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Comment by pontifier | Hacker News Reader

Real estate is so overpriced now, and so difficult to purchase that it's no wonder that people want to stay where they are once they find a place that they can actually afford. It almost feels like the choices are stay or be homeless.

I recently decided to move to a new state on the other side of the country, purely because of the low cost of real estate there. It feels like the tipping point was recently reached, and having zero opportunity to have the place I wanted in Utah or California, pushed me to look elsewhere. Elsewhere being Arkansas.

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Everyone is talking about healthcare, but I think affordable housing needs to be the next big public issue to tackle. It seems like this is acting as a lever in wealth inequality, since less and less young people are even able to imagine owning a home in their lifetime, and many in the position to buy treat it as an investment instrument, and thus have the incentive to drive the price up rapidly, putting it farther out of reach of everyone else.

I'm not against profit, but with something like housing which is a fundamental need, it seems like some effort must be made to build a system which makes it attainable for average people.

You can find affordable housing, it’s just just the densely spaced spec homes that deteriorate quickly. We’d be better off from a value perspective if developers could only carve out subdivisions but had to sell the lots to, home buyers who could then choose the house style and materials. Get rid of the HOAs and their covenants requiring uniformity. The builder extracts a huge margin by using the cheapest materials. A home is the worst purchase to do this way, since the economic lifetime is 75 years but the actual lifetime can be longer.

We should not allow developments in such a style as the lack of allowed change in such neighborhoods means that a neighborhood can never move up. The density and walkability is permanently fixed at a low level. Single family zoning and such home owners associations and cities don't allow, for example, people to turn a house into a duplex, which would increase affordability for all involved.

The country is made up mainly of affordable housing. It’s certain areas that are so expensive because you’re competing with many high earning professionals. In many cases a pair of them.

Not everyone can live in NYC or SF.

Saying that, people need to consider the low interest world we live in. When their parents bought their home years ago, the interest rate was very likely 10% or higher. Today it’s 3.5% and even lower. This drives prices up. The biggest issue is getting a down payment.

I believe a combination of lower standard down payments and new mortgage terms of 40-50 years would make housing more attainable for a lot of people. I also agree, more development is needed.

I'll agree with almost everything you say, but I can't agree with the lower standard down payments. That is one of the reasons that we got into such a mess in the mid 2000's, along with lower underwriting standards.

I hear you. The issue is, to me, that because interest are so low (and appear to continue to get lower) this has caused the list prices of homes to increase in proportion. Because of this, a 20% downpayment has become even more difficult to achieve for more people.

To be sure, the down payment doesn't protect the buyer at all. It simply exists to protect the lender in the case of an early default. They can still sell the foreclosed home, possibly under market or in a depressed market, and be made whole since they only lent 80% of the original price.

In fact, the average Joe would be better off in today's climate by putting 0 down and using what they would have put down into different financial instruments that will likely out perform the 3.x% interest rate they are likely receiving, considering they wouldn't have other penalties like PMI.

The financial crisis had a lot of inputs and bad banking was a part. That is, banks giving loans to those who were not financially able. However, a big part of this was due to government interference in the free market pushing President Bush's "ownership economy" policy which forced banks to give loans to people they probably wouldn't have otherwise. And then the whole thing went to hell.

A 0% down loan to a vetted individual with sufficient net worth wouldn't be a bad thing. I do believe there is a calculus we are missing between interest rates, inflation rates, and what a viable down payment should be.

Competing with high earning professionals AND using the levers of local government to slow the construction of new housing far below demand.

The first part would not be an issue except in the short term without the second.

> not everyone can live in NYC or SF

Reads more like "naturally the poor should be displaced from wherever the rich choose to live" considering that both cities have been heavily gentrified. There's a lot more than just higher income couples putting pressure on the market, there is a lot of distortion coming from developers seeking to squeeze every penny of margin from the jump in prices

Exactly. Vienna, for example, has tons of public housing which is affordable and is also a nice place to live. You can achieve that, even in a capital, if you have the political will to make it a reality.

The best time to build affordable housing is 20 years ago. The second best time is now. Unfortunately zoning rules mean you cannot build in places where there is demand, so supply and demand result in high prices. However if you already have a house this works in your favor: when you do sell out your house has gone up in value a lot more than inflation, while if your neighbor had built a large apartment next door your house value wouldn't be as high.

> when you do sell out your house has gone up in value a lot more than inflation, while if your neighbor had built a large apartment next door your house value wouldn't be as high.

This is an example of the issue I was talking about: it functions as an inequality accelerator. People who are already "in" have the power to set the rules of the game to be even more advantageous to themselves.

I think the biggest problem is that solutions we've used to subsidize middle class homeownership in the 20th century don't work anymore. Think mortgage interest rate deductions, things of that sort.

In cities surrounded by cheap farmland waiting to be developed, this money can be funneled into housing development. In the modern city that's already at "peak suburb", homeowner subsidies just contribute to bidding wars, driving up prices.

What we need is better utilization of land in desirable location.

Also, we need transit to connect neighborhoods to city centers. Hellish driving commutes could be pleasant train commutes with modern infrastructure.

The options have always been build up, build closer together, or build further out. The first two have been illegal in most places for decades, and at peak suburb we've reached the limits of the third one in terms of car infrastructure

People don't want to live next to a neighbor who builds a multi-family 3-story apartment complex out of wooden shipping pallets, blue tarps, and extension cords. We don't even want that anywhere, because it is a death trap fire hazard.

Cheap living is thus prohibited, though some large California cities look the other way sometimes when the homeless build homes of that nature.

You can't even build a new home without arc fault interrupters and centrally wired fire alarms. In some places, you'll even need to install solar. Of course this isn't cheap! We have simply banned cheap construction.

Real estate will always be priced at what buyers in an area can afford per month when factoring in home price, mortgage interest, and taxes.

Areas of CA and UT have appreciated faster than other locations mainly due to the popularity of living there for professionals. But a big part of the real estate price boom has been declining interest rates.

When you’re looking at property that costs many hundreds of thousands and into the 1m range, even a single interest point can have a dramatic effect. Because interest rates have fallen so much, value has moved into the cost of the real estate.

If interest rates were to rise to 8% for example, you’d see the pricing of these homes cut in half. It’s what the market can afford monthly that sets the price.

Of course if interest rates were to rise like that, an all cash purchase begins to make sense.

Even if you didn't purchase all cash, with a lower house price you can more easily pay off the house early by paying extra each month. The way it works now keeps people paying monthly way longer.

> Real estate will always be priced at what buyers in an area can afford per month when factoring in home price, mortgage interest, and taxes

This was the model that led me to believe there were problems in the housing market in ~2005. Well, technically, it was the concrete evidence that this model was being violated. House prices in South Florida, where I lived at the time, tripled in ~5 years, but incomes did not. Robert Shiller had a graph of housing prices normalized to income from 1890-2005 in the NYT in 2005. Price-Income generally stayed flat, with the exception of a bump after WW2, the S&L crisis in the late 80's, and an enormous launch in the early 2000's.

As I see it, current housing prices are being forced out of the traditional model by the effects of the Fed's QE efforts.

> As I see it, current housing prices are being forced out of the traditional model by the effects of the Fed's QE efforts.

Very likely true. The financial crisis messed everything up. Driving interest rates down and QE stemmed the bleeding but it is only prolonging the pain. Possibly we are in a new normal of low-to-negative interest rates for the extended future. If this is the case, expect homes to continue to rise in value and for people with access to cheap capital to continue to pull away from everyone else.

I'm not optimistic interest rates will rise as inflation stays low. They tried raising rates last year and it shook the markets and there just doesn't seem to be a stomach for a prolonged reckoning.

> I'm not optimistic interest rates will rise as inflation stays low.

I agree that interest rates are likely to stay low.

I find it ironic to think of as inflation as low, given that housing is way out of its historical pricing band relative to the model factors.

Money is cheap. Homes in particular rely a lot on financing. Goods that don’t rely on financing are relatively cheap since inflation has been so low. I believe in part because money is so cheap currently that businesses are able to sell bonds cheaply to finance their operation. Because of this the savings are passed down to consumers.

But house prices have more to do with interest rates than inflation currently I suspect.

I think it's because most people don't decide how much house they can afford based on the purchase price. They decide based on the monthly payment. Obviously, as the interest rate declines, they can buy more for the same monthly payment. Therefore house prices go up, because everyone can pay more for the same monthly payment.

I remember when interest rates fell from 9% to 7% (early 90s). We had just bought a house for about $60K. Then interest rates fell, and house prices jumped, and suddenly our house was worth 90K. But if we had bought the same house at 90K at 7%, our monthly payments would have been the same.

I agree that monthly payment is the key factor people consider. I think there's more to it than interest rates, though, let me demonstrate:

I took a generic mortgage calculator and ran the numbers (30 year mortgage) on your house (first two rows), and on a South Florida townhouse that used to be mine (second two rows), to illustrate:

Price Rate Monthly Lifetime

60000 9 483 173798

90000 7 599 215558

142000 7 945 340000

309000 3 1303 468992

Note that the monthly payments are 24-37% higher in their after scenarios, even with a low, low interest rate for my townhouse. I see this scenario playing out over and over again and people assign the difference to interest rates when crunching the numbers suggests there's more to it.

You found it hard to find a cheap place in Utah?

Real estate in Utah is very expensive now by local standards.

Yes. The difference in price is truly unbelievable. I had to call the agent to make sure they hadn't left a zero off of the asking price. Equivalent places I was looking at in Utah were going to cost several million dollars.

Your story sounds like those of Californians who moved to Utah a decade ago. Before you know it, people in Little Rock coffee shops will be complaining about the influx of Utahns selling their modest West Jordan homes to buy mansions in Arkansas.

Utah has remained a hidden gem for years, but external market pressures are driving up prices, and supply is surprisingly constrained by the local geography (mountains and bodies of water constricting available land in the SLC metro.) Utah doesn't enjoy the same wide open space of many inland states, at least in the developed areas where people want to live.

How big of a house do you need?

https://www.zillow.com/homedetails/14455-S-Muirwood-Cir-Herr...

You also have to consider distance to the city center or recreational areas, lot size, neighborhood type, architecture, etc.

So... I'm getting over 200,000 sqft of warehouse and office space. I'm planning on living there which will actually make it, by far, the largest private home in the entire US.

I need that much space for prototyping some of my inventions and intend to open the worlds largest Makerspace, hackerspace, and artist commune.

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