There is more to high house prices than constrained supply • Hacker News Board

Re: There is more to high house prices than constrained supply

#191

Post by RhodesianHunter » Sun, Nov 25, 2018, 4:13 AM UTC

mikekchar wrote: post #185

charlesdm wrote: post #117

Earlier quoted context omitted.

Until the music stops. See how much those condo's sell for during the next downturn, if you can even sell them.

If interest rates go up causing people not to be able to afford their payments, those condos will sell -- after the mortgages have been foreclosed. Was in London in 1992, just before the pound was removed from the European exchange rate mechanism. Very instructive. Now is a particularly dangerous time to overextend yourself on a mortgage. For any realistic scenario, interest rates will never be lower than they are no…

Does anyone get floating rate mortgages any more?

I thought (could be very wrong) that these had mostly gone the way of the dodo due to exactly what you're describing.

Re: There is more to high house prices than constrained supply

#192

Post by conanbatt » Sun, Nov 25, 2018, 4:54 AM UTC

s4vi0r wrote: post #175

mmirate wrote: post #44

Earlier quoted context omitted.

What exactly would remain after this "destruction" of yours?

Not sure why, but I couldn't respond to your comment for quite some time. I'm not sure what you're asking re: what would remain. Housing as a human right, I guess? There's no good reason for landlords to exist, nor do I understand why you would want housing to be a commodity especially considering we live in a post-2008 world.

There can't be "no landlords". Someone owns the land, even if its the State.

Beware of that solution: you have a chance to fight a landlord, you have no chance to fight the state-landlord.

Re: There is more to high house prices than constrained supply

#193

Post by conanbatt » Sun, Nov 25, 2018, 4:55 AM UTC

will_brown wrote: post #35

Housing prices are artificially high because of debt and finance. If loans/debt/financing/mortgages were made illegal, then these artificial high housing prices based on the credit line one can obtain rather than what one can actually afford, prices would come down to fair market value. I know people will claim credit is based on what one can afford but that is mental gymnastics (foreclosures, student loan defaults,…

Your analysis misses out on the most important part: volume. Mortgages increase prices but also sales. IF you eliminated mortgages, you would have less home-owners.

Re: There is more to high house prices than constrained supply

#194

Post by conanbatt » Sun, Nov 25, 2018, 4:57 AM UTC

vanbytheriver wrote: post #141

I purchased a van that I am going to rebuild into an RV and live in San Fransico at a fraction of what I would throwaway on rent and interest to the bank. Some googlers got the same idea and slept in the google parking lot! It does not make sense to purchase expensive properties with the record low interest rates. As soon as they rise again, your property will lose in 10s of thousands of dollars in value and you will…

I think its a fine way to save money, but that is basically choosing to be homeless and live like a pauper.

When you have 200k+ salaries and you find it appealing to live like a minimum-wage worker with no family, it should raise a red flag.

Re: There is more to high house prices than constrained supply

#195

Post by true_tuna » Sun, Nov 25, 2018, 5:04 AM UTC

But there’s also extremely constrained supply. Look at Mountain View CA from 2000 to 2010. The city blocked new housing religiously for a decade while welcoming tens of thousands of new jobs. Now traffic is insane, housing prices are insane. Tell me simple supply and demand is not at play here. If we add jobs we gotta add housing. It’s baffling that we’d try to do anything different. And yet every city in the Bay Area is happy to welcome new jobs and blocks new housing at every turn. There’s a muddy field right next to google campus. Been vacant for at least a decade. Zoned for hotel. Nobody wants or needs a hotel there. High density housing yes. Hotel no. I’m not interested in any conversation about the housing crisis that ignores this simple idea. Add a job? Permit a housing unit. Do that for a decade and then we can talk about the other factors.

Re: There is more to high house prices than constrained supply

#196

Post by s4vi0r » Sun, Nov 25, 2018, 7:44 AM UTC

conanbatt wrote: post #192

s4vi0r wrote: post #175

Earlier quoted context omitted.

Not sure why, but I couldn't respond to your comment for quite some time. I'm not sure what you're asking re: what would remain. Housing as a human right, I guess? There's no good reason for landlords to exist, nor do I understand why you would want housing to be a commodity especially considering we live in a post-2008 world.

There can't be "no landlords". Someone owns the land, even if its the State. Beware of that solution: you have a chance to fight a landlord, you have no chance to fight the state-landlord.

Yes, but the state isn't leeching off of the people. My point is wrt landlords in the sense of people who do nothing, provide no value, and make money solely by virtue of "I/my ancestor was here first I/they bought this when there was less people so gimme money".

I don't see where you get your conclusion from. For many (most?) people, they really don't have a chance to fight their landlord. Legal expenses, time, energy, etc. are pretty huge deterrents. Not sure why you can't fight a "state-landlord", also.

Re: There is more to high house prices than constrained supply

#197

Post by CalRobert » Sun, Nov 25, 2018, 7:47 AM UTC

djrobstep wrote: post #167

CalRobert wrote: post #156

Earlier quoted context omitted.

I just agreed to buy a house. It's very cheap. It's very small and strange, so thankfully banks wouldn't give a mortgage on it. It was built around 1800, most likely when several people nearby got together and gathered a lot of stones to erect walls, and peat from a nearby bog and oat straw (which was grown locally) to make a roof. Over the subsequent hundred years it had a couple rooms added until it reached its cur…

> Why can't I just gather materials and build my own house? Indeed. This is why discussion of "supply" misses the point. - Many people would quite happily build their own house in the middle of Central Park. But they cannot, because government intervention prevents them. - Many homeless people would happily sleep in unused climate-controlled office buildings at night, but cannot, because government intervention preve…

I think to some extent we've made it impossible to live truly cheaply because those making laws can't fathom someone going wxthout modern services. I'd prefer NOT to have a paved road to my door, but because of the assumption I need that the costs of road building are a reason not to permit building. I'm ok with off grid power, composting toilet, and rainwater collection too, but it's assumed I want a sterile wasteland (a lawn) in front of my home and will need to water it.

Re: There is more to high house prices than constrained supply

#198

Post by switch007 » Sun, Nov 25, 2018, 8:11 AM UTC

refurb wrote: post #157

phkahler wrote: post #13

Home prices vary inversely with interest rates. Here's how that works: 1) person tells bank they'd like a mortgage to buy a house. 2) banker asks for info on income, expenses, etc. 3) banker estimates persons maximum monthly payment. 4) banker figures out max loan amount based on #3 5) buyer is encouraged by everyone to spend the full amount from #4 Everyone - the seller, their agent, your agent, the bank, and maybe…

This is really evident in Canada right now with the mortgage “stress test”. Basically, new regulations were created that require home buyers to qualify at prime + 2%, even though mortgage rates might be prime + 0.5%. This was done because the govt was concerned about how much risk the banks were taking on. Since it was enacted (earlier this year I think), the brakes were slammed on housing prices and now major market…

That seems like an easy stress test? I think UK lenders test 3% + the rate at which your mortgage reverts to at the end of the fixed period (we have relatively short fixed period products: 2-5 years), which would typically total around 7-9%.

Re: There is more to high house prices than constrained supply

#199

Post by darawk » Sun, Nov 25, 2018, 8:21 AM UTC

thaumaturgy wrote: post #179

darawk wrote: post #172

Earlier quoted context omitted.

> These replies to my comment are super weird. I'm reading them collectively as, "I don't see how the influx of millions and millions of dollars of investment capital would have an effect on housing prices." Huh? Let's talk about the rice market, rather than housing. Let's say you dump 1 trillion dollars into rice. What's going to happen? The price of rice rises, dramatically. However, rice farmers the world over see…

I think I'm getting your comments. I don't think you're getting mine. > What's going to happen? The price of rice rises, dramatically. Yes, which is what has been happening in housing. > However, rice farmers the world over see that price rise, and they start growing more rice. And here's where your analogy falls over, because (a) the availability of land for residential real estate is not infinite; (b) it requires a…

> And here's where your analogy falls over, because (a) the availability of land for residential real estate is not infinite; (b) it requires a far, far greater capital outlay (and time-to-market) to build housing than to farm rice; (c) developers are incentivized to build expensive housing because that's where they make more money.

Well, you're using the word 'availability', but that sounds a lot like 'supply' to me. So, i'm not sure we really disagree here. Though I would add that for the most part, land supply is not the constraining variable in almost all major metropolitan areas (exception for places like Hong Kong).

> Only if there's a better place to park my wealth. That's where all this money is coming from: people with money, who want to make more money, and are dissatisfied with the returns available in a lot of other investment vehicles.

Sure, so they bid it up until its risk-adjusted net-present-value equalizes with other assets. But all that is is restating the fact that these particular plots of land are worth a lot. It doesn't answer the question of why they are worth a lot. For that, you must look to supply constraints and network effects.

> Oh, c'mon. Deal with me honestly here. We're not talking about BFE, Iowa, yeah? We're talking about housing in metropolitan areas, and I'm pretty sure I've been specific about that in my comments on the subject so far. Y'know, the areas where there is a lot of investment money -- demonstrably -- and where there are ridiculously high housing prices to go along with it.

I'm not trying to deal with you dishonestly. I know you are talking about major metro areas. My point in pointing out the heterogeneity was to point out that we only know ex post that the particular areas you're thinking of have done well. If you were an investor in say, 2003, it may not have been such an easy call, and similarly, it may not be such an easy call now.

Let's say you had $10 million to invest. Where would you put it? Would you chuck it into SF real estate in the current market? I'm not sure I would. I think the market is quite high, especially given the rising interest rates, and I think the anti-nimby movement has gained a lot of steam, and the bay area has a lot to lose from that, in terms of property values. If I were trying to park $10 million, I think i'd actually shy away from areas with sky high valuations that are built on such monocultural foundations (tech).

Re: There is more to high house prices than constrained supply

#200

Post by ithkuil » Sun, Nov 25, 2018, 8:52 AM UTC

joejerryronnie wrote: post #190

gammateam wrote: post #144

Earlier quoted context omitted.

Almooooooost The fed printing more dollars is done in a way designed to push people into riskier products. The literal point is so that people put their money into the economy instead of parking it in a savings account. So even though your favorite personal finance guru is having you celebrate 1.75% in an Allied Savings account in exchange for referral commissions, the point is for that to be an unattractive use of y…

I was with you until you mentioned crypto in the same sentence as market forces, as if the price of bitcoin or any other crypto currency is due to any factor other than rampant speculation (or blatant price manipulation). At this point, I look at die-hard crypto converts the same as evangelical Christians. Not that either are bad, they just believe in made up things.

I genuinely wonder if even the whole financial market is driven by people who believe in made up things and that it doesn't really matter as long as everybody keeps believing in it