6 ms·

Give it a few months and I think house prices will fall!

shuckles 6y ago
Home prices falling because many people’s incomes have gone to $0 is bad for affordability.
onion2k 6y ago
House prices will never fall significantly. As soon as a house enters the market at anything below the going rate it's bought by a landlord or a rental company. This will keep house prices high forever.
- brianlweiner 6y ago
  What's your model?
  - zxcmx 6y ago
    My mental model is that there's too much wealth sloshing around for "large incomes" to make too much difference. High income is like delta-v, it's great. But you're still near the ground, and you're competing against people already in high orbit. The beneficiaries of the housing explosion have equity which they can parlay into more ownership, whether for themselves as investments or their children. Record low interest rates help prices by letting people lever up (letting them spend their lifetime earnings now) to compete but of course also bids up prices, again to the benefit of existing homeowners. This is reflected in the fact that (for example) in the U.K over 1/3 of first time buyers did it by getting money from their parents: https://www.gov.uk/government/news/first-time-buyers-relying-on-parents-to-get-onto-housing-ladder https://www.gov.uk/government/news/first-time-buyers-relying... Furthermore, in the UK, Australia and NZ (less familiar with the US or Canada) it seems the government will move heaven and earth to prop up housing. High immigration rates and supply restriction have not been helping. I'm not as convinced as GP that the situation can last "forever", but I could see it lasting for another couple of decades. A true housing collapse would probably be a phyrric victory for the young.
  - nitrogen 6y ago
    Add to the other comments the signs and billboards advertising "we buy houses for cash, no questions asked" all over certain areas.
- ryangittins 6y ago
  This is demonstrably false. Why don't landlords own all of Detroit, where housing prices have cratered? Housing is a market like any other. The going rate can change.
  - DetroitThrow 6y ago
    > Why don't landlords own all of Detroit, where housing prices have cratered? Landlord in the city here - land speculators and landlords own an outsized amount of housing here. Significant churn is caused by blighted house reclaimation by the city, but that's one of the few driving forces allowing residents to have access to housing stock - and by the time it's blighted, there's a good chance it's not livable without significant investment. Blight is generated because many properties/locations provide such a low rental income low that non-resident purchasers just buy the land as speculation, often doing no maintenance until the house is no longer livable. While the previous comment isn't as hard of a truth as it implies, large capital owners rather than those who would reside in a home are increasingly the main purchasers of property, at least in Detroit.
  - throwaway0a5e 6y ago
    >Why don't landlords own all of Detroit, The same reason the used car lots don't own all the rust free classics in California, an exceptionally asinine regulatory environment that would put them on the hook for an obscene amount of back taxes.
- JanisL 6y ago
  House prices can fall in real terms even if they don't in nominal terms. I think the is exactly the situation we are likely to see in an environment where the solution to every problem is "stimulus" and "money printer go brrrrrr" in response to the housing market taking a dive.
  - vkou 6y ago
    If the money printer only gives money to asset holders, the inflation will only happen in the asset economy, as opposed to the Main street economy. This is what we saw with QE in 2008, and what we're seeing now. Asset prices are skyrocketing, while the price of bread is staying more or less stable.
    - JanisL 6y ago
      You might find the Cantillon Effect to be of interest: https://www.austriancenter.com/cantillon-effect-populism/ https://www.austriancenter.com/cantillon-effect-populism/ The effects of inflation are somewhat localized at first and the movement of money in the economy matters significantly in terms of the purchasing power of that money for various groups over time.
      - imtringued 6y ago
        It's interesting because this looks at inflation from another angle. Some of the central bank money does eventually circulate in the economy but since the money goes to assets first, consumer inflation will always lag behind asset inflation and therefore we have a redistribution effect from the poor to the rich. Unless central banks adopt policies that distribute money evenly among the population they are going to keep distorting the economy.
        mrep 6y ago
        The central bank cannot distribute money evenly among the population. Congress however can and they basically did albeit selectively based on need with the CARES act which gave citizens direct cash handouts, massive increases to unemployment, and indirectly by funding payroll for small businesses and airlines. However, they are supposed to maintain a budget and the CARES act alone cost over 2 trillion dollars so they finance deficits by selling US treasury securities. If you look at the outstanding debt, it has grown by about 3.6 trillion dollars worth of outstanding treasury securities from january to august [0]. If you look at the federal reserves asset sheet trends [1], you'll see it grown by up about 3 trillion since january [1] with over 2/3 of that buying those same US treasury securities our government sells to finance the deficit [2]. My point is that if congress had simply decided to pay for all deficits including those direct and indirect payments to citizens this year with printed money and the federal reserve did nothing, we would be basically in the exact same position. Congress is spending to put cash in citizens pockets and the federal reserve is buying up most of the treasury securities that congress is selling to fund that. [0]: https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm [1]: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... [2]: https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm
- Gunax 6y ago
  I also don't think this is true... We saw house prices crash 10 years ago, with many owners being convinced that housing, a finite resource, can never go down significantly.
  - marktangotango 6y ago
    That did certainly happen, but prices were not depressed for any significant amount of time either! Particularly at the timescale of housing transactions. It can take several months to close on a house for example.
- feralimal 6y ago
  Well, I'm only saying that because apparently over 700k people have become unemployed on account of the C.V. That is a significant number of the working population in the UK. This should mean that there would a significant decrease in prices - the bottom would have fallen through the market. I know that the government have pumped huge amounts into the economy which is inflationary. Still, I think house prices will have to drop.
- refurb 6y ago
  "Housing prices only go up" - Said right before the housing crash of 2007

Home prices falling because many people’s incomes have gone to $0 is bad for affordability.

House prices will never fall significantly. As soon as a house enters the market at anything below the going rate it's bought by a landlord or a rental company. This will keep house prices high forever.

brianlweiner 6y ago
What's your model?
- zxcmx 6y ago
  My mental model is that there's too much wealth sloshing around for "large incomes" to make too much difference. High income is like delta-v, it's great. But you're still near the ground, and you're competing against people already in high orbit. The beneficiaries of the housing explosion have equity which they can parlay into more ownership, whether for themselves as investments or their children. Record low interest rates help prices by letting people lever up (letting them spend their lifetime earnings now) to compete but of course also bids up prices, again to the benefit of existing homeowners. This is reflected in the fact that (for example) in the U.K over 1/3 of first time buyers did it by getting money from their parents: https://www.gov.uk/government/news/first-time-buyers-relying-on-parents-to-get-onto-housing-ladder https://www.gov.uk/government/news/first-time-buyers-relying... Furthermore, in the UK, Australia and NZ (less familiar with the US or Canada) it seems the government will move heaven and earth to prop up housing. High immigration rates and supply restriction have not been helping. I'm not as convinced as GP that the situation can last "forever", but I could see it lasting for another couple of decades. A true housing collapse would probably be a phyrric victory for the young.
- nitrogen 6y ago
  Add to the other comments the signs and billboards advertising "we buy houses for cash, no questions asked" all over certain areas.
ryangittins 6y ago
This is demonstrably false. Why don't landlords own all of Detroit, where housing prices have cratered? Housing is a market like any other. The going rate can change.
- DetroitThrow 6y ago
  > Why don't landlords own all of Detroit, where housing prices have cratered? Landlord in the city here - land speculators and landlords own an outsized amount of housing here. Significant churn is caused by blighted house reclaimation by the city, but that's one of the few driving forces allowing residents to have access to housing stock - and by the time it's blighted, there's a good chance it's not livable without significant investment. Blight is generated because many properties/locations provide such a low rental income low that non-resident purchasers just buy the land as speculation, often doing no maintenance until the house is no longer livable. While the previous comment isn't as hard of a truth as it implies, large capital owners rather than those who would reside in a home are increasingly the main purchasers of property, at least in Detroit.
- throwaway0a5e 6y ago
  >Why don't landlords own all of Detroit, The same reason the used car lots don't own all the rust free classics in California, an exceptionally asinine regulatory environment that would put them on the hook for an obscene amount of back taxes.
JanisL 6y ago
House prices can fall in real terms even if they don't in nominal terms. I think the is exactly the situation we are likely to see in an environment where the solution to every problem is "stimulus" and "money printer go brrrrrr" in response to the housing market taking a dive.
- vkou 6y ago
  If the money printer only gives money to asset holders, the inflation will only happen in the asset economy, as opposed to the Main street economy. This is what we saw with QE in 2008, and what we're seeing now. Asset prices are skyrocketing, while the price of bread is staying more or less stable.
  - JanisL 6y ago
    You might find the Cantillon Effect to be of interest: https://www.austriancenter.com/cantillon-effect-populism/ https://www.austriancenter.com/cantillon-effect-populism/ The effects of inflation are somewhat localized at first and the movement of money in the economy matters significantly in terms of the purchasing power of that money for various groups over time.
    - imtringued 6y ago
      It's interesting because this looks at inflation from another angle. Some of the central bank money does eventually circulate in the economy but since the money goes to assets first, consumer inflation will always lag behind asset inflation and therefore we have a redistribution effect from the poor to the rich. Unless central banks adopt policies that distribute money evenly among the population they are going to keep distorting the economy.
      - mrep 6y ago
        The central bank cannot distribute money evenly among the population. Congress however can and they basically did albeit selectively based on need with the CARES act which gave citizens direct cash handouts, massive increases to unemployment, and indirectly by funding payroll for small businesses and airlines. However, they are supposed to maintain a budget and the CARES act alone cost over 2 trillion dollars so they finance deficits by selling US treasury securities. If you look at the outstanding debt, it has grown by about 3.6 trillion dollars worth of outstanding treasury securities from january to august [0]. If you look at the federal reserves asset sheet trends [1], you'll see it grown by up about 3 trillion since january [1] with over 2/3 of that buying those same US treasury securities our government sells to finance the deficit [2]. My point is that if congress had simply decided to pay for all deficits including those direct and indirect payments to citizens this year with printed money and the federal reserve did nothing, we would be basically in the exact same position. Congress is spending to put cash in citizens pockets and the federal reserve is buying up most of the treasury securities that congress is selling to fund that. [0]: https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm [1]: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... [2]: https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm
Gunax 6y ago
I also don't think this is true... We saw house prices crash 10 years ago, with many owners being convinced that housing, a finite resource, can never go down significantly.
- marktangotango 6y ago
  That did certainly happen, but prices were not depressed for any significant amount of time either! Particularly at the timescale of housing transactions. It can take several months to close on a house for example.
feralimal 6y ago
Well, I'm only saying that because apparently over 700k people have become unemployed on account of the C.V. That is a significant number of the working population in the UK. This should mean that there would a significant decrease in prices - the bottom would have fallen through the market. I know that the government have pumped huge amounts into the economy which is inflationary. Still, I think house prices will have to drop.
refurb 6y ago
"Housing prices only go up" - Said right before the housing crash of 2007