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Comment by rayiner | Hacker News Reader

People focus on the supply side, which is important, but has anyone looked at the demand side? How do people have so much money to drive up these prices?

I grew up in an 1,100 square foot house, built in 1950, my parents bought for $175,000 in 1989. Today Redfin has it at $660,000. Its a drab house in a drab suburb of DC. It's no boom town--the population of the town has grown just 10% in 30 years. But everyone just has so much more money now (and I guess interest rates are low, so people have a lot of credit).

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The access to cheap credit drives up the price of the underlying asset. You can see it in auto loans, where the average price of a new vehicle has ballooned to over $40,000 in recent years while loan payment periods stretch to 5, 6 and even 7 years.

Part of the increase is no doubt because new cars are getting larger, safer, and more technologically complex — but I think that part of it is that auto-makers have less of an incentive to control costs if their margins increase.

this isn't quite the same. if you compare like-for-like as much as possible (eg, base 2000 honda civic vs 2020 civic), msrp for new cars has not kept pace with inflation. adjusted for inflation, the price of an entry-level car has fallen in the last twenty years (even as the lowest end cars have become far more capable, safe, and efficient).

easy access to credit may have increased the average price paid for a new vehicle (by shifting buyers up-market), but unlike in the case of housing, this does not deprive buyers of the chance to buy a cheap car. people buying bmws on 84 month loans doesn't mean you can't get a brand new versa for $15k OTD.

Everyone talks about the billionaires soaking up the windfall for the last 40 years, but really it's the upper middle class that's leading the charge here.

Massive wealth inequality in this country is being driven by an increasingly prosperous upper middle class [0].

[0] https://www.brookings.edu/research/the-dangerous-separation-...

I think you are still talking about a supply side issue there.

If a drab suburb only has 10% population growth but massive increase in home prices that is because the town council has only increased the available lots by 10%. There are a lot more people in the DC metro area now so the increase of people who want to live in your suburb has probably doubled in that 30 years.

Of course if a town issues no new building permits as the surrounding areas grow of course demand per unit will go up.

175k to 660k in 32 years is only a 4.25% increase per year. That's really not much at all.

It’s true it’s less than some other places, but it’s almost double the headline rate of inflation over that time. For a town that—let me tell you—truly has nothing going on.

I don't know what town this is but the DC Metro area has a ton going for it. The population has almost doubled over that time period. If your town only approved minimal zoning increases during that time then of course prices will shoot up.

What was the mortgage interest rate in 1989? As rates go down, prices go up, so unless the interest rate environment of 1989 was similar to 2021, I don't think it's fair to compare only the home sale price.

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