Millennials Buying Tiny Condos

[zephyr911]

You might, you might not. Everyone has to make this analysis for themselves. My only point is that this objection, "The price is too high, just because." is not a good one. There has to be some reasoning behind it, like, "There's a perfectly serviceable alternative for $X less!" An attempt was made at that, but it was wrong, because a rented bedroom is not substitutable with a studio.

Exactly. Thank you.
Even if the dismissive generalizations are true for most scenarios, the fact remains that each of us finds a slightly different path to lifestyle optimization, and this one could be valid for someone.
I took my first econ class in Hawaii as a kid, and it was interesting to learn that the typical "paradise tax" at the time was about 40% over the national average COL; even more interesting was that the corresponding wage premium varied significantly from one job to the next. Some high-demand fields paid more than double, while other jobs paid no premium at all.

[somebody8198]

I think we're experiencing a new sort of housing bubble (though maybe not in the technical definition of the term) due to long-term QE. Interest rates are low which drives demand from prospective home owners, which is also driven by banks buying up housing stock for cash, hoping to then turn it over to one of these prospective home owners who, in their hunger for low-rate mortgages, are overly eager to buy. Whenever interest rates rise, demand from consumers will fall, driving prices down, and this will also slow the speculative buying from investors. I think you're better off waiting until after post-QE shock to buy a home. Prices are falsely inflated by the hot mortgage market, and as soon as that disappears and only highly qualified borrowers can get a loan, prices will readjusted to their proper level. Of course there will be a lot of wailing and gnashing of teeth and prices will probably get spiky for a while, but eventually as the market gets used to a higher interest rate those who can still afford a mortgage will be paying lower prices for those homes. My basic philosophy is that if I hear random coworkers or people at a dinner party saying, "Now is the time to buy!", with respect to anything, it is almost assuredly not a good time to buy.

[nereo]

I think we're experiencing a new sort of housing bubble (though maybe not in the technical definition of the term) due to long-term QE. Interest rates are low which drives demand from prospective home owners, which is also driven by banks buying up housing stock for cash, hoping to then turn it over to one of these prospective home owners who, in their hunger for low-rate mortgages, are overly eager to buy. Whenever interest rates rise, demand from consumers will fall, driving prices down, and this will also slow the speculative buying from investors. I think you're better off waiting until after post-QE shock to buy a home. Prices are falsely inflated by the hot mortgage market, and as soon as that disappears and only highly qualified borrowers can get a loan, prices will readjusted to their proper level. Of course there will be a lot of wailing and gnashing of teeth and prices will probably get spiky for a while, but eventually as the market gets used to a higher interest rate those who can still afford a mortgage will be paying lower prices for those homes. My basic philosophy is that if I hear random coworkers or people at a dinner party saying, "Now is the time to buy!", with respect to anything, it is almost assuredly not a good time to buy.

It seems to me you want to blame this on QE without any real data to back it up.  A while ago i had a discussion about what rising interest rates would on overall home prices, and the answer that came back was 'historically, not very much'.  It might seem like rising rates would crush demand, but turns out it's not so cut and dry.  For one, people who don't buy rent, and renters are just living in homes owned by someone else, and they adjust the rents to make it profitable to them.  So the rent-vs-buy equation naturally shifts.  Then there's the interaction between interest rates and the overall state of the economy - higher interest rates (historically) are trying to fight inflation.

[brooklynmoney]

$750 /sq foot is a great deal! -- From someone living in prime Brooklyn.

[somebody8198]

I think we're experiencing a new sort of housing bubble (though maybe not in the technical definition of the term) due to long-term QE. Interest rates are low which drives demand from prospective home owners, which is also driven by banks buying up housing stock for cash, hoping to then turn it over to one of these prospective home owners who, in their hunger for low-rate mortgages, are overly eager to buy. Whenever interest rates rise, demand from consumers will fall, driving prices down, and this will also slow the speculative buying from investors. I think you're better off waiting until after post-QE shock to buy a home. Prices are falsely inflated by the hot mortgage market, and as soon as that disappears and only highly qualified borrowers can get a loan, prices will readjusted to their proper level. Of course there will be a lot of wailing and gnashing of teeth and prices will probably get spiky for a while, but eventually as the market gets used to a higher interest rate those who can still afford a mortgage will be paying lower prices for those homes. My basic philosophy is that if I hear random coworkers or people at a dinner party saying, "Now is the time to buy!", with respect to anything, it is almost assuredly not a good time to buy.

It seems to me you want to blame this on QE without any real data to back it up.  A while ago i had a discussion about what rising interest rates would on overall home prices, and the answer that came back was 'historically, not very much'.  It might seem like rising rates would crush demand, but turns out it's not so cut and dry.  For one, people who don't buy rent, and renters are just living in homes owned by someone else, and they adjust the rents to make it profitable to them.  So the rent-vs-buy equation naturally shifts.  Then there's the interaction between interest rates and the overall state of the economy - higher interest rates (historically) are trying to fight inflation.

You're right that housing stock is different from other things in that it's a necessity. People have to live somewhere, and unless you're a survivalist, it's going to be a house or an apartment. The rental market is quite different from the housing market, however. There's no guarantee that if you own a condo you will be able to rent it out for more than the value of the mortgage. For example, where I live I have seen a plethora of cheap condos for rent in slightly less desirable areas. These are likely properties that the owner would like to sell but cannot find a suitable buyer. And they're stuck paying whatever their mortgage is until they can sell it. Meanwhile, they're likely not making much off the rent because the property is in an undesirable location – nobody wants to buy it OR rent it. So I'm not even talking about the macroeconomic relationships between interest rates and home prices, but just observing what is happening in my home city (which, admittedly, does not have a very strong housing market).

In any case, I don't see the point in owning a tiny apartment for $300,000. I don't want to own a tiny apartment. So I'm keeping my money invested elsewhere for now. I suspect that prices will come down again. If they don't, I'll just rent until I die, but I I doubt that people will continue buying tiny boxes in the sky for increasingly inflated prices forever just so they can have a foot in the housing market. Clearly these condos are extremely overpriced.