3 ms·

$1.5m houses is a signal that a ton of people want to live there, and are willing to pay a premium for doing it. That's not a signal that you're doing something

by gpm 4y ago

$1.5m houses is a signal that a ton of people want to live there, and are willing to pay a premium for doing it. That's not a signal that you're doing something wrong. Of course, it would be nice if you could keep everything you're doing right and bring housing prices down (largely by building more of it). But on the whole real-estate being valuable is generally a positive sign. On the flip side, the cheapest houses you could find for awhile (maybe still?) were in detroit, that's not a sign that Detroit was doing well - but that demand had plummeted to literally 0 because it was doing so poorly.

kube-system 4y ago
High prices aren’t necessarily an indicator of the quantity of demand but more so that >= 2 people with that amount of money want that home. For instance: nice homes in very low demand areas may sell for large amounts of money and only have a single offer.
- gpm 4y ago
  I think there are two (very fair) criticisms in your post. One is that we're really talking about demand from people who can afford it. All the demand in the world from people living on minimum wage won't drive house prices up so they aren't really "counted" in my analysis. There's not really a way to fix this issue with the data, but I'd argue that demand from reasonably rich people is still a good sign. Indeed, rich people are the most mobile and able to move away from a shitty place to live. The other is that the quality of the home matters (a lot). Which is completely true, but the cheap shitty homes in the bay area are still demanding these prices, so I'm not sure it really applies to the concrete situation being discussed even though it is an issue with my general argument. You could maybe try and find "comparable" homes in different places to try and account for that, but I have no doubt doing so would open you up to issues with bias (intentional or otherwise).
- danans 4y ago
  > For instance: nice homes in very low demand areas may sell for large amounts of money and only have a single offer. These houses and the areas they occupy (i.e Beverly Hills, Park Ave ) are an extreme edge case, and don't exist in the same housing market as normal houses. Above a certain very high price percentile, there are always very few buyers and sellers, and they are all paying a high premium for things like high physical security.
  - kube-system 4y ago
    That wasn't what I was thinking of -- I was thinking more of the $1m+ homes sparsely scattered around rural America. They're expensive because they're nice places to be, not because they're high in demand like a home in the Bay Area
    - danans 4y ago
      > They're expensive because they're nice places to be, not because they're high in demand like a home in the Bay Area I think you have used circular reasoning here. The price is ultimately governed by supply and demand. They are expensive because more people demand them than the supply available for sale. There are many reasons why demand can exceed supply, like development restrictions, difficult building environments. That's no different in a pretty rural area or in a place like the bay area. The extremely pretty and expensive rural areas (think luxury ski towns) control housing development even more strictly than expensive cities. The bottom line is desirability, which manifests as demand. And, if you're paying $1M+ for a house in the rural plains, it's probably far bigger than the typical house, because the land is very cheap.
      - kube-system 4y ago
        I am saying that the value of the demand is not necessarily driven by the number of people demanding it. You may have a piece of property that only one person in the world wants to live on, but if you get a single buyer willing to give you a million bucks, you have a million dollar property. Meanwhile, 100 people might want to live in a particular property in a ghetto, but none of them have a million dollars to bid on it. The price will only raise to the maximum amount that the buying pool can afford. More demand doesn't result in higher prices, it results in homelessness and/or people moving to alternate markets. My point is that $1.5m prices are not a signal that a ton of people want to live in a particular place. It's a signal that people who can obtain $1.5 million dollar loans want to purchase there, and that the demand satisfies the motivated supply. That's it.
        4y ago

by gpm 4y ago

kube-system 4y ago

High prices aren’t necessarily an indicator of the quantity of demand but more so that >= 2 people with that amount of money want that home. For instance: nice homes in very low demand areas may sell for large amounts of money and only have a single offer.

gpm 4y ago
I think there are two (very fair) criticisms in your post. One is that we're really talking about demand from people who can afford it. All the demand in the world from people living on minimum wage won't drive house prices up so they aren't really "counted" in my analysis. There's not really a way to fix this issue with the data, but I'd argue that demand from reasonably rich people is still a good sign. Indeed, rich people are the most mobile and able to move away from a shitty place to live. The other is that the quality of the home matters (a lot). Which is completely true, but the cheap shitty homes in the bay area are still demanding these prices, so I'm not sure it really applies to the concrete situation being discussed even though it is an issue with my general argument. You could maybe try and find "comparable" homes in different places to try and account for that, but I have no doubt doing so would open you up to issues with bias (intentional or otherwise).
danans 4y ago
> For instance: nice homes in very low demand areas may sell for large amounts of money and only have a single offer. These houses and the areas they occupy (i.e Beverly Hills, Park Ave ) are an extreme edge case, and don't exist in the same housing market as normal houses. Above a certain very high price percentile, there are always very few buyers and sellers, and they are all paying a high premium for things like high physical security.
- kube-system 4y ago
  That wasn't what I was thinking of -- I was thinking more of the $1m+ homes sparsely scattered around rural America. They're expensive because they're nice places to be, not because they're high in demand like a home in the Bay Area
  - danans 4y ago
    > They're expensive because they're nice places to be, not because they're high in demand like a home in the Bay Area I think you have used circular reasoning here. The price is ultimately governed by supply and demand. They are expensive because more people demand them than the supply available for sale. There are many reasons why demand can exceed supply, like development restrictions, difficult building environments. That's no different in a pretty rural area or in a place like the bay area. The extremely pretty and expensive rural areas (think luxury ski towns) control housing development even more strictly than expensive cities. The bottom line is desirability, which manifests as demand. And, if you're paying $1M+ for a house in the rural plains, it's probably far bigger than the typical house, because the land is very cheap.
    - kube-system 4y ago
      I am saying that the value of the demand is not necessarily driven by the number of people demanding it. You may have a piece of property that only one person in the world wants to live on, but if you get a single buyer willing to give you a million bucks, you have a million dollar property. Meanwhile, 100 people might want to live in a particular property in a ghetto, but none of them have a million dollars to bid on it. The price will only raise to the maximum amount that the buying pool can afford. More demand doesn't result in higher prices, it results in homelessness and/or people moving to alternate markets. My point is that $1.5m prices are not a signal that a ton of people want to live in a particular place. It's a signal that people who can obtain $1.5 million dollar loans want to purchase there, and that the demand satisfies the motivated supply. That's it.
      - 4y ago