by embeng4096 on 5/7/24, 2:08 PM with 260 comments
by MichaelRo on 5/7/24, 2:48 PM
I seen this in Romania (where I live), it's the same in France, Germany, etc. Whole houses with terrain and garden in the countryside cost a fraction of an apartment in a big city and yet they become derelict because noone buys them.
The work from home "revolution" only touches a very thin layer of people, most people with jobs still need to show up physically every day. And it's only in big cities that jobs get concentrated.
I think overall it's a problem going back at least a century, the move from rural economy where 90-95% of the people were working in agriculture, to urban economy. In the rural days, people were spread relatively uniformly. In fact cities were a small fraction of the whole population so no wonder houses were aplenty.
Therefore as long as the trend of jobs concentrating in the big cities won't stop or revert, the raise in house prices is inevitable.
by phkahler on 5/7/24, 2:31 PM
I believe that statement is in error. Higher interest rates should lower home prices, just like lowering them from 1980 through 2000 contributed to rising prices. There are economists scratching their head right now wondering why the recent rate hikes have not resulted in lower prices in some areas.
IMHO There is definitely something else going on in the real estate market. I'm sure those benefitting most are laughing maniacally as people scurry around trying to figure it out.
by noodlesUK on 5/7/24, 2:27 PM
Even a current homeowner might want to move one day, and if house prices uniformly fell by 50% relative to current earnings, they would find themselves more able to upgrade their house. The only people it would hurt would be people moving from owned accommodation to rented accommodation or cheaper owned accommodation.
What am I misunderstanding here?
EDIT: It seems I was forgetting a key fact: mortgages. When people hold a mortgage and their property value goes down, they can be left holding the bag.
by em-bee on 5/7/24, 3:26 PM
in an apartment you own the right to live and are responsible for your own maintenance. but if you do not own the building, do you really own the apartment? you are still beholden to the demands of the building owners. you still have to pay for building maintenance. any serious renovation needs permission because it could affect the building structure.
in germany and other countries tenant protection is so strong that as a tenant i have practically the same rights as if i were an owner. the only difference is the form of payment. and with building maintenance fees i would still never reach the point where i am free of monthly payments (ignoring utilities which are always the same for both).
and as an owner i carry a risk that the apartment becomes worthless because it somehow becomes unsellable.
so unless i can get my own ground to build on, why own?
my family has been renting the same apartment in the city of vienna for 150 years now. any money that we could have saved in rent we would have had to invest into renovations
by apwell23 on 5/7/24, 3:01 PM
1. housing shouldn't be an investment
2. 'local democracy' always turns into nimby
3. something about gentrification
4. something about govt incentives/disincentives: don't give tax breaks for homeowners, tax second home ownership ect .
5. something about airbnb
6. some comparisons with europe/denmark
did i miss anything
by georgeecollins on 5/7/24, 2:24 PM
One of the reasons why people freak out about the prices of homes is there is often pressure to get one right now. I am moving, I got married, I had a(nother) kid. These are reasons I bought a house in my life and in retrospect I can tell you I did not need to buy a house.
In your life it's hard to make a decision on the time frame of house prices (or even market cycles). I am not sure how to tell someone maybe they should wait five years. But clearly sometimes that is the best thing to do.
It does not make a lot of sense for homes to sell for so much more then they can rent for. It happens all the time but it is not sustainable. It also happens that their are housing shortages but they don't last forever. People build.
by nafizh on 5/7/24, 2:59 PM
by betaby on 5/7/24, 4:44 PM
https://www.bloomberg.com/news/features/2024-05-05/global-ho...
by betaby on 5/7/24, 2:27 PM
by SirMaster on 5/7/24, 6:32 PM
There are a lot of hidden costs and time sinks (time is also money) in owning a home that most people vastly overlook when they are trying to compare the true and final cost.
Renting can easily make more sense in a lot of cases at least in my experience. I can seem to find renting to be significantly cheaper and take the money I save and invest in real investments that return more than a typical house normally would.
by anovikov on 5/7/24, 4:37 PM
Just like "cancer is something that kills you if nothing else does", so high percentage of cancer deaths is an indicator of healthy population because everything that can be treated or prevented, is treated or prevented, housing being a choke point for a large proportion, or majority of people, is a sign of healthy economy - because housing in the age of hyper-urbanisation is a positioning good that can't be abundant - people want to live somewhere where most people can't be and the only reason why they want is exactly that - because most can't be there - so there is less competition for the amazing opportunities they offer. If housing in hyper-centers was somehow "solved", they won't work as hyper-centers anymore, and those opportunities won't exist, as labour markets there will be saturated.
by jihadjihad on 5/7/24, 2:45 PM
It's such a vacuous statement it's practically a tautology. And it's false: plenty of people who earn modest money over the course of their career end up wealthy. How? They learn to live within their means and budget accordingly.
by diogenescynic on 5/7/24, 3:21 PM
by gumby on 5/7/24, 6:41 PM
SF is relatively dense, so the high prices reflect the cost of land. SJ is not dense at all (mostly farmland) and land is not as expensive. This is a further argument for higher density housing of course.
And the argument that wages aren't keeping up is hard to reconcile: if wages can't keep up then the price of houses would be falling.
by tacticalturtle on 5/7/24, 2:47 PM
I’m not sure this is true?
Over 50% of millennials, and around 26% of GenZ own a home in the U.S.
https://investors.redfin.com/news-events/press-releases/deta...
by swozey on 5/7/24, 3:18 PM
It's zestimate, not that I think it would ever sell for that much, is currently $570k. It's unfathomable to me that someone would pay anywhere near that for my old 1975 1400sq ft 3/2 in Austin.
And my god it hurts to see that and think of all the money that I missed out on.
I'm back to renting a condo, $3100/month for a 2/3 in Denver.
by jareklupinski on 5/7/24, 2:31 PM
why would i ever buy while this holds true
it's free real estate
by alexb_ on 5/7/24, 3:14 PM
by blackeyeblitzar on 5/7/24, 4:17 PM
by jmclnx on 5/7/24, 2:26 PM
As I have told people in the past, we are heading towards a new serfdom type economy where either you inherit your property or you are a serf paying most of your income to property holders.
Already I have seen articles stating the US Gov is concerned that young people are not moving to other regions of the country as they did 25 - 30 years ago. They articles indicated people moving is in a slow downward spiral. Another indication of a serfdom environment.
by nojvek on 5/7/24, 7:44 PM
If a corporation decides to own commercial interest. Principal + interest + taxes. + maintenance. Everything other than profits gets to be deducted. Renters don't.
Trump cutting corporate income tax from 31 to 21% flat made the wealth jump up to the top. Then Biden came and pumped 5 Trillion in the economy with huge PPP payouts to corporations whose owners were already wealthy. Wealth begets wealth. Rich get Richer.
The current 20-30 somethings are the first generate in the entire history of this nation to build less wealth than their parents at the same age.
The only people in Seattle and SF making it at 20-30 is if they work at BigTech getting $500k in total combined comp.
Everyone else is fucked.
Even if Powell holds the interest rates high, congress continues to spend in trillions.
More on it https://www.youtube.com/watch?v=qEJ4hkpQW8E
Canada, UK, Australia, NZ aren't that much better. The housing pressure is very real.
We must really hate our kids. If the economy won't crush them, global warming will slowly crush their grand kids.
I respect every couple who decide not to have kids. It's a sane financial choice in current economic conditions.
by throwaway_qiwuw on 5/8/24, 11:20 AM
It seems the rate of home ownership has not drastically changed
by questinthrow on 5/7/24, 2:34 PM
by pyoung on 5/7/24, 8:20 PM
1. The housing market is very thinly traded, illiquid market. Additionally there are some mechanisms in place that slow down price discovery on the way up (appraisal contingences based on comps), which slows down price discovery. This means it can take a few years to reach an equilibrium, which in a competitive market is roughly equal to the average mortgage that a pool of buyers can qualify for. This effect can result in a steady stream of year-over-year price gains, which often gets interpreted as "housing only goes up", when in reality, it is just the market adjusting to a small pool of buyers.
2. The bay area has a large contingency of high earning tech employees, large enough to entirely drive the housing market on their own, at least in the short term. This pool of buyers emerged about a decade ago, and have been increasing in numbers since then, at least until recently.
3. Incomes are not normally distributed, there is a bimodal distribution with the tech employees occupying one of the modals, and the rest of the population occupying the other[1]. Stats on this are difficult because the census tops out at $250k, but very roughly the top 5% average ~$560k, the top 20% average $315k, and the 80th percentile HH income is $176k. Medians would be preferred here, but I think you get the picture. By the time you get down to the 80th percentile, those folks are largely priced out of the market unless they go for a cheap condo or combine households. It is the top 5-10% of HH income earners that are driving the Bay Area market.
4. Baby boomers own about 40% of houses and have been the largest cohort of home buyers as of late. Boomers have been hanging onto, and even acquiring more homes abnormally late into their lives. I suspect this is most likely due to the booming housing and stock markets keeping a certain segment of boomers very flush with cash. But father time is going to start reversing this trend soon, and I wouldn't be surprised if a market crash forced a number of boomers to start selling sooner rather than later to keep retirement accounts whole, or even if "higher-for-longer" interest rates entice boomers to start moving assets into safer investments. But the point is, boomers are the largest participants in the market, and they are going to be moving from net buyers to net sellers very soon.
5. It seems like the tech wave has peaked and we have now entered the era of cost cutting. High salary FAANG jobs are harder to come by, and those same companies seem to be looking to move jobs elsewhere to save money. There will still be plenty of highly paid engineers in the Bay, but I suspect those numbers will slowly decline relative to the rest of the bay area.
6. Prop 13 has distorted the rental market considerably. A lot of landlords purchased their properties in 70's, 80's and 90's. These properties are have miniscule mortgages (if any) and pay barely any property tax. If you bought in the last ten years or so, you are mostly likely going to negative cash flow if you try to rent your property. Hardly worth it, especially when you can sell and put that money in T-Bills and make ~5%.
7. Despite the above distortions, median rents are roughly in line with median incomes for an HCOL area. i.e. The median rent is approximately equivalent to 30% AGI of the 60-70th percentile household income. That is not to say that rents are cheap or affordable, or that they can't go higher. It is just that they seem to be inline with what the market can bear. If the median landlord renting the median rental tries to price higher, they will push up against the glut of luxury rentals on the market, and if they price lower, they will probably find a large number of lower income folks living with roommates willing to make the jump to their own place. Barring any sudden major population changes, the rental market will probably track inflation for the near term.
8. And a bit of curveball here, but a law was recently passed that changes Prop 13 so that the property tax basis is no longer allowed to be passed down to heirs. This is likely going to result in a much larger share of homes getting sold (rather than stay as rentals) in the near future.
9. At least in the short term, population increases seem to be in the 5k range. Meanwhile ~20k new housing units were created. The +/- population numbers can change pretty quickly, but at least in the short term, we are adding more housing units than we are people. And keep in mind, the population changes are in terms of number of people, not number of households. So if an average household has three people, adding 20k housing units would support a population growth of 60k people.
[1] https://statisticalatlas.com/metro-area/California/San-Franc...