8 ms·

This real estate bubble won't pop

65 points by rblion 5y ago

skybrian 5y ago
“More people moving to cities” and “more people living alone” sounds like it should add up to “more apartment buildings.”
tomrod 5y ago
Not a bad overview, but misses some things (1) political instability (2) $10M/home as sticker price wouldn't happen. Apartments and row homes would be more common substitutes (and already have sopped up demand in the starter home markets) (3) what inflation measures show 10% inflation?
- 1ark 5y ago
  Shadowstats[1] shows more than 10% in '80s-based measure. 1. http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
  - gruez 5y ago
    The same shadowstats just takes BLS CPI and adds a constant to it? https://news.ycombinator.com/item?id=27124745 https://news.ycombinator.com/item?id=27124745
  - timmaxw 5y ago
    Shadowstats's 80s-based measure says we've been having 10% YoY inflation for two decades now. If that were true, prices would've 5x'ed since the year 2000. That doesn't pass the 'sniff test' to me; e.g. the Big Mac Index [1] says a Big Mac cost $2.50 in 2000 and $5.50 today, equivalent to about 4% YoY inflation. [1] https://www.economist.com/big-mac-index https://www.economist.com/big-mac-index
    - Geee 5y ago
      It's not the same Big Mac. It's smaller and lower quality. Check out https://www.reddit.com/r/shrinkflation/ https://www.reddit.com/r/shrinkflation/ which has posts about products that get smaller.
- paulpauper 5y ago
  5-10% for many things: tuition, healthcare, cars, homes, transportation, etc. I don't see political instability ever being much of a problem. Trump was considered 'unstable' by pundits yet prices surged during his term.
  - jeromegv 5y ago
    Well that would be a different story if he did succeed at stealing the election on Jan 6 while having his supporters destroying the Capitol. The social unrest would have been quite something.
  - __john 5y ago
    IIRC 15% for Campbells Tomato Soup. https://politicalcalculations.blogspot.com/2020/01/the-price-history-of-campbells-tomato.html https://politicalcalculations.blogspot.com/2020/01/the-price...
    - smnrchrds 5y ago
      Eyeballing the values on the graph, it looks like the price increase is around 4% YoY between 2000 and 2020, from ~0.40$ to 0.85$. If it were 15%, it would have reached 6.50$ in 2020.
      - __john 5y ago
        My mistake, I linked the wrong thing. Here is the right one https://politicalcalculations.blogspot.com/2021/01/the-price-of-campbells-tomato-soup-in.html https://politicalcalculations.blogspot.com/2021/01/the-price... .
  - vineyardmike 5y ago
    > I don't see political instability ever being much of a problem. Constantly in the political sphere are candidates promising to forgive tuition debt because its so crazy, and politicians promising the government will cover healthcare because its so crazy. We're not at political instability, but I think we're crossed over into "politicians have to solve this not because its a governments responsibility, but because people can't solve it so they're asking politicians" which is often the first step to instability.
- neuroma 5y ago
  It emerged in another thread that since the 1950s inflation has averaged 8% a year. Will try to find source...
  - ahahahahah 5y ago
    What utter nonsense. Even not adjusting for improved quality, do you honestly think things cost 220x what they did in the 50s?
seibelj 5y ago
The price of the average house in the USA is based primarily on the government-guaranteed 30 year fixed rate mortgage. For a given interest rate and income, the house will cost exactly the maximum amount of loan the borrower can get. Banks no longer have any skin in the game - they go through a massive checklist, gather tons of documents, and once they can fulfill their legal mandates they immediately approve the loan and flip the note to investors. With interest rates so low for so long, a significant increase in rates would decrease the real value of homes as the monthly payment would exceed what someone can afford. As home ownership is a political football, you can be sure the price of homes will only go up. 2008 was a blip in the steadily increasing price of homes.
- thaumasiotes 5y ago
  > The price of the average house in the USA is based primarily on the government-guaranteed 30 year fixed rate mortgage. For a given interest rate and income, the house will cost exactly the maximum amount of loan the borrower can get. This implies that very poor people can buy houses for very cheap. The price of a particular house is not set by reference to the person purchasing it. The price comes first, and the buyer second.
  - beerandt 5y ago
    No- but you need the number of houses in a given price range to more or less match up with the number of buyers who can afford them. Look what the jumbo loan and other federal loan limits are within a given market, and if you plot real estate listings/sale prices, there will be clusters grouped just below each limit, especially the jumbo.
  - seibelj 5y ago
    If a buyer has $100k income and ~75k post tax, then they will be able to afford (at most) $45k per year out of pocket, or ~$2k per month. Based on the interest rate, you can work backwards to see the house they can afford, and the people buying at that price point will all have similar incomes.
    - 5y ago
RobLach 5y ago
A couple pieces of legislation can shift the equation drastically. Incentives carved out for the home you live in (versus investment properties) are a common way to squeeze more out of a state run property subsidy program without making too many constituents mad. For now, probably not, as the the the majority of the US Speaker of the House's wealth comes from real estate holdings across California.
- ttyprintk 5y ago
  And 23 million Americans are landlords, according to this article.
echelon 5y ago
The US is vast, and we have a ton of affordable housing if you look outside the coastal cities.
dionidium 5y ago
> 5. Housing construction isn’t keeping up This is sufficient to explain why prices are much higher than they used to be. All the other stuff is window dressing for things the author already believes about the world. Once you've admitted that we've way under-built, then you don't need any other explanations.
- beerandt 5y ago
  Which is a direct result of restrictive federal lending policies, which make it difficult for builders and investors to finance building rentals or spec-houses. It all goes back to Dodd-Frank. "Fixing" one regulation with another just makes unintended consequences more likely.
- vineyardmike 5y ago
  > we've way under-built, then you don't need any other explanation Not only that, but the other explanations become suspect. Eg. Is it true that corporations are going to own every home and turn it into vacation rentals? Obviously not, most places aren't that desirable for tourists, and the more competition, the lower the price, so the lower the return, so the lower the value as a rental. Really this goes back to under-built too -> 1. people want to vacation at location X. X doesn't have enough beds for residents and tourists. Solution? More places for everyone by building to meet demand.
  - dionidium 5y ago
    In fact, companies like BlackRock et al specifically target areas where new construction is unlikely, because of NIMBYs and zoning. Why didn't investors buy up single-family homes in the 70s or 80s or 90s? Did they just decide to get greedier in 2021? No, it's precisely the high prices and lack of new construction that attracts them to these assets now, where historically it wasn't profitable. This is from the SEC filing of one such investor (Invitation Homes) [0]: > We have selected locations with strong demand drivers, high barriers to entry and high rent-growth potential. And: > We have selected markets that we believe will experience strong population, household formation and employment growth and exhibit constrained levels of new home construction. [0] https://www.sec.gov/Archives/edgar/data/1687229/000119312517029042/d260125d424b4.htm https://www.sec.gov/Archives/edgar/data/1687229/000119312517...
MrMetlHed 5y ago
I've always thought the solution to this was exponentialy increasing property taxes beyond the first property you (or whatever legal entity you create to horde properties) own. I'm dumb, so I'm sure there are reasons this won't work, but it seems like it should.
- sbierwagen 5y ago
  LLCs are cheap. It's not uncommon to form separate holding companies for each property. Not impossible to write a law that pierces the corporate veil for taxation purposes, of course.
  - MrMetlHed 5y ago
    Sure, I figured that there'd be lots of clever tricks around that. I figure you just make the law trace it up to the person at the top and have them as "owner" for exponential purposes.
  - yuliyp 5y ago
    Doing it in reverse (give a credit / deduction against real estate taxes for an individual who owns and lives in their own home) works fine.
    - MrMetlHed 5y ago
      Wouldn't the corporation just factor in the credit loss as a cost of doing business and adjust the rent accordingly? Seems better to stop them from owning more than a few properties to begin with, but I suppose both would be cool with me.
      - jeromegv 5y ago
        Rent price is determined by supply and demand. You can only increase rent if the market can support it. And to do that, you can do it regardless if your expenses went up or not. Goes the other way as well
      - 5y ago
jackcosgrove 5y ago
> He’ll have to navigate totalitarian social credit systems and surveillance panopticoins. Great typo!
sbierwagen 5y ago
Ah, the classic signal of a market top: "This time is different; prices can't ever go down."
- paulpauper 5y ago
  then short some REITS if you believe this
  - topkai22 5y ago
    Well my specific belief is that housing won’t keep up with inflation rather than fall significantly in absolute terms. Not sure how I short that belief.
- harambae 5y ago
  Yeah I keep thinking back to when oil hit $160/barrel around 2009 and all I heard was how we "won't see sub-$100/barrel oil again in our lifetimes" and it's here to stay and nothing we can do about it. And then oil crashed to $60/barrel. And today it's at $80. Maybe you think building houses in the majority of America is more sophisticated than petroleum surveying, extraction, capping, refining... I respectfully disagree. The cure for high prices is high prices.
resonantjacket5 5y ago
The author lists every reason under the sun while missing the most important one: zoning or aka restricting buildable land that is causing the housing shortage
- baron816 5y ago
  There’s a whole lot of suspicion that these kinds of zoning laws that are upheld by leftists are cynical—they really just want to protect their property prices. But I think the left really believe what they are doing in blocking liberalization is good for communities. They’ve gotten into this mode of thinking that markets can’t solve problems of resource scarcity. Markets aren’t perfect, but one thing they surely can do (if not impeded) is to efficiently match supply with demand. If we wanted, homelessness could easily be ended with freer housing markets. Yes, some people would be living in very small, ugly, somewhat unsafe (though far safer than the streets), and fairly uncomfortable spaces, but it would certainly be better for everyone if it were legal to build those kinds of spaces.
  - mslate 5y ago
    It's like you picked up Occam's Razor & then threw it in the garbage bin.
  - RappingBoomer 5y ago
    yes, but also environmental regs are used this way
LurkingPenguin 5y ago
Stopped reading at "In that sense, having a child amidst this corrupt corporatocracy is part of our act of resistance. It’s our declaration of hope against chance."
8teapi 5y ago
So wrong. 1. Population is growing -> sure worldwide, but projected to start declining by mid century. In addition, Japan, Italy and other places are already in decline. Japanese home prices have been almost flat for 30 years. Tokyo has no zoning and you can build what you want. If you live in the developed world, East Asia, China, etc you are going to witness declines if you don't have immigration 2. People are moving to cities -> Were. Covid has allowed a lot more flexibility. First tier city residents moving to second tier and rural areas with good internet service. Real reversal of the last twenty years. 3. More people are living alone -> sure because there are fewer of them. Direct contradiction of point 1 by the way. 4. Multiple house ownership. So what? 5. Housing construction isn't keeping up. Sure. But that can be fixed if there is political willpower. 6. Material shortages and building costs. -> We were just in oversupply of materials post '08 financial crisis. We could be again. Just focused investment on production of materials. Land.. If you have Hong Kong density, the entire US population could squeeze into a corner of the state of Texas. 7. Sure inflation is soaring, but can come down again, with higher interest rates, which would also absolutely slaughter leveraged real estate investors. 8 Weird thing on the monopolists... They were already financing 90% of house anyway with debt. You were paying a rental equivalent called a mortgage. Now they're financing 100%, and you still pay a rental equivalent. 9 Outrageous leverage - individual homeowners have way better leverage. 30 year fixed mortgage with the option to refi to lower interest rates if they are available. Corporates don't get to access that. What's really happened is that post '08 financing disappeared for buyers with low credit scores. The Solution is Simple 1. Get rid of most single family zoning 2. Create incentives and penalties such that cities with higher real estate prices build more housing of all kinds 3. More supply everywhere
- asauter 5y ago
  Ideally you don't want prices to go down, less we get a deflationary spiral, you want more equal distribution AND inflation to be greater than the interest rate, which reduces Debt burden. First time home buyers can put down 3% for conventional loan, provided it is not a jumbo loan maybe it should be more aggressive to advantage new entrants who haven't had housing debt during this remarkable rate decline (price increase) over last 40 years... I think we should invert the regressive taxes: prop 13, MITD (trump partly fixed) and capital gain exemption, others?
TameAntelope 5y ago
One aspect of articles like this that I've noticed is the absolute certainty the author seems to have that these terrible outcomes are inevitable, with no expression of a confidence interval or possible less world-ending alternatives. I just... can't take articles like this seriously. It's the political equivalent of gore porn, and it feels like a waste of time to think about. When Nassim Taleb wrote about "Black Swan events", he more or less ended circumspect skepticism, because now everyone is trying to find the next "black swan event" that they can predict, and have discovered calling out hundreds of them is the most effective way to get one right, with minimal/zero consequences for being wrong.
- brandur 5y ago
  I would suggest reading until the end. The author makes a number of recommendations on how this outcome can possibly be avoided (see header starting with "The solution is simple" and all the way through until the end of the piece).
  - anm89 5y ago
    It's hard to make it to the end when the writing is so obnoxious. I certainly gave up before then.
  - TameAntelope 5y ago
    Ah yes, the inevitable, "All we have to do is chop off our arms, and our torsos shall be saved from this terrifying poison ivy. I know, because I read 10 articles on WebMD about bubonic plague, and poison ivy looks a bit like that." argument that comes with every one of these articles. I did read the entire article, and I considered his solution to be wildly out of touch with reality, almost intentionally so to make the problem he outlines all the more drastic (surely the issue is serious if we have to take such extreme measures to end it).
  - larsiusprime 5y ago
    Henry George's Land Value tax would be a much easier and simpler solution that would ultimately be more effective than all the stuff this guy is proposing. The reason house prices are going up is because land values are going up, and the reason land values are going up is because there's only so much land (by which I mean locations) in the world, particularly in places where people want to live, and as the population increases and as increased productivity pushes out the margin of productivity the rent goes up. So tax land. Use existing property tax regimes, shift taxes to land rather than buildings, and raise the rates so that it gets unprofitable to speculate on land and incentivize building as much stuff as possible. Also remove restrictive zoning ordinances and all the other usual YIMBY stuff.
paulpauper 5y ago
For over a decade pundits have been calling for the housing market to fall, yet prices keep going up to no end. Even Covid could not derail it. Although homes are more expensive than ever before , thanks to historically low 30-year mortgage rate and low inflation, real estate is probably a better investment now than ever before, although the down payment is more expensive. But despite this, the returns are very good, assuming you can afford the downpayent. One thing I have observed reading these articles is that it's way easier to explain why prices keep going up than propose any viable solutions. I think the best answer is building outward, expand the economy outward.
- nuclearnice1 5y ago
  > thanks to historically low 30-year mortgage rate and low inflation, real estate is probably a better investment now than ever before Would an investor taking advantage of those low 30 year mortgages prefer low inflation or high? It seems to me they prefer high. They pay the mortgage back in future dollars which are worth less.
  - benmanns 5y ago
    Yes. With enough inflation your house would become worth 10x and your mortgage now represents at most 10% of the new value. Fixed rate leverage is a bet that inflation is understated.
    - Swizec 5y ago
      My parents paid off their first apartment in 5 years instead of 20 because of inflation in Yugoslavia. You can no longer get fixed rate mortgages in that part of the world … wonder why
  - asauter 5y ago
    One may want a high interest rate while you hold the property but you want low/declining interest rate as you approach sale
- A4ET8a8uTh0 5y ago
zz865 5y ago
At least the US had a small housing crash in 09/10, most of the rest of the world hasn't seen that so its been 3 decades of non-stop boom. It has to add badly. I thought the baby boomers retiring would cause a lot of downsizing but that just hasn't happened.
- refurb 5y ago
  Exactly. I'd say the US housing market has less risk than other countries. Canada barely saw a blip during 2008. The average house price peaked at over $700,000 this summer. That's not Toronto or Vancouver, that's Canada as a whole, including places like god damn middle of nowhere BC. It did drop to the mid-600's after that. In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years.
  - TMWNN 5y ago
    >In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years. This is also why Canadians continue to flock to the US. They get higher salaries and lower housing cost. Further, while it's impossible in Canada to reach the top of one's profession without living in Montreal, Toronto, or Vancouver (add Edmonton and Calgary if in energy), it's entirely possible to reach the top of many industries in the US without living in NYC/LA/Chicago/SF.
    - vineyardmike 5y ago
      > This is also why Canadians continue to flock to the US. They get higher salaries and lower housing cost As an American, I would love to move to Canada, but this is a pretty bad combo which makes it hard to justify.
  - dragonwriter 5y ago
    > In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years. The median sales price. But this doesn't mean home values went up that much, and if you look at home value measures, they went up less. Median sales prices went up more because of a shift of which homes were actually moving on the market.
monkmartinez 5y ago
I love this article! These types of articles are the signs the market is about to turn over. The eviction moratorium and mortgage forbearance programs [i]just[/i] ended. It will take some time for the contagion from those programs to propagate thru the housing market. Secondly, you can not get massive inflation with the velocity of money in the dumps[1]. Probabilistically, we are going to see stagflation until demand drops off due to higher prices and supply chains normalize. With "free" money drying up from "stimulus" packages, the demand for goods and services should wane in the coming months. There are various charts that show this starting to happen now. (Steve Van Metre on Youtube is good for macro stuff) Thirdly, I recently watched a video from the Global Labor Org. [2] that made a few bold claims. One of which was, the US is probably already in another recession with consumer sentiment being the "tell." Interesting stuff. The methods are non-traditional to arrive at this conclusion and time will tell if they are bold and right or bold and wrong. I happen to believe they are right... Anecdotally, I work the streets as EMS and Fire for my city, blue collar... but stable and can make SWE money with overtime. I worked through the GFC of 2008 and I see soooo many similarities, mostly in my colleagues at the station. Lots of them buy the most house they can afford monthly while living on the edge of personal solvency. They extract money from the property via HELOC to buy toys and remodel endlessly. If rates rise even a tiny bit, that party comes to a screeching halt. "Assets" are dumped at fire sale prices or they will simply walk away, ala 2008-09. Yes, blackrock is buying thousands of properties, no one that pays attention will dispute that. However, we don't know how exposed these hedge funds are to the Evergrande collapse contagion that will spread like Covid in the coming months (ironic, no?). If these hedge funds are leveraged to the gills with bad paper, they will collapse and the houses will be sold at fire sale prices. My money is on the whole thing being exposed in ways we do not comprehend.... yet. [1]https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V [2]https://www.youtube.com/watch?v=_-jmDyg0AcE https://www.youtube.com/watch?v=_-jmDyg0AcE
- gremlinsinc 5y ago
  My dream in life is to buy land, set up glamping rentals, and build extremely cheap rentals (like $200/month for a earthbag home) for those who work low-to-middle class and their families. Rinse and repeat all over America... make $100/night off the glamping sites, to subsidize the tiny-home communities. Flood the market w/ these so landlords have no use for their over-priced NIMBY homes.
captnObvious 5y ago
For most of human history we built our own homes. We only stopped because having others do it became more convenient.
helen___keller 5y ago
> The new paradigm: A house’s value is now the maximum amount of annual rental income that can be extracted from it by a global investor, multiplied by maximal institutional leverage. This is generally the same thing from the other point of view? Let’s put aside conversion of housing units to vacation stays. That’s a separate issue roiling some housing markets (and not others — some states have already dealt with the Airbnb problem) Then, what you’re left with is that when a house goes on the market either a family buys it and pays mortgage however much they can afford or an investor buys it and… rents it to that family however much the family can afford. The investor is screwed if rent doesn’t cover mortgage, especially if they are over leveraged. Over time the math works out that the monthly costs of renting and owning are similar. Typically if it seems out of wack, it’s either because there’s a bubble and prices will crash or there’s a boom in the economy and rent is about to join home prices in the stratosphere. The real difference between rent/buy now vs then is the difficulty affording a down payment in a low interest rate environment when asset values are bloated, and risk of being underwater if interests rates ever rise significantly.
Geee 5y ago
So, he hasn't heard of Bitcoin? You don't need all these regulations if you just fix money. Central bank controlled interest rates and inflationary monetary policies are the root of this problem. There's no way for these monopolists to lose if they can leverage with money printed from thin air. It's a risk-free return, because they can profit from centrally controlled monetary policy, which is guaranteed to work for their favor and bail them out if they take too much risk. Make money printing impossible and everything will correct itself. When money is truly owned and controlled by people, free market interest rates will increase and kick out these leveraged rent-seekers. No one will lend their hard-earned money to these people for free. The beautiful thing is that market forces will actually make Bitcoin take over the current system by itself. Free markets will always choose fair money, because it's more beneficial for all of its users, expect for those who benefit from a central mint.
- larsiusprime 5y ago
  Given he has > If you’d like to win a book and $100 in free cryptocurrency, head over to jaredabrock.substack.com plastered right at the top, I would say, yes, he has heard of Bitcoin.
jurassic 5y ago
This author needs relax and take a breath. Even if he’s right that financialization is displacing some would-be homeowners, he’s ignoring all the second order effects and reactions that would counteract this trend long before we reached a state where there are 99% renters. The middle class having an acceptable quality of life is the only thing keeping society stable, and the masses would be guillotining the plutocrats long before we reach that point. If people seem politically disengaged today it’s because by-and-large Americans are doing alright, something I think would absolutely change if you had middle class working adults losing their homes due to property taxes growing much faster than incomes. He cites growing property tax bills as the reason even current homeowners are not safe from this trend. If this really became a problem, you would just see an acceleration in Prop 13 style laws protecting incumbent homeowners. But also, many cities recalculate the tax rate each year based on their budget needs. If home prices all doubled in a short period of time, I’d expect the effective tax rate to fall since the city’s revenue needs grow at a slower pace. Leftists like the author seem to start from the premise that somebody making money is always a bad thing and build their entire housing ideology around that belief. Profit motive is a great thing if it incentivizes the creation of needed housing. Profit motive is great when it motivates landlords to buy and fix run-down properties, raising the overall quality of housing in that community. Building and maintaining housing stock is work that entails risk and that deserves compensation. Without these financial incentives, the whole system breaks down. For a glimpse at the alternative, just look at what happened with housing in the Soviet Union: huge blocks of dingy 300-500 sq ft units with nicer units reserved only for the beneficiaries of political corruption, a system of housing I doubt any of us here would wish to adopt ourselves. But, hey, at least no greedy landlords got paid.
TMWNN 5y ago
>If something cannot go on forever, it will stop. —Herbert Stein, economist, 1986
andreskytt 5y ago
He lost me when making statements about a paradigm shift and human history while explicitly talking about US of A. A fine country, but not representing the entirety of any global trend.

65 points by rblion 5y ago

“More people moving to cities” and “more people living alone” sounds like it should add up to “more apartment buildings.”

tomrod 5y ago

Not a bad overview, but misses some things (1) political instability (2) $10M/home as sticker price wouldn't happen. Apartments and row homes would be more common substitutes (and already have sopped up demand in the starter home markets) (3) what inflation measures show 10% inflation?

1ark 5y ago
Shadowstats[1] shows more than 10% in '80s-based measure. 1. http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
- gruez 5y ago
  The same shadowstats just takes BLS CPI and adds a constant to it? https://news.ycombinator.com/item?id=27124745 https://news.ycombinator.com/item?id=27124745
- timmaxw 5y ago
  Shadowstats's 80s-based measure says we've been having 10% YoY inflation for two decades now. If that were true, prices would've 5x'ed since the year 2000. That doesn't pass the 'sniff test' to me; e.g. the Big Mac Index [1] says a Big Mac cost $2.50 in 2000 and $5.50 today, equivalent to about 4% YoY inflation. [1] https://www.economist.com/big-mac-index https://www.economist.com/big-mac-index
  - Geee 5y ago
    It's not the same Big Mac. It's smaller and lower quality. Check out https://www.reddit.com/r/shrinkflation/ https://www.reddit.com/r/shrinkflation/ which has posts about products that get smaller.
paulpauper 5y ago
5-10% for many things: tuition, healthcare, cars, homes, transportation, etc. I don't see political instability ever being much of a problem. Trump was considered 'unstable' by pundits yet prices surged during his term.
- jeromegv 5y ago
  Well that would be a different story if he did succeed at stealing the election on Jan 6 while having his supporters destroying the Capitol. The social unrest would have been quite something.
- __john 5y ago
  IIRC 15% for Campbells Tomato Soup. https://politicalcalculations.blogspot.com/2020/01/the-price-history-of-campbells-tomato.html https://politicalcalculations.blogspot.com/2020/01/the-price...
  - smnrchrds 5y ago
    Eyeballing the values on the graph, it looks like the price increase is around 4% YoY between 2000 and 2020, from ~0.40$ to 0.85$. If it were 15%, it would have reached 6.50$ in 2020.
    - __john 5y ago
      My mistake, I linked the wrong thing. Here is the right one https://politicalcalculations.blogspot.com/2021/01/the-price-of-campbells-tomato-soup-in.html https://politicalcalculations.blogspot.com/2021/01/the-price... .
- vineyardmike 5y ago
  > I don't see political instability ever being much of a problem. Constantly in the political sphere are candidates promising to forgive tuition debt because its so crazy, and politicians promising the government will cover healthcare because its so crazy. We're not at political instability, but I think we're crossed over into "politicians have to solve this not because its a governments responsibility, but because people can't solve it so they're asking politicians" which is often the first step to instability.
neuroma 5y ago
It emerged in another thread that since the 1950s inflation has averaged 8% a year. Will try to find source...
- ahahahahah 5y ago
  What utter nonsense. Even not adjusting for improved quality, do you honestly think things cost 220x what they did in the 50s?

seibelj 5y ago

The price of the average house in the USA is based primarily on the government-guaranteed 30 year fixed rate mortgage. For a given interest rate and income, the house will cost exactly the maximum amount of loan the borrower can get. Banks no longer have any skin in the game - they go through a massive checklist, gather tons of documents, and once they can fulfill their legal mandates they immediately approve the loan and flip the note to investors. With interest rates so low for so long, a significant increase in rates would decrease the real value of homes as the monthly payment would exceed what someone can afford. As home ownership is a political football, you can be sure the price of homes will only go up. 2008 was a blip in the steadily increasing price of homes.

thaumasiotes 5y ago
> The price of the average house in the USA is based primarily on the government-guaranteed 30 year fixed rate mortgage. For a given interest rate and income, the house will cost exactly the maximum amount of loan the borrower can get. This implies that very poor people can buy houses for very cheap. The price of a particular house is not set by reference to the person purchasing it. The price comes first, and the buyer second.
- beerandt 5y ago
  No- but you need the number of houses in a given price range to more or less match up with the number of buyers who can afford them. Look what the jumbo loan and other federal loan limits are within a given market, and if you plot real estate listings/sale prices, there will be clusters grouped just below each limit, especially the jumbo.
- seibelj 5y ago
  If a buyer has $100k income and ~75k post tax, then they will be able to afford (at most) $45k per year out of pocket, or ~$2k per month. Based on the interest rate, you can work backwards to see the house they can afford, and the people buying at that price point will all have similar incomes.
  - 5y ago

RobLach 5y ago

A couple pieces of legislation can shift the equation drastically. Incentives carved out for the home you live in (versus investment properties) are a common way to squeeze more out of a state run property subsidy program without making too many constituents mad. For now, probably not, as the the the majority of the US Speaker of the House's wealth comes from real estate holdings across California.

ttyprintk 5y ago
And 23 million Americans are landlords, according to this article.

echelon 5y ago

The US is vast, and we have a ton of affordable housing if you look outside the coastal cities.

dionidium 5y ago

> 5. Housing construction isn’t keeping up This is sufficient to explain why prices are much higher than they used to be. All the other stuff is window dressing for things the author already believes about the world. Once you've admitted that we've way under-built, then you don't need any other explanations.

beerandt 5y ago
Which is a direct result of restrictive federal lending policies, which make it difficult for builders and investors to finance building rentals or spec-houses. It all goes back to Dodd-Frank. "Fixing" one regulation with another just makes unintended consequences more likely.
vineyardmike 5y ago
> we've way under-built, then you don't need any other explanation Not only that, but the other explanations become suspect. Eg. Is it true that corporations are going to own every home and turn it into vacation rentals? Obviously not, most places aren't that desirable for tourists, and the more competition, the lower the price, so the lower the return, so the lower the value as a rental. Really this goes back to under-built too -> 1. people want to vacation at location X. X doesn't have enough beds for residents and tourists. Solution? More places for everyone by building to meet demand.
- dionidium 5y ago
  In fact, companies like BlackRock et al specifically target areas where new construction is unlikely, because of NIMBYs and zoning. Why didn't investors buy up single-family homes in the 70s or 80s or 90s? Did they just decide to get greedier in 2021? No, it's precisely the high prices and lack of new construction that attracts them to these assets now, where historically it wasn't profitable. This is from the SEC filing of one such investor (Invitation Homes) [0]: > We have selected locations with strong demand drivers, high barriers to entry and high rent-growth potential. And: > We have selected markets that we believe will experience strong population, household formation and employment growth and exhibit constrained levels of new home construction. [0] https://www.sec.gov/Archives/edgar/data/1687229/000119312517029042/d260125d424b4.htm https://www.sec.gov/Archives/edgar/data/1687229/000119312517...

MrMetlHed 5y ago

I've always thought the solution to this was exponentialy increasing property taxes beyond the first property you (or whatever legal entity you create to horde properties) own. I'm dumb, so I'm sure there are reasons this won't work, but it seems like it should.

sbierwagen 5y ago
LLCs are cheap. It's not uncommon to form separate holding companies for each property. Not impossible to write a law that pierces the corporate veil for taxation purposes, of course.
- MrMetlHed 5y ago
  Sure, I figured that there'd be lots of clever tricks around that. I figure you just make the law trace it up to the person at the top and have them as "owner" for exponential purposes.
- yuliyp 5y ago
  Doing it in reverse (give a credit / deduction against real estate taxes for an individual who owns and lives in their own home) works fine.
  - MrMetlHed 5y ago
    Wouldn't the corporation just factor in the credit loss as a cost of doing business and adjust the rent accordingly? Seems better to stop them from owning more than a few properties to begin with, but I suppose both would be cool with me.
    - jeromegv 5y ago
      Rent price is determined by supply and demand. You can only increase rent if the market can support it. And to do that, you can do it regardless if your expenses went up or not. Goes the other way as well
    - 5y ago

jackcosgrove 5y ago

> He’ll have to navigate totalitarian social credit systems and surveillance panopticoins. Great typo!

sbierwagen 5y ago

Ah, the classic signal of a market top: "This time is different; prices can't ever go down."

paulpauper 5y ago
then short some REITS if you believe this
- topkai22 5y ago
  Well my specific belief is that housing won’t keep up with inflation rather than fall significantly in absolute terms. Not sure how I short that belief.
harambae 5y ago
Yeah I keep thinking back to when oil hit $160/barrel around 2009 and all I heard was how we "won't see sub-$100/barrel oil again in our lifetimes" and it's here to stay and nothing we can do about it. And then oil crashed to $60/barrel. And today it's at $80. Maybe you think building houses in the majority of America is more sophisticated than petroleum surveying, extraction, capping, refining... I respectfully disagree. The cure for high prices is high prices.

resonantjacket5 5y ago

The author lists every reason under the sun while missing the most important one: zoning or aka restricting buildable land that is causing the housing shortage

baron816 5y ago
There’s a whole lot of suspicion that these kinds of zoning laws that are upheld by leftists are cynical—they really just want to protect their property prices. But I think the left really believe what they are doing in blocking liberalization is good for communities. They’ve gotten into this mode of thinking that markets can’t solve problems of resource scarcity. Markets aren’t perfect, but one thing they surely can do (if not impeded) is to efficiently match supply with demand. If we wanted, homelessness could easily be ended with freer housing markets. Yes, some people would be living in very small, ugly, somewhat unsafe (though far safer than the streets), and fairly uncomfortable spaces, but it would certainly be better for everyone if it were legal to build those kinds of spaces.
- mslate 5y ago
  It's like you picked up Occam's Razor & then threw it in the garbage bin.
- RappingBoomer 5y ago
  yes, but also environmental regs are used this way

LurkingPenguin 5y ago

Stopped reading at "In that sense, having a child amidst this corrupt corporatocracy is part of our act of resistance. It’s our declaration of hope against chance."

8teapi 5y ago

So wrong. 1. Population is growing -> sure worldwide, but projected to start declining by mid century. In addition, Japan, Italy and other places are already in decline. Japanese home prices have been almost flat for 30 years. Tokyo has no zoning and you can build what you want. If you live in the developed world, East Asia, China, etc you are going to witness declines if you don't have immigration 2. People are moving to cities -> Were. Covid has allowed a lot more flexibility. First tier city residents moving to second tier and rural areas with good internet service. Real reversal of the last twenty years. 3. More people are living alone -> sure because there are fewer of them. Direct contradiction of point 1 by the way. 4. Multiple house ownership. So what? 5. Housing construction isn't keeping up. Sure. But that can be fixed if there is political willpower. 6. Material shortages and building costs. -> We were just in oversupply of materials post '08 financial crisis. We could be again. Just focused investment on production of materials. Land.. If you have Hong Kong density, the entire US population could squeeze into a corner of the state of Texas. 7. Sure inflation is soaring, but can come down again, with higher interest rates, which would also absolutely slaughter leveraged real estate investors. 8 Weird thing on the monopolists... They were already financing 90% of house anyway with debt. You were paying a rental equivalent called a mortgage. Now they're financing 100%, and you still pay a rental equivalent. 9 Outrageous leverage - individual homeowners have way better leverage. 30 year fixed mortgage with the option to refi to lower interest rates if they are available. Corporates don't get to access that. What's really happened is that post '08 financing disappeared for buyers with low credit scores. The Solution is Simple 1. Get rid of most single family zoning 2. Create incentives and penalties such that cities with higher real estate prices build more housing of all kinds 3. More supply everywhere

asauter 5y ago
Ideally you don't want prices to go down, less we get a deflationary spiral, you want more equal distribution AND inflation to be greater than the interest rate, which reduces Debt burden. First time home buyers can put down 3% for conventional loan, provided it is not a jumbo loan maybe it should be more aggressive to advantage new entrants who haven't had housing debt during this remarkable rate decline (price increase) over last 40 years... I think we should invert the regressive taxes: prop 13, MITD (trump partly fixed) and capital gain exemption, others?

TameAntelope 5y ago

One aspect of articles like this that I've noticed is the absolute certainty the author seems to have that these terrible outcomes are inevitable, with no expression of a confidence interval or possible less world-ending alternatives. I just... can't take articles like this seriously. It's the political equivalent of gore porn, and it feels like a waste of time to think about. When Nassim Taleb wrote about "Black Swan events", he more or less ended circumspect skepticism, because now everyone is trying to find the next "black swan event" that they can predict, and have discovered calling out hundreds of them is the most effective way to get one right, with minimal/zero consequences for being wrong.

brandur 5y ago
I would suggest reading until the end. The author makes a number of recommendations on how this outcome can possibly be avoided (see header starting with "The solution is simple" and all the way through until the end of the piece).
- anm89 5y ago
  It's hard to make it to the end when the writing is so obnoxious. I certainly gave up before then.
- TameAntelope 5y ago
  Ah yes, the inevitable, "All we have to do is chop off our arms, and our torsos shall be saved from this terrifying poison ivy. I know, because I read 10 articles on WebMD about bubonic plague, and poison ivy looks a bit like that." argument that comes with every one of these articles. I did read the entire article, and I considered his solution to be wildly out of touch with reality, almost intentionally so to make the problem he outlines all the more drastic (surely the issue is serious if we have to take such extreme measures to end it).
- larsiusprime 5y ago
  Henry George's Land Value tax would be a much easier and simpler solution that would ultimately be more effective than all the stuff this guy is proposing. The reason house prices are going up is because land values are going up, and the reason land values are going up is because there's only so much land (by which I mean locations) in the world, particularly in places where people want to live, and as the population increases and as increased productivity pushes out the margin of productivity the rent goes up. So tax land. Use existing property tax regimes, shift taxes to land rather than buildings, and raise the rates so that it gets unprofitable to speculate on land and incentivize building as much stuff as possible. Also remove restrictive zoning ordinances and all the other usual YIMBY stuff.

paulpauper 5y ago

For over a decade pundits have been calling for the housing market to fall, yet prices keep going up to no end. Even Covid could not derail it. Although homes are more expensive than ever before , thanks to historically low 30-year mortgage rate and low inflation, real estate is probably a better investment now than ever before, although the down payment is more expensive. But despite this, the returns are very good, assuming you can afford the downpayent. One thing I have observed reading these articles is that it's way easier to explain why prices keep going up than propose any viable solutions. I think the best answer is building outward, expand the economy outward.

nuclearnice1 5y ago
> thanks to historically low 30-year mortgage rate and low inflation, real estate is probably a better investment now than ever before Would an investor taking advantage of those low 30 year mortgages prefer low inflation or high? It seems to me they prefer high. They pay the mortgage back in future dollars which are worth less.
- benmanns 5y ago
  Yes. With enough inflation your house would become worth 10x and your mortgage now represents at most 10% of the new value. Fixed rate leverage is a bet that inflation is understated.
  - Swizec 5y ago
    My parents paid off their first apartment in 5 years instead of 20 because of inflation in Yugoslavia. You can no longer get fixed rate mortgages in that part of the world … wonder why
- asauter 5y ago
  One may want a high interest rate while you hold the property but you want low/declining interest rate as you approach sale
A4ET8a8uTh0 5y ago

zz865 5y ago

At least the US had a small housing crash in 09/10, most of the rest of the world hasn't seen that so its been 3 decades of non-stop boom. It has to add badly. I thought the baby boomers retiring would cause a lot of downsizing but that just hasn't happened.

refurb 5y ago
Exactly. I'd say the US housing market has less risk than other countries. Canada barely saw a blip during 2008. The average house price peaked at over $700,000 this summer. That's not Toronto or Vancouver, that's Canada as a whole, including places like god damn middle of nowhere BC. It did drop to the mid-600's after that. In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years.
- TMWNN 5y ago
  >In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years. This is also why Canadians continue to flock to the US. They get higher salaries and lower housing cost. Further, while it's impossible in Canada to reach the top of one's profession without living in Montreal, Toronto, or Vancouver (add Edmonton and Calgary if in energy), it's entirely possible to reach the top of many industries in the US without living in NYC/LA/Chicago/SF.
  - vineyardmike 5y ago
    > This is also why Canadians continue to flock to the US. They get higher salaries and lower housing cost As an American, I would love to move to Canada, but this is a pretty bad combo which makes it hard to justify.
- dragonwriter 5y ago
  > In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years. The median sales price. But this doesn't mean home values went up that much, and if you look at home value measures, they went up less. Median sales prices went up more because of a shift of which homes were actually moving on the market.

monkmartinez 5y ago

I love this article! These types of articles are the signs the market is about to turn over. The eviction moratorium and mortgage forbearance programs [i]just[/i] ended. It will take some time for the contagion from those programs to propagate thru the housing market. Secondly, you can not get massive inflation with the velocity of money in the dumps[1]. Probabilistically, we are going to see stagflation until demand drops off due to higher prices and supply chains normalize. With "free" money drying up from "stimulus" packages, the demand for goods and services should wane in the coming months. There are various charts that show this starting to happen now. (Steve Van Metre on Youtube is good for macro stuff) Thirdly, I recently watched a video from the Global Labor Org. [2] that made a few bold claims. One of which was, the US is probably already in another recession with consumer sentiment being the "tell." Interesting stuff. The methods are non-traditional to arrive at this conclusion and time will tell if they are bold and right or bold and wrong. I happen to believe they are right... Anecdotally, I work the streets as EMS and Fire for my city, blue collar... but stable and can make SWE money with overtime. I worked through the GFC of 2008 and I see soooo many similarities, mostly in my colleagues at the station. Lots of them buy the most house they can afford monthly while living on the edge of personal solvency. They extract money from the property via HELOC to buy toys and remodel endlessly. If rates rise even a tiny bit, that party comes to a screeching halt. "Assets" are dumped at fire sale prices or they will simply walk away, ala 2008-09. Yes, blackrock is buying thousands of properties, no one that pays attention will dispute that. However, we don't know how exposed these hedge funds are to the Evergrande collapse contagion that will spread like Covid in the coming months (ironic, no?). If these hedge funds are leveraged to the gills with bad paper, they will collapse and the houses will be sold at fire sale prices. My money is on the whole thing being exposed in ways we do not comprehend.... yet. [1]https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V [2]https://www.youtube.com/watch?v=_-jmDyg0AcE https://www.youtube.com/watch?v=_-jmDyg0AcE

gremlinsinc 5y ago
My dream in life is to buy land, set up glamping rentals, and build extremely cheap rentals (like $200/month for a earthbag home) for those who work low-to-middle class and their families. Rinse and repeat all over America... make $100/night off the glamping sites, to subsidize the tiny-home communities. Flood the market w/ these so landlords have no use for their over-priced NIMBY homes.

captnObvious 5y ago

For most of human history we built our own homes. We only stopped because having others do it became more convenient.

helen___keller 5y ago

> The new paradigm: A house’s value is now the maximum amount of annual rental income that can be extracted from it by a global investor, multiplied by maximal institutional leverage. This is generally the same thing from the other point of view? Let’s put aside conversion of housing units to vacation stays. That’s a separate issue roiling some housing markets (and not others — some states have already dealt with the Airbnb problem) Then, what you’re left with is that when a house goes on the market either a family buys it and pays mortgage however much they can afford or an investor buys it and… rents it to that family however much the family can afford. The investor is screwed if rent doesn’t cover mortgage, especially if they are over leveraged. Over time the math works out that the monthly costs of renting and owning are similar. Typically if it seems out of wack, it’s either because there’s a bubble and prices will crash or there’s a boom in the economy and rent is about to join home prices in the stratosphere. The real difference between rent/buy now vs then is the difficulty affording a down payment in a low interest rate environment when asset values are bloated, and risk of being underwater if interests rates ever rise significantly.

Geee 5y ago

So, he hasn't heard of Bitcoin? You don't need all these regulations if you just fix money. Central bank controlled interest rates and inflationary monetary policies are the root of this problem. There's no way for these monopolists to lose if they can leverage with money printed from thin air. It's a risk-free return, because they can profit from centrally controlled monetary policy, which is guaranteed to work for their favor and bail them out if they take too much risk. Make money printing impossible and everything will correct itself. When money is truly owned and controlled by people, free market interest rates will increase and kick out these leveraged rent-seekers. No one will lend their hard-earned money to these people for free. The beautiful thing is that market forces will actually make Bitcoin take over the current system by itself. Free markets will always choose fair money, because it's more beneficial for all of its users, expect for those who benefit from a central mint.

larsiusprime 5y ago
Given he has > If you’d like to win a book and $100 in free cryptocurrency, head over to jaredabrock.substack.com plastered right at the top, I would say, yes, he has heard of Bitcoin.

jurassic 5y ago

This author needs relax and take a breath. Even if he’s right that financialization is displacing some would-be homeowners, he’s ignoring all the second order effects and reactions that would counteract this trend long before we reached a state where there are 99% renters. The middle class having an acceptable quality of life is the only thing keeping society stable, and the masses would be guillotining the plutocrats long before we reach that point. If people seem politically disengaged today it’s because by-and-large Americans are doing alright, something I think would absolutely change if you had middle class working adults losing their homes due to property taxes growing much faster than incomes. He cites growing property tax bills as the reason even current homeowners are not safe from this trend. If this really became a problem, you would just see an acceleration in Prop 13 style laws protecting incumbent homeowners. But also, many cities recalculate the tax rate each year based on their budget needs. If home prices all doubled in a short period of time, I’d expect the effective tax rate to fall since the city’s revenue needs grow at a slower pace. Leftists like the author seem to start from the premise that somebody making money is always a bad thing and build their entire housing ideology around that belief. Profit motive is a great thing if it incentivizes the creation of needed housing. Profit motive is great when it motivates landlords to buy and fix run-down properties, raising the overall quality of housing in that community. Building and maintaining housing stock is work that entails risk and that deserves compensation. Without these financial incentives, the whole system breaks down. For a glimpse at the alternative, just look at what happened with housing in the Soviet Union: huge blocks of dingy 300-500 sq ft units with nicer units reserved only for the beneficiaries of political corruption, a system of housing I doubt any of us here would wish to adopt ourselves. But, hey, at least no greedy landlords got paid.

TMWNN 5y ago

>If something cannot go on forever, it will stop. —Herbert Stein, economist, 1986

andreskytt 5y ago

He lost me when making statements about a paradigm shift and human history while explicitly talking about US of A. A fine country, but not representing the entirety of any global trend.