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Unless housing corrects none of this matters people are making more and just spending it on rent and other essentials. It’s crazy to me that the house i grew u

by bogota 4y ago

Unless housing corrects none of this matters people are making more and just spending it on rent and other essentials. It’s crazy to me that the house i grew up in and my parents could afford with only my dad working as enlisted in the military now is 650k vs 140k 20 years ago. This rate of growth doesn’t seem sustainable.

hackerfromthefu 4y ago
That house is not in the same context as 20 years ago. Constant growth provides more amenity for the house than previously, and higher competitive desireability. To get an equivalent house you need to go further out to a less developed area with less people competing for the house, and there you will find cheaper houses. I'm not saying it is sustainable or what the values should be etc, just that the past conditions != todays conditions despite it being the same latitude and longitude.
addaon 4y ago
This is an 8% average (nominal) growth rate, and only about 5% over inflation. In the long run this isn't sustainable -- in the medium term we expect any exponential growth to plateau at a cubic, and in the long term quadratic, growth rate -- but while we're in what sure appears to be an exponential growth stage, that 8% number doesn't seem inherently unreasonable.
- bogota 4y ago
  The 8% growth isn’t unreasonable but if we aren’t matching it over the long term with similar salary growth for a large portion of the population it becomes a problem. Since salary normally only grows at 2% for most people in another 10 years we are in a situation where almost no one can afford a house who isn’t getting help from their parents. The middle class has seemingly vanished and I don’t think that is good for society
  - conductr 4y ago
    My baseless feeling is that the middle class that is present is not keeping up with inflation right now. Even those that bought a house say 10 years ago and got decent 'value'. I think salary growth is happening at the bottom. That's where the labor shortage is huge. People just won't work for $12/hr in my area like they did in 2019. They'd want $18 now. And you have to pay if you own a business that employees this income bracket of employee's. And, they're not happy about pretty much anything. r/antiwork is a place you see a lot of this sentiment. People in the middle. They haven't quite received that 50% raise the so now they're effectively much closer to the bag boy at the grocery store purchasing power. Yes, it's pretty awful for society and just getting started. It is demotivating and my thought is it's probably a contributing factor to why productivity is down.
- deleted 4y ago
  [deleted]
- banannaise 4y ago
  "only about 5% over inflation" is three times inflation. That's massive. You can see it in the numbers - inflation would land that house at $230k, but it's nearly three times that. Any investment portfolio that "only" made 8% YoY for 20 years would be incredible.
  - addaon 4y ago
    > Any investment portfolio that "only" made 8% YoY for 20 years would be incredible. Isn't this almost exactly the return of SPY over that time period?
twblalock 4y ago
The only way it will change is if more housing is built. A lot more housing. Demand is higher now than it has ever been before, and supply is not keeping up. Some of this is simply caused by supply not keeping up for decades, but on top of that we have a lot of people who moved out of the cities/back in with their parents during the pandemic who now want somewhere to live. Home prices are actually lower now than they were earlier in the year, but rent has inflated by quite a bit. That proves that the demand-side is causing the increases. If housing was simply an asset bubble, we would see purchase prices skyrocketing too. Increases in rent are outpacing increases in home values because of a lack of supply is causing potential tenants to compete with each other. So, how would home values drop significantly? New supply takes years to build, so that won't do it anytime soon. High mortgage rates have only resulted in small decreases in prices. It's also becoming more expensive to build with new environmental requirements like solar panels on all new housing in California, for example. The only way I can see significant price drops happening in the short term is something similar to what happened in 2008: a wave of foreclosures forcing sellers to sell low, at the same time as mass unemployment and massive stock market dips destroy the purchasing power of buyers. That would certainly lower prices, but the damage would certainly not be limited to the housing market.
- jjtheblunt 4y ago
  > The only way it will change is if more housing is built. or if there's a drop in demand?
- JamesianP 4y ago
  Fundamentals mean house prices should be higher than before, but that doesn't prove they should be this high. The population didn't double in five years. Such high-flying markets attract lots of speculation, especially in the last few years. The higher prices go, the more it attracts people to jump in and the thing accelerates, though the price relative to the fundamentals is actually getting worse and worse. How can it not overshoot? Look at what happens with worthless cryptocurrencies...
- EricDeb 4y ago
  How is there a supply problem when there's 16 million vacant homes and 1 million people died of covid?

by bogota 4y ago

hackerfromthefu 4y ago

That house is not in the same context as 20 years ago. Constant growth provides more amenity for the house than previously, and higher competitive desireability. To get an equivalent house you need to go further out to a less developed area with less people competing for the house, and there you will find cheaper houses. I'm not saying it is sustainable or what the values should be etc, just that the past conditions != todays conditions despite it being the same latitude and longitude.

addaon 4y ago

This is an 8% average (nominal) growth rate, and only about 5% over inflation. In the long run this isn't sustainable -- in the medium term we expect any exponential growth to plateau at a cubic, and in the long term quadratic, growth rate -- but while we're in what sure appears to be an exponential growth stage, that 8% number doesn't seem inherently unreasonable.

bogota 4y ago
The 8% growth isn’t unreasonable but if we aren’t matching it over the long term with similar salary growth for a large portion of the population it becomes a problem. Since salary normally only grows at 2% for most people in another 10 years we are in a situation where almost no one can afford a house who isn’t getting help from their parents. The middle class has seemingly vanished and I don’t think that is good for society
- conductr 4y ago
  My baseless feeling is that the middle class that is present is not keeping up with inflation right now. Even those that bought a house say 10 years ago and got decent 'value'. I think salary growth is happening at the bottom. That's where the labor shortage is huge. People just won't work for $12/hr in my area like they did in 2019. They'd want $18 now. And you have to pay if you own a business that employees this income bracket of employee's. And, they're not happy about pretty much anything. r/antiwork is a place you see a lot of this sentiment. People in the middle. They haven't quite received that 50% raise the so now they're effectively much closer to the bag boy at the grocery store purchasing power. Yes, it's pretty awful for society and just getting started. It is demotivating and my thought is it's probably a contributing factor to why productivity is down.
deleted 4y ago
[deleted]
banannaise 4y ago
"only about 5% over inflation" is three times inflation. That's massive. You can see it in the numbers - inflation would land that house at $230k, but it's nearly three times that. Any investment portfolio that "only" made 8% YoY for 20 years would be incredible.
- addaon 4y ago
  > Any investment portfolio that "only" made 8% YoY for 20 years would be incredible. Isn't this almost exactly the return of SPY over that time period?

twblalock 4y ago

The only way it will change is if more housing is built. A lot more housing. Demand is higher now than it has ever been before, and supply is not keeping up. Some of this is simply caused by supply not keeping up for decades, but on top of that we have a lot of people who moved out of the cities/back in with their parents during the pandemic who now want somewhere to live. Home prices are actually lower now than they were earlier in the year, but rent has inflated by quite a bit. That proves that the demand-side is causing the increases. If housing was simply an asset bubble, we would see purchase prices skyrocketing too. Increases in rent are outpacing increases in home values because of a lack of supply is causing potential tenants to compete with each other. So, how would home values drop significantly? New supply takes years to build, so that won't do it anytime soon. High mortgage rates have only resulted in small decreases in prices. It's also becoming more expensive to build with new environmental requirements like solar panels on all new housing in California, for example. The only way I can see significant price drops happening in the short term is something similar to what happened in 2008: a wave of foreclosures forcing sellers to sell low, at the same time as mass unemployment and massive stock market dips destroy the purchasing power of buyers. That would certainly lower prices, but the damage would certainly not be limited to the housing market.

jjtheblunt 4y ago
> The only way it will change is if more housing is built. or if there's a drop in demand?
JamesianP 4y ago
Fundamentals mean house prices should be higher than before, but that doesn't prove they should be this high. The population didn't double in five years. Such high-flying markets attract lots of speculation, especially in the last few years. The higher prices go, the more it attracts people to jump in and the thing accelerates, though the price relative to the fundamentals is actually getting worse and worse. How can it not overshoot? Look at what happens with worthless cryptocurrencies...
EricDeb 4y ago
How is there a supply problem when there's 16 million vacant homes and 1 million people died of covid?