2 ms·

Two problems emerge: 1) Housing is a leveraged asset and can't fall substantially without a lot of individuals, banks, and institutions going bust. Historic g

by lumost 5y ago

Two problems emerge: 1) Housing is a leveraged asset and can't fall substantially without a lot of individuals, banks, and institutions going bust. Historic government interventions serve as a hedge against this. 2) If housing is expensive enough then individuals can't afford to sell their own home. If buying a new smaller home requires 2x the equity of my existing home then I probably can't reasonably move. This means that new homes are less likely to be offered for sale. It's clearly an unstable set of incentives, but it could be unstable for a very long time. My suspicion is that the only way for housing to exit its current cycle is a protracted period of high inflation in wages/goods/services which makes individuals more able to pay and depresses the financial returns on housing.

lotsofpulp 5y ago
1) does not apply since Zillow is not going to be buying the houses with taxpayer funded mortgages from FannieMae or such 2) it is true that people may not be able to afford to move, but people will keep dying and their houses will keep opening up. But the biggest thing is developed (buildings) real estate is very expensive to just hold empty, so there is incentive to keep it moving. I am not talking about foreign millionaire and billionaire apartments in tier 1 cities, those are obviously bought and sold under a different set of constraints and goals. But your general purpose houses in 99% of communities across the US need to be lived in and property taxes paid. I do agree with you that housing prices will not go substantially down nominally. Politically, all voters like to see their position improve, which means land and public stock market prices need to go up. But that does not mean Zillow will earn any decent risk adjusted return on buying and selling suburban tract built houses at scale.

by lumost 5y ago

lotsofpulp 5y ago

1) does not apply since Zillow is not going to be buying the houses with taxpayer funded mortgages from FannieMae or such 2) it is true that people may not be able to afford to move, but people will keep dying and their houses will keep opening up. But the biggest thing is developed (buildings) real estate is very expensive to just hold empty, so there is incentive to keep it moving. I am not talking about foreign millionaire and billionaire apartments in tier 1 cities, those are obviously bought and sold under a different set of constraints and goals. But your general purpose houses in 99% of communities across the US need to be lived in and property taxes paid. I do agree with you that housing prices will not go substantially down nominally. Politically, all voters like to see their position improve, which means land and public stock market prices need to go up. But that does not mean Zillow will earn any decent risk adjusted return on buying and selling suburban tract built houses at scale.