5 ms·

I think we are going back into a real estate bubble not very different than what preceded the 2008 financial crisis. I even see "high return" real estate funds

I think we are going back into a real estate bubble not very different than what preceded the 2008 financial crisis. I even see "high return" real estate funds that proudly advertise they're heavily into CDOs. For fuck's sake. Really, guys? Do we now have a whole new generation of young finance bros creating debt instruments that were literally children in 2006-2009 and haven't learned the lessons from the very recent past? Look at the absurd rise in single family home prices for a modest, detached home on a small lot in major cities. Look at the price of what would be the same location/street address of a $450,000 house in Seattle in 2014 vs now. It's absolutely a bubble.

tapas73 5y ago
could it be just inflation. I heard that there was a lot of moneys being printed.
dumbfoundded 5y ago
I think it's a lot worse than what you're saying. The price of gold was $45/oz in 1970. 52 years later it's $1,800/ounce. That's roughly 7.6% a year or 45x increase. If you use the inflation provided by the government, CPI, (1), they say inflation is only 3.6%/year or roughly 7x since 1970. Obviously we have a discrepancy. Is the dollar worth 45x less than 1970 or 7x times? When we look at prices of things like education, housing, and healthcare, the 45x number makes a lot more sense. Education has 30x in price over the same time period (2). If you're comparing prices in dollars, it feels like education got really expensive compared to the basket of goods the BEA tracks but in reality, education requires less gold than it did in 1970. Our incredible supply chains and manufacturing automation have lowered most consumer prices such that we don't really notice inflation but when you look at things that can't get much cheaper like housing, healthcare, education, asset prices of all sorts, you can't miss the fact that they correlate more closely with gold than the USD. Since we went off the gold standard, the US government has been inflating the currency which in effect, taxes holders of USD. The US gets away with it because of its military but how long can that last? The absurd rises in prices aren't crazy. They're catching up with reality. We can't just keep printing our currency and hope our military is strong enough to enforce this economic fantasy. (1) https://www.in2013dollars.com/us/inflation/1970?amount=1 https://www.in2013dollars.com/us/inflation/1970?amount=1 (2) https://www.yahoo.com/now/average-cost-college-jumped-incredible-122000732.html https://www.yahoo.com/now/average-cost-college-jumped-incred...
- md_ 5y ago
  Education and health care are both subject to Baumol’s cost disease. “Our incredible supply chains and manufacturing automation have lowered most consumer prices such that we don't really notice inflation…” What’s your definition of “inflation”? It sounds like it’s something other than purchasing power, which is surprising to me. “The US gets away with it because of its military” So do countries with smaller militaries have…less inflation? More? More or less monetary growth? It’d be interesting to see if the data bear out your hypothesis.
  - dumbfoundded 5y ago
    You really misunderstand the Baumol effect. It's about why jobs with no productivity gains have higher salaries over time (it's to keep up with places were wages did grow due to productivity gains). It's used to explain why jobs like musicians have increases salaries over long periods of time. My definition of inflation is simple: dollars to gold. If you measure things in grams of gold, our current situation makes a lot of sense. A random basket of good subject to complicate macro trends makes no sense. Pretty much everything takes less gold to purchase these days. Assets like property, health care, and education actually require less gold to acquire than 50 years ago but not that much less. Products like consumer goods, require much much less gold now. This makes sense. We can develop property faster and cheaper but we can't make land so it's only a bit less gold. Mass produced goods are an order of magnitude cheaper due to automation. Now let's go back to dollars. Every time the US prints dollars, it taxes the system. The total value of the system is the same but now the US government has some spending cash and everyone else holds a bit less. Why would any want to hold dollars? Partly, no one does. The richer you are, the less of your net worth you hold in dollars. But the world is forced to use dollars. Originally, the US & England came together to create an international gold backed currency system to logistically enable transactions without shipping tons of gold. In 1970, President Nixon abandoned this system (1). Please really do look at this chart and it's impossible to ignore when it happened. Our military & economic momentum are the only reason any uses dollars. It's complicated to describe all the ways but the biggest is that our navy guarantees safe global trade without piracy and fragmentation. If the US Navy disappeared, international shipping would quickly dissolve to squabbles on laws and borders. Small military conflicts would break out around the world. China's already hinted at as much in the South China sea. The Strait of Hormuz would become a war zone. We can argue about specifics but long story short, the world uses dollars heavily and doesn't want to. Every country would of course rather have everyone else use their currency. I think we can agree that the world uses dollars despite not wanting to. Domestically, the move away from gold is killing the middle class. It's a disgusting trick the wealthy have pulled. Essentially by creating the dollar, forcing everyone to use it, and then printing more, the owner class has stolen gold. Cheaper consumer goods from automation & global supply chains has lessened the impact but this newest generation is finally realizing they never afford a house or education for their children. The fact that the average life expectancy has gone down in the US is the craziest thing ever and should be a source of deep shame. To fix this, we only need two things: Fix the dollar to a specific amount of gold & Transfer a massive amount of wealth from the rich to the poor. It's obviously complicated and a bit fuzzy to describe but any denial of the general situation is like denying climate change. Gold was $40 and now it's $1800. The numbers are right there and pricing everything in gold makes it simpler to see. (1) https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart https://www.macrotrends.net/1333/historical-gold-prices-100-...
cecilpl2 5y ago
Houses in my culdesac in a suburb of Vancouver were selling for $450k in 2014. We bought here last April for $1.05m after seeing prices rise $200k in a month. The neighbors just sold last week for $1.35m, and there's a house around the corner listed for $1.5m.
- walrus01 5y ago
  Vancouver is really its own special case because not only is it subject to the price rise/increase that is being seen in the top 20/25 largest North American cities, in general for the US/Canada sized market, but also a massive influx of foreign money looking for a place to park it in reliable solid real estate. I am a participant in the Vancouver area housing market so I concur with your examples of what prices have risen to. I know a person in Langley whose single family home on a lot in a very normal early 1980s era subdivision was probably $400k valued ten or twelve years ago, they're now receiving unsolicited offers for 1.5 million.
  - abeppu 5y ago
    Is there a reason that those foreign investors like Vancouver specifically so much? People have been talking about the sharply increased prices in Vancouver for some time now -- so I'd think if you were looking for a safe place to park 1.5M you might prefer to buy 4 houses in Winnipeg or something?
    - walrus01 5y ago
      It's my understanding that it's primarily related to historical (past 40 years) immigration patterns to Vancouver. And the size of Mandarin and Cantonese speaking communities in the metro Vancouver area, which is of a similarly large amount of people as in Toronto. Earlier immigration to the lower mainland of BC was mostly Cantonese speaking folks from the region of Hong Kong, since about 2000 it's been much more "new money" Mandarin and more northern regions of China. Not just people looking for a safe place to park money but also enough members of their first language and ethnic community that there's a good selection of grocery stores, restaurants, retail shops, community events/entertainment. That's my theory, at least. https://en.wikipedia.org/wiki/Chinese_Canadians_in_Greater_Vancouver https://en.wikipedia.org/wiki/Chinese_Canadians_in_Greater_V...
twblalock 5y ago
In 2008, mortgages were being given out like free candy, without proof of ability to pay. Then the impending wave of defaults nearly destroyed the financial system. It was fundamentally a problem of unknown risk. Since then, mortgage underwriting has tightened up quite a bit. The people who are buying houses right now can actually afford to do it, and they are qualified for the mortgages they are getting. In many cases they are also making cash offers. In a lot of cases, they can afford to do it because their stock investments, options, RSUs etc. did very well over the past few years. If there is a bubble, that's where it is. Unless we see a new wave of defaults on mortgages, which I think is pretty unlikely given the above, I don't expect to see a housing bubble burst. On top of that, there is record low housing inventory, construction costs are high, and low interest rates enable buyers to pay more and still afford the monthly payments. Also, people have come to value having more space during the pandemic. Those factors aren't going to disappear overnight and burst a price bubble. Maybe we will see house prices decline gradually over the next few years as these issues clear up, but that's not a bubble bursting.
- walrus01 5y ago
  That is a very good point. I certainly hope we don't have entities like Countrywide running around handing out no-documentation mortgages like candy. But I think the price bubble for homes is outpacing ordinary peoples' growth in income in many cities. Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017. Another important metric to look at is the percentage of people or dual-income couples whose salaries are more modest, who could have financially handled the burden of a mortgage for a home (or condo) at 2014 market rates and prices, and who have now been permanently priced out of the market into being a permanent renter. The home they might want to buy has now doubled in value but their salaries are not markedly different from 2014.
  - dcolkitt 5y ago
    > Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017. But not everyone has to be, because the supply of housing is so limited. The number of new homes is still way below population growth, and it's increasingly becoming a trend for boomers to "age in place" instead of downsizing as they age. That means a large number of would be home buyers are competing for a tiny pool of available homes. In that kind of scenario the price of housing can become completely untethered from what the "average family" can afford, and totally driven the wealth of a small elite.
MattGaiser 5y ago
Eh, a lot might be explained by how offices have now become part of our houses. Single people/DINK couples now buy single family homes to have more work space. A couple that needed one bedroom now needs 3 if both work remotely.
rupert1234 5y ago
Look at this link. The US built very few houses in the last decade.... we are in a supply crunch. https://www.statista.com/statistics/1041889/construction-year-homes-usa/ https://www.statista.com/statistics/1041889/construction-yea... Going back to 05-07 people were bidding up houses in anticipation of them going up in value + there was high supply. People right now are bidding up houses to live in, because there aren't many and interest rates are very low, and they have money in the bank because they weren't spending much the past couple of years.

tapas73 5y ago

could it be just inflation. I heard that there was a lot of moneys being printed.

dumbfoundded 5y ago

I think it's a lot worse than what you're saying. The price of gold was $45/oz in 1970. 52 years later it's $1,800/ounce. That's roughly 7.6% a year or 45x increase. If you use the inflation provided by the government, CPI, (1), they say inflation is only 3.6%/year or roughly 7x since 1970. Obviously we have a discrepancy. Is the dollar worth 45x less than 1970 or 7x times? When we look at prices of things like education, housing, and healthcare, the 45x number makes a lot more sense. Education has 30x in price over the same time period (2). If you're comparing prices in dollars, it feels like education got really expensive compared to the basket of goods the BEA tracks but in reality, education requires less gold than it did in 1970. Our incredible supply chains and manufacturing automation have lowered most consumer prices such that we don't really notice inflation but when you look at things that can't get much cheaper like housing, healthcare, education, asset prices of all sorts, you can't miss the fact that they correlate more closely with gold than the USD. Since we went off the gold standard, the US government has been inflating the currency which in effect, taxes holders of USD. The US gets away with it because of its military but how long can that last? The absurd rises in prices aren't crazy. They're catching up with reality. We can't just keep printing our currency and hope our military is strong enough to enforce this economic fantasy. (1) https://www.in2013dollars.com/us/inflation/1970?amount=1 https://www.in2013dollars.com/us/inflation/1970?amount=1 (2) https://www.yahoo.com/now/average-cost-college-jumped-incredible-122000732.html https://www.yahoo.com/now/average-cost-college-jumped-incred...

md_ 5y ago
Education and health care are both subject to Baumol’s cost disease. “Our incredible supply chains and manufacturing automation have lowered most consumer prices such that we don't really notice inflation…” What’s your definition of “inflation”? It sounds like it’s something other than purchasing power, which is surprising to me. “The US gets away with it because of its military” So do countries with smaller militaries have…less inflation? More? More or less monetary growth? It’d be interesting to see if the data bear out your hypothesis.
- dumbfoundded 5y ago
  You really misunderstand the Baumol effect. It's about why jobs with no productivity gains have higher salaries over time (it's to keep up with places were wages did grow due to productivity gains). It's used to explain why jobs like musicians have increases salaries over long periods of time. My definition of inflation is simple: dollars to gold. If you measure things in grams of gold, our current situation makes a lot of sense. A random basket of good subject to complicate macro trends makes no sense. Pretty much everything takes less gold to purchase these days. Assets like property, health care, and education actually require less gold to acquire than 50 years ago but not that much less. Products like consumer goods, require much much less gold now. This makes sense. We can develop property faster and cheaper but we can't make land so it's only a bit less gold. Mass produced goods are an order of magnitude cheaper due to automation. Now let's go back to dollars. Every time the US prints dollars, it taxes the system. The total value of the system is the same but now the US government has some spending cash and everyone else holds a bit less. Why would any want to hold dollars? Partly, no one does. The richer you are, the less of your net worth you hold in dollars. But the world is forced to use dollars. Originally, the US & England came together to create an international gold backed currency system to logistically enable transactions without shipping tons of gold. In 1970, President Nixon abandoned this system (1). Please really do look at this chart and it's impossible to ignore when it happened. Our military & economic momentum are the only reason any uses dollars. It's complicated to describe all the ways but the biggest is that our navy guarantees safe global trade without piracy and fragmentation. If the US Navy disappeared, international shipping would quickly dissolve to squabbles on laws and borders. Small military conflicts would break out around the world. China's already hinted at as much in the South China sea. The Strait of Hormuz would become a war zone. We can argue about specifics but long story short, the world uses dollars heavily and doesn't want to. Every country would of course rather have everyone else use their currency. I think we can agree that the world uses dollars despite not wanting to. Domestically, the move away from gold is killing the middle class. It's a disgusting trick the wealthy have pulled. Essentially by creating the dollar, forcing everyone to use it, and then printing more, the owner class has stolen gold. Cheaper consumer goods from automation & global supply chains has lessened the impact but this newest generation is finally realizing they never afford a house or education for their children. The fact that the average life expectancy has gone down in the US is the craziest thing ever and should be a source of deep shame. To fix this, we only need two things: Fix the dollar to a specific amount of gold & Transfer a massive amount of wealth from the rich to the poor. It's obviously complicated and a bit fuzzy to describe but any denial of the general situation is like denying climate change. Gold was $40 and now it's $1800. The numbers are right there and pricing everything in gold makes it simpler to see. (1) https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart https://www.macrotrends.net/1333/historical-gold-prices-100-...

cecilpl2 5y ago

Houses in my culdesac in a suburb of Vancouver were selling for $450k in 2014. We bought here last April for $1.05m after seeing prices rise $200k in a month. The neighbors just sold last week for $1.35m, and there's a house around the corner listed for $1.5m.

walrus01 5y ago
Vancouver is really its own special case because not only is it subject to the price rise/increase that is being seen in the top 20/25 largest North American cities, in general for the US/Canada sized market, but also a massive influx of foreign money looking for a place to park it in reliable solid real estate. I am a participant in the Vancouver area housing market so I concur with your examples of what prices have risen to. I know a person in Langley whose single family home on a lot in a very normal early 1980s era subdivision was probably $400k valued ten or twelve years ago, they're now receiving unsolicited offers for 1.5 million.
- abeppu 5y ago
  Is there a reason that those foreign investors like Vancouver specifically so much? People have been talking about the sharply increased prices in Vancouver for some time now -- so I'd think if you were looking for a safe place to park 1.5M you might prefer to buy 4 houses in Winnipeg or something?
  - walrus01 5y ago
    It's my understanding that it's primarily related to historical (past 40 years) immigration patterns to Vancouver. And the size of Mandarin and Cantonese speaking communities in the metro Vancouver area, which is of a similarly large amount of people as in Toronto. Earlier immigration to the lower mainland of BC was mostly Cantonese speaking folks from the region of Hong Kong, since about 2000 it's been much more "new money" Mandarin and more northern regions of China. Not just people looking for a safe place to park money but also enough members of their first language and ethnic community that there's a good selection of grocery stores, restaurants, retail shops, community events/entertainment. That's my theory, at least. https://en.wikipedia.org/wiki/Chinese_Canadians_in_Greater_Vancouver https://en.wikipedia.org/wiki/Chinese_Canadians_in_Greater_V...

twblalock 5y ago

In 2008, mortgages were being given out like free candy, without proof of ability to pay. Then the impending wave of defaults nearly destroyed the financial system. It was fundamentally a problem of unknown risk. Since then, mortgage underwriting has tightened up quite a bit. The people who are buying houses right now can actually afford to do it, and they are qualified for the mortgages they are getting. In many cases they are also making cash offers. In a lot of cases, they can afford to do it because their stock investments, options, RSUs etc. did very well over the past few years. If there is a bubble, that's where it is. Unless we see a new wave of defaults on mortgages, which I think is pretty unlikely given the above, I don't expect to see a housing bubble burst. On top of that, there is record low housing inventory, construction costs are high, and low interest rates enable buyers to pay more and still afford the monthly payments. Also, people have come to value having more space during the pandemic. Those factors aren't going to disappear overnight and burst a price bubble. Maybe we will see house prices decline gradually over the next few years as these issues clear up, but that's not a bubble bursting.

walrus01 5y ago
That is a very good point. I certainly hope we don't have entities like Countrywide running around handing out no-documentation mortgages like candy. But I think the price bubble for homes is outpacing ordinary peoples' growth in income in many cities. Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017. Another important metric to look at is the percentage of people or dual-income couples whose salaries are more modest, who could have financially handled the burden of a mortgage for a home (or condo) at 2014 market rates and prices, and who have now been permanently priced out of the market into being a permanent renter. The home they might want to buy has now doubled in value but their salaries are not markedly different from 2014.
- dcolkitt 5y ago
  > Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017. But not everyone has to be, because the supply of housing is so limited. The number of new homes is still way below population growth, and it's increasingly becoming a trend for boomers to "age in place" instead of downsizing as they age. That means a large number of would be home buyers are competing for a tiny pool of available homes. In that kind of scenario the price of housing can become completely untethered from what the "average family" can afford, and totally driven the wealth of a small elite.

MattGaiser 5y ago

Eh, a lot might be explained by how offices have now become part of our houses. Single people/DINK couples now buy single family homes to have more work space. A couple that needed one bedroom now needs 3 if both work remotely.

rupert1234 5y ago

Look at this link. The US built very few houses in the last decade.... we are in a supply crunch. https://www.statista.com/statistics/1041889/construction-year-homes-usa/ https://www.statista.com/statistics/1041889/construction-yea... Going back to 05-07 people were bidding up houses in anticipation of them going up in value + there was high supply. People right now are bidding up houses to live in, because there aren't many and interest rates are very low, and they have money in the bank because they weren't spending much the past couple of years.