4 ms·

If people are really moving out if the cities why are we not seeing a reduction is home prices?

lallysingh 6y ago
They're moving to suburbs around the cities. So the homes (which aren't in the city) are going up. Rents have been flat in many cities for some time, so they should be coming down.
OldHand2018 6y ago
And why are the in-city homes selling nearly immediately?
oramit 6y ago
Home prices are inelastic even in normal times. There are large transactions costs, lots of paperwork and intermediaries, and for most people it is their main "investment" so they are loath to sell it at a discount. Also, the Covid crisis has only been going on for about 6 months and there has been a number of large government interventions to avoid a financial crash. Most mortgage holders can get a deferral on payments simply by asking and if you are unemployed the increased UI benefits have made a big difference in keeping people afloat. I think prices may eventually come down, but this crisis is only in its beginning stage. I think it is simply too early to really tell. However - even if everything goes awry and there are lots of defaults and a large migration out of cities, we could still end up with steady or rising real estate prices. Why? Because lower interest rates make it easier to service debt and rates are only going down. I got my mortgage a few years back at what I thought was a killer rate - 4.25%, now I am seeing rates as low as 2.85%. A simple example: The monthly cost of a $100,000 30 year mortgage at 4.25% is $492. The monthly cost of a $125,000 30 year at 2.85% is $517 Because of the change in interest rates I now have 25% more purchasing power at roughly the same monthly price. And that monthly mortgage amount is what really drives payment decisions. The sales price isn't so important - it's can I service the monthly payments, and with lower interest rates you can.
api 6y ago
QE infinity? QE tends to lead to asset inflation. Given that the dollar is depreciating, I'd say we are seeing a real reduction in housing costs but not (yet?) a nominal one.

They're moving to suburbs around the cities. So the homes (which aren't in the city) are going up. Rents have been flat in many cities for some time, so they should be coming down.

OldHand2018 6y ago

And why are the in-city homes selling nearly immediately?

oramit 6y ago

Home prices are inelastic even in normal times. There are large transactions costs, lots of paperwork and intermediaries, and for most people it is their main "investment" so they are loath to sell it at a discount. Also, the Covid crisis has only been going on for about 6 months and there has been a number of large government interventions to avoid a financial crash. Most mortgage holders can get a deferral on payments simply by asking and if you are unemployed the increased UI benefits have made a big difference in keeping people afloat. I think prices may eventually come down, but this crisis is only in its beginning stage. I think it is simply too early to really tell. However - even if everything goes awry and there are lots of defaults and a large migration out of cities, we could still end up with steady or rising real estate prices. Why? Because lower interest rates make it easier to service debt and rates are only going down. I got my mortgage a few years back at what I thought was a killer rate - 4.25%, now I am seeing rates as low as 2.85%. A simple example: The monthly cost of a $100,000 30 year mortgage at 4.25% is $492. The monthly cost of a $125,000 30 year at 2.85% is $517 Because of the change in interest rates I now have 25% more purchasing power at roughly the same monthly price. And that monthly mortgage amount is what really drives payment decisions. The sales price isn't so important - it's can I service the monthly payments, and with lower interest rates you can.

api 6y ago

QE infinity? QE tends to lead to asset inflation. Given that the dollar is depreciating, I'd say we are seeing a real reduction in housing costs but not (yet?) a nominal one.