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

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

#151

Post by sidlls » Fri, May 06, 2022, 2:43 AM UTC

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.

You can't compare Western Europe to the US. Maybe to specific regions or super-urban areas, e.g., the LA to SD corridor or the Bay Area.

In which case the two are comparable: there are few if any middle-class families in the bay area that own their homes except by inheritance or some other luck (gift, lottery). Even condos and other high-density housing are all but completely out of reach for all but the top 10% of income earners. And those condos are almost all studios or 1- or 2-bedroom units that are very tiny.

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

#152

Post by _carbyau_ » Fri, May 06, 2022, 2:43 AM UTC

AussieWog93 wrote: post #16

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.

Not sure if it's different in the US, but in Australia rental incomes for residential property are a tiny percentage of the value of the investment and most of the money is made through leveraged capital gains. For example, I pay $24k a year on a house worth around $1.4m. This gives a return of around 1.7%, which is nothing compared to cap notes (5%) or dividends (~4%). However, someone buying our house would only ne…

I agree with you but to add another point, if house prices were to decrease significantly then loan margins would kick in for homeowners too.

And with low interest rates, low wages(vs house price) for so long the margins for that are tight for a lot of (silly?) people who borrowed "as much as they could".

It seems like:

- house prices up, investors win.

- house prices down, homeowners lose.

It will be interesting to see how it plays out but at this stage either side of political argybargy are doing SweetFA and advertise policies to do more of the same.

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

#153

Post by knubie » Fri, May 06, 2022, 2:43 AM UTC

torbTurret wrote: post #15

endisneigh wrote: post #11

I used to believe such things and then I did a median income vs price per square foot worldwide comparison and it turns out the United States is one of the cheapest, if not the, cheapest place in the world when it comes to the “affordability” (median income vs price per square foot). I think the issue is that the United States has been too cheap and finally that era of abundance at a low cost is coming to an end.

Such a simple analysis ignores e.g. the higher wages in the US offset by the lack of social nets

Not the OP, so I'm not sure what sources they used, but disposable income as measured by the OECD [0], for example, does takes this into account.

[0] https://data.oecd.org/hha/household-disposable-income.htm

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

#154

Post by epistasis » Fri, May 06, 2022, 2:44 AM UTC

state_less wrote: post #135

epistasis wrote: post #98

Earlier quoted context omitted.

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).

Housing costs do tend towards ability to pay, and when there's scarcity, that "ability to pay" starts cutting out those with the lowest incomes, since they do not get the housing.

That's how housing costs can increase faster than the income of an area, it's the market displacing those with lower incomes, and readjusting to only house the wealthiest.

Add in that housing prices are distinct from the housing costs, and that leases only change rent occasionally, and lots of people are owners and have fixed costs, and prices can rise quite a bit faster than incomes.

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

#155

Post by zbrozek » Fri, May 06, 2022, 2:45 AM UTC

atwebb wrote: post #119

ahoy wrote: post #104

Earlier quoted context omitted.

I'm not really sure how. I can count on 1 hand the number of under-40 homeowners I know.

I'm guessing that is location dependent, though it has changed recently, many people I've known (admittedly college educated or further, corporate tech) have been homeowners since their early-mid 20s. (millenial)

Definitely location dependent. Not in the SF Bay Area.

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

#156

Post by oh_sigh » Fri, May 06, 2022, 2:45 AM UTC

streetcat1 wrote: post #81

nwiswell wrote: post #62

Earlier quoted context omitted.

> if there are buyers, competition, and houses are continuing to move quickly, then it’s a bold statement to say they are overvalued and that we should predict a significant decline. No, for the simple reason that (most) people buy homes with mortgages. Take a look at the 30 year mortgage interest rate over the past few months. The total cost to own a newly purchased home is what matters, not the actual sale price. T…

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.

"Cash buyers" may very well have a mortgage, but they have enough assets/collateral that the bank is willing to give them carte blanche (ie the bank will waive inspection, because if there is a major flaw that makes the house uninhabitable, they'll just collect some other asset of yours).

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

#157

Post by 01100011 » Fri, May 06, 2022, 2:46 AM UTC

lvl102 wrote: post #69

There’s something happening with Euro/JPY vs USD that is forcing a significant inflow into US assets. It’s going to continue because: (1) EU kicked the can for far too long and they cannot meaningfully raise rates without facing the realities of the debt crisis of 2010-12, and now made impossible due to Ukraine, and (2) Japan is committed to driving down the yen even further. USD is king and real-estate will reflect…

The weak yen is going to help Japan win back manufacturing from China. China is in a very tough spot right now. Between "zero covid" and losing mfg due to monetary and political reasons China may be reaching a local maximum for a while.

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

#158

Post by djbusby » Fri, May 06, 2022, 2:46 AM UTC

conductr wrote: post #139

brewdad wrote: post #110

Earlier quoted context omitted.

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 an…

Only if you had lots (lots!) of excess cash. That is, folk who are diversifying a big portfolio (ie: a 500k home is less than 20% of your total book)

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

#159

Post by t-writescode » Fri, May 06, 2022, 2:48 AM UTC

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.

Sorry, but isn’t that part of the definition of middle class?

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

#160

Post by asta123 » Fri, May 06, 2022, 2:48 AM UTC

They may be overvalued but don't see how they could fall without forced sales. At start of pandemic borrowers got mortgage repayment holidays in Australia - so didn't have to sell if you got into financial trouble. Yesterday one of major bank bosses telling borrowers to call the bank if rising interest rates and cost of living getting people into difficulty. Somehow they will work it out whatever that means.