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Homes in 97% of U.S. cities are overvalued, Moody's says

• chewz 5y ago
  It's not that houses are overvalued. Its that your money lost value...
• avelis 5y ago
  It doesn't help that corporations buy all these houses up at full price and well above listing just so they can use it as rental income.
  • vkou 5y ago
    Listing price is a red herring. Nobody selling a home actually expects to only get listing price for it.
    • lupire 5y ago
    • donavanm 5y ago
      Historically ~30% of all listings were adjusted down. That makes sense when listings are about price discovery. IIRC currently about 15% of listings have a downwards price correction. That is VERY hnusual, and yet still a meaningful portion of secondary market.
  • cortesoft 5y ago
    If they are renting the house out, that means it isn’t being removed from the housing supply. Why would this distort the market?
    • raziel2701 5y ago
      If a house is being rented it means I can't buy it, supply is low. That's what I understood housing supply meant when talking about house prices. Renting is not a factor, it's another market.
      • cortesoft 5y ago
        Renting is not an entirely separate market... renting is an alternative to buying, and their markets are linked. "Housing" is the market, and renting and buying are two options for people in the market.
      • deleted 5y ago
        [deleted]
    • seoaeu 5y ago
      Even assuming the markets were separate, if corporations were buying up tons of housing stock and flooding the rental market with it... shouldn't rents be going down?
  • AussieWog93 5y ago
    Not sure if it's different in the US, but in Australia rental incomes for residential property are a tiny percentage of the value of the investment and most of the money is made through leveraged capital gains. For example, I pay $24k a year on a house worth around $1.4m. This gives a return of around 1.7%, which is nothing compared to cap notes (5%) or dividends (~4%). However, someone buying our house would only need to put down 20% up front, and could reasonably expect to see the price raise by 5-10% a year if trends continue. So that $280k deposit could theoretically return $500k+ over the course of 5 years because of the high leverage. The rental return over that period would only be $120k - not even enough to cover the interest repayments on the loan. Of course, that's assuming trends continue. If prices started falling by 5-10% per year, that $280k deposit would turn into a $500k+ loss and the investors would be absolutely fucked.
    • _carbyau_ 5y ago
      I agree with you but to add another point, if house prices were to decrease significantly then loan margins would kick in for homeowners too. And with low interest rates, low wages(vs house price) for so long the margins for that are tight for a lot of (silly?) people who borrowed "as much as they could". It seems like: - house prices up, investors win. - house prices down, homeowners lose. It will be interesting to see how it plays out but at this stage either side of political argybargy are doing SweetFA and advertise policies to do more of the same.
      • AussieWog93 5y ago
        Theoretically, the market going up or down shouldn't make any difference at all to most owner-occupiers. If they hold onto the house, short-term fluctuations don't affect the eventual sale price. If they buy a new property in a similar market after selling the old one, then the "losses" on the old house are made up for by the "savings" on the new property. It's only people who downsize or leave the property market altogether that would be affected by a short-term dip. (The caveat being, of course, that this completely handwaves away human psychology! Being "underwater" on the mortgage would definitely make a lot of people stressed and anxious.)
  • matchbok 5y ago
    Those purchases are less than .5% of the market. Don't let NIMBYs think that that is the problem. We need more housing.
    • aiisjustanif 5y ago
      We definitely need more housing. Just not more NIMBY housing. I legit don’t need a yard.
      • blueprint 5y ago
        so what you're saying is... you don't need more NIMBY housing in your back yard?
  • donavanm 5y ago
    This is absolutely not true. “Investor” properties account for about 18% of secondary home sales. 90% of those sales are to individuals with 1-4 properties. The remaining 10% of investor sales, ~2% of the total, is ALL of the professional invesotr purchases. Its billions of dollars, in a trillion dollar market.
    • bezospen15 5y ago
  • ianhawes 5y ago
    I’ve heard this but I’ve not experienced it. If corporations are buying houses and using it as rental income, they’re probably losing money. Ignoring vacation rentals, detached homes are among the hardest to rent.
    • bezospen15 5y ago
      Newsflash, they aren't losing money
      • maximus-decimus 5y ago
        They probably mean losing money compared to investing in something else.
        • brewdad 5y ago
          Well the stock market is down double digit percent this year, so maybe not?
      • BeetleB 5y ago
        Some data would be nice. I've followed real estate investments for a while, and renting houses is fairly poor if you paid all cash for the house. The math is easy to do. Most RE investors I know who do this make good money only if they buy a significantly undervalued house - often one that is unsellable. They buy it, put in $50K to repair it, and then rent it out. Those who buy regular houses at 20% down and rent it out have a target of $200/mo net profit. Clearly, they're not buying $600K houses at $120K down to get a measly $200/mo out of it. RE investing - especially the rental market - is very nice in that it's pretty simple math and very transparent. Anyone can plug in the numbers and see what they'll get. Generally, in places where houses go for $800K, the rent will likely not even cover the loan payments. So then you play the game of taking a long term sustained loss in the hope of appreciation. But as someone else pointed out, this makes sense only if you're paying about 20% down and not with paying full cash. Buying houses with all cash is almost always a very poor investment. Random example in my area: Houses in a certain neighborhood are selling for $900K. They rent for $3.5K/mo. Assuming no costs, it would take 21 years to get the money back. Even with rent appreciation, it would take well over 10 years. Over that period, even including appreciation of the house, you're almost guaranteed to get better returns with the S&P500.
  • colinmhayes 5y ago
    Institutional investors are responsible for 2% of sales. This is populist nonsense. The real problem is that we slowed down build speed after 08.
• brk 5y ago
  This goes against everything I learned in ECON101.
  • _moof 5y ago
    That's why there's an ECON102. ;)
  • Finnucane 5y ago
    Srsly, Econ 101 is ‘lies an economist told me.’.
• melissalobos 5y ago
  Isn't this one of those "If everyone is crazy, you're crazy" situations? If every house is overvalued by some metric, then maybe the metric is wrong. People's perceptions of value are a large part of the actual value(meaning what someone would really pay) for things like housing that should depreciate over time.
  • 11235813213455 5y ago
    I don't know how it works in the US, but in France, when you buy an apartment or house, you pay about 8% to the state (notary / attorney fees), that participates in the inflation I guess
    • andrewljohnson 5y ago
      In the US, you pay about 6.5-7%. You pay 5.5 to 6% to the two agents (buyer and seller agents) and about 1% in closing costs (title insurance, etc). It has always seemed wildly inefficient to me. Especially the “buyer agent” who gets a couple percent entirely for escorting the buyer through homes and submitting an offer.
      • BadCookie 5y ago
        The buyer’s agent might show someone dozens of properties all around town and not get a sale. The seller’s agent has it much easier: an almost guaranteed sale, and for what effort? They just hire a photographer, help choose a listing price, and maybe do one open house. I’d rather be a seller’s agent any day.
        • andrewljohnson 5y ago
          My buyer’s agent could be replaced by giving me access to MLS and lockboxes. My seller’s agent, on the other hand, was super useful and irreplaceable except by another smart human. I felt like he got us top dollar for the house based on how he renovated, staged, photographed… much more money than we expected. Also, my experience was I set a budget, put my stuff in truck, left my house a dirty mess, handed the agent my keys, and left town. Then he did all the renovating/etc, posted it, collected offers, and we got paid.
• lampshades 5y ago
  A 10% drop is nothing for anyone that has owned for more than 3 years, at least in my area.
  • seanmcdirmid 5y ago
    A 10% drop would set me back in equity to where we were 6 months ago. Market is crazy, of course something has to give eventually.
  • bufferoverflow 5y ago
    Where I live a house across the street that was estimated at $800K just sold for $1.3M. Our house went up 25% in 6 months. There's not enough inventory in good low crime areas. Even in less safe places we see close to zero houses for sale, and if one appears, it's sold in a week. And there won't be inventory any time soon, because residents don't want tall buildings here. 10% drop - yeah, good luck, noone will notice that.
  • ryanSrich 5y ago
    I live in a blue collar neighborhood of a west coast city. I’ve done extensive work to update my home, I’ve added features like central air, new floors, new lighting, and landscaping. It’s like a new house (though it was built in 1955). Both Zillow and Redfin tell me my house is worth roughly double of what I paid for it in 2015. That’s without even considering the upgrades I’ve done. A 10% drop from the current estimate is meaningless when most homes are worth 50-150% more than what they were worth 10 years ago.
    • hackerfromthefu 5y ago
      But for someone just purchasing now, paying those mega high prices, a 10% drop is a lot of money they borrowed .
• coward123 5y ago
  I can’t help but think of that saying “the market can stay irrational longer than you can stay solvent.” Yes, prices in many markets are very high and appreciating at a rapid clip, but if there are buyers, competition, and houses are continuing to move quickly, then it’s a bold statement to say they are overvalued and that we should predict a significant decline.
  • true_religion 5y ago
    Well in this case it’s more like the market can stay irrational longer than you can stay homeless. Secure shelter is something that everyone needs to live, and in our economy you further need to find one close enough to your workplace. Thus, even if you think prices are crazy, you still must pay them. In situations like this, where demand is for a vital good and supply constrained, the government should be carful about managing the market. From what I can see, US politicians do care about the housing problem but their solutions thus far just exacerbate it by injecting guaranteed loan money and driving up prices.
  • pm90 5y ago
    > but if there are buyers, competition, and houses are continuing to move quickly, They’re not though. Thats the whole problem. Asset bubbles can inflate the paper value and there might still be some trading activity. But if nobody can actually buy the asset, it’s pretty much useless.
    • stepanhruda 5y ago
      That is what they are saying though - people are actually buying the assets? All anecdotes I have seen recently say that houses go off market very quickly.
      • pm90 5y ago
        They may be going off the the market very quickly now. That’s exactly how asset inflation works. People living in their homes that are suddenly worth millions of dollars aren't going to sell their homes now necessarily. When they do get around to selling it the market might not be the same.
• majormajor 5y ago
  The criteria here is apparently: > The economist said a given housing market is considered overvalued if property costs in the area are "well above" the historical relationship between home prices and incomes, rents and construction costs. Which, no surprise there, prices are up in a lot of places! Whether or not that is "overvalued" or suggests a crash coming seems a lot more complicated. Would historical trends hold if historical conditions have changed? Mortgage rates rising are one of those things you'd expect to certainly arrest some of that price acceleration. If everyone who moved to Boise decides to move out of Boise, that's another one. (Though if a bunch of folks moved back from Boise to SF, that's not gonna cool down the also-seen-as-somewhat-overvalued SF market!) Maybe a bunch of folks are just spending a bunch of crypto winnings, naturally causing inflation but not necessarily leading to a crash. ;)
• endisneigh 5y ago
  I used to believe such things and then I did a median income vs price per square foot worldwide comparison and it turns out the United States is one of the cheapest, if not the, cheapest place in the world when it comes to the “affordability” (median income vs price per square foot). I think the issue is that the United States has been too cheap and finally that era of abundance at a low cost is coming to an end.
  • torbTurret 5y ago
    Such a simple analysis ignores e.g. the higher wages in the US offset by the lack of social nets
    • throwaway27727 5y ago
      It also ignores the vast differences between densely populated and not very populated cities.
      • endisneigh 5y ago
        Even Manhattan is cheaper than most places according to the same metric.
        • brewdad 5y ago
          Many apartments (condos in the rest of the country) in Manhattan are structured as co-ops with huge monthly obligations. The sales prices are lower because you can easily be committing to $2000 a month in payments to a co-op board. The total monthly outlays bring the numbers back in line.
    • hammock 5y ago
      The bigger reason is you can buy a house with 20% down (or less) in the US, where that is nearly impossible just about anywhere else in the world Edit: I should say anyone can buy a house for 20% down or less. In much of the world some can do this, but credit is not extended to nearly as many of the population as it is in the US
• chiefalchemist 5y ago
  Moody's, who starred in the 2007 / 2008 bubble? Yeah, there's a credible source. Futhermore, attributing this run up to Covid is revisionist history. The Fed has been goosing the economy for too long. Even my dog knows this. And that has assisted those who are investing in residential homes (because office space has been slipping into the shitter). This is Moody's and its WS family getting out in front of what's coming. Hear it enough times and we'll believe it.
• adamomada 5y ago
  I picture that vertical M2 supply graph from March 2020 whenever I hear ‘overvalued’ when it comes to real assets. The money has changed, not the property. I’m now curious how undervalued it really is and what a huge accounting trick it was to play on everyone over the past two years.
  • jjcon 5y ago
    Its because they changed the definition of m2 in may 2020 not because anything fundamentally changed - not sure why people keep thinking this. >Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
    • colinmhayes 5y ago
      I believe that m1 is what changed. m2 involves adding m1, so the formula changed, but if you break it down it did not.
    • cjmb 5y ago
      You can use the old definitions too and see the same effect: https://gonzoecon.com/wp-content/uploads/2021/04/chart-line-chart-description-automatically-gener-7.jpeg https://gonzoecon.com/wp-content/uploads/2021/04/chart-line-... The change increased M1 by moving common components of M2 downstream into M1. It's why M2 is all anyone should track. And a "definition change" is not in fact the primary reason for a large increase in the money supply in 2020. Smart source: https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply/ https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec... Gonzo source: https://gonzoecon.com/2021/04/m1-and-m2-have-changed/ https://gonzoecon.com/2021/04/m1-and-m2-have-changed/
    • anm89 5y ago
• dboreham 5y ago
  Easily solved by devaluing the currency they're valued in.
• nemo44x 5y ago
  Where I live, in an affluent town on the east coast, homes have been going for 50%+ over ask. And the asks were high. Something is broken. Homes that wound have been listed at $1,000,000 in 2019 are going for $1.750,000 today. Interest rates going up should cool it off but I fear it will break much of the rest of the economy. There was a massive mismatch in executive policy and fed policy and here we are.
  • elephanteeee 5y ago
    What’s the mismatch? Biden got a trillion or two in handouts and Powell bought up all the bonds. Now Biden is taking a step back (not completely but not another trillion) and Powell said he’ll start selling.
    • nemo44x 5y ago
      Halting rent and college tuition paybacks while also spending trillions for people not to work and businesses to not open while the fed also cut interest rates continuously. They decided to test MMT and it failed so badly.
      • jeffbee 5y ago
        Now they're talking about college loan forgiveness which is going to directly goose home prices, all over again.
      • ahoy 5y ago
        Any landlord who finds themselves so burdened by missed rent payments ought to just sell their properties. The market's never been better. They can use the windfall to start a real business instead.
      • vdnkh 5y ago
        Trump's tax cuts certainly didn't help either. Or let's just blame it on "handouts" again.
        • 5y ago
• senectus1 5y ago
  Its like that in Australia as well. *I'm currently a beneficiary of this, and I hate it. I dont want my HOME to be overvalued.
• mberning 5y ago
  In my city, 10 years ago, a nice starter home was around 150k. Now you can’t buy a dump for less than 200k. And those same nice starter homes are 250k+. It’s not hard to imagine why. People flipping burgers can easily make 40k per year now just in base pay. A single person working an incredibly low end job now makes enough money to get approved for nearly 200k loan.
  • noahtallen 5y ago
    Right, and for good reason. It used to be the case that houses were affordable on a basic salary. That hasn’t been the case for a long time for a lot of people. (And to be fair, still isn’t in urban areas.) The combo of slightly higher wages, more young people moving out, and low interest rates does mean more people have the opportunity. And that’s not a bad thing. If you cancel any of those factors, you’re blocking access to people who would love to own a home. I think the factors that should change are supply and investors. It’s not like we live in an era where housing is cheap and bountiful. Clearly it’s severely constrained. The other part is investment. With low interest rates, it’s easy to justify a house as an investment vehicle. Legislatively, it needs to be easy to build and hard to buy more than one property.
  • ahoy 5y ago
    If you think 40k/yr is buy-a-house money you've never lived off 40k/yr.
    • notch656a 5y ago
      Highly dependent on the area. If that city is say Indianapolis or Toledo it would easily pay all your bills and buy you a house. If that city is San Francisco it's enough to buy some lube for the moonlighting profession you'll have to do to make rent.
  • rdtwo 5y ago
    I can’t tear down my house and build a decent 2500sq foot house for under 800k in Seattle. Cost of building and permits is a huge factor not just land
• lvl102 5y ago
  There’s something happening with Euro/JPY vs USD that is forcing a significant inflow into US assets. It’s going to continue because: (1) EU kicked the can for far too long and they cannot meaningfully raise rates without facing the realities of the debt crisis of 2010-12, and now made impossible due to Ukraine, and (2) Japan is committed to driving down the yen even further. USD is king and real-estate will reflect that reality.
  • uptownfunk 5y ago
    yes jpy has been devaluing for some time now.. it was coming
    • presentation 5y ago
      My income is in yen and this makes me sad lol
  • 01100011 5y ago
    The weak yen is going to help Japan win back manufacturing from China. China is in a very tough spot right now. Between "zero covid" and losing mfg due to monetary and political reasons China may be reaching a local maximum for a while.
• streetcat1 5y ago
  I would say that the rental market was undervalued, vs the housing market. The real correction is occurring in the rental market.
  • brewdad 5y ago
    Doubtful. The rental market has stayed consistent with incomes. VERY few people have seen their incomes rise 25% in the past year. Most urban markets have seen that kind of growth in house prices.
• mise_en_place 5y ago
  The same Moody’s granting triple AAA to MBS with subprime and below subprime dogshit
• lumost 5y ago
  Yet another asset crash would annihilate whatever assets millennials have happened to acquire. This would leave the millennial generation largely asset free as they enter their 40s except for inheritance.
  • ahoy 5y ago
    I'm not really sure how. I can count on 1 hand the number of under-40 homeowners I know.
    • atwebb 5y ago
      I'm guessing that is location dependent, though it has changed recently, many people I've known (admittedly college educated or further, corporate tech) have been homeowners since their early-mid 20s. (millenial)
      • zbrozek 5y ago
        Definitely location dependent. Not in the SF Bay Area.
        • atwebb 5y ago
          I guess it is this site but I always see SF Bay Area mentioned, everyone knows it is an outlier. Guess there's a lot of other cities in similar positions.
    • prawn 5y ago
      I'm not in the US, but can only think of one person in my rough age and social circle that is renting (and that was because he split with a partner and she bought his share of their house). Fairly middle class cohort, mix of public and private schooling. Average house price here is about $1m, though most would have bought earlier and cheaper. Anyone younger and buying now would be up against it. I think housing affordability is one of the biggest issues we have.
  • frankbreetz 5y ago
• noasaservice 5y ago
  Housing should never have been an asset to make piles of money on. That's how we're in this mess to begin with. We need a place to live. The first priority for a house is to HOUSE someones. That should matter first and foremost. Investors should be forced to legally go fuck themselves. Same with flippers. Same with landlords. All of these just add extra cost and exfiltrate equity for some rich person to get richer. (I've lived with landlords for 40 years. My hatred is deep here. They've taken my money, built their equity, and charged 1.5x more than the housing would have cost. Damn straight I'm angry.) there's few cases where landlords of a form make sense - dense housing is needed in cities. Treat them like cooperatives, or do like utility companies where this service is guaranteed and here's the cost. But companies should not be able to unduely profit on the fact that people have to live.
• dukeofdoom 5y ago
  Would you rather hold cash or a home during a period of inflation. Most people wisely chose to put it in a house. With a 7% compound interest rate, your money doubles every 10 years. With a 7% inflation rate, I believe it halves in the same time frame. Perhaps it's not that houses are worth more, it's that money is worth less. A 350k house in 2010 should be 700k now if the real inflation was 7%. And at least where I live, that checks out. However, employers haven't raised wages to keep up with this new reality.
  • 01100011 5y ago
    That's great unless we stagflate and people lose jobs or income. Hard to say what we're looking at now.
    • dukeofdoom 5y ago
      Or we might see a level of inflation not seen in decades. The kind of inflation we saw before the fall of Communism. Where communist governments kept printing more and more money while working people could buy less and less with it. It got so bad that eventually they just barely had enough for food.
  • seoaeu 5y ago
    > However, employers haven't raised wages to keep up with this new reality. No, they've instead raised wages to attract employees, which they have to do because of the labor "shortage".
• TheRealDunkirk 5y ago
  Is this one of the same ratings firms that gave us the mortgage backed securities-based global financial meltdown awhile back? Uh huh. Thought so.
• renewiltord 5y ago
  This is an artifact caused by the fact that the house book is thin and so is rapidly depleted by a few moves from a HCOL to LCOL area, but the incomes there don't rise to match. Essentially, a few hundred rich people moving from SF to some smaller town won't move SF's housing cost but will skyrocket the small town housing cost. However, the few hundred rich won't boost the income significantly. This is a data artifact made from the fact that "prices" are determined by what's on the book and "income" is determined as a whole. The difference between what's on the book vs. the whole is best illustrated by San Francisco, where most people pay far less for a 1 br apartment than the "going rate for a 1 br apartment". Even the repeat-sales method for home pricing is not immune to this data artifact because we don't use a new-job method for income. This causes decoupling of the fundamentals when you get the remote-work revolution.
• T3RMINATED 5y ago
• Rury 5y ago
  Curious, are people suddenly paying higher property taxes now that houses are worth much more in a short time span?
  • elephanteeee 5y ago
    Yes. I mean some places have laws freezing property taxes but in most places yes. My state switched to something like Zillow-based assessments that they did for every house in my county this year. It’s kind of funny thing that interest rates did but the escrow portion of my mortgage payment is bigger than the principal and interest.
  • rufus_foreman 5y ago
    Maybe some people are. Property taxes are state by state. But that's not the way they do property taxes where I live. Where I live, they have an amount of taxes they need to collect, and then they divide that up based on property values. If the value of everyone's property doubles, they still need to collect the same amount of property taxes, so everyone's property taxes stay the same. I guess in some places, they just do it based on property value, and when house prices skyrocket, the government just says, "Score!". Wouldn't want to live in one of those states.
    • olyjohn 5y ago
      I believe in some states, there's a limit to how much the tax-assessed value can increase in a year. So even if the housing prices double, they may only be able to increase taxes by a couple percent.
  • whoopdeepoo 5y ago
    Went up 10%
• asta123 5y ago
  They may be overvalued but don't see how they could fall without forced sales. At start of pandemic borrowers got mortgage repayment holidays in Australia - so didn't have to sell if you got into financial trouble. Yesterday one of major bank bosses telling borrowers to call the bank if rising interest rates and cost of living getting people into difficulty. Somehow they will work it out whatever that means.
  • _uy6i 5y ago
    Price formation is complicated - think about the fact 5-6m home sales a year, at the price for 80-90m homes, if the composition of those buyers and sellers changes, that changes the “implied” price for everyone
  • throw123123123 5y ago
    Housing definitely is sticker than stocks - but that is a sleigh of hand. Buyers unwilling to lower prices are taking themselves off the market, not sustaining the market price. Volume would go down, and whatever is sold will be done at a much lower market price. Argentina had a RE bubble in 2017, and property prices dropped 40% since. It has happened, it is happening, and it will happen again.
• jmyeet 5y ago
  Moody's who quite famously engaged in what should be criminal conspiracy regarding the rating of MBS [1] leading up to 2008 that cost pension funds, mutual funds and investors billions of dollars makes further statements about the housing market. Sorry but I don't put a lot of stock in what Moody's says about anything. There's pretty strong evidence that the rise in house values is structural not speculative. This is essentially the constraint of supply. There are multiple causes of this including: 1. The US building very few new homes 2010-2020. There are lots of reasons for this. A big problem is the type of housing being built, particularly in urban center where like NYC where the vast bulk of new housing units are ultra-luxury condos; 2. Permissive policies allowing the rich to park money in real estate. This particularly includes foreign nationals from places like China, India and Russia; and 3. An increase in people owning multiple properties. These include second homes, vacation homes and short-term rentals (most notably for AirBnB). There's strong evidence that AirBnB in particular has huge negative impacts on a lot of metropolitan areas. A lot of tempted to blame Blackrock and other instituationl investors as constraining suply. this is completely overblown. These account for less than 1% of US homes. [1]: https://www.ft.com/content/6457f28a-d9fa-11e6-944b-e7eb37a6aa8e https://www.ft.com/content/6457f28a-d9fa-11e6-944b-e7eb37a6a...
  • 9oliYQjP 5y ago
    You might be right. But I just want to add that this housing asset bubble is global in nature. We here in Canada have been running the interest rate increase experiment ahead of the US. We've also had a much worse run up in housing prices. There are rundown shacks in Oshawa, Ontario selling for more than nice homes in Los Angeles. Where the hell is Oshawa? That's the whole point, it really doesn't matter but it's a former General Motors factory town about 1 hour east of Toronto. Two months ago the real estate bulls were saying what you were saying now about supply. But the numbers are in for major areas like the greater Toronto area after a single 50 bps increase this past quarter like the one the Fed just dropped down south. Some suburbs of Toronto have already seen median prices drop 10-20% off their January/February 2022 peak prices [1]. The volume of home sales has plunged 41% in Toronto [2] as the market absorbed the 0.5% interest rate hike. And we haven't seen anything yet. A huge chunk of the buyers today have pre-approvals with interest rates from 75 bps ago. Around June 1 these buyers need to commit to a purchase to provide enough time for their lenders to close the deal at the old interest rates before those expire. The Bank of Canada is also expected to make a further 50 bps to 100 bps jump in rates in early June. Anecdotally, there are already horror stories of over leveraged buyers -- perhaps amateur investors or a family that stretched themselves to the limit to buy -- only for their deal to fall through because the banks won't appraise the home at what they agreed to pay for it. As a wannabe first time homebuyer myself, I've heard every argument you've said repeated ad nauseum up here in Canada the past half year by real estate bulls -- who I might add, have been totally right in their assessment of our crazy market which could only go up for perhaps the past 15 years -- only for the market sentiment to completely change overnight within a month or two of the 0.5% interest rate hike. [1]: https://preview.redd.it/w61ns3b7jgx81.jpg?width=1024&auto=webp&s=c1af035dfd56ee3a83528d6ce5641417d569852a https://preview.redd.it/w61ns3b7jgx81.jpg?width=1024&auto=we... [2]: https://www.bnnbloomberg.ca/toronto-home-sales-plunge-41-in-april-as-higher-rates-take-hold-1.1760868 https://www.bnnbloomberg.ca/toronto-home-sales-plunge-41-in-...
• 11thEarlOfMar 5y ago
  I live in a development of 115 homes, next to a development of 500 homes. Prices are up 50% in the last 18 months. There are zero out of 615 homes on the market and this is supposed to be high season for transactions. It makes no sense to me.
  • ryanSrich 5y ago
    I think a lot of people are panic buying at this point. The fed has several rate hikes planned, so the TCO is only going up from here. I don’t see prices coming down. We could see the increase in prices slow down, but it’s almost guaranteed a house right now is going to be cheaper than a house in December. Even if the price stays the same, your rate might be 12% in November.
    • dannyw 5y ago
      No; the price will decrease as buyers can't afford as much due to higher rates.
• claaams 5y ago
  I make good (not swe but not bad for IT) money but I'll never be able to buy anything within 60 miles of my work.
• deleted 5y ago
  [deleted]
• PaywallBuster 5y ago
  question: how to know when is it better to buy? - now: high price but low mortgage? - later: lower price but higher mortgage? (or simply take this and later refinance at lower rates?)
  • dannyw 5y ago
    Absolutely later. Then refinance.
• JumpCrisscross 5y ago
  > Locals in Boise are now competing with buyers from San Francisco and other big cities, who often have more money to spend on housing. That is driving up prices beyond the reach of many people earning a typical salary in those regions. I’m always wary of “this time is different.” But sometimes, times are different. If we assume a house bought by an exiting San Franciscan must be resold to a local, yes, the home value is askew. But if we assume it will be sold to another tech worker forged in New York or the Bay Area before achieving sufficient seniority to go remote only at high pay, the denominator is different. I don’t think that explains the gap. And code fixes would burst the bubble; while there has been historical opposition to such tweaks, a carpetbagger-longtime local divide is about the best fodder for it. But local deviations from the national premium may be explained by permanent factors.
  • quickthrower2 5y ago
    If the supply in SF is limited then the army of cashed up buyers is also limited. Forget SF and just follow the money. More dollars created since 2015 than before 2015. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL. Half the money supply came about in the last 7 years! Tech workers are closer to the money than ever before (maybe closer than quants etc.) because money is looking for yield at any risk. Tech investment provides that promise.
• snidane 5y ago
  Houses lose value by depreciation. In few decades the value is zero, then becomes negative - the price of demolition for the next project. What gains value over time is land. Poeple only think they invest in houses, but they are fooling themselves and overspend on the construction and interiors. They pay for land. Easy to prove - construction material and labor are highly mobile. Cement, bricks and imported labor costs the same in New York as in middle of nowhere. The price differs only by transportation costs and temporary lodging of workers. The real difference comes from 1. price of land 2. bribes for construction permits of a respective town. In other words - location is what you pay for. In Japan, this is more explicit. House value drops to zero in 30 years. https://www.theguardian.com/cities/2017/nov/16/japan-reusable-housing-revolution https://www.theguardian.com/cities/2017/nov/16/japan-reusabl...
  • tomc1985 5y ago
    Japan also has a cultural habit of demolishing old homes to build new ones, and not building said new homes to last more than 30 years or so. Here, the only time I see old homes getting demolished is to make way for a new apartment block. Hell, the house I am living in appears to have been built some time in the 40s to 50s
  • contrahax 5y ago
    Most of the 1-10M+ homes in NYC, SF, etc. were built 100+ years ago. I know a number of people who live in perfectly nice homes built in the 1700s in rural areas that have consistently kept their values. Homes don’t depreciate and need demolition “within a few decades” if you just keep up with basic maintenance. If you don’t believe my anecdotal evidence, you can do a basic Zillow search and filter by price over 1M and built before 1980 and see how many results you get all over the country. I wish this were true legally - my property tax bill on my 40 year old house would be 0, but sadly it increases every year as my home value appreciates.
• immigrantheart 5y ago
  Sorry this is just another dumb me trying to see what solution could be. Maybe 3rd world countries could start opening up their citizenship/PRs for US/Western Europe/Canada/Japan/Korea/1st world citizens. i.e, Give up your origin citizenship, say US, for Indonesia for example (because Indonesia doesn't allow dual citizenship), and gain these benefits for you: - Extremely cheap cost of living - You can own a house and a yard as big as you want, with nice cars, and maids, drivers, gardeners - You can send your kids to international school that are cheaper than your private school, and also of better quality education wise than your local public school Meanwhile, Indonesia will gain: - The new citizens/PRs can help create opportunities/businesses in Indonesia and employ locals - The new citizens/PRs will spend their money in Indonesia, buying local goods and services For example, a nice area in Serpong (just a bit south of Jakarta, cluster-style 2 story houses, 3 bedrooms, will cost you around $150.000. Complete with security guards. I'm sure there are other countries that are ok too, like Thailand, Vietnam, Philiphines.
  • deleted 5y ago
    [deleted]
  • 88840-8855 5y ago
    Most people will not give up family, friends and roots for a house in some third world country. People have jobs where they live, they know the city or at least the country. The language is not a problem, they are familiar with food, laws, standards, processes. I worked in many different countries before, developed and less developed. It's "fun" for a while, but in my experience people don't want to stay, they only stay temporarily that for career reasons. Plus, how long will it take until the local folks will get mad because your kids are treated better (in the international school), you have a bigger house, enjoy a better life? There will be the same "those migrants are taking away our stuff!!!" sentiment that we already know here in the WeSt.
    • immigrantheart 5y ago
      But the peril of being a developed country is that housing costs will always be expensive.
• phkahler 5y ago
  Housing can not be both affordable AND a good investment. It is currently being used as am investment.
• trophycase 5y ago
  It's almost like when you give people basically free leverage (2% mortgage rates), they can buy houses for higher prices.
• jaunkst 5y ago
  I’m up 125%. 10% loss would be a great consolidation.
• bumblebritches5 5y ago
• turtledove 5y ago
  The sooner we collectively decide that housing shouldn't be a market, the better. We all need it, and we should figure out mechanisms to make it available to all. Practically that means paying to build and maintain housing stocks, changing tax incentives so developers are incentivized to build more housing and less luxury housing, charging a premium for unused land in desirable areas (parking lots don't house people), abolish mandatory minimum parking, and upzone neighborhoods (eliminating the "single family home" neighborhoods as a zoning type.) I'm also of the much more radical opinion that we should protect tenants over landlords in nearly every case, that we should protect the rights of people to live where they've historically lived (eg, one shouldn't be "priced out" of the home they've lived in for 20 years), and we should offer extensive public housing (built as many geographically distributed small apartment buildings and 5 over 1s, not giant tenements or projects.)
  • mutatio 5y ago
    "Nearly every case" is very wishy washy, I assume you have some specifics, what about trashing a property, who absorbs that cost? Living where one has historically lived is interesting, take London - you're implying it should be a birth right for natives - what about the immigrant flow into such cities, how would you reconcile the "right of natives" with human capital?
    • turtledove 5y ago
      Not a birthright, I don't think it should move across generations, but I do think that it's needlessly cruel to force someone out of their home because wealthier people want to live there. As for tenants v landlords, I believe it should be difficult to evict tenants except in cases where the tenant is clearly a danger to others or to the home itself. If they are vandalizing the property, that should be an eviction. Likewise if they are cooking meth. But I think tenants should be protected if, eg, their income drops due to a layoff or unforseen medical expense.
      • jdhendrickson 5y ago
        Do you not see any obvious flaws in your desired changes?
• dharma1 5y ago
  Same in the UK - https://www.theweek.co.uk/london-house-prices https://www.theweek.co.uk/london-house-prices I think it’s a combination of not enough available housing (and pandemic increasing costs for building new homes), fall in the value of the denominator due to central bank action, and people moving often having lots of equity in their existing home they shift to the new one so the increase in mortgage size isn’t huge. There won’t be a big crash (unless we see a deep recession with rising unemployment and defaults) but central bank tightening and raising rates will definitely curb house price growth in the next couple of years.
• Paul_S 5y ago
  100% of stocks are overvalued (because of imaginary expectation of future value). Why is it ok for stocks but not houses?
  • somenameforme 5y ago
    You, more or less, need a domicile to live. This puts them in a very distinct place in the market.
• Paul_S 5y ago
  Thank God silicon valley has already solved this problem. You will live in a pod.
• t_mann 5y ago
  One aspect that I felt was missing in the discussion is inflation. You could imagine a situation where house prices have risen before everything else did, and now that inflation is approaching double digits, all the other items in the economy (and wages) will just catch up slowly. But then again, I'm sure the they've included such factors in their analysis.
• johnson98 5y ago
  [dead]
• halotrope 5y ago
  Everyone seems to agree that speculation in housing is a global problem with adverse effects on communities and societies. Toronto seems to be a good example of how the end-game will look like. People are priced out of owning a home for good and/or have to leave places where they might have been living for their whole life. Rent controls don't seem to work, and just cancelling (by whatever means) the market for real estate in general might yield a lot of unwanted side-effects. I believe there are 'simple' measures to curb rampant speculation without distorting the market to badly: - Disallow foreign investment in residential real estate. - Disallow for-profit corporations to purchase residential real estate. - Stop subsidizing speculation by bailing out real estate investors - Invest in infrastructure so that living apart from big cities is more worthwhile. Especially broadband internet and schools. - Add a tax penalty to vacant residential real estate.
  • techsin101 5y ago
    high tax penalty on owning 5+ housing units
  • digisign 5y ago
    A good list. Odd that, build enough homes for the population, is not mentioned however.
    • halotrope 5y ago
      Yes I forgot that. But just building seems to be not as straightforward either as construction cost and regulation make building non-luxury housing difficult to justify economically. At least in denser urban areas.
      • digisign 5y ago
        Agreed those restrictions should be... restricted. But, even luxury housing gets old. The primary driver remains a shortage in supply, everything else is approaching long tail.
  • jokethrowaway 5y ago
• TrackerFF 5y ago
  Every time we get some ridiculously small AND expensive apartment here in Norway, the newspapers usually write about it. For example, this 10 m^2 / 107 ft^2 apartment in Oslo: https://www.finn.no/realestate/homes/ad.html?finnkode=256395156 https://www.finn.no/realestate/homes/ad.html?finnkode=256395... It was listed for a total price of 2.2M NOK / 235k USD. 12 years ago, it was sold for 240k NOK / 25k USD. Or this: https://www.finn.no/realestate/homes/ad.html?finnkode=254704791 https://www.finn.no/realestate/homes/ad.html?finnkode=254704... Which was sold for 2.5M NOK / 261k USD. It is 13 m^2 / 140 ft^2, and 11 years ago, the same apartment was sold for 325 NOK / 34k USD. As you can see, both of these tiny apartments have increased by around %700-%900, or a 11-12 year gross CAGR of around 20%! As you can imagine, these apartments are not meant for long-time living. These apartments have been bought and sold 3-5 times since 2010, and if I had to guess, they have been bought by the parents of students, and sold as soon as they've graduated. No-one has lost money on these apartments. At least here in Norway, more so Oslo, real-estate pricing has slowly but steady outpaced the purchasing power of young people. In fact - over half of first buyers in Oslo are backed by parents / family. The ones that don't get help, probably have to rent and save for a longer time. It is purely anecdotal, but I've seen this divide in a pretty stark way...those that get help from their parents, buy their first apartment straight out of university (sometimes even while being students), so around age 22-24. People that don't get any help, late 20s / early 30s. While Oslo would be the worst place here for first-time buyers, most mid-sized cities in Norway are trailing these prices and trends.
• vertis 5y ago
  Just wait till they hear about home prices in Australia.
• nabla9 5y ago
  Housing economics is old and studied field. When you consider all the different countries over the world, it also means that you have multiple parallel experiments running at once. That means we know what works. High prices are the result of supply and demand not meeting. There is very strong evidence that just these work in combination. 1. Building enough housing into cities (by compact zoning, with good infrastructure). Japan is main example. Tokyo has no housing crisis. They just kept building houses until everyone had one. 2. Taxing empty apartments extra (nobody registered to live there for over a year). Taxing undeveloped properties in zoned areas extra. After these two have been implemented. It just works. It does not matter if it's luxury or not as some claim. When luxury house is build, one frees up somewhere (as long as they are permanent residences). One new luxury house starts a chain where only 3-4 hops away someone with low income gets a new house.
• JohnJamesRambo 5y ago
  https://inflationchart.com/income-in-home/?time=10%20years https://inflationchart.com/income-in-home/?time=10%20years This isn’t good.
  • ahmedalsudani 5y ago
    Replacing income with M3: https://inflationchart.com/m3-in-home/?time=10%20years&zero=1 https://inflationchart.com/m3-in-home/?time=10%20years&zero=... Neat website btw. Thank you for sharing.
• sakopov 5y ago
  Average household income vs Average home price in US over the past 70 years. Looks like an average American is going to be a happy renter in about 10-15 years as home ownership prices reach the moon. 1950 - $3,300 - $7,354 1960 - $5,600 - $11,900 1970 - $9,870 - $17,000 1980 - $17,709 - $47,200 1990 - $29,943 - $79,100 2000 - $41,989 - $119,600 2010 - $49,276 - $221,800 2020 - $67,521 - $336,900
  • c7DJTLrn 5y ago
    "You will own nothing and you will be happy" God it's depressing. I'm jealous of the generation who bought homes for the equivalent of one year's salary, sat on them while their value multiplied 20x, and then had the economy shut down for two years for their safety. And of course, they received healthy pension increases while the minimum wage remains stagnant.
• ohiovr 5y ago
  If mortgage rates were 7% housing would come down in price nicely. Very nicely. So would rent.
  • hackerfromthefu 5y ago
    If rates go up like that the housing market will freeze up and people wont sell if at all possible to avoid. Banks who own the assets if they force people to sell don't want to see the asset values go down below their collateral required. Hence banks move softly and let the majority of underwater people ride it out instead of selling. Why would rents go down? It might go up?
    • ohiovr 4y ago
      If rates go up, there would be massive liquidations all across the board. Landlords with 12 properties would have to scale back to survive. Those properties would be sold for fire sale prices. Fire sale priced homes are not going to rent for a lot of money. Bonus; it will totally bankrupt Blackrock. Rates will go up if we are lucky enough to have a world in which we will be in it.
• gilbetron 5y ago
  The issue, as with health care, is that this is a market the consumer cannot choose to exit. I can't decide to not live somewhere, just as I can't decide not to have an appendectomy. I can decide not to have a tablet or a car or a bike or an espresso machine, so markets work well. But if you must participate in a market, it changes the dynamics to the detriment of consumers. I love free markets but they don't exist without laws and regulations, and those laws and regulations must match what is being sold. I mean think about it, people can't get housing in cities without paying a ridiculous multiple of the costs to create that housing. It's like if restaurants cost 10x or more than the cost of goods for meals. I can make my own steak dinner for like $50 in components, but if I want to eat out at a nice place, even 3x is extreme, and really nice. This is like if all restaurants, even cheap ones, were $500+. It's insane.
• FuriouslyAdrift 5y ago
  Until a prohibition on investor owned single family occupancy residential property is put in place (basically make AirBnBs illegal), there is zero chance this will get better...