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This real estate bubble won't pop

jaredabrock.substack.com

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Re: This real estate bubble won't pop

#91

Post by drfxyjhdyfrhgc »

thaumasiotes wrote: post #80
drfxyjhdyfrhgc wrote: post #50

Earlier quoted context omitted.

>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 a…

> 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 maxim…

>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).

Re: This real estate bubble won't pop

#92

Post by refurb »

dragonwriter wrote: post #83
refurb wrote: post #58

Earlier quoted context omitted.

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 f…

> 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.

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.

Re: This real estate bubble won't pop

#93

Post by inter_netuser »

8teapi wrote: post #15

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 movi…

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.

Re: This real estate bubble won't pop

#94

Post by AstralStorm »

seanmcdirmid wrote: post #90
larsiusprime wrote: post #45

Earlier quoted context omitted.

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…

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 t…

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.

Re: This real estate bubble won't pop

#95

Post by joshspankit »

anm89 wrote: post #32
TameAntelope wrote: post #16

One aspect of articles like this that I've noticed is the absolute certainty the author seems to have that these terrible outcomes are inevitable, with no expression of a confidence interval or possible less world-ending alternatives. 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 Swa…

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.

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

Re: This real estate bubble won't pop

#96

Post by dionidium »

vineyardmike wrote: post #84
dionidium wrote: post #4

> 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.

> 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 und…

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...

Re: This real estate bubble won't pop

#97

Post by seanmcdirmid »

AstralStorm wrote: post #94
seanmcdirmid wrote: post #90

Earlier quoted context omitted.

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 t…

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.

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.

Re: This real estate bubble won't pop

#98

Post by anm89 »

JanisL wrote: post #71
anm89 wrote: post #32

Earlier quoted context omitted.

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.

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

Re: This real estate bubble won't pop

#99

Post by anonu »

TameAntelope wrote: post #16

One aspect of articles like this that I've noticed is the absolute certainty the author seems to have that these terrible outcomes are inevitable, with no expression of a confidence interval or possible less world-ending alternatives. 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 Swa…

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.

Re: This real estate bubble won't pop

#100

Post by TameAntelope »

anonu wrote: post #99
TameAntelope wrote: post #16

One aspect of articles like this that I've noticed is the absolute certainty the author seems to have that these terrible outcomes are inevitable, with no expression of a confidence interval or possible less world-ending alternatives. 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 Swa…

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.

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