This real estate bubble won't pop(jaredabrock.substack.com)
jaredabrock.substack.com
This real estate bubble won't pop
https://jaredabrock.substack.com/p/real-estate-bubble
22 comments
My lesson has been to neglect or ignore any statement made with certainty without any underlying data. The most credible statements ever made always had an element of probability/odds associated with them.
That being said, some of the points this chap brings up don't add up to they hyperbole.
AirBnB income - being double the actual rent in a particular neighbourhood ? How is this even possible. If you average out AirBnB rental income over a year, you probably will end up with a slightly higher percentage than rent perhaps 10-30%. Then it's not guaranteed, rental income is. So almost every landlord will choose a guaranteed rental income over the fluctuating AirBnB income. Unless they own multiple properties and can afford the risk. Also, good luck managing an AirBnB rental in Miami without ground support sitting somewhere in Manhattan.
Housing as a means of profit and leverage - To some extent this needs to be stopped. Shelter is a basic need and unlike food, hoarding costs nothing. I am yet to understand the mentality of hoarding houses. Many of my friends are owning 2-3 flats/houses for their kids etc. While, it is more prudent to invest that money in liquid index funds. There is still this perceived notion of 'houses are guaranteed sources of income that will keep increasing in value every year' amongst the average family man. This certainly needs to change, I don't know how. So housing as a source of profit and leverage is bad but I don't see a way out. Space is limited, everyone wants a 5000 sft house.
That being said, it's by no means a doomsday scenario as depicted in this article. I don't know why people get into such hyperbole just to bring about such unrealistic doomsday scenarios. The world is still a better place. To hell with these naysayers.
That being said, some of the points this chap brings up don't add up to they hyperbole.
AirBnB income - being double the actual rent in a particular neighbourhood ? How is this even possible. If you average out AirBnB rental income over a year, you probably will end up with a slightly higher percentage than rent perhaps 10-30%. Then it's not guaranteed, rental income is. So almost every landlord will choose a guaranteed rental income over the fluctuating AirBnB income. Unless they own multiple properties and can afford the risk. Also, good luck managing an AirBnB rental in Miami without ground support sitting somewhere in Manhattan.
Housing as a means of profit and leverage - To some extent this needs to be stopped. Shelter is a basic need and unlike food, hoarding costs nothing. I am yet to understand the mentality of hoarding houses. Many of my friends are owning 2-3 flats/houses for their kids etc. While, it is more prudent to invest that money in liquid index funds. There is still this perceived notion of 'houses are guaranteed sources of income that will keep increasing in value every year' amongst the average family man. This certainly needs to change, I don't know how. So housing as a source of profit and leverage is bad but I don't see a way out. Space is limited, everyone wants a 5000 sft house.
That being said, it's by no means a doomsday scenario as depicted in this article. I don't know why people get into such hyperbole just to bring about such unrealistic doomsday scenarios. The world is still a better place. To hell with these naysayers.
> If you average out AirBnB rental income over a year, you probably will end up with a slightly higher percentage than rent perhaps 10-30%.
Really depends on what kind of 'AirBnB' it is. If it's a condo competing with hotels then that's one thing - although probably still more than 30%. In comparison, vacation rentals can easily take in ~$500 to $1200/night. The only real difference between the two is that the later targets larger parties so the cost per person is actually cheaper than a hotel.
That said there are a lot of costs besides rent but net profit is still going to be 2-3x that of a long term renter but these only work in certain locations (that said the ban on AirBnB in certain cities actually produces more of these areas). Also, the house and other costs are all deductible such that you actually have near zero taxable income while having significant positive cash flow.
Really depends on what kind of 'AirBnB' it is. If it's a condo competing with hotels then that's one thing - although probably still more than 30%. In comparison, vacation rentals can easily take in ~$500 to $1200/night. The only real difference between the two is that the later targets larger parties so the cost per person is actually cheaper than a hotel.
That said there are a lot of costs besides rent but net profit is still going to be 2-3x that of a long term renter but these only work in certain locations (that said the ban on AirBnB in certain cities actually produces more of these areas). Also, the house and other costs are all deductible such that you actually have near zero taxable income while having significant positive cash flow.
Agree with everything but the last sentence. Not sure how that could be the case-- if your actual costs are the same as your revenue your taxable income is zero but your cash flow would also be zero.
100%. This guy has a couple good observations sprinkled in between paragraph after paragraph of hyperbolic ranting.
Also lol at citing 40% annual real estate inflation across Canada unqualified which just links to some other opinion piece which states the exact same case as this guy's.
Also lol at citing 40% annual real estate inflation across Canada unqualified which just links to some other opinion piece which states the exact same case as this guy's.
I live in a town of 10,000, and it’s the biggest “metro” area for 150KM.
Yet still:
- houses are being sold as soon as they go up
- foreign investors are buying sight-unseen (I even know the direct story of a Caribbean buyer who purchased a run-down house sight-unseen only to have it immediately shuttered by the town. They had given up on getting money out of the previous owner, but it was not livable even at the time of purchase)
- people from other parts of the country and other parts of the world are flying in then taking taxis to go see empty properties
- people are successfully flipping houses they buy for >500k
I can’t imagine that the story is any better in places where “the market is hot”.
Source: Conversations with taxi drivers who don’t talk to each other, constant exploration on foot and in vehicles, conversations with neighbours of new owners, conversations with municipal employees, and watching town council meetings
Yet still:
- houses are being sold as soon as they go up
- foreign investors are buying sight-unseen (I even know the direct story of a Caribbean buyer who purchased a run-down house sight-unseen only to have it immediately shuttered by the town. They had given up on getting money out of the previous owner, but it was not livable even at the time of purchase)
- people from other parts of the country and other parts of the world are flying in then taking taxis to go see empty properties
- people are successfully flipping houses they buy for >500k
I can’t imagine that the story is any better in places where “the market is hot”.
Source: Conversations with taxi drivers who don’t talk to each other, constant exploration on foot and in vehicles, conversations with neighbours of new owners, conversations with municipal employees, and watching town council meetings
Canada has seen staggeringly high real estate inflation in many places lately. There have been places that have seen 100%+ increases in prices over just the last few years.
Sure, that doesn't mean that they are experiencing average 40% housing inflation because they arent
You have to give a place and a time frame for these things, there are some places that did see 40% yearly inflation for multiple years in there (along with years of say "only" 10%). So while year on year inflation isn't consistently running at 40% it is still running very hot. Specifically some of the areas outside the major cities have seen spectacular inflation in house prices. A colleague of mine sold a house in Ontario for 200K CAD or so in 2016, same place now recently sold for a bit under 500K. While that's not quite 40% year on year it's close. Sure this is just an anecdote, the place could probably have sold for more the first time around especially if more renovations were done, but there's a lot of such anecdotes and I think that's why people throw around numbers like 40% because that's what they've seen lately and perhaps lack the numeracy or data to look at the bigger picture more accurately. In fairness the inflation in that broader geographical area of that anecdote is "only" 110% over the last 5 years. But the fact that 110% inflation can have happened in 5 years across a broad geographical region is just nuts.
But yeah there's places like Barrie Ontario that are like +70% in 5 years, Hamilton 70%, Oakville 68%. All those three are around +30% in the last year. Then there's some places that were previously cheaper areas like Niagara falls that's +93% in the last 5 years.
Toronto for comparison is around 70% over the last 5 years but 15% in the last year which shows that the Covid situation has meant that inflation of property prices in the major cities has slowed compared to areas surrounding. Given that wages haven't gone up much these numbers in the real estate markets are just nuts. I can't imagine this is good for the stability of the broader banking system over there.
But yeah there's places like Barrie Ontario that are like +70% in 5 years, Hamilton 70%, Oakville 68%. All those three are around +30% in the last year. Then there's some places that were previously cheaper areas like Niagara falls that's +93% in the last 5 years.
Toronto for comparison is around 70% over the last 5 years but 15% in the last year which shows that the Covid situation has meant that inflation of property prices in the major cities has slowed compared to areas surrounding. Given that wages haven't gone up much these numbers in the real estate markets are just nuts. I can't imagine this is good for the stability of the broader banking system over there.
A notable trend of the last ten years or so is the way generic financial advice prognosticators have morphed into uniform catastrophic doom sayers (often with a hard-right bent). There are some reasons to be worried but it seems like in area, "doom sells" is a big motivation. But just much, with so much gloom and doom in this area, you don't have to provide any evidence, it's what this audience expects.
Also, article is poorly edited and filled with typos.
Also, article is poorly edited and filled with typos.
There are financial predictions which are akin to shaking the magic 8-ball or looking into your favorite crystal ball. If you are put-off by the certainty, then I suspect you should read a lot more financial markets literature, market commentary etc... because it is replete with people with strong convictions. You would notice that it is quite commonplace.
I do read a decent volume of financial literature (for a layperson) and no, this rhetoric is decidedly not the norm for any research notes of quality.
This is Jim Cramer level writing, and I don't believe it should be encouraged.
This is Jim Cramer level writing, and I don't believe it should be encouraged.
I would suggest reading until the end. The author makes a number of recommendations on how this outcome can possibly be avoided (see header starting with "The solution is simple" and all the way through until the end of the piece).
Henry George's Land Value tax would be a much easier and simpler solution that would ultimately be more effective than all the stuff this guy is proposing.
The reason house prices are going up is because land values are going up, and the reason land values are going up is because there's only so much land (by which I mean locations) in the world, particularly in places where people want to live, and as the population increases and as increased productivity pushes out the margin of productivity the rent goes up.
So tax land. Use existing property tax regimes, shift taxes to land rather than buildings, and raise the rates so that it gets unprofitable to speculate on land and incentivize building as much stuff as possible. Also remove restrictive zoning ordinances and all the other usual YIMBY stuff.
The reason house prices are going up is because land values are going up, and the reason land values are going up is because there's only so much land (by which I mean locations) in the world, particularly in places where people want to live, and as the population increases and as increased productivity pushes out the margin of productivity the rent goes up.
So tax land. Use existing property tax regimes, shift taxes to land rather than buildings, and raise the rates so that it gets unprofitable to speculate on land and incentivize building as much stuff as possible. Also remove restrictive zoning ordinances and all the other usual YIMBY stuff.
Pure land taxes make it difficult to fund infrastructure that scales with population (eg schools). The only way that a land use tax could work is to either fund population based services differently or just assume that all land is used for high density apartments.
Property tax and land use taxes do make speculation more expensive. In countries that lack property tax (eg China), speculation is much more of a problem than countries that do have such a tax.
Property tax and land use taxes do make speculation more expensive. In countries that lack property tax (eg China), speculation is much more of a problem than countries that do have such a tax.
Infrastructure can be easily made exempt by law - government need not pay taxes to itself.
(Unless you are trying for anarchocapitalism, in which case you found a neat argument why it might have problems.)
Otherwise I fail to see how having more tax income makes it harder to fund infrastructure investments.
(Unless you are trying for anarchocapitalism, in which case you found a neat argument why it might have problems.)
Otherwise I fail to see how having more tax income makes it harder to fund infrastructure investments.
The issue is scaling and evenness. If the land tax is crushing, it will definitely pull in enough revenue, but the people will revolt so it shouldn’t be that. Now it has to be adjusted to somewhat fair, but since it isn’t geared towards the value of buildings on top, it isn’t related to infrastructure needs, so the money to fund those will probably have to at least partially come from other tax sources. And it’s not like we throw all the money into one pot and then distribute as needed (though maybe we should?).
Property tax today scales with improvements, which are more correlated to infrastructure needs. That leads to unbalance as well, as richer districts can get more revenue while poorer ones (whose property are worth less) can starve.
Property tax today scales with improvements, which are more correlated to infrastructure needs. That leads to unbalance as well, as richer districts can get more revenue while poorer ones (whose property are worth less) can starve.
Ah yes, the inevitable, "All we have to do is chop off our arms, and our torsos shall be saved from this terrifying poison ivy. I know, because I read 10 articles on WebMD about bubonic plague, and poison ivy looks a bit like that." argument that comes with every one of these articles.
I did read the entire article, and I considered his solution to be wildly out of touch with reality, almost intentionally so to make the problem he outlines all the more drastic (surely the issue is serious if we have to take such extreme measures to end it).
I did read the entire article, and I considered his solution to be wildly out of touch with reality, almost intentionally so to make the problem he outlines all the more drastic (surely the issue is serious if we have to take such extreme measures to end it).
It's hard to make it to the end when the writing is so obnoxious.
I certainly gave up before then.
I certainly gave up before then.
Steven Pinker and Jordan Peterson built a good career being the anti-taleb, arguing that social progress is good and or inevitable. There is a large market for both extremes of optimism and pessimism.
But the doom and gloomism gets tiring because it's just so wrong all the time, and rather than admit being wrong they just keep digging in.
But the doom and gloomism gets tiring because it's just so wrong all the time, and rather than admit being wrong they just keep digging in.
I love this article! These types of articles are the signs the market is about to turn over. The eviction moratorium and mortgage forbearance programs [i]just[/i] ended. It will take some time for the contagion from those programs to propagate thru the housing market.
Secondly, you can not get massive inflation with the velocity of money in the dumps[1]. Probabilistically, we are going to see stagflation until demand drops off due to higher prices and supply chains normalize. With "free" money drying up from "stimulus" packages, the demand for goods and services should wane in the coming months. There are various charts that show this starting to happen now. (Steve Van Metre on Youtube is good for macro stuff)
Thirdly, I recently watched a video from the Global Labor Org. [2] that made a few bold claims. One of which was, the US is probably already in another recession with consumer sentiment being the "tell." Interesting stuff. The methods are non-traditional to arrive at this conclusion and time will tell if they are bold and right or bold and wrong. I happen to believe they are right...
Anecdotally, I work the streets as EMS and Fire for my city, blue collar... but stable and can make SWE money with overtime. I worked through the GFC of 2008 and I see soooo many similarities, mostly in my colleagues at the station. Lots of them buy the most house they can afford monthly while living on the edge of personal solvency. They extract money from the property via HELOC to buy toys and remodel endlessly. If rates rise even a tiny bit, that party comes to a screeching halt. "Assets" are dumped at fire sale prices or they will simply walk away, ala 2008-09.
Yes, blackrock is buying thousands of properties, no one that pays attention will dispute that. However, we don't know how exposed these hedge funds are to the Evergrande collapse contagion that will spread like Covid in the coming months (ironic, no?). If these hedge funds are leveraged to the gills with bad paper, they will collapse and the houses will be sold at fire sale prices. My money is on the whole thing being exposed in ways we do not comprehend.... yet.
[1]https://fred.stlouisfed.org/series/M2V [2]https://www.youtube.com/watch?v=_-jmDyg0AcE
Secondly, you can not get massive inflation with the velocity of money in the dumps[1]. Probabilistically, we are going to see stagflation until demand drops off due to higher prices and supply chains normalize. With "free" money drying up from "stimulus" packages, the demand for goods and services should wane in the coming months. There are various charts that show this starting to happen now. (Steve Van Metre on Youtube is good for macro stuff)
Thirdly, I recently watched a video from the Global Labor Org. [2] that made a few bold claims. One of which was, the US is probably already in another recession with consumer sentiment being the "tell." Interesting stuff. The methods are non-traditional to arrive at this conclusion and time will tell if they are bold and right or bold and wrong. I happen to believe they are right...
Anecdotally, I work the streets as EMS and Fire for my city, blue collar... but stable and can make SWE money with overtime. I worked through the GFC of 2008 and I see soooo many similarities, mostly in my colleagues at the station. Lots of them buy the most house they can afford monthly while living on the edge of personal solvency. They extract money from the property via HELOC to buy toys and remodel endlessly. If rates rise even a tiny bit, that party comes to a screeching halt. "Assets" are dumped at fire sale prices or they will simply walk away, ala 2008-09.
Yes, blackrock is buying thousands of properties, no one that pays attention will dispute that. However, we don't know how exposed these hedge funds are to the Evergrande collapse contagion that will spread like Covid in the coming months (ironic, no?). If these hedge funds are leveraged to the gills with bad paper, they will collapse and the houses will be sold at fire sale prices. My money is on the whole thing being exposed in ways we do not comprehend.... yet.
[1]https://fred.stlouisfed.org/series/M2V [2]https://www.youtube.com/watch?v=_-jmDyg0AcE
My dream in life is to buy land, set up glamping rentals, and build extremely cheap rentals (like $200/month for a earthbag home) for those who work low-to-middle class and their families.
Rinse and repeat all over America... make $100/night off the glamping sites, to subsidize the tiny-home communities. Flood the market w/ these so landlords have no use for their over-priced NIMBY homes.
Rinse and repeat all over America... make $100/night off the glamping sites, to subsidize the tiny-home communities. Flood the market w/ these so landlords have no use for their over-priced NIMBY homes.
The author lists every reason under the sun while missing the most important one: zoning or aka restricting buildable land that is causing the housing shortage
There’s a whole lot of suspicion that these kinds of zoning laws that are upheld by leftists are cynical—they really just want to protect their property prices. But I think the left really believe what they are doing in blocking liberalization is good for communities. They’ve gotten into this mode of thinking that markets can’t solve problems of resource scarcity. Markets aren’t perfect, but one thing they surely can do (if not impeded) is to efficiently match supply with demand.
If we wanted, homelessness could easily be ended with freer housing markets. Yes, some people would be living in very small, ugly, somewhat unsafe (though far safer than the streets), and fairly uncomfortable spaces, but it would certainly be better for everyone if it were legal to build those kinds of spaces.
If we wanted, homelessness could easily be ended with freer housing markets. Yes, some people would be living in very small, ugly, somewhat unsafe (though far safer than the streets), and fairly uncomfortable spaces, but it would certainly be better for everyone if it were legal to build those kinds of spaces.
It's like you picked up Occam's Razor & then threw it in the garbage bin.
yes, but also environmental regs are used this way
So wrong.
1. Population is growing -> sure worldwide, but projected to start declining by mid century. In addition, Japan, Italy and other places are already in decline. Japanese home prices have been almost flat for 30 years. Tokyo has no zoning and you can build what you want. If you live in the developed world, East Asia, China, etc you are going to witness declines if you don't have immigration
2. People are moving to cities -> Were. Covid has allowed a lot more flexibility. First tier city residents moving to second tier and rural areas with good internet service. Real reversal of the last twenty years.
3. More people are living alone -> sure because there are fewer of them. Direct contradiction of point 1 by the way.
4. Multiple house ownership. So what?
5. Housing construction isn't keeping up. Sure. But that can be fixed if there is political willpower.
6. Material shortages and building costs. -> We were just in oversupply of materials post '08 financial crisis. We could be again. Just focused investment on production of materials. Land.. If you have Hong Kong density, the entire US population could squeeze into a corner of the state of Texas.
7. Sure inflation is soaring, but can come down again, with higher interest rates, which would also absolutely slaughter leveraged real estate investors.
8 Weird thing on the monopolists... They were already financing 90% of house anyway with debt. You were paying a rental equivalent called a mortgage. Now they're financing 100%, and you still pay a rental equivalent.
9 Outrageous leverage - individual homeowners have way better leverage. 30 year fixed mortgage with the option to refi to lower interest rates if they are available. Corporates don't get to access that. What's really happened is that post '08 financing disappeared for buyers with low credit scores.
The Solution is Simple 1. Get rid of most single family zoning 2. Create incentives and penalties such that cities with higher real estate prices build more housing of all kinds 3. More supply everywhere
1. Population is growing -> sure worldwide, but projected to start declining by mid century. In addition, Japan, Italy and other places are already in decline. Japanese home prices have been almost flat for 30 years. Tokyo has no zoning and you can build what you want. If you live in the developed world, East Asia, China, etc you are going to witness declines if you don't have immigration
2. People are moving to cities -> Were. Covid has allowed a lot more flexibility. First tier city residents moving to second tier and rural areas with good internet service. Real reversal of the last twenty years.
3. More people are living alone -> sure because there are fewer of them. Direct contradiction of point 1 by the way.
4. Multiple house ownership. So what?
5. Housing construction isn't keeping up. Sure. But that can be fixed if there is political willpower.
6. Material shortages and building costs. -> We were just in oversupply of materials post '08 financial crisis. We could be again. Just focused investment on production of materials. Land.. If you have Hong Kong density, the entire US population could squeeze into a corner of the state of Texas.
7. Sure inflation is soaring, but can come down again, with higher interest rates, which would also absolutely slaughter leveraged real estate investors.
8 Weird thing on the monopolists... They were already financing 90% of house anyway with debt. You were paying a rental equivalent called a mortgage. Now they're financing 100%, and you still pay a rental equivalent.
9 Outrageous leverage - individual homeowners have way better leverage. 30 year fixed mortgage with the option to refi to lower interest rates if they are available. Corporates don't get to access that. What's really happened is that post '08 financing disappeared for buyers with low credit scores.
The Solution is Simple 1. Get rid of most single family zoning 2. Create incentives and penalties such that cities with higher real estate prices build more housing of all kinds 3. More supply everywhere
So wrong.
7 - real rates aren't going up any time soon, they simply don't have much room, government would default. What will happen is that nominal rates will rise, but real rates will remain negative and leveraged real estate investors (both homeowners and RE corps) will be in fact propped up by continued low rate regime. Several central bank governors have made it painfully explicit that they do not care one bit about housing market exploding due to low rates.
8 - wrong. renters don't get any equity. not even close to an equivalence.
9 - wrong. the assertion is that institutional investors have worse access to cheap credit than joe sixpack - really? the govt decided to handicap JPM/BlackRock/etc to help the small guy? whatever you are smoking, i'd like a lifetime supply please.
7 - real rates aren't going up any time soon, they simply don't have much room, government would default. What will happen is that nominal rates will rise, but real rates will remain negative and leveraged real estate investors (both homeowners and RE corps) will be in fact propped up by continued low rate regime. Several central bank governors have made it painfully explicit that they do not care one bit about housing market exploding due to low rates.
8 - wrong. renters don't get any equity. not even close to an equivalence.
9 - wrong. the assertion is that institutional investors have worse access to cheap credit than joe sixpack - really? the govt decided to handicap JPM/BlackRock/etc to help the small guy? whatever you are smoking, i'd like a lifetime supply please.
Ideally you don't want prices to go down, less we get a deflationary spiral, you want more equal distribution AND inflation to be greater than the interest rate, which reduces Debt burden.
First time home buyers can put down 3% for conventional loan, provided it is not a jumbo loan maybe it should be more aggressive to advantage new entrants who haven't had housing debt during this remarkable rate decline (price increase) over last 40 years... I think we should invert the regressive taxes: prop 13, MITD (trump partly fixed) and capital gain exemption, others?
First time home buyers can put down 3% for conventional loan, provided it is not a jumbo loan maybe it should be more aggressive to advantage new entrants who haven't had housing debt during this remarkable rate decline (price increase) over last 40 years... I think we should invert the regressive taxes: prop 13, MITD (trump partly fixed) and capital gain exemption, others?
I've always thought the solution to this was exponentialy increasing property taxes beyond the first property you (or whatever legal entity you create to horde properties) own. I'm dumb, so I'm sure there are reasons this won't work, but it seems like it should.
I'm with the Georgists on this one, which is probably why I hated Monopoly even as a child.
https://en.wikipedia.org/wiki/Georgism
https://en.wikipedia.org/wiki/Georgism
The most American thing about Monopoly is that the rules get changed so that the most profitable single action is parking.
LLCs are cheap. It's not uncommon to form separate holding companies for each property.
Not impossible to write a law that pierces the corporate veil for taxation purposes, of course.
Not impossible to write a law that pierces the corporate veil for taxation purposes, of course.
Sure, I figured that there'd be lots of clever tricks around that. I figure you just make the law trace it up to the person at the top and have them as "owner" for exponential purposes.
Doing it in reverse (give a credit / deduction against real estate taxes for an individual who owns and lives in their own home) works fine.
Wouldn't the corporation just factor in the credit loss as a cost of doing business and adjust the rent accordingly? Seems better to stop them from owning more than a few properties to begin with, but I suppose both would be cool with me.
Rent price is determined by supply and demand. You can only increase rent if the market can support it. And to do that, you can do it regardless if your expenses went up or not. Goes the other way as well
Sure they can factor it in to the prices they charge, but it'll serve to make buying more attractive as an option on a relative basis, which will make it harder to make money buying and renting housing out.
I had a similar conversation here: https://news.ycombinator.com/item?id=28595027
This basically exists in many places in the form of the Homestead Exemption. It's not exactly the first property owned, but the property that the owner lives in.
Well apartment buildings is one. Is rented out real estate really ‘hoarded’?
It seems like if it's zoned as a single-family home or residential or whatever and you're not a single family it's hording. I'm willing to be talked out of that. Seems wrong to have to compete with a corporation to buy a house.
The incentives for homeowners to prevent new construction would cause the same issue regardless of corporations getting in on it. The lack of new construction (in areas where people want to live) is the driving cause.
Oh I totally agree the lack of housing is a problem. I lived in New York City long enough to figure that one out. Death to NIMBYs.
If I were in charge of the world I'd force every apartment building in New York to magically add a couple of floors to help with that. But I don't think it's the ONLY factor, and if we keep building out other problems pop up (like less wealthy people that can't afford to live in the city proper losing hours of their lives every day to get to work, etc.)
If I were in charge of the world I'd force every apartment building in New York to magically add a couple of floors to help with that. But I don't think it's the ONLY factor, and if we keep building out other problems pop up (like less wealthy people that can't afford to live in the city proper losing hours of their lives every day to get to work, etc.)
This would just get passed on to the renters.
Eventually an exponential-style tax would be too prohibitive for them to buy the nth house and they'd have to tap out, no? Can't pass off those costs forever, eventually it's too much for even the most well-off renter.
Look at all the discretionary spending out there that can still be sucked into rent though: restaurants, clothing, movies, all food other than rice and beans, etc.
Yes of course it's easy to call this hyperbolic, worst case scenario fear mongering, but then look at a long term chart for Canadian housing prices, and also the political response to it: essentially nothing, other than a bit of standard political rhetoric during the last election, which will be ignored just as Trudeau's electoral reform promises were ignored, and no one will get too excited because everyone seems to have subconsciously accepted that politics is essentially pure theatre - about the only thing most people seem to care much about now is not electing Nazis.
It's easy (and fun!) for people to dismiss this blogger's concerns, but I think his numbers are fairly workable, and he's not even taking into account the possibility that rent starts to suck in the entire economy. Of course, this is "impossible"...except, maybe it actually isn't.
As for myself, I think the situation is even worse than he says. His proposed solution seems to be various political policy reforms, which is the proper traditional approach. But my intuition tells me that this cannot work, even though my logical mind disagrees. I have this feeling that there are various sorts of emergent phenomena now in play, forces that we cannot detect, and maybe couldn't even understand if we could detect them. And you know what they say about things that can't be detected: they do not exist, as logic and critical thinking (the new and improved versions) tell us, of course.
For starters, I don't think a party could even get elected on a platform of reform. And even if they did, I don't think they would be able to reform anything. I think we have lost control not only of the (financial, political, etc) system, but also of our minds. It seems like we are all riding along on this massive, complex machine, that nobody designed, nobody knows how to operate, and maybe most importantly: no one seems to realize that they do not know how to operate it, or even that we are riding on it in the first place.
So far, printing money whenever we get ourselves into a pinch has always saved our asses, but at some point I think we're going to try this option and it won't work, and that is when the chickens will come home to roost, the sins of the fathers will be visited upon the sons, etc etc etc.
Obviously, this is wild, illogical speculation, and parts of it are "surely" wrong. But that doesn't mean it is incorrect in the aggregate. Complex systems are complex, emergence is a genuine phenomenon, things have been getting weirder and weirder for quite some time now, and the mood of the public in general and toward each other is "not great". I think we have all the makings needed for a debacle of historic proportions, including the necessary mindset.
Yes of course it's easy to call this hyperbolic, worst case scenario fear mongering, but then look at a long term chart for Canadian housing prices, and also the political response to it: essentially nothing, other than a bit of standard political rhetoric during the last election, which will be ignored just as Trudeau's electoral reform promises were ignored, and no one will get too excited because everyone seems to have subconsciously accepted that politics is essentially pure theatre - about the only thing most people seem to care much about now is not electing Nazis.
It's easy (and fun!) for people to dismiss this blogger's concerns, but I think his numbers are fairly workable, and he's not even taking into account the possibility that rent starts to suck in the entire economy. Of course, this is "impossible"...except, maybe it actually isn't.
As for myself, I think the situation is even worse than he says. His proposed solution seems to be various political policy reforms, which is the proper traditional approach. But my intuition tells me that this cannot work, even though my logical mind disagrees. I have this feeling that there are various sorts of emergent phenomena now in play, forces that we cannot detect, and maybe couldn't even understand if we could detect them. And you know what they say about things that can't be detected: they do not exist, as logic and critical thinking (the new and improved versions) tell us, of course.
For starters, I don't think a party could even get elected on a platform of reform. And even if they did, I don't think they would be able to reform anything. I think we have lost control not only of the (financial, political, etc) system, but also of our minds. It seems like we are all riding along on this massive, complex machine, that nobody designed, nobody knows how to operate, and maybe most importantly: no one seems to realize that they do not know how to operate it, or even that we are riding on it in the first place.
So far, printing money whenever we get ourselves into a pinch has always saved our asses, but at some point I think we're going to try this option and it won't work, and that is when the chickens will come home to roost, the sins of the fathers will be visited upon the sons, etc etc etc.
Obviously, this is wild, illogical speculation, and parts of it are "surely" wrong. But that doesn't mean it is incorrect in the aggregate. Complex systems are complex, emergence is a genuine phenomenon, things have been getting weirder and weirder for quite some time now, and the mood of the public in general and toward each other is "not great". I think we have all the makings needed for a debacle of historic proportions, including the necessary mindset.
One of my favorite charts is the percentage of gdp by sector in the US. It tells the whole story:
https://lh3.googleusercontent.com/proxy/IbcnWz6KrHkAYuJLpPzu...
https://cms.zerohedge.com/s3/files/inline-images/fire_econom...
https://lh3.googleusercontent.com/proxy/IbcnWz6KrHkAYuJLpPzu...
https://cms.zerohedge.com/s3/files/inline-images/fire_econom...
I think (fear) you may be right about a lot of this. My worry is that if enough houses get bought up by large corporations there won't be the political will to let them fail or impose restrictions on them. The time to act seems to be now, and lord knows we don't do much of anything until the crisis point has already passed.
If you make it a land value tax it won't be. The portion of property tax that falls on buildings can and will be passed on to renters, but the portion that falls on land can't and won't.
There's countless studies that support this conclusion, the best of which is this one out of Denmark that, unlike preceding studies, gets around the endogeneity ambiguity by virtue of an exogenous effect:
https://web.archive.org/web/20201108135554/https://dors.dk/f...
I can cite like 10 more articles that support this conclusion.
There's countless studies that support this conclusion, the best of which is this one out of Denmark that, unlike preceding studies, gets around the endogeneity ambiguity by virtue of an exogenous effect:
https://web.archive.org/web/20201108135554/https://dors.dk/f...
I can cite like 10 more articles that support this conclusion.
> The new paradigm: A house’s value is now the maximum amount of annual rental income that can be extracted from it by a global investor, multiplied by maximal institutional leverage.
This is generally the same thing from the other point of view?
Let’s put aside conversion of housing units to vacation stays. That’s a separate issue roiling some housing markets (and not others — some states have already dealt with the Airbnb problem)
Then, what you’re left with is that when a house goes on the market either a family buys it and pays mortgage however much they can afford or an investor buys it and… rents it to that family however much the family can afford. The investor is screwed if rent doesn’t cover mortgage, especially if they are over leveraged. Over time the math works out that the monthly costs of renting and owning are similar. Typically if it seems out of wack, it’s either because there’s a bubble and prices will crash or there’s a boom in the economy and rent is about to join home prices in the stratosphere.
The real difference between rent/buy now vs then is the difficulty affording a down payment in a low interest rate environment when asset values are bloated, and risk of being underwater if interests rates ever rise significantly.
This is generally the same thing from the other point of view?
Let’s put aside conversion of housing units to vacation stays. That’s a separate issue roiling some housing markets (and not others — some states have already dealt with the Airbnb problem)
Then, what you’re left with is that when a house goes on the market either a family buys it and pays mortgage however much they can afford or an investor buys it and… rents it to that family however much the family can afford. The investor is screwed if rent doesn’t cover mortgage, especially if they are over leveraged. Over time the math works out that the monthly costs of renting and owning are similar. Typically if it seems out of wack, it’s either because there’s a bubble and prices will crash or there’s a boom in the economy and rent is about to join home prices in the stratosphere.
The real difference between rent/buy now vs then is the difficulty affording a down payment in a low interest rate environment when asset values are bloated, and risk of being underwater if interests rates ever rise significantly.
Ah, the classic signal of a market top: "This time is different; prices can't ever go down."
Yeah I keep thinking back to when oil hit $160/barrel around 2009 and all I heard was how we "won't see sub-$100/barrel oil again in our lifetimes" and it's here to stay and nothing we can do about it. And then oil crashed to $60/barrel. And today it's at $80.
Maybe you think building houses in the majority of America is more sophisticated than petroleum surveying, extraction, capping, refining... I respectfully disagree.
The cure for high prices is high prices.
Maybe you think building houses in the majority of America is more sophisticated than petroleum surveying, extraction, capping, refining... I respectfully disagree.
The cure for high prices is high prices.
then short some REITS if you believe this
Well my specific belief is that housing won’t keep up with inflation rather than fall significantly in absolute terms. Not sure how I short that belief.
A couple pieces of legislation can shift the equation drastically. Incentives carved out for the home you live in (versus investment properties) are a common way to squeeze more out of a state run property subsidy program without making too many constituents mad.
For now, probably not, as the the the majority of the US Speaker of the House's wealth comes from real estate holdings across California.
For now, probably not, as the the the majority of the US Speaker of the House's wealth comes from real estate holdings across California.
And 23 million Americans are landlords, according to this article.
> 5. Housing construction isn’t keeping up
This is sufficient to explain why prices are much higher than they used to be. All the other stuff is window dressing for things the author already believes about the world. Once you've admitted that we've way under-built, then you don't need any other explanations.
This is sufficient to explain why prices are much higher than they used to be. All the other stuff is window dressing for things the author already believes about the world. Once you've admitted that we've way under-built, then you don't need any other explanations.
> we've way under-built, then you don't need any other explanation
Not only that, but the other explanations become suspect. Eg. Is it true that corporations are going to own every home and turn it into vacation rentals? Obviously not, most places aren't that desirable for tourists, and the more competition, the lower the price, so the lower the return, so the lower the value as a rental. Really this goes back to under-built too -> 1. people want to vacation at location X. X doesn't have enough beds for residents and tourists. Solution? More places for everyone by building to meet demand.
Not only that, but the other explanations become suspect. Eg. Is it true that corporations are going to own every home and turn it into vacation rentals? Obviously not, most places aren't that desirable for tourists, and the more competition, the lower the price, so the lower the return, so the lower the value as a rental. Really this goes back to under-built too -> 1. people want to vacation at location X. X doesn't have enough beds for residents and tourists. Solution? More places for everyone by building to meet demand.
In fact, companies like BlackRock et al specifically target areas where new construction is unlikely, because of NIMBYs and zoning. Why didn't investors buy up single-family homes in the 70s or 80s or 90s? Did they just decide to get greedier in 2021? No, it's precisely the high prices and lack of new construction that attracts them to these assets now, where historically it wasn't profitable.
This is from the SEC filing of one such investor (Invitation Homes) [0]:
> We have selected locations with strong demand drivers, high barriers to entry and high rent-growth potential.
And:
> We have selected markets that we believe will experience strong population, household formation and employment growth and exhibit constrained levels of new home construction.
[0] https://www.sec.gov/Archives/edgar/data/1687229/000119312517...
This is from the SEC filing of one such investor (Invitation Homes) [0]:
> We have selected locations with strong demand drivers, high barriers to entry and high rent-growth potential.
And:
> We have selected markets that we believe will experience strong population, household formation and employment growth and exhibit constrained levels of new home construction.
[0] https://www.sec.gov/Archives/edgar/data/1687229/000119312517...
Which is a direct result of restrictive federal lending policies, which make it difficult for builders and investors to finance building rentals or spec-houses.
It all goes back to Dodd-Frank. "Fixing" one regulation with another just makes unintended consequences more likely.
It all goes back to Dodd-Frank. "Fixing" one regulation with another just makes unintended consequences more likely.
For over a decade pundits have been calling for the housing market to fall, yet prices keep going up to no end. Even Covid could not derail it. Although homes are more expensive than ever before , thanks to historically low 30-year mortgage rate and low inflation, real estate is probably a better investment now than ever before, although the down payment is more expensive. But despite this, the returns are very good, assuming you can afford the downpayent. One thing I have observed reading these articles is that it's way easier to explain why prices keep going up than propose any viable solutions. I think the best answer is building outward, expand the economy outward.
> thanks to historically low 30-year mortgage rate and low inflation, real estate is probably a better investment now than ever before
Would an investor taking advantage of those low 30 year mortgages prefer low inflation or high?
It seems to me they prefer high. They pay the mortgage back in future dollars which are worth less.
Would an investor taking advantage of those low 30 year mortgages prefer low inflation or high?
It seems to me they prefer high. They pay the mortgage back in future dollars which are worth less.
Yes. With enough inflation your house would become worth 10x and your mortgage now represents at most 10% of the new value. Fixed rate leverage is a bet that inflation is understated.
My parents paid off their first apartment in 5 years instead of 20 because of inflation in Yugoslavia. You can no longer get fixed rate mortgages in that part of the world … wonder why
One may want a high interest rate while you hold the property but you want low/declining interest rate as you approach sale
One minor point. Covid did not derail it, because Covid made housing market red hot. The pandemic made owning a house an extremely useful asset just from mental health pov.
Not a bad overview, but misses some things
(1) political instability
(2) $10M/home as sticker price wouldn't happen. Apartments and row homes would be more common substitutes (and already have sopped up demand in the starter home markets)
(3) what inflation measures show 10% inflation?
(1) political instability
(2) $10M/home as sticker price wouldn't happen. Apartments and row homes would be more common substitutes (and already have sopped up demand in the starter home markets)
(3) what inflation measures show 10% inflation?
It emerged in another thread that since the 1950s inflation has averaged 8% a year.
Will try to find source...
What utter nonsense. Even not adjusting for improved quality, do you honestly think things cost 220x what they did in the 50s?
Shadowstats[1] shows more than 10% in '80s-based measure.
1. http://www.shadowstats.com/alternate_data/inflation-charts
1. http://www.shadowstats.com/alternate_data/inflation-charts
Shadowstats's 80s-based measure says we've been having 10% YoY inflation for two decades now. If that were true, prices would've 5x'ed since the year 2000. That doesn't pass the 'sniff test' to me; e.g. the Big Mac Index [1] says a Big Mac cost $2.50 in 2000 and $5.50 today, equivalent to about 4% YoY inflation.
[1] https://www.economist.com/big-mac-index
[1] https://www.economist.com/big-mac-index
It's not the same Big Mac. It's smaller and lower quality.
Check out https://www.reddit.com/r/shrinkflation/ which has posts about products that get smaller.
Check out https://www.reddit.com/r/shrinkflation/ which has posts about products that get smaller.
The same shadowstats just takes BLS CPI and adds a constant to it? https://news.ycombinator.com/item?id=27124745
5-10% for many things: tuition, healthcare, cars, homes, transportation, etc.
I don't see political instability ever being much of a problem. Trump was considered 'unstable' by pundits yet prices surged during his term.
I don't see political instability ever being much of a problem. Trump was considered 'unstable' by pundits yet prices surged during his term.
> I don't see political instability ever being much of a problem.
Constantly in the political sphere are candidates promising to forgive tuition debt because its so crazy, and politicians promising the government will cover healthcare because its so crazy.
We're not at political instability, but I think we're crossed over into "politicians have to solve this not because its a governments responsibility, but because people can't solve it so they're asking politicians" which is often the first step to instability.
Constantly in the political sphere are candidates promising to forgive tuition debt because its so crazy, and politicians promising the government will cover healthcare because its so crazy.
We're not at political instability, but I think we're crossed over into "politicians have to solve this not because its a governments responsibility, but because people can't solve it so they're asking politicians" which is often the first step to instability.
IIRC 15% for Campbells Tomato Soup.
https://politicalcalculations.blogspot.com/2020/01/the-price...
https://politicalcalculations.blogspot.com/2020/01/the-price...
Eyeballing the values on the graph, it looks like the price increase is around 4% YoY between 2000 and 2020, from ~0.40$ to 0.85$. If it were 15%, it would have reached 6.50$ in 2020.
My mistake, I linked the wrong thing. Here is the right one https://politicalcalculations.blogspot.com/2021/01/the-price... .
Well that would be a different story if he did succeed at stealing the election on Jan 6 while having his supporters destroying the Capitol.
The social unrest would have been quite something.
The social unrest would have been quite something.
> He’ll have to navigate totalitarian social credit systems and surveillance panopticoins.
Great typo!
Great typo!
This author needs relax and take a breath. Even if he’s right that financialization is displacing some would-be homeowners, he’s ignoring all the second order effects and reactions that would counteract this trend long before we reached a state where there are 99% renters. The middle class having an acceptable quality of life is the only thing keeping society stable, and the masses would be guillotining the plutocrats long before we reach that point. If people seem politically disengaged today it’s because by-and-large Americans are doing alright, something I think would absolutely change if you had middle class working adults losing their homes due to property taxes growing much faster than incomes.
He cites growing property tax bills as the reason even current homeowners are not safe from this trend. If this really became a problem, you would just see an acceleration in Prop 13 style laws protecting incumbent homeowners. But also, many cities recalculate the tax rate each year based on their budget needs. If home prices all doubled in a short period of time, I’d expect the effective tax rate to fall since the city’s revenue needs grow at a slower pace.
Leftists like the author seem to start from the premise that somebody making money is always a bad thing and build their entire housing ideology around that belief. Profit motive is a great thing if it incentivizes the creation of needed housing. Profit motive is great when it motivates landlords to buy and fix run-down properties, raising the overall quality of housing in that community. Building and maintaining housing stock is work that entails risk and that deserves compensation. Without these financial incentives, the whole system breaks down. For a glimpse at the alternative, just look at what happened with housing in the Soviet Union: huge blocks of dingy 300-500 sq ft units with nicer units reserved only for the beneficiaries of political corruption, a system of housing I doubt any of us here would wish to adopt ourselves. But, hey, at least no greedy landlords got paid.
He cites growing property tax bills as the reason even current homeowners are not safe from this trend. If this really became a problem, you would just see an acceleration in Prop 13 style laws protecting incumbent homeowners. But also, many cities recalculate the tax rate each year based on their budget needs. If home prices all doubled in a short period of time, I’d expect the effective tax rate to fall since the city’s revenue needs grow at a slower pace.
Leftists like the author seem to start from the premise that somebody making money is always a bad thing and build their entire housing ideology around that belief. Profit motive is a great thing if it incentivizes the creation of needed housing. Profit motive is great when it motivates landlords to buy and fix run-down properties, raising the overall quality of housing in that community. Building and maintaining housing stock is work that entails risk and that deserves compensation. Without these financial incentives, the whole system breaks down. For a glimpse at the alternative, just look at what happened with housing in the Soviet Union: huge blocks of dingy 300-500 sq ft units with nicer units reserved only for the beneficiaries of political corruption, a system of housing I doubt any of us here would wish to adopt ourselves. But, hey, at least no greedy landlords got paid.
“More people moving to cities” and “more people living alone” sounds like it should add up to “more apartment buildings.”
>If something cannot go on forever, it will stop.
—Herbert Stein, economist, 1986
—Herbert Stein, economist, 1986
The price of the average house in the USA is based primarily on the government-guaranteed 30 year fixed rate mortgage. For a given interest rate and income, the house will cost exactly the maximum amount of loan the borrower can get. Banks no longer have any skin in the game - they go through a massive checklist, gather tons of documents, and once they can fulfill their legal mandates they immediately approve the loan and flip the note to investors.
With interest rates so low for so long, a significant increase in rates would decrease the real value of homes as the monthly payment would exceed what someone can afford.
As home ownership is a political football, you can be sure the price of homes will only go up. 2008 was a blip in the steadily increasing price of homes.
With interest rates so low for so long, a significant increase in rates would decrease the real value of homes as the monthly payment would exceed what someone can afford.
As home ownership is a political football, you can be sure the price of homes will only go up. 2008 was a blip in the steadily increasing price of homes.
Are you saying in the USA your fixed rate lasts for 30 years?
Its there a significant premium on the duration?
In the UK fixed rates last 2 or 5 years.
The USA is unique in that the standard mortgage is 30 years with a fixed rate. We also have a huge refinance industry, as everyone who gets locked in at a higher rate wants to refinance when rates drop.
Also the rates are artificially low as the government backstops the vast majority of residential home mortgages. In a free market the rates would be a lot higher, but they are subsidized by the government.
Also the rates are artificially low as the government backstops the vast majority of residential home mortgages. In a free market the rates would be a lot higher, but they are subsidized by the government.
[deleted]
> The price of the average house in the USA is based primarily on the government-guaranteed 30 year fixed rate mortgage. For a given interest rate and income, the house will cost exactly the maximum amount of loan the borrower can get.
This implies that very poor people can buy houses for very cheap. The price of a particular house is not set by reference to the person purchasing it. The price comes first, and the buyer second.
This implies that very poor people can buy houses for very cheap. The price of a particular house is not set by reference to the person purchasing it. The price comes first, and the buyer second.
>The price comes first, and the buyer second.
The price is determined by the intersection of supply and demand. With a bull market in real estate, demand is greater than supply. Buyers have a greater effect on price than sellers. In the extreme, market prices converge to the maximum loan as GP described. In practice, people with higher incomes, liquid investments, or previous home equity can out bid individuals who assume the largest mortgage they can.
The price is determined by the intersection of supply and demand. With a bull market in real estate, demand is greater than supply. Buyers have a greater effect on price than sellers. In the extreme, market prices converge to the maximum loan as GP described. In practice, people with higher incomes, liquid investments, or previous home equity can out bid individuals who assume the largest mortgage they can.
> The price is determined by the intersection of supply and demand. With a bull market in real estate, demand is greater than supply.
These two sentences cannot simultaneously use the same meanings of the words "supply" and "demand". In the sense of supply and demand required by the first sentence, the second is gibberish.
> In the extreme, market prices converge to the maximum loan as GP described.
What is the maximum loan? Prices cannot converge to "the maximum loan" because there is no such value. Different people can obtain different quantities of financing.
These two sentences cannot simultaneously use the same meanings of the words "supply" and "demand". In the sense of supply and demand required by the first sentence, the second is gibberish.
> In the extreme, market prices converge to the maximum loan as GP described.
What is the maximum loan? Prices cannot converge to "the maximum loan" because there is no such value. Different people can obtain different quantities of financing.
> Different people can obtain different quantities of financing.
And the people that can obtain the most get the best houses, and the people that can get a little bit less get the next tier of houses... until no houses remain (or no buyers).
Here in seattle (for example) we have a lot of SDEs making ~150k. A mortgage company will give you like 500-750k mortgage for that income. Maybe 1M if you have a couple with that income each. Most houses in areas where software engineers want to live all start at 650-700k for decent homes. Because that's the top end of what the buyers can afford, so that's what sellers ask, knowing there is a cohort of buyers that can afford that as a minimum buy price.
And the people that can obtain the most get the best houses, and the people that can get a little bit less get the next tier of houses... until no houses remain (or no buyers).
Here in seattle (for example) we have a lot of SDEs making ~150k. A mortgage company will give you like 500-750k mortgage for that income. Maybe 1M if you have a couple with that income each. Most houses in areas where software engineers want to live all start at 650-700k for decent homes. Because that's the top end of what the buyers can afford, so that's what sellers ask, knowing there is a cohort of buyers that can afford that as a minimum buy price.
>These two sentences cannot simultaneously use the same meanings of the words "supply" and "demand".
The second sentence is technically incorrect. During a bull market, demand is increasing relative to supply. (If supply was decreasing relative to demand, prices would increase, but that would not be a bull market)
>What is the maximum loan?
The GP comment I credited described the "maximum amount of loan" as a function of buyer income and interest rate. Obviously, the house is sold to the highest bidder.
In a hot market, the average price of real estate will approach the largest mortgage available to the average winning bidder (plus some quantity of household wealth).
The second sentence is technically incorrect. During a bull market, demand is increasing relative to supply. (If supply was decreasing relative to demand, prices would increase, but that would not be a bull market)
>What is the maximum loan?
The GP comment I credited described the "maximum amount of loan" as a function of buyer income and interest rate. Obviously, the house is sold to the highest bidder.
In a hot market, the average price of real estate will approach the largest mortgage available to the average winning bidder (plus some quantity of household wealth).
> The GP comment I credited described the "maximum amount of loan" as a function of buyer income and interest rate.
But the price of the house is set without reference to buyer income or interest rate. It therefore cannot depend on "the maximum amount of loan", which is an incoherent concept anyway.
The government program juices demand by making financing more available than otherwise. This raises the price of homes. But that's the limit of what we can say.
But the price of the house is set without reference to buyer income or interest rate. It therefore cannot depend on "the maximum amount of loan", which is an incoherent concept anyway.
The government program juices demand by making financing more available than otherwise. This raises the price of homes. But that's the limit of what we can say.
No- but you need the number of houses in a given price range to more or less match up with the number of buyers who can afford them.
Look what the jumbo loan and other federal loan limits are within a given market, and if you plot real estate listings/sale prices, there will be clusters grouped just below each limit, especially the jumbo.
Look what the jumbo loan and other federal loan limits are within a given market, and if you plot real estate listings/sale prices, there will be clusters grouped just below each limit, especially the jumbo.
If a buyer has $100k income and ~75k post tax, then they will be able to afford (at most) $45k per year out of pocket, or ~$2k per month. Based on the interest rate, you can work backwards to see the house they can afford, and the people buying at that price point will all have similar incomes.
> and the people buying at that price point will all have similar incomes.
This isn't true.
This isn't true.
At least the US had a small housing crash in 09/10, most of the rest of the world hasn't seen that so its been 3 decades of non-stop boom. It has to add badly. I thought the baby boomers retiring would cause a lot of downsizing but that just hasn't happened.
Exactly. I'd say the US housing market has less risk than other countries.
Canada barely saw a blip during 2008. The average house price peaked at over $700,000 this summer. That's not Toronto or Vancouver, that's Canada as a whole, including places like god damn middle of nowhere BC. It did drop to the mid-600's after that.
In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years.
Canada barely saw a blip during 2008. The average house price peaked at over $700,000 this summer. That's not Toronto or Vancouver, that's Canada as a whole, including places like god damn middle of nowhere BC. It did drop to the mid-600's after that.
In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years.
>In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years.
This is also why Canadians continue to flock to the US. They get higher salaries and lower housing cost. Further, while it's impossible in Canada to reach the top of one's profession without living in Montreal, Toronto, or Vancouver (add Edmonton and Calgary if in energy), it's entirely possible to reach the top of many industries in the US without living in NYC/LA/Chicago/SF.
This is also why Canadians continue to flock to the US. They get higher salaries and lower housing cost. Further, while it's impossible in Canada to reach the top of one's profession without living in Montreal, Toronto, or Vancouver (add Edmonton and Calgary if in energy), it's entirely possible to reach the top of many industries in the US without living in NYC/LA/Chicago/SF.
> This is also why Canadians continue to flock to the US. They get higher salaries and lower housing cost
As an American, I would love to move to Canada, but this is a pretty bad combo which makes it hard to justify.
As an American, I would love to move to Canada, but this is a pretty bad combo which makes it hard to justify.
> In the mean time the US average house price went from mid-$200k to mid-$300k over the past few years.
The median sales price. But this doesn't mean home values went up that much, and if you look at home value measures, they went up less. Median sales prices went up more because of a shift of which homes were actually moving on the market.
The median sales price. But this doesn't mean home values went up that much, and if you look at home value measures, they went up less. Median sales prices went up more because of a shift of which homes were actually moving on the market.
While true, almost every market in the US has seen some level of price appreciation since Covid hit. Some have seen ridiculous increases in appreciation while others not as much.
Your point about the type of home selling (larger) is no doubt true, but there is still significant underlying appreciation happening.
Your point about the type of home selling (larger) is no doubt true, but there is still significant underlying appreciation happening.
He lost me when making statements about a paradigm shift and human history while explicitly talking about US of A. A fine country, but not representing the entirety of any global trend.
For most of human history we built our own homes. We only stopped because having others do it became more convenient.
The US is vast, and we have a ton of affordable housing if you look outside the coastal cities.
So, he hasn't heard of Bitcoin? You don't need all these regulations if you just fix money. Central bank controlled interest rates and inflationary monetary policies are the root of this problem. There's no way for these monopolists to lose if they can leverage with money printed from thin air. It's a risk-free return, because they can profit from centrally controlled monetary policy, which is guaranteed to work for their favor and bail them out if they take too much risk.
Make money printing impossible and everything will correct itself. When money is truly owned and controlled by people, free market interest rates will increase and kick out these leveraged rent-seekers. No one will lend their hard-earned money to these people for free.
The beautiful thing is that market forces will actually make Bitcoin take over the current system by itself. Free markets will always choose fair money, because it's more beneficial for all of its users, expect for those who benefit from a central mint.
Make money printing impossible and everything will correct itself. When money is truly owned and controlled by people, free market interest rates will increase and kick out these leveraged rent-seekers. No one will lend their hard-earned money to these people for free.
The beautiful thing is that market forces will actually make Bitcoin take over the current system by itself. Free markets will always choose fair money, because it's more beneficial for all of its users, expect for those who benefit from a central mint.
Given he has
> If you’d like to win a book and $100 in free cryptocurrency, head over to jaredabrock.substack.com
plastered right at the top, I would say, yes, he has heard of Bitcoin.
> If you’d like to win a book and $100 in free cryptocurrency, head over to jaredabrock.substack.com
plastered right at the top, I would say, yes, he has heard of Bitcoin.
I just... can't take articles like this seriously. It's the political equivalent of gore porn, and it feels like a waste of time to think about.
When Nassim Taleb wrote about "Black Swan events", he more or less ended circumspect skepticism, because now everyone is trying to find the next "black swan event" that they can predict, and have discovered calling out hundreds of them is the most effective way to get one right, with minimal/zero consequences for being wrong.