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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

#391

Post by sass_muffin »

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.

The thing is I don't think it is bold at all. Housing being overvalued seems perfectly obvious consequence of negative or near-zero interest rates. One side effect of those policies is that the mortgage rates were artificially lowered.

A lot of people buying houses unfortunately don't really look at aggregate home ownership cost and focus (incorrectly) on monthly payments. So, because they can afford the monthly payment, they think they can afford the house. This of course works works until the music stops.

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

#392

Post by cycrutchfield »

turtledove wrote: post #380
pj_mukh wrote: post #361

Earlier quoted context omitted.

I really think most of the solution is in the first part of your plan. There’s no need to micromanage tenant-landlord relationships or setup governmental panels on who historically deserves to live where, if the government can just make sure there is an oversupply of decent housing at all affordability levels. The rest really takes care of itself at that point.

Hundred percent. I have a personal ethos that believes profit from rent is amoral, but we could probably address housing concerns without meeting my personal ethics standards, which I freely admit are more extreme than most.

“profit from rent is amoral”. Care to elaborate on this? Does this ethical standard also extend to other human needs as well? For instance should farmers not be able to profit from providing food?

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

#393

Post by turtledove »

notch656a wrote: post #377
turtledove wrote: post #367

Earlier quoted context omitted.

The government would pay to do it. Or there would be taxes or rents paid to developers in accordance to the number of people housed x the quality of the housing. Or people like me would rent units because housing is important, and rent their space at cost. We can choose to pay for housing for everyone, we just have to adjust the formulas we use to decide who benefits.

>The government would pay to do it. That's just a loopback to where you started. When government pays, you pay.

Yes. And also no.

Today, if I cannot pay, I get no housing. Taxes allow us, as a community, to decide that we should all chip in a little bit extra (commensurate to our means) to make sure everyone has a roof over their heads.

Also, government operated facilities do not have a profit motive, so there's less incentive to maximize the cost of housing.

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

#394

Post by AngryData »

EVa5I7bHFq9mnYK wrote: post #277
trgn wrote: post #271

Earlier quoted context omitted.

The US is rotating from housing as commodity investment to housing as intergenerational asset, something which has happened in a lot of other countries already (see e.g. Western Europe, mentioned in other comments here). House prices will remain up because any gain from sale will be plowed into the next home. It's a ratchet upward. Higher mortgage rates are somewhat irrelevant in this dynamic, because the home itself…

Houses in the US couldn't serve as intergenerational asset simply because they are built of wood with average livespan of ~70 years. While in Europe houses are generally build of brick or cement and last centuries.

A decently built wood home will last centuries too if it is maintained.

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

#395

Post by piotrkaminski »

turtledove wrote: post #385
5ersi wrote: post #371

Earlier quoted context omitted.

Nobody "decided" that housing is a market. If something can be bought and sold, then this is inherently a market. Yes, we can and should regulate markets, and we probably all agree that the purpose of the housing is for people to have a roof over their head, as opposed to use housing as an (speculative) investment market. This can easily be regulated via taxes (on ownership and transactions), but it comes with a cave…

I buy electricity from a monopoly provider in my area, run the government. Is that a market? I buy sewer and garbage service likewise. There are some commodities we choose to operate as natural monopolies because competition and profit seeking leads to bad outcomes for society. My argument is fundamentally that housing is the same.

Housing is very, very far from being a commodity.

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

#396

Post by closeparen »

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…

The ultimate endpoints of personal wealth are… home equity itself (down payments) and cash flow (retirement). There are also major purchases like college but compared to housing they’re pretty small. A fancy private education costs just 10% ($250k) of a decent 3BR in a walkable neighborhood ($2.5m).

It seems like home equity is actually a pretty safe and efficient form of cash flow. Even with a cheap mortgage, the payments I need to make each year are about 5% of the principal, which is of course more than the standard 3-4% safe withdrawal rate for investment. The mortgage interest deduction is relevant, but the mortgage is also the reason I would need to realize so much taxable income in the first place. There are no taxes on imputed rent or home equity. Living in a paid off home, you can appear to the income tax system and even some means-tested programs (those that consider income not wealth) as a pauper.

Because housing so dwarfs all other expenses, it is not clear to me why growing my principal at the expense of housing-sized cash flow would be a good tradeoff.

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

#397

Post by nivenkos »

turtledove wrote: post #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)…

A more practical solution is housing coops like the BRF system in Sweden. Individual landlordism is mostly banned (there are some company rentals though) - you buy the place you live in, and there are restrictions on renting it out (no more than 2 years in a row, etc.).

It's helped a lot here.

I don't think that social housing is a good solution. It's a complete disaster here in Sweden, with 12+ year waiting times, and massive inequality between those who have those rent-fixed privileged first hand contracts and those stuck in the unregulated wild west of second hand renting. Often resulting in the working poor effectively subsidising wealthier, older people to keep their very cheap flats in the city centre, etc.

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

#398

Post by qeternity »

turtledove wrote: post #385
5ersi wrote: post #371

Earlier quoted context omitted.

Nobody "decided" that housing is a market. If something can be bought and sold, then this is inherently a market. Yes, we can and should regulate markets, and we probably all agree that the purpose of the housing is for people to have a roof over their head, as opposed to use housing as an (speculative) investment market. This can easily be regulated via taxes (on ownership and transactions), but it comes with a cave…

I buy electricity from a monopoly provider in my area, run the government. Is that a market? I buy sewer and garbage service likewise. There are some commodities we choose to operate as natural monopolies because competition and profit seeking leads to bad outcomes for society. My argument is fundamentally that housing is the same.

> we choose to operate as natural monopolies

No, not at all. We don’t choose natural monopolies. We recognize them. The whole point is they are naturally occurring whether we want them or not. Housing shares nothing in common with the other services you mention which are anything but commodities!

The natural monopoly of the electrical company isn’t electricity, it’s distribution. Power is a commodity, and delivery is anything but.

Your argument that housing is the same is not well informed.

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

#399

Post by jrumbut »

HWR_14 wrote: post #292
jrumbut wrote: post #244

Earlier quoted context omitted.

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…

Thanks for the paper. I understand the NIMBY-ism. I do wonder how much people care about the value of their house going up if they don't plan to sell soon. There are advantages to your home being less valuable and the only disadvantages come if you want to leverage your home more, refinance (not likely with rates going up) or sell it.

If they didn't care except when they were selling, that makes the effect of them being more consistent voters on zoning issues hard to explain.

I think this idea of wanting your house price to be low to avoid property taxes then suddenly increase the value when it's time to sell is like the idea of having your employer pay a trust so you can collect food stamps 11 months of the year then the trust pays you all your money in December.

It might be possible and it wouldn't shock me if a few people do it but it's not the normal approach.

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

#400

Post by epistasis »

adam_arthur wrote: post #342
epistasis wrote: post #154

Earlier quoted context omitted.

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

Population may have flattened, but a toooooon of people were looking to move suddenly to new areas, which is another way that scarcity is created.

Your chart is the number of units under construction, but that high number doesn't translate into more new homes than ever before, because completions have been massively delayed. So there's a lot of homes sitting half finished as they wait for supply chain crunch's to resolve. And to compare this to numbers from the 80s means normalizing for length of construction, something which is getting delayed more and more.

Overall, construction has massively constructed since 2008, and even before that it had been trending down for a long time.

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