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Comment by reacharavindh | Hacker News Reader

How can one not understand that their house increasing in value means the house they want to buy also (proportional) increases in value?! Are those older Americans represented in the article thinking that their house will increase in value to 700K while the apartments they wanted will stay at 100K for 20 years?

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I think they did understand that. They expected their home to appreciate at about the same rate as the apartments they wanted to downsize into. If, while retirement planning, their home was worth $300k and nearby acceptable condos were selling for $200k, then it's entirely reasonable (though in retrospect wrong) for them to look at the market and believe that this should mean that no matter how housing prices change they should always be able to sell their more-valuable house for a less-valuable condo.

What happened here isn't that they got blindsided by their home not appreciating fast enough to outstrip local condos, what appears to have happened is that the local housing market now values those condos higher than it does their detached home. That's a pretty fundamental cultural shift that I can't blame them for not predicting 20 years ago.

> what appears to have happened is that the local housing market now values those condos higher than it does their detached home.

I think it is even more benign: they are trying to stay in the same area and in their area (likely sparsely populated, given their 2-acre lot) the available condos are giant 4-level new developments that cost a lot.

They can still downsize, just need to move further away from where they live today. My 2c.

I think this is basically the heart of the matter. Given the large-lot neighborhood they're used to, finding a condo that's going to feel "comfortable" to them is hard enough to begin with. Then, factor in the accessibility issues like finding a one-level, 2-bedroom condo with no steps, no multi-step front stoop, and preferably with a no-step shower and a garage: you've narrowed the market dramatically. You're basically in "retirement community" territory, which is significantly more expensive per square foot than SFH, not less. Having just been through this, it means locating somewhere you swore you'd never live and sticking out like a sore thumb as a senior in a "starter" community.

Until Covid hit, it kind of worked, as long as you sold and moved far enough away.

Now Midwest prices are moderately close to California prices that it’s not as easily done.

And it never worked very well in the same metro unless you seriously downsized - from large house to small condo.

45 minutes outside of Chicago you can get a decent size, newish house for 3-400k. That’s up from pre covid but still very much trade-down-able for someone sitting on a paid off house in the Bay Area or Greater NYC.

It used to be that the move from Chicago to about an hour outside Chicago would be “big enough” to make it worthwhile. And being only an hour away is different than across the country.

I’m not sure that’s as much the case anymore.

Well that’s now a different claim.

When I was growing up in the suburbs of NYC, everyone’s grandparents moved to Florida. That’s further away than Chicago.

You can get a decent-sized, newish house for 300-400k in a desirable neighborhood inside the city of Chicago, on the Blue Line, and then of course in a variety of inner-ring suburbs (Forest Park, Skokie, Berwyn, Niles). You definitely don't need to take a 45 minute commute to buy a house in Chicago on that budget.

That's even worse. If everything was uniformly expensive, it wouldn't encourage people to move away from talent hotspots. But the differential prices means it's a drag on labor and thus productivity.

Midwest prices are nowhere near California prices. Not even moderately close. The only place that might be remotely true is Chicago.

I have some properties I track, the CA one used to be 5x the Midwest one, now it’s only about 2-2.5x.

Chicagoland prices are much lower than California prices, even in high-demand areas.

Chicagoland prices factor in high levels of state and city debt. Someone moving to Chicago from out of state is essentially taking on an extra $85K of debt. While residents aren't directly personally liable for those debts, they should expect higher taxes and lower service levels in the future. A municipal bankruptcy is possible.

https://www.wsj.com/articles/chicago-will-need-a-miracle-to-...

California and it's large cities have their own fiscal problems but generally not as bad.

I don't know. I'm pretty well acquainted with the Chicagoland fiscal situation, which is real and ugly, and this "add $85k" thing seems like a just-so story. Can you show your work getting to that figure?

It's probably some math involving "unfunded liabilities" that the government has (usually oversized pensions or something).

This can cause a cascade where the governmental entity that has the liabilities keeps raising taxes on its constituents so they keep moving outward to the suburbs or away.

Detroit is a famous example of this, but it's happened to other areas (cities have gone bankrupt before).

Sell family house for 500k, get apartment 250k, 250k to live off.

Sell family house for 1M, get apartment 500k, 500k to live off.

What am I missing?

You're not missing anything. There's a subset of HN that sees greedy real estate speculators everywhere, even in a simple elderly couple with a simple retirement plan that involved owning exactly one home.

The more expensive housing becomes the higher the economic stakes become and hence policy enacted to protect homeowners and hence prices going up even more.

I don't know but you can see that this misunderstanding is extremely widespread, bordering on universal. Name any American politician who does not agree with the idea that the way to help poor people is to get them to "build wealth" through homeownership, a scheme under which some future person must necessarily become impoverished.

The building wealth part is because you have a non-depreciating asset worth something. For most people their only wealth is a retirement account, a meager savings, and the equity in their home.

And your home/land is an asset that provides utility that isn't spent by you using it.

That's kind of the crazy part though - how the hell does something you use and abuse every day, that you by definition leave out in the elements, not depreciate? Or at the very least, it is messed up that the depreciation is so minimal compared to the appreciation of the home (and not the land)

The land I can see. Land is in limited supply; AFAIK it's mostly just Hawai'i that's making more on occasion, and that's about it. But the actual building should depreciate.

You seem to assume that people living in their home will spend nothing on maintenance and upkeep. In my experience, the mortgage is about half the expense of owning a home.

The land is the asset, the bet is generally that the land will appreciate faster than the house will depreciate. This has generally been true in large metro areas and regional hubs, as net migration to those areas has been positive. That changed a bit during COVID with remote work, but most employers now seem to want at least partial physical presence.

this is one of those things that makes me feel like I'm insane.

- if housing is to be an investment

- it must appreciate faster than inflation

- if it appreciates faster than inflation

- it must become unaffordable

there is literally NO WAY around this, regardless of any mechanism by which housing appreciates. If housing is an investment it must become more unaffordable over time.

And yet it seems that literally 95% of people just... never think of this? Instead, the only discussion that ever takes place is centered on the mechanism by which housing appreciates: blackrock, airbnb, foreign investment, lack of rent control, lack of subsidies, monetary policy, immigration, or, the worst one: simply that "people are too greedy to build affordable housing."

every time, every single time I read one of these things I feel like I'm taking crazy pills.

We do need to separate housing-as-investment-vehicle from the experience of the couple in the article. Their retirement plan (own a large house, downsize to a small house) shouldn't depend on their home value appreciating faster than inflation. It should be possible to own a home outright just so you don't have a monthly payment while not banking on your house containing more wealth than you put into it.

Now, in the real world, home prices change and those changes aren't evenly distributed, so what happened to this couple is that they ended up getting priced out of a downsize (at least in the type of home they'd envisioned). But that doesn't mean that they were planning on appreciation, they were just not planning on appreciation leaving them behind.

Same. I keep trying to point out to people that the fact the US has pinned residential real estate as a bedrock growth investment asset necessarily precludes it from being affordable. It can't be both.

The last time US residential real estate had a chance to become affordable, the entire global economy fell apart. So much so, that the government stepped in for _years_ on end to prop up the asset class.

You’re definitely not wrong but I believe the idea is that with a growing population and expanding housing availability and differences in desirability based on a number of factors, you get a gradient effect where older houses have more value than new houses, but there are new houses for people who can’t afford those older homes which have increased in value to a point where few can afford it

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