3 ms·

Real estate prices today have little to do with supply and demand. Why else have real estate prices grown hundreds of percent all over the developed world in th

Real estate prices today have little to do with supply and demand. Why else have real estate prices grown hundreds of percent all over the developed world in the last 3 decades, despite relatively low population growth?

WalterBright 4y ago
Like claims of perpetual motion, if it looks like Supply&Demand is not applying, then something is being overlooked. In this case, I suspect your facts overlook the fact that population growth is not even across a country. Population growth has grown a lot in places that are more attractive to live in, and declined in areas that are less attractive. For example, in Spain, I read about many abandoned villages going for a song because the population moved to the big city. In the US, population declined in Detroit and rural areas, and grew in the cities. Housing prices followed those trends.
- geysersam 4y ago
  You bring up a good point. But there are other important reasons. Particularly the availability of cheap money for speculation in the housing market. The reason for this is the historically low interest rates.
  - bamboozled 4y ago
    What happens when the interest rates go back up? Let's say they go from < 1% to > 10%?
    - geysersam 4y ago
      If we're lucky, the market recalibrates on a more affordable level. Workers start seeing real wage increases. Speculation and stimulus gives way to real economic development. If we're unlucky, the interest rates are not allowed to increase for fear of falling house prices.
  - astrange 4y ago
    That just means construction has been made illegal. There's no reason "cheap money for speculation" would be easier to get than "cheap money for construction" otherwise; speculation is riskier! And when interest rates go back up, it gets even harder to finance construction.
    - geysersam 4y ago
      There is money for constructing large expensive apartments who people who can acquire a bank loan would like to buy as an investment. There is little money for constructing cheap small simple rentals, because rentals are paid by wages, not inflated loans. But this is the segment where the demand is highest. The cheap mortgages distorts the price signals, making the market less efficient.
bamboozled 4y ago
This is a great question, I recently visited Australia where property prices are absolutely ridiculously inflated, they appear to be in a slight reversal currently; However, people are borrowing and paying millions (AUD) for shacks, just because they're near some water...yes the area is nice but these are old houses which are not really near public transport, good schools, hospitals or other amenities. Some of them I saw were built in a flood plane. Why? What's driving this? Was it the historically low interest rates, which have now just rocketed in Australia back up to > 5% ? Who will fuel the next property boom to pay for it? Feels almost like some apex has been reached and it's going down from here. Especially as like others have said, it doesn't seem like the developed world is growing rapidly enough to sustain the demand. Immigration might help fuel more demand, but then pressure is taken away from real estate elsewhere, which would incentivize people to stay put, besides, it's not like immigrants often land in the developed world with 2 million dollars to spend on a shack in a remote location. It's fascinating to say the least. Interesting times ahead for property speculators and I guess, everyone...
deleted 4y ago
[deleted]

WalterBright 4y ago

Like claims of perpetual motion, if it looks like Supply&Demand is not applying, then something is being overlooked. In this case, I suspect your facts overlook the fact that population growth is not even across a country. Population growth has grown a lot in places that are more attractive to live in, and declined in areas that are less attractive. For example, in Spain, I read about many abandoned villages going for a song because the population moved to the big city. In the US, population declined in Detroit and rural areas, and grew in the cities. Housing prices followed those trends.

geysersam 4y ago
You bring up a good point. But there are other important reasons. Particularly the availability of cheap money for speculation in the housing market. The reason for this is the historically low interest rates.
- bamboozled 4y ago
  What happens when the interest rates go back up? Let's say they go from < 1% to > 10%?
  - geysersam 4y ago
    If we're lucky, the market recalibrates on a more affordable level. Workers start seeing real wage increases. Speculation and stimulus gives way to real economic development. If we're unlucky, the interest rates are not allowed to increase for fear of falling house prices.
- astrange 4y ago
  That just means construction has been made illegal. There's no reason "cheap money for speculation" would be easier to get than "cheap money for construction" otherwise; speculation is riskier! And when interest rates go back up, it gets even harder to finance construction.
  - geysersam 4y ago
    There is money for constructing large expensive apartments who people who can acquire a bank loan would like to buy as an investment. There is little money for constructing cheap small simple rentals, because rentals are paid by wages, not inflated loans. But this is the segment where the demand is highest. The cheap mortgages distorts the price signals, making the market less efficient.

bamboozled 4y ago

This is a great question, I recently visited Australia where property prices are absolutely ridiculously inflated, they appear to be in a slight reversal currently; However, people are borrowing and paying millions (AUD) for shacks, just because they're near some water...yes the area is nice but these are old houses which are not really near public transport, good schools, hospitals or other amenities. Some of them I saw were built in a flood plane. Why? What's driving this? Was it the historically low interest rates, which have now just rocketed in Australia back up to > 5% ? Who will fuel the next property boom to pay for it? Feels almost like some apex has been reached and it's going down from here. Especially as like others have said, it doesn't seem like the developed world is growing rapidly enough to sustain the demand. Immigration might help fuel more demand, but then pressure is taken away from real estate elsewhere, which would incentivize people to stay put, besides, it's not like immigrants often land in the developed world with 2 million dollars to spend on a shack in a remote location. It's fascinating to say the least. Interesting times ahead for property speculators and I guess, everyone...

deleted 4y ago

[deleted]