Finally, even though the market is functioning normally with no significant supply or demand problems, that doesn't mean housing prices and mortgage rates are affordable (https://www.statista.com/statistics/201568/change-in-the-composite-us-housing-affordability-index-since-1975/) or sustainable. This is not to say housing is a bargain or that anyone should make a buy decision just because of a lack of marketplace problems.
If prices were high due to a problem with the market, such as a supply/demand imbalance, then we could say prices are fair, being set by market forces, and likely sustainable over the next couple of years.Finally, even though the market is functioning normally with no significant supply or demand problems, that doesn't mean housing prices and mortgage rates are affordable (https://www.statista.com/statistics/201568/change-in-the-composite-us-housing-affordability-index-since-1975/) or sustainable. This is not to say housing is a bargain or that anyone should make a buy decision just because of a lack of marketplace problems.
I think we need to start this discussion by agreeing on what the term "housing crisis" even means. You seem to place great weight on whether the market is "functioning normally," while affordability is more of a minor caveat.
I take a different view. I believe affordability defines the crisis. Housing is not merely an investment, but a basic human need. If people are having a harder time affording basic housing than their parents did, that's a problem. If people in many places feel the need to relocate far away from friends and family because they lack the earning power to afford decent housing anywhere near where they grew up, that's an even bigger problem.
I agree with you that supply relative to demand are in normal ranges compared to historical averages, but in my mind that's a relatively minor factor in terms of whether we have a "crisis." Let's not forget that demand itself depends heavily on prices...
So the specific diagnosis matters a lot to our concept of what happens next. Extreme prices for a basic human need are problematic from a humanitarian point of view, but that doesn't mean prices can't stay high; lots of places have had unaffordable housing for a very long time. Bubbles though, tend to pop.
Crushing supply shortages in specific markets that are culturally and economically influential mean that there's a lot of noise about the problem in the media, while people living in "poor and backwards" places (as you yourself describe it) wonder what the hell us city snobs are complaining about, because there are plenty of cheap houses near you.In 2004-2007, housing prices in my poor and backward place grew at their typical 2-3% pace, basically keeping track with inflation and in alignment with construction costs. The housing bubble was a phenomenon of coastal places and, oddly, Las Vegas, Nevada. We all thought it was a little crazy people were getting into bidding wars over $500k tract homes in the desert, when wages in such places were only 5-15% higher than poor and backward places where those same houses could be had for $160k.
All the while, affluent people who can afford it are increasingly living in smaller households (https://www.census.gov/library/stories/2023/06/more-than-a-quarter-all-households-have-one-person.html), meaning a smaller proportion of the population taking up a larger piece of the pie in these supply-constrained markets. ... that's the change toward increasing demand of housing-per-person, as affluent young professionals are increasingly living alone (delaying or foregoing marriage), fertility rates are dropping, and empty-nesters are living longer, leading to more smaller households.I agree 100% on this point. People aren't living in large family structures anymore; they're living solo or as DINK couples. This means more houses are needed to shelter the same population.
And to note an additional pet peeve: your first two points are entirely focused on home sales. Looking at the housing market specifically through the lens of home ownership is to look at a portion of the market comprised only of more affluent people, and then say, "yep, everything looks fine!" To understand the harm caused by the housing crisis, we need to be looking at renters, young adults living with their parents, homeless people... All these people are excluded from just looking at data on home sales and ownership.It has always been the case that affluent people are more likely to be homeowners than poor people. Even in LCOL areas where $20k can be a 20% down payment and owning is much cheaper than renting, the bottom third of the income spectrum can't raise those funds. On the flipside, in HCOL areas it is usually cheaper on a cash basis to rent rather than to be house-poor. We can't frame people's lack of home ownership as a problem if it is the option which makes the most financial sense in their circumstances. We also can't say there's a crisis where nobody can be a homeowner when the homeownership rate is in line with historical norms.
Crushing supply shortages in specific markets that are culturally and economically influential mean that there's a lot of noise about the problem in the media, while people living in "poor and backwards" places (as you yourself describe it) wonder what the hell us city snobs are complaining about, because there are plenty of cheap houses near you....
So the issue is none of the usual explanations work for why housing prices in poor/backward places have increased to unaffordable levels just like they've done in big cities. Mortgage rates (https://fred.stlouisfed.org/series/MORTGAGE30US) between 4% and 4.5% were available from 2010 to 2019 and did not lead to rapid appreciation during those times. When rates approached 3% in 2020-2021 payments didn't change by all that much but prices took off. More importantly, 2020-2022 was when households started receiving stimulus payments - which go a lot further toward a down payment in a LCOL area.
All the while, affluent people who can afford it are increasingly living in smaller households (https://www.census.gov/library/stories/2023/06/more-than-a-quarter-all-households-have-one-person.html), meaning a smaller proportion of the population taking up a larger piece of the pie in these supply-constrained markets. ... that's the change toward increasing demand of housing-per-person, as affluent young professionals are increasingly living alone (delaying or foregoing marriage), fertility rates are dropping, and empty-nesters are living longer, leading to more smaller households.
I agree 100% on this point. People aren't living in large family structures anymore; they're living solo or as DINK couples. This means more houses are needed to shelter the same population.
However, I am reluctant to call this voluntary/cultural behavior a supply shortage, because basically people are choosing to live this way and housing prices are not high enough to convince them to move in with roommates, lovers, or as parent-child households. This is not at all like the residents of a post-earthquake city scrambling to rent the few undamaged apartments, it's more like millions of people competing to buy themselves the luxury of a 4BR house on a half acre lot all to themselves, because that's the desired lifestyle at the moment.
I 100% am in agreement with the bolded. There are a lot of people living comfortably as renters in places where purchase prices are out of whack and renting makes way more financial sense, who are endlessly moaning that they'll never be able to afford a home in their market. Those people have cultural sway and make a lot of noise, but their whining does not equal a crisis. I'm not saying that people renting instead of owning equals a crisis. I'm simply saying that "home ownership rates are steady" is basically an irrelevant statement as to whether or not there is a humanitarian crisis that is being shouldered by a subset of non-owners who are less affluent.QuoteAnd to note an additional pet peeve: your first two points are entirely focused on home sales. Looking at the housing market specifically through the lens of home ownership is to look at a portion of the market comprised only of more affluent people, and then say, "yep, everything looks fine!" To understand the harm caused by the housing crisis, we need to be looking at renters, young adults living with their parents, homeless people... All these people are excluded from just looking at data on home sales and ownership.It has always been the case that affluent people are more likely to be homeowners than poor people. Even in LCOL areas where $20k can be a 20% down payment and owning is much cheaper than renting, the bottom third of the income spectrum can't raise those funds. On the flipside, in HCOL areas it is usually cheaper on a cash basis to rent rather than to be house-poor. We can't frame people's lack of home ownership as a problem if it is the option which makes the most financial sense in their circumstances. We also can't say there's a crisis where nobody can be a homeowner when the homeownership rate is in line with historical norms.
That said, declining affordability of both the own or rent options is a problem causing lots of suffering. We could ignore the affordability problem in 2005-2007 when it was limited to parts of the country where real estate speculation was rife. We could say people seeking affordable housing should just move elsewhere where the classic advice to spend <30% of net earnings on housing could be applied. Now, however, even the decidedly un-trendy places are becoming unaffordable, despite most supply-demand metrics being within historical norms. It simply can't be true that everywhere is trendy now, or that everywhere has a housing shortage. It's more likely IMO that prices in HCOL and LCOL places have yet to adjust to a new reality of 7.6% mortgage rates and the stimulus money all being spent.
[In 2004-2007, housing prices in my poor and backward place grew at their typical 2-3% pace, basically keeping track with inflation and in alignment with construction costs. The housing bubble was a phenomenon of coastal places and, oddly, Las Vegas, Nevada. We all thought it was a little crazy people were getting into bidding wars over $500k tract homes in the desert, when wages in such places were only 5-15% higher than poor and backward places where those same houses could be had for $160k.I'm not sure how how well you recall the 2000's housing bubble. It was not a coastal phenomenon, it was a true growth bubble centered on places with high historic and recent population growth rates. Those places did happen to be sun belt locations, and Arizona, Nevada, Florida, and California were the worst hit. Las Vegas of course was the poster child for this. It is not an exaggeration to say that as of 2005 the population of Las Vegas valley had on average doubled every decade since George Washington was president (Well maybe a little bit, perhaps the population then was 10 rather than 1. But it is an understatement to say it had on average doubled every decade since the Civil War). Looking at that trend, people of the time assumed that trees would grow to the sky and that housing for 2,000,000 more people would be needed in Las Vegas by 2015. Based on that assumed trajectory, reinforced by the past few years price increases, there was an obvious looming housing shortfall which would inevitably see prices quadruple, and everyone was rushing to build and buy housing before that happened. Then it turned out trees don't grow to the sky and the exponential trajectory was not sustained, and the bubble popped. Las Vegas is still 100,000's more populous now than then, but it did not double twice since then as had been the flawed assumption. And similar for the other places in the bubble. The bubble generally existed in proportion to trailing population growth trends.
This is where using supply-and-demand logic to explain house prices gets awkward. Vast differences in price open up over time and over seemingly minor nuances in location. Houses clear the market within a few months in either kind of place, seeming to contradict the "low demand / high demand" labels. But we have to make supply and demand theory fit the price data so we say price changes must be because demand shifted, and then we're casting about for explanations for why demand for housing would shift so dramatically since 2020 when the population, housing supply, and ownership rate didn't change so dramatically in that time.I would suppose the difference in prices in lower demand markets in 2020-2021 comes largely from the availability of remote work and the generational timing of Boomer retirements. Even if the population isn't growing, the equilibrium shuffle could be bringing in more people with money from other places? Or could be a portion of the housing supply being transferred from the ownership market to the rental market? I will admit my perspective is highly biased towards the high-demand markets I've lived in for the last few years.Crushing supply shortages in specific markets that are culturally and economically influential mean that there's a lot of noise about the problem in the media, while people living in "poor and backwards" places (as you yourself describe it) wonder what the hell us city snobs are complaining about, because there are plenty of cheap houses near you....
So the issue is none of the usual explanations work for why housing prices in poor/backward places have increased to unaffordable levels just like they've done in big cities. Mortgage rates (https://fred.stlouisfed.org/series/MORTGAGE30US) between 4% and 4.5% were available from 2010 to 2019 and did not lead to rapid appreciation during those times. When rates approached 3% in 2020-2021 payments didn't change by all that much but prices took off. More importantly, 2020-2022 was when households started receiving stimulus payments - which go a lot further toward a down payment in a LCOL area.
It may be true in a moral sense that housing policy should not unduly burden the poor, and it may be true that *we ought to* build smaller and more affordable housing, but we cannot explain facts about the actual supply, demand, and prices with moral statements. Prices aren't high because they ought not to be and they won't necessarily go up or down because they should. The only should statements we can make might be in the form of advice, such as "you should refuse to buy or rent a home for >30% of income if you want to be financially stable".QuoteAll the while, affluent people who can afford it are increasingly living in smaller households (https://www.census.gov/library/stories/2023/06/more-than-a-quarter-all-households-have-one-person.html), meaning a smaller proportion of the population taking up a larger piece of the pie in these supply-constrained markets. ... that's the change toward increasing demand of housing-per-person, as affluent young professionals are increasingly living alone (delaying or foregoing marriage), fertility rates are dropping, and empty-nesters are living longer, leading to more smaller households.
I agree 100% on this point. People aren't living in large family structures anymore; they're living solo or as DINK couples. This means more houses are needed to shelter the same population.
However, I am reluctant to call this voluntary/cultural behavior a supply shortage, because basically people are choosing to live this way and housing prices are not high enough to convince them to move in with roommates, lovers, or as parent-child households. This is not at all like the residents of a post-earthquake city scrambling to rent the few undamaged apartments, it's more like millions of people competing to buy themselves the luxury of a 4BR house on a half acre lot all to themselves, because that's the desired lifestyle at the moment.
I would say we need to understand this by looking at separate segments of the market. Yes, the preference for smaller households is merely a preference, not a humanitarian crisis. Middle class people not having as much house as they wish they had is not a crisis. But the fact is, a lot of affluent people are able to afford this preference, which eats up a larger quantity of housing and leaves less supply remaining for the lower end of the distribution.
If, as a silly hypothetical, rich people started eating way way more food, leading to rising prices and poorer people going hungry, we would make it a priority to produce more food so poor people don't go hungry.
What should we expect the White House to say?I 100% am in agreement with the bolded. There are a lot of people living comfortably as renters in places where purchase prices are out of whack and renting makes way more financial sense, who are endlessly moaning that they'll never be able to afford a home in their market. Those people have cultural sway and make a lot of noise, but their whining does not equal a crisis. I'm not saying that people renting instead of owning equals a crisis. I'm simply saying that "home ownership rates are steady" is basically an irrelevant statement as to whether or not there is a humanitarian crisis that is being shouldered by a subset of non-owners who are less affluent.QuoteAnd to note an additional pet peeve: your first two points are entirely focused on home sales. Looking at the housing market specifically through the lens of home ownership is to look at a portion of the market comprised only of more affluent people, and then say, "yep, everything looks fine!" To understand the harm caused by the housing crisis, we need to be looking at renters, young adults living with their parents, homeless people... All these people are excluded from just looking at data on home sales and ownership.It has always been the case that affluent people are more likely to be homeowners than poor people. Even in LCOL areas where $20k can be a 20% down payment and owning is much cheaper than renting, the bottom third of the income spectrum can't raise those funds. On the flipside, in HCOL areas it is usually cheaper on a cash basis to rent rather than to be house-poor. We can't frame people's lack of home ownership as a problem if it is the option which makes the most financial sense in their circumstances. We also can't say there's a crisis where nobody can be a homeowner when the homeownership rate is in line with historical norms.
That said, declining affordability of both the own or rent options is a problem causing lots of suffering. We could ignore the affordability problem in 2005-2007 when it was limited to parts of the country where real estate speculation was rife. We could say people seeking affordable housing should just move elsewhere where the classic advice to spend <30% of net earnings on housing could be applied. Now, however, even the decidedly un-trendy places are becoming unaffordable, despite most supply-demand metrics being within historical norms. It simply can't be true that everywhere is trendy now, or that everywhere has a housing shortage. It's more likely IMO that prices in HCOL and LCOL places have yet to adjust to a new reality of 7.6% mortgage rates and the stimulus money all being spent.
To say "X% of households could afford homeownership then, and X% can afford home ownership now" says nothing of the living conditions of the other half of the population. Look into those details, and you see some of them are doing great, living in luxury and rationally choosing renting as the better financial choice for their circumstances... and some are living in tents on the sidewalk.
As to the italicized, I must reiterate the data from that White House report I linked before: at a nationwide scale, housing construction has not kept up with population growth since 1970. That inherently points towards a supply shortfall over time, before we even consider the rising consumption of housing amongst the affluent. Before remote work and the mass wave of Boomer retirements, the shortage was more heavily localized in attractive job markets. Having an acute shortage in "elite" markets and an abundance of homes in less desirable markets kept it a localized problem, but in 21st century, local problems bubble over.
I remember people in the Portland area moaning about "those damn Californians moving here" my whole life. My parents were two of them, in the early '90s. As these expensive housing markets have pushed people out, most of the popular markets that absorbed those emigrants repeated the exact same policy mistakes that inhibited adequate housing construction*. Portland continued to spend the three decades complaining about traffic and rising rents, instead of just building enough damn housing to meet demand. California wasn't unique, it was just first.
Re: origins/causes of the affordability crisis. The US housing market is huge. There are obviously multiple factors.I think the recent run-ups of meme stocks and crypto assets suggest investment prices can rise beyond any fundamental explanation of supply, demand for shelter, or future prospects to deliver utility. People will buy into a thing at far above its fundamental value if they expect to be able to sell it to another investor for more money in the future. That is to say, there is value in playing musical chairs with hot investment trends because one can assume other market participants will join in chasing returns, and if one gets in and out quickly, one is unlikely to be the bag holder when the music stops.
1. Econ 101 is prices are impacted by supply and demand. Investments are no exception. Investments have inputs besides consumer utility, but but those other inputs are ultimately still impacting demand.
3. COVID stimulus payments probably did increase demand for housing. But I don't think it comes close to explaining the whole problem. Most households received a few thousand dollars in assistance, a small fraction of the runup in housing prices.But getting a few thousand dollars could make a big difference toward the 3%-6% down payments which are now common. For example, in 4Q2020 the median house price was $358,700. A 3% downpayment would be $10,761. A couple thousand dollars in stimulus checks or business loans could have accounted for a large percentage of that down payment. If you were looking for a $150k home in a LCOL area it would go even further, covering maybe half of a minimum down payment!
4. Interest rates. 100% For millennials and Gen Z, interest rates have been at historic lows for our entire adult lives. Many people think we'll return to those low rates, and we'll be able to refinance our previously unaffordable homes.Add this sort of mental anchoring to the reasons to gamble on a home one cannot afford. Even if you lose the bet and hold through a housing correction, that's probably the kind of year in which interest rates will fall and you'll be able to refinance.
Focusing on supply issues is attractive because it makes the problem tractable. Upzoning improves supply and lowers prices.I get the impression the no-doc loans of the mid-oughts were primarily used as a way to get sales done in HCOL places where people's wages were insufficient to qualify them for traditional loans at the prevailing high prices. The bubble didn't extend into LCOL areas because owning 3BR SFHs was less expensive than renting a 2BR apartment, and because affordability was so much better that financial gymnastics were unnecessary to qualify almost anyone with any kind of job for some kind of house. I.e. if you could afford an apartment, you could afford a house, so if you weren't already homeless, you could qualify with standard loan products. I put down 20% on a 1600sf SFH at the age of 23 while making $10 an hour!
If we attribute it to monetary policy, it's a dead-end. The Fed's mandate is inflation, not housing prices. And hoping for Congress to tackle inflation via deficit reduction seems like a pipe dream at this point.
The rise of remote/hybrid work should have a flattening effect, and it probably explains some of what you're seeing your location. If I'm from the Rust Belt, but moved to Silicon Valley for my career, I might be very happy to relocate back home for some sweet housing arbitrage. If I live and work in Big City, but now only have to go in two days a week, maybe I'm willing to commute from an exurb 75 minutes away.
Yes, Vegas is still growing (https://www.macrotrends.net/cities/23043/las-vegas/population). My understanding is a lot of priced-out Californians move there. But it's also a rebuttal of supply-and-residential demand theory.[In 2004-2007, housing prices in my poor and backward place grew at their typical 2-3% pace, basically keeping track with inflation and in alignment with construction costs. The housing bubble was a phenomenon of coastal places and, oddly, Las Vegas, Nevada. We all thought it was a little crazy people were getting into bidding wars over $500k tract homes in the desert, when wages in such places were only 5-15% higher than poor and backward places where those same houses could be had for $160k.I'm not sure how how well you recall the 2000's housing bubble. It was not a coastal phenomenon, it was a true growth bubble centered on places with high historic and recent population growth rates. Those places did happen to be sun belt locations, and Arizona, Nevada, Florida, and California were the worst hit. Las Vegas of course was the poster child for this. ...
There are far fewer hoops to jump through with the simpler bubble explanation, and plenty of anecdotal information - even in this forum - about people buying vacation homes in hopes of appreciation, rental homes in the hopes their kids will be able to inherit a place to live, duplexes and SFHs as investments/jobs, flipping, etc. As these tactics continue to work, more people pile into them.
It may be true in a moral sense that housing policy should not unduly burden the poor, and it may be true that *we ought to* build smaller and more affordable housing, but we cannot explain facts about the actual supply, demand, and prices with moral statements. Prices aren't high because they ought not to be and they won't necessarily go up or down because they should. The only should statements we can make might be in the form of advice, such as "you should refuse to buy or rent a home for >30% of income if you want to be financially stable".
What should we expect the White House to say?
"You Boomer suburbanites created this problem with your support for NIMBY policies, refusal to tackle social problems instead of sprawling away from them, opposition to mass transit, and racist/classist zoning and school funding policies. We want to change the rules so subsidized housing skyscrapers can go up in your neighborhood!"
That message would obviously go over like a lead balloon. So it's far easier for our leaders to say we've suddenly got a shortage because we under-built housing. Whose fault is that? Nobody's! Who has to change or give up something? Nobody! Whose house could potentially lose value because of political actions? Nobody's!
There's literally nobody who will vote or donate against a politician because they gave a sensible sounding supply and demand explanation. So guess what we'll get from both sides, alongside the usual culture war red meat?
I think we need to break out "demand for shelter" from "demand for speculative investments" because the former is part of the fundamental stuff some people are calling a crisis and the later is what's driving the possible bubble.
Meanwhile, California is also a rebuttal. The state lost over 400k people since 2019, probably hasn't lost 400k houses on net, and yet has seen skyrocketing prices since then. Again, the expected result from a strictly supply/demand perspective would be for a housing correction, or at least real stagnation. The exact opposite happened, so something else is at play.
All the while, affluent people who can afford it are increasingly living in smaller households (https://www.census.gov/library/stories/2023/06/more-than-a-quarter-all-households-have-one-person.html), meaning a smaller proportion of the population taking up a larger piece of the pie in these supply-constrained markets. ... that's the change toward increasing demand of housing-per-person, as affluent young professionals are increasingly living alone (delaying or foregoing marriage), fertility rates are dropping, and empty-nesters are living longer, leading to more smaller households.
I have to confess I don't even know what you're saying or what point you're trying to make anymore. You seem to simultaneously be saying there is and is not a bubble, and there is and is not a shortage, and if there is a bubble/shortage it is and is not a problem.Sorry for not being clear enough @Log but this is the essence of what I'm saying.
...QuoteI think we need to break out "demand for shelter" from "demand for speculative investments" because the former is part of the fundamental stuff some people are calling a crisis and the later is what's driving the possible bubble.
Here! You literally say it! So why all the pushback?
I have to confess I don't even know what you're saying or what point you're trying to make anymore. You seem to simultaneously be saying there is and is not a bubble, and there is and is not a shortage, and if there is a bubble/shortage it is and is not a problem.Sorry for not being clear enough @Log but this is the essence of what I'm saying.
...QuoteI think we need to break out "demand for shelter" from "demand for speculative investments" because the former is part of the fundamental stuff some people are calling a crisis and the later is what's driving the possible bubble.
Here! You literally say it! So why all the pushback?
Supply is well understood - it's the presence of physical houses on the market.
Demand has two components:
1) Fundamental Demand, from people who need to purchase or rent shelter for themselves.
2) Speculative Demand, from people who want to sell at a higher price to someone in the future, pocketing the difference.
A "Bubble" is an excess of Speculative Demand in the absence of an increase in Fundamental Demand or a decrease in Supply.
The tricky thing is determining whether an increase in Demand in general is due to Fundamental Demand or Speculative Demand. For some purchases, it is unclear what the motive was, and not all speculative purchases are by landlords. To illustrate: a single person might be buying a 4BR suburban house because they need a nice status-symbol place to live (Fundamental Demand) while at the same time expecting it to appreciate rapidly and increase their wealth even though it's more expensive than the 1BR apartment that would meet the need (Speculative Demand). Similarly, I would include FOMO purchases and purchases made out of fear of having to pay more later in Speculative Demand. So we can't just look at owner-occupied housing and say that's all Fundamental Demand.
As @roomtempmayo correctly notes, new households are formed based on when people have the money and households consolidate when they don't. I'll add that Speculative Demand could be creating households too (think of the FOMO experienced by those living in the parents' house, or renting), and pushing up the home ownership rate.
For the person in the example above, renting the 1BR apartment would have made more sense IF they didn't have beliefs and expectations about future homebuyers being willing to pay considerably more than 4BR suburban houses are selling for today. If they expected home prices to pace inflation, there'd be much less incentive to go out on a financial limb with a mortgage, or to put one's money into real estate instead of paper investments.
As noted, when enough people believe house prices will go up faster than inflation, Speculative Demand can create a self-fulfilling prophecy. As prices go up, more people become believers and develop Speculative Demand themselves. Thus people who wouldn't otherwise be homeowners become homeowners, people who wouldn't otherwise be landlords become landlords, people who wouldn't otherwise buy vacation properties buy vacation properties, and people who wouldn't otherwise move into a hot real estate market do so to get a piece of the gains.
Speculative Demand is juiced when buyers perceive they face favorable odds, as I noted earlier. The odds say you'll probably double or triple the value of your down payment in most years. In the unlikely event house prices crash, then you just quit paying the mortgage, squeeze out another year of rent or free housing until foreclosure happens. The most you can lose is 100% of your down payment in a non-recourse state, or realistically most recourse states. Ultra-low 6% or 3% down payment mortgages mean it is possible to obtain 17X or 33X leverage on something which usually goes up, and has recently been going way up! That's a rational gamble to take.
This is the anatomy of a real estate bubble and the source of Speculative Demand. Bubbles don't crash when beliefs change; they crash when the market for whatever it is inevitably runs out of new buyers, and then beliefs change in response to falling prices.
So housing like energy is never destroyed (unless a home is literally demolished) just changed from owner occupied to tenant occupied but you still have one family living in each unit so it doesn't effect demand/supply.
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I think your premise that there is an abnormal amount of speculation going on or that the speculation has abnormal effect on the housing market. Most truly speculative buyers are landlords and there is a shortage in rental homes available as well. So housing like energy is never destroyed (unless a home is literally demolished) just changed from owner occupied to tenant occupied but you still have one family living in each unit so it doesn't effect demand/supply. I think with prices and interest rates where they are, everyone is trying to live as efficiently with their living arrangements as possible. And everyone, literally every media source, person on the street thinks we are in a housing bubble and that these prices can't last, so I don't think anyone who doesn't have to is buying right now. I think that bubble is created by two things - lack of building because of high interest rates and high input costs, and the flood of money that has been pushed into the economy over the last 3 years. Its created the perfect storm to make housing out of reach for many families.
The media falsehood is that there's suddenly a Supply/Fundamental Demand Mismatch, when we have close to the same national population and number of houses as existed in early 2020.
What @roomtempmayo describes above (posted as I was typing) can simply be folded into increased demand (people living in more house per person), therefore exacerbating supply/demand mismatch. Public policy can't reasonably force empty-nesters to downsize if they don't want to, so that's still a form of supply shortage relative to demand. Even if you can count excess bedrooms on paper, if they're not available they don't count.
What @roomtempmayo describes above (posted as I was typing) can simply be folded into increased demand (people living in more house per person), therefore exacerbating supply/demand mismatch. Public policy can't reasonably force empty-nesters to downsize if they don't want to, so that's still a form of supply shortage relative to demand. Even if you can count excess bedrooms on paper, if they're not available they don't count.
But the problem here is that housing demand doesn't have a functional limit.
If the role of housing policy is to accommodate every person who wants their own door in the location they prefer, then Santa Cruz, Hilton Head, Palm Beach, etcetera could grow 10x overnight and still fall short.
The number of households and their locations is largely dictated by what people can afford, and many, maybe even most people, are priced out of their ideal.
It seems like the question isn't whether everyone can live where they want in an independent household, but rather how much we're willing to tolerate deviation from people's ideal situations.
and rates of young adults living with their parents unprecedented since the Great Depression, that’s a pretty big indicator we’ve gone too far.
I think you're equating two entirely different different media narratives. There are finance/real estate wonks saying the sale market is out of equilibrium with the rental market, and therefore sale prices have to fall. Then there's the housing economics/public policy wonks saying that there is a shortage, and we should pursue policies to address that shortage in order to bring prices down, across both the buy/sell market AND the rental market, for the good of society.But if the assumed supply shortage predates the last 3 years of froth, then why didn't the froth occur in earlier years? Was supply more sufficient in 2018 than in 2023? For example, in years when mortgage rates weren't 3.25% and people weren't receiving direct stimulus payments?
Yes, sale prices have gotten frothy/bubbly since 2020 relative to rents. But when that froth subsides, the equilibrium prices will still be high enough to continue causing social problems, and that high equilibrium price comes from a supply shortage that long predates the recent froth.
What @roomtempmayo describes above (posted as I was typing) can simply be folded into increased demand (people living in more house per person), therefore exacerbating supply/demand mismatch. Public policy can't reasonably force empty-nesters to downsize if they don't want to, so that's still a form of supply shortage relative to demand. Even if you can count excess bedrooms on paper, if they're not available they don't count.In a real estate economy run strictly by Supply and Fundamental Demand, supply shortages and high prices would prevent household formation. Young adults would stay with their parents for longer and more people would have roommates instead of empty bedrooms. That is to say, higher prices would be expected to reduce over-consumption behavior and reduce household formation. This would be lower Fundamental Demand. In a Supply / Fundamental Demand world, the issue corrects itself as Fundamental Demand is somewhat elastic to price. People take the option of not forming new households, and living with others instead. That reduction in Fundamental Demand drops the price until equilibrium is reached. That's how it's supposed to work when there's not so much Speculative Demand.
Right now in 2023, regardless of whats going on with sale prices and speculation, the rent is too damn high. Real estate investors are not holding some massive supply of vacant units - they are renting those units out, and yet the supply remains low enough that rents continue outpacing inflation.Rent is simply the cost of owning plus a profit for the owner. If the homes landlords buy go up in price, landlords must charge more in rent to offset their costs or opportunity costs and also generate an acceptable return on their investment. The LL's buying today have to charge rents commensurate with today's prices.
If anything defies the laws of supply and demand, it's this talk about under-building houses over the course of decades. Millions of people across generations would have to choose to miss out on enormous profits for that to happen.
I'm sure in places like San Francisco, it may seem like there are not enough houses because of local factors. But this cannot explain national statistics because anyone with a small down payment for a place in SF could probably pay cash for a house in most other places - places with plenty of jobs and opportunities. So it's really that buyers are trying to get into a "hot" market where they expect to leverage future growth. I.e. if they are going to buy one house and have one job in either place, why put down 6% on a $200k home in Kansas City when they could put down 6% on a $2M home in SF? If you expect your home equity to double in either place over the next year (i.e. a 6% house price increase would do it), wouldn't you rather double $120k instead of $12K? Seen through this speculative light, choosing the KC house is leaving money on the table. That seems true even if living in KC makes more sense from a wage/COL perspective, which it does.
Lots of financial media authors are writing dramatic headlines (https://www.msn.com/en-us/money/realestate/housing-market-crash-alert-this-indicator-just-waved-a-red-flag/ar-AA1iI9w6) about a collapse in the housing market or a shortage of houses - which would seem to be contradictory.That article's author doesn't mention a real estate background in their bio:
3) Housing Starts (https://fred.stlouisfed.org/series/HOUST#0) are at levels considered normal in the recent past. E.g. Annualized starts as of September 2023 were higher than they were from 2007 to 2018, than from 1989 to early 1993, and for periods of time in the booming 1960s. There was little to no talk about shortages during most of these timeframes.
And more importantly, nothing your OP mentions, even if true, refutes the claim your post was titled with.
The housing market could be "fine" from a fundamentals perspective and we could still have a housing crisis.
Because the "crisis" is the fact that housing, whether owned/renting, is increasingly unaffordable for many people. The rationality or health of the underlying market is a separate discussion that is related, but not causal.
Absolutely - and when the deviation from ideal includes rates of homelessness and rates of young adults living with their parents unprecedented since the Great Depression, that’s a pretty big indicator we’ve gone too far.
Yes, places with nice weather, cultural amenities, etc., will always be more expensive than places with shitty weather and no culture. But that’s no excuse to do nothing. There are issues of housing costs rising faster than wages even in less desirable places. And if we narrowed the gap somewhat in those cost differences, that would enable more people to live better lives.
I’m just not okay with accepting a fatalistic approach towards these problems. No, we’re not gonna create a utopia where everyone gets exactly what they wants and is happy forever. But we can sure as shit do better than this.
Ok the media hyped it up. That's how they get paid. Is the issue deserving of the hype? We can debate that.
Absolutely - and when the deviation from ideal includes rates of homelessness and rates of young adults living with their parents unprecedented since the Great Depression, that’s a pretty big indicator we’ve gone too far.
Yes, places with nice weather, cultural amenities, etc., will always be more expensive than places with shitty weather and no culture. But that’s no excuse to do nothing. There are issues of housing costs rising faster than wages even in less desirable places. And if we narrowed the gap somewhat in those cost differences, that would enable more people to live better lives.
I’m just not okay with accepting a fatalistic approach towards these problems. No, we’re not gonna create a utopia where everyone gets exactly what they wants and is happy forever. But we can sure as shit do better than this.
Great post. I haven't read all the posts in this thread, so forgive me if this has been discussed before but there is a widely quoted study on homelessness that came out a couple years ago that found out most homelessness can be explained by the ratio of income to rent.[1] The higher the ratio, the higher the homeless population. More specifically, there is an inflection point at about 32% at which point homelessness starts to sky rocket. Municipalities all across the country have different policies for how to deal with the homeless population, but the main problem is simply lack of affordable housing.
The solution is simple, but not easy: Build more units.
Good article from Pew about the decrease in inventory and affordability of houses in the US that lays the changes in the affordability of the housing market pretty clearly:[2]
[1] https://wp-tid.zillowstatic.com/3/Homelessness_InflectionPoints-27eb88.pdf
[2] https://www.pewresearch.org/short-reads/2022/03/23/key-facts-about-housing-affordability-in-the-u-s/
However, the people I encounter who want to talk about the housing "crisis" are mostly highly educated white people under the age of 35 who don't make a bundle of money and who are angsty that they personally can't really afford to live in the cool part of a superstar city. The "crisis" framing is a superstructure that makes sense of their personal problem - look, see, my problem is really part of a big problem. And then, one day, they decide they've had enough of that crisis and move to some uncool place where they can afford to live, and all of a sudden they stop talking about the crisis they previously gnashed their teeth over.
I suspect the media hype is largely due to the social overlap between reporters and the people who can't afford to live where they want.
Except - the NIMBY's who live nearby don't want it.
"Heavily taxed" will depend on the jurisdiction. But 5 or 10 times what is paid for a main residence, with no exemptions, should start to make a difference.
The remedy is greatly increasing taxes on underoccupied properties (empty homes, second homes, short-term rentals, etc. Essentially any home which is not someone's primary residence needs to be taxed very heavily.
Other related thoughts:That's a particularly egregious example, demonstrating minimal concern for the good of the community or its residents. When the value of an existing homeowner's asset consists of hundreds of thousands of dollars in speculative value, such homeowners risk losing it all if their area starts being seen as stodgy, if it stops attracting speculators, or if its appreciation curve is lower than other places. These NIMBYs are motivated to defend the value of their own speculations. That's why you only ever see NIMBYs defending already-trendy and expensive areas. I don't think such cartel tactics would work in places that aren't already at the high end of the market, like Amarillo TX, or Wichita KS, Jackson MS, or Fort Wayne IN. People in such places aren't motivated to fight against supply because their property values have a lot more to do with construction costs than Speculative Demand. To the extent NIMBY tactics work in HCOL areas, it is because new speculators see it working and place new bets on the most effective NIMBYs. There could be millions of affordable houses available in Ohio or Kentucky, but the money and attention and perceptions are going to flow to where the NIMBYs are best organized. It's a game, and the music stops when we run low on new speculators.
In my community, there is a proposed Continuing Care Community. It would provide various types of housing for older seniors. Those seniors would sell their homes to pay for a place in this community, freeing up homes for younger families. Those homes would be scattered across the region, so that schools would not be impacted. Also, these seniors would not be making multiple trips per day, as the community is all-inclusive. IMO, it's a win-win.
Except - the NIMBY's who live nearby don't want it. They utterly fail to grok the irony that nobody was in favor of their homes being built where they were forty years ago. It's worth noting that if this project falls through, they won't get what they want on property they don't own. CA's density laws have changed and the zoning of this property has updated to 7-17 (not a typo) homes per acre. Idiots.
Lots of financial media authors are writing dramatic headlines (https://www.msn.com/en-us/money/realestate/housing-market-crash-alert-this-indicator-just-waved-a-red-flag/ar-AA1iI9w6) about a collapse in the housing market or a shortage of houses - which would seem to be contradictory.That article's author doesn't mention a real estate background in their bio:
"Expertise: Stocks, Options, Precious metals, Bitcoin, Altcoins"
https://investorplace.com/author/davidmoadel/
Their article quotes another article, which then quotes source data. I tracked down the source data, which puts things in context:
"Despite the rise, the delinquency rate is still 71BPS below the level of pre-pandemic September 2019"
"At the national level, serious delinquencies (90+ days past due) rose by 7K to 455K, but remain 6.7% below September 2019 levels"
"While overall delinquencies have risen, the number of loans in active foreclosure fell to 214K in September, its lowest point since March 2022 and some 25% below 2019 pre-pandemic levels"
https://seekingalpha.com/pr/19506038-ice-first-look-monthly-mortgage-performance-delinquencies-rose-in-september-while-foreclosure?hasComeFromMpArticle=false
Does "delinquency ... below 2019 levels" sound like cause for alarm?
The dramatic article quoted monthly changes, while the source data compared against several prior years. That's one way to spot an alarming article - it does not put things in the larger context of several years.
Good critical thinking on both of your parts! These are two excellent summaries of the media hype: how crisis is an odd word to use when the home ownership percentage is up and delinquencies are down, and how a media story-telling narrative can win clicks by providing frustrated buyers with a "shortage" explanation for why they can't afford what they want - a big home in "the cool part of a superstar city" - as in, not next door to a senior living facility.Ok the media hyped it up. That's how they get paid. Is the issue deserving of the hype? We can debate that.However, the people I encounter who want to talk about the housing "crisis" are mostly highly educated white people under the age of 35 who don't make a bundle of money and who are angsty that they personally can't really afford to live in the cool part of a superstar city. The "crisis" framing is a superstructure that makes sense of their personal problem - look, see, my problem is really part of a big problem. And then, one day, they decide they've had enough of that crisis and move to some uncool place where they can afford to live, and all of a sudden they stop talking about the crisis they previously gnashed their teeth over.
I suspect the media hype is largely due to the social overlap between reporters and the people who can't afford to live where they want.
Again, what happened in the past 3 years that caused housing prices to skyrocket from where they were in early 2020? The purpose of the zoomed-out data series is to point out how housing starts have gone dramatically up and down over the decades, but the nationwide housing market has never seen house prices move like dot-com stocks in the late 90s, and now suddenly they are.Quote3) Housing Starts (https://fred.stlouisfed.org/series/HOUST#0) are at levels considered normal in the recent past. E.g. Annualized starts as of September 2023 were higher than they were from 2007 to 2018, than from 1989 to early 1993, and for periods of time in the booming 1960s. There was little to no talk about shortages during most of these timeframes.So not only are there 2x as many people in the USA now as the 1960s, households are also 15% smaller, meaning the demand is more than 2x.
I think that COVID didn't just give people free cash, it also caused a lot of people to want to buy bigger houses. They want room for the kids to play. They want a larger or dedicated space to work from home (probably won't dissipate quickly). They want space. The effects of this will also probably dissipate pretty quickly.If a bubble bursts, I think we'll be revisiting these temporary factors as prescient explanations. We might also be astounded by the risks being taken by people buying in expensive places to be "near the jobs" in an era when they could see the WFH movement has proven staying power.
The housing market takes a long time to react to a stimulus. It reflects conditions 1-10 years ago.
The problem with this analysis is that it assumes the person would receive the same wage in either place, so absent the real estate speculation angle they would rationally choose to live in the cheaper location. That has historically not been true, at least not in the tech industry that employs the majority of people who can afford San Francisco real estate anymore. These folks have moved to the West Coast because it offered the best economic opportunity in spite of the high real estate costs. They largely don't move there out of some motivation for real estate speculation. Instead they move there because it's the center of their industry, where the best opportunities exist for long-term economic success. If anything, the high local real estate prices are a deterrent that creates a measurable drag on the national economy (https://www.aeaweb.org/articles?id=10.1257/mac.20170388).I've always been interested in wages vs. cost of living comparisons, and levels.fyi is not a source I'd heard of before. Looks like it is focused mainly on the biggest employers in the biggest tech hubs.
While no data source is perfect, the site Levels.fyi is pretty well-trusted among the tech worker community. Their current data shows the median software engineer in the San Francisco Bay Area gets $240k total compensation (https://www.levels.fyi/t/software-engineer/locations/san-francisco-bay-area), while the number is $103k in Kansas City (https://www.levels.fyi/t/software-engineer/locations/kansas-city-mo-area). That $137k difference can pay a decent mortgage in San Francisco all by itself.
This does anecdotally match my experience searching for jobs after college. I was offered 50% higher base salary to move to Seattle than stay in the Midwest where I grew up, and the Seattle job also came with stock-based compensation. San Francisco would have paid more still, but I felt Seattle was a much better value at the time. Now the difference has narrowed quite a bit.
A salary of $75,690 in Kansas City, Missouri should increase to $210,106 in San Francisco, California (assumptions include Homeowner, no Child Care, and Taxes are not considered.)A salary of $164,290 in Kansas City, Missouri should increase to $456,050 in San Francisco, California (assumptions include Homeowner, no Child Care, and Taxes are not considered.)A salary of $103,000 in Kansas City, Missouri should increase to $285,916 in San Francisco, California (assumptions include Homeowner, no Child Care, and Taxes are not considered.)So that source reduces the level of underpayment to live in SF to $45,916 per year. No wonder people can't get by on six-figure incomes.A salary of $46,408 in Kansas City, Missouri should increase to $128,823 in San Francisco, California (assumptions include Homeowner, no Child Care, and Taxes are not considered.Like I said elsewhere, there are 2 distinct classes of financial wellbeing these days - those who managed to lock in their mortgages before 2022 and those who didn't...
The housing market is now completely dysfunctional due to the opportunity that presented itself a couple of years ago to lock in ultra-cheap mortgages... the way that interest rates have ballooned now, we are now in a situation where anyone who was able to take advantage of that is never going to give it up - effectively removing themselves and their home from the market almost indefinitely.
Nobody is going to sell and give up such a huge advantage, and yet nobody can afford to buy at the price that would tempt homeowners with these golden mortgages to sell up and give up that hedge now that mortgage rates are 8%.
Make no mistake this dysfunction is a direct result of the Fed's actions. It may be brilliant for those who were able to lock in those cheap mortgages, but overall it is not good for the economy long term as it has created a huge deadpool where no transactions will happen, and reduces workforce mobility. Personally I think they should have capped the maximum lock in duration to 10 or 15 years. A sub 3% mortgage for 30 years is the sort of giveaway that only presents itself once in a generation. Those who didn't or couldn't benefit are the ones now saddled with the burden of paying for it.
For "software developer 1" Salary.com says the median wage in Kansas City, MO is $75,690 (https://www.salary.com/tools/salary-calculator/software-developer-i/kansas-city-mo).I suspect $76k/year is based on bad data, as I outlined above. The most ironic finding was the 2nd to 5th entry level jobs on LinkedIn... from a company headquartered in San Francisco. No wonder KC salaries are so similar to SF salaries... they're copy & pasting the jobs from SF!
Like I said elsewhere, there are 2 distinct classes of financial wellbeing these days - those who managed to lock in their mortgages before 2022 and those who didn't...
The housing market is now completely dysfunctional due to the opportunity that presented itself a couple of years ago to lock in ultra-cheap mortgages... the way that interest rates have ballooned now, we are now in a situation where anyone who was able to take advantage of that is never going to give it up - effectively removing themselves and their home from the market almost indefinitely.
Nobody is going to sell and give up such a huge advantage, and yet nobody can afford to buy at the price that would tempt homeowners with these golden mortgages to sell up and give up that hedge now that mortgage rates are 8%.
Make no mistake this dysfunction is a direct result of the Fed's actions. It may be brilliant for those who were able to lock in those cheap mortgages, but overall it is not good for the economy long term as it has created a huge deadpool where no transactions will happen, and reduces workforce mobility. Personally I think they should have capped the maximum lock in duration to 10 or 15 years. A sub 3% mortgage for 30 years is the sort of giveaway that only presents itself once in a generation. Those who didn't or couldn't benefit are the ones now saddled with the burden of paying for it.
Something making this far worse too is the speed at which rates changed.
It wasn't a slow gradual process over multiple years. It was extremely abrupt. Which means there was no natural slow down or adjustment of housing purchases as folks slowly adapted. People basically went from housing being affordable to completely out of reach in a matter of months, not years.
...our mortgages are usually short term fixed for 2 years-5yrs...
SOMEBODY around here must think that there is massive demand and money to be made in apartment/?condo? building.
I think I'm seeing a slowdown in large, single family dwelling building, but apartments are sprouting like weeds (better than weeds) around here (South Central Washington State, think tumbleweed desert).
We have gobs of land and no particular need to sprout upwards, but I've seen 5 or 6 story apartments planted in what was the open outskirts of town.
It is sad to see good cropland being gobbled up by housing and apartments, but to look on the bright side , it is better than spray irrigated corn (maize) in the middle of 100F+ temperatures and single digit relative humidity. Dammit, corn is a tropical rainforest crop, not a desert / shrub-steppe one.
--Sheepishly admitting that local sweet corn is awesome.-----
@clifp , " chronologically gifted" is awesome. I remember being elated to get a 7% mortgage in 1996. Problem is, I can't remember the rate on the previous house, lol.
SOMEBODY around here must think that there is massive demand and money to be made in apartment/?condo? building.
I think I'm seeing a slowdown in large, single family dwelling building, but apartments are sprouting like weeds (better than weeds) around here (South Central Washington State, think tumbleweed desert).
We have gobs of land and no particular need to sprout upwards, but I've seen 5 or 6 story apartments planted in what was the open outskirts of town.
It is sad to see good cropland being gobbled up by housing and apartments, but to look on the bright side , it is better than spray irrigated corn (maize) in the middle of 100F+ temperatures and single digit relative humidity. Dammit, corn is a tropical rainforest crop, not a desert / shrub-steppe one.
--Sheepishly admitting that local sweet corn is awesome.-----
I've asked this same question here multiple times. Up here in Canadaland, luxury highrise condos are very normal, I'm in one right now.
A number of people have tried to explain to me while multifamily housing seems to be generally equated with poor quality, shitty housing that no one wants in the US, but I still don't quite understand.
That said, as has already been mentioned, despite highrises being ubiquitous up here, we still have a worse housing problem than the US, so it's not *just* a matter of everyone wanting SFHs.
We embrace condos up here, we don't have 30 year mortgage terms, we can't deduct mortgage interest, we don't have a ton of population, we don't have cities with massive salaries, we don't have weird California property tax laws, we have strict tenant protections almost everywhere, we have onerous banking regulations, and we have very high standards that buyers have to meet to prove they can actually afford what they're trying to buy.
And yet, we have a substantially worse housing problem than the US. So it's very interesting to see what the Americans attribute pricing issues to when we're up here with a totally system and a worse problem.
@clifp , " chronologically gifted" is awesome. I remember being elated to get a 7% mortgage in 1996. Problem is, I can't remember the rate on the previous house, lol.As an ex-marketing guy, I take great pride in describing bugs as features. So, in addition to being chronologically gifted, I'm either horizontally gifted, well-insulated or famine-resistant.
@clifp , " chronologically gifted" is awesome. I remember being elated to get a 7% mortgage in 1996. Problem is, I can't remember the rate on the previous house, lol.
Thanks. Apparently not everybody thinks so.@clifp , " chronologically gifted" is awesome. I remember being elated to get a 7% mortgage in 1996. Problem is, I can't remember the rate on the previous house, lol.
I got a mortgage in that same year and the rate was 7 1/4. Because in those days decimals had not yet been invented and rates were expressed as fractions. I thought that was a screaming low rate at the time, by the way.
I've said it before, I'll say it again: A sub--4% mortgage was the deal of a lifetime. @Dicey and others did yeoman's work pounding that fact home.
Gonna take slight issue with the argument that "7% rates are a historical norm so this is the natural level" - yes, maybe that is the norm historically, but we live in modern times, not in historic times, and context to those historic averages need to be applied.
We live in today's world were population growth is both slowing sharply while aging, and where much of the economy exists in the digital realm where there is much less reliance on the physical constraints.
Also, as society becomes wealthier its people will tend to trade more of their work time for free time as real productivity increases means they are able to maintain their standard of living doing less hours. Therefore growth rates and rates of return on capital tend lower the richer a society becomes.
Gonna take slight issue with the argument that "7% rates are a historical norm so this is the natural level" - yes, maybe that is the norm historically, but we live in modern times, not in historic times, and context to those historic averages need to be applied.
We live in today's world were population growth is both slowing sharply while aging, and where much of the economy exists in the digital realm where there is much less reliance on the physical constraints.
Also, as society becomes wealthier its people will tend to trade more of their work time for free time as real productivity increases means they are able to maintain their standard of living doing less hours. Therefore growth rates and rates of return on capital tend lower the richer a society becomes.
This is a perfectly logical theory of change that has repeatedly not borne out in reality. Many of the richest people in America continue to work the longest hours. Other rich countries have either vastly different policy/tax regimes that have intentionally fostered more of a culture of leisure amongst the wealthy/upper middle class (Europe) or have suffered from vastly more rapid of a population decline (Japan). Through immigration, wealthy countries will be able to maintain population growth for all of our lifetimes, despite below-replacement birth rates, so we’re not going the way of Japan any time soon unless xenophobic nationalism somehow repeatedly wins out. I suppose a somewhat plausible path to that future would be a continued failure to build enough homes.
Gonna take slight issue with the argument that "7% rates are a historical norm so this is the natural level" - yes, maybe that is the norm historically, but we live in modern times, not in historic times, and context to those historic averages need to be applied.
We live in today's world were population growth is both slowing sharply while aging, and where much of the economy exists in the digital realm where there is much less reliance on the physical constraints.
Also, as society becomes wealthier its people will tend to trade more of their work time for free time as real productivity increases means they are able to maintain their standard of living doing less hours. Therefore growth rates and rates of return on capital tend lower the richer a society becomes.
This is a perfectly logical theory of change that has repeatedly not borne out in reality. Many of the richest people in America continue to work the longest hours. Other rich countries have either vastly different policy/tax regimes that have intentionally fostered more of a culture of leisure amongst the wealthy/upper middle class (Europe) or have suffered from vastly more rapid of a population decline (Japan). Through immigration, wealthy countries will be able to maintain population growth for all of our lifetimes, despite below-replacement birth rates, so we’re not going the way of Japan any time soon unless xenophobic nationalism somehow repeatedly wins out. I suppose a somewhat plausible path to that future would be a continued failure to build enough homes.
While of course you will hear about the outliers, the stats support the premise:
<snip of stats>
One of the weirdest economic stories of the past half century is what happened to rich Americans—and especially rich American men—at work.
In general, poor people work more than wealthy people. This story is consistent across countries (for example, people in Cambodia work much more than people in Switzerland) and across time (for example, Germans in the 1950s worked almost twice as much as they do today).
But starting in the 1980s in the United States, this saga reversed itself. The highest-earning Americans worked longer and longer hours, in defiance of expectations or common sense.
Gonna take slight issue with the argument that "7% rates are a historical norm so this is the natural level" - yes, maybe that is the norm historically, but we live in modern times, not in historic times, and context to those historic averages need to be applied.
We live in today's world were population growth is both slowing sharply while aging, and where much of the economy exists in the digital realm where there is much less reliance on the physical constraints.
Also, as society becomes wealthier its people will tend to trade more of their work time for free time as real productivity increases means they are able to maintain their standard of living doing less hours. Therefore growth rates and rates of return on capital tend lower the richer a society becomes.
Gonna take slight issue with the argument that "7% rates are a historical norm so this is the natural level" - yes, maybe that is the norm historically, but we live in modern times, not in historic times, and context to those historic averages need to be applied.
We live in today's world were population growth is both slowing sharply while aging, and where much of the economy exists in the digital realm where there is much less reliance on the physical constraints.
Also, as society becomes wealthier its people will tend to trade more of their work time for free time as real productivity increases means they are able to maintain their standard of living doing less hours. Therefore growth rates and rates of return on capital tend lower the richer a society becomes.
This is a perfectly logical theory of change that has repeatedly not borne out in reality. Many of the richest people in America continue to work the longest hours. Other rich countries have either vastly different policy/tax regimes that have intentionally fostered more of a culture of leisure amongst the wealthy/upper middle class (Europe) or have suffered from vastly more rapid of a population decline (Japan). Through immigration, wealthy countries will be able to maintain population growth for all of our lifetimes, despite below-replacement birth rates, so we’re not going the way of Japan any time soon unless xenophobic nationalism somehow repeatedly wins out. I suppose a somewhat plausible path to that future would be a continued failure to build enough homes.
While of course you will hear about the outliers, the stats support the premise:
<snip of stats>
Right, Log is discussing a subset of American workers. In the past in the US, the longest working were those below the income bell curve. This has shifted so that now the longest working are the well-off.Quote from: https://www.theatlantic.com/newsletters/archive/2023/01/american-rich-men-work-less-hours-workism/672895/One of the weirdest economic stories of the past half century is what happened to rich Americans—and especially rich American men—at work.
In general, poor people work more than wealthy people. This story is consistent across countries (for example, people in Cambodia work much more than people in Switzerland) and across time (for example, Germans in the 1950s worked almost twice as much as they do today).
But starting in the 1980s in the United States, this saga reversed itself. The highest-earning Americans worked longer and longer hours, in defiance of expectations or common sense.
Yes, I do agree somewhat. If people find their life's meaning in work then its no surprise they will tend more towards work, and in a richer society this "lifestyle" is easier - you can afford to pay someone else to look after the other aspects of your life while you focus on work (think Elon).
Working 80% hours for 80% pay might be easier in the current environment, although most employers seem to be offering a 4 day, 10 hour/day work week.Yes, I do agree somewhat. If people find their life's meaning in work then its no surprise they will tend more towards work, and in a richer society this "lifestyle" is easier - you can afford to pay someone else to look after the other aspects of your life while you focus on work (think Elon).That may be a part of it, and I think a lot of it is also cultural. I work in software in America, one of the very highest-paid careers that doesn't require post-bachelor's education. Part-time work just Isn't Done in this field. Sometimes if you establish yourself as a solid employee you can convince an existing employer to let you work a reduced schedule, but asking a recruiter whether they'd accept someone working 80% of the days for 80% (or even less!) pay is a great way to end the conversation entirely. It's honestly inexplicable.
Maybe it’s time to get rid of 65+ property tax exemptions?If you can find a politician foolish enough to champion it as their last act in Congress...
IDK, this is kind of like saying taxes can never go up. Trump's Tax Cuts and Jobs Act lowered the maximum mortgage size for which interest could be tax deductible from $1M to $750k, and eliminated interest deductions on 2nd mortgages not used for remods. Neither he nor Congressional Republicans seem to have paid any price for that.Maybe it’s time to get rid of 65+ property tax exemptions?If you can find a politician foolish enough to champion it as their last act in Congress...
Of those aged 65+, 2 out of 3 vote. They'll vote as a bloc against this law, and they will show up. The young voters this proposal needs won't show up - just as 18-24 year-olds didn't show up in 2022 (only 1 in 4 voted).
After the bill fails, those same older voters will vote against the politician that tried to tax them. It's the same reason social security isn't getting fixed until it breaks.
Eliminating all property tax exemptions hurts anyone who owns a home. I wouldn't expect the same uproar from people who own multiple homes, or who owe over $1 million dollars on their home mortgage. Seems like a much richer and narrower group.IDK, this is kind of like saying taxes can never go up. Trump's Tax Cuts and Jobs Act lowered the maximum mortgage size for which interest could be tax deductible from $1M to $750k, and eliminated interest deductions on 2nd mortgages not used for remods. Neither he nor Congressional Republicans seem to have paid any price for that.Maybe it’s time to get rid of 65+ property tax exemptions?If you can find a politician foolish enough to champion it as their last act in Congress...
Of those aged 65+, 2 out of 3 vote. They'll vote as a bloc against this law, and they will show up. The young voters this proposal needs won't show up - just as 18-24 year-olds didn't show up in 2022 (only 1 in 4 voted).
After the bill fails, those same older voters will vote against the politician that tried to tax them. It's the same reason social security isn't getting fixed until it breaks.
Still, you make a good point. Those who vote and organize tend to get their way in a democracy. The young people who are irritated about government policy pricing them out of homes are in the least likely demographic to vote or attend a city council meeting. It's fair to say they don't matter, because they are so busy with their educations, careers, children, romantic lives, etc. that they aren't available to participate in government.
IMO this is another supporting point to the OP in this thread. We don't have a supply/demand problem. We have layers of government policies, subsidies, zoning restrictions, etc. designed to increase the value of homes as an investment.
https://www.cnn.com/2024/01/16/economy/boomers-own-more-larger-homes-than-millennial-families/index.html (https://www.cnn.com/2024/01/16/economy/boomers-own-more-larger-homes-than-millennial-families/index.html)
Today “ empty-nest Baby Boomers own 28% of large homes — and Milliennials with kids own just 14%, according to a Redfin analysis released Tuesday. Gen Z families own just 0.3% of homes with three bedrooms or more.”
“ Ten years ago, in 2012, empty nesters of the Silent Generation, who were between the ages of 67 and 84 at the time, took up 16% of homes that were three-bedrooms or larger. That is a smaller share than Gen Xers with kids, who were aged 32 to 47 at the time, and took up 19% of those large homes.”
This rings true in my family. My empty nester Boomer parents have the biggest house in the family. My mom says it’s for her grandkids to visit.
I wouldn’t say there is a general housing crisis, but there is definitely a generational housing crisis. Especially with the high interest rates now, younger generations are often priced out of family homes. Working from home has also added more competition for homes with more bedrooms. I really feel for young families with kids today! Maybe it’s time to get rid of 65+ property tax exemptions?
https://www.cnn.com/2024/01/16/economy/boomers-own-more-larger-homes-than-millennial-families/index.html (https://www.cnn.com/2024/01/16/economy/boomers-own-more-larger-homes-than-millennial-families/index.html)
Today “ empty-nest Baby Boomers own 28% of large homes — and Milliennials with kids own just 14%, according to a Redfin analysis released Tuesday. Gen Z families own just 0.3% of homes with three bedrooms or more.”
“ Ten years ago, in 2012, empty nesters of the Silent Generation, who were between the ages of 67 and 84 at the time, took up 16% of homes that were three-bedrooms or larger. That is a smaller share than Gen Xers with kids, who were aged 32 to 47 at the time, and took up 19% of those large homes.”
This rings true in my family. My empty nester Boomer parents have the biggest house in the family. My mom says it’s for her grandkids to visit.
I wouldn’t say there is a general housing crisis, but there is definitely a generational housing crisis. Especially with the high interest rates now, younger generations are often priced out of family homes. Working from home has also added more competition for homes with more bedrooms. I really feel for young families with kids today! Maybe it’s time to get rid of 65+ property tax exemptions?
I saw that article this morning too and felt the same way. I immediately read parts out loud to my husband who said "oh, that is totally my parents."
My inlaws recently sold their large home and were lamenting that they hadn't been able to sell it to a young family. I pointed out that several young families had put in offers and wrote really nice letters, but a boomer couple outbid them (by a LOT) so my inlaws sold the big old house to the boomer couple who are going to use it as a rental property. In-laws went from a 3800 sqft house to an almost 6k sqft house - they are in their 70s.
They would like us to upsize into a larger home (ours is just over 1600 sqft) so they can visit us more. But we can't really afford to move up into the next size of houses in our school district (and definitely not with the current interest rates).
I saw that article this morning too and felt the same way. I immediately read parts out loud to my husband who said "oh, that is totally my parents."
My inlaws recently sold their large home and were lamenting that they hadn't been able to sell it to a young family. I pointed out that several young families had put in offers and wrote really nice letters, but a boomer couple outbid them (by a LOT) so my inlaws sold the big old house to the boomer couple who are going to use it as a rental property. In-laws went from a 3800 sqft house to an almost 6k sqft house - they are in their 70s.
They would like us to upsize into a larger home (ours is just over 1600 sqft) so they can visit us more. But we can't really afford to move up into the next size of houses in our school district (and definitely not with the current interest rates).
I never understood things like this... I'm assuming they live out of town and you having a larger home would mean a guest bedroom so they could stay for a few days (or more) at a time. They nearly doubled the size of their home in their 70's, but are seemingly pressuring you guys (or softly blaming you guys) into getting a larger home to facilitate more visits, instead of staying in their 3800sq foot fhome and having the money for a hotel?
I might be totally wrong but I have some family members like this. I also have family members with in-laws like this. They're always guilt-tripping people into things while doing whatever they please instead of making the choices that would be the most fair and allow them to meet there own wishes.
I apologize if I'm wrong.. If I'm not wrong, I feel for you! Annoying situation.
I know #notallboomers, but also, I have found that many Boomers just really underestimate wage stagnation over the last 30 years. I have a perfectly lovely coworker who was complaining to me that his kids expected too much when it came to salary. He made 80k when he was 40, and that should be good enough for his kids too! I pointed out that making 80k in the late 90s would be the equivalent of 150k now and he was flabbergasted.
I saw that article this morning too and felt the same way. I immediately read parts out loud to my husband who said "oh, that is totally my parents."
My inlaws recently sold their large home and were lamenting that they hadn't been able to sell it to a young family. I pointed out that several young families had put in offers and wrote really nice letters, but a boomer couple outbid them (by a LOT) so my inlaws sold the big old house to the boomer couple who are going to use it as a rental property. In-laws went from a 3800 sqft house to an almost 6k sqft house - they are in their 70s.
They would like us to upsize into a larger home (ours is just over 1600 sqft) so they can visit us more. But we can't really afford to move up into the next size of houses in our school district (and definitely not with the current interest rates).
I never understood things like this... I'm assuming they live out of town and you having a larger home would mean a guest bedroom so they could stay for a few days (or more) at a time. They nearly doubled the size of their home in their 70's, but are seemingly pressuring you guys (or softly blaming you guys) into getting a larger home to facilitate more visits, instead of staying in their 3800sq foot fhome and having the money for a hotel?
I might be totally wrong but I have some family members like this. I also have family members with in-laws like this. They're always guilt-tripping people into things while doing whatever they please instead of making the choices that would be the most fair and allow them to meet there own wishes.
I apologize if I'm wrong.. If I'm not wrong, I feel for you! Annoying situation.
They moved from a VHCOL area to a LCOL area so paid for the bigger house with cash left over. If they were going to pick up and move across the country they wanted their dream house.
But yes they live several states away. They just don't really like hotels and our area doesn't have good AirBNBs. And they just don't understand why we don't upgrade, because they upgraded several times when they were in their 30s and 40s.
I know #notallboomers, but also, I have found that many Boomers just really underestimate wage stagnation over the last 30 years. I have a perfectly lovely coworker who was complaining to me that his kids expected too much when it came to salary. He made 80k when he was 40, and that should be good enough for his kids too! I pointed out that making 80k in the late 90s would be the equivalent of 150k now and he was flabbergasted.
They have two living/family rooms that they actually spend time in, and a third that I think basically just gets used to open presents on Christmas morning.
They have two living/family rooms that they actually spend time in, and a third that I think basically just gets used to open presents on Christmas morning.
The FORBIDDEN ROOOM!
I thought my parents were the only ones ever to have a room that was used just to open Christmas presents, house the piano that nobody played, and punish children who were a little too into exploration.
They have two living/family rooms that they actually spend time in, and a third that I think basically just gets used to open presents on Christmas morning.
The FORBIDDEN ROOOM!
I thought my parents were the only ones ever to have a room that was used just to open Christmas presents, house the piano that nobody played, and punish children who were a little too into exploration.
I call it the museum room: A space full of pretty stuff that you can look at, but do not touch.
We're empty nest Boomers interested in downsizing, but there is very little inventory, and when we do sees omething, the numbers don't make ahy sense. Ours is a rock-solid 2600 sf custom built home (circa 2006) with a 1050 sf garage. We can get a shitty old houset hat's half the size, in far worse shape, for what we paid for ours in 2012 (often more.)
Seriously, we've been actively looking since 2019. We check online listings constantly and visit Open Houses almost every weekend.
There are many sides to every story.
We're empty nest Boomers interested in downsizing, but there is very little inventory, and when we do see something, the numbers don't make any sense. Ours is a rock-solid 2600+ sf custom built home (circa 2006) with a 1050 sf garage. We can get a shitty old house that's half the size, in far worse shape, for what we paid for ours in 2012 (often more, way more).
Seriously, we've been actively looking since 2019. We check online listings constantly and visit Open Houses almost every weekend.
There are many sides to every story.