It’s crazy to me that the house i grew up in and my parents could afford with only my dad working as enlisted in the military now is 650k vs 140k 20 years ago. This rate of growth doesn’t seem sustainable.
Some of this is simply caused by supply not keeping up for decades, but on top of that we have a lot of people who moved out of the cities/back in with their parents during the pandemic who now want somewhere to live.
Home prices are actually lower now than they were earlier in the year, but rent has inflated by quite a bit. That proves that the demand-side is causing the increases. If housing was simply an asset bubble, we would see purchase prices skyrocketing too. Increases in rent are outpacing increases in home values because of a lack of supply is causing potential tenants to compete with each other.
So, how would home values drop significantly? New supply takes years to build, so that won't do it anytime soon. High mortgage rates have only resulted in small decreases in prices. It's also becoming more expensive to build with new environmental requirements like solar panels on all new housing in California, for example.
The only way I can see significant price drops happening in the short term is something similar to what happened in 2008: a wave of foreclosures forcing sellers to sell low, at the same time as mass unemployment and massive stock market dips destroy the purchasing power of buyers. That would certainly lower prices, but the damage would certainly not be limited to the housing market.
or if there's a drop in demand?
To get an equivalent house you need to go further out to a less developed area with less people competing for the house, and there you will find cheaper houses.
I'm not saying it is sustainable or what the values should be etc, just that the past conditions != todays conditions despite it being the same latitude and longitude.
In the long run this isn't sustainable -- in the medium term we expect any exponential growth to plateau at a cubic, and in the long term quadratic, growth rate -- but while we're in what sure appears to be an exponential growth stage, that 8% number doesn't seem inherently unreasonable.
The middle class has seemingly vanished and I don’t think that is good for society
People in the middle. They haven't quite received that 50% raise the so now they're effectively much closer to the bag boy at the grocery store purchasing power. Yes, it's pretty awful for society and just getting started. It is demotivating and my thought is it's probably a contributing factor to why productivity is down.
Any investment portfolio that "only" made 8% YoY for 20 years would be incredible.
Isn't this almost exactly the return of SPY over that time period?