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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

#341

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.

Overvalued is a fundamentals statement.

It is not a prediction on future prices.

If someone buys an asset for $100B that yields one penny per year with no growth - it is safe to say it's overvalued / a speculative investment. It does not mean that someone won't buy it for $200B tomorrow.

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

#342

Earlier quoted context omitted.

> 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…

Population of the US is effectively flat over the last two years. In California it actually declined.

And new home construction is at an all time high.

Scarcity of inventory is not at all the same thing as scarcity of housing. This has been a powerful narrative in driving FOMO buyers though.

https://fred.stlouisfed.org/series/UNDCONTSA

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

#343

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?

This comes up a lot. But it's wrong, or at least incomplete. People who want to live in their house don't want the value of that house to go up, because then their taxes go up.

How many people in this day have actually decided "Hey, I want to be in this one house for the rest of my life."; moreover how many are actually presented with that option? I live in a boom town so I can't really say one way or another, but it strikes me that very few people born of recent generations have the impetus or place enough faith in the systems they're reliant on to yield the security necessary for that sort of commitment - and it's not a new development, and it's not necessarily specific to my locale, but is rather a shift in principals of business and government.

So while I understand your argument I'm reticent to accept it on the basis of the concerns mentioned above. Settling down permanently is not the same proposition it was fifty years ago. My grandma grew up in Denver, the rapidity that it grew with was apparently astounding and that growth drastically altered the culture and the landscape, what were once dirt roads are now median-divided 3-lanes with cookie cut houses lining them as far as the eye can see. If you can imagine not wanting to live there with the rapidly accelerating growth and the headaches that come with it, you're not alone.

There are also economic concerns, which can be highly unpredictable, and these are considerations I'm sensitive to. I've watched commodity fluxuations result in massive layoffs time and time again. When given the requisite information to make a decision on whether or not to sell, it's plain to see that it's a benefit to have pricing steadily increasing, whether it's to avoid the wave of sells when an industry reels back or shutters, or when one is intent on moving to greener pastures, or at least a better home in a more agreeable neighborhood.

I'd pay taxes which, given the parent statements terms, would roughly equivocate them with asset price insurance before I stuck my neck out to get burned or blown up.

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

#344

Earlier quoted context omitted.

I think it is clear that the parent is using home-ownership to include land-ownership.

Don’t know how it is in most of Europe, but I think that, in the UK, you don’t actually own the land your house sits on; Lord Such-and-Such owns it, and collects rent from you. In the US, we own the land, and that is usually the real value. I’m the proud owner of a 0.125-acre New York postage stamp. It’s in a fairly affluent area, so is fairly valuable. In Wyoming, they’d laugh at it. I think Japan is similar.

That is not correct.

In the UK, there is a concept of Freehold and Leasehold. In the former case you own the land under and everything built on it. In most of the country you buy the Freehold.

The Leasehold gives you ownership of the building but not the land under it. You lease the land from the owner. I've personally considered this form of "ownership" a trap. It has become more common in recent years as a way for sellers to screw buyers. Particular in the London area where demand is always extra high.

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

#345
The sooner we collectively decide that housing shouldn't be a market, the better. We all need it, and we should figure out mechanisms to make it available to all.

Practically that means paying to build and maintain housing stocks, changing tax incentives so developers are incentivized to build more housing and less luxury housing, charging a premium for unused land in desirable areas (parking lots don't house people), abolish mandatory minimum parking, and upzone neighborhoods (eliminating the "single family home" neighborhoods as a zoning type.)

I'm also of the much more radical opinion that we should protect tenants over landlords in nearly every case, that we should protect the rights of people to live where they've historically lived (eg, one shouldn't be "priced out" of the home they've lived in for 20 years), and we should offer extensive public housing (built as many geographically distributed small apartment buildings and 5 over 1s, not giant tenements or projects.)

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

#346

Earlier quoted context omitted.

In the US, you pay about 6.5-7%. You pay 5.5 to 6% to the two agents (buyer and seller agents) and about 1% in closing costs (title insurance, etc). It has always seemed wildly inefficient to me. Especially the “buyer agent” who gets a couple percent entirely for escorting the buyer through homes and submitting an offer.

The buyer’s agent might show someone dozens of properties all around town and not get a sale. The seller’s agent has it much easier: an almost guaranteed sale, and for what effort? They just hire a photographer, help choose a listing price, and maybe do one open house. I’d rather be a seller’s agent any day.

My buyer’s agent could be replaced by giving me access to MLS and lockboxes.

My seller’s agent, on the other hand, was super useful and irreplaceable except by another smart human. I felt like he got us top dollar for the house based on how he renovated, staged, photographed… much more money than we expected.

Also, my experience was I set a budget, put my stuff in truck, left my house a dirty mess, handed the agent my keys, and left town. Then he did all the renovating/etc, posted it, collected offers, and we got paid.

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

#347

Earlier quoted context omitted.

>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.

What does this mean, exactly? They do have the right to purchase on at fair market value for structure + land - it's just they can't afford it. The land is crazy expensive. I'm assuming "have one commissioned" is suggesting something about supply/zoning, but it's not clear to me what, exactly - if someone could afford to build or buy a house 3 miles from Dallas, should they also have the right to pay the same price t…

Fair is the key word. The present government enforced scarcity is neither a free nor a fair market. A free market lets participants take the economically optimal choice[0]. A fair market cannot require kowtowing to the arbitrary and capricious whims of a planning board.

Ergo I hold that the respective governments and their zoning/construction policies are trampling on the individual right to a fair market and worse are creating grotesque amount of economic inefficiency, and by extension social damage, in the process.

[0]Trivially: adding units to a lot to capitalize on a high price of land relative to materials + labor.

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

#348

Earlier quoted context omitted.

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.

Housing prices are high in places with construction because the places without construction are larger and are forcibly exporting demand. It’s all about supply.

It's not exactly all about supply and I talked about that in my original comment but maybe that needs clarification. Yes the prices are high because supply is limited, normally that would drive construction but because the prices are so extremely high and interest rates so low almost everyone has to buy housing with credit. One of the many problems with this is that lenders get to be picky about what exactly people are allowed to buy and one of the things they don't like is people financing new construction. The result is people who could otherwise afford to construct new housing (and construct it in more efficient ways) for themselves in less populated places being forced to compete for the already short supply.

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

#349

The sooner we collectively decide that housing shouldn't be a market, the better. We all need it, and we should figure out mechanisms to make it available to all. Practically that means paying to build and maintain housing stocks, changing tax incentives so developers are incentivized to build more housing and less luxury housing, charging a premium for unused land in desirable areas (parking lots don't house people)…

"Nearly every case" is very wishy washy, I assume you have some specifics, what about trashing a property, who absorbs that cost?

Living where one has historically lived is interesting, take London - you're implying it should be a birth right for natives - what about the immigrant flow into such cities, how would you reconcile the "right of natives" with human capital?

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

#350

The sooner we collectively decide that housing shouldn't be a market, the better. We all need it, and we should figure out mechanisms to make it available to all. Practically that means paying to build and maintain housing stocks, changing tax incentives so developers are incentivized to build more housing and less luxury housing, charging a premium for unused land in desirable areas (parking lots don't house people)…

Why on earth would anybody build apartments or rent out property under your scheme?
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