patrick.net

Heraclitusstudent says

I like this argument. The "rich" class is in good part made of retired people who bought houses in good locations when it was still cheap and profited indecently on the back of people coming behind them. (though they probably don't think of themselves as "rich").

Very interesting article. Thanks for posting.
Real estate prices in key areas like NY, BA, LA, Hawaii, Boston have been exceeding the national rate for several generations. So the people who came behind the first ones paid more, but they in turn also profited "indecently" from those who came after them. The factors that contributed to these key areas outperforming the rest like population growth, climate, and tourist attractions still exist, and will continue to exist. Add to that the exploding wealth in Asian countries, some of which now ends up in US real estate, and what do you have? Even faster appreciation rates in these key locations than in the past.
I am expecting a 35% to 40% jump in coastal California real estate up to 2017. And 8% per annum thereafter. I was expecting 6% previously.

Strategist says

I am expecting a 35% to 40% jump in coastal California real estate up to 2017. And 8% per annum thereafter. I was expecting 6% previously.

Until the leverage ability of new entrants is exceeded, young people move en masse to cheaper pastures, and the economy hits the ground.

Then maybe the power that be (and voters) recognize this as a stupid strategy and decide to cut it out.

This article is just a sign that some signals are starting to reach the brain.

Heraclitusstudent says

Strategist says

I am expecting a 35% to 40% jump in coastal California real estate up to 2017. And 8% per annum thereafter. I was expecting 6% previously.

Until the leverage ability of new entrants is exceeded, young people move en masse to cheaper pastures, and the economy hits the ground.

Then maybe the power that be (and voters) recognize this as a stupid strategy and decide to cut it out.

This article is just a sign that some signals are starting to reach the brain.

No Herac, you are not getting it. "The leverage ability of new entrants" was always exceeded in these regions. Yet the economy continues on it's long term upward trajectory. Why would it change now? The first timers simply buy smaller, buy condos,mediocre neighborhoods. They will also share their home, and depend on family to help. It's the only way.
My 23 year old first time buyer, found a 450,000 condo she likes. It needs cosmetic improvements. She makes good money, but still won't qualify when atleast $1,100 per month will go towards property taxes, association, and mello roos. So daddy has to step in and get the money for her so she can buy without a regular mortgage. She would still be overburdened, so she will be getting room mates to pay daddy back. When the time comes, she will get her own mortgage.
Alternatively, she could stay home or move towards Riverside, where homes cost half as much. We want her to stay local, which is fine with her as long as she does not have to stay home. So we make the sacrifices, she makes the sacrifices, and let time work things out. This problem would not have arose if we lived somewhere else. Prices are ridiculous and not fair to first time buyers. What else can you do?

Strategist says

"The leverage ability of new entrants" was always exceeded in these regions. Yet the economy continues on it's long term upward trajectory. Why would it change now? The first timers simply buy smaller, buy condos,mediocre neighborhoods. They will also share their home, and depend on family to help. It's the only way.

My point is simple: if prices rise 8% a year, you are talking doubling in 10 yrs, with flat wages. How will you help when the condo is 900k? $1.8m $3.6m There is a point where the pool of people who can afford it is so small, and the units so small and uncomfortable that people will just decide it's not worth it.

Just because it worked so far doesn't mean it will continue to. You can't force an entire population to pay more and more every year and hope this is gonna work as a long term trend.
There is a breaking point somewhere in the future.

We just need to redline a few old middle class neighborhoods, and open it up to section 8 development. So developers can get the greenlight for more wet land gated good school comunities.

CaptainShuddup says

So developers can get the greenlight for more wet land gated good school comunities.

Built in a desert of course.

Heraclitusstudent says

My point is simple: if prices rise 8% a year, you are talking doubling in 10 yrs, with flat wages. How will you help when the condo is 900k? $1.8m $3.6m There is a point where the pool of people who can afford it is so small, and the units so small and uncomfortable that people will just decide it's not worth it.

Just because it worked so far doesn't mean it will continue to. You can't force an entire population to pay more and more every year and hope this is gonna work as a long term trend.

There is a breaking point somewhere in the future.

At that point they start building vertically. The land will continue it's upward trend. Manhattan is the perfect example where many years ago when it was purchased for a few beads there was nothing but forests, but over time they built homes and mansions and eventually skyscrapers. It's still too expensive for the first time buyers and even the affluent. Yet it continues to outperform. The poor moved to surrounding areas.

"The celebrated French economist certainly did not make housing wealth the central theme of his bestselling book"

yeay, somebody on the internet agrees with me. I was immensely disappointed with Piketty, since he like everyone else is missing the fact that the rich aren't collecting their incomes from Martians but from the backs of working people, via the various rents they collect on this Monopoly board we call an economy.

People get $200, but they're lucky to still have half of that the next time they pass Go.

It's almost as if people are starting to discover Georgism, LOL

Strategist says

At that point they start building vertically. The land will continue it's upward trend

This is a very key point to understand. I didn't understand it when I was in Japan, but the fact you can build a 3 story, 8-unit condo on just about any piece of land really, paradoxically, pushes land prices up, at least in Tokyo where demand for land so outstrips supply.

There's 9 MILLION PEOPLE in 240 sq miles of Tokyo. That number, 240 is hard to visualize, let me help:

is a 20 x 12 mi swathe centered on Fresno, population ~600,000 in that area, 1/15th that of Tokyo.

Plus there's another 100 million Japanese that would move closer into Tokyo if they could!

Strategist says

At that point they start building vertically.

This is missing the point:
- first, if you go to Palo Alto, do you see a lot of high rises built vertically? No. Why? Because building code will not allow it. It's not the land that is missing: Some countries the size of California have 20 millions more people. What's missing is the willingness to build to start with. People just don't want to make room for *millions* more, which is what we are talking about.
- Which leads us back to the key problem: assuming they DO build, vertically or otherwise, either they build enough and essentially they put a ceiling on price, or they don't build enough and the same problem continues to be there. They continue to move toward a breaking point. Either way you're wrong.
Manhattan is a small area, not a state the size of California. You can't have CA filled with multi-millionaires. This is BS.

Heraclitusstudent says

You can't have CA filled with multi-millionaires. This is BS

land will always be bid up to the point of pain, and beyond, given the madness of crowds and expectation of future gains.

real california re price index

People need to live where the jobs are. And where they need to live is where the land values will rise. Everywhere that is a desirable place to live on this planet has sky-high land valuations -- the nordic eurosocialist paradises especially, they're figuratively drowning in mortgage debt now.

Smaulgld made this point two years ago in the Datk Side of Rising Home Prices
https://smaulgld.com/the-dark-side-of-rising-home-prices/

The dark side of rising house prices is that they make us all poorer, and most all the morons root them on.

My mortgage is ~1000 per month, 1/4 of which goes towards the house itself (250 monthly principal repayment). That leaves 750 per month to get sucked into the black hole of uneconomic death

errc says

The dark side of rising house prices is that they make us all poorer, and most all the morons root them on.

For most Americans, their house is also their largest investment, so it's not really moronic to wish its value to go up.

The solution is simple--build more.

For most Americans, their house is also their largest investment, so it's not really moronic to wish its value to go up.

Right there is the problem, people confuse the shelter that they consume via debt, is somehow an investment. It's actually a consumption item subject to time decay.

What people are wishing for, is the land that the house sits atop, "goes up in price", quicker than the maintenance fees and taxes rise, before the house rots to the ground.

That people are misinformed as to these mechanics, and duped into believing the lie, does not strip them of their moron status.

errc says

before the house rots to the ground.

in California that's going to be a long wait due to the low humidity.

Houses built 100+ years ago are still structurally solid where I live (which ain't Bellingham!). Housing can be a *very* durable good.

people are misinformed as to these mechanics

there's no misinformation going on

blue is California population, up 100% since the late 60s. red is real state GDP, up 50% since 1997 (!)

rising population, rising incomes, results in rising land valuations because land is utterly fixed in supply and we're really horrible about investing in either new housing stock to build up or new regional transportation infrastructure to facilitate spreading out more.

Henry George wrote his book in the 1870s!

Heh, if anything the automobile did in fact reverse the chokehold of urban land markets, people became free to live further out from city centers without sacrificing quality of life, in fact living out in the suburbs and commuting 2-5 miles raised the quality of life. That's the story of Fresno, which grew 1-2 miles/decade north in the 20th century until it hit the river in 1990.

What we need is the 21st century version of the automobile. Hell, it might be the automobile if we can get this self-driving car stuff to work!

errc says

Right there is the problem, people confuse the shelter that they consume via debt, is somehow an investment. It's actually a consumption item subject to time decay

I think you may be the confused one. Housing is rather unique in that it is part consumption and part investment, but I would hazard to say it's not the only such item. Fine Art, coin collections, among many others. These investments also require periodic maintenance to maintain their peak value. That doesn't mean they are purely consumption. With proper maintenance, a house doesn't get "consumed".

The misinformed people can look back at 100+ years of housing price history and make a pretty good case that housing is part investment.

The misinformed people can look back at 100+ years of housing price history and make a pretty good case that housing is part investment.

So is that what makes it an investment?
That recent history has yielded price appreciation?

So, as per BB graph showing house prices at the same level they were ten years ago, does that mean that houses have been bad investments for the past ten years?

And what about other types of houses. RV, mobile home, or house boats. Are they also investments, because people live in them?

Maybe I am confused. I'm thinking investment as in the type that produces a return. Maybe what you are saying is that people consider it an investment, even if it's a bad investment.

errc says

So is that what makes it an investment?

That recent history has yielded price appreciation?

So, as per BB graph showing house prices at the same level they were ten years ago, does that mean that houses have been bad investments for the past ten years?

I'd say most define an investment as a vehicle with an expected future return. If an investment has yielded no return for the last 10 years, I would call it bad. You have to be careful to understand which graphs are inflation adjusted and which aren't, however. And last 10 years notwithstanding, the index is up almost 400% in real terms over the last 40 years. I'd call that a pretty good investment return.

errc says

And what about other types of houses. RV, mobile home, or house boats. Are they also investments, because people live in them?

A house is not an investment because people live in it.

errc says

Maybe I am confused. I'm thinking investment as in the type that produces a return. Maybe what you are saying is that people consider it an investment, even if it's a bad investment.

Nope, that is correct. Where you're confused is that you think housing has been a bad investment.

Call it Crazy says

And that's where you go right down the rabbit hole.... Thinking your house is a future ATM instead of shelter and a place to live, is your biggest mistake!!

wtf are you talking about? Who said anything about an ATM?

Heraclitusstudent says

This is missing the point:

- first, if you go to Palo Alto, do you see a lot of high rises built vertically? No. Why? Because building code will not allow it. It's not the land that is missing: Some countries the size of California have 20 millions more people. What's missing is the willingness to build to start with. People just don't want to make room for *millions* more, which is what we are talking about.

That part is true. If you restrict new supply you create an artificial shortage which results in higher prices. These restrictions based on zoning acts as a catalyst to higher prices, which would have happened anyway due to some of the factors I outlined.

Heraclitusstudent says

- Which leads us back to the key problem: assuming they DO build, vertically or otherwise, either they build enough and essentially they put a ceiling on price, or they don't build enough and the same problem continues to be there. They continue to move toward a breaking point. Either way you're wrong.

Manhattan is a small area, not a state the size of California. You can't have CA filled with multi-millionaires. This is BS.

As long as the very rich are willing to keep coming that breaking point is far far away. For the poor and middle class that breaking point as determined by the rich is well beyond reach.
Coastal California, where the rich flock to is still very limited.

Call it Crazy says

Strategist says

Prices are ridiculous

You're FINALLY waking up... Took you long enough!

You are such a bad influence. :)

errc says

For most Americans, their house is also their largest investment, so it's not really moronic to wish its value to go up.

Right there is the problem, people confuse the shelter that they consume via debt, is somehow an investment. It's actually a consumption item subject to time decay.

What people are wishing for, is the land that the house sits atop, "goes up in price", quicker than the maintenance fees and taxes rise, before the house rots to the ground.

That people are misinformed as to these mechanics, and duped into believing the lie, does not strip them of their moron status.

You missed the post on that $1.2 million tear down in SF.

And last 10 years notwithstanding, the index is up almost 400% in real terms over the last 40 years

B&B'S graph shows 150 in 1975, and 450 in 2015. Wouldn't that be a 200% increase?

That's not as big of a gain as it sounds when you consider all the maintenance sunk in there over the years. That and the fact that most people finance the purchase, so they wind up paying more than twice the purchase price through interest payments on the debt

Where you're confused is that you think housing has been a bad investment.

I don't remember actually saying that. You're confused about tense. I said that it is a bad investment. As in the present tense

errc says

B&B'S graph shows 150 in 1975, and 450 in 2015. Wouldn't that be a 200% increase?

I estimated the index differently, but looking closer it's probably 140 and 470 so definitely not 400%. Regardless, 200%, 300%, or 400% is not a bad real return over 40 years.

errc says

That's not as big of a gain as it sounds when you consider all the maintenance sunk in there over the years. That and the fact that most people finance the purchase, so they wind up paying more than twice the purchase price through interest payments on the debt

Make sure you also look at the other side. You will almost certainly have large savings over renting from year 10 on. Since most people finance, those gains are leveraged up significantly.

errc says

Where you're confused is that you think housing has been a bad investment.

I don't remember actually saying that. You're confused about tense. I said that it is a bad investment. As in the present tense

OK--perhaps I misunderstood this line. If so, I take it back.

errc says

Maybe I am confused. I'm thinking investment as in the type that produces a return.

Rising house prices lift all boats..obviously this article is wrong!

Strategist says

As long as the very rich are willing to keep coming that breaking point is far far away. For the poor and middle class that breaking point as determined by the rich is well beyond reach.

Coastal California, where the rich flock to is still very limited.

The system is already cracking at the margins: young people live with their parents, first time buyers are a smaller fraction of purchases than they used to be (and need to be to sustain the equity 'elevator'). Sales volume is collapsing.
And this is in spite of a massive rush of retired people with savings and investors to buy real-estate.
Add an other 15%, 30%, 60% and what do you think will happen?
At 8% a yr, 30% is only 4 yrs away.

You can't find 40 millions rich people to populate CA.
And even if you did: so your kids and grand kids will wake up one day slaves on the continent their parents conquered... and for what?
What is the benefit of all this??? Just so you could retire from selling your expensive house?
Isn't that a tiny bit immoral and retarded?

Strategist says

You missed the post on that $1.2 million tear down in SF.

SV is made of young engineers that earn in the low 6 digits, not corrupted ex-Chinese officials with boxes full of cash.
Right now these young engineers live in closets. And I'm not talking of artists, or restaurant waiters, or other average joes.
What's next when they can't afford a closet?
At current price level, the less rich part of SF will progressively be thrown out of the city, you will pay $5 for a latte and the city economy will clog.