will not crash. There maybe a temporary double digit dip in prices described in hyperbolic "end of the world crash" terms to demand government intervention to prop up prices. But without large social-economic change, land/housing prices will quickly recover and continue to outpace wage growth and many other productive investments. We have shifted to an economy that increasingly favors rent seeking in every field and land is quintessentially that. Even without that trend, land reform meets enormous resistance under any circumstances but given that shift, even more so now. Note that we know people will endure housing conditions seen everywhere at all time up until the 20th century, and unless the people hurt[1] by this do something remarkably effective, that state of affairs is guaranteed to return: there is no invisible hand guaranteeing even one family per room let alone per unit. [1] disproportionately wage earners and the young but also all paying rent and mortgage interest.
  • hiram112 7y ago
    I tend to agree with you. Land and housing are still very cheap in rural towns in the midwest - they've moved no more than 2% / year or close to the reported inflation rate. So why are homes so expensive in urban areas, including now tier 2 and tier 3 cities, and not just NYC, DC, and SF? Look at our population growth. In the 'good times' of the 1960s, we had 180M people. Now we have double that in two generations, or the difference between Boomers and Millenials approximately. In 1960, places like SF and Arlington, VA weren't rural farmland, they were still urban areas. We now have higher density in the large cities due to jobs having moved there, so we probably have 3x the number of people desiring homes in the same area as we had in 1960. And families are smaller now. In 1960, you'd have a family of 5 in one house. Now you need two houses for the two 2.5 / person families. So essentially we've probably got 4x the demand for the homes close to working centers, along with rising base prices due to far more women in the workforce. Add perpetual low interest rates, underreported inflation, and I'm surprised houses aren't at SF levels in every city yet. https://en.wikipedia.org/wiki/Demographic_history_of_the_United_States https://en.wikipedia.org/wiki/Demographic_history_of_the_Uni...
    • ch4s3 7y ago
      Many of those cities are only in the last few years returning to their peak populations. They certainly aren’t more dense, but there are fewer units of housing available now. In many places lots of housing was torn down, or multi family homes were turned into single family homes. The cost is directly related to the fact that it is defectors illegal to build new homes in the most economically vibrant zip codes.
• colechristensen 7y ago
  US high school enrollment increased 1-2% every year from 1990 to 2007, after which it went down, not recovering for a decade. The median first home purchase is at 33 currently. Combine those two facts and you have demand for a first home peaking between 2035-2040. Add on top of that the older boomer generation peak dying or otherwise vacating homes and the effects of significant immigration backpressure and you have yourself a housing crash which will likely get priced into the market before these peaks happen. That could well be round two as it is far enough in the future, the first round being the current global political breakdown and long running bull market reaching a tipping point.
  • jurassic 7y ago
    I'm not sure how you get from those stats cited to a first home demand peak in 2035-2040. Class of 2007 grads are ~31 now. They want to buy now, not in 2035. Did you mean to type 2025?
    • colechristensen 7y ago
      You're right, 2025-2030 would be the correct range.
• justapassenger 7y ago
  There will be corrections, local crashes, but global crash is very unlikely. Land is one of the few resources that's 100% constrained in the world - we can have renewable energy, plant trees, produce drinking water, etc. But land - nope (except for very small areas of artificial islands/peninsulas, but that's insanely expensive, and also - limited). At the same time - world population is still growing, and people are being lifted out of poverty results in more of them moving to the urban areas, and increasing demand for the land there. In high cost areas most of the value is in the land, not the house.
  • Consultant32452 7y ago
    I don't know what it's like in other countries, but in the US the federal government owns 27% of the land. I wonder what it would take for the population to demand the government divest.
    • onlyrealcuzzo 7y ago
      Most of that land is mountains and swamps and desserts and national parks.
    • redisman 7y ago
      From a quick search, 75% of the US population lives on 3% of the US landmass so we're pretty far off.
  • pascalxus 7y ago
    but it doesn't have to be that way. We're using up barely like 2 or 3 percent of the land in the US. We can simply build more cities and there will be more than enough land for everyone. by artificially keeping people penned into a limited area of land like a bunch of chickens in a crowded chicken pen coupe, we're only hurting ourselves. The key is: 1) companies first (with tax incentives they'll do or move anywhere). 2) jobs next 3) Where jobs go, people follow.
• Rury 7y ago
  It's bad fiscal policy that's leading these trends. Our government has a huge deficit and huge debt. QE is essentially money printing, but rather than simply printing money, they (central banks) take equivalent value in assets off the market until they can be repaid the money to destroy. As so it has the same affect as inflation in the form of asset price bubbles until said money is destroyed. A large part of the FED's balance sheet is composed of mortgage backed securities and government debt, and it continues to grow with the repo stuff going on now. Other central banks around the world have been doing similar things... When will it all end? Not sure, but the way I see it, there's 3 ways things can play out... 1) It will not end, and we continue to accept runaway inequality, where housing/healthcare/education etc. become more and more unaffordable in comparison to normal wages. Only owners of capital will be protected (i.e. stocks/assets continue to get propped up). 2) We somehow turn ship and slowly fix our fiscal problems (not going to happen so long as we have deficits). This would mean accepting economical stagnation for a long while to essentially pay off our accrued debts 3) We let things start crashing So far 1 is playing out...
• WillPostForFood 7y ago
  QE has impoverished us all US home ownership rate is 65%, gotta be quite a few winners in there besides the bankers.
  • hnick 7y ago
    Home ownership or mortgage ownership? Last time a lot of people were under water.
  • pandeiro 7y ago
    Yeah, speculators/investors are winning for sure: > In 2018, 396 homes were sold [in Silver Lake, Los Angeles], with 60% not intended to be primary residences. [1]: https://www.latimes.com/opinion/story/2019-10-23/airbnb-short-term-rental-silver-lake-los-angeles-regulations https://www.latimes.com/opinion/story/2019-10-23/airbnb-shor...
    • blackrock 7y ago
      I think it’s now time to outlaw non-primary residences. And you can’t just tax them on it, because they’ll just push that as increased rents on their tenants. They must divest, and release the housing unit, and sell it to someone that will actually live in it. And they cannot be allowed to do some other shenanigans to circumvent the spirit of this law.
      • pandeiro 7y ago
        In my condo, there's a bylaw that new owners must occupy the unit for one year, in order to discourage speculators and try to maintain a high percentage of owner occupation. While there are definitely efforts to skirt it, it does seem to mostly work. Imagine if entire neighborhoods could create such ordinances. Prices would surely begin to trend downward, providing access to home ownership in desirable areas, allowing those with normal incomes to purchase starter property and begin families. I wonder why this isn't ever discussed.
        • blackrock 7y ago
• noelsusman 7y ago
  It hasn't reached that level of nonsense again. In 2006, the median price of a house was 5.1 times the median income. Today it's 4.4 times median income, which is high compared to most of recent history, but is actually lower than it was in 1955. Nobody thinks SPY is going to keep increasing forever. The conventional wisdom is we're looking at a recession in the next 1-2 years.
  • pascalxus 7y ago
    You know there's something seriously wrong with the state of the housing industry (how it's regulated, zoning, etc), when our only hope is to hope for a Recession or worse.
  • jameslk 7y ago
    Interesting, what's the source of your median house price to median income data?
    • noelsusman 7y ago
      https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco...
      • jameslk 7y ago
        Thanks!
  • onlyrealcuzzo 7y ago
    People have been saying a recession is 1-2 years away since 2012. Statistically, it's getting more likely this 1-2 year recession pans out with each passing year. But no one has a crystal ball.
    • tryptophan 7y ago
      No, statistically it's irrelevant. This is the the reverse gamblers fallacy. A lack of bad events does not make them more likely.
• retube 7y ago
  > except for the fat bankers QE has been horrific for banks. Net interest income has collapsed. it's less pronounced in the US, but in Europe where central banks have taken rates to 0 (or below) bank profits have all but been wiped out. Take a look at the share price of any European bank since 2008
  • thedudeabides5 7y ago
    QE and low rates has been bad for the banks, in a perspective of having kept them all alive. Think about the Euro crisis as another example. Zero rates and ECB buying all the sov and fin debt bailed out banks that would have gone under. If 30% of the banking system collapsed, then surviving institutions would probably have profitability consistent with historical rates. But keep everyone alive, and bring rates to zero, and you squeeze margins both with excess competition, and compressing the diff between the rates they lend and the rates they borrow.
• megablast 7y ago
  > When will it finally crash? When the population decreases.
  • Decade 7y ago
    The example of Tokyo is showing that even if the population decreases, the urban center can keep growing for a while because of the benefits of urbanization. On top of that, I anticipate growing displacement due to climate change. This is not the time to slow down home construction.
    • blaser-waffle 7y ago
      It's hard to compare Tokyo to other places -- it's a global mega city that is only comparable to a handfull of other global cities like LA, London, HK, or Moscow.
• oarabbus_ 7y ago
  People are paying $400k for homes in Tracy these days, not $800k. I mean I'm sure some wealthy folks are but it's definitely not something that you "wouldn't bat an eye at".
• pascalxus 7y ago
  What we have now is much worse than a housing bubble. We have a severe housing crisis caused by lack of supply, regulation, zoning and thus costs to build. The difference is: Even if no one can afford housing: There doesn't have to be bust. For example: if there's only 9 houses on the market, there only need to be 9 people willing to buy in at that price. So, essentially, with a severe housing shortage, only the richest 0.1% need be able to afford the houses on the market and they can still maintain an extremely high prices. Meanwhile the coping mechanisms are in full effect: 1. longer and longer commutes causing ever more CO2. 2. multiple generations living together 3. roomates bunking together, not having families, not having kids 4. decreased spending in other areas as every last dollar goes to housing 5. ever more louder cries for rent regulations which makes it even hard to build more supply thus resulting in a death spiral.
  • chii 7y ago
    while you're speculating, why isn't the true solution of building more dense housing to increase supply in your list?
    • tryptophan 7y ago
      Probably because that's the solution, and not another coping mechanism.
    • redisman 7y ago
      More and denser and with new public transport to go with the new denser neighborhoods. It's really not a hard problem if you take the city-politics out of it.
  • anonymoushn 7y ago
    I recently read this article about rent control does not reduce the housing supply https://jwmason.org/slackwire/considerations-on-rent-control/ https://jwmason.org/slackwire/considerations-on-rent-control...
• themagician 7y ago
  We've got a LOT of runway before the "big one" in the US. In other countries (Japan, Italy, some parts of France) the slow decline is already well underway. The answer to when the big crash happens is in the population data. At some point population starts to decline. As with everything, the boomers will ride in the sunset with bags of gold. In 30 years housing will be fundamentally different in the US and just about everywhere in the Western world. Outside of the major cities it won't even be much of an investment anymore. If you buy a house today for $500k on a 30-year you'll spend close to a million dollars before you own it if you ride the loan out, and adjusted for inflation, you will probably take a loss on it. Possibly a large loss. Unless we see mass immigration the market 30 years from now is simply going to be smaller.
  • opportune 7y ago
    Does this account for mortgage interest rate deduction and the cost of renting a similarly sized home? I think the boomers will trigger a sell off but as long as population grows due to immigration, there will probably never be a glut.
    • patrickthebold 7y ago
      Mortgage interest rate deduction is much less important since the standard deduction doubled under Trump. There's lots of home owners will will take the standard deduction now.
    • themagician 7y ago
      Net immigration is also declining. There is no indication I can see that these trends will reverse. If anything it seems like the rates of decline may accelerate more rapidly like they did in Japan. Perhaps when the boomers die off the next generation will open the borders so someone can pay for their entitlements. Perhaps.
  • notfromhere 7y ago
    The US is forecasted to add 100m people by 2050
• refurb 7y ago
  My hypothesis is that all this QE will eventually show up in terms of higher inflation. A ton of money has been pushed into the market and yet amazingly, inflation is still incredibly low. If inflation doubles to ~5% (which is closer to the historic norm), interest rates will also rise to ~6% (again, a historic norm). Suddenly, people who could swing an $800K mortgage, can now only do $600K (keeping payments the same). That will have a huge impact on housing prices. I doubt it will crash (50%+ drop in price), but no doubt we'll see some sort of slow burn, where houses drop 10-20% over a 5-10 year period. Once income catches up with prices, we'll see a recovery.
• omgwtfbyobbq 7y ago
  Housing prices will decrease when lending costs increase. That can take a while though, since central banks have been keeping rates low.
• freddie_mercury 7y ago
  > QE has impoverished us all (except for the fat bankers). What is with Americans who continually fail to understand that there's a world outside of America? The link is about global housing, not just the US. That means an explanation can't rely on US-specific excuses. What's your explanation for how US quantitative easing drives up house prices in Sydney, Hong Kong, and London but doesn't affect Singapore, Berne, or Munich?
  • logicchains 7y ago
    When the Fed prints money to give it to bankers (or whoever gets it), the recipient isn't constrained to spending it in the US. They'd invest the money where they expect to get the best returns.
  • dragonwriter 7y ago
    > The link is about global housing, not just the US. That means an explanation can't rely on US-specific excuses QE is not a US-specific phenomenon, either in origin (other central banks have engaged in it) or in effect when the US does it (given the US dollar’s global role.)
  • Cardiologist2 7y ago
    > What is with Americans who continually fail to understand that there's a world outside of America? I think it’s cause they’re not a force for good in the world. So they look out and only see bad things, eg poverty, wars. Or they look out and see China catching up (the horror). It’s not fun, so they look away. China can look at Africa and know it’s alright, cause China lifted 1 billion people out of poverty in the last 40 years. America can’t even handle its own poverty, see the healthcare struggles.
  • thorwasdfasdf 7y ago
    Many of the countries are in on it. Japan, China, most of europe. The feds/gov of those countries are all buying up assets.
• ShorsHammer 7y ago
  Housing isn't worth more, money is worth less.
• D_Alex 7y ago
  >an astronomical $800,000 USD for a house <<cries in a Hong Kong dialect of Cantonese>>
  • blackrock 7y ago
    And to give some more perspective: 1) Realize that this was back in 2007, when most people only dreamed of making $100,000 USD annually. 2) And housing prices were exceeding $500,000 USD in most of the state of California, because of all the shady house flippers borrowing on the ARM (adjustable rate mortgage) loans. So $800k was a significant percentage higher than most already over-priced mortgages at the time. 3) In order to qualify for a normal 30-year fixed-rate loan to buy a $500k house with 20% down, then you’d need to make an annual salary combined of $120,000. And since most people didn’t make that much, then you’d have to be dual-income to afford that mortgage. 4) And there was a saying at the time: House rich, but home poor. Meaning that these people bought an expensive house, but they were too poor to fill it with any furniture.
• randomcarbloke 7y ago
  With faster connection to residential areas at the periphery of commutable distances becoming more and more common remote working opportunities are growing. This is already having a huge impact on working in western Europe, and the more prevalent it becomes the more normal it will be to work from home, reducing the demand for proximal residence.
• aguyfromnb 7y ago
  >QE has impoverished us all (except for the fat bankers). Tech people crying foul about "the bankers" making them poor them is hilarious. Easy money is big reason the industry is booming; it's made you rich (by any reasonable standard).
  • epicureanideal 7y ago
    It's difficult for me to describe tech workers as "rich" when the majority of them don't own any significant assets, like houses. They're a perpetual renter class with high income, the majority of which immediately goes to paying taxes, rent, and services that are more expensive where they need to live in order to earn those high incomes.
• ramblerman 7y ago
  > When will it finally crash? Housing prices has reached a level of nonsense again. 2007 was not about high housing prices. It was about ridiculously easy mortgages and everyone was able to afford a house outside their genuine payback limit. The symptoms can appear similar, with different causes.
  • mywittyname 7y ago
    And the subsequent secularization where the institutions creating the MBS cleverly hid the underlying risk of the assets from investors.
• wilbo 7y ago
  To crash there needs to be a significant increase in supply. Less restrictive zoning laws may help this.