Comment by arcticbull | Hacker News Reader

Comment by arcticbull | Hacker News Reader

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I'm sorry it's simply not what's happening in housing. For a place that prides itself on logic and deductive reasoning, there's a whole ton of tinfoil hat economics around here.

Let's introduce some facts.

1. The inflation-adjusted cost in $/square-foot of a house in the United States remains unchanged from the 1970s according to BLS data. Wages kept pace with inflation (but not productivity). Okay, so why are houses more expensive then? [1]

2. New homes have on average twice the square footage that they did in the 1970s and this is particularly felt outside of urban areas. This is due to zoning rules, setback rules, minimum size rules, etc.

3. Since the 1970s, major metros have significantly restricted new development. San Francisco built less than half the homes needed to sustain the increase in demand over the same period. [3] This is managed through punitive zoning rules and obstinate city councils.

Houses in places people want to be became way more expensive because supply was not allowed to grow to meet demand. Houses outside of these urban areas are now twice as big. Housing is expensive because Americans believe housing should be an investment first - and the goal of an investment is to become less affordable over time.

You cannot have something be both a good investment and affordable. You must pick a lane.

We know it's not what's happening in housing because Japan has basically the same monetary policy, and the same low interest rates - and has tripled their M2 money supply since 1990. But their CPI and their cost of housing remain dead-ass flat for thirty years. Because they have federal zoning rules that allow supply to meet demand. Look at this graph. [2]

Your cause is noble but you're pointed in the wrong direction, Quixote.

> We are watching the looting of the american citizen in real time, communism/collectivism is once again the wolf in sheeps clothing.

We in this case is not the Fed (properly capitalized this way btw) it's city councils. And that's not communism, if anything it's feudalism.

[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...

[2] https://fred.stlouisfed.org/series/JPNCPIHOUQINMEI

[3] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage

I'm no better than a tinfoil hat economist, but is the house investment thesis really true? As a homeowner I'll just say in my experience owning a house is very expensive. Renovations, improvements, maintenance, etc.. cost a lot on top of interest, taxes, and insurance.

It's very true if you are lucky (or smart, depending on who you ask) with the location it can be an incredible investment. But there are many neighborhoods where houses barely increase or even decrease in value as well (relative to inflation).

If you compare it to the S&P 500 over the past 2 decades as well it probably fares far worse.

My house has more than doubled in value over the past 8 years. If you consider a 20% downpayment, it's nearly a 1000% return on the non-borrowed part of the investment, on something I needed to live in anyway. I can't say I'm unhappy about this, and yet it's also totally insane. And I agree with the GP, this is all thanks to city councils blocking market dynamics.

I think in this situation, comparing housing to stocks isn't quite apples-to-apples. One of the appeals of owning a house is the money you no longer spend on rent.

On average it tracks inflation, in metros it far outpaces it due to artificial supply constraints. Because you only make a 20% downpayment on the property, youre actually making a 5X leveraged bet on real estate at the outset. The S&P goes up what 7% geometrically on an annualized basis but due to the leverage inherent in your mortgage, your house only has to appreciate (at the start) 1.4% to achieve the same return on your equity.

Like all leveraged bets, if it doesn't beat inflation you get destroyed by interest. If we have a crisis like 2008 the leverage works against you.

I understand in certain markets if one is diligent they can be quite profitable as a real estate investor. That is not what I am talking about - I mean the median U.S. home. That's not quite as strong of a case for investment. I'd suggest most buy a home for lifestyle first, and maybe at best a forced savings account second.

But huge congrats to those living in areas which have seen incredible growth! Just understand it's not the norm.

Now what happened this past year is rather peculiar and it's going to be interesting to see how that unfolds.

> Like all leveraged bets, if it doesn't beat inflation you get destroyed by interest. If we have a crisis like 2008 the leverage works against you.

This isn't actually relevant because mortgage interest, minus tax credits, is well below inflation. The base case on a 30 year fixed is that you end up ahead just by having the loan.

> That is not what I am talking about - I mean the median U.S. home. That's not quite as strong of a case for investment. I'd suggest most buy a home for lifestyle first, and maybe at best a forced savings account second.

I'm not sure there is a "median US home" because it's super multi-modal. There's an urban homes, suburban homes and exurban/rural homes. Each will have a different risk/reward profile.

> Now what happened this past year is rather peculiar and it's going to be interesting to see how that unfolds.

Indeed.

By the way, all this is to say, I also do not think that buying a home a guaranteed win by any stretch. You have maintenance/upkeep costs, insurance costs, potentially HOA dues. You lose a lot of flexibility. And potentially most importantly, you lose out on the opportunity cost associated with your down payment. Plus, you have a lot more risk if the market moves against you. Returns are never guaranteed even if you're in a historically appreciating market.

There's some great calculators that cover all this to tell you if you should rent or own - and in my early 20s, the calculator rightly said I should not own, even though I was in an appreciating area. [1]

[1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

USA M2 graph is on pace to double in 5 years, that's quite a bit different than the 30 year comparison you make with Japan. Real estate happens on the margins, very few people are selling homes as a percent of homes owned. When I look at Japan's chart there are effectively zero inflection points after 1990.

There's no reason to think that, actually. Certainly not to think that it's responsible. You can pick from any of a large set of developed countries - Canada, the UK, much of Europe - they all had different monetary policies but punitive zoning rules and saw the same effects on housing prices.

The ones that stand out as having the most liberal zoning rules see the lowest increases in housing prices.

You seem to have identified a case where there is an obvious effect, but that shouldn't then be used to dismiss the obvious potential for other effects. Anyway that's besides the main thrust of my response, that is, M2 of USA in 2020-2022 is nothing like the 30 year history of Japans M2.

There is no proven correlation between M2 and housing prices

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