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The real estate market in the US is one of the cheapest in the world relative to incomes. Perhaps real estate is actually more valuable than you’ve been lead to

by rcme 3y ago

The real estate market in the US is one of the cheapest in the world relative to incomes. Perhaps real estate is actually more valuable than you’ve been lead to believe.

epicureanideal 3y ago
> The real estate market in the US is one of the cheapest in the world relative to incomes. But I'd still prefer it to be the way it was 20-30 years ago, than how it is now. So much more affordable in the past...
- poulsbohemian 3y ago
  How would you categorize it as being different 20-30 years ago than today? I ask because my observations of friends and family who were buying / selling in that era is that the more things change, the more they stay the same. When I think about the baby boomers I know who have real wealth, every one of them will tell you a story of buying real estate in the 70s and 80s…
  - almost_usual 3y ago
    The early 80s were easily as unaffordable as now with the high rates then.
    - poulsbohemian 3y ago
      Yes, and yet people bought and sold properties and those that held eventually saw their asset appreciate. And that’s my point - “Before all was the land…” is the start of many opening chapters on real estate, because oil, mining, timber, housing, commerce - it all ties back to this physical asset. It is innately an immovable asset thus it will always have value and that value will fluctuate (generally increasing…) based on its marketability and use. So sure - real estate is different in each decade, but overall the treatment of it as an investment has been true as long as there has been civilization. It ain’t a coincidence that retiring Roman soldiers were given land as thanks for their service.
      - medvezhenok 3y ago
        Just make sure to not look at real estate prices in Japan since 1990:)
    - mycologos 3y ago
      I was curious about this, so here's a bit more detail. Interest rates were quite high (and surprisingly variable, as a modern observer) in the early 1980s, peaking at almost 20% and spending a lot of time in the teens [1]. However, the median house price [2] was still low relative to median household income -- at the interest rate peak of 18.9% at the end of 1980, the median house sale price was 66k, and the median household income was 21k [3], for a ratio of about 3.1. In 2022 the median house sale price was about 450k, and the median household income was $71k [4], for a ratio of about 6.3! I think the mortgage rate difference does mean the 80s were still worse if you took out a long mortgage at the given rates. However, 1) you could also save for much less time and buy a house with a smaller mortgage, and 2) there seem to have been a lot of since-closed loopholes [5] like assumable mortgages (from my limited understanding: you essentially take over the current owner's mortgage, along with its lower rates from when they bought house) that meant a lot of people were technically buying houses with much lower effective rates. So ... I question the claim that the early 80s were easily as unaffordable as now. [1] https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS [2] https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS [3] https://www.census.gov/library/publications/1982/demo/p60-132.html https://www.census.gov/library/publications/1982/demo/p60-13... [4] https://www.census.gov/library/visualizations/2022/comm/median-household-income.html https://www.census.gov/library/visualizations/2022/comm/medi... [5] https://www.marketwatch.com/story/how-people-bought-homes-in-the-1980s-when-mortgage-rates-were-18-11670009941 https://www.marketwatch.com/story/how-people-bought-homes-in...
- echelon 3y ago
  The US was still riding high off the post-war boom. In the 40's - 60's, the US was the manufacturing powerhouse while Europe and Asia were rebuilding. The US had the baby boom and the enormous natural resources to lean into that growth. After some decades, we grew to a point that labor became increasingly expensive. Workers wanted more, consumers wanted more for less. So we outsourced the lower-end manufacturing jobs to lower cost of living areas, and ultimately shipped them overseas to developing economies. The US now does mostly high-cost, value-add. We're sitting at the top of the production food chain and labor costs a tremendous amount. Fewer people, as a percentage of the population, are able to fill these jobs due to the high skill required. 20-30 years ago the end of the post-war tailwinds. We've been experiencing the US operate in a global economy where our lower class doesn't have access to what were once well-paying jobs. We moved those over to cheap overseas labor, and we benefitted greatly from the lower cost of goods. Our highly compensated knowledge workers are pushing prices up at the high end, and there's less middle ground. The middle and upper classes will be fine. It's those at the bottom that are suffering. Instead of providing means to lift our poor up and into the middle class, we're lifting laborers in India, Vietnam, and Mexico out of poverty and into their own growing middle classes. (Which I think is absolutely great for them. I just wish we could also help our own lower class.)
  - medvezhenok 3y ago
    Labor costs are high primarily because the USD is kept artificially propped up by other countries depreciating their currencies faster (I.e. see China’s manipulations). If we allowed USD to drop, American labor could become competitive again.
- deleted 3y ago
  [deleted]
- almost_usual 3y ago
  Home affordability is about the same now as it was in the early 80s.
hammock 3y ago
It's a double-edged sword. If RE values in the US "normalize" to income-ratio equivalents in other countries by rising and never falling again, the US is going to see a drain of wealth and talent to those other places - UK, Latin America, etc that are now on even competitive ground in terms of owned housing
verteu 3y ago
Good point. I suppose median_home_price/median_income is a decent metric? Some stats to further the debate: - https://www.numbeo.com/property-investment/rankings_by_country.jsp https://www.numbeo.com/property-investment/rankings_by_count... - https://knoema.com/infographics/hyjmcxd/housing-affordability-around-the-world https://knoema.com/infographics/hyjmcxd/housing-affordabilit... - https://www.nationmaster.com/nmx/ranking/house-price-to-income-ratio https://www.nationmaster.com/nmx/ranking/house-price-to-inco... - https://www.statista.com/statistics/237529/price-to-income-ratio-of-housing-worldwide/ https://www.statista.com/statistics/237529/price-to-income-r...
WarOnPrivacy 3y ago
> The real estate market in the US is one of the cheapest in the world relative to incomes. This hints at a fairly incomplete puzzle. For example :A low-end US residence requires 4+ typical income earners to meet minimal bills needed to stay housed. That would imply that in most of the world, a typical household has a much higher number of income earners living in the residence - they have many earning-adults under one roof. I'm skeptical that most of the world is dominated by 5-10 adults living in US sized houses. So what's the rest of the picture look like?

by rcme 3y ago

The real estate market in the US is one of the cheapest in the world relative to incomes. Perhaps real estate is actually more valuable than you’ve been lead to believe.

epicureanideal 3y ago

> The real estate market in the US is one of the cheapest in the world relative to incomes. But I'd still prefer it to be the way it was 20-30 years ago, than how it is now. So much more affordable in the past...

poulsbohemian 3y ago
How would you categorize it as being different 20-30 years ago than today? I ask because my observations of friends and family who were buying / selling in that era is that the more things change, the more they stay the same. When I think about the baby boomers I know who have real wealth, every one of them will tell you a story of buying real estate in the 70s and 80s…
- almost_usual 3y ago
  The early 80s were easily as unaffordable as now with the high rates then.
  - poulsbohemian 3y ago
    Yes, and yet people bought and sold properties and those that held eventually saw their asset appreciate. And that’s my point - “Before all was the land…” is the start of many opening chapters on real estate, because oil, mining, timber, housing, commerce - it all ties back to this physical asset. It is innately an immovable asset thus it will always have value and that value will fluctuate (generally increasing…) based on its marketability and use. So sure - real estate is different in each decade, but overall the treatment of it as an investment has been true as long as there has been civilization. It ain’t a coincidence that retiring Roman soldiers were given land as thanks for their service.
    - medvezhenok 3y ago
      Just make sure to not look at real estate prices in Japan since 1990:)
  - mycologos 3y ago
    I was curious about this, so here's a bit more detail. Interest rates were quite high (and surprisingly variable, as a modern observer) in the early 1980s, peaking at almost 20% and spending a lot of time in the teens [1]. However, the median house price [2] was still low relative to median household income -- at the interest rate peak of 18.9% at the end of 1980, the median house sale price was 66k, and the median household income was 21k [3], for a ratio of about 3.1. In 2022 the median house sale price was about 450k, and the median household income was $71k [4], for a ratio of about 6.3! I think the mortgage rate difference does mean the 80s were still worse if you took out a long mortgage at the given rates. However, 1) you could also save for much less time and buy a house with a smaller mortgage, and 2) there seem to have been a lot of since-closed loopholes [5] like assumable mortgages (from my limited understanding: you essentially take over the current owner's mortgage, along with its lower rates from when they bought house) that meant a lot of people were technically buying houses with much lower effective rates. So ... I question the claim that the early 80s were easily as unaffordable as now. [1] https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS [2] https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS [3] https://www.census.gov/library/publications/1982/demo/p60-132.html https://www.census.gov/library/publications/1982/demo/p60-13... [4] https://www.census.gov/library/visualizations/2022/comm/median-household-income.html https://www.census.gov/library/visualizations/2022/comm/medi... [5] https://www.marketwatch.com/story/how-people-bought-homes-in-the-1980s-when-mortgage-rates-were-18-11670009941 https://www.marketwatch.com/story/how-people-bought-homes-in...
echelon 3y ago
The US was still riding high off the post-war boom. In the 40's - 60's, the US was the manufacturing powerhouse while Europe and Asia were rebuilding. The US had the baby boom and the enormous natural resources to lean into that growth. After some decades, we grew to a point that labor became increasingly expensive. Workers wanted more, consumers wanted more for less. So we outsourced the lower-end manufacturing jobs to lower cost of living areas, and ultimately shipped them overseas to developing economies. The US now does mostly high-cost, value-add. We're sitting at the top of the production food chain and labor costs a tremendous amount. Fewer people, as a percentage of the population, are able to fill these jobs due to the high skill required. 20-30 years ago the end of the post-war tailwinds. We've been experiencing the US operate in a global economy where our lower class doesn't have access to what were once well-paying jobs. We moved those over to cheap overseas labor, and we benefitted greatly from the lower cost of goods. Our highly compensated knowledge workers are pushing prices up at the high end, and there's less middle ground. The middle and upper classes will be fine. It's those at the bottom that are suffering. Instead of providing means to lift our poor up and into the middle class, we're lifting laborers in India, Vietnam, and Mexico out of poverty and into their own growing middle classes. (Which I think is absolutely great for them. I just wish we could also help our own lower class.)
- medvezhenok 3y ago
  Labor costs are high primarily because the USD is kept artificially propped up by other countries depreciating their currencies faster (I.e. see China’s manipulations). If we allowed USD to drop, American labor could become competitive again.
deleted 3y ago
[deleted]
almost_usual 3y ago
Home affordability is about the same now as it was in the early 80s.

hammock 3y ago

It's a double-edged sword. If RE values in the US "normalize" to income-ratio equivalents in other countries by rising and never falling again, the US is going to see a drain of wealth and talent to those other places - UK, Latin America, etc that are now on even competitive ground in terms of owned housing

verteu 3y ago

Good point. I suppose median_home_price/median_income is a decent metric? Some stats to further the debate: - https://www.numbeo.com/property-investment/rankings_by_country.jsp https://www.numbeo.com/property-investment/rankings_by_count... - https://knoema.com/infographics/hyjmcxd/housing-affordability-around-the-world https://knoema.com/infographics/hyjmcxd/housing-affordabilit... - https://www.nationmaster.com/nmx/ranking/house-price-to-income-ratio https://www.nationmaster.com/nmx/ranking/house-price-to-inco... - https://www.statista.com/statistics/237529/price-to-income-ratio-of-housing-worldwide/ https://www.statista.com/statistics/237529/price-to-income-r...

WarOnPrivacy 3y ago

> The real estate market in the US is one of the cheapest in the world relative to incomes. This hints at a fairly incomplete puzzle. For example :A low-end US residence requires 4+ typical income earners to meet minimal bills needed to stay housed. That would imply that in most of the world, a typical household has a much higher number of income earners living in the residence - they have many earning-adults under one roof. I'm skeptical that most of the world is dominated by 5-10 adults living in US sized houses. So what's the rest of the picture look like?