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Comment by arcticbull | Hacker News Reader

House prices aren't inflated.

House prices are high because there's not enough supply in and around the jobs. There's not enough supply because of zoning regulations. Zoning regulations were put in place to keep house prices as high as possible.

As long as there's not enough supply to meet demand house prices will trend up towards the maximum the market can afford. When the opposite happens house prices tend towards the cost of construction.

Until just a few months ago over 90% of all the residential land in California was zoned single-family exclusive.

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Interest rates were pinned near zero, then locked in by mortgage holders for decades, the fed bought up some mortgage products, then rates were jacked. Supply is part the problem but essentially what happened was a magic trick where mortgagable real estate holders transferred wealth to themselves from non owners via inflation through the force of the state.

To buy them out of their negative real rate mortgage you must compensate them handsomely for losing such a loan that essentially lets them take from everyone else via fed induced inflation. This is why prices have been so sticky despite the now higher rates.

Interest rates were near zero for decades in Japan and house prices didn't budge since 1995. When rates go down prices jump, they don't keep moving as a result. It's an impulse response.

[edit] Look at the chart of housing CPI and the chart of interest rates. They're basically uncorrelated.

[1] https://fred.stlouisfed.org/series/CPIHOSNS

[2] https://fred.stlouisfed.org/series/MORTGAGE30US

I'm referring to the covid era accumulated impulse.

So why are prices still going up at the exact same rate despite 30Y mortgage rates going from 2.x% to 7.x%

Prices are not going up at anything like the rate they did during the impulse event of low interest mania. They're flattening out but not lowering, as the price of buying out the opportunity cost of losing someone else's fixed low interest loan rises as interest rates rise.

Ok let's look at Case-Shiller instead. [1]

So you're saying lowering interest rates raises house prices and raising interest rates 5X ... also raises house prices, and therefore monetary policy is responsible for house prices? Are you sure it's not supply and demand? Because to me, when you do X and Y happens, then you do ~X and Y still happens, X and Y are uncorrelated.

It would seem like a more reasonable assessment is that we're 5M houses short in the US [2], mostly in and around major metros where the jobs are [3], and that changes to interest rates symmetrically impact both supply and demand.

[1] https://fred.stlouisfed.org/series/CSUSHPINSA

[2] https://zillow.mediaroom.com/2024-06-18-The-U-S-is-now-short...

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

Supply and demand, yes. I have a loan at or below zero that you can't have, and if I sell the house I can't have it either. There is low supply available and high demand to keep them, which is tied to the house.

The summation of supply and demand for the materials and land as well as the financial products attached to them are all considerations. But the most notable recent supply change is those tied to monetary policy.

Zoning, codes, regulations and trades licensing have been the steadier hands on the noose but less so impulses on the accumulator. The truth is you can get around all of those if you pay cash ( I built an uninspected shithole to live in for $30k that is uninsurable and unloanable and i cant get a certificate of occupancy) but the main market is mortgagable properties tied to monetary policy.

So why is there no correlation between mortgage rates and house prices over the last 50 years?

Just stating your theory again doesn't make it true.

I think the argument is that house prices are high because the government backs housing loans, so they don't represent a free market. Easy access to government creates more demand than supply.

The reality is that the government backs house prices by preventing construction via zoning rules. Japan shows us that 0% central bank interest rates do not affect pricing so long as supply meets or exceeds demand. [1]

[1] https://fred.stlouisfed.org/series/JPNCPIHOUAINMEI

If Japan fixed everyone's house at 0% for 30 years than jacked the rates, the owners would be idiots to sell for anything but a hefty added premium as they're sitting on a money printing machine of negative real interest rates. Unless something else is going on like the property having weird upkeep laws that make it tough to just use as is for decades.

there are 20,000 permitted multifamily units around Boston that have gotten through zoning but aren't being built because they don't pencil out. [1] I used to think zoning was the only thing in the way, but I think there are other problems, too.

[1] https://www.bostonglobe.com/2024/07/05/business/housing-cons...

I think it's a blessing that these fires have mostly hit lower density homes. I'm not saying we can't think about more density but I'm not sure we should pack the Palisades and and Hollywood hills to to the gills.

>House prices are high because there's not enough supply in and around the jobs.

The median home price in Los Angeles tripled from 2010. The population in Los Angeles has declined since 2010.

> there's not enough supply in and around the jobs

Why the anger at immigrants lately? Hint: 11.2 million illegal immigrants need to live somewhere. (Personally, I think the smaller regional banks have more responsibility to answer for this.)

If Trump is successful in his deportation efforts, house prices will likely fall through the floor, and (huge surprise) the poorer and younger ends of society will be extremely grateful, possibly even electing his successor figure. This could have been easily avoided if adequate housing had been constructed.

> Why the anger at immigrants lately? Hint: 11.2 million illegal immigrants need to live somewhere.

Are they really buying this extremely expensive real estate with their low wages? Seems impossible. More likely, they will lower the already very cheap housing in the middle of nowhere.

> If Trump is successful in his deportation efforts, house prices will likely fall through the floor, and (huge surprise) the poorer end of society will be extremely grateful, possibly even electing his successor figure.

Far more Americans live in owned-homes than not. That's exactly why this problem has been so intractable in the first place. Those folks will not be happy.

> Far more Americans live in owned-homes than not.

Boomers are 21% of the population, but 38% of the homes. Only 54% of Millennials are homeowners. It's great if you're in the wealthy populous old generation; if you're young and hungry or even just an average person in their 30s, you're angry.

> Are they really buying this extremely expensive real estate with their low wages? Seems impossible.

No; [illegal immigrant] families pool multiple low wages together and buy houses together.

> Boomers are 21% of the population, but 38% of the homes. Only 54% of Millennials are homeowners.

2/3 of Americans own homes.

> No; families pool multiple low wages together and buy houses together.

So the whole family will be mad when their home equity goes down.

> 2/3 of Americans own homes.

You keep saying this like it's a good thing. That's a disaster - China has 93%. Romania has 95%. Russia has 92%. India has 86%. A 2/3s homeownership rate is an embarrassment, and shows we haven't addressed this problem sufficiently.

> So the whole family will be mad when their home equity goes down.

"Don't fix the system; better think of those short term equity values! Even better, don't build housing!"

> You keep saying this like it's a good thing. That's a disaster - China has 93%. Romania has 95%. Russia has 92%. India has 86%. A 2/3s homeownership rate is an embarrassment, and shows we haven't addressed this problem sufficiently.

I'm specifically responding to the idea that "most Americans" would love to see house prices drop. Only 1/3 of Americans would like to see house prices drop, the rest would be mad. That's why this hasn't been addressed in the past.

> "Don't fix the system; better think of those short term equity values! Even better, don't build housing!"

I'm advocating for building more houses, and am pointing out that the immigration axis is irrelevant to the cost of housing in HCOL areas.

> China has 93%

Note that "homeowner" in China means leaseholder. So strictly speaking, they aren't really homeowners. Land in cities is owned by the state as per the Chinese constitution, and then pieced up and handed out to citizens via temporary (decades long) leases.

You think illegal immigrants are the bottleneck driving housing prices?

If even 1/10th of them own houses; that's a million homes; so yes, it's definitely a factor.

I just don't see how adding one more home for every 350 people in this country really makes prices fall through the floor

116 of those people don't own homes of any kind; partially because children can't buy homes, elderly people can't maintain homes, and everyone else is too poor (or married).

Of the remaining 234, 38% are boomers, who almost never sell homes.

There are now only 146 people. How many want to sell homes? Only 8.7% of people move each year, so only 12 of those people are open to the possibility.

Now it's 1 out of 12. That's significant. That's not even considering other factors, like Gen X becoming increasingly hesitant over time to the prospect of moving, while being the second largest generation to own homes. They own 24% of the homes and are very "sticky", so it might easily be more like 1 in 9 in terms of actual sales.

It's actually even more amazing than that - we don't even need the above napkin math. 4.62 million homes were sold in 2024, 4.09 million in 2023, 5.03 million in 2022. Add a million homes, increase supply by 20% (1 in 5), that's going to leave a dent. After all, according to Redfin, only 2.5% of homes change hands every year.

Immigrants are such a relatively small portion of housing supply pressure, compared to the overwhelming positive affect they have in driving other CPI basket items supply up (and therefore, keeping prices low).

Getting rid of immigrants will make houses a bit cheaper, and everything else more expensive.

Increasing property taxes so it isn't so cheap to carry underutilized housing, and getting rid of zoning regulations written with the intention of artificially limiting housing supply, will actually cause housing prices to fall through the floor, without ruining the rest of our economic output and supply of CPI basket goods.

Immigrants are also disproportionately involved in the construction of desperately needed new housing.

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