Hacker News Reader

Comment by dionidium | Hacker News Reader

> It's a simple problem, we turned housing into an investment.

People are not natural economists and will basically dig in to support the status quo until that status quo changes, at which point they'll support the new one. Americans, for example, buy new cars at an average new price of $40k and for most of my life accepted uncritically that the value of those cars would plummet the second they were driven off the lot. They did not lobby for supply restrictions that would prevent it. They didn't ask their politicians to prop up "car values." They didn't try to avoid it, at all. They just accepted it.

They would do the same with housing, if they weren't already conditioned not to.

View on HN

https://en.wikipedia.org/wiki/The_Market_for_Lemons

There's a legitimate reason why a car immediately loses its value. People are more likely to sell cars that have something wrong with them. The market price for a car that you just drove off the lot is not the market price for an average car of that age, it's the market price for the subset of cars of that age that people want to sell. Because a car in that subset is more likely to have something wrong with it, its value is lower. Even if you personally are not selling the car because there's something wrong with it, it's hard for the buyer to know this.

If people had magic X-ray eyes that could tell that the car you just drove off the lot doesn't have more problems than an average new car, then its sale price would be similar to a new car. But they don't.

That sounds reasonable to me, but it didn't stop the cost of used cars from skyrocketing during the pandemic, due to the supply-chain-induced shortage of new cars. When the car market started looking a lot more like the housing market, so did its prices.

In that situation, the value of all cars went up, both new and used. The value of a used car was still much less than the value of a new car, you just didn't notice this because new cars didn't have their prices raised to correspond to the increased value.

That's not true, I could show you offers of my used truck being worth more than a brand new truck of the exact same generation of model in the exact same configuration. Used vehicle prices went insane during covid as the irrational market and places like Carvana paid more for your used car once it's off the lot.

I almost wonder if people overbought into the "new car must be more expensive" paradigm so they forgot new cars were competing against used cars, and the prices of used cars became irrationally high.

I thought it was that new cars had long lead times attached to them. Was that not the case?

I'm sure that's a big factor.

Yes they did? There were upwards of $10k dealer mark-ups on new cars.

New cars did sort of have prices raised, because most of the incentive programs stopped. The 5-year zero interest financing, the thousands of dollars of rebates, the negotiating the dealer was willing to do, all ended. New cars sold at sticker price and there was no shortage of buyers.

That is one reason, but there are many.

* You get to option the car with exactly the features/colors you want.

* People will pay a premium for something brand new.

* Financing for used cars usually carries a slightly higher interest rate.

* The actual cost at the dealership can vary significantly depending on the make/model/dealership

During beginning of COVID I drove a Tacoma off the lot for ~29k out the door and at the end of COVID I had several offers to buy it from me used with over 10k miles on it for anywhere from $30-31.5k. At that time you could still buy it new for ~29-30k.

In fact the only reason why I bought new in the first place was because even a 10 year old tacoma is worth the better part of a new one. Guess it depends on your market but the premium for new looks pretty tiny or negative to me.

I don’t understand the downvotes. Your conclusion is wrong but you make a good contribution. Thanks for the anecdata.

I too have seen this phenomenon, and I think it’s pretty common recently because the used car market is really out of whack. In my case, last year I bought a lightly used Sonata for about $30k with 12k miles, and today I could still trade it for about the same price with 31k miles on it.

Where you’re wrong is that this phenomenon doesn’t apply in general to the used car market but only in the last few years because of the chip shortage shrinking the supply of new cars. Short supply in turn increased demand for used cars, raising the prices.

> They would do the same with housing, if they weren't already conditioned not to.

That's a pretty unrealistic comparison, housing doesn't hold its value (or go up) because people are conditioned, there are real reasons.

There is an effectively infinite supply of new cars, as factories can much more easily ramp up production if there's more demand. (Sure, recent supply chain issues have made that problematic, but in normal times.)

Second, cars do inherently depreciate faster. A ten year old house is basically brand new whereas a ten year old car is probably mechanically sound but cosmetically often looking its age and a lot of people like new and shiny.

Reply on news.ycombinator.com