

What If Housing Never Bounces Back? - wallflower
http://www.fool.com/investing/general/2011/07/06/what-if-housing-never-bounces-back.aspx

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potatolicious
> _"What If Housing Never Bounces Back?"_

Then I might actually be able to afford a home in a pleasant place to live.

Screw this entitlement attitude - people bought into houses thinking they'd be
this great investment vehicle, instead of what it really is: a stable way to
maintain value and a roof over your head. The previous generation caused the
bubble, screwing the younger generation out of affordable housing. Where I
grew up, the average detached home is now $1M+, in a country where the average
income is ~$40K.

The market has finally returned to sensible levels, and one would hope in the
future continues to be priced based on its utility as a _home_ first, and as
an investment _second_.

tl;dr: Screw the boomers - maybe some of us can actually afford to buy a roof
over our heads now.

~~~
nostromo
I've always thought the coverage of housing in the media is very one-sided. As
in any market, there are buyers and sellers. Way too much coverage is spent
worrying about the sellers and not being happy for the buyers. Counter-
example: if car prices suddenly dropped by 50%, the media would cover it like
the second coming.

~~~
jacques_chester
The stock of housing is much larger than the flow of housing to and from the
property market each year.

That is, current homeowners greatly outnumber people currently looking to buy
by a large ratio.

So the media's coverage isn't one-sided so much as majoritarian.

~~~
nostromo
That's fair, but I'd argue that most renters would like to buy a home _or_
would pay a reduced rent if housing prices decline.

Put in that context about 40% of the US population has something to gain by
lower housing prices -- so I still think the media has done a bad job covering
the other side of the story.

~~~
jacques_chester
True, but renters are not as emotionally involved as homeowners.

A typical homeowner has the majority of their financial position tied up in
their house. Where goes their house, there too goes their fortune. This is not
true of renters.

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btilly
It is worth noting that people tend to continually upgrade their houses, until
after they reach a certain age, their kids move out, and they realize that
they don't need that much house any more. Then they downgrade.

Demographics say that the baby boom is about to move past that critical phase.
This may result in a long-term decrease in housing needs for demographic
reasons. What will that do to house prices?

~~~
earl
People tend not to downgrade, at least in CA because of Prop 13 [1] which, for
those of you not familiar with CA politics, more or less freezes housing taxes
while you own the home. Thus giving people who have large amounts of housing
price appreciation an enormous incentive not to downsize -- if you've owned a
home long enough, you could buy a home worth significantly less and end up
paying significantly more in taxes.

[1]
[http://en.wikipedia.org/wiki/California_Proposition_13_(1978...](http://en.wikipedia.org/wiki/California_Proposition_13_\(1978\))

~~~
bradleyland
How does that hold up in a market where housing prices are depreciating?

~~~
btilly
It would have to depreciate pretty far to be worth trading houses for a lot of
older people.

At that point turnover due to death becomes a bigger issue.

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chadboyda
Thinking of a house as an investment is foolish. Do you think of your car that
way? No. Homes are commodities that like your car depreciate in value.
Building homes has like anything manufactured at scale, come down
significantly in cost. This is making it possible to build many more homes at
a much faster rate. The days of homes being an investment are long over and
will probably never return.

~~~
hvs
Cars and homes are completely different animals. Yes, home prices have been
inflated, etc. But _property_ is a very scarce resource and is generally a
good investment over the long term. Just because you can build homes quickly
doesn't mean that they will be in places that people want to live. Those
places will always be highly valued.

~~~
jacques_chester
Property is a scarce resource in _some places_. Often the difference is how
property is released into the housing markets, and what can be built on it.

For many purposes, Australia and Texas are comparable. Yet Texas has far
cheaper housing than Australia. The difference, according to some researchers
(and I agree) is that Australia has very complex, overlapping zoning laws and
constricted land release; Texas does not.

Another interesting case is Germany. In Germany you have a constitutional
_right_ to build a home. Germany has apparently had, in real terms, quite flat
house prices for a long time _despite_ not being particularly land-rich
compared to places like Texas or Australia.

~~~
alextp
Interesting. Do you have more information on both the texas/australia and the
texas/germany comparisons?

~~~
jacques_chester
Dr Oliver Marc Hartwich at the Centre for Independent Studies is the main
researcher who I saw these comparisons from:

[http://www.cis.org.au/research-scholars/cis-research-
scholar...](http://www.cis.org.au/research-scholars/cis-research-
scholars/author/12-hartwich-oliver-marc)

I can't locate the Texan comparison, but here's one discussing the UK and
Germany:

[http://www.cis.org.au/media-information/opinion-
pieces/artic...](http://www.cis.org.au/media-information/opinion-
pieces/article/2343-the-cult-of-australian-property)

The same comparison again -- the charts are quite telling:

[http://macrobusiness.com.au/2011/06/how-germany-achieved-
sta...](http://macrobusiness.com.au/2011/06/how-germany-achieved-stable-
affordable-housing/)

~~~
alextp
Thanks :-)

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pigbucket
I distrust articles from "the Fool" because they often do stuff like this;
publish one article calling for a recovery in X, and one saying that X will
tank. Ultimately, someone at fool.com will always have been right. That
doesn't mean this article is wrong, but my guess is that it is just the
article written in response to someone at the Fool saying, Hey, we need to
write a pessimistic piece on real estate to counterbalance our recent upbeat
assessment. What actually makes the article not credible, in my view, is that
it takes no account of growing population, no account of economic growth, no
account of future inflation, no account of the precipitous decline in housing
starts in the last few years, and no account of the fact that people are
inclined to forget the lessons of the latest bubble as soon as they smell a
new one. It also takes no account of the fact that every time someone says
"this time is different" they turn out to be wrong, but maybe this time is
different.

(I own (so to speak) a house--how's that for disclosure!)

~~~
Troll_Whisperer
I trust the Motley Fool more because of that. Their columnists are free to
argue with each other, and to be honest I've loved their 4-part "dueling
fuels" series. Excluding the content just for newbies, I've found it some of
the most educational reading on any finance site.

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waterlesscloud
Bounces back to what? The crazy bubble days? Who thinks that's possible, or
even desirable?

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sliverstorm
_We just don't need fancy digs anymore_

Then grab the bull by the horns and make small sensible houses.

~~~
yummyfajitas
This is illegal in many locales.

~~~
rdtsc
It is interesting. I guess, I never heard of it being explicitly illegal but I
suppose zoning legislation could be worded that way.

Smaller more affordable properties equate in most peoples' minds with
"projects". Subsidized housing with many poor or on the verge of property
families. People start seeing vision of crack houses and gangs roaming around.

All those things are unfortunate stereotypes but I think, also unfortunately,
that it is often true, i.e. that is how people make decisions where to buy and
how much to pay (not that poor people are always criminals or cheaper housing
always = crime ridden area).

What I think the general heuristic is -- try to buy in areas that are
prohibitive for "poor" people to buy. Doesn't matter what a house costs, if
they see signs of "poor" people living around, they will pay enough until it
gets them into a community (gated perhaps) that matches their perceived social
status -- which is most often tied to economic status. These areas just price
out those who can't afford homes in a certain range.

So how does this relate to the housing market? Well, I think it pushes
families to borrow a lot more than they normally would as they feel the need
to "escape" certain areas. Perhaps they are more rational when it comes to
buying cars or big screen TVs but housing has a lot these additional
complexity associated with it.

~~~
jacques_chester
Polarisation of neighbourhoods resembles an emergent phenomenon. Schilling
gave an account explaining how a very weak preference of people in group A to
live in a majority-similar neighbourhood could, within a few 'moves', cause an
almost total polarisation of populations.

See _Micromatives and Macrobehaviour_ or _Turtles, Termites and Traffic Jams_.

