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A healthy housing market would be one where nobody has a rational expectation of it being anything other than a depreciating asset in which you live.

deleted 3y ago
[deleted]
lotsofpulp 3y ago
Assuming you mean detached houses, how can this be without a decrease in demand for land in the area you live in? Either more people want to live where you are living (meaning the location is desirable), or fewer people want to live where you are living (meaning it is undesirable). Technically, you could have a decline in population, but immigration will probably make up for that for a long time.
voisin 3y ago
That would be more aligned with renting. For most people, their house is the biggest purchase they’ll ever make. It isn’t unreasonable to expect it to at least keep pace with inflation so they can sell it and afford to move into a nursing home someday. (Even with the massive growth we’ve seen in recent years, for most long term holders the annual rate of growth has significantly underperformed the markets, even before accounting for maintenance and taxes) If it was simply a depreciating asset, housing would have to be sold for less than the construction cost in order for people to be able to sustain the depreciating value and have enough cash left over to invest elsewhere for their later years drawdown.
- Wowfunhappy 3y ago
  We can wish whatever we'd like. The logical, real-world value of a house should depreciate over time as the structure gets older and needs more repairs. The exception, I suppose, is if the overall supply of houses and/or land decreases, but then you lock newcomers out of the market.
  - voisin 3y ago
    > The logical, real-world value of a house should depreciate over time as the structure gets older and needs more repairs This is true, but the cost of building a new house is also rising. So at some point buying existing housing is cheaper than building a new house. That should put a floor on the depreciating value you speak of.
- femiagbabiaka 3y ago
  > That would be more aligned with renting. For most people, their house is the biggest purchase they’ll ever make. It isn’t unreasonable to expect it to at least keep pace with inflation so they can sell it and afford to move into a nursing home someday. That sucks and we should fix it. It is unreasonable and unsustainable for housing to be that vector. Pensions once existed.
  - lotsofpulp 3y ago
    Defined benefit pension fund managers invest in the same markets everyone else does. And the biggest DB pension, Social Security, already exists, along with the biggest nursing home payor, Medicaid. At the end of the day, it’s just allocating a certain percentage of the country’s labor to older people’s needs. Question is, what proportion of resources does society want to allocate to the country’s older people? Interest rate policy to support asset price increases is one way the government increases this proportion. But with declining proportion of working age population, these measures become more and more evident.
  - voisin 3y ago
    Well you can rent and put the savings (vs owning a home) into a variety of vehicles for retirement savings. Many, many people have shown that this actually yields far more significant returns than the house. But people are not perfectly rational economic actors. There is something innate (or deeply culturally embedded) about wanting to have control over your living space, so it becomes the primary savings vehicle for many/most people.
code_runner 3y ago
Is the implication that areas become less desirable or that there is always new housing so existing housing isn’t as desirable? I’m not sure I understand this viewpoint at all.
bob1029 3y ago
Agreed. My perspective on homes has fallen to "air-conditioned box", and I feel so much less stress this way. I don't care that my SFH in Texas isn't appreciating like $QQQ or $MSFT. My general rule of thumb today is to not own construction older than 10 years. I look at home ownership in the same way as car ownership now. It's ultimately a game of hot potato, unless we are talking about transactions via Sotheby's & friends. Homes in the 6 to low 7 figure range are not long-term things in my view anymore. You are never going to get more out than you put into one of those things, unless you are OK with experiencing an incredible amount of stress and expending untold amounts of time & energy fighting market forces. Making gains on this kind of real estate is mostly a lie. It's the same variety of lie where we claim cloud->on-prem is cheaper by conveniently ignoring all of the other indirect costs.
anonu 3y ago
What do you mean by "depreciating asset"? In the US you cannot depreciate your primary residence. Are you suggesting it should be possible?
- s1artibartfast 3y ago
  They mean that the value should rationally be expected to go down over time as it becomes older and needs repair. They are wrong because there are many more factors than just speculation
s1artibartfast 3y ago
I dont think that ever makes sense in reality for several reasons. 1) Cost of labor is going up, 2) Taxes are going up, and 3) Cost of materials are going up, and 4) Population is going up. When My house was built is 1915, Taxes were 8% of GDP and cost of a carpenter was $0.50/hour. Today, Taxes are 40% of GDP and cost of a carpenter is $30/hour. This means my house would be far more expensive, even accounting for inflation.
dragonwriter 3y ago
It would be nice to have a situation in which land in desirable locations was not scarce and increasingly desired over time, I suppose, but its not a prequisite for a “healthy market”, and the other alternatives for achieving that require active intervention in ways which make it far fron a healthy market.

deleted 3y ago

[deleted]

lotsofpulp 3y ago

Assuming you mean detached houses, how can this be without a decrease in demand for land in the area you live in? Either more people want to live where you are living (meaning the location is desirable), or fewer people want to live where you are living (meaning it is undesirable). Technically, you could have a decline in population, but immigration will probably make up for that for a long time.

voisin 3y ago

That would be more aligned with renting. For most people, their house is the biggest purchase they’ll ever make. It isn’t unreasonable to expect it to at least keep pace with inflation so they can sell it and afford to move into a nursing home someday. (Even with the massive growth we’ve seen in recent years, for most long term holders the annual rate of growth has significantly underperformed the markets, even before accounting for maintenance and taxes) If it was simply a depreciating asset, housing would have to be sold for less than the construction cost in order for people to be able to sustain the depreciating value and have enough cash left over to invest elsewhere for their later years drawdown.

Wowfunhappy 3y ago
We can wish whatever we'd like. The logical, real-world value of a house should depreciate over time as the structure gets older and needs more repairs. The exception, I suppose, is if the overall supply of houses and/or land decreases, but then you lock newcomers out of the market.
- voisin 3y ago
  > The logical, real-world value of a house should depreciate over time as the structure gets older and needs more repairs This is true, but the cost of building a new house is also rising. So at some point buying existing housing is cheaper than building a new house. That should put a floor on the depreciating value you speak of.
femiagbabiaka 3y ago
> That would be more aligned with renting. For most people, their house is the biggest purchase they’ll ever make. It isn’t unreasonable to expect it to at least keep pace with inflation so they can sell it and afford to move into a nursing home someday. That sucks and we should fix it. It is unreasonable and unsustainable for housing to be that vector. Pensions once existed.
- lotsofpulp 3y ago
  Defined benefit pension fund managers invest in the same markets everyone else does. And the biggest DB pension, Social Security, already exists, along with the biggest nursing home payor, Medicaid. At the end of the day, it’s just allocating a certain percentage of the country’s labor to older people’s needs. Question is, what proportion of resources does society want to allocate to the country’s older people? Interest rate policy to support asset price increases is one way the government increases this proportion. But with declining proportion of working age population, these measures become more and more evident.
- voisin 3y ago
  Well you can rent and put the savings (vs owning a home) into a variety of vehicles for retirement savings. Many, many people have shown that this actually yields far more significant returns than the house. But people are not perfectly rational economic actors. There is something innate (or deeply culturally embedded) about wanting to have control over your living space, so it becomes the primary savings vehicle for many/most people.

code_runner 3y ago

Is the implication that areas become less desirable or that there is always new housing so existing housing isn’t as desirable? I’m not sure I understand this viewpoint at all.

bob1029 3y ago

Agreed. My perspective on homes has fallen to "air-conditioned box", and I feel so much less stress this way. I don't care that my SFH in Texas isn't appreciating like $QQQ or $MSFT. My general rule of thumb today is to not own construction older than 10 years. I look at home ownership in the same way as car ownership now. It's ultimately a game of hot potato, unless we are talking about transactions via Sotheby's & friends. Homes in the 6 to low 7 figure range are not long-term things in my view anymore. You are never going to get more out than you put into one of those things, unless you are OK with experiencing an incredible amount of stress and expending untold amounts of time & energy fighting market forces. Making gains on this kind of real estate is mostly a lie. It's the same variety of lie where we claim cloud->on-prem is cheaper by conveniently ignoring all of the other indirect costs.

anonu 3y ago

What do you mean by "depreciating asset"? In the US you cannot depreciate your primary residence. Are you suggesting it should be possible?

s1artibartfast 3y ago
They mean that the value should rationally be expected to go down over time as it becomes older and needs repair. They are wrong because there are many more factors than just speculation

s1artibartfast 3y ago

I dont think that ever makes sense in reality for several reasons. 1) Cost of labor is going up, 2) Taxes are going up, and 3) Cost of materials are going up, and 4) Population is going up. When My house was built is 1915, Taxes were 8% of GDP and cost of a carpenter was $0.50/hour. Today, Taxes are 40% of GDP and cost of a carpenter is $30/hour. This means my house would be far more expensive, even accounting for inflation.

dragonwriter 3y ago

It would be nice to have a situation in which land in desirable locations was not scarce and increasingly desired over time, I suppose, but its not a prequisite for a “healthy market”, and the other alternatives for achieving that require active intervention in ways which make it far fron a healthy market.