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ERICOPOLY
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Posts posted by ERICOPOLY
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15 hours ago, Spekulatius said:
Don't forget that housing in some areas went to zero. Detroit and other cities in the midwest are an example. You find abandoned houses throughout in the US. So there is some survivership bias in averaged data as well.
Yes nothing says housing doesn't follow inflation better than abandoned houses that have not followed inflation.
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8 hours ago, no_free_lunch said:
We are looking to upgrade our home and will be getting a mortgage. Curious peoples thoughts on variable vs fixed rates and this thread seemed relevant. These are my options, keep in mind I'm in Canada so no 30 year mortgages, I wish.
5 year variable 1.3% rate.
5 year fixed 2.2% rate.
The variable is very tempting but I'm concerned what happens if rates start spiking. They would have to raise 100 bp before we lose with variable but who knows we are at historical lows.
That's brutal that you can't lock in longer than 5 yrs. This summer I took $375,000 cash-out by refinancing to a 30 yr fixed at 2.8% and $880,000.
I have an Aunt in Australia who lost her property when her rate reset in the 1980s. It's sad and she was never able to buy again. They don't have 30 yr fixed rate mortgages either (or she wouldn't have lost it).
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And there is no way this is caused by a drop in interest rates because lower interest rates don't help renters:
"Similarly, rents have grown more expensive, with the gap between the coastal metros and the rest of the country increasing threefold since 1970"
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Gmthebeau's comment that SF price outperformance vs the US began only after a 2012 tech boom still blows me away... been living under a rock or something.
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Interesting charts going back to 1960:
Shows that the early 1980s when interest rates were peaking was actually a time when median house prices were truly soaring relative to incomes like never before.
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IMO, nowhere else in the country can you find a climate like that of Coastal California. It's not so friggin hot during the summers and not so friggin cold during the winters.
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Figure 5 shows the drop in building rates Coastal California from the 1940s onward. Far more extreme decline than in the rest of the US.
https://lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx
Jump in California Housing Costs Occurred as Building Slowed. A look at housing costs in California’s coastal metros in recent decades shows a connection between the slow rate of building and higher housing costs. The slowdown in building in California’s coastal metros corresponded with a substantial rise in housing costs relative to the rest of the country. In 1970, home prices in the state’s coastal metros were about 50 percent more expensive than in the rest of the country. This gap has widened considerably since that time. Homes in the coastal metros are now more than three times more expensive than the rest of the country. Similarly, rents have grown more expensive, with the gap between the coastal metros and the rest of the country increasing threefold since 1970 (from 16 percent more expensive to around 50 percent more expensive).
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4 hours ago, LearningMachine said:
Why didn't the nominal price adjustment happen in 1970s when interest rates shot up?
The reason my father was able to negotiate a "good deal" on the home he purchased was that interest rates were 9% at the time and had recently shot up. The market was in a bit of affordability shock.
By 1979 the rate reached 11% according to this link:
https://www.rocketmortgage.com/learn/historical-mortgage-rates-30-year-fixed
But what I've heard about the truly absurd rates in 1981 is that transactions dried up because people couldn't afford to sell and purchase elsewhere. So they stayed put and continued paying their lower rate mortgage.
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13 minutes ago, KJP said:
I think we discussed this last year. Are people in cities because that's where the jobs are, or are jobs in cities because that's where the people are? To the extent it's mainly the latter, work from home may not have a substantial effect on demand for urban housing. See: https://fred.stlouisfed.org/series/SFXRSA
Many if not most city dwellers do like being in cities.
The area I live in is in between and it's like living inside the game Far Cry 5 but without the shooting: all these white guys driving exaggerated white pickup trucks around inside of some political cult.
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20 minutes ago, rohitc99 said:
There is also a level of keeping up with the joneses and status to it. How do you show that you are successful in life ?
You must be thinking of my parents' neighbors. There's no reason for what they've built -- however they are from Asia and much of what they've purchased is for show. I've never even seen them on their tennis court.
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Obviously rates matter.
500,000 loan at 6% for 30 yr term: 2999 per month payment
500,000 loan at 3% for 30 yr term: 2108 per month payment
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Montecito real estate is a good one. As the country exploded in population size and the ranks of the wealthy grew, the desirable areas face price competition. You have wealthy people from Chicago owning second homes in Montecito to get away from the harsh climate.
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It is supply and demand economics. The US in the aggregate has a lot of supply. But in desirable areas not so much.
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1 minute ago, KJP said:
That big population increase didn't lead to any increase in real housing prices. So, if the driver is population density
If you look around the US there is a lot of open space and lots are dramatically cheaper in areas where there is availability versus in areas where there is not.
How much does a lot cost in Santa Monica versus in Bakersfield?
Desirable areas where there is no available land and there is a lot of density leads to high lot prices.
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Another factor not yet mentioned is that Bay Area tech workers (and likely others) simply make more money.
Businesses will literally pay people more to compensate for the higher cost of living. And that drives it higher still.
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So really, talking about building costs is missing the picture. My parent's home is priced assuming a teardown. I've seen so many homes like theirs that were well maintained and just get torn down. People who want a big custom home built seek out houses like this so they "don't have to overpay" for what they plan to tear down. LOL.
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That picture is Silicon Valley in the 1950s.
The prices of lots exploded as land ran out.
There were still open fields all around my parents’ home when they purchased. I can recall watching the houses being built as all of those fields disappeared.
My parents’ home is all land value. Most would tear it down because it isn’t impressive enough.
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9 minutes ago, KJP said:
Your theory (and I think the near unanimous view on this thread) is that GMthebeau is wrong and housing prices ought to rise faster than inflation, due to, among other things, rising per capita wealth, rising population, and women increasingly entering the workforce.
I'm saying it's a bidding war and desirable areas are driven by increasing population density -- the rest of it is fuel. Check out this picture:
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1 hour ago, KJP said:
people would at least spend a constant percentage of their real income on housing.
I mean.. in a 2 income household the first income can spend the historical amount and still have the remainder of the income to cover food and diapers. Same as always, right? Let's call that 25% on housing.
Okay, that second income? Well, the first income covered everything. Let's say the second income can go 100% to housing in that case and they still have food and diapers? Why not?
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Curious as to the pay of a software engineer in 1930. I think that as the economy has evolved it has affected income levels.
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1 hour ago, KJP said:
If the causal claim is correct, how are second incomes still causing rapid real housing price inflation when female labor force participation in the US peaked in 1990 and is down about 4 percentage points since then
If you were to consider the gender pay gap you can still have tailwind effects as the gap closes over time.
But then there are other factors: Interest rates. Credit availability. Population growth. New household formation rates. Building codes and land use restrictions. And education levels: I understand that software engineering pays better than picking lettuce.
A lot of factors.
You could also measure the price of raw land when Manhattan was purchased versus today to see the effects of population density. Or the Louisiana purchase and see how population density has effected land prices. Etc...
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If women's participation in the workforce went back to 1974 levels and never came back again... and if the 1974 pay gap between men and women returned... and if we went back to 1973's laws where men were required to cosign for women in order for a woman to apply for credit...
What would that do to housing prices?
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Two incomes.
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Zelman on housing
in General Discussion
Posted · Edited by ERICOPOLY
What houses follow isn't inflation. It is supply and demand that it follows. If wages follow inflation to some degree then inflation is to some degree a component of demand.