What If Housing Never Bounces Back? | Hacker News Reader

What If Housing Never Bounces Back?

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11 pointswallflower28 comments

> "What If Housing Never Bounces Back?"

Then I might actually be able to afford a home in a pleasant place to live.

Screw this entitlement attitude - people bought into houses thinking they'd be this great investment vehicle, instead of what it really is: a stable way to maintain value and a roof over your head. The previous generation caused the bubble, screwing the younger generation out of affordable housing. Where I grew up, the average detached home is now $1M+, in a country where the average income is ~$40K.

The market has finally returned to sensible levels, and one would hope in the future continues to be priced based on its utility as a home first, and as an investment second.

tl;dr: Screw the boomers - maybe some of us can actually afford to buy a roof over our heads now.

I've always thought the coverage of housing in the media is very one-sided. As in any market, there are buyers and sellers. Way too much coverage is spent worrying about the sellers and not being happy for the buyers. Counter-example: if car prices suddenly dropped by 50%, the media would cover it like the second coming.

For good or for bad, the media has a propensity to focus on news that appeals to the reader's primal instincts, in this case fear. A 'homeowner' being under water or in danger of foreclosure seems to invoke a greater sense of crisis on the 'homeowner' than the situation on other side of the market for the potential buyer, namely a renter having to rent for many years because houses are just too expensive, or being able to buy cheap houses. For the (potential) new buyer, there is no crisis.

The stock of housing is much larger than the flow of housing to and from the property market each year.

That is, current homeowners greatly outnumber people currently looking to buy by a large ratio.

So the media's coverage isn't one-sided so much as majoritarian.

That's fair, but I'd argue that most renters would like to buy a home or would pay a reduced rent if housing prices decline.

Put in that context about 40% of the US population has something to gain by lower housing prices -- so I still think the media has done a bad job covering the other side of the story.

True, but renters are not as emotionally involved as homeowners.

A typical homeowner has the majority of their financial position tied up in their house. Where goes their house, there too goes their fortune. This is not true of renters.

The media doesn't cover the news democratically in other areas. Else it'd be pretty boring, reading that millions of people woke up and had a cup of tea this morning ...

That's because having tea isn't out of the ordinary and doesn't threaten people's sense of security.

The formula for "news" is to multiply the number of people affected or interested by the emotional impact of the news.

It is worth noting that people tend to continually upgrade their houses, until after they reach a certain age, their kids move out, and they realize that they don't need that much house any more. Then they downgrade.

Demographics say that the baby boom is about to move past that critical phase. This may result in a long-term decrease in housing needs for demographic reasons. What will that do to house prices?

People tend not to downgrade, at least in CA because of Prop 13 [1] which, for those of you not familiar with CA politics, more or less freezes housing taxes while you own the home. Thus giving people who have large amounts of housing price appreciation an enormous incentive not to downsize -- if you've owned a home long enough, you could buy a home worth significantly less and end up paying significantly more in taxes.

[1] http://en.wikipedia.org/wiki/California_Proposition_13_(1978...

How does that hold up in a market where housing prices are depreciating?

It would have to depreciate pretty far to be worth trading houses for a lot of older people.

At that point turnover due to death becomes a bigger issue.

Thinking of a house as an investment is foolish. Do you think of your car that way? No. Homes are commodities that like your car depreciate in value. Building homes has like anything manufactured at scale, come down significantly in cost. This is making it possible to build many more homes at a much faster rate. The days of homes being an investment are long over and will probably never return.

Cars and homes are completely different animals. Yes, home prices have been inflated, etc. But property is a very scarce resource and is generally a good investment over the long term. Just because you can build homes quickly doesn't mean that they will be in places that people want to live. Those places will always be highly valued.

Property is a scarce resource in some places. Often the difference is how property is released into the housing markets, and what can be built on it.

For many purposes, Australia and Texas are comparable. Yet Texas has far cheaper housing than Australia. The difference, according to some researchers (and I agree) is that Australia has very complex, overlapping zoning laws and constricted land release; Texas does not.

Another interesting case is Germany. In Germany you have a constitutional right to build a home. Germany has apparently had, in real terms, quite flat house prices for a long time despite not being particularly land-rich compared to places like Texas or Australia.

Interesting. Do you have more information on both the texas/australia and the texas/germany comparisons?

Dr Oliver Marc Hartwich at the Centre for Independent Studies is the main researcher who I saw these comparisons from:

http://www.cis.org.au/research-scholars/cis-research-scholar...

I can't locate the Texan comparison, but here's one discussing the UK and Germany:

http://www.cis.org.au/media-information/opinion-pieces/artic...

The same comparison again -- the charts are quite telling:

http://macrobusiness.com.au/2011/06/how-germany-achieved-sta...

Thanks :-)

cars are liabilities: they cost you money to own and you can't sell them for more than you paid for them, classic cars aside. houses are different because...? they still require expensive maintenance like a car, upkeep in the form of insurance and property taxes... houses are only assets when you are better off than renting or you are renting the house and turning a profit.

I think house prices were also driven up by dual income families who can afford more expensive housing.

I distrust articles from "the Fool" because they often do stuff like this; publish one article calling for a recovery in X, and one saying that X will tank. Ultimately, someone at fool.com will always have been right. That doesn't mean this article is wrong, but my guess is that it is just the article written in response to someone at the Fool saying, Hey, we need to write a pessimistic piece on real estate to counterbalance our recent upbeat assessment. What actually makes the article not credible, in my view, is that it takes no account of growing population, no account of economic growth, no account of future inflation, no account of the precipitous decline in housing starts in the last few years, and no account of the fact that people are inclined to forget the lessons of the latest bubble as soon as they smell a new one. It also takes no account of the fact that every time someone says "this time is different" they turn out to be wrong, but maybe this time is different.

(I own (so to speak) a house--how's that for disclosure!)

I trust the Motley Fool more because of that. Their columnists are free to argue with each other, and to be honest I've loved their 4-part "dueling fuels" series. Excluding the content just for newbies, I've found it some of the most educational reading on any finance site.

Bounces back to what? The crazy bubble days? Who thinks that's possible, or even desirable?

We just don't need fancy digs anymore

Then grab the bull by the horns and make small sensible houses.

This is illegal in many locales.

And if it's not explicitly illegal, good luck getting it approved!

It is interesting. I guess, I never heard of it being explicitly illegal but I suppose zoning legislation could be worded that way.

Smaller more affordable properties equate in most peoples' minds with "projects". Subsidized housing with many poor or on the verge of property families. People start seeing vision of crack houses and gangs roaming around.

All those things are unfortunate stereotypes but I think, also unfortunately, that it is often true, i.e. that is how people make decisions where to buy and how much to pay (not that poor people are always criminals or cheaper housing always = crime ridden area).

What I think the general heuristic is -- try to buy in areas that are prohibitive for "poor" people to buy. Doesn't matter what a house costs, if they see signs of "poor" people living around, they will pay enough until it gets them into a community (gated perhaps) that matches their perceived social status -- which is most often tied to economic status. These areas just price out those who can't afford homes in a certain range.

So how does this relate to the housing market? Well, I think it pushes families to borrow a lot more than they normally would as they feel the need to "escape" certain areas. Perhaps they are more rational when it comes to buying cars or big screen TVs but housing has a lot these additional complexity associated with it.

Polarisation of neighbourhoods resembles an emergent phenomenon. Schilling gave an account explaining how a very weak preference of people in group A to live in a majority-similar neighbourhood could, within a few 'moves', cause an almost total polarisation of populations.

See Micromatives and Macrobehaviour or Turtles, Termites and Traffic Jams.

Well, then they can have their heavily regulated ghost towns.

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