It will never be a good time to buy a house

>Housing can’t both be a good investment and be affordable

Yes, I think of this a lot in the context of healthcare; applying market economics to human morbidity and mortality is just grim and macabre. At points it is unavoidable I'm sure, but in the end you end up with unanswerable questions regarding the value of human life. I sort of get the feeling that in that context, "Logan's Run" was basically the optimal economic solution.

As long as you can mostly buy and sell houses freely it's a market, it being supply constrained just means high prices (which is what we see).

Calling economics a "science" is a stretch. If one subscribes to a definition of science that requires a process for falsifying hypotheses,^1 then how are economic theories falsified. (Prediction: No replies will answer this question.)

Originally economics was called "political economy" and that's the era from which the "dismal science" term came from.^2 The original use of the term "dismal science" to refer to economics occured long before the scientific method was widely adopted.

1. This did not appear until the 1930s.

2. The first use of the term "dismal science" was an article in an 1849 issue of Fraser's Magazine about trying to use political economy ("economics") to justify the use of slavery on plantations in the West Indies.

"It may be granted that, even in its purest form, economic theory has implications for policy and in that sense makes political propaganda of one kind or another. This element of propaganda is inherent in the subject and, even when a thinker studiously maintains a sense of Olympian detachment, philosophical and political preferences enter at the very beginning of the analysis in the formation of, as Schumpeter would have it, his vision: the preanalytical act of selecting certain features of reality for examination."

Blaug, Economic Theory in Retropsect

https://fred.stlouisfed.org/series/ASPUS

After that point the 'sale' value dropped, but the interest increase has made houses massively more expensive.

But underneath, it really is just under-supply of homes. People are competing for limited housing, but instead of hitting a natural ceiling of affordability, they’ve continued to compete on prices by out-borrowing each other to offer ever-higher bids.

We now seem to be hitting the next ceiling — buyers are unable leverage their bids any higher. I can’t wait to see what “innovations” the financial sector comes up with to create a new ceiling. I’m guessing fractional ownership or something like that.

Check out Canada housing prices where they only have 5 year fixed rates, 1.3M dollar homes 2 years ago are selling for 700-800K. This is what will happen in the US unless interest rates go down again, it's basic math.

I feel like I'm teaching someone to suck eggs but but the price of houses has rocketed in both terms of absolute and relative-to-earnings.

Your $1mm house was $300k two decades ago, and $60k two decades before that. 8%/30yr on those sums was affordable. Interest rates of 8-10% were normal in the 90s. Expensive credit isn't the problem.

Those two cities are expensive, but I think there are a lot of other expensive cities too (Austin, Los Angeles, etc.)

I checked with Bard, and it looks like 9.2% of the US population lives in New York or San Francisco: "The New York metropolitan area is home to 22.1 million people, or 6.6% of the US population. The San Francisco Bay Area is home to 8.7 million people, or 2.6% of the US population."

Result was few richest poles first race”ing to buy all the land around cities and then build on those plots apartment blocks for rich poles and foreigners to rent units at.

It was post-war communist govt that started building cheap living blocks en masse in ruined cities. Today those neighborhoods have reputation for being some best places to live due to quality of urban planning: a lot of space between blocks and walking distance to services, schools and health care.

DC is run like it's still the 1700s despite all the technology that makes it pointless for everything to run in DC. Logically having all leadership concentrated in a single place is a huge risk, but they won't change it

Great piece from M. Nolan Grey, who is an excellent twitter follow: https://www.theatlantic.com/ideas/archive/2022/08/housing-cr...

Perhaps at todays rate, but this is not always the case and depends on the relative rates.

We did the opposite, Maxed out our loan and kept cash on hand.

I bought right before the interest rate shot back up with a ~5% down payment, and the past few years of ownership have improved my mental state substantially. You don’t know how much stress is caused by having that potential rent hike (and associated potential apartment hunt and move required to keep housing costs within reason) that comes with lease renewal looming on the horizon until it’s not there anymore.

Additionally having an emergency fund afterwards is super important.

Finally since prepayment penalties aren't a thing the difference between paying extra principal early on and a bigger down payment is mostly PMI. (And the interest on the payments until you make them)

At some point, we’re just describing a landed aristocracy alongside a rent to own scheme.

Here in Houston, a city with a medium cost-of-living, the cheapest house that you can get that's in livable condition and isn't outrageously far from where the jobs are is something like $300k. 20% of that is $60k.

For us techies or others with a Well-Paying Job™, saving $60k is not a big deal.

For pretty much everyone else, saving $60k is a huge feat, even after removing all unnecessary expenses. (Why should "they" have to ride the struggle bus when we techies can blow $18 on lattes and avo toast or whatever's hype these days while still hitting these savings goals?)

And when they finally do that 15 years later or whatever, they're competing against the Well-Paying Job™ folks who are rolling equity from the sale of their starter home and putting down all-cash offers.

By saying "people will need to get used to buying homes much later in life," what you're essentially proposing is class-redlining the poors (many of whom come from families that were historically-discriminated against home ownership, either directly or indirectly) out of home ownership. I'm going to assume that this isn't what you intended by writing that, but that's how it comes off.

This just makes renting seem like a better option. If I won’t pay off my home until I’m dead what’s the point?

In my opinion, house prices never "go down" in major world cities - you'll perhaps have a little 3-5% wobble for a year or so, but typically prizes just stay the same for a long time if it is a "bad market". Then when conditions improve they just start going up again. You only ever see major corrections in the xx% range of permanent decreases in places where it was a bubble and no one wanted to live in the first place. You'll very likely never get this in a NYC, SF, London type place unless there is some other huge once-in-250-years mayjor even type thing (e.g. London getting flattened in WW2 etc)

Nail on the head.

The only way housing gets affordable again is if the entire rest of the economy inflates while housing stands still. That would probably require a combination of inflation and a building boom or inflation with high interest rates.

Housing is the great millstone around the neck of the economy. Fundamentally it’s rooted in the fact that our society treats it as both a product and an investment. Housing cannot simultaneously be affordable and a good investment, placing its utility and its quality as an investment at odds and creating perverse incentives everywhere. It’s a horrifically bad system that is deeply entrenched and that tends to benefit older and wealthier people and so would be very hard to change.

You can escape the worst of it by leaving high real estate cost traps like the West Coast and Boston/NYC. Telework makes this easier. If you do go to those places just go for a while to establish your career and then leave.

  2019: 15,737

  2023: 28,000  +56%

When I lived in SF, I had a good high paying job, but I didn't have the $200-250k downpayment. I couldn't even get a shitty house in the avenues. I spent a year looking for a place and finally gave up.

Either more people want to live where you are living (meaning the location is desirable), or fewer people want to live where you are living (meaning it is undesirable).

Technically, you could have a decline in population, but immigration will probably make up for that for a long time.

If it was simply a depreciating asset, housing would have to be sold for less than the construction cost in order for people to be able to sustain the depreciating value and have enough cash left over to invest elsewhere for their later years drawdown.

I’m not sure I understand this viewpoint at all.

My general rule of thumb today is to not own construction older than 10 years. I look at home ownership in the same way as car ownership now.

It's ultimately a game of hot potato, unless we are talking about transactions via Sotheby's & friends. Homes in the 6 to low 7 figure range are not long-term things in my view anymore. You are never going to get more out than you put into one of those things, unless you are OK with experiencing an incredible amount of stress and expending untold amounts of time & energy fighting market forces.

Making gains on this kind of real estate is mostly a lie. It's the same variety of lie where we claim cloud->on-prem is cheaper by conveniently ignoring all of the other indirect costs.

In the US you cannot depreciate your primary residence. Are you suggesting it should be possible?

1) Cost of labor is going up, 2) Taxes are going up, and 3) Cost of materials are going up, and 4) Population is going up.

When My house was built is 1915, Taxes were 8% of GDP and cost of a carpenter was $0.50/hour. Today, Taxes are 40% of GDP and cost of a carpenter is $30/hour.

This means my house would be far more expensive, even accounting for inflation.

Or maybe people like competing, and aspiring to move up the socioeconomic ladder.

Time in the market for stocks beats timing the market for stocks.

Time in the market for housing beats timing the market for housing.

But let’s say you have $30k USD. Currently you have this money in stocks, and you are renting an apartment to live in.

Time in the stock market should mean that in 15-20 years, those $30k USD you put in stocks today might grow to be worth a fair bit more.

But at the same time, you are losing out on owning a house. Instead paying rent to someone else.

And in this case it is not possible to know if it would be better to keep the money in stocks and keep renting, or go and get a loan so you can get some little place of your own with the $30k of yours + the $90k or so that a bank will lend you.

Amazon warehouses and Walmarts exist where there are enough people to justify it. Coffee shops, fast food restaurants, financial services, etc all provide jobs and are located in cities, not rural areas. Water service, electricity, natural gas service do not exist by default.

People can’t just choose to change where they want to live.

American mobility tends to be pretty high relative to other people in the world - meaning Americans are more likely to uproot and move to a new community, even 100s or 1000s of miles away from what was "home".

With WFH the "objective function" has shifted for part of society who can WFH - its less about job location and more about lifestyle, quality of life and cost of living. However, my anecdotal analysis tells me that WFH, while still a strong factor, is beginning to subside. Not so much due to employers demanding employees be in the office but more because theres a shift back to cities after a 3 year trend out of them.

On a tangential topic - here's an interesting Pew Research report on mobility - I believe from 2012. So it's quite dated, but is still a good framework to understand how to think about mobility: https://www.pewresearch.org/wp-content/uploads/sites/3/2011/...

Maybe you need to take care of an aging parent. Or have kids in school and don't want to disrupt their life.

There are a huge number of social network effects constraining where most people live.

Useless hand waving comment here, but I agree generally that it just feels way too difficult and complicated to work hard at an honest job and pay for a decent life. And I have it way better than most. Can't imagine what the hell I'd be doing right now if I was still a sound guy or barista.

Of course YMMV…