I have been patiently waiting for the next "bubble" to pop, even as my realtor insists that oh no, we're not really in a bubble, this is just the new norm.
Surely this cannot continue forever, right?
Unlike any other investment a home has direct utility for the buyer as shelter. You should buy what home you can afford and don't try to time the market. You are much more likely to end up worse off by waiting.
Here's a hypothetical scenario for an SF home: A home that would have sold for 1.7m in 2015 blows up to 3.1m today, then the supposed bubble "pops" and it drops over the next year to 2.5m. Then over the following 5 years it recovers to 2.8m.
At no point was it a good idea to wait. Buying in 2015 was the best move. Buying today (at the supposed top of the bubble) only loses you 300k, while waiting to purchase cost you up to 1.4m. Buying post-pop costs you at least 800k, far more than you'd lose buying at the peak. All while paying rent instead of building equity.
Waiting for a bubble to pop assumes you have excellent timing, you invest $(mortgage - rent), that investment gains enough to offset the dead weight loss from paying rent, and that the pop is so catastrophic that home prices revert to the mean... all while this catastrophic scenario doesn't hurt your income/investments such that you are well-placed to take advantage of the pop (as opposed to laid-off or suffering from 50% losses on your investments).
I tripled my investment when I sold last year, but I would probably have done 3.5x now... lets see what happens next year. The wood prices went back down a lot, at least: https://ns.reddit.com/r/HomeImprovement/comments/p7rfsq/ever....
Not banking on that.
And if it does, we've entered some kind of new era for the haves and have-nots. :(
The moratorium on evictions (due to COVID-19) still lingers on. When it once and finally ends, things will change.
Companies switched to remote work, allowing people more flexibility in where they could live, and giving them fewer expenses. Those companies will either 1) Require their people to switch back to in-office work, or 2) Start to ask why they need to hire US workers in high cost-of-living cities, when remote world could be done from countries with far less expensive employees.
In either case, you'll start to see people shifting where they live, either because it's no longer practical to live in that area, or because they can't really afford it.
So hold tight. I can't tell you exactly what all the changes will look like, but things will certainly change, soon.
The reason for price increasing is always supply curve of the house you might want is not keeping up with demand curve of people with more money who want that house.
There are lots of places in the US with house prices that are stagnant or increasing much slowly than elsewhere. But that is because there is lower demand.
I know this guy, and he's not smart. One of the stupidest people I've ever met actually. Washed his clothes with dish soap stupid. He bought a house 2 years ago with less than 10% down and he's got equity totaling more than 150% of the value of the house when he bought it. Even monetary inflation aside, if an investment can bring windfalls to anyone who can fog up a piece of glass, something isn't right in that market and it isn't sustainable.
There's an anecdotal indicator, but housing prices are rising significantly faster than monetary inflation and population nationwide, that's pretty good evidence for a deviation from fundamentals.
Supply and demand. There are way more people that want to live in these places than houses available. And we keep making new people every year.
That said, prices will change. SFH owners move once in a while. Even if you live in the same house for 50 years (about the max possible given human lifespans), someone else on your block will move every few years. When someone moves a developer will look at the location and decide if it is wroth buying the house for the lot, tearing down and building something else. Right now in the Bay you could buy a lot of SFHs, tear them down, replace with a 10-plex and rent it out for enough to make it worth it. (Assuming zoning codes would allow this without a large cost over the cost of labor and materials) Eventually though housing will catch up and rent will fall until it isn't worth it.
We can't prove the above because of course zoning codes won't let you do it.
That's like the saying "government bonds are 0 risk." It's usually true, til it isn't.
These problems with housing costs in these cities absolutely will make the cities less desirable, I think we will see a large deurbanization period in north america very soon and you'll see most of these cities that are constricting supply of housing crumble like Detroit.
You can have 2 classes: property owners and non-owners.
The property owners have real estate that they can sell or collateralize to purchase different or additional real estate. This is why, for example, current California owners have no problem buying in e.g. Washington: even if a house in both places were $1billion*, they can just trade.
Obviously, non-owners may be priced out, but this doesn't affect the owners, and they, as a class, can ask for any amount to transfer the ownership.
TL;DR: In musical chairs, so long as there are no new chairs produced and nobody on a chair is forced to stand, there's no ceiling on the asking price for a chair.
*Neglecting transaction costs.
If it's your primary residence, you can't trade one from California to Washington because you would have a large tax bill when selling one. You can't even trade within California itself. If you bought a home for $500k 20 years ago and now discover it is worth $2M, you cannot even trade your $2M for a different $2M a few blocks over. You would have to pay taxes on a $1.5M gain.
If instead the home s an investment property which you rent out (which have higher interest rates), then you could do a 1031 exchange.
And this person with the $2M home in California can, even after taxes and transaction fees, recover their original investment, plus have enough left over to e.g. buy a $1.5m home in cash, or a much higher priced home with a mortgage?
Suppose you haven't worked for the past 20 years.
The inherited low property taxes always seemed pretty egregious to me (almost like an aristocracy of landed wealth). The whole thing is pretty dismal, honestly - I'm not opposed to low property taxes, but a tax regime where people pay vastly different taxes on similar properties causes all kinds of problems (and is fundamentally unfair, in my opinion).
Much of the change to the law, though, was driven by real estate agents who want to increase transactions. The previous law preserved low property taxes as long as elderly people didn't sell and left the house to an heir. Now, people 55 and and over can sell repeatedly without increasing their taxes, and there's more incentive for heirs to sell the house. That's as much was 4 commissions where there used to be none.
First sentence from wikipedia:
>Capitalism is an economic system based on the private ownership of the means of production and their operation for profit.
How does this predicate "on the idea of perpetual and infinite growth"? I mean, it'll be nice if the economy grew infinitely, but I'd still want to invest my money into production even if that didn't exist.
So, it's not "nice" if the economy grows, it's an absolute requirement to keep investors interested.
"The single most important question in investing this year is whether the rampant inflation of the moment is temporary, as the Federal Reserve believes, or marks a historic shift. I argued last week that we are on the cusp of a major change and long-run inflation is now more likely."
https://www.wsj.com/articles/if-inflation-is-coming-here-is-...
Central banks target positive inflation because of the inability to cut interest rates below zero.
The math does not check out. 1.03^16 = 1.6, not 2 like you'd expect if it was "double".
Moreover, inflation only necessitates that the money supply grow infinitely, not economic activity and/or resources. If we doubled the bank balance of everyone overnight, and the price of everything doubled, that's not really "growth" in any meaningful sense.
Suppose we've reached a point where the population has stabilized and all natural resources were being used at the sustainable rate. What production would you be able to buy? Would the current owners sell it to you? Would you be able to accumulate enough capital to induce them to sell?
Obviously the definition of capitalism doesn't include "perpetual growth", but it does seem like a reasonable extrapolation about the world. At the time capitalism was defined, indefinite growth was realistic, and easy to assume axiomatically. I'm not sure what capitalism looks like if that assumption fails.
I'm also not sure what it looks like for that assumption to fail, since "production" also includes creativity which isn't limited by natural resources. You can always invest in new books, video games, etc which are effectively unlimited.
Or I'd invest in games/movies/art. People are always interested in something new even if the plot 3000 years old.
We might be able to guarantee infinite creativity... but will you be able to invest in it? If you're not the one writing the game/movie/novel, why would the artist permit you to invest and reap the benefit of their creativity?
Until recently, you could gain that power by owning key industries: the cinemas, the advertising agencies, etc. But those middle men are increasingly squeezed out; what would you offer that they can't get elsewhere? They'd cut your marginal return to the bone by playing you off against other people who have money to invest but nothing of their own to invest in.
In the best case, the resources would be distributed well enough that you could write your own novel, or whatever creative project, and not care about who will pay for it. In the worst case, you could find that all of the money ends up in the hands of a very few, who would out-compete you for any investment opportunity that arose.
AAA games are expensive to make, so are blockbuster movies. Even for non AAA/blockbuster movies, you'd still need some sort of financing. If UBI isn't a thing you'd need to finance your living somehow, which limits you to working part-time or requiring a substantial savings fund. novels might be fine, but you'd still might want a publisher for an advance or PR.
See Japan? They're doing fine without growth.
Economic growth does not imply consuming more resources. Developing a more fuel efficient car is also growth, for example.
> Developing a more fuel efficient car is also growth, for example.
One of the major economic concerns about electric vehicles is that they have fewer moving parts and maintenance requirements, and might cut auto worker jobs in half.[1] I don't think the article got into numbers of job loss in gas stations, oil production and distribution, etc. So the most fuel efficient car possible may prove to be bad for growth in general.
> Economic growth does not imply consuming more resources.
Technically true, but in practice, if your product is not 100% recycled and 100% carbon negative to produce, you'll need to extract more of the earth to sell it.
I will say that with some industries like meat production potentially moving to vats and away from farmed animals, there is a possibility. But you also have to consider the economic damage of eliminating cattle farmers, farm vets, slaughterhouses, meat packing, etc.
[1] https://www.nbcnews.com/business/autos/electric-vehicles-pos...
That is simply wrong. If you cure cancers, you save human lives, which is worth a lot of money. You are basically falling for the broken window fallacy - breaking a window is like somebody getting cancer. You think the economy benefits because lots of doctors, nurse, undertakers and whatnot get business out of it. But you are wrong.
"Technically true, but in practice, if your product is not 100% recycled and 100% carbon negative to produce, you'll need to extract more of the earth to sell it."
Another fallacy to think the economy only consists of producing things. Also you have to think longterm - sometimes it can be worth it to replace old things with more efficient things, sometimes not.
The country that spends the most GDP per capita has the worst outcome for life expectancy of any industrialized nation[1]. There is no inherent monetary value to a human life in the capitalist system, as the data clearly demonstrates. The most ideal scenario in a for-profit healthcare system is to extract every dollar possible from each individual until just before they die, regardless of how old they may be at that time.
America does one better, and debtors can pursue the children of the deceased for certain medical bills in certain states.[2]
> Another fallacy to think the economy only consists of producing things
You can't consume digital goods without a physical computer. You can't get a service that is magically free of dependencies on infrastructure or electricity. There's certainly a scale of environmental sustainability, but you're always dependent on something in meatspace.
[1] https://ourworldindata.org/grapher/life-expectancy-vs-health...
[2] https://www.thebalance.com/debts-from-the-estate-of-a-deceas...
This does not imply the quality of the medical services is to blame. One issue of the US could be that people have too much surplus (the US is the richest country of the world), so they can eat a lot and get fat (they also have cars and don't have to exercise). Obesity then shortens their lifespans.
"There is no inherent monetary value to a human life in the capitalist system, as the data clearly demonstrates"
That's just stupid. I bet even the US spends a lot of money on protecting lives, for example install bridges and traffic lights. There is an established science to calculating the value a society assigns to human lives.
"You can't consume digital goods without a physical computer. You can't get a service that is magically free of dependencies on infrastructure or electricity. "
If a doctor saves your life, you have "consumed" his service. Maybe saving more lives would consume marginally more resources. But that also is not a given, as for example the production of medication can become more efficient. Look at the price of penicillin, or at artificial insulin. Iirc in the beginning insulin was extracted from tons of animal livers, a very wasteful process that has been replaced with something much more efficient. So now you can save more diabetic people at a fraction of the energy.
What is needed is a money system that lets the economy grow as much as is sustainable, not 3% per year because that is what someone wrote into a contract 20 years ago.
Growth does not mean that things get better. Growth means that things get more. More is not always better. More humans, for example, seems to destroy habitability of the Earth. Is that better?