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Ok, so something has been bothering me ever since I started thinking about housing in an economic sense. Housing prices seem to consistently rise faster than i

Ok, so something has been bothering me ever since I started thinking about housing in an economic sense. Housing prices seem to consistently rise faster than inflation over long periods (at least in large/medium metros). This means that housing is currently more expensive to people than it was 30 years ago. So what happens 50 years from now? or 100 years from now? Who will be able to afford to buy a house? Will people spend more than 50% of their take-home pay on mortgage payments? This doesn't seem sustainable long term.

mhuffman 7y ago
Housing prices are driven by the people paying the price (or rent) not by the people selling or renting (the Ricardian Theory of Rent). With the caveat that in the short-term, government laws and ordinances can affect that.
- franga2000 7y ago
  > Housing prices are driven by the people paying the price Not sure how that relates to the Ricardian theory, but while prices are technically "driven" by the people paying them, this does not seem like a useful observation to me. This isn't "if you keep buying every next more expensive iPhone, Apple will keep raising the price". You can't just not buy/rent property. It is a basic necessity. While prices vary between regions, that is still hardly a choice. Most places, jobs are scarce and transport is a disaster - you can't just go live somewhere else because your job is here (and most jobs are in high-rent areas). This means that no matter how high* prices get, people will have to find a way to pay (even if that means basically starving for the rest of their lives) and landlords are aware of this, so they keep raising the prices with the argument that "people clearly have the money, so it's fine". In theory, it makes sense for a finite resource to increase in price with increasing demand, but prices are increasing a lot faster than demand is and housing isn't as finite as land is (we can build up). This points to the supply side (landlords and developers) being the problem, not the people just trying to survive.
dwiel 7y ago
I agree, though I think the important comparison point is not necessarily inflation rate, but wage growth rate or similar.
fonix 7y ago
down the road i see this: "just wait till you hear about our monthly house-subscription-box/house-subscription!" /s
- anthonypasq 7y ago
  rent?
  - psweber 7y ago
    Isn't ride sharing just taxis? Someone will "re-invent" it.
    - anticensor 7y ago
      More like share taxis but without a set route.
castlecrasher2 7y ago
One significant aspect of increasing house prices is increasing house sizes, amenities, and services (from an HOA). People keep buying more because they think they need it, and I think a return to spartan living would do well for the country but I don't see that happening for a variety of reasons.
bumby 7y ago
With the birth rate dipping, I'm wondering if this will self-correct when the baby boomer generation dies off and there is a larger supply of housing per capita.
- npo9 7y ago
  The us population is still increasing.
  - snowwrestler 7y ago
    Only because of immigration.
    - 0xffff2 7y ago
      So what? Immigrants don't want to buy homes?
  - bumby 7y ago
    But the trend is also that there are more people per household. I.e. I don't know that we can say that it's a 1:1 relationship that as the population grows so does the number of houses needed.
- Infinitesimus 7y ago
  It'll just go to their children and accelerate some fun inequality problems eg: living in fancy inherited house with no mortgage but way out of your price range based on income. The "real" cost of the house then isn't what it's worth but what your taxes come out to be...
  - weberc2 7y ago
    In your eg, what is the problem exactly? This a rhetorical question, I’m just not following.
    - Infinitesimus 7y ago
JKCalhoun 7y ago
Boomers dying will transfer that real-estate to their children. The rest of us will be renters.
- downerending 7y ago
  Don't hold your breath. Kind of hard to find the exact figures, but median home equity is somewhere in the range of $30-150K. (Probably per-household, so divide by two?) I'm sure substantial transfers do happen, but I've never met anyone that was so lucky.
  - Digory 7y ago
    Parents do take out equity to co-sign college loans. Or HELOC's to pay for their assisted-living. So the transfer is from boomers to doctors, banks, and schools. But I agree that in the anecdotes I hear about, kids of boomers rarely get property free-and-clear.
    - killjoywashere 7y ago
      > HELOC's to pay for their assisted-living. So the transfer is from boomers to doctors Eh, I did some work for nic.org. Assisted living is a real estate game, and the market reports are identical to apartment market reports. The medical bills go to Medicare and private insurance. Doctors aren't getting rich off Granny reverse mortgaging her house. Unless said doctors own an assisted living facility, preferably in one of the 30 major MSAs. I vaguely recall Florida being particularly attractive.
      - Digory 7y ago
        True, not HELOCs. I was thinking of Medicaid spend downs there. It's been a few years since I've looked at it, but if you needed nursing home care, the typical advice was to spend down your assets in a hurry to qualify for medicaid. And in some circumstances, medicaid could put a lien on your home for post-death repayment of services.
  - 7y ago
nabla9 7y ago
> Housing prices seem to consistently rise faster than inflation over long periods Inflation is not good measure, because income also increases. House price affordability or price to income ratio is more relevant than inflation. Housing Affordability Index https://fred.stlouisfed.org/series/FIXHAI https://fred.stlouisfed.org/series/FIXHAI Home Price to Income Ratio https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco...
- jalgos_eminator 7y ago
  Thank you for those links. My underlying assumption was that wages grow close to inflation, but obviously that may not be the case, so getting direct wage numbers is much better. Its interesting that the home price to income ratio is climbing back up after the recession. It looks a bit ominous.
rb808 7y ago
For a growing city a house changes in definition. Eg in new cities houses are a 1/4 acre, then they get subdivided then eventually apartments. So the land can keep going up faster than inflation/wages and still a housing unit remains (relatively) affordable. Also medium term affordability fluctuates so when a boom ends you often get 10 years of flat prices so its a drop after inflation.
gen220 7y ago
It's an interesting thought experiment. We've seen a shift of preferences towards externalizing the risks of asset ownership to third parties. Many people today prefer to purchase a stake in a real estate conglomerate, and contract out the maintenance and labor, rather than own an apartment building outright and operate it themselves. It's an attractive option for the owners, but carries the risk of creating bureaucracy for the renters. I think if we continue in this direction, we'll see a resurgence of co-op style ownership, where no individual can afford to purchase the 4 story brownstone in Brooklyn, but a board of 4 shareholders can. If you want to buy a house for yourself to live in, you might be purchasing a vanishingly-small set of "living-rights" shares from a conglomerate. You won't have to pay for your hot water heater, but you won't have the right to repair or fix it yourself.
- blaser-waffle 7y ago
  > If you want to buy a house for yourself to live in, you might be purchasing a vanishingly-small set of "living-rights" shares from a conglomerate. You won't have to pay for your hot water heater, but you won't have the right to repair or fix it yourself. Life, Liberty, and the Pursuit of Happiness -- that's all you get. For everything else, you gotta pay.
B4CKlash 7y ago
The price of assets is directly related to interest rates. This relationship is obvious if you think about it. People borrow money cheaply, the more money that's available, the more money people have to bid up prices of assets. The way interest rates are (including negative interest rates across the globe) I doubt there will be a curb anytime in the future. The biggest unknown IMO is related to the status quo. Perhaps people will value freedom more than security and therefore won't chase those housing values.
- npo9 7y ago
  > Perhaps people will value freedom more than security and therefore won't chase those housing values. I value property rights, so I own property. Freedom and security don’t really factor into it.
IkmoIkmo 7y ago
It's true that housing is getting ridiculously expensive. But there is a side that's often not really told, or really explained well, which is interest rates dropping consistently and hard. Take a look at the mortgage rates: https://www.thetruthaboutmortgage.com/wp-content/uploads/2013/09/historicmortgagerates.png https://www.thetruthaboutmortgage.com/wp-content/uploads/201... (ignore the weird domain, there's plenty of similar sources). Fact is that rates used to be as high as 18%. Recently they've gone as low as 3.5%. Real estate is hugely debt-driven, and the standard mortgage contract is set for 30 years. Thereby 'housing costs' isn't really reflected in just the price of a home, as say, the price when you buy a banana, which you buy instantly with cash. Instead, housing costs are dominated by the financing costs, which you pay for over the course of 30 years. Those housing costs have price as a major factor, sure, but it's multiplied by interest rates. You can't leave that out of the historical context. And if you do, housing costs have in fact not increased quite as sharply as people think. To illustrate, a $100k home with 3.5% vs 18% rates over 30 years, will cost $160k vs $540k. In fact, a $333k home at 3.5% rates, will require total payments equal to a $100k home at 18% rates, both around $540k. In short, prices could have tripled since the height of the mortgage rates until the bottom, and yet, you'd have made exactly the same total and monthly average payments. We often get shown price to income graphs getting worse and worse. But that doesn't capture the reality: monthly payments aren't getting nearly as bad, as interest rates have dropped hard. Higher prices are easier to pay off. That's not to say that housing isn't getting more expensive, it is. But if you correct for inflation (i.e., average income growth) and correct for much lower financing rates (lowering monthly payments), it's not nearly as bad as is often presented. An easier way to look at this is the percentage of money we spend of our income on housing. You can see it's on the rise, but really, it's not as extreme as some would think. None of the doubling-tripling kind of figures about housing you see in the media. https://www.pewtrusts.org/-/media/data-visualizations/infographics/2016/fig_4_expen.png?la=es&hash=76D1F6590CC411A8D936D9C2EABEE2F92B3549A0 https://www.pewtrusts.org/-/media/data-visualizations/infogr... Then lastly, we're just looking at how much we spend, not at how much we get in return. Suppose phones got more expensive, nobody would bat an eye, the phone today is 10x the phone of 20 years ago. What about housing? Here too the data is a bit tricky to get, I'd love to see more research on this. But there are some figures about average home size: e.g.: https://thefioneers.com/wp-content/uploads/2019/03/Average-Home-Size.png https://thefioneers.com/wp-content/uploads/2019/03/Average-H... The average home size grew from 1500 to 2500 square feet, while the average household size decreased. In short, in part 'housing' is not getting more expensive itself, but rather we're purchasing more of it, thus spending more on it. If you correct housing costs (i.e., bring it back to a $ per unit of house size), the growth is also much lower. If you take all this together, then housing is still getting more expensive, but most places are not all that much worse than many years ago. That's not to say we should ignore this as a policy issue, I think it demands lots of attention. But I do think the media narrative and vox populi currently is blind to the other side of the story and only has one message: extreme prices, unseen crisis, lost generation, no hope, etc.
rland 7y ago
Nobody will be able to buy a house (in a place where you can make a living) unless they have inherited wealth. It is absolutely a possible outcome -- the default situation for most for hundreds of years.
heavyset_go 7y ago
> Who will be able to afford to buy a house? Will people spend more than 50% of their take-home pay on mortgage payments? This doesn't seem sustainable long term. The US housing market is open to bidding from the richest people in the world. Wealthy people in other countries see US housing as a good way to store value, and are driving up housing prices. To answer your question: while Americans will be priced out of the housing market, wealthy people from across the globe will continue to buy into it.
- papeda 7y ago
  Can someone point me to statistics about this phenomenon? It sounds true that foreign investors use US housing as an investment and inflate prices, but I have no idea how large this effect is.
  - mistermann 7y ago
    There may not even be statistics - Canada doesn't have any comprehensive foreign demand data - that accounts for multi-unit demands for recent immigrants (now citizens or PR) acting as proxy buyers for third parties to evade taxes, and various other reporting gaps that exist. So it mostly comes down to relative wealth & population sizes versus desirability of an area, and then spillover effects into surrounding areas. But unless China crashes I would expect this to be an increasing source of demand over time, especially if you live in a pro-immigration country that needs to paper over domestic government budget shortfalls.
  - steelframe 7y ago
    For reasons pointed out by another reply to your comment, it's difficult to quantify. Anecdotally, I live in newer construction in a suburb of Seattle. At first the neighborhood was populated by local people who live and work here. As the original buyers have been moving out of the neighborhood over the past 5 years, the buyers of literally all been foreign Chinese. All of the houses surrounding mine are now occupied maybe 50% of the time, and I see luxury cars with Chinese license plates parked in front of these houses all the time.
Digory 7y ago
Rent. Rent is probably cheaper than ownership, except for the investment component. Because the market isn't efficient here, and because of the asset growth, owners can get a positive return even if rent doesn't pay the full mortgage.
- vonmoltke 7y ago
  > Rent is probably cheaper than ownership, except for the investment component. So, your landlord is cash flow negative? Why would anyone buy property to rent it out if this were the case universally?
  - mactrey 7y ago
    Maybe because > owners can get a positive return even if rent doesn't pay the full mortgage
  - refurb 7y ago
    Appreciation. Having your home go up $200K in value makes taking a $1K monthly loss easy.
    - vonmoltke 7y ago
      That assumes a hot market where values are riding quickly. The math doesn't work very well if the value growth is around the typical 3% per year. Also, if the value of appreciation really is that high I don't think it is correct to leave that forfeited value out of the "renting is cheaper" equation.
  - conanbatt 7y ago
    It isn't. But also rental property and ownership property are not the same kind of properties.
    - vonmoltke 7y ago
      First, that's not entirely true. We just moved out of a half-duplex that we could have bought if we wanted to (the owners decided to sell it near the end of our lease term). Second, in the case they are different kinds if properties, comparing them on cost alone isn't valid.
shados 7y ago
As someone else pointed out, people from all over the world, not just people who want to live there, can buy a house. That means a LOT of people can afford them even if they were a few times more expensive. Still, the majority of homes are still either bought by people who plan to live in them, or by landlords who will rent them to people who will, so obviously some people can afford them. Turns out, doctors, a subset of lawyers, various other high end professions including, yes, software engineers, make a lot of money, and there's quite a few of them. Add couples and families and you don't need everyone in the home to be able to afford it, either. Roommates can split the bills. DINKs end up with much more disposable income that can seem astronomical to more traditional families. Older people may have been able to accumulate wealth that seem impossible to 20something or even 30something years old. You can add a lot to that list of examples. Even when you take away all of the outliers (like rich Chinese investors), turns out a shitload of people can afford these places (which is why if you want to use supply to reduce prices, you need to build a LOT before it goes down enough to reach the lower and lower middle class). Also consider that 50% of your income (in an investment, no less!) when you have a family income of 250k isn't the same as when you have 50k. I'm fairly privileged, and if I gave up 50% of my income to housing (with a large portion really being a stored investment), it would still make a ton of sense financially. For sure it shouldn't be that way: even if you were a rich selfish bastard, its easy to see how the people you're displacing are going to come back and be a pain in your butt (see San Francisco), so it's in everyone's interests (not just for social justice) to fix this problem. Still, it's this expensive because it's still worth it and there's still a ton of people who can afford it. It really dawned on me when I last looked at the status of my mortgage and my savings. When I bought my place less than decade ago (so not as expensive as the market is today, but still when the market was red hot as the interests were at an all time low), it was a non-trivial percentage of my income, the downpayment was most of my savings, and we were definitely running the numbers to see what would happen if my wife or myself lost our jobs. It was tight. A few promotions, job changes, and favorable economic conditions later and I could almost pay cash if it was still at the same price it was back then. Early 30s me thought it was an insane amount of money, but 40something me wouldn't have much issue with it. That's the kind of economic reality and competition we're dealing with here.
- refurb 7y ago
onlyrealcuzzo 7y ago
Houses keep getting to be better quality. 30 years ago, houses were smaller, built with shittier materials, cost more to heat and cool, didn't have as many bathrooms, appliances, or wiring. None of this is free. Houses should be outpacing inflation under these conditions.
- LilBytes 7y ago
  This is complete nonsense are at the very least, localised to you and you region. 2 bedroom, shitbox, shoe-box apartments are being sold for $1,000,000 in Sydney that are being condemned less than 10 years after they were built because of the shocking quality of their construction. ABS News: a legacy of defects: https://www.abc.net.au/news/2019-08-18/how-bad-could-the-apartment-building-crisis-be-in-your-state/11413122 https://www.abc.net.au/news/2019-08-18/how-bad-could-the-apa... Quantity over quality: https://www.openagent.com.au/blog/quantity-over-quality-the-decline-of-housing-quality https://www.openagent.com.au/blog/quantity-over-quality-the-...
  - onlyrealcuzzo 7y ago
    Sydney is in one of the worst housing bubbles in the world. It's not representative of most of the world.
    - LilBytes 7y ago
      I'd go further than that, and say most of Metropolital Australia is the worst example of a bubble. ``` Over 66% of Australians live in the greater metropolitan area of Australia's 8 capital cities with Sydney being the largest (around 4.9 million), followed by Melbourne (4.5 million). ``` https://mccrindle.com.au/insights/blog/australias-capital-cities/ https://mccrindle.com.au/insights/blog/australias-capital-ci...
      - onlyrealcuzzo 7y ago
        I agree. And Canada and Hong Kong, and a few places in Europe.
banannaise 7y ago
That's basically the direction, yes. It's like healthcare in the US: Since people can't opt out of it, the system continuously optimizes for taking as much of their income as possible for the same good. I started shopping for a home a few years back, and I noticed something interesting: prices had adjusted so that the total cost of owning (including mortgage interest, taxes, maintenance costs, etc.) was almost exactly the same as the total cost of renting! It didn't matter what I did; the choice had been reduced to "Do I want to make a leveraged bet on the housing market, or not?" I did. That bet was basically a wash when I sold last year. After final calculations... I paid within $100 a month of market rent for the place. The only way you can get out of the trap is to acquire enough cash to simply buy outright (and then hope you never get the itch to move). And, of course, then that money is locked out of the investment market.
- biztos 7y ago
  > acquire enough cash to simply buy outright I did that a long time ago (not in the US) and owned the place until a few years ago, when I radically misjudged the market and ended up selling it at the bottom. Oops. Now I own a nicer and much more valuable place, with a mortgage; I may be able to keep it and pay it off, or I may have to sell if I ever want to move. For me personally, the lesson was that I want to own outright, or if I can't do that then rent, and I think I can do that for the rest of my life subject to some obvious limitations. Mostly because of the mobility trap presented by a mortgage.
- thedaemon 7y ago
  >It's like healthcare in the US: Since people can't opt out of it We do not have a national healthcare system as most of the world does. We are not forced to have healthcare. Yes there are provisions of Patient Protection and Affordable Care Act that charge a tax penalty if you are not covered or exempt.
  - banannaise 7y ago
    You're not forced to have healthcare COVERAGE. You can't opt out of actually having healthcare; if you do, you get sick and/or die.

mhuffman 7y ago

Housing prices are driven by the people paying the price (or rent) not by the people selling or renting (the Ricardian Theory of Rent). With the caveat that in the short-term, government laws and ordinances can affect that.

franga2000 7y ago
> Housing prices are driven by the people paying the price Not sure how that relates to the Ricardian theory, but while prices are technically "driven" by the people paying them, this does not seem like a useful observation to me. This isn't "if you keep buying every next more expensive iPhone, Apple will keep raising the price". You can't just not buy/rent property. It is a basic necessity. While prices vary between regions, that is still hardly a choice. Most places, jobs are scarce and transport is a disaster - you can't just go live somewhere else because your job is here (and most jobs are in high-rent areas). This means that no matter how high* prices get, people will have to find a way to pay (even if that means basically starving for the rest of their lives) and landlords are aware of this, so they keep raising the prices with the argument that "people clearly have the money, so it's fine". In theory, it makes sense for a finite resource to increase in price with increasing demand, but prices are increasing a lot faster than demand is and housing isn't as finite as land is (we can build up). This points to the supply side (landlords and developers) being the problem, not the people just trying to survive.

dwiel 7y ago

I agree, though I think the important comparison point is not necessarily inflation rate, but wage growth rate or similar.

fonix 7y ago

down the road i see this: "just wait till you hear about our monthly house-subscription-box/house-subscription!" /s

anthonypasq 7y ago
rent?
- psweber 7y ago
  Isn't ride sharing just taxis? Someone will "re-invent" it.
  - anticensor 7y ago
    More like share taxis but without a set route.

castlecrasher2 7y ago

One significant aspect of increasing house prices is increasing house sizes, amenities, and services (from an HOA). People keep buying more because they think they need it, and I think a return to spartan living would do well for the country but I don't see that happening for a variety of reasons.

bumby 7y ago

With the birth rate dipping, I'm wondering if this will self-correct when the baby boomer generation dies off and there is a larger supply of housing per capita.

npo9 7y ago
The us population is still increasing.
- snowwrestler 7y ago
  Only because of immigration.
  - 0xffff2 7y ago
    So what? Immigrants don't want to buy homes?
- bumby 7y ago
  But the trend is also that there are more people per household. I.e. I don't know that we can say that it's a 1:1 relationship that as the population grows so does the number of houses needed.
Infinitesimus 7y ago
It'll just go to their children and accelerate some fun inequality problems eg: living in fancy inherited house with no mortgage but way out of your price range based on income. The "real" cost of the house then isn't what it's worth but what your taxes come out to be...
- weberc2 7y ago
  In your eg, what is the problem exactly? This a rhetorical question, I’m just not following.
  - Infinitesimus 7y ago

JKCalhoun 7y ago

Boomers dying will transfer that real-estate to their children. The rest of us will be renters.

downerending 7y ago
Don't hold your breath. Kind of hard to find the exact figures, but median home equity is somewhere in the range of $30-150K. (Probably per-household, so divide by two?) I'm sure substantial transfers do happen, but I've never met anyone that was so lucky.
- Digory 7y ago
  Parents do take out equity to co-sign college loans. Or HELOC's to pay for their assisted-living. So the transfer is from boomers to doctors, banks, and schools. But I agree that in the anecdotes I hear about, kids of boomers rarely get property free-and-clear.
  - killjoywashere 7y ago
    > HELOC's to pay for their assisted-living. So the transfer is from boomers to doctors Eh, I did some work for nic.org. Assisted living is a real estate game, and the market reports are identical to apartment market reports. The medical bills go to Medicare and private insurance. Doctors aren't getting rich off Granny reverse mortgaging her house. Unless said doctors own an assisted living facility, preferably in one of the 30 major MSAs. I vaguely recall Florida being particularly attractive.
    - Digory 7y ago
      True, not HELOCs. I was thinking of Medicaid spend downs there. It's been a few years since I've looked at it, but if you needed nursing home care, the typical advice was to spend down your assets in a hurry to qualify for medicaid. And in some circumstances, medicaid could put a lien on your home for post-death repayment of services.
- 7y ago

nabla9 7y ago

> Housing prices seem to consistently rise faster than inflation over long periods Inflation is not good measure, because income also increases. House price affordability or price to income ratio is more relevant than inflation. Housing Affordability Index https://fred.stlouisfed.org/series/FIXHAI https://fred.stlouisfed.org/series/FIXHAI Home Price to Income Ratio https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco...

jalgos_eminator 7y ago
Thank you for those links. My underlying assumption was that wages grow close to inflation, but obviously that may not be the case, so getting direct wage numbers is much better. Its interesting that the home price to income ratio is climbing back up after the recession. It looks a bit ominous.

rb808 7y ago

For a growing city a house changes in definition. Eg in new cities houses are a 1/4 acre, then they get subdivided then eventually apartments. So the land can keep going up faster than inflation/wages and still a housing unit remains (relatively) affordable. Also medium term affordability fluctuates so when a boom ends you often get 10 years of flat prices so its a drop after inflation.

gen220 7y ago

It's an interesting thought experiment. We've seen a shift of preferences towards externalizing the risks of asset ownership to third parties. Many people today prefer to purchase a stake in a real estate conglomerate, and contract out the maintenance and labor, rather than own an apartment building outright and operate it themselves. It's an attractive option for the owners, but carries the risk of creating bureaucracy for the renters. I think if we continue in this direction, we'll see a resurgence of co-op style ownership, where no individual can afford to purchase the 4 story brownstone in Brooklyn, but a board of 4 shareholders can. If you want to buy a house for yourself to live in, you might be purchasing a vanishingly-small set of "living-rights" shares from a conglomerate. You won't have to pay for your hot water heater, but you won't have the right to repair or fix it yourself.

blaser-waffle 7y ago
> If you want to buy a house for yourself to live in, you might be purchasing a vanishingly-small set of "living-rights" shares from a conglomerate. You won't have to pay for your hot water heater, but you won't have the right to repair or fix it yourself. Life, Liberty, and the Pursuit of Happiness -- that's all you get. For everything else, you gotta pay.

B4CKlash 7y ago

The price of assets is directly related to interest rates. This relationship is obvious if you think about it. People borrow money cheaply, the more money that's available, the more money people have to bid up prices of assets. The way interest rates are (including negative interest rates across the globe) I doubt there will be a curb anytime in the future. The biggest unknown IMO is related to the status quo. Perhaps people will value freedom more than security and therefore won't chase those housing values.

npo9 7y ago
> Perhaps people will value freedom more than security and therefore won't chase those housing values. I value property rights, so I own property. Freedom and security don’t really factor into it.

IkmoIkmo 7y ago

It's true that housing is getting ridiculously expensive. But there is a side that's often not really told, or really explained well, which is interest rates dropping consistently and hard. Take a look at the mortgage rates: https://www.thetruthaboutmortgage.com/wp-content/uploads/2013/09/historicmortgagerates.png https://www.thetruthaboutmortgage.com/wp-content/uploads/201... (ignore the weird domain, there's plenty of similar sources). Fact is that rates used to be as high as 18%. Recently they've gone as low as 3.5%. Real estate is hugely debt-driven, and the standard mortgage contract is set for 30 years. Thereby 'housing costs' isn't really reflected in just the price of a home, as say, the price when you buy a banana, which you buy instantly with cash. Instead, housing costs are dominated by the financing costs, which you pay for over the course of 30 years. Those housing costs have price as a major factor, sure, but it's multiplied by interest rates. You can't leave that out of the historical context. And if you do, housing costs have in fact not increased quite as sharply as people think. To illustrate, a $100k home with 3.5% vs 18% rates over 30 years, will cost $160k vs $540k. In fact, a $333k home at 3.5% rates, will require total payments equal to a $100k home at 18% rates, both around $540k. In short, prices could have tripled since the height of the mortgage rates until the bottom, and yet, you'd have made exactly the same total and monthly average payments. We often get shown price to income graphs getting worse and worse. But that doesn't capture the reality: monthly payments aren't getting nearly as bad, as interest rates have dropped hard. Higher prices are easier to pay off. That's not to say that housing isn't getting more expensive, it is. But if you correct for inflation (i.e., average income growth) and correct for much lower financing rates (lowering monthly payments), it's not nearly as bad as is often presented. An easier way to look at this is the percentage of money we spend of our income on housing. You can see it's on the rise, but really, it's not as extreme as some would think. None of the doubling-tripling kind of figures about housing you see in the media. https://www.pewtrusts.org/-/media/data-visualizations/infographics/2016/fig_4_expen.png?la=es&hash=76D1F6590CC411A8D936D9C2EABEE2F92B3549A0 https://www.pewtrusts.org/-/media/data-visualizations/infogr... Then lastly, we're just looking at how much we spend, not at how much we get in return. Suppose phones got more expensive, nobody would bat an eye, the phone today is 10x the phone of 20 years ago. What about housing? Here too the data is a bit tricky to get, I'd love to see more research on this. But there are some figures about average home size: e.g.: https://thefioneers.com/wp-content/uploads/2019/03/Average-Home-Size.png https://thefioneers.com/wp-content/uploads/2019/03/Average-H... The average home size grew from 1500 to 2500 square feet, while the average household size decreased. In short, in part 'housing' is not getting more expensive itself, but rather we're purchasing more of it, thus spending more on it. If you correct housing costs (i.e., bring it back to a $ per unit of house size), the growth is also much lower. If you take all this together, then housing is still getting more expensive, but most places are not all that much worse than many years ago. That's not to say we should ignore this as a policy issue, I think it demands lots of attention. But I do think the media narrative and vox populi currently is blind to the other side of the story and only has one message: extreme prices, unseen crisis, lost generation, no hope, etc.

rland 7y ago

Nobody will be able to buy a house (in a place where you can make a living) unless they have inherited wealth. It is absolutely a possible outcome -- the default situation for most for hundreds of years.

heavyset_go 7y ago

> Who will be able to afford to buy a house? Will people spend more than 50% of their take-home pay on mortgage payments? This doesn't seem sustainable long term. The US housing market is open to bidding from the richest people in the world. Wealthy people in other countries see US housing as a good way to store value, and are driving up housing prices. To answer your question: while Americans will be priced out of the housing market, wealthy people from across the globe will continue to buy into it.

papeda 7y ago
Can someone point me to statistics about this phenomenon? It sounds true that foreign investors use US housing as an investment and inflate prices, but I have no idea how large this effect is.
- mistermann 7y ago
  There may not even be statistics - Canada doesn't have any comprehensive foreign demand data - that accounts for multi-unit demands for recent immigrants (now citizens or PR) acting as proxy buyers for third parties to evade taxes, and various other reporting gaps that exist. So it mostly comes down to relative wealth & population sizes versus desirability of an area, and then spillover effects into surrounding areas. But unless China crashes I would expect this to be an increasing source of demand over time, especially if you live in a pro-immigration country that needs to paper over domestic government budget shortfalls.
- steelframe 7y ago
  For reasons pointed out by another reply to your comment, it's difficult to quantify. Anecdotally, I live in newer construction in a suburb of Seattle. At first the neighborhood was populated by local people who live and work here. As the original buyers have been moving out of the neighborhood over the past 5 years, the buyers of literally all been foreign Chinese. All of the houses surrounding mine are now occupied maybe 50% of the time, and I see luxury cars with Chinese license plates parked in front of these houses all the time.

Digory 7y ago

Rent. Rent is probably cheaper than ownership, except for the investment component. Because the market isn't efficient here, and because of the asset growth, owners can get a positive return even if rent doesn't pay the full mortgage.

vonmoltke 7y ago
> Rent is probably cheaper than ownership, except for the investment component. So, your landlord is cash flow negative? Why would anyone buy property to rent it out if this were the case universally?
- mactrey 7y ago
  Maybe because > owners can get a positive return even if rent doesn't pay the full mortgage
- refurb 7y ago
  Appreciation. Having your home go up $200K in value makes taking a $1K monthly loss easy.
  - vonmoltke 7y ago
    That assumes a hot market where values are riding quickly. The math doesn't work very well if the value growth is around the typical 3% per year. Also, if the value of appreciation really is that high I don't think it is correct to leave that forfeited value out of the "renting is cheaper" equation.
- conanbatt 7y ago
  It isn't. But also rental property and ownership property are not the same kind of properties.
  - vonmoltke 7y ago
    First, that's not entirely true. We just moved out of a half-duplex that we could have bought if we wanted to (the owners decided to sell it near the end of our lease term). Second, in the case they are different kinds if properties, comparing them on cost alone isn't valid.

shados 7y ago

As someone else pointed out, people from all over the world, not just people who want to live there, can buy a house. That means a LOT of people can afford them even if they were a few times more expensive. Still, the majority of homes are still either bought by people who plan to live in them, or by landlords who will rent them to people who will, so obviously some people can afford them. Turns out, doctors, a subset of lawyers, various other high end professions including, yes, software engineers, make a lot of money, and there's quite a few of them. Add couples and families and you don't need everyone in the home to be able to afford it, either. Roommates can split the bills. DINKs end up with much more disposable income that can seem astronomical to more traditional families. Older people may have been able to accumulate wealth that seem impossible to 20something or even 30something years old. You can add a lot to that list of examples. Even when you take away all of the outliers (like rich Chinese investors), turns out a shitload of people can afford these places (which is why if you want to use supply to reduce prices, you need to build a LOT before it goes down enough to reach the lower and lower middle class). Also consider that 50% of your income (in an investment, no less!) when you have a family income of 250k isn't the same as when you have 50k. I'm fairly privileged, and if I gave up 50% of my income to housing (with a large portion really being a stored investment), it would still make a ton of sense financially. For sure it shouldn't be that way: even if you were a rich selfish bastard, its easy to see how the people you're displacing are going to come back and be a pain in your butt (see San Francisco), so it's in everyone's interests (not just for social justice) to fix this problem. Still, it's this expensive because it's still worth it and there's still a ton of people who can afford it. It really dawned on me when I last looked at the status of my mortgage and my savings. When I bought my place less than decade ago (so not as expensive as the market is today, but still when the market was red hot as the interests were at an all time low), it was a non-trivial percentage of my income, the downpayment was most of my savings, and we were definitely running the numbers to see what would happen if my wife or myself lost our jobs. It was tight. A few promotions, job changes, and favorable economic conditions later and I could almost pay cash if it was still at the same price it was back then. Early 30s me thought it was an insane amount of money, but 40something me wouldn't have much issue with it. That's the kind of economic reality and competition we're dealing with here.

refurb 7y ago

onlyrealcuzzo 7y ago

Houses keep getting to be better quality. 30 years ago, houses were smaller, built with shittier materials, cost more to heat and cool, didn't have as many bathrooms, appliances, or wiring. None of this is free. Houses should be outpacing inflation under these conditions.

LilBytes 7y ago
This is complete nonsense are at the very least, localised to you and you region. 2 bedroom, shitbox, shoe-box apartments are being sold for $1,000,000 in Sydney that are being condemned less than 10 years after they were built because of the shocking quality of their construction. ABS News: a legacy of defects: https://www.abc.net.au/news/2019-08-18/how-bad-could-the-apartment-building-crisis-be-in-your-state/11413122 https://www.abc.net.au/news/2019-08-18/how-bad-could-the-apa... Quantity over quality: https://www.openagent.com.au/blog/quantity-over-quality-the-decline-of-housing-quality https://www.openagent.com.au/blog/quantity-over-quality-the-...
- onlyrealcuzzo 7y ago
  Sydney is in one of the worst housing bubbles in the world. It's not representative of most of the world.
  - LilBytes 7y ago
    I'd go further than that, and say most of Metropolital Australia is the worst example of a bubble. ``` Over 66% of Australians live in the greater metropolitan area of Australia's 8 capital cities with Sydney being the largest (around 4.9 million), followed by Melbourne (4.5 million). ``` https://mccrindle.com.au/insights/blog/australias-capital-cities/ https://mccrindle.com.au/insights/blog/australias-capital-ci...
    - onlyrealcuzzo 7y ago
      I agree. And Canada and Hong Kong, and a few places in Europe.

banannaise 7y ago

That's basically the direction, yes. It's like healthcare in the US: Since people can't opt out of it, the system continuously optimizes for taking as much of their income as possible for the same good. I started shopping for a home a few years back, and I noticed something interesting: prices had adjusted so that the total cost of owning (including mortgage interest, taxes, maintenance costs, etc.) was almost exactly the same as the total cost of renting! It didn't matter what I did; the choice had been reduced to "Do I want to make a leveraged bet on the housing market, or not?" I did. That bet was basically a wash when I sold last year. After final calculations... I paid within $100 a month of market rent for the place. The only way you can get out of the trap is to acquire enough cash to simply buy outright (and then hope you never get the itch to move). And, of course, then that money is locked out of the investment market.

biztos 7y ago
> acquire enough cash to simply buy outright I did that a long time ago (not in the US) and owned the place until a few years ago, when I radically misjudged the market and ended up selling it at the bottom. Oops. Now I own a nicer and much more valuable place, with a mortgage; I may be able to keep it and pay it off, or I may have to sell if I ever want to move. For me personally, the lesson was that I want to own outright, or if I can't do that then rent, and I think I can do that for the rest of my life subject to some obvious limitations. Mostly because of the mobility trap presented by a mortgage.
thedaemon 7y ago
>It's like healthcare in the US: Since people can't opt out of it We do not have a national healthcare system as most of the world does. We are not forced to have healthcare. Yes there are provisions of Patient Protection and Affordable Care Act that charge a tax penalty if you are not covered or exempt.
- banannaise 7y ago
  You're not forced to have healthcare COVERAGE. You can't opt out of actually having healthcare; if you do, you get sick and/or die.