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Homes in 97% of U.S. cities are overvalued, Moody's says

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Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#131

Post by thereisnospork »

nemo44x wrote: post #53
majormajor wrote: post #13

Earlier quoted context omitted.

So a slightly more sophisticated analysis would be "how does housing appreciation in each market compare to stock market appreciation over the same time period" - but the description in the article leaves that out, looking just at historical incomes/costs/rents. In a world where homebuying is increasingly out of reach of a larger percent of people, you'd expect it to be more disconnected with average or median income…

I mean, just about every house has an owner that lives in it. Homes are expensive. Most people just can’t afford a big slice of land and home. They have to accept they will have to make do in an apartment that may be shared. Should the home they deserve just magically appear?

>Should the home they deserve just magically appear?

They should have the right to purchase one, or have one commissioned, at the fair market value for materials, labor, and land.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#132

Post by nuclearnice1 »

pjmorris wrote: post #91
melissalobos wrote: post #4

Isn't this one of those "If everyone is crazy, you're crazy" situations? If every house is overvalued by some metric, then maybe the metric is wrong. People's perceptions of value are a large part of the actual value(meaning what someone would really pay) for things like housing that should depreciate over time.

I think there's a more concrete measure of value: house prices related to income. Historically (Robert Shiller has a chart for the US going back to 1890) house prices (and mortgages and rents) have maintained a stable relationship with income. Occasionally that relationship is strained but it has usually fallen back in line. One exception to this was the extraordinary, ongoing, support to the financial system post-20…

Another exception was the housing bubble leading up to 2008

https://www.longtermtrends.net/home-price-median-annual-inco...

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#133

Post by Ozzie_osman »

finlake wrote: post #124
streetcat1 wrote: post #81

Earlier quoted context omitted.

So this is not entirely correct. If I am not mistaken 30% of buyers are cash buyers, hence they do not care about the mortgage rate. Second, the big issues is with houses supply. The high rate basically lock most current sellers which have very low mortgage rate (compared to 5%), hence reducing the supply more.

I disagree. Until now there might have been 30% buyers with cash, but with rising interest rates that will stop being the case if house prices stay up. People with large sums of spare money always look for ways to park their money. Interest based products (term deposits, bonds etc.) will now become more attractive, diverting some cash flows away from housing.

The interest on most interest based products will not rise as fast as inflation and so I'm not sure they will be "more attractive" (at least compared to real assets).

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#134

Post by AlchemistCamp »

oceanplexian wrote: post #111
pjmorris wrote: post #91

Earlier quoted context omitted.

I think there's a more concrete measure of value: house prices related to income. Historically (Robert Shiller has a chart for the US going back to 1890) house prices (and mortgages and rents) have maintained a stable relationship with income. Occasionally that relationship is strained but it has usually fallen back in line. One exception to this was the extraordinary, ongoing, support to the financial system post-20…

There’s no rule that you should be able to afford a house on a middle class income. In fact in many countries, particularly in Western Europe, it’s unimaginable that you would be able to afford a detached, single family home on a middle class income. Lots of people in that situation will live in apartments, row houses, or condos for the rest of their lives.

Western Europe is both considerably more crowded and poorer than the US.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#135

Post by state_less »

epistasis wrote: post #98
pjmorris wrote: post #91

Earlier quoted context omitted.

I think there's a more concrete measure of value: house prices related to income. Historically (Robert Shiller has a chart for the US going back to 1890) house prices (and mortgages and rents) have maintained a stable relationship with income. Occasionally that relationship is strained but it has usually fallen back in line. One exception to this was the extraordinary, ongoing, support to the financial system post-20…

That would work if the supply of houses has kept up with populations growth, and just as importantly, the desired location of where people want to live. If there's housing scarcity, then prices will rise far ahead of ability to pay. That's the source of a lot of other types of today's inflation, for example, cars.

> If there's housing scarcity, then prices will rise far ahead of ability to pay.

Housing costs tend toward people's ability to pay, otherwise folks default. That's why the banks ask you about your income and credit worthiness, they want to know you'll be able to pay the mortgage and not default. If money costs increase faster than income, folks won't be able to afford as much money (as high a price).

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#136

Post by bkjelden »

pjmorris wrote: post #91
melissalobos wrote: post #4

Isn't this one of those "If everyone is crazy, you're crazy" situations? If every house is overvalued by some metric, then maybe the metric is wrong. People's perceptions of value are a large part of the actual value(meaning what someone would really pay) for things like housing that should depreciate over time.

I think there's a more concrete measure of value: house prices related to income. Historically (Robert Shiller has a chart for the US going back to 1890) house prices (and mortgages and rents) have maintained a stable relationship with income. Occasionally that relationship is strained but it has usually fallen back in line. One exception to this was the extraordinary, ongoing, support to the financial system post-20…

One major problem I see with comparing housing prices to income is that most homebuyers in the US are using leverage (a mortgage) to buy their home, and the last 15 years or so have seen comparatively low mortgage rates compared to the several decades beforehand.

Housing prices have been able to balloon because debt has been very, very cheap. Whether or not that will continue remains to be seen.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#137

Post by elephanteeee »

Rury wrote: post #128

Curious, are people suddenly paying higher property taxes now that houses are worth much more in a short time span?

Yes. I mean some places have laws freezing property taxes but in most places yes. My state switched to something like Zillow-based assessments that they did for every house in my county this year.

It’s kind of funny thing that interest rates did but the escrow portion of my mortgage payment is bigger than the principal and interest.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#138

Post by donavanm »

vkou wrote: post #10
avelis wrote: post #2

It doesn't help that corporations buy all these houses up at full price and well above listing just so they can use it as rental income.

Listing price is a red herring. Nobody selling a home actually expects to only get listing price for it.

Historically ~30% of all listings were adjusted down. That makes sense when listings are about price discovery. IIRC currently about 15% of listings have a downwards price correction. That is VERY hnusual, and yet still a meaningful portion of secondary market.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#139

Post by conductr »

brewdad wrote: post #110
melissalobos wrote: post #4

Isn't this one of those "If everyone is crazy, you're crazy" situations? If every house is overvalued by some metric, then maybe the metric is wrong. People's perceptions of value are a large part of the actual value(meaning what someone would really pay) for things like housing that should depreciate over time.

We'll find out over the next 6-12 months. At some point, a lot of home buyers started shopping by payment without regard to total price. With interest rates near their lowest in anyone's lifetimes that was workable. With interest rates rising, as buyers who haven't locked in lower rates begin looking at the current payments on offer, they will have to look at lower priced homes or drop out of the market. If this boom…

The concept of the cash buyer is a bit of a farse as well. What usually takes place is a cash offer. They just need to proof of funds to do this. But then, they get financing to close. Nobody in their right mind is putting that sum of cash in real estate when they could borrow at 2% or whatever it was before the recent run up. The mortgage interest even has favorable tax treatment so it’s effectively much less. Oh and the actual cash can also grow tax deferred. I really don’t understand why you’d actually put a large sum into a house when interest rates were as low as they were.

Re: Homes in 97% of U.S. cities are overvalued, Moody's says

#140

Post by refurb »

OrvalWintermute wrote: post #75
spoonjim wrote: post #26

Earlier quoted context omitted.

There are multiple ways to value an asset other than its current price. One is cash flows: if you rented it, how much money would you get? Another is historical norms: if historically a city with N million jobs providing average income X can only support housing prices of Y, then one could conclude that housing is overpriced relative to the ability of people to pay for it.

The HCOLA house my wife owns in which we live would rent for ~5,000 a month as it is inside our respective city beltway, in a good school district, in a low crime, historic area. When we got married $5,000 is pretty close to our much smaller apartment rental costs, summed. The vacancy rate is pretty low, and the demand is strong. Like all real estate calculations though, this is completely local.

Just look at the price to rent index - 15 to 16 is neutral (renting and owning cost the same).

San Francisco is currently 52.

In HCOL areas, renting tends to be cheaper than owning because home price reflect not only cash flow, but expected appreciation as well.

https://smartasset.com/mortgage/price-to-rent-ratio-in-us-ci...

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