16 ms·

I mean, it's not really a burst, we're just hearing the hissing noise of the obvious leak. The true demand from people with the intend to actually live in the

I mean, it's not really a burst, we're just hearing the hissing noise of the obvious leak. The true demand from people with the intend to actually live in the estates has been constantly decreasing since around 2000; the real salarys dropped since then, so did the buying power. The only reasons people found buyers at x3-x10 (!) prices were a) that there is a class of people wealthy enough to still afford the purchase, even at those completely-out-of-touch prices, and b) that people were given loans they should either never have gotten (2008) or that they shouldn't have asked for (because it's dumb to buy estates where the price is set by people and institutions that have n times your own income/net worth) When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population.

cdiddy2 4y ago
Its really not that bad in the US especially compared to its peers https://awealthofcommonsense.com/wp-content/uploads/2021/09/Screenshot-2021-09-07-115719.png https://awealthofcommonsense.com/wp-content/uploads/2021/09/...
crate_barre 4y ago
Housing legislation is something that few politicians have been talking about in the last decade. We have spent a lot more time talking about healthcare, and student debt, but not the number one financial factor which is housing. You really can’t leave it alone with legislation every 20 something years, you sort of have to keep evaluating and reevaluating it. Otherwise while we let the current systems in place fester, what you get is side effects that we simply can’t address until decades later (e.g Canada banning foreign buyers, ok great, the damage has already been done). Many of the investor class had the first mover advantage where they simply bought a house before everyone else and can now leverage those gains into more investment/rental income property. Couple that with foreign investment. Couple that with home equity and margin loans. Couple that with the private sector collecting houses. Couple that with mortgage fraud where people don’t pay investor taxes and continuously buy homes as a first time home owner. Couple that with with all kinds of things. I know a home owner that owns multiple homes, stopped paying taxes on one and had a tax lien discharge. They go on to sell that other home at profit and pay off the IRS. They never took the hit on their first home in any way. Multiple ownership is a problem, period. We finally end up to where we are today and the only powerful entity that modulates this is the Fed, but not a single politician is taking up the battle over the fact that the multiple home ownership is killing our society at the moment.
- jwilber 4y ago
  Couldn’t agree more. Another issue: home owners are incentivized to see their assets appreciate. Makes passing meaningful legislation hard, especially if it will actively hurt a substantial number of voters (and every politician).
alimov 4y ago
maybe one more interesting detail worth noting: c) private equity firms are buying up insane amounts of real estate, being able to outbid regular home buyers and (don’t quote me on this b/c I’m not 100% sure) pay cash for the properties they buy.
- vmception 4y ago
  Which they only did because they ran out of stuff to invest in (while still attracting so much other capital to invest at all), and the valuations of everything else was already stretched. not suggesting these firms were trying to do anyone favors by allowing people to afford homes the rest of the time, its more so that the math temporarily made sense with that much liquidity in the market so they jumped into real estate (And yeah people would rather pay the government than invest in your startup so lets not pretend investing in main street was a real option)
  - IMSAI8080 4y ago
    Too much cash chasing too few decent investment opportunities is exactly the problem. The more cautious end of institutional investors have nowhere to go. Blue chip shares are at incredibly high valuations and bonds are returning next to nothing. Interest rates needs to be at about 3 - 4% to make government bonds broadly attractive, which will then make residential property uninteresting to this kind of investor without putting too much strain on the regular home buyer.
- cascom 4y ago
  There have been a lot of headlines about this, and in the handful of markets I’m sure this has a price effect, but in the us market as a whole, they are $10b-$100b? of a ~25T market, it just doesn’t move the needle
  - yurishimo 4y ago
    It doesn’t need to be spread out to have an effect. If the investments are concentrated in cities, that raises the price of housing in the surrounding areas as there is more demand for rural properties from city residents trying to escape the higher prices. Anecdotally, I’m seeing crazy numbers for “average” houses in the small towns surrounding the DFW metroplex. Hell, the house my parents built in 2006 for $140k is now selling for $350k. 1200 sqft mass produced trac home. But it’s an hour drive to downtown Dallas (less if no traffic) so plenty of people are commuting but making city salaries. It’s the same in every city across America.
rvba 4y ago
Due to QE central bank bought stock from private equity - and private equity used thia money to buy homes.
- xadhominemx 4y ago
  What you wrote is complete nonsense
  - rvba 4y ago
    So where did the QE money go? It causes bubble after bubble while central bank holds the bag.
lmt55 4y ago
I think you have missed a source of demand, and I think it's important. As housing became more and more expensive to young professionals, some people in this group have worked harder and harder to buy property, even to the point where it no longer seems rational. For example, parents taking a lot of wealth out of their retirement savings or their own homes to assist children in buying. Professionals are working more than otherwise makes sense for their stage in life (young families with two full-time parents). They are committing a large share of their monthly budget, often right until the start of retirement. They do this because they believe in the importance of owning property - beyond any reasonable narrow economic justification. Of course, there is an inequality aspect to this - not everyone's parents have capital, not everyone can command a high enough wage. But crucially, the presence of this group of people arguably turns the bubble into something else. These buyers put a floor on the market. If prices drop even a little, or something else changes to make mortgages slightly more affordable, they rush in and buy the dip. By doing this, they sustain the high prices for everyone else in the market. This will probably happen now. Higher rates will make current prices unsustainable. As soon as they correct to the point where monthly payments are back to what they were last year, there will be buyers, only too happy to overextend themselves to get out of renting. It's inaccurate to characterize these people as likely to default. They are actually very good mortgage risks - they have already shown themselves to be very committed to ownership. And the resources which got them into a position to buy mean they will keep on paying short of a disaster. The truly unrealistic borrowers of pre-2008 have never been let back into the market.
- hans1729 4y ago
  I did not miss those people, but my wording was loaded and so the point got lost in translation. I implicitly captured them under b) "[...] it's dumb to buy estates where the price is set by people and institutions that have n times your own income/net worth", where dumb is a loaded term for your >"to the point where it no longer seems rational". >But crucially, the presence of this group of people arguably turns the bubble into something else. I agree with this, it's not a bubble in the sense of 2008. I said so in the comment you replied to! We're in the same boat here. By the way: I'm precicely in that demographic. I just turned 30 and do well for myself as an employed consultant, but I wouldn't consider buying the dip, unless the dip is at least ~100% of the current market prices (which I don't see happening, but who knows). Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. The counter-argument I hear from people my age group is always the same "but then you'll never own anything!" -- then so be it, whats the point?! Even if someone gave me a million Euros, I wouldn't spend 600k of those on a house and then another 300k on renovations, that seems like a terrible waste of resources. With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc. Buying estate = de facto being in debt for the entire career and then some, plus having to pay all repairs, anything. I don't see how that would ease my life at all. If someone wants to give me a house, nice, but buying a house just for the sake of doing so reminds me of a signature I often read on market-ticker.org -- leave the rats race to the rats.
misja111 4y ago
> When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population. This. And it was not only happening in the housing market, but also in a few other markets such as arts and certain jewelry. What happened during the last ~10 years is that the huge loads of money pumped into the financial system by central banks ended up with only a select group of people, who just got richer and richer and were looking for ways to spend or invest their excess money. And that caused an inflation in the markets where they liked to spend it.
- chasd00 4y ago
  I think the bulk of the inflation we’re seeing is from the pandemic where we shut off production by making everyone stay home but then dramatically increased demand by writing everyone checks.
tzs 4y ago
> that people were given loans they should either never have gotten (2008) or that they shouldn't have asked for I bought my house in early 2007 and mortgages were indeed crazy back then. My analysis said that at the mortgage rates for a 30 year fixed mortgage back then (a tad over 6%) said that my ideal home financially would be around $H or less, that I could go up to 1.25 $H without house payments being high enough to crimp my currently lifestyle, and maybe I could push it to 1.5 $H if the house and location were really great. When I went to get a mortgage from the now infamous Countrywide Financial they looked at the same data I had and pre approved my for a loan of around 3 $H. That was an absolutely ridiculous amount. I had the analysis to prove that, so just laughed and went back to looking at homes in the under 1.5 $H range [1]. A lot of people who didn't know how to do their own analysis thought that the mortgage companies would only approve them up to what they could reasonably afford, and so getting a pre approval for much higher made them think they could actually afford way more expensive houses than they actually could. [1] In case anyone is curious, I found a house that was almost perfect as far as size, layout, and location for 0.9 $H and almost bought it, but then found that its water source was a well owned and shared by a group of 4 houses. I could not get satisfactory information on how maintenance and repair of the well was handled. I ended up with a place a little bigger, in a better location, but without quite as nice a layout for 1.16 $H.
- hibbelig 4y ago
  Not familiar with this topic. What does $H mean? Annual gross salary?
  - brianwawok 4y ago
    Just a number he made up for a story.
  - voidfunc 4y ago
    $H is the price of the house in OPs post.
  - frostiness 4y ago
    I figured it was $100,000 but I could be wrong.
onlyrealcuzzo 4y ago
You're forgetting a.2) the "wealthy" people usually have high incomes, and the x10 houses are usually in high tax states, and housing is a huge tax break. ~20% or my housing "cost" is paid for by a tax break for owning a house. Another ~20% is principal. When you also factor in that the Fed guarantees to devalue money at AT LEAST ~3% per year, and you have 5x leverage (or more) - that's another ~15% effectively subsidized by the government. So when you have sufficient cash flow - it's easy to look at your housing "cost" as only ~40% of the actual payment. Compared to rents, this is a steal.
- deleted 4y ago
  [deleted]
- cactus2093 4y ago
  With the SALT cap at $10k and the mortgage interest deduction cap limited to $750k property value, the ultra-wealthy are not really benefitting from this as much as you are saying. Someone with a $750-$1M home is getting roughly the maximum tax break available, and someone with a $5M home is paying for everything above that first $1M themselves* without any extra tax incentives. *Except in California due to prop 13 many of them are paying a tiny fraction of the property tax they should be paying, but that's a separate issue.
  - onlyrealcuzzo 4y ago
    Most "wealthy" people, by definition, are not "ultra wealthy". That's where the majority of the wealth is - but there's far better schemes to avoid taxes for that group. Home buyers buying these x10 houses are pretty much limited to the top 10% in income - the vast majority of them are not ultra wealthy.
xadhominemx 4y ago
> The true demand from people with the intend to actually live in the estates has been constantly decreasing since around 2000; the real salarys dropped since then, so did the buying power. > When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population. Nonsense. The home ownership rate is 65%, in-line with the long term average and the same as it was in the year 2000 https://fred.stlouisfed.org/series/RHORUSQ156N https://fred.stlouisfed.org/series/RHORUSQ156N
- deleted 4y ago
  [deleted]
- mirntyfirty 4y ago
  I’d disagree in the sense that the home ownership population differs from those that have been buying or selling in the last few years.
  - xadhominemx 4y ago
    If millennials were not buying homes at similar rates to their parents, the home ownership rate would be declining
    - ClumsyPilot 4y ago
      There is no need for hypotheticals, we know for a fact they are not buying homws at a similar rate as their parents
      - xadhominemx 4y ago
        Home ownership rates for people under 35 is the same as it was in the mid-90’s and only a few % lower than it was at the peak of the housing bubble
    - jeffreyrogers 4y ago
babypuncher 4y ago
And it will probably stay a leak, even if it grows. People keep expecting another collapse like 2008 but that does not seem likely to me. People need houses to live in, so demand will always be there. And unlike 2008, banks aren't handing out sketchy loans en masse to people who cannot reasonably afford them.

cdiddy2 4y ago

Its really not that bad in the US especially compared to its peers https://awealthofcommonsense.com/wp-content/uploads/2021/09/Screenshot-2021-09-07-115719.png https://awealthofcommonsense.com/wp-content/uploads/2021/09/...

crate_barre 4y ago

Housing legislation is something that few politicians have been talking about in the last decade. We have spent a lot more time talking about healthcare, and student debt, but not the number one financial factor which is housing. You really can’t leave it alone with legislation every 20 something years, you sort of have to keep evaluating and reevaluating it. Otherwise while we let the current systems in place fester, what you get is side effects that we simply can’t address until decades later (e.g Canada banning foreign buyers, ok great, the damage has already been done). Many of the investor class had the first mover advantage where they simply bought a house before everyone else and can now leverage those gains into more investment/rental income property. Couple that with foreign investment. Couple that with home equity and margin loans. Couple that with the private sector collecting houses. Couple that with mortgage fraud where people don’t pay investor taxes and continuously buy homes as a first time home owner. Couple that with with all kinds of things. I know a home owner that owns multiple homes, stopped paying taxes on one and had a tax lien discharge. They go on to sell that other home at profit and pay off the IRS. They never took the hit on their first home in any way. Multiple ownership is a problem, period. We finally end up to where we are today and the only powerful entity that modulates this is the Fed, but not a single politician is taking up the battle over the fact that the multiple home ownership is killing our society at the moment.

jwilber 4y ago
Couldn’t agree more. Another issue: home owners are incentivized to see their assets appreciate. Makes passing meaningful legislation hard, especially if it will actively hurt a substantial number of voters (and every politician).

alimov 4y ago

maybe one more interesting detail worth noting: c) private equity firms are buying up insane amounts of real estate, being able to outbid regular home buyers and (don’t quote me on this b/c I’m not 100% sure) pay cash for the properties they buy.

vmception 4y ago
Which they only did because they ran out of stuff to invest in (while still attracting so much other capital to invest at all), and the valuations of everything else was already stretched. not suggesting these firms were trying to do anyone favors by allowing people to afford homes the rest of the time, its more so that the math temporarily made sense with that much liquidity in the market so they jumped into real estate (And yeah people would rather pay the government than invest in your startup so lets not pretend investing in main street was a real option)
- IMSAI8080 4y ago
  Too much cash chasing too few decent investment opportunities is exactly the problem. The more cautious end of institutional investors have nowhere to go. Blue chip shares are at incredibly high valuations and bonds are returning next to nothing. Interest rates needs to be at about 3 - 4% to make government bonds broadly attractive, which will then make residential property uninteresting to this kind of investor without putting too much strain on the regular home buyer.
cascom 4y ago
There have been a lot of headlines about this, and in the handful of markets I’m sure this has a price effect, but in the us market as a whole, they are $10b-$100b? of a ~25T market, it just doesn’t move the needle
- yurishimo 4y ago
  It doesn’t need to be spread out to have an effect. If the investments are concentrated in cities, that raises the price of housing in the surrounding areas as there is more demand for rural properties from city residents trying to escape the higher prices. Anecdotally, I’m seeing crazy numbers for “average” houses in the small towns surrounding the DFW metroplex. Hell, the house my parents built in 2006 for $140k is now selling for $350k. 1200 sqft mass produced trac home. But it’s an hour drive to downtown Dallas (less if no traffic) so plenty of people are commuting but making city salaries. It’s the same in every city across America.

rvba 4y ago

Due to QE central bank bought stock from private equity - and private equity used thia money to buy homes.

xadhominemx 4y ago
What you wrote is complete nonsense
- rvba 4y ago
  So where did the QE money go? It causes bubble after bubble while central bank holds the bag.

lmt55 4y ago

I think you have missed a source of demand, and I think it's important. As housing became more and more expensive to young professionals, some people in this group have worked harder and harder to buy property, even to the point where it no longer seems rational. For example, parents taking a lot of wealth out of their retirement savings or their own homes to assist children in buying. Professionals are working more than otherwise makes sense for their stage in life (young families with two full-time parents). They are committing a large share of their monthly budget, often right until the start of retirement. They do this because they believe in the importance of owning property - beyond any reasonable narrow economic justification. Of course, there is an inequality aspect to this - not everyone's parents have capital, not everyone can command a high enough wage. But crucially, the presence of this group of people arguably turns the bubble into something else. These buyers put a floor on the market. If prices drop even a little, or something else changes to make mortgages slightly more affordable, they rush in and buy the dip. By doing this, they sustain the high prices for everyone else in the market. This will probably happen now. Higher rates will make current prices unsustainable. As soon as they correct to the point where monthly payments are back to what they were last year, there will be buyers, only too happy to overextend themselves to get out of renting. It's inaccurate to characterize these people as likely to default. They are actually very good mortgage risks - they have already shown themselves to be very committed to ownership. And the resources which got them into a position to buy mean they will keep on paying short of a disaster. The truly unrealistic borrowers of pre-2008 have never been let back into the market.

hans1729 4y ago
I did not miss those people, but my wording was loaded and so the point got lost in translation. I implicitly captured them under b) "[...] it's dumb to buy estates where the price is set by people and institutions that have n times your own income/net worth", where dumb is a loaded term for your >"to the point where it no longer seems rational". >But crucially, the presence of this group of people arguably turns the bubble into something else. I agree with this, it's not a bubble in the sense of 2008. I said so in the comment you replied to! We're in the same boat here. By the way: I'm precicely in that demographic. I just turned 30 and do well for myself as an employed consultant, but I wouldn't consider buying the dip, unless the dip is at least ~100% of the current market prices (which I don't see happening, but who knows). Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. The counter-argument I hear from people my age group is always the same "but then you'll never own anything!" -- then so be it, whats the point?! Even if someone gave me a million Euros, I wouldn't spend 600k of those on a house and then another 300k on renovations, that seems like a terrible waste of resources. With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc. Buying estate = de facto being in debt for the entire career and then some, plus having to pay all repairs, anything. I don't see how that would ease my life at all. If someone wants to give me a house, nice, but buying a house just for the sake of doing so reminds me of a signature I often read on market-ticker.org -- leave the rats race to the rats.

misja111 4y ago

> When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population. This. And it was not only happening in the housing market, but also in a few other markets such as arts and certain jewelry. What happened during the last ~10 years is that the huge loads of money pumped into the financial system by central banks ended up with only a select group of people, who just got richer and richer and were looking for ways to spend or invest their excess money. And that caused an inflation in the markets where they liked to spend it.

chasd00 4y ago
I think the bulk of the inflation we’re seeing is from the pandemic where we shut off production by making everyone stay home but then dramatically increased demand by writing everyone checks.

tzs 4y ago

> that people were given loans they should either never have gotten (2008) or that they shouldn't have asked for I bought my house in early 2007 and mortgages were indeed crazy back then. My analysis said that at the mortgage rates for a 30 year fixed mortgage back then (a tad over 6%) said that my ideal home financially would be around $H or less, that I could go up to 1.25 $H without house payments being high enough to crimp my currently lifestyle, and maybe I could push it to 1.5 $H if the house and location were really great. When I went to get a mortgage from the now infamous Countrywide Financial they looked at the same data I had and pre approved my for a loan of around 3 $H. That was an absolutely ridiculous amount. I had the analysis to prove that, so just laughed and went back to looking at homes in the under 1.5 $H range [1]. A lot of people who didn't know how to do their own analysis thought that the mortgage companies would only approve them up to what they could reasonably afford, and so getting a pre approval for much higher made them think they could actually afford way more expensive houses than they actually could. [1] In case anyone is curious, I found a house that was almost perfect as far as size, layout, and location for 0.9 $H and almost bought it, but then found that its water source was a well owned and shared by a group of 4 houses. I could not get satisfactory information on how maintenance and repair of the well was handled. I ended up with a place a little bigger, in a better location, but without quite as nice a layout for 1.16 $H.

hibbelig 4y ago
Not familiar with this topic. What does $H mean? Annual gross salary?
- brianwawok 4y ago
  Just a number he made up for a story.
- voidfunc 4y ago
  $H is the price of the house in OPs post.
- frostiness 4y ago
  I figured it was $100,000 but I could be wrong.

onlyrealcuzzo 4y ago

You're forgetting a.2) the "wealthy" people usually have high incomes, and the x10 houses are usually in high tax states, and housing is a huge tax break. ~20% or my housing "cost" is paid for by a tax break for owning a house. Another ~20% is principal. When you also factor in that the Fed guarantees to devalue money at AT LEAST ~3% per year, and you have 5x leverage (or more) - that's another ~15% effectively subsidized by the government. So when you have sufficient cash flow - it's easy to look at your housing "cost" as only ~40% of the actual payment. Compared to rents, this is a steal.

deleted 4y ago
[deleted]
cactus2093 4y ago
With the SALT cap at $10k and the mortgage interest deduction cap limited to $750k property value, the ultra-wealthy are not really benefitting from this as much as you are saying. Someone with a $750-$1M home is getting roughly the maximum tax break available, and someone with a $5M home is paying for everything above that first $1M themselves* without any extra tax incentives. *Except in California due to prop 13 many of them are paying a tiny fraction of the property tax they should be paying, but that's a separate issue.
- onlyrealcuzzo 4y ago
  Most "wealthy" people, by definition, are not "ultra wealthy". That's where the majority of the wealth is - but there's far better schemes to avoid taxes for that group. Home buyers buying these x10 houses are pretty much limited to the top 10% in income - the vast majority of them are not ultra wealthy.

xadhominemx 4y ago

> The true demand from people with the intend to actually live in the estates has been constantly decreasing since around 2000; the real salarys dropped since then, so did the buying power. > When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population. Nonsense. The home ownership rate is 65%, in-line with the long term average and the same as it was in the year 2000 https://fred.stlouisfed.org/series/RHORUSQ156N https://fred.stlouisfed.org/series/RHORUSQ156N

deleted 4y ago
[deleted]
mirntyfirty 4y ago
I’d disagree in the sense that the home ownership population differs from those that have been buying or selling in the last few years.
- xadhominemx 4y ago
  If millennials were not buying homes at similar rates to their parents, the home ownership rate would be declining
  - ClumsyPilot 4y ago
    There is no need for hypotheticals, we know for a fact they are not buying homws at a similar rate as their parents
    - xadhominemx 4y ago
      Home ownership rates for people under 35 is the same as it was in the mid-90’s and only a few % lower than it was at the peak of the housing bubble
  - jeffreyrogers 4y ago

babypuncher 4y ago

And it will probably stay a leak, even if it grows. People keep expecting another collapse like 2008 but that does not seem likely to me. People need houses to live in, so demand will always be there. And unlike 2008, banks aren't handing out sketchy loans en masse to people who cannot reasonably afford them.