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Comment by skwirl | Hacker News Reader

A house that's $2m today is that expensive because it's a highly desirable home, much more desirable than the vast majority of homes out there - probably in the top 5%. You can never make such homes reachable for the majority of people because there aren't enough of them - if there were, they wouldn't be $2m right now. 50%+ of people can never afford the top 5% of homes.

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The two-question test I use is:

1) Do your parents own their home? 2) Could people with similar jobs/savings/backgrounds get a similar house today?

Usually the answer to 1 is yes, and the answer to 2 is no. 95% of homes are priced like the top 5% of homes. A million-dollar mansion used to be, well, a mansion. Now a million-dollar house is "a detached house within a 45 minutes driving distance to downtown".

At the rate things are going, in a few more years I wouldn't even be able to afford the home that we got into in 2016. It's already "appreciated" by 60% with no signs of slowing down. Every home that sells in our neighborhood today sells inside of a weekend and for "record-breaking" amounts. It's hard for me to even describe the way that this makes me feel. I suppose that I should be happy because, wow, look at my "investment" go! But, I don't. I feel afraid for my family's future, especially so when it concerns my very young children. I imagine that this is similar to how people felt during the run-up to the 2008 crisis.

edit/ words.

That's only really true if you are talking about specific houses and locations, while keeping everything else unchanged.

In general, houses are just as desirable as they were a few years ago when they were half the price. All that has materially changed is the supply and cost of credit.

The same thing works on the downside: broad price falls are not due to mass desirability changes. They are due to credit becoming harder to get and more expensive to repay on a monthly basis.

Finance 101: asset prices move inverse to the discount rate.

I never said macro price changes were driven by desirability changes - my point was almost exactly the opposite: The macro price is irrelevant. The top 5% of homes for sale will never be available to 50% of buyers. Price differences at a point in time signal relative desirability of homes. Over time, prices may go up or down, but the top 5% of homes will always be significantly more expensive than the median home.

That's a different point than what I think the OP was making, and it's not entirely accurate either (except in a relative sense). For it to be completely correct, buying power would have to move identically with prices, and it does not. There have been many periods and places in history where the median income earner can afford a top 20% home (but may not choose to), and many other periods where the median income earner can only afford a bottom 20% home, and may instead choose to rent. What we've seen over the past decades is an acceleration of price ahead of buying power, pushing more people into renting, and leading to an accumulation of multiple properties in the hands of a smaller number of wealthier people (or institutions like Blackstone).

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