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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

#191

Post by vmception »

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.

The money supply expands primarily by debt, and it relies on people paying back the debt with actual value (or dollars representing the actual value).

When tightening, there arent enough dollars in circulation to do that.

But the bankers get the actual value (homes, collateral, liens on income) regardless. Lenders dont keep seized collateral on their balance sheet, so they sell it at the best price (and they dont need the max price because they already made so much on interest payments). So they push prices down in their firesales.

For the tightening money supplt and people trying to find dollars, think of it like the poison map closing in on Call of Duty Warzone.

So you can base housing prices on that outcome.

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

#192

Post by joering2 »

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.

Overvalued not necessarily mean the value of current stock has to drop. This is - an ongoing for at least decade now - cry that we don't build enough and we don't built fast enough. Pandemic obviously didn't help either.

So I don't consider articles like that a bell ringing "sell sell sell". Until we are overwhelmed with new constructions coming up everywhere, there will be more people willing to buy, than to sell.

Anecdotally, we decided with wife to pull a trigger on $380k house in Florida (decent ZIP code) just a month before COVID hit, in March 2019. We had 90 days to cancel with $2,500 penalty, pandemic scared us with possibility of builder being lawfully able to be stuck on a construction site for up to 3 years. But eventually we decided to go on because we got tired of renting. By end of 2021 I got offer for $475k, cash, and someone "stole" our plans and our builder built exactly same house next street for $450k (we went inside everything was the same so same options were selected). Then "correction" should come and everyone expected Jan-April 2022 to be a 25% cool off since market rose so much. Well, our "correction" was that prices stopped going up, that's it. Now just few days ago I got an offer by mail (they find your address and mass-mail you) for "amazing amount, just to call". Out of curiosity, I called and was told upon doing title and lean research, an Executive Manager can show up overnight with $525,000 check.

Weird times...

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

#193

Post by georgeburdell »

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 criticism I have of Shiller is his index looks at comparable houses across time. This under estimates appreciation due to the housing stock itself becoming more luxurious. In my area, houses are about 500 sqft larger than a generation ago and have amenities like AC and often a granny unit.

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

#194

Post by ryanSrich »

coward123 wrote: post #7

I can’t help but think of that saying “the market can stay irrational longer than you can stay solvent.” Yes, prices in many markets are very high and appreciating at a rapid clip, but 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.

I would agree. I think the fact that mortgage rates have essentially doubled in the last 3 months, but housing prices continue to climb tells you we’re not even close to the ceiling.

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

#196

Post by tristor »

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.

> There’s no rule that you should be able to afford a house on a middle class income

Here in the US, if one was asked to define “middle class” from a lifestyle perspective, probably the first thing that comes to mind is “homeowner.” I don’t think it’s possible to separate home ownership from class distinctions in the US social strata.

Case in point, home ownership rate has remained largely stable for decades at around 65% of the population. That’s despite incomes being more varied in relation to actual value over time.

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

#197

Post by ryanSrich »

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.

Why would anyone pay cash for a house when even a horrendous mortgage rate is still only 6%? That cash is earning 10% easily with zero effort. Put 15 minutes of effort in and open a Betterment account and you’re likely getting closer to 20%. Cash buyers make no sense to me.

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

#198

Post by sass_muffin »

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 also way smaller than the united states, so I'm not sure how apt this comparison is.

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

#199

Post by majormajor »

nwiswell wrote: post #144
oceanplexian wrote: post #127

Earlier quoted context omitted.

The problem is that supposedly, since 2020, the Fed has printed somewhere between 40-80% of all dollars in existence (The M1). So my question is, if there is twice as much money in the system, but the same number of assets, why would it be shocking that housing continues to inflate?

M1 is a useful tool to understand why the prices of consumer goods have increased but not at all useful to understand home buying power. People regularly sell stocks, bonds, and other homes in order to produce the down payment for a mortgage and have done so since long before 2020. M1 does not measure any of these.

The set of homebuyers and the set of stimulus recipients in a lot of these markets are non-overlapping, too.

Crypto, on the other hand, is something I know was sold for a downpayment by several of my acquaintances, which is acting as its own form of "money supply increase" since they spent orders of magnitude less to acquire it. The anti-inflation tool creates its own inflation by turning into "new money." :)

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

#200

Post by tristor »

grapeskin wrote: post #190
pcmoney wrote: post #174

Earlier quoted context omitted.

“Full health coverage” according to all my EU and especially British friends I would still be on a waitlist for a surgery I had 2+ years ago.

I’ve waited longer for basic treatment in the US than I did anywhere else in the world and still paid exponentially more. And all that extra time and money got me was people saying “You should be glad it isn’t socialized health care!” Yeah. If it were, I would’ve gotten treated faster and cheaper.

Both of these things are true. I don’t want to fully derail the larger discussion, but having lived in both EU and US and used healthcare in both, basic care is significantly better in the EU than the US on nearly every facet. The exact reverse is true for specialized care.
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