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Disclaimer, I have no idea if this is even slightly logical, I'm not an economist. House prices have increased significantly above inflation for decades to the

Disclaimer, I have no idea if this is even slightly logical, I'm not an economist. House prices have increased significantly above inflation for decades to the point of absurdity, many multiples of a households income. People in their 20s (and 30s) increasingly don't believe they will ever own a home. If we have a period of inflation, with increased wages (obviously with a painful lag), but house prices remain stagnant with no increase, would that bring them down in real terms without a "housing crash"? Could this be a "good thing" and does that even make sense?

diogenescynic 4y ago
>If we have a period of inflation, with increased wages (obviously with a painful lag), but house prices remain stagnant with no increase, would that bring them down in real terms without a "housing crash"? Could this be a "good thing" and does that even make sense? It's still only part of the equation since interest rates are much higher now so mortgage payments are double what they were a year ago. So even if the home price isn't rising, the costs to finance it are.
- throwthroyaboat 4y ago
  This is a good point. This is also somewhat dependent on how a particular country does mortgages. The USA does 30-year fixed rate, but that is not the norm in most countries. The main benefit of lower house prices (even if the monthly finance costs are the same) is that the amount you have to save for a deposit is reduced, which is often a significant barrier for young people.
  - samwillis 4y ago
    That's more or less where my thinking comes from, I'm in the UK and most people fix for 2-5 years at a time. Interest rates will come down again so the effect of them being a barrier will reduce. But the fundamental problem for most people here in the UK is getting a 10-20% deposit together when the average house price is £296k, average salary is about £27k, and average household income is £31k.
- KptMarchewa 4y ago
  Newest mortgages. Those that paid off significant amount of principal aren't that high.
ianai 4y ago
Explain how housing prices remain stable while labor enjoys increasing wages without some other changes? Write in complaint about never affording a home. I’ll be 40 next year and in an apartment. Largely, still, because my sub-generation got absolutely knee capped by the Great Recession and just general crap conditions.
Zaskoda 4y ago
> If we have a period of inflation, with increased wages (obviously with a painful lag), but house prices remain stagnant with no increase This would require heavy regulation of the housing market. For example, we could add a hefty tax on any home that isn't owner-occupied. Otherwise, housing will remain one of the better places to invest earnings and the cost of housing will continue to rise with earnings. However, such a tax would likely increase the cost of renting.
- ianai 4y ago
  No, that tax would disincentivize renting single family homes and similar. Corporate landlords wouldn't be taxed with it and are the meat of that market.
- gruez 4y ago
  >For example, we could add a hefty tax on any home that isn't owner-occupied. But why are home prices going up? Is it because non occupying buyers are bidding with each other to drive up prices beyond what is rational? If so, banning those buyers might indeed bring prices down to a saner level. However, if prices are high as a result of supply and demand (ie. more people want to live in desirable places and we can't build more homes to accommodate), then banning non occupying buyers won't do much. Given how the overwhelming majority of home purchases are still done by owner occupiers, I'm very skeptical that it's the former, and it's much more likely that it's the latter.
  - dragonwriter 4y ago
    > However, if prices are high as a result of supply and demand (ie. more people want to live in desirable places and we can’t build more homes to accommodate), then banning non occupying buyers won’t do much. Non-occupying owners are a factor in supply and demand; banning them (or even just increasing costs on them, e.g., via taxes on long-term vacant units) reduces the number of prospective non-occupying owners buying and causes existing ones to sell. Similar factors applies to owners with residences used exclusively as short-term rentals rather than residences, which I would expect are usually more of an issue than units held vacant by non-occupying owners. > Given how the overwhelming majority of home purchases are still done by owner occupiers The share purchased by investors has gone up much higher than usual to 24% of single family homes nationally last year, with Georgia leading the nation at 33%: https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents https://www.pewtrusts.org/en/research-and-analysis/blogs/sta...
midasuni 4y ago
As household wages have increased (especially with increasingly two full time professional incomes now, which was very rare 30 years ago) and internet rates have been low, the monthly cost of housing hasn’t changed as a percentage of take home py, it’s just you need two full time incomes to do it. This is the fundamental problem though, because there is a shortage of housing, as wages increases, housing costs (either rent or mortgage) increase to suck up every available penny that’s earned. What is needed is for housing supply to be able to meet housing demand.
- urfullofsht 4y ago
  [dead]
- phkahler 4y ago
  >> the monthly cost of housing hasn’t changed as a percentage of take home pay, That is by design. Banks figure your monthly payment as a percent of income. Then based on interest rates they figure out how much you can borrow. Then everyone - the sellers, the agents, even the bank - push you to borrow the max allowed and spend it. This is why lower interest rate cause higher house prices. Interest rates are going up. Home prices have slowed. Speculation is over. Still waiting for the drop. The economy seems to have gotten really good at moving ahead in spite of pressure to slow. I fear there may be built up negative pressure that's about to give. Not sure though.
  - yucky 4y ago
    > Then everyone - the sellers, the agents, even the bank - push you to borrow the max allowed and spend it. You are not forced to spend above your ability to pay. People used to be ok with buying smaller homes, or in less hip neighborhoods. If you can afford a $500k house you can also afford a $350k house. People need to stop making excuses for living above their means.
    - Izkata 4y ago
      > If you can afford a $500k house you can also afford a $350k house. Those numbers seem insanely high to me. I would've thought people are looking for more like $100k.
JKCalhoun 4y ago
You could as well single out the average cost of a new car in the U.S. At $47K I suspect that too has fast outpaced inflation. I am not aware of an automotive parallel to a "housing crash" (aside from the obvious joke that, though it begs, I will not stoop to giving voice to).
- toast0 4y ago
  > I am not aware of an automotive parallel to a "housing crash" New car manufacturers don't like to drop prices, but they do like to offer cash back and below market rate interest incentives. Especially towards the end of the model year. Very low cost leases show up from time to time as well. You also see things like pausing production when supply is outpacing demand. Sometimes it's subtle like stopping the line a few weeks before the scheduled stop, or starting it back a few weeks later, and sometimes it's a month off during the model year.
hammock 4y ago
> House prices have increased significantly above inflation for decades to the point of absurdity, many multiples of a households income True and yet, compared to house price/income multiples in other developed countries, the US metric is remarkably low (yes, Fannie Freddie etc). Perhaps Americans are just catching up
lamontcg 4y ago
Yeah that is exactly what I think needs to happen in a perfect world. Allow a wage-price spiral of about 6% a year, which would raise long rates, allow short rates to increase eventually without a recession and that would cut off the cheap money supply. Asset prices would fall in real terms because of persistently higher rates across the yield curve. In nominal terms they would be able to maintain more of their price while wages would inflate to the point where people would be able to buy houses and be able to pay back debts (particularly college loans). Instead the Fed jacking up short rates right now is going to cause a recession, create high unemployment and cap wage growth and break unionization. This will be combined as usual by massive tax cuts for the rich as a bailout package, which will be the only thing possible to get past the Republican House. And the Fed will have to then sharply cut short rates and the cycle will continue. I doubt we'll be able to maintain rates at 0% for another ten years, but they're firmly opposed to trying to wage-inflate our way out of this, so we'll probably see shorter cycles between boom and bust as inflation starts to come back faster. There are no signs that they're going to start to give up on the way they've been running the economy though, I don't think there has been a massive fundamental shift in the economy -- other than no more 10 years of 0% with no CPI inflation.
- dh2022 4y ago
  "Allow a wage-price spiral of about 6% a year, " - Fed cannot create this wage-spiral. Fed only controls interest rates. From 2009-2016 interest rates were below 0.2% - and wages did not move. Only employers can create this type of wage spiral - and I do not think they will do this. Employers are now looking into automation as much as possible to replace labor (supermarket checkouts, at fast foods order kiosks, online ordering, robots for cleaning hotel rooms, etc...)
  - lamontcg 4y ago
    > From 2009-2016 interest rates were below 0.2% - and wages did not move. From 2009-2016 the unemployment rate fell from 10% to 4.7%, it is now at 3.5% > Only employers can create this type of wage spiral They don't create a wage spiral, they would naturally want to pay people less, they don't wake up one morning and give people raises without a reason. And the reason is the jobs overhang. When you have twice as many jobs per job seeker then employers are FORCED to pay more just by supply and demand laws. That only happens though when unemployment is near its lower bound (which we seem to have empirically determined is around 3.5% at least for our economy right now).
dragonwriter 4y ago
> If we have a period of inflation, with increased wages (obviously with a painful lag), This isn't obvious, wages can drive as well as lag inflation. > but house prices remain stagnant with no increase, would that bring them down in real terms Yes. > without a “housing crash”? Perceptually? Likely. Substantively? Only if it was a long, slow inflation, and therefore a long, slow real-value decline. > Could this be a “good thing” and does that even make sense? It’s the same thing, requiring the same conditions, as the real-value decline without inflation, but with inflation. What I think you actually want is wages rising greater than both inflation and housing prices (not real decline in housing prices as such), so that wages rise with respect to housing. But the problem isn’t defining the output on that level, anyway, its dealing with housing supply/demand to make either scenario happen.
dcolkitt 4y ago
No, the fundamental reason for lack of housing affordability is a lack of supply relative to demand. Since 2008 we've dramatically under built new housing units relative to household formation. Playing with inflation or interest rates may change who loses out, but it still doesn't change the fundamental problem that we don't have enough housing to go around.
- FooBarBizBazz 4y ago
  This is one of the problems with rate hikes. They reduce production and investment. New home builds are down. Manufacturing is down. All of this is exactly the opposite of what we should want, which is low prices due not to a scarcity of money but to an abundance of wealth.
  - imtringued 4y ago
    The problem is people don't use the cheap money to build more. They are being showered with it and then laws prevent building housing. It looks like a money problem because money moves faster than real estate but this isn't a 2022 problem, it is a problem that has been creeping up since the 70s.
    - llampx 4y ago
      Exactly. Look in the recent Canada thread for an exhaustive discussion about this. https://news.ycombinator.com/item?id=34216118 https://news.ycombinator.com/item?id=34216118 Summary: Governments and local landowners/homeowners benefit from increasing prices, so they prevent homes from being built or for density to be increased in areas with existing homes and services. This causes supply not to be able to meet demand, which causes rising prices.
- kennethh 4y ago
  The number of housing units in the United States has been growing year on year and in 2021, there were approximately 142 million housing units in the United States. 1.43 million is the average annual new house starts since 1959. Houses sold is around 6 million so only 25% of the sales are new houses. Lack of building is probalby no the main reason. If the interest rates was 8-10%+ a few million houses would come for sale. With low interrest rates many people would rather have more houses than they need to protect against inflation.
wonderwonder 4y ago
I'm not so sure it would bring housing prices down as the owners can just rent them out for more than their mortgage as rent demand is also high. Rents have accelerated upwards along with the price of homes. Additionally I see most current owners just staying where they are as the cost to move is too great with increased borrowing costs. Anecdotal but I have 150k of equity in my house that I bought ~3 years ago and a 4.15% interest rate. Not a great rate but if I was to refinance I am looking at 6%. Even if I was to sell, and get 150k out, any house I want to buy afterwards has appreciated at the same rate as my current one, so it is more expensive as is the loan. I think the only fix is building more housing but now the loans builders need to take out to build are more expensive as well as are building materials so even new construction is very expensive. In addition, the rate at which new houses are built in so low that they don't appreciably affect existing supply in a hard enough way to even approach demand so prices stay high. The only real fix would be a government financed program that dropped hundreds of billions in near 0 % financing to builders to build hundreds of thousands of homes. That isn't happening.

diogenescynic 4y ago

>If we have a period of inflation, with increased wages (obviously with a painful lag), but house prices remain stagnant with no increase, would that bring them down in real terms without a "housing crash"? Could this be a "good thing" and does that even make sense? It's still only part of the equation since interest rates are much higher now so mortgage payments are double what they were a year ago. So even if the home price isn't rising, the costs to finance it are.

throwthroyaboat 4y ago
This is a good point. This is also somewhat dependent on how a particular country does mortgages. The USA does 30-year fixed rate, but that is not the norm in most countries. The main benefit of lower house prices (even if the monthly finance costs are the same) is that the amount you have to save for a deposit is reduced, which is often a significant barrier for young people.
- samwillis 4y ago
  That's more or less where my thinking comes from, I'm in the UK and most people fix for 2-5 years at a time. Interest rates will come down again so the effect of them being a barrier will reduce. But the fundamental problem for most people here in the UK is getting a 10-20% deposit together when the average house price is £296k, average salary is about £27k, and average household income is £31k.
KptMarchewa 4y ago
Newest mortgages. Those that paid off significant amount of principal aren't that high.

ianai 4y ago

Explain how housing prices remain stable while labor enjoys increasing wages without some other changes? Write in complaint about never affording a home. I’ll be 40 next year and in an apartment. Largely, still, because my sub-generation got absolutely knee capped by the Great Recession and just general crap conditions.

Zaskoda 4y ago

> If we have a period of inflation, with increased wages (obviously with a painful lag), but house prices remain stagnant with no increase This would require heavy regulation of the housing market. For example, we could add a hefty tax on any home that isn't owner-occupied. Otherwise, housing will remain one of the better places to invest earnings and the cost of housing will continue to rise with earnings. However, such a tax would likely increase the cost of renting.

ianai 4y ago
No, that tax would disincentivize renting single family homes and similar. Corporate landlords wouldn't be taxed with it and are the meat of that market.
gruez 4y ago
>For example, we could add a hefty tax on any home that isn't owner-occupied. But why are home prices going up? Is it because non occupying buyers are bidding with each other to drive up prices beyond what is rational? If so, banning those buyers might indeed bring prices down to a saner level. However, if prices are high as a result of supply and demand (ie. more people want to live in desirable places and we can't build more homes to accommodate), then banning non occupying buyers won't do much. Given how the overwhelming majority of home purchases are still done by owner occupiers, I'm very skeptical that it's the former, and it's much more likely that it's the latter.
- dragonwriter 4y ago
  > However, if prices are high as a result of supply and demand (ie. more people want to live in desirable places and we can’t build more homes to accommodate), then banning non occupying buyers won’t do much. Non-occupying owners are a factor in supply and demand; banning them (or even just increasing costs on them, e.g., via taxes on long-term vacant units) reduces the number of prospective non-occupying owners buying and causes existing ones to sell. Similar factors applies to owners with residences used exclusively as short-term rentals rather than residences, which I would expect are usually more of an issue than units held vacant by non-occupying owners. > Given how the overwhelming majority of home purchases are still done by owner occupiers The share purchased by investors has gone up much higher than usual to 24% of single family homes nationally last year, with Georgia leading the nation at 33%: https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents https://www.pewtrusts.org/en/research-and-analysis/blogs/sta...

midasuni 4y ago

As household wages have increased (especially with increasingly two full time professional incomes now, which was very rare 30 years ago) and internet rates have been low, the monthly cost of housing hasn’t changed as a percentage of take home py, it’s just you need two full time incomes to do it. This is the fundamental problem though, because there is a shortage of housing, as wages increases, housing costs (either rent or mortgage) increase to suck up every available penny that’s earned. What is needed is for housing supply to be able to meet housing demand.

urfullofsht 4y ago
[dead]
phkahler 4y ago
>> the monthly cost of housing hasn’t changed as a percentage of take home pay, That is by design. Banks figure your monthly payment as a percent of income. Then based on interest rates they figure out how much you can borrow. Then everyone - the sellers, the agents, even the bank - push you to borrow the max allowed and spend it. This is why lower interest rate cause higher house prices. Interest rates are going up. Home prices have slowed. Speculation is over. Still waiting for the drop. The economy seems to have gotten really good at moving ahead in spite of pressure to slow. I fear there may be built up negative pressure that's about to give. Not sure though.
- yucky 4y ago
  > Then everyone - the sellers, the agents, even the bank - push you to borrow the max allowed and spend it. You are not forced to spend above your ability to pay. People used to be ok with buying smaller homes, or in less hip neighborhoods. If you can afford a $500k house you can also afford a $350k house. People need to stop making excuses for living above their means.
  - Izkata 4y ago
    > If you can afford a $500k house you can also afford a $350k house. Those numbers seem insanely high to me. I would've thought people are looking for more like $100k.

JKCalhoun 4y ago

You could as well single out the average cost of a new car in the U.S. At $47K I suspect that too has fast outpaced inflation. I am not aware of an automotive parallel to a "housing crash" (aside from the obvious joke that, though it begs, I will not stoop to giving voice to).

toast0 4y ago
> I am not aware of an automotive parallel to a "housing crash" New car manufacturers don't like to drop prices, but they do like to offer cash back and below market rate interest incentives. Especially towards the end of the model year. Very low cost leases show up from time to time as well. You also see things like pausing production when supply is outpacing demand. Sometimes it's subtle like stopping the line a few weeks before the scheduled stop, or starting it back a few weeks later, and sometimes it's a month off during the model year.

hammock 4y ago

> House prices have increased significantly above inflation for decades to the point of absurdity, many multiples of a households income True and yet, compared to house price/income multiples in other developed countries, the US metric is remarkably low (yes, Fannie Freddie etc). Perhaps Americans are just catching up

lamontcg 4y ago

Yeah that is exactly what I think needs to happen in a perfect world. Allow a wage-price spiral of about 6% a year, which would raise long rates, allow short rates to increase eventually without a recession and that would cut off the cheap money supply. Asset prices would fall in real terms because of persistently higher rates across the yield curve. In nominal terms they would be able to maintain more of their price while wages would inflate to the point where people would be able to buy houses and be able to pay back debts (particularly college loans). Instead the Fed jacking up short rates right now is going to cause a recession, create high unemployment and cap wage growth and break unionization. This will be combined as usual by massive tax cuts for the rich as a bailout package, which will be the only thing possible to get past the Republican House. And the Fed will have to then sharply cut short rates and the cycle will continue. I doubt we'll be able to maintain rates at 0% for another ten years, but they're firmly opposed to trying to wage-inflate our way out of this, so we'll probably see shorter cycles between boom and bust as inflation starts to come back faster. There are no signs that they're going to start to give up on the way they've been running the economy though, I don't think there has been a massive fundamental shift in the economy -- other than no more 10 years of 0% with no CPI inflation.

dh2022 4y ago
"Allow a wage-price spiral of about 6% a year, " - Fed cannot create this wage-spiral. Fed only controls interest rates. From 2009-2016 interest rates were below 0.2% - and wages did not move. Only employers can create this type of wage spiral - and I do not think they will do this. Employers are now looking into automation as much as possible to replace labor (supermarket checkouts, at fast foods order kiosks, online ordering, robots for cleaning hotel rooms, etc...)
- lamontcg 4y ago
  > From 2009-2016 interest rates were below 0.2% - and wages did not move. From 2009-2016 the unemployment rate fell from 10% to 4.7%, it is now at 3.5% > Only employers can create this type of wage spiral They don't create a wage spiral, they would naturally want to pay people less, they don't wake up one morning and give people raises without a reason. And the reason is the jobs overhang. When you have twice as many jobs per job seeker then employers are FORCED to pay more just by supply and demand laws. That only happens though when unemployment is near its lower bound (which we seem to have empirically determined is around 3.5% at least for our economy right now).

dragonwriter 4y ago

> If we have a period of inflation, with increased wages (obviously with a painful lag), This isn't obvious, wages can drive as well as lag inflation. > but house prices remain stagnant with no increase, would that bring them down in real terms Yes. > without a “housing crash”? Perceptually? Likely. Substantively? Only if it was a long, slow inflation, and therefore a long, slow real-value decline. > Could this be a “good thing” and does that even make sense? It’s the same thing, requiring the same conditions, as the real-value decline without inflation, but with inflation. What I think you actually want is wages rising greater than both inflation and housing prices (not real decline in housing prices as such), so that wages rise with respect to housing. But the problem isn’t defining the output on that level, anyway, its dealing with housing supply/demand to make either scenario happen.

dcolkitt 4y ago

No, the fundamental reason for lack of housing affordability is a lack of supply relative to demand. Since 2008 we've dramatically under built new housing units relative to household formation. Playing with inflation or interest rates may change who loses out, but it still doesn't change the fundamental problem that we don't have enough housing to go around.

FooBarBizBazz 4y ago
This is one of the problems with rate hikes. They reduce production and investment. New home builds are down. Manufacturing is down. All of this is exactly the opposite of what we should want, which is low prices due not to a scarcity of money but to an abundance of wealth.
- imtringued 4y ago
  The problem is people don't use the cheap money to build more. They are being showered with it and then laws prevent building housing. It looks like a money problem because money moves faster than real estate but this isn't a 2022 problem, it is a problem that has been creeping up since the 70s.
  - llampx 4y ago
    Exactly. Look in the recent Canada thread for an exhaustive discussion about this. https://news.ycombinator.com/item?id=34216118 https://news.ycombinator.com/item?id=34216118 Summary: Governments and local landowners/homeowners benefit from increasing prices, so they prevent homes from being built or for density to be increased in areas with existing homes and services. This causes supply not to be able to meet demand, which causes rising prices.
kennethh 4y ago
The number of housing units in the United States has been growing year on year and in 2021, there were approximately 142 million housing units in the United States. 1.43 million is the average annual new house starts since 1959. Houses sold is around 6 million so only 25% of the sales are new houses. Lack of building is probalby no the main reason. If the interest rates was 8-10%+ a few million houses would come for sale. With low interrest rates many people would rather have more houses than they need to protect against inflation.

wonderwonder 4y ago

I'm not so sure it would bring housing prices down as the owners can just rent them out for more than their mortgage as rent demand is also high. Rents have accelerated upwards along with the price of homes. Additionally I see most current owners just staying where they are as the cost to move is too great with increased borrowing costs. Anecdotal but I have 150k of equity in my house that I bought ~3 years ago and a 4.15% interest rate. Not a great rate but if I was to refinance I am looking at 6%. Even if I was to sell, and get 150k out, any house I want to buy afterwards has appreciated at the same rate as my current one, so it is more expensive as is the loan. I think the only fix is building more housing but now the loans builders need to take out to build are more expensive as well as are building materials so even new construction is very expensive. In addition, the rate at which new houses are built in so low that they don't appreciably affect existing supply in a hard enough way to even approach demand so prices stay high. The only real fix would be a government financed program that dropped hundreds of billions in near 0 % financing to builders to build hundreds of thousands of homes. That isn't happening.