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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

#241

Post by scarface74 »

spoonjim wrote: post #26
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.

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.

You’re assuming that the people who buy house in an area work in the area. People who are able to work remotely statistically have jobs that pay more. They can live anywhere. A $700K house is a steal for even a mid level person working at BigTech who use to live on the west coast.

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

#242

Post by tmnvix »

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.

Cheap and easy credit has driven house prices up with people continuing to pay very large sums only because they anticipate capital gains. Many buyers just want a home but wouldn't pay these prices if capital gains were out of the question.

If we reach debt saturation due to higher interest rates or some other economic shock then capital gains are not so certain. In that situation it would be a wondrous trick for prices to somehow 'levitate' and not fall.

With investors and home buyers no longer anticipating capital gains - even anticipating falls - what sets the price?

I would say two things. For investors, the income potential of the asset - in this case rent. For home buyers, the cost of servicing a loan relative to the cost of renting (with a markup to account for the additional benefits of ownership over renting).

What are interest rates now? What were they two years ago (pre-covid)? Price falls are likely to take us back to where we were when we had similar interest rates, perhaps further if sentiment shifts enough.

In NZ this is playing out now. 20% down in Auckland city already. That happened within a few months of the peak. 30% would take us to pre-covid prices, but interest rates are likely to reach higher levels than they were then. How long they stay elevated is the million dollar question. Regardless, I think we'll see falls somewhere between 30-50% in NZ in an astonishingly short amount of time. Ireland saw -50% over five years, but that was with the support of global QE and falling rates.

EDIT: Of course we just don't know what central banks and politicians will cook up to try to kick this one down the road again. Thankfully, the correction looks almost inevitable this time. Perhaps inflation is the answer - as unpalatable as it is?

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

#243

Post by seoaeu »

rdtwo wrote: post #172
mberning wrote: post #65

In my city, 10 years ago, a nice starter home was around 150k. Now you can’t buy a dump for less than 200k. And those same nice starter homes are 250k+. It’s not hard to imagine why. People flipping burgers can easily make 40k per year now just in base pay. A single person working an incredibly low end job now makes enough money to get approved for nearly 200k loan.

I can’t tear down my house and build a decent 2500sq foot house for under 800k in Seattle. Cost of building and permits is a huge factor not just land

It is also a vicious cycle. If you want to hire construction workers in a place like Seattle, you have to pay them enough so they can live in the area.

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

#244

Post by jrumbut »

HWR_14 wrote: post #207
bradleyjg wrote: post #163

Earlier quoted context omitted.

A majority of consistent voters own homes and want house prices to increase. That means most politicians want house prices to increase. The government dominates all aspects of residential lending. What’s the smart bet on what will happen?

> A majority of consistent voters own homes and want house prices to increase. Are there actually data that say that? I'd only expect data to exist on the first half, but there may also be data (as opposed to a fairly good supposition) from the second.

If we ignore the word majority (since that will vary by jurisdiction I'm sure) and say that homeowners are more likely to vote and pay particular attention to issues that affect their home's price then this recent paper does provide some support: https://www.andrewbenjaminhall.com/homeowner.pdf

I'll say from personal experience, it does change your perspective. If a sewage treatment plant moves in next door, I can't move like a renter can. It's a feeling of real vulnerability that I didn't fully understand until I felt it.

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

#245

Post by anm89 »

jjcon wrote: post #44
adamomada wrote: post #23

I picture that vertical M2 supply graph from March 2020 whenever I hear ‘overvalued’ when it comes to real assets. The money has changed, not the property. I’m now curious how undervalued it really is and what a huge accounting trick it was to play on everyone over the past two years.

Its because they changed the definition of m2 in may 2020 not because anything fundamentally changed - not sure why people keep thinking this. >Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2…

Are You trying to argue that nothing happened in 2020 that caused us to increase the money supply?? We did 4 trillion in stimulus while doing the hardest quantitative easing we have ever done.

You are unbelievably far off base.

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

#246

Post by frosted-flakes »

pcmoney wrote: post #174
oicU00 wrote: post #170

Earlier quoted context omitted.

Don’t forget to mention they still have full health coverage in the EU. It’s not possible to afford housing or robust healthcare in the US. Keep in mind there’s no rule we have to tolerate either. Imagine being a teenager in the US, having just seen how essential workers are treated, knowing in all likelihood your future is an “essential worker”. Then watch Congress scapegoat Facebook.

“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.

Non-essential surgeries tend to have longer wait times (such as hip replacements in elderly people), but conversely, essential care is accessible to everyone at no cost and in a timely manner.

I live in Canada, and recently had appendicitis. My appendix was removed less than 24 hours after symptoms began, and 10-12 hours after I arrived at the hospital. I walked in to the ER (after a very painful car ride), they asked me some questions and gave them my health card, they said how much, I said 7, they did blood tests and I had a CT scan, I waited a few hours, and then I was wheeled up to the operating room, after which I spent the night in the hospital and discharged the following morning. Not once did the question of insurance or payment come up, and I even had a private room after the surgery.

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

#247

Post by selectodude »

babyshake wrote: post #234
sidlls wrote: post #151

Earlier quoted context omitted.

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 i…

> 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) Plenty of middle class people bought nice homes they could afford in the bay area in the 90s. Although I suppose you could consider this "luck".

Or a different definition of “middle class”.

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

#248

Post by throw123123123 »

usrn wrote: post #177
nemo44x wrote: post #43

Where I live, in an affluent town on the east coast, homes have been going for 50%+ over ask. And the asks were high. Something is broken. Homes that wound have been listed at $1,000,000 in 2019 are going for $1.750,000 today. Interest rates going up should cool it off but I fear it will break much of the rest of the economy. There was a massive mismatch in executive policy and fed policy and here we are.

High immigration + no construction -> High demand + low supply. Then on top of that you have record inflation with stagnant wages. The market is being completely rational. What "overvalued" here means is "are homes expensive compared to local wages" not "are homes irrationally expensive." Normally this would drive construction but the market is distorted by credit such that new construction is less economical (a resu…

US immigration is cratering, it's a national crisis nobody cares about.

The supply constraint is old but its not why housing is high - housing prices are high even in places where there is a lot of construction. Monetary policy explains it a lot better, and it predicts that at some point the trend will reverse.

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

#249

Post by asdff »

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.

OTOH not everyone is crazy and not everyone is participating in this market. The only people playing are those who can afford to pay at these prices. Huge numbers of people are sidelined and can't afford to even put in an offer. IMO either those people on the sidelines manage to save or generate enough to jump into play or prices fall to meet the buyers when there are simply no more high income people who can pay those prices within a given local market, since high income people are ultimately a finite entity given how there are a few and finite amount of high income jobs in a given market to support these payments. Even with remote work shifting that regional effect some, I can't imagine there are enough people migrating to cause crazy long term effects outside of already supply constrained popular places (like Tahoe/other skiing etc).

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

#250

Post by scarface74 »

throw123123123 wrote: post #237
ryanSrich wrote: post #197

Earlier quoted context omitted.

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.

Have you checked your portfolio lately?

Yes, and that’s even more of a reason to be putting extra money into the market if you have a ten year+ time horizon.
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