12 ms·

It could be years until we see a normal housing market

90 points by RickJWagner 5y ago

euroclydon 5y ago
"It’s like a doubling up. The homeowner goes to buy the next home, move up or move down. And because mortgages are so cheap, it’s a really good time to keep the first one as a rental unit. And so each year I go to buy a next one and I keep my first one. And so that’s one big phenomenon. And all of a sudden I’m a real estate investor. And at the same time, institutional money’s been cheap. There’s a lot of news about the big private equity funds buying up homes, but it’s actually the individuals who are driving most of it. So in the last decade we’ve taken 8 million homes out of the resale cycle and moved them into the investment rental part of the pool. And that’s, you know, 9% of all the single family homes." This tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence. I bet a lot of those small time landlords are nervous about cash flow, and you could find one that's ready to get out.
- willcipriano 5y ago
  I think the trick to "we buy homes" or whatever is they buy way under market. My neighbor sold for something like 150k, they fixed the place up and resold it for a little over 500k. Landlords aren't going to go that low.
  - bluGill 5y ago
    I'm guessing they put in 100k or more go remodel. 290k wouldn't surprise me. They are still making a lot money, but they are also taking that risk. There is far more of it going on than should be, but people who need to move in a hurry might like it. The better such companies that have existed for years without the advertising have good working relationships with contractors and thus get both a better deal and faster service than you could: the contractors know who brings in busines. They also know which contractors are actually good as opposed to scams. But the business doesn't support nearly the advertising that you see in normal markets. Call A qualified realtor with a dump house and they will call these people if your house is a hard sell. (If you know the fair value of your house you can avoid realtor fees selling direct )
    - willcipriano 5y ago
      I'm sure they put a lot of money in, these are old houses. I think they target less sophisticated sellers who don't have capital. She could've gotten a lot better deal if she put 20k - 30k in herself and fixed the major issues but she wasn't in a place to do that. A landlord with a few properties has more options and won't sell as low.
- xwdv 5y ago
  This will only guarantee you will buy the shittiest houses with poor cashflow or other issues, as those are the only ones landlords will sell off.
- bsenftner 5y ago
  Although the books are old and the author discredited, the "Rich Dad Poor Dad" real estate investment series still have a large number of people trying to follow the author's advice. They and similar "pop culture investors" are the prime landlords in over their heads that would be likely to sell. But be able to negotiate potential nonsense, as they are over their heads and tend not to be rational about their investment.
- StevePerkins 5y ago
  > "There’s a lot of news about the big private equity funds buying up homes, but it’s actually the individuals who are driving most of it." I realize there are a lot of "house flipper" shows on reality TV, but I don't buy this. I'm not receiving 20-30 phone calls and texts per week from "individuals" wanting to buy my house. I'm getting those calls from sophisticated commercial operations, who mask their phone numbers to include the same area code and first three digits as my own, etc. Individuals aren't putting up "We buy houses! Guaranteed offer!" billboards every few hundred feet in my city. I don't think that banks will even give individuals an endless series of mortgages. You can't declare rental income as "income" to qualify for mortgage loans.
  - frankbreetz 5y ago
    This is definitely wrong in my city. Everytime something reasonable comes up for sales it sells in a couple hours and is back on the market in couple months with some cheap renovations for a ridiculous amount. They buyer/seller is almost always listed as an individual and not a corporation.
  - curiousllama 5y ago
    No, but they consider a mortgage on a rental property with a signed lease separately from a mortgage on a primary/secondary residence. They’ll def give an endless series of mortgages to an otherwise wealthy person who keeps paying them back by renting out the homes.
  - bognition 5y ago
    > “You can't declare rental income as "income" to qualify for mortgage loans.” You absolutely can, it is income after all. All the banks care about is if the cost of the new mortgage is going to exceed your debt to income ratio.
    - ryanianian 5y ago
      > All the banks care about is if the cost of the new mortgage is going to exceed your debt to income ratio. Not exactly. The underwriting process is very different for full-time residences versus investment/rental properties. Rates are usually higher, debt/income ratio must be lower, and appraisals and cashflow analyses include rental market considerations. Given this it's entirely reasonable to assume the rift between mortgage products for investment vs residence to widen. If congresspeople want to do something about perceived imbalance between residence and income real-estate, they could change federal subsidies or underwriting requirements for income properties making mortgages for income properties much more expensive and/or harder to get. (Just realized a peer comment said something similar.)
- IAmGraydon 5y ago
  What is described here (buying a chain of properties year to year) is unlikely for most people. You can’t use rental income when calculating your debt to income ratio. Unless you have a massive income or an equally massive pile of cash, you are going to quickly run out of lenders willing to lend to you in your entirely over-levered position. Also, you have to stay in a home for a certain number of years for it to be considered a “primary residence” and therefor able to be mortgaged with a low down payment. Otherwise in each transaction you’ll have to come up with 25-30% down.
  - ttt333 5y ago
    > "You can’t use rental income when calculating your debt to income ratio." Do you have a source for this claim? Based on personal friends who work in the lending / single family rental home space, I don't think that's correct. [0] [1] [0]: https://www.valuepenguin.com/mortgages/claiming-rental-income-for-mortgage https://www.valuepenguin.com/mortgages/claiming-rental-incom... [1]: https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-3-Income-Assessment/Section-B3-3-1-Employment-and-Other-Sources-of-Income/1032995141/B3-3-1-08-Rental-Income-06-03-2020.htm https://selling-guide.fanniemae.com/Selling-Guide/Originatio...
    - StevePerkins 5y ago
      If that's actually the case, and many of those mortgages are adjustable-rate, then we've learned nothing and another 2007 may be inevitable. Fortunately, I still believe that the overwhelming majority of new rental units are being scooped up and placed on market by commercial entities, not individuals. You may have many individuals putting their second house up for rent, but I'm skeptical that banks are giving individuals a half-dozen loans in series. With the housing shortage as bad as it is (we're just not building enough to offset our population growth), I suspect that commercial entities would swoop in and buy up most second houses that individuals couldn't maintain anymore.
      - adwi 5y ago
        It is the case, and generally people that are savvy enough to purchase these are savvy enough to lock in a 3% rate when offered.
- ianai 5y ago
  Most or all of these type of landlords that I’ve spoken to strongly disliked to actively hated being a landlord. It’s very counter the “get wealthy slowly” narrative of being a landlord. Of course the financial aspects are true though they don’t mention them. This is in a location where good renters are a dime a dozen and building new units is pretty much impossible.
  - nerdponx 5y ago
    Being a halfway decent landlord is a miserable pain in the ass unless you live or work very close to your rental property. And even then, it's pretty easy to see several months income go up in smoke with even a modest renovation or repair. The income is nice, but it's anything but "passive" unless your rents are so high that you can afford to pay a management company, and/or you are comfortable being a slumlord.
    - ianai 5y ago
      Yes and I’ve heard mostly complaints about management companies. All the classic principal/agent problems with the costs of bringing more people into the situation. Edit-added “more people”
  - sjamaan 5y ago
    I've done the same (bought a house, kept the old one for rental) and used an agency as a middle man. They take care of collecting rent, and the day to day business if, say, a plumber needs to be called (I just have to sign off on it). This at a 6% fee of the monthly rent is quite worth it to avoid any hassle. The rent income also fully covers the mortgage of the new house so basically my living costs are for free.
  - a2tech 5y ago
    Well yes, they all complain about being a landlord. However as you say, they never discuss the money side of things--just the hassle. Most landlords in a very bad year will break even, but in an average year will be in the positive. And of course you shouldn't even be looking at rental income in the short term--you should be looking at it as an asset that someone else pays for entirely and maybe slops a little extra cash to you in the short term and THEN when you're older and they've paid for your asset as a revenue generator. I've been looking at buying a rental even though the prices are insane right now simply as a source of reoccurring revenue when my wife and I are older and the loan has been paid off.
- prepend 5y ago
  > This tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence. I don’t think so as landlords are locked into a 3% fixed mortgage and have a profitable income stream. Unless there’s some life event that requires them to sell, landlords are less likely to sell than regular homeowners.
unnouinceput 5y ago
Buy land instead, build a home, rent meanwhile. In max 2 years you can have your dream house and cheaper than current market.
- goldenkey 5y ago
  How do you do that in an established city?
  - amcoastal 5y ago
    There are tradeoffs everywhere. You have to assume that when stacking millions of people on top of each other everyone will not own a home. That's not a "policy" issue, it's just physics. If you want to live in city for whatever reasons, you just have to take that into consideration.
  - pmorici 5y ago
    Find someone who owns an oversized lot and offer to buy their yard or buy a tear down.
  - deleted 5y ago
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- StevePerkins 5y ago
  You'd have to find a builder. After 2008, that industry re-tooled and now there are considerably fewer builders working in residential development. And even those only want to work with developers on building new subdivisions, not work with individuals on single homes.
  - bananapear 5y ago
    What do you mean by "re-tooled"? What changed in 2008?
    - StevePerkins 5y ago
      Re-tooled in the sense of adapting their organizations to pursue commercial development opportunities more so than residential development (e.g. hiring more people with networks and experience in that market). The 2007-2008 crash wiped out a lot of over-leveraged residential developers, and individuals building single homes. From conversations I've had with people in that industry, their sense is that we learned next to nothing and that a repeat of that experience is inevitable. So commercial development became seen as more desirable and less risky. Now that I think about it though, I haven't had any conversations since COVID! I wonder if the rise of remote work will have enough impact on commercial development to flip that calculus again.
weregiraffe 5y ago
There will never be a "normal" housing market until the government starts to treat it as the food market. That is, as an absolute life necessity that needs to to be heavily regulated and subsidized to ensure everyone has access.
- xibalba 5y ago
  Over regulation is a big part of how this mess was created in the first place. Go read about Stockholm’s housing U̶t̶o̶p̶i̶a̶ hellscape to see the future you’d create.
  - goodpoint 5y ago
    "Over regulation" is an absurd concept: laws are not simply "not enough" or "too much". What really matters is *what* is allowed and prohibited and who benefits from it. In many countries regulatory capture led to building and zoning laws that serve to the interest of large investors groups as well as small speculators. People who have a home as necessity rather than an investment are put at a disadvantage.
    - pmorici 5y ago
      Wether you like it or not owning a home is always an investment. Perhaps not a good one but an investment non the less. To act like there are two types of people and that one disadvantaging the other because of their preference is silly.
      - goodpoint 5y ago
        No. You are confusing the primary purpose being an investment and being a dwelling. The intentions and behavior of the buyer can be profoundly different. Unsurprisingly, most countries have different regulations for first home buyer VS local investors VS foreign investors. If anything it's silly not wanting to acknowledge the difference. Or perhaps a bit cheeky.
        5y ago
doingtheiroming 5y ago
When has the housing market ever been normal? It’s had periods of equilibrium. Is that a synonym for normality? If we are thinking it terms of common features over time, perhaps the housing market mostly appearing to be demented is actually normality.
- ChuckNorris89 5y ago
  >When has the housing market ever been normal? When we had less regulation, the prices increases followed wage increases or inflation since housing was built and bought just so families could live in and wasn't a speculative/investment vehicle so others could get a return on their investment.
mooreds 5y ago
The author ignores one of the biggest issues, which is the secular generational trend of the millenials (the biggest generation ever) moving into prime housebuying years (30-40s) while the boomers (second biggest generation) are aging in place. That's also putting a squeeze on available inventory. The author also ignores the USA's land use policy (other than a tangential nod to 'we aren't building enough' which could have many reasons). Of course, there are many factors that the author mentions that are also adding stress to the housing market. It'd be interesting to read some research that attributes weight to each of them.
- harambae 5y ago
  >secular generational trend of the millenials (the biggest generation ever) moving into prime housebuying years I see this argument repeated everywhere and I still don't believe it. What, did these Millenials just crawl out of a swamp a week ago? It was known 35.75 years in advance when 35 year old Millenials would turn this age (assuming they survived life to that point). It's the world's most predictable situation. Are the same people who are surprised by this also surprised when it snows each winter?
deleted 5y ago
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throwaway22032 5y ago
What is "normal"? What if the everyday person, as a result of now having access to far more information than they did before (post Internet boom), acts in a different way?
- francisofascii 5y ago
  Normal was when you could afford to buy a home with a blue collar income, you had time to mull over making an offer, you could visit the house more than once before buying, you could have inspection contingencies, and had plenty of houses to choose from.
  - throwaway22032 5y ago
    Right, so before the information asymmetry was blown apart and the entire world was suddenly able to think about property as an investment. Hell, investment in general and the concept that a pension won't exist or won't be enough.
agd 5y ago
At least in London, this has been a problem for 20-30 years. For most young people, buying a house is becoming an impossibility. Supply is increasing, but slowly, and there's a limit on how dense people want to have the city. Demand side looks like the better area to focus. Reducing population would help significantly, combined with taxes/disincentives on second home ownership and vacant properties. Unfortunately these policies are unpopular with governing parties because: a) the politicians own property (and often more than one) b) older people vote, and they tend to be doing well out of the situation I see a lot of right wing VC folk on twitter calling for massive derugulation of the housing market to grow supply. However, I think there's a strong case to be made that housing and land are different from other parts of the market. People want green space, they don't want high rise everywhere. You cannot (for the most part) make new land. So, I agree that this problem won't be solved for 20+ years. Declining population is probably our best bet to improve the situation. And of course, young people will move to cheaper areas, particularly when they start families.
- Leherenn 5y ago
  I don't think declining population will change much, it's not going to be uniform. The remote villages/cities where all the kids leave as soon as possible will disappear once their ageing population die out. What's left of those villages will keep on migrating to the big cities, potentially even making the problem worse.
- s5300 5y ago
  I think we’re just going to become mole people tbh. Servants of our above ground geriatric overlords.
  - xunn0026 5y ago
    This is somewhat funny considering the globe has been locked in house to prevent a virus that is most deadly to the very old.
- deleted 5y ago
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- 5y ago
zhdc1 5y ago
People evaluate large purchases - in part - on whether they can afford the monthly payment. Low interest rates and comparably high rents make people more willing to pay more for property. Higher interest rates, which may be on the horizon, may put a damper on housing prices. However, I suspect that they'll have less of an immediate impact in the states, where fifteen and thirty year fixed rate mortgages are the norm. If inflation continues in Europe, it will be interesting to see what happens in countries where people generally borrow for ten to fifteen years at a time, and refinance once the mortgage term is over.
endisneigh 5y ago
Housing is already very cheap in places no one wants to live in. Housing is already affordable in the United States compared to other countries when you compare median house price to median income. If you want to see where the United States is headed go look at London, Vancouver, Paris, etc. As urbanization in the United States accelerates for many reasons, including climate change, I see house prices in desirable areas increasing even further.
- nikanj 5y ago
  If you want to look at US you should look at EU. Don't compare US to France, compare California to France and Montana to Romania.
  - endisneigh 5y ago
    Even if you do like for like the United States is much cheaper than Europe when comparing median income to median house price. Add in the highly subsidized mortgages and it’s a slam dunk in favor of the United States. The housing crisis is a meme basically centered around 15 locales in the states.
    - nikanj 5y ago
      > The housing crisis is a meme basically centered around 15 locales in the states. Yes, because that's where the people are. The housing crisis heatmap is pretty much the US population heatmap ( https://xkcd.com/1138/ https://xkcd.com/1138/ ). Houses are cheap in the vast emptiness of the rural US. The EU doesn't really have similar unpopulated areas.
      - endisneigh 5y ago
        Ok, compare urban areas then. USA is still cheaper.
        bradlys 5y ago
        Compare places with equal density is likely a better way to go about it.
nikanj 5y ago
A crash of 25% would take us back to..maybe summer 2020? A crash of 50% would take us back to...2015ish? I don't think the Fed etc have the guts to allow a 80% drop, so that the 2 million dollar house would drop back to $400k, and become reachable for the majority of people
- skwirl 5y ago
  A house that's $2m today is that expensive because it's a highly desirable home, much more desirable than the vast majority of homes out there - probably in the top 5%. You can never make such homes reachable for the majority of people because there aren't enough of them - if there were, they wouldn't be $2m right now. 50%+ of people can never afford the top 5% of homes.
  - esja 5y ago
    That's only really true if you are talking about specific houses and locations, while keeping everything else unchanged. In general, houses are just as desirable as they were a few years ago when they were half the price. All that has materially changed is the supply and cost of credit. The same thing works on the downside: broad price falls are not due to mass desirability changes. They are due to credit becoming harder to get and more expensive to repay on a monthly basis. Finance 101: asset prices move inverse to the discount rate.
    - skwirl 5y ago
      I never said macro price changes were driven by desirability changes - my point was almost exactly the opposite: The macro price is irrelevant. The top 5% of homes for sale will never be available to 50% of buyers. Price differences at a point in time signal relative desirability of homes. Over time, prices may go up or down, but the top 5% of homes will always be significantly more expensive than the median home.
      - esja 5y ago
        That's a different point than what I think the OP was making, and it's not entirely accurate either (except in a relative sense). For it to be completely correct, buying power would have to move identically with prices, and it does not. There have been many periods and places in history where the median income earner can afford a top 20% home (but may not choose to), and many other periods where the median income earner can only afford a bottom 20% home, and may instead choose to rent. What we've seen over the past decades is an acceleration of price ahead of buying power, pushing more people into renting, and leading to an accumulation of multiple properties in the hands of a smaller number of wealthier people (or institutions like Blackstone).
libertine 5y ago
Part of this phenomenon reached Portugal during the pandemic, some people from "big cities" went to the interior to buy houses for cheap to then either rent their houses in the city or the other one acquired. Basically they removed a lot of houses from the market from locals, making them reach prohibitive prices completely off the reality of what locals can afford... where will they go? What's the value added from the new-comers to those markets? They are not developing new houses, they aren't creating new jobs, and they shop mostly in big supermarkets.
scythe 5y ago
https://constructionphysics.substack.com/p/construction-costs-around-the-world https://constructionphysics.substack.com/p/construction-cost... https://www.vox.com/22534714/rail-roads-infrastructure-costs-america https://www.vox.com/22534714/rail-roads-infrastructure-costs... It's funny that we talk about manufacturing "dying" while productivity is still very high. Meanwhile, the construction industry is actually foundering and we shrug. "Guess China is buying all the cement." Which cannot explain international disparities at all. We can build small projects out of wood just fine. But those smaller projects need to be supported by larger projects: airports, hospitals, roads. Our existing concrete (literally) infrastructure is overburdened, which drives voter demand for restrictions on move-ins. Stop moving to Atlanta, stop moving to Austin, stop moving to Sussex County, Delaware. We shouldn't be overwhelmed every time a city grows. Wonks blame the voters, voters blame the wonks, a bridge in Pittsburgh falls into a river. The history of many cities shows periods of rapid growth far exceeding Austin over the last decade. San Francisco's population grew by >20% every decade from 1850 to 1930. There is no general rule that says growing cities must be so expensive. It's a phenomenon in the US, right now, not everywhere, all the time.
sascha_sl 5y ago
Ah, great, another thing I wouldn't have access to in my lifetime despite being in the top 25% income bracket. Capital accumulates in the hands of so few, it's just so fucked up and hurts to even think about. I'd settle in a hut in the forest, but I'm sure someone will try to evict me there too!
- formerly_proven 5y ago
  You can't live in the forest, that's illegal.
- bittercynic 5y ago
  The timing is unpredictable, but I think it's highly likely that you will get the opportunity to buy yourself a house if you are thrifty and patient.
  - ianai 5y ago
    Eh or buy at a high price now and find yourself unable to sell when prices lower. The long term population trends in the US are decreasing. My guess is it’ll be driven by baby boomer population decline. It’d be interesting to look into that deeper. Probably the best home buying scenario right now is to buy as little as you need. At least the eventual hurt is lesser. I mirror GP though. I graduated into the Great Recession and couldn’t find work for many years. The work I did eventually find wouldn’t have afforded real estate, ever. Now that my incomes up to buy home territory (comfortably) there’s this huge land grab. Not going to start on things like family formation. Feels like chasing a hundred dollar bill that’s being pulled on a line away from me.
- thehappypm 5y ago
  Every consider buying a home with like a 3% down payment? Many states have first time homeowner incentives; you can borrow against your own 401(k), etc
  - sascha_sl 5y ago
    i'm (1) european and (2) dependent on not needing a car so my only option is in cities
verisimi 5y ago
I see the housing market as part of wider transition. I think it is clear we are moving to a technocracy - we will not own anything, we will receive a UBI, we will be provided for (as a low level) but this will come at the cost of freedom. Technocrats (aka billionaire elites) will take closer control of the world's resources and micro-manage us. There are several issues before we actually enter that system. Firstly, it is required that we all have a biometrical-security-id to do anything. This part is already underway - we are starting to be convinced of the need to provide id (green pass, citizen scores or whatever) to go shopping, or even leave the house. Another of the issues that those who would achieve technocracy face, is that as much as the billionaire class owns, there is still independent wealth. In raising house prices, they create a new conflict - the older generation that own their houses know what it means - independence, that they worked for it, etc. Mostly they cannot conceive of owning nothing. The younger generation are the opposite, they cannot conceive of owning anything, or even moving out of their bedroom - they face an interminable childhood. I can see how being provided with a 110 foot flat would be a step up. They are/will be fine with the older generation losing their wealth and having the government re-allocate those resources towards a small flat. On the ground floor then, we will see a conflict between generations. The planned result is that we are all worse off, living in a smaller footprint, under close control. What little wealth is on the ground floor, will shift up and become owned by corporations. On the higher floors, corporations will own everything - all the property. Corporations are in fact owned by individuals - we do not see them, but these self-styled 'gods' will own everything. This is not freedom - the direction of travel is more overt bondage for the general population. And mostly, in their ignorance, people will be happy at the outcome. If we were really tackling inequity, we would be tackling those that own everything - but this is impossible given the secrecy of trusts, media blackouts, etc. Ownership should be entirely transparent - everything should be traceable. Corporations are merely a further cloak - corporations are owned too. Which individuals own Vanguard and Blackrock? But this will not be the solution we seek to resolve the problem. Instead, we will fight amongst ourselves. We will cheer as new annual taxes (at 1%) are introduced on the value of a 'expensive' (read, inflated) property, or when reverse equity options are offered as the government buys up the housing stock. (Reverse equity will come with a legal agreement to prevent the purchase of another property.) I hope this doesn't happen, but it seems that we have far to go individually - when we still believe the media, when we still believe that the government is there to help, we really haven't learnt much.
newacc9 5y ago
its because theres nothing else to buy... bond yields are too low, no obv tech stocks to buy, etc... the financialization of housing around 30pct of the good suburbs around Minneapolis are not owner occupied and demand is strong from investors, whether blackrock or otherwise, to buy the rest
- deleted 5y ago
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evancoop 5y ago
The notion of "normal" is dubious. For a decade preceding 2008, minimal verification of income or employment was required to buy a home (prices soared). Thereafter, the pendulum swung mightily in the other direction (having tried to purchase a home as a contractor, I can attest). Then the pandemic accelerated the migration to the suburbs for young families (prices soared). If there are as many over-levered real-estate investors as the article suggests, a market downturn will yield foreclosures, and PE firms will feast once again. There is no "normal." Only past, present, and future.
xbar 5y ago
10% of institutional home ownership is a couple of orders of magnitude more than the amount necessary to meet demand.
ianai 5y ago
Color me unimpressed with the arguments laid down here. It boils down to low rates and looking at the recent past when rates were low. And let’s point out rates have been 0-.25% for a long time now. Want to convince me? Pull in a Case-Schiller index comparison and some more technical, market level characteristic analysis. What would be interesting is figuring out price/interest rate sensitivities for buyers of homes in this market. Does investment leave the market if rates make other asset classes more viable? Probably. At what point? Edit-or tell me that the Fed can’t possibly raises rates for $goodReasons.
paulnpace 5y ago
Not in the article and rarely discussed is the most powerful influence on the price of housing: lack of production. Prices are a function of demand and supply. Oddly, the article seems to just drive right past this as the author discusses the problems related to people having nowhere to go, specifically when mentioning that if they sell their home for a tidy profit, they don't actually profit because they now have to go compete for a house. For all the arguments in the article, the following proposition seems like a reasonable evaluation: if Silicon Valley residents woke up tomorrow morning and discovered 5,000,000 new homes on the market, would that be predicted to influence the price? Of course it would, and that impact would be that prices would immediately plummet. This is true because the housing we are talking about may also be called shelter, and the demand for shelter is highly inelastic. People will do a lot to maintain shelter, including going without many other consumer items, buying used vehicles and using them until they turn to dust, sharing housing, taking second jobs, etc. In effect, all of the things we seen the younger generations doing are all the things we can easily predict one to do in order to have shelter, though most are not aware of or otherwise unable to articulate these kinds of economic considerations. Supply was only marginally restricted until somewhere around the early 90s, when states, counties, and municipalities began placing wholesale moratoriums on housing construction*. I can remember in the 80s as child driving through San Jose and seeing large orchards that are all now suburban housing. Looking around the valley, there has been no other housing development anywhere near that size, yet the net job growth in absolute numbers is many times higher. Many of the valley central planners plan construction as if it's still 1980, where each residential unit has something like 3 bedrooms to be occupied by two adults and two children, but reality is more like 3-5 adults. The result is substantially higher traffic and inadequate services, notably in the grocery stores which I observed to never have enough parking spaces, long lines, and popular items frequently out of stock on the shelf. Long commutes to far away communities are another result, essentially the planners deciding that among the most efficient workforce on the planet must be the task of sitting in a car 3 hours every day, which commonly cuts into what would likely be a good night's sleep, making the workers yet less efficient. The lack of shelter problem cannot be solved through anything other than increased production of housing. It is not a price problem. Prices are just the method we use to inform us on the situation of supply and demand for a product. Older generations will fight this, tooth and nail, because much of their savings are wrapped inside of a product they are consuming. Younger generations, if they ever figure out what is going on, may become hostile to the other needs of older generations, which, in my opinion, is a far greater risk to the older generations than the loss of equity in their homes. This goes without having a discussion as to the immorality of forcing younger generations into conditions of economically-enforced cohabitation and homelessness purely so that older generations can enjoy the profit that comes with restricted supply on the assets they own. I suppose this was a long-winded way of stating that the article's title claim is wrong, because there will likely never be a "normal housing market" short of some sort of large scale coordinated effort to substantially loosen or eliminate restrictions on construction. * Especially in California, housing construction is largely limited in absolute number of "new residential units" (NRUs), which is different than the popular understanding of increased difficulty in approval of design (the latter exists, and has for a long time, but it is not as significant as absolute restriction).
speedcoder 5y ago
Hmm. How do RVs fit in all this?
emerged 5y ago
The more articles predict continued doom and gloom, the more optimistic I become. Simply because that heuristic has made a fine Bayesian prior for most of my life.
theonlybutlet 5y ago
UN Reckons the world population should plateau by 2100 so I guess then.
mikewarot 5y ago
A house is a decaying pile of materials in need of constant maintenance. People want to own their own, because it is cheaper than paying someone else to maintain their decaying pile of materials, with management and profit overhead. Until people get over the idea that a depreciating, decaying pile of material is anything other than the lowest cost way to store your stuff and stay out of the elements, the market will remain irrational. Only someone insane, or looking for a bigger fool, would count a house as an investment. Source: I'm a home owner.
- givemeethekeys 5y ago
  > depreciating, decaying pile of material Certain markets have been amazing from an appreciation point of view - for example, the Toronto area housing market has been on a 25 year bull run.
  - pydry 5y ago
    That's coz it's actually the land value that's appreciating.
    - baobabKoodaa 5y ago
      Right, so it's not just the value of the "decaying pile of materials".
- vanusa 5y ago
  A house is a decaying pile of materials in need of constant maintenance. Well, maybe your house is. But in the general case -- it's that and "location, location, location" of course. On top of finite (in some markets highly constricted) supply. Plus, some are ... beautiful, well-designed, well-built, and/or historic (never to be made again). And finally, for very rich people, they have added functionality as value stores (particularly when favorable tax conditions come into play). The factors taken together explain why houses and apartments are not only not completely insane as investments -- but in fact can be quite lucrative investments.
greenie_beans 5y ago
Everybody in here is arguing about real estate prices and not the actual article… Did anybody else notice some flaws in this argument? He says the simplest explantion is the best to explain high prices. His simple explanation claims that inventory is at records low and home prices should be 20% higher because of this. But if you compare the inventory to the previous time last year, it’s not a significant difference. If there’s not a significant difference (at least not significant enough to explain a 20% increase in my opinion), then why have they increased? The “creditworthiness of home buyers chart” shows that the higher creditworthy buyers are paying more for their homes, it doesn’t say they are any more creditworthy than they were in the past. This would make sense because home prices are at a high, as he so astutely pointed out. A more revealing chart would show how many high credit people there are.

90 points by RickJWagner 5y ago

"It’s like a doubling up. The homeowner goes to buy the next home, move up or move down. And because mortgages are so cheap, it’s a really good time to keep the first one as a rental unit. And so each year I go to buy a next one and I keep my first one. And so that’s one big phenomenon. And all of a sudden I’m a real estate investor. And at the same time, institutional money’s been cheap. There’s a lot of news about the big private equity funds buying up homes, but it’s actually the individuals who are driving most of it. So in the last decade we’ve taken 8 million homes out of the resale cycle and moved them into the investment rental part of the pool. And that’s, you know, 9% of all the single family homes." This tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence. I bet a lot of those small time landlords are nervous about cash flow, and you could find one that's ready to get out.

willcipriano 5y ago
I think the trick to "we buy homes" or whatever is they buy way under market. My neighbor sold for something like 150k, they fixed the place up and resold it for a little over 500k. Landlords aren't going to go that low.
- bluGill 5y ago
  I'm guessing they put in 100k or more go remodel. 290k wouldn't surprise me. They are still making a lot money, but they are also taking that risk. There is far more of it going on than should be, but people who need to move in a hurry might like it. The better such companies that have existed for years without the advertising have good working relationships with contractors and thus get both a better deal and faster service than you could: the contractors know who brings in busines. They also know which contractors are actually good as opposed to scams. But the business doesn't support nearly the advertising that you see in normal markets. Call A qualified realtor with a dump house and they will call these people if your house is a hard sell. (If you know the fair value of your house you can avoid realtor fees selling direct )
  - willcipriano 5y ago
    I'm sure they put a lot of money in, these are old houses. I think they target less sophisticated sellers who don't have capital. She could've gotten a lot better deal if she put 20k - 30k in herself and fixed the major issues but she wasn't in a place to do that. A landlord with a few properties has more options and won't sell as low.
xwdv 5y ago
This will only guarantee you will buy the shittiest houses with poor cashflow or other issues, as those are the only ones landlords will sell off.
bsenftner 5y ago
Although the books are old and the author discredited, the "Rich Dad Poor Dad" real estate investment series still have a large number of people trying to follow the author's advice. They and similar "pop culture investors" are the prime landlords in over their heads that would be likely to sell. But be able to negotiate potential nonsense, as they are over their heads and tend not to be rational about their investment.
StevePerkins 5y ago
> "There’s a lot of news about the big private equity funds buying up homes, but it’s actually the individuals who are driving most of it." I realize there are a lot of "house flipper" shows on reality TV, but I don't buy this. I'm not receiving 20-30 phone calls and texts per week from "individuals" wanting to buy my house. I'm getting those calls from sophisticated commercial operations, who mask their phone numbers to include the same area code and first three digits as my own, etc. Individuals aren't putting up "We buy houses! Guaranteed offer!" billboards every few hundred feet in my city. I don't think that banks will even give individuals an endless series of mortgages. You can't declare rental income as "income" to qualify for mortgage loans.
- frankbreetz 5y ago
  This is definitely wrong in my city. Everytime something reasonable comes up for sales it sells in a couple hours and is back on the market in couple months with some cheap renovations for a ridiculous amount. They buyer/seller is almost always listed as an individual and not a corporation.
- curiousllama 5y ago
  No, but they consider a mortgage on a rental property with a signed lease separately from a mortgage on a primary/secondary residence. They’ll def give an endless series of mortgages to an otherwise wealthy person who keeps paying them back by renting out the homes.
- bognition 5y ago
  > “You can't declare rental income as "income" to qualify for mortgage loans.” You absolutely can, it is income after all. All the banks care about is if the cost of the new mortgage is going to exceed your debt to income ratio.
  - ryanianian 5y ago
    > All the banks care about is if the cost of the new mortgage is going to exceed your debt to income ratio. Not exactly. The underwriting process is very different for full-time residences versus investment/rental properties. Rates are usually higher, debt/income ratio must be lower, and appraisals and cashflow analyses include rental market considerations. Given this it's entirely reasonable to assume the rift between mortgage products for investment vs residence to widen. If congresspeople want to do something about perceived imbalance between residence and income real-estate, they could change federal subsidies or underwriting requirements for income properties making mortgages for income properties much more expensive and/or harder to get. (Just realized a peer comment said something similar.)
IAmGraydon 5y ago
What is described here (buying a chain of properties year to year) is unlikely for most people. You can’t use rental income when calculating your debt to income ratio. Unless you have a massive income or an equally massive pile of cash, you are going to quickly run out of lenders willing to lend to you in your entirely over-levered position. Also, you have to stay in a home for a certain number of years for it to be considered a “primary residence” and therefor able to be mortgaged with a low down payment. Otherwise in each transaction you’ll have to come up with 25-30% down.
- ttt333 5y ago
  > "You can’t use rental income when calculating your debt to income ratio." Do you have a source for this claim? Based on personal friends who work in the lending / single family rental home space, I don't think that's correct. [0] [1] [0]: https://www.valuepenguin.com/mortgages/claiming-rental-income-for-mortgage https://www.valuepenguin.com/mortgages/claiming-rental-incom... [1]: https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-3-Income-Assessment/Section-B3-3-1-Employment-and-Other-Sources-of-Income/1032995141/B3-3-1-08-Rental-Income-06-03-2020.htm https://selling-guide.fanniemae.com/Selling-Guide/Originatio...
  - StevePerkins 5y ago
    If that's actually the case, and many of those mortgages are adjustable-rate, then we've learned nothing and another 2007 may be inevitable. Fortunately, I still believe that the overwhelming majority of new rental units are being scooped up and placed on market by commercial entities, not individuals. You may have many individuals putting their second house up for rent, but I'm skeptical that banks are giving individuals a half-dozen loans in series. With the housing shortage as bad as it is (we're just not building enough to offset our population growth), I suspect that commercial entities would swoop in and buy up most second houses that individuals couldn't maintain anymore.
    - adwi 5y ago
      It is the case, and generally people that are savvy enough to purchase these are savvy enough to lock in a 3% rate when offered.
ianai 5y ago
Most or all of these type of landlords that I’ve spoken to strongly disliked to actively hated being a landlord. It’s very counter the “get wealthy slowly” narrative of being a landlord. Of course the financial aspects are true though they don’t mention them. This is in a location where good renters are a dime a dozen and building new units is pretty much impossible.
- nerdponx 5y ago
  Being a halfway decent landlord is a miserable pain in the ass unless you live or work very close to your rental property. And even then, it's pretty easy to see several months income go up in smoke with even a modest renovation or repair. The income is nice, but it's anything but "passive" unless your rents are so high that you can afford to pay a management company, and/or you are comfortable being a slumlord.
  - ianai 5y ago
    Yes and I’ve heard mostly complaints about management companies. All the classic principal/agent problems with the costs of bringing more people into the situation. Edit-added “more people”
- sjamaan 5y ago
  I've done the same (bought a house, kept the old one for rental) and used an agency as a middle man. They take care of collecting rent, and the day to day business if, say, a plumber needs to be called (I just have to sign off on it). This at a 6% fee of the monthly rent is quite worth it to avoid any hassle. The rent income also fully covers the mortgage of the new house so basically my living costs are for free.
- a2tech 5y ago
  Well yes, they all complain about being a landlord. However as you say, they never discuss the money side of things--just the hassle. Most landlords in a very bad year will break even, but in an average year will be in the positive. And of course you shouldn't even be looking at rental income in the short term--you should be looking at it as an asset that someone else pays for entirely and maybe slops a little extra cash to you in the short term and THEN when you're older and they've paid for your asset as a revenue generator. I've been looking at buying a rental even though the prices are insane right now simply as a source of reoccurring revenue when my wife and I are older and the loan has been paid off.
prepend 5y ago
> This tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence. I don’t think so as landlords are locked into a 3% fixed mortgage and have a profitable income stream. Unless there’s some life event that requires them to sell, landlords are less likely to sell than regular homeowners.

unnouinceput 5y ago

Buy land instead, build a home, rent meanwhile. In max 2 years you can have your dream house and cheaper than current market.

goldenkey 5y ago
How do you do that in an established city?
- amcoastal 5y ago
  There are tradeoffs everywhere. You have to assume that when stacking millions of people on top of each other everyone will not own a home. That's not a "policy" issue, it's just physics. If you want to live in city for whatever reasons, you just have to take that into consideration.
- pmorici 5y ago
  Find someone who owns an oversized lot and offer to buy their yard or buy a tear down.
- deleted 5y ago
  [deleted]
StevePerkins 5y ago
You'd have to find a builder. After 2008, that industry re-tooled and now there are considerably fewer builders working in residential development. And even those only want to work with developers on building new subdivisions, not work with individuals on single homes.
- bananapear 5y ago
  What do you mean by "re-tooled"? What changed in 2008?
  - StevePerkins 5y ago
    Re-tooled in the sense of adapting their organizations to pursue commercial development opportunities more so than residential development (e.g. hiring more people with networks and experience in that market). The 2007-2008 crash wiped out a lot of over-leveraged residential developers, and individuals building single homes. From conversations I've had with people in that industry, their sense is that we learned next to nothing and that a repeat of that experience is inevitable. So commercial development became seen as more desirable and less risky. Now that I think about it though, I haven't had any conversations since COVID! I wonder if the rise of remote work will have enough impact on commercial development to flip that calculus again.

weregiraffe 5y ago

There will never be a "normal" housing market until the government starts to treat it as the food market. That is, as an absolute life necessity that needs to to be heavily regulated and subsidized to ensure everyone has access.

xibalba 5y ago
Over regulation is a big part of how this mess was created in the first place. Go read about Stockholm’s housing U̶t̶o̶p̶i̶a̶ hellscape to see the future you’d create.
- goodpoint 5y ago
  "Over regulation" is an absurd concept: laws are not simply "not enough" or "too much". What really matters is *what* is allowed and prohibited and who benefits from it. In many countries regulatory capture led to building and zoning laws that serve to the interest of large investors groups as well as small speculators. People who have a home as necessity rather than an investment are put at a disadvantage.
  - pmorici 5y ago
    Wether you like it or not owning a home is always an investment. Perhaps not a good one but an investment non the less. To act like there are two types of people and that one disadvantaging the other because of their preference is silly.
    - goodpoint 5y ago
      No. You are confusing the primary purpose being an investment and being a dwelling. The intentions and behavior of the buyer can be profoundly different. Unsurprisingly, most countries have different regulations for first home buyer VS local investors VS foreign investors. If anything it's silly not wanting to acknowledge the difference. Or perhaps a bit cheeky.
      - 5y ago

doingtheiroming 5y ago

When has the housing market ever been normal? It’s had periods of equilibrium. Is that a synonym for normality? If we are thinking it terms of common features over time, perhaps the housing market mostly appearing to be demented is actually normality.

ChuckNorris89 5y ago
>When has the housing market ever been normal? When we had less regulation, the prices increases followed wage increases or inflation since housing was built and bought just so families could live in and wasn't a speculative/investment vehicle so others could get a return on their investment.

mooreds 5y ago

The author ignores one of the biggest issues, which is the secular generational trend of the millenials (the biggest generation ever) moving into prime housebuying years (30-40s) while the boomers (second biggest generation) are aging in place. That's also putting a squeeze on available inventory. The author also ignores the USA's land use policy (other than a tangential nod to 'we aren't building enough' which could have many reasons). Of course, there are many factors that the author mentions that are also adding stress to the housing market. It'd be interesting to read some research that attributes weight to each of them.

harambae 5y ago
>secular generational trend of the millenials (the biggest generation ever) moving into prime housebuying years I see this argument repeated everywhere and I still don't believe it. What, did these Millenials just crawl out of a swamp a week ago? It was known 35.75 years in advance when 35 year old Millenials would turn this age (assuming they survived life to that point). It's the world's most predictable situation. Are the same people who are surprised by this also surprised when it snows each winter?

deleted 5y ago

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throwaway22032 5y ago

What is "normal"? What if the everyday person, as a result of now having access to far more information than they did before (post Internet boom), acts in a different way?

francisofascii 5y ago
Normal was when you could afford to buy a home with a blue collar income, you had time to mull over making an offer, you could visit the house more than once before buying, you could have inspection contingencies, and had plenty of houses to choose from.
- throwaway22032 5y ago
  Right, so before the information asymmetry was blown apart and the entire world was suddenly able to think about property as an investment. Hell, investment in general and the concept that a pension won't exist or won't be enough.

agd 5y ago

At least in London, this has been a problem for 20-30 years. For most young people, buying a house is becoming an impossibility. Supply is increasing, but slowly, and there's a limit on how dense people want to have the city. Demand side looks like the better area to focus. Reducing population would help significantly, combined with taxes/disincentives on second home ownership and vacant properties. Unfortunately these policies are unpopular with governing parties because: a) the politicians own property (and often more than one) b) older people vote, and they tend to be doing well out of the situation I see a lot of right wing VC folk on twitter calling for massive derugulation of the housing market to grow supply. However, I think there's a strong case to be made that housing and land are different from other parts of the market. People want green space, they don't want high rise everywhere. You cannot (for the most part) make new land. So, I agree that this problem won't be solved for 20+ years. Declining population is probably our best bet to improve the situation. And of course, young people will move to cheaper areas, particularly when they start families.

Leherenn 5y ago
I don't think declining population will change much, it's not going to be uniform. The remote villages/cities where all the kids leave as soon as possible will disappear once their ageing population die out. What's left of those villages will keep on migrating to the big cities, potentially even making the problem worse.
s5300 5y ago
I think we’re just going to become mole people tbh. Servants of our above ground geriatric overlords.
- xunn0026 5y ago
  This is somewhat funny considering the globe has been locked in house to prevent a virus that is most deadly to the very old.
deleted 5y ago
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5y ago

zhdc1 5y ago

People evaluate large purchases - in part - on whether they can afford the monthly payment. Low interest rates and comparably high rents make people more willing to pay more for property. Higher interest rates, which may be on the horizon, may put a damper on housing prices. However, I suspect that they'll have less of an immediate impact in the states, where fifteen and thirty year fixed rate mortgages are the norm. If inflation continues in Europe, it will be interesting to see what happens in countries where people generally borrow for ten to fifteen years at a time, and refinance once the mortgage term is over.

endisneigh 5y ago

Housing is already very cheap in places no one wants to live in. Housing is already affordable in the United States compared to other countries when you compare median house price to median income. If you want to see where the United States is headed go look at London, Vancouver, Paris, etc. As urbanization in the United States accelerates for many reasons, including climate change, I see house prices in desirable areas increasing even further.

nikanj 5y ago
If you want to look at US you should look at EU. Don't compare US to France, compare California to France and Montana to Romania.
- endisneigh 5y ago
  Even if you do like for like the United States is much cheaper than Europe when comparing median income to median house price. Add in the highly subsidized mortgages and it’s a slam dunk in favor of the United States. The housing crisis is a meme basically centered around 15 locales in the states.
  - nikanj 5y ago
    > The housing crisis is a meme basically centered around 15 locales in the states. Yes, because that's where the people are. The housing crisis heatmap is pretty much the US population heatmap ( https://xkcd.com/1138/ https://xkcd.com/1138/ ). Houses are cheap in the vast emptiness of the rural US. The EU doesn't really have similar unpopulated areas.
    - endisneigh 5y ago
      Ok, compare urban areas then. USA is still cheaper.
      - bradlys 5y ago
        Compare places with equal density is likely a better way to go about it.

nikanj 5y ago

A crash of 25% would take us back to..maybe summer 2020? A crash of 50% would take us back to...2015ish? I don't think the Fed etc have the guts to allow a 80% drop, so that the 2 million dollar house would drop back to $400k, and become reachable for the majority of people

skwirl 5y ago
A house that's $2m today is that expensive because it's a highly desirable home, much more desirable than the vast majority of homes out there - probably in the top 5%. You can never make such homes reachable for the majority of people because there aren't enough of them - if there were, they wouldn't be $2m right now. 50%+ of people can never afford the top 5% of homes.
- esja 5y ago
  That's only really true if you are talking about specific houses and locations, while keeping everything else unchanged. In general, houses are just as desirable as they were a few years ago when they were half the price. All that has materially changed is the supply and cost of credit. The same thing works on the downside: broad price falls are not due to mass desirability changes. They are due to credit becoming harder to get and more expensive to repay on a monthly basis. Finance 101: asset prices move inverse to the discount rate.
  - skwirl 5y ago
    I never said macro price changes were driven by desirability changes - my point was almost exactly the opposite: The macro price is irrelevant. The top 5% of homes for sale will never be available to 50% of buyers. Price differences at a point in time signal relative desirability of homes. Over time, prices may go up or down, but the top 5% of homes will always be significantly more expensive than the median home.
    - esja 5y ago
      That's a different point than what I think the OP was making, and it's not entirely accurate either (except in a relative sense). For it to be completely correct, buying power would have to move identically with prices, and it does not. There have been many periods and places in history where the median income earner can afford a top 20% home (but may not choose to), and many other periods where the median income earner can only afford a bottom 20% home, and may instead choose to rent. What we've seen over the past decades is an acceleration of price ahead of buying power, pushing more people into renting, and leading to an accumulation of multiple properties in the hands of a smaller number of wealthier people (or institutions like Blackstone).

libertine 5y ago

Part of this phenomenon reached Portugal during the pandemic, some people from "big cities" went to the interior to buy houses for cheap to then either rent their houses in the city or the other one acquired. Basically they removed a lot of houses from the market from locals, making them reach prohibitive prices completely off the reality of what locals can afford... where will they go? What's the value added from the new-comers to those markets? They are not developing new houses, they aren't creating new jobs, and they shop mostly in big supermarkets.

scythe 5y ago

https://constructionphysics.substack.com/p/construction-costs-around-the-world https://constructionphysics.substack.com/p/construction-cost... https://www.vox.com/22534714/rail-roads-infrastructure-costs-america https://www.vox.com/22534714/rail-roads-infrastructure-costs... It's funny that we talk about manufacturing "dying" while productivity is still very high. Meanwhile, the construction industry is actually foundering and we shrug. "Guess China is buying all the cement." Which cannot explain international disparities at all. We can build small projects out of wood just fine. But those smaller projects need to be supported by larger projects: airports, hospitals, roads. Our existing concrete (literally) infrastructure is overburdened, which drives voter demand for restrictions on move-ins. Stop moving to Atlanta, stop moving to Austin, stop moving to Sussex County, Delaware. We shouldn't be overwhelmed every time a city grows. Wonks blame the voters, voters blame the wonks, a bridge in Pittsburgh falls into a river. The history of many cities shows periods of rapid growth far exceeding Austin over the last decade. San Francisco's population grew by >20% every decade from 1850 to 1930. There is no general rule that says growing cities must be so expensive. It's a phenomenon in the US, right now, not everywhere, all the time.

sascha_sl 5y ago

Ah, great, another thing I wouldn't have access to in my lifetime despite being in the top 25% income bracket. Capital accumulates in the hands of so few, it's just so fucked up and hurts to even think about. I'd settle in a hut in the forest, but I'm sure someone will try to evict me there too!

formerly_proven 5y ago
You can't live in the forest, that's illegal.
bittercynic 5y ago
The timing is unpredictable, but I think it's highly likely that you will get the opportunity to buy yourself a house if you are thrifty and patient.
- ianai 5y ago
  Eh or buy at a high price now and find yourself unable to sell when prices lower. The long term population trends in the US are decreasing. My guess is it’ll be driven by baby boomer population decline. It’d be interesting to look into that deeper. Probably the best home buying scenario right now is to buy as little as you need. At least the eventual hurt is lesser. I mirror GP though. I graduated into the Great Recession and couldn’t find work for many years. The work I did eventually find wouldn’t have afforded real estate, ever. Now that my incomes up to buy home territory (comfortably) there’s this huge land grab. Not going to start on things like family formation. Feels like chasing a hundred dollar bill that’s being pulled on a line away from me.
thehappypm 5y ago
Every consider buying a home with like a 3% down payment? Many states have first time homeowner incentives; you can borrow against your own 401(k), etc
- sascha_sl 5y ago
  i'm (1) european and (2) dependent on not needing a car so my only option is in cities

verisimi 5y ago

I see the housing market as part of wider transition. I think it is clear we are moving to a technocracy - we will not own anything, we will receive a UBI, we will be provided for (as a low level) but this will come at the cost of freedom. Technocrats (aka billionaire elites) will take closer control of the world's resources and micro-manage us. There are several issues before we actually enter that system. Firstly, it is required that we all have a biometrical-security-id to do anything. This part is already underway - we are starting to be convinced of the need to provide id (green pass, citizen scores or whatever) to go shopping, or even leave the house. Another of the issues that those who would achieve technocracy face, is that as much as the billionaire class owns, there is still independent wealth. In raising house prices, they create a new conflict - the older generation that own their houses know what it means - independence, that they worked for it, etc. Mostly they cannot conceive of owning nothing. The younger generation are the opposite, they cannot conceive of owning anything, or even moving out of their bedroom - they face an interminable childhood. I can see how being provided with a 110 foot flat would be a step up. They are/will be fine with the older generation losing their wealth and having the government re-allocate those resources towards a small flat. On the ground floor then, we will see a conflict between generations. The planned result is that we are all worse off, living in a smaller footprint, under close control. What little wealth is on the ground floor, will shift up and become owned by corporations. On the higher floors, corporations will own everything - all the property. Corporations are in fact owned by individuals - we do not see them, but these self-styled 'gods' will own everything. This is not freedom - the direction of travel is more overt bondage for the general population. And mostly, in their ignorance, people will be happy at the outcome. If we were really tackling inequity, we would be tackling those that own everything - but this is impossible given the secrecy of trusts, media blackouts, etc. Ownership should be entirely transparent - everything should be traceable. Corporations are merely a further cloak - corporations are owned too. Which individuals own Vanguard and Blackrock? But this will not be the solution we seek to resolve the problem. Instead, we will fight amongst ourselves. We will cheer as new annual taxes (at 1%) are introduced on the value of a 'expensive' (read, inflated) property, or when reverse equity options are offered as the government buys up the housing stock. (Reverse equity will come with a legal agreement to prevent the purchase of another property.) I hope this doesn't happen, but it seems that we have far to go individually - when we still believe the media, when we still believe that the government is there to help, we really haven't learnt much.

newacc9 5y ago

its because theres nothing else to buy... bond yields are too low, no obv tech stocks to buy, etc... the financialization of housing around 30pct of the good suburbs around Minneapolis are not owner occupied and demand is strong from investors, whether blackrock or otherwise, to buy the rest

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evancoop 5y ago

The notion of "normal" is dubious. For a decade preceding 2008, minimal verification of income or employment was required to buy a home (prices soared). Thereafter, the pendulum swung mightily in the other direction (having tried to purchase a home as a contractor, I can attest). Then the pandemic accelerated the migration to the suburbs for young families (prices soared). If there are as many over-levered real-estate investors as the article suggests, a market downturn will yield foreclosures, and PE firms will feast once again. There is no "normal." Only past, present, and future.

xbar 5y ago

10% of institutional home ownership is a couple of orders of magnitude more than the amount necessary to meet demand.

ianai 5y ago

Color me unimpressed with the arguments laid down here. It boils down to low rates and looking at the recent past when rates were low. And let’s point out rates have been 0-.25% for a long time now. Want to convince me? Pull in a Case-Schiller index comparison and some more technical, market level characteristic analysis. What would be interesting is figuring out price/interest rate sensitivities for buyers of homes in this market. Does investment leave the market if rates make other asset classes more viable? Probably. At what point? Edit-or tell me that the Fed can’t possibly raises rates for $goodReasons.

paulnpace 5y ago

Not in the article and rarely discussed is the most powerful influence on the price of housing: lack of production. Prices are a function of demand and supply. Oddly, the article seems to just drive right past this as the author discusses the problems related to people having nowhere to go, specifically when mentioning that if they sell their home for a tidy profit, they don't actually profit because they now have to go compete for a house. For all the arguments in the article, the following proposition seems like a reasonable evaluation: if Silicon Valley residents woke up tomorrow morning and discovered 5,000,000 new homes on the market, would that be predicted to influence the price? Of course it would, and that impact would be that prices would immediately plummet. This is true because the housing we are talking about may also be called shelter, and the demand for shelter is highly inelastic. People will do a lot to maintain shelter, including going without many other consumer items, buying used vehicles and using them until they turn to dust, sharing housing, taking second jobs, etc. In effect, all of the things we seen the younger generations doing are all the things we can easily predict one to do in order to have shelter, though most are not aware of or otherwise unable to articulate these kinds of economic considerations. Supply was only marginally restricted until somewhere around the early 90s, when states, counties, and municipalities began placing wholesale moratoriums on housing construction*. I can remember in the 80s as child driving through San Jose and seeing large orchards that are all now suburban housing. Looking around the valley, there has been no other housing development anywhere near that size, yet the net job growth in absolute numbers is many times higher. Many of the valley central planners plan construction as if it's still 1980, where each residential unit has something like 3 bedrooms to be occupied by two adults and two children, but reality is more like 3-5 adults. The result is substantially higher traffic and inadequate services, notably in the grocery stores which I observed to never have enough parking spaces, long lines, and popular items frequently out of stock on the shelf. Long commutes to far away communities are another result, essentially the planners deciding that among the most efficient workforce on the planet must be the task of sitting in a car 3 hours every day, which commonly cuts into what would likely be a good night's sleep, making the workers yet less efficient. The lack of shelter problem cannot be solved through anything other than increased production of housing. It is not a price problem. Prices are just the method we use to inform us on the situation of supply and demand for a product. Older generations will fight this, tooth and nail, because much of their savings are wrapped inside of a product they are consuming. Younger generations, if they ever figure out what is going on, may become hostile to the other needs of older generations, which, in my opinion, is a far greater risk to the older generations than the loss of equity in their homes. This goes without having a discussion as to the immorality of forcing younger generations into conditions of economically-enforced cohabitation and homelessness purely so that older generations can enjoy the profit that comes with restricted supply on the assets they own. I suppose this was a long-winded way of stating that the article's title claim is wrong, because there will likely never be a "normal housing market" short of some sort of large scale coordinated effort to substantially loosen or eliminate restrictions on construction. * Especially in California, housing construction is largely limited in absolute number of "new residential units" (NRUs), which is different than the popular understanding of increased difficulty in approval of design (the latter exists, and has for a long time, but it is not as significant as absolute restriction).

speedcoder 5y ago

Hmm. How do RVs fit in all this?

emerged 5y ago

The more articles predict continued doom and gloom, the more optimistic I become. Simply because that heuristic has made a fine Bayesian prior for most of my life.

theonlybutlet 5y ago

UN Reckons the world population should plateau by 2100 so I guess then.

mikewarot 5y ago

A house is a decaying pile of materials in need of constant maintenance. People want to own their own, because it is cheaper than paying someone else to maintain their decaying pile of materials, with management and profit overhead. Until people get over the idea that a depreciating, decaying pile of material is anything other than the lowest cost way to store your stuff and stay out of the elements, the market will remain irrational. Only someone insane, or looking for a bigger fool, would count a house as an investment. Source: I'm a home owner.

givemeethekeys 5y ago
> depreciating, decaying pile of material Certain markets have been amazing from an appreciation point of view - for example, the Toronto area housing market has been on a 25 year bull run.
- pydry 5y ago
  That's coz it's actually the land value that's appreciating.
  - baobabKoodaa 5y ago
    Right, so it's not just the value of the "decaying pile of materials".
vanusa 5y ago
A house is a decaying pile of materials in need of constant maintenance. Well, maybe your house is. But in the general case -- it's that and "location, location, location" of course. On top of finite (in some markets highly constricted) supply. Plus, some are ... beautiful, well-designed, well-built, and/or historic (never to be made again). And finally, for very rich people, they have added functionality as value stores (particularly when favorable tax conditions come into play). The factors taken together explain why houses and apartments are not only not completely insane as investments -- but in fact can be quite lucrative investments.

greenie_beans 5y ago

Everybody in here is arguing about real estate prices and not the actual article… Did anybody else notice some flaws in this argument? He says the simplest explantion is the best to explain high prices. His simple explanation claims that inventory is at records low and home prices should be 20% higher because of this. But if you compare the inventory to the previous time last year, it’s not a significant difference. If there’s not a significant difference (at least not significant enough to explain a 20% increase in my opinion), then why have they increased? The “creditworthiness of home buyers chart” shows that the higher creditworthy buyers are paying more for their homes, it doesn’t say they are any more creditworthy than they were in the past. This would make sense because home prices are at a high, as he so astutely pointed out. A more revealing chart would show how many high credit people there are.