10 ms·

I think there's a more concrete measure of value: house prices related to income. Historically (Robert Shiller has a chart for the US going back to 1890) house

I think there's a more concrete measure of value: house prices related to income. Historically (Robert Shiller has a chart for the US going back to 1890) house prices (and mortgages and rents) have maintained a stable relationship with income. Occasionally that relationship is strained but it has usually fallen back in line. One exception to this was the extraordinary, ongoing, support to the financial system post-2008. House prices and other financial assets have ballooned in relative proportion to wage income. That's more than a perception of value, that's a matter of social stability as most people depend on the same paycheck for not only housing but food, medicine, etc, as well as housing.

epistasis 4y ago
That would work if the supply of houses has kept up with populations growth, and just as importantly, the desired location of where people want to live. If there's housing scarcity, then prices will rise far ahead of ability to pay. That's the source of a lot of other types of today's inflation, for example, cars.
- state_less 4y ago
  > If there's housing scarcity, then prices will rise far ahead of ability to pay. Housing costs tend toward people's ability to pay, otherwise folks default. That's why the banks ask you about your income and credit worthiness, they want to know you'll be able to pay the mortgage and not default. If money costs increase faster than income, folks won't be able to afford as much money (as high a price).
  - epistasis 4y ago
    Housing costs do tend towards ability to pay, and when there's scarcity, that "ability to pay" starts cutting out those with the lowest incomes, since they do not get the housing. That's how housing costs can increase faster than the income of an area, it's the market displacing those with lower incomes, and readjusting to only house the wealthiest. Add in that housing prices are distinct from the housing costs, and that leases only change rent occasionally, and lots of people are owners and have fixed costs, and prices can rise quite a bit faster than incomes.
    - adam_arthur 4y ago
      Population of the US is effectively flat over the last two years. In California it actually declined. And new home construction is at an all time high. Scarcity of inventory is not at all the same thing as scarcity of housing. This has been a powerful narrative in driving FOMO buyers though. https://fred.stlouisfed.org/series/UNDCONTSA https://fred.stlouisfed.org/series/UNDCONTSA
      - epistasis 4y ago
        Population may have flattened, but a toooooon of people were looking to move suddenly to new areas, which is another way that scarcity is created. Your chart is the number of units under construction, but that high number doesn't translate into more new homes than ever before, because completions have been massively delayed. So there's a lot of homes sitting half finished as they wait for supply chain crunch's to resolve. And to compare this to numbers from the 80s means normalizing for length of construction, something which is getting delayed more and more. Overall, construction has massively constructed since 2008, and even before that it had been trending down for a long time.
        aperson_hello 4y ago
        Also a lot of those homes are tear down/replace vs. net new
  - jrumbut 4y ago
    The connection between interest rates and housing prices is weaker than I would have expected (it certainly exists, just not to the extent I imagined) and oddly enough it takes a couple years to show up: https://www.bis.org/publ/work665.pdf https://www.bis.org/publ/work665.pdf I suppose it makes sense. They say not to spend more than 1/4 (or 1/3) of your income on housing but if a house costs 2/5 of your income you're probably not going to set up a tent and wait for interest rates to come down.
oceanplexian 4y ago
There’s no rule that you should be able to afford a house on a middle class income. In fact in many countries, particularly in Western Europe, it’s unimaginable that you would be able to afford a detached, single family home on a middle class income. Lots of people in that situation will live in apartments, row houses, or condos for the rest of their lives.
- SturgeonsLaw 4y ago
  You will live in the pod, you will eat the bugs, you will own nothing, and you will be happy
- angmarsbane 4y ago
  I would love to buy a duplex, rowhouse, townhome, 3 bedroom apartment or condo if they existed and were reasonable.
- AlchemistCamp 4y ago
  Western Europe is both considerably more crowded and poorer than the US.
  - mistrial9 4y ago
    Dutch to you, to!
  - wahern 4y ago
    Total population / total land area is an irrelevant statistic for country comparison. By population-weighted density the United States isn't significantly less dense than Western Europe. Unfortunately, directly comparable, prepared numbers are difficult to come by. The 3 most memorable sources I've found are: * https://theconversation.com/think-your-country-is-crowded-these-maps-reveal-the-truth-about-population-density-across-europe-90345 https://theconversation.com/think-your-country-is-crowded-th... - Discusses (introduces?) the concept of "lived density" and provides graphs for Europe. I'm not sure how well the author was familiar with related work regarding population-weight density, which seems to be the more correct term. * https://ssrn.com/abstract=3119965 https://ssrn.com/abstract=3119965 - A low-level analytical discussion regarding population-weighted density as a metric. * https://arxiv.org/abs/2005.01167 https://arxiv.org/abs/2005.01167 - A COVID-19 pandemic-related paper which incidentally includes comparable population-weighted density metrics for both Western Europe and the United States. I haven't looked into things since 2018 (excepting taking note of the 2020 COVID-19 paper), but IIRC census.gov has some population-weighted density numbers somewhere based on MSA and census block (tract?) proximity. It's not easily comparable to available European statistics, but it might be a good place to start if you want to play around with U.S. density numbers. Maybe there have been better resources published since the above.
conductr 4y ago
We’re just way over due for actual real and universal price inflation on all goods & services. It’s not fun but it’s finally happening.
formerkrogemp 4y ago
The Case-Schiller price index is at all time highs across almost every real estate category. As my friend would put it, a dollar is not worth a dollar. A pack of gum and a house are going to value that same dollar differently for you but, as you said, you only have so many dollars :(. As it is I don't think many people will ever own a home in the near term.
nuclearnice1 4y ago
Another exception was the housing bubble leading up to 2008 https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco...
bkjelden 4y ago
One major problem I see with comparing housing prices to income is that most homebuyers in the US are using leverage (a mortgage) to buy their home, and the last 15 years or so have seen comparatively low mortgage rates compared to the several decades beforehand. Housing prices have been able to balloon because debt has been very, very cheap. Whether or not that will continue remains to be seen.
- bradleyjg 4y ago
  A majority of consistent voters own homes and want house prices to increase. That means most politicians want house prices to increase. The government dominates all aspects of residential lending. What’s the smart bet on what will happen?
  - HWR_14 4y ago
    > A majority of consistent voters own homes and want house prices to increase. Are there actually data that say that? I'd only expect data to exist on the first half, but there may also be data (as opposed to a fairly good supposition) from the second.
    - jrumbut 4y ago
      If we ignore the word majority (since that will vary by jurisdiction I'm sure) and say that homeowners are more likely to vote and pay particular attention to issues that affect their home's price then this recent paper does provide some support: https://www.andrewbenjaminhall.com/homeowner.pdf https://www.andrewbenjaminhall.com/homeowner.pdf I'll say from personal experience, it does change your perspective. If a sewage treatment plant moves in next door, I can't move like a renter can. It's a feeling of real vulnerability that I didn't fully understand until I felt it.
      - HWR_14 4y ago
        Thanks for the paper. I understand the NIMBY-ism. I do wonder how much people care about the value of their house going up if they don't plan to sell soon. There are advantages to your home being less valuable and the only disadvantages come if you want to leverage your home more, refinance (not likely with rates going up) or sell it.
djbusby 4y ago
your comment is screaming for a link...is it this one? https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA Case-Shiller Index?
- _uy6i 4y ago
  No that’s more a chart of home prices values https://www.spglobal.com/spdji/en/index-family/indicators/sp-corelogic-case-shiller/sp-corelogic-case-shiller-composite/#overview https://www.spglobal.com/spdji/en/index-family/indicators/sp... You’re looking for this: https://fred.stlouisfed.org/graph/?g=n9xI https://fred.stlouisfed.org/graph/?g=n9xI
- pjmorris 4y ago
  The specific chart I picture was originally in a 2005 article in the NYT, but it is reproduced as the second chart on the Wikipedia page [0] for the Case-Shiller index. Note also that page's section on 'Key events and episodes.' [0] https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index
georgeburdell 4y ago
One criticism I have of Shiller is his index looks at comparable houses across time. This under estimates appreciation due to the housing stock itself becoming more luxurious. In my area, houses are about 500 sqft larger than a generation ago and have amenities like AC and often a granny unit.
- spaetzleesser 4y ago
  This doesn’t really matter if there are no houses available that are 500 sqft less.
- pjmorris 4y ago
  > This under estimates appreciation due to the housing stock itself becoming more luxurious. How so? Large, luxurious, houses get counted just the same way as small houses. If you mean that new houses that have not been resold aren't a factor in the index and that this biases it against the latest housing, OK. But even new houses tend to be priced in line with comparable sales, linking them to history in a way compatible with how the index is calculated.
jankyxenon 4y ago
The question is - how much do historical patterns predict future ones. Can attitudes and norms on what % income spent on housing change? As people attain a higher standard of living, can this trend up?
trgn 4y ago
The US is rotating from housing as commodity investment to housing as intergenerational asset, something which has happened in a lot of other countries already (see e.g. Western Europe, mentioned in other comments here). House prices will remain up because any gain from sale will be plowed into the next home. It's a ratchet upward. Higher mortgage rates are somewhat irrelevant in this dynamic, because the home itself is not an asset to get capital gain from, but a claim to shelter a family for an _indefinite_ period of time in a chosen location. USA was inoculated for a very long time, because horizontal expansion over cheap land allowed for expansion of supply. That era is over. Car and highway technology is no longer adequate to expand cheaply and still remain within viable commuting distance. There really is no limit on how high home prices relative to income can be. When meemaw dies, her inheritance will fund the downpayment of little Sally. That's the perpetuum mobile in Europe, which the US is now cranking up as well. Rents may still remain affordable, but home prices will detach.
- EVa5I7bHFq9mnYK 4y ago
  Houses in the US couldn't serve as intergenerational asset simply because they are built of wood with average livespan of ~70 years. While in Europe houses are generally build of brick or cement and last centuries.
  - spacedcowboy 4y ago
    My (paid for) house in the Bay Area was built ~70 years ago, and it’s just fine, thanks :) As a European living over here for the last two decades, I agree that European houses are generally sturdier (my parents house pre-dates the USA, I don’t expect mine to last that long), but when you’re spending 6 figures on something, looking after it is a good policy. Catching problems early is the key - as soon as you notice something, fix it and fix the cause…
  - senkora 4y ago
    I think it is clear that the parent is using home-ownership to include land-ownership.
bryanrasmussen 4y ago
>I think there's a more concrete measure of value: house prices related to income. So it could also be that 97% (or close) of wage earners in the U.S are underpaid? Or I guess it could be a combination of some underpaid, some overpriced.

epistasis 4y ago

That would work if the supply of houses has kept up with populations growth, and just as importantly, the desired location of where people want to live. If there's housing scarcity, then prices will rise far ahead of ability to pay. That's the source of a lot of other types of today's inflation, for example, cars.

state_less 4y ago
> If there's housing scarcity, then prices will rise far ahead of ability to pay. Housing costs tend toward people's ability to pay, otherwise folks default. That's why the banks ask you about your income and credit worthiness, they want to know you'll be able to pay the mortgage and not default. If money costs increase faster than income, folks won't be able to afford as much money (as high a price).
- epistasis 4y ago
  Housing costs do tend towards ability to pay, and when there's scarcity, that "ability to pay" starts cutting out those with the lowest incomes, since they do not get the housing. That's how housing costs can increase faster than the income of an area, it's the market displacing those with lower incomes, and readjusting to only house the wealthiest. Add in that housing prices are distinct from the housing costs, and that leases only change rent occasionally, and lots of people are owners and have fixed costs, and prices can rise quite a bit faster than incomes.
  - adam_arthur 4y ago
    Population of the US is effectively flat over the last two years. In California it actually declined. And new home construction is at an all time high. Scarcity of inventory is not at all the same thing as scarcity of housing. This has been a powerful narrative in driving FOMO buyers though. https://fred.stlouisfed.org/series/UNDCONTSA https://fred.stlouisfed.org/series/UNDCONTSA
    - epistasis 4y ago
      Population may have flattened, but a toooooon of people were looking to move suddenly to new areas, which is another way that scarcity is created. Your chart is the number of units under construction, but that high number doesn't translate into more new homes than ever before, because completions have been massively delayed. So there's a lot of homes sitting half finished as they wait for supply chain crunch's to resolve. And to compare this to numbers from the 80s means normalizing for length of construction, something which is getting delayed more and more. Overall, construction has massively constructed since 2008, and even before that it had been trending down for a long time.
      - aperson_hello 4y ago
        Also a lot of those homes are tear down/replace vs. net new
- jrumbut 4y ago
  The connection between interest rates and housing prices is weaker than I would have expected (it certainly exists, just not to the extent I imagined) and oddly enough it takes a couple years to show up: https://www.bis.org/publ/work665.pdf https://www.bis.org/publ/work665.pdf I suppose it makes sense. They say not to spend more than 1/4 (or 1/3) of your income on housing but if a house costs 2/5 of your income you're probably not going to set up a tent and wait for interest rates to come down.

oceanplexian 4y ago

There’s no rule that you should be able to afford a house on a middle class income. In fact in many countries, particularly in Western Europe, it’s unimaginable that you would be able to afford a detached, single family home on a middle class income. Lots of people in that situation will live in apartments, row houses, or condos for the rest of their lives.

SturgeonsLaw 4y ago
You will live in the pod, you will eat the bugs, you will own nothing, and you will be happy
angmarsbane 4y ago
I would love to buy a duplex, rowhouse, townhome, 3 bedroom apartment or condo if they existed and were reasonable.
AlchemistCamp 4y ago
Western Europe is both considerably more crowded and poorer than the US.
- mistrial9 4y ago
  Dutch to you, to!
- wahern 4y ago
  Total population / total land area is an irrelevant statistic for country comparison. By population-weighted density the United States isn't significantly less dense than Western Europe. Unfortunately, directly comparable, prepared numbers are difficult to come by. The 3 most memorable sources I've found are: * https://theconversation.com/think-your-country-is-crowded-these-maps-reveal-the-truth-about-population-density-across-europe-90345 https://theconversation.com/think-your-country-is-crowded-th... - Discusses (introduces?) the concept of "lived density" and provides graphs for Europe. I'm not sure how well the author was familiar with related work regarding population-weight density, which seems to be the more correct term. * https://ssrn.com/abstract=3119965 https://ssrn.com/abstract=3119965 - A low-level analytical discussion regarding population-weighted density as a metric. * https://arxiv.org/abs/2005.01167 https://arxiv.org/abs/2005.01167 - A COVID-19 pandemic-related paper which incidentally includes comparable population-weighted density metrics for both Western Europe and the United States. I haven't looked into things since 2018 (excepting taking note of the 2020 COVID-19 paper), but IIRC census.gov has some population-weighted density numbers somewhere based on MSA and census block (tract?) proximity. It's not easily comparable to available European statistics, but it might be a good place to start if you want to play around with U.S. density numbers. Maybe there have been better resources published since the above.

conductr 4y ago

We’re just way over due for actual real and universal price inflation on all goods & services. It’s not fun but it’s finally happening.

formerkrogemp 4y ago

The Case-Schiller price index is at all time highs across almost every real estate category. As my friend would put it, a dollar is not worth a dollar. A pack of gum and a house are going to value that same dollar differently for you but, as you said, you only have so many dollars :(. As it is I don't think many people will ever own a home in the near term.

nuclearnice1 4y ago

Another exception was the housing bubble leading up to 2008 https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco...

bkjelden 4y ago

One major problem I see with comparing housing prices to income is that most homebuyers in the US are using leverage (a mortgage) to buy their home, and the last 15 years or so have seen comparatively low mortgage rates compared to the several decades beforehand. Housing prices have been able to balloon because debt has been very, very cheap. Whether or not that will continue remains to be seen.

bradleyjg 4y ago
A majority of consistent voters own homes and want house prices to increase. That means most politicians want house prices to increase. The government dominates all aspects of residential lending. What’s the smart bet on what will happen?
- HWR_14 4y ago
  > A majority of consistent voters own homes and want house prices to increase. Are there actually data that say that? I'd only expect data to exist on the first half, but there may also be data (as opposed to a fairly good supposition) from the second.
  - jrumbut 4y ago
    If we ignore the word majority (since that will vary by jurisdiction I'm sure) and say that homeowners are more likely to vote and pay particular attention to issues that affect their home's price then this recent paper does provide some support: https://www.andrewbenjaminhall.com/homeowner.pdf https://www.andrewbenjaminhall.com/homeowner.pdf I'll say from personal experience, it does change your perspective. If a sewage treatment plant moves in next door, I can't move like a renter can. It's a feeling of real vulnerability that I didn't fully understand until I felt it.
    - HWR_14 4y ago
      Thanks for the paper. I understand the NIMBY-ism. I do wonder how much people care about the value of their house going up if they don't plan to sell soon. There are advantages to your home being less valuable and the only disadvantages come if you want to leverage your home more, refinance (not likely with rates going up) or sell it.

djbusby 4y ago

your comment is screaming for a link...is it this one? https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA Case-Shiller Index?

_uy6i 4y ago
No that’s more a chart of home prices values https://www.spglobal.com/spdji/en/index-family/indicators/sp-corelogic-case-shiller/sp-corelogic-case-shiller-composite/#overview https://www.spglobal.com/spdji/en/index-family/indicators/sp... You’re looking for this: https://fred.stlouisfed.org/graph/?g=n9xI https://fred.stlouisfed.org/graph/?g=n9xI
pjmorris 4y ago
The specific chart I picture was originally in a 2005 article in the NYT, but it is reproduced as the second chart on the Wikipedia page [0] for the Case-Shiller index. Note also that page's section on 'Key events and episodes.' [0] https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index

georgeburdell 4y ago

One criticism I have of Shiller is his index looks at comparable houses across time. This under estimates appreciation due to the housing stock itself becoming more luxurious. In my area, houses are about 500 sqft larger than a generation ago and have amenities like AC and often a granny unit.

spaetzleesser 4y ago
This doesn’t really matter if there are no houses available that are 500 sqft less.
pjmorris 4y ago
> This under estimates appreciation due to the housing stock itself becoming more luxurious. How so? Large, luxurious, houses get counted just the same way as small houses. If you mean that new houses that have not been resold aren't a factor in the index and that this biases it against the latest housing, OK. But even new houses tend to be priced in line with comparable sales, linking them to history in a way compatible with how the index is calculated.

jankyxenon 4y ago

The question is - how much do historical patterns predict future ones. Can attitudes and norms on what % income spent on housing change? As people attain a higher standard of living, can this trend up?

trgn 4y ago

The US is rotating from housing as commodity investment to housing as intergenerational asset, something which has happened in a lot of other countries already (see e.g. Western Europe, mentioned in other comments here). House prices will remain up because any gain from sale will be plowed into the next home. It's a ratchet upward. Higher mortgage rates are somewhat irrelevant in this dynamic, because the home itself is not an asset to get capital gain from, but a claim to shelter a family for an _indefinite_ period of time in a chosen location. USA was inoculated for a very long time, because horizontal expansion over cheap land allowed for expansion of supply. That era is over. Car and highway technology is no longer adequate to expand cheaply and still remain within viable commuting distance. There really is no limit on how high home prices relative to income can be. When meemaw dies, her inheritance will fund the downpayment of little Sally. That's the perpetuum mobile in Europe, which the US is now cranking up as well. Rents may still remain affordable, but home prices will detach.

EVa5I7bHFq9mnYK 4y ago
Houses in the US couldn't serve as intergenerational asset simply because they are built of wood with average livespan of ~70 years. While in Europe houses are generally build of brick or cement and last centuries.
- spacedcowboy 4y ago
  My (paid for) house in the Bay Area was built ~70 years ago, and it’s just fine, thanks :) As a European living over here for the last two decades, I agree that European houses are generally sturdier (my parents house pre-dates the USA, I don’t expect mine to last that long), but when you’re spending 6 figures on something, looking after it is a good policy. Catching problems early is the key - as soon as you notice something, fix it and fix the cause…
- senkora 4y ago
  I think it is clear that the parent is using home-ownership to include land-ownership.

bryanrasmussen 4y ago

>I think there's a more concrete measure of value: house prices related to income. So it could also be that 97% (or close) of wage earners in the U.S are underpaid? Or I guess it could be a combination of some underpaid, some overpriced.