
Why America's Middle-Class Housing Crunch Is Here to Stay - nealabq
http://www.businessweek.com/articles/2014-05-15/why-americas-middle-class-housing-crunch-is-here-to-stay
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phkahler
He says "As housing prices rise, affordability gets worse when incomes fail to
keep pace and interest rates move higher." which is just not accurate. Home
prices vary inversely with interest rates. Increased rates would lower home
prices. The problem is that would put people under water just like it did in
2008 when they jacked rates up (this triggered the crisis but was by no means
all that was involved). Rates are at an all time low which has re-inflated the
bubble to near peak levels. With crazy lending practices stopped, most people
can't buy at these prices. Interest rates can not be raised at anything but a
snails pace without causing another crash. The fed can't even stop buying
treasuries or the increased yeild will blow the federal budget (an election is
coming too) and kill the stock market. They're backed into a corner and trying
to creep out ever so slowly.

~~~
zezonx
I've had many an argument with baby-boomers (who bought into the housing
market at dirt cheap prices 30 years ago) regarding this same concept.

I told them when interest rates move up from 3.5%, home prices would decrease
proportionately, netting to the same monthly cost.

I WAS WRONG.

I was using logic to describe the illogical. Most people don't view real
estate as an investment: to most, it's a place you can call home that makes
you feel warm and fuzzy.

So what happened when interest rates went from 3.5% -> 4.5%? -Demand
increased: as people on the sidelines got nervous that rates would keep going
up, they bit the bullet. -Increased demand caused prices to increase. -The
price increase led to further demand from nervous buyers sitting on the
sidelines, not wanting to miss out on their chance to own a home. -Finally, in
my area anyway, I'm seeing absolutely insane ask prices, but less people are
buying. Eventually, stubborn sellers will have to lower their asks to make a
deal, but that can take some time.

At a certain point, this doesn't work anymore as people can only stretch
themselves so thin, but at least from 2011 (the "bottom") -> 2014, this is my
assessment of what happened.

~~~
NoMoreNicksLeft
New business practices could delay prices coming down for a long time. Certain
companies are buying up all the housing they can... mostly foreclosures and
the like, because they can offer the cash asking price at the end of the
auction. But this puts pressure on prices to stay high by reducing supply.

But they've also been buying up real estate on the traditional market too, for
rental units.

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wavesounds
"That means the main way to build more is to build denser projects, with
taller buildings and smaller units. Doing that can be very difficult
politically"

I will vote for anyone who runs on a campaign vowing to do this, and you
should too. We need more affordable housing and in most urban markets the only
direction is up.

~~~
hindsightbias
> campaign vowing to do this

Well, the whole council of Palo Alto did, and the voters went NIMBY on them

[http://nextcity.org/daily/entry/palo-alto-one-ups-san-
franci...](http://nextcity.org/daily/entry/palo-alto-one-ups-san-francisco-
rejects-senior-housing-complex-in-citywide-)

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twoodfin
_The last way to ease the affordability crunch is to flip the equation,
looking at incomes and not just at housing costs. ... But earnings for low-
and middle-income families have been essentially stagnant for years. Declining
real wages, for example, were a key reason that earlier this year, not a
single home on the market in San Francisco was affordable on a teacher’s
salary. This problem has led some cities to consider raising their minimum
wage, but that, too, can be a long and often nasty political battle._

Can any of the left-of-center economic folk around explain the logic here? I
have heard several plausible arguments for an increased minimum wage, but I
haven't heard the one making the case that it will lead to increased wages at
the income levels typically required to consider buying a home. If "earnings
... have been essentially stagnant for years", why didn't the last minimum
wage bump have such an effect?

~~~
onezerozeroone
There is no logic to it. If you raise the minimum wage (not necessarily a bad
thing, but in terms of the effect on housing affordability...), with housing
supply remaining fixed, it would either do nothing (people making FAR more
than minimum wage already cannot afford a home) or demand would simply
increase and prices would go up further.

~~~
balor123
I believe this Futurama quote about summarizes it:

"Hi! Today some bad things happened. One bad thing was a train got crashed in
New Jersey. Wanna see? People won't be late for work though, because the
governor lady said, "I'm sending in more trains!" [Another train crashes into
the wreckage causing a massive explosion]"

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pessimizer
There are some weird conclusions about building new housing here. On that
graph, both every city above $200 a square foot and every city that built more
than 25 units for every 1000 in 1990 are outliers. Every city over $250/sq.ft.
has been dreadfully expensive for decades. Every city that overbuilt was
extremely bubbly and has had an extreme price drop since.

New houses aren't being built because the vacancy rate is super high (if you
include shadow inventory.) Rents are super high because the rental vacancy
rate is super low - ex-homeowners have become renters, but shadow inventory
hasn't been converted to rentals; it's instead let out in dribs and drabs in
order to keep current prices supported.

Prices are destined to net stagnation for the next 3-5 years, by which time
they'll have met the trendline.

Saying new houses not being built is the same thing as saying that builders
are predicting that they'll see losses if they build. That's the same thing
the REITs are saying by ceasing to buy up single-family housing. The current
crop of cash buyers are not the funds, but people who have recently sold.

A lot of these articles are reading as if they were mostly sourced from press
releases from lobbying groups that are trying to loosen lending standards
and/or favorably rezone hot property markets. That would make a lot of large
landholders a lot richer.

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relaytheurgency
Trulia, where my 3BD/2BA home is listed as a 2BD/1BA valued at less than 1/2
it's appraised value.

It's hard to trust a study that uses a data like this. Even though my
situation is anecodotal, sites like Trulia and Zillow have been criticized for
their data accuracy in the past.

~~~
hnnewguy
> _It 's hard to trust a study that uses a data like this._

If you're only willing to trust data sets that are 100% clean/accurate, then
you aren't going to trust many data sets.

Is there any reason to believe that Trulia has systematically biased or
inaccurate data?

~~~
relaytheurgency
I didn't say 100% accurate, but yes there is reason to believe that:

[http://www.trulia.com/corp/files/2011/05/trulia_direct_refer...](http://www.trulia.com/corp/files/2011/05/trulia_direct_reference_whitepaper.pdf)
[http://info.trulia.com/file.php/5288/Trulia-Estimates-
Region...](http://info.trulia.com/file.php/5288/Trulia-Estimates-Regional-
Report.xlsx)

