
This is the United States’ third biggest housing boom in the modern era - olivermarks
https://www.nytimes.com/2018/12/07/business/housing-boom-how-long-can-it-last.html
======
maxxxxx
I believe as long as there are people who make much more money than they can
invest productively in non-housing they will keeping buying houses and drive
prices up. That's one of the effects of income inequality. The people who are
on the winning side make more money than they can invest.

~~~
JumpCrisscross
From the data I’ve reviewed, this is generationally biased. Older people like
buying houses. Younger people, when one restricts the population to those who
can afford it, don’t show as strong of a bias.

~~~
netheril96
Maybe because the young people are facing a higher housing prices, and they
don't believe that it could raise for the same amount in the future.

~~~
isostatic
Maybe Young people are more mobile. The security of buying a house is
beneficial when you’ve got kids at school. When you don’t mind where you live
as long as there WiFi and transport renting is beneficial, you can move across
country on a whim.

~~~
closeparen
If you require public transit, there are only a handful of places you can
live, each with unique and volatile conditions that make owning especially
attractive. It’s suburban sprawl which is almost perfectly fungible
nationwide.

~~~
toast0
Depending on the type of transit, owning near the stop is only attractive
until the transit operator eliminates your stop or your route.

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dandare
As a non native speaker, a "housing boom" sounds like a boom in number of
houses, not a boom in the price of existing houses :)

~~~
arbuge
The two are closely correlated in practice. The boom in prices incentivizes
developers to build more, leading to a boom in number of houses, which
eventually leads to a bust. So the pendulum swings again. Control engineers
would describe it all as a system that's not very well damped.

~~~
tootahe45
>leading to a boom in number of houses

The requisite for this seems to be little or no govt intervention. In Akl, NZ,
for example, you're only seeing high-end homes being built yet prices & demand
keeps going up for all housing. Now they're subsidizing projects for entry-
level homes as if building a set number of homes (and failing to meet build
targets by a long shot)will solve market woes.

~~~
AnthonyMouse
There are zero problems with building mostly high-end homes. Then the rich can
live there and the less rich can live where the rich previously lived -- win
for everybody.

One of the best things the government can do in those cases is ensure that
large housing developments are still zoned to allow them to be subdivided.
Nothing wrong with four families living in one big mansion.

~~~
angmarsbane
Does this get thrown off if the rich don’t buy the new high end homes to live
in?

~~~
dan-robertson
If you’re a developer, build a bunch of high end housing, and try to sell it
off, and no one wants to buy it, you have approximately three choices:

1\. Leave them empty to deteriorate. 2\. Cut your losses and sell them for
cheap 3\. Let them out for less than you feel they ought to be worth in the
hope that people will be willing to pay your high price soon.

Option 1. Is unlikely to happen as it is very unprofitable. This leaves
options 2,3, each of which leads to people living in the newly built
properties, so the total supply of housing has increased. Even if people are
just renting, this means there is less demand for rentals so less of an
incentive to buy houses to let them out, decreasing the demand for houses.

~~~
losteric
Developers rarely build blindly. If they build high-end housing, there is
_some_ demand which will definitely buy-in... and that opens a new option:

4\. Wait, because operational expenses are cheap compared to the capital
expenditure.

They will set an asking lease that is guaranteed to attract enough high-rent
leasers to pay for maintenance + loan interest (if any), then hold the price
right there regardless of vacancy rates. Rates will be lower only if the
market demographics irreversibly change, but otherwise they can afford to wait
as the building slowly fills over a decade or more - each additional renter is
pure profit, and raises the value of the building as an asset for resale.

The alternative is lowering prices, which attracts a different demographic
that makes it challenging to raise rates afterwards. They may generate more
short-term income but overall value is lower.

~~~
AnthonyMouse
> 4\. Wait, because operational expenses are cheap compared to the capital
> expenditure.

The problem with waiting is that you're sitting on a huge risk, because
holding prices artificially high attracts new construction. If that price
makes construction profitable then construction will continue to be profitable
until prices come down. To keep prices from coming down, the existing
speculators would have to buy all of the new construction. The vacancy rate
would keep increasing until it could no longer cover the maintenance costs.

And the higher the vacancy rate gets, the greater the downside risk to holding
vacant units, because there are more competing vacant units that the other
owners could at any point decide to put on the market, causing lower prices
that induce other owners to abandon the conspiracy and put their units on the
market too. And the more vacant units there are, the more the price declines
when the cartel dissolves.

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pitaj
Everything about our current economy looks like one enormous bubble about to
pop, and I think it's going to be much worse than 2008, depending on what
actions the government takes. I see malinvestment everywhere, from venture
capital to the recent machine learning and cryptocurrency trends.

Edit: As a young person, it scares me.

~~~
breatheoften
I agree completely! The amount of misallocated capital and the rate with which
it is flowing toward more productive uses is extremely disturbing.

There should be ten or a hundred well capitalized Tesla competitors by now
rather than all this idiotic old money chasing (fearfully) after dying
economies ...

It’s very disturbing to think how actively harmful these misallocations are —
the amount of money that still thinks an investment strategy that aims to
protect the value of existing fossil fuel investment is a good use of capital
... pure blind delusion.

We are well past the point where you can make more money by investing to
extend the timeline of fossil fuel returns than you could make by accelerating
yourself away from your fossil fuel investments ... somebody needs to remind
the investment community about the value of skating to where the puck is going
to be ...

~~~
QML
The misallocation of capital is a natural result of capitalism, which is a
distributed, greedy algorithm.

------
Animats
It's already collapsing in the SF Bay Area. "PRICE REDUCED" signs are
appearing. The bubble is popping. One real estate investor and one Realtor I
know admit that prices have been dropping for most of 2018.

~~~
anonymous5133
The data does not reflect this. SF and the surrounding areas are mostly still
rising...monthly is still going up and the yearly is up maybe 5%. Most other
parts of California are weakening though in price on a monthly basis.

[https://www.car.org/marketdata/data/countysalesactivity](https://www.car.org/marketdata/data/countysalesactivity)

~~~
almost_usual
It’s obvious things cooled off around August specifically during the tariff
changes. If these trade talks get worse I imagine the market cooling even
more.

~~~
HillaryBriss
other things applying downward pressure to high priced RE markets nationwide:
the new tax law that reduces a taxpayer's savings from mortgage and property
tax deductions, and rising mortgage interest rates

------
devonkim
Case Shiller index is the highest on record at the moment
[https://fred.stlouisfed.org/series/csushpinsa](https://fred.stlouisfed.org/series/csushpinsa)

~~~
pbourke
In a normally functioning housing market (with a reasonable amount of
inflation), wouldn’t this be the norm?

~~~
devonkim
The index is based upon median income and median home sale price, not upon
house prices as an absolute value. It’s an indicator of affordability. I don’t
know if indexes are comparable across different countries and what they would
mean.

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ransom1538
No. The author here is cherry picking a timeframe [2012-2018]. Nice cherry
pick. Unless you were smart enough to buy in 2012 that is gone: forever.

Home prices have _barley_ hit their 2008 prices. These are prices _ten years
ago_. If a stock hit its price from _ten years ago_ I wouldn't consider it a
"boom".

If you are a zillow user, look around at normal cities [Not manhattan,SF, or
LA] linked below. If you have a minute, look at "Price / Tax History", and see
what they sold at 2006/7/8\. I see this pattern all over the US. I could add
20 more if you need.

To me we are almost back to normal. Sure this is anecdotal but, averaging all
US home prices with a cherry pick is just as silly.

[https://www.zillow.com/homedetails/5435-White-Heron-Pl-
Ovied...](https://www.zillow.com/homedetails/5435-White-Heron-Pl-Oviedo-
FL-32765/58182051_zpid/?fullpage=true)

[https://www.zillow.com/homedetails/6241-Gobernadores-Ln-
Carm...](https://www.zillow.com/homedetails/6241-Gobernadores-Ln-Carmichael-
CA-95608/67821430_zpid/?fullpage=true)

[https://www.zillow.com/homedetails/6600-Sutter-Ave-
Carmichae...](https://www.zillow.com/homedetails/6600-Sutter-Ave-Carmichael-
CA-95608/64591452_zpid/?fullpage=true)

~~~
nicholas73
Do you have a reason to consider 2008 as normal?

~~~
ransom1538
normal: %3-%5 yoy increases, basically a little under the mortgage rate. 2008
wasn’t normal that isn’t what I meant.

~~~
TravelAndFood
Yeah, I took your comment to mean something like "2008 wasn't normal. But
imagine a "normal" price in 2008, and how it would have risen normally over
ten years. Then maybe it would reach the actual 2008 price, which is about
what we have in 2018."

Not sure if that's correct, but sounds plausible.

------
monkmartinez
It is already popping... like it did last time and like it will do next time.
Welcome to the financialization of everything!

Look here for more data:
[http://www.doctorhousingbubble.com/](http://www.doctorhousingbubble.com/)

~~~
solotronics
I wonder if the application of AI to finance would effectively smooth out
bubble/bust scenarios. If you really think about it a bubble is when assets
are overvalued usually due to herd mentality and fear of missing out. If AI
we're more involved it would be able to short sell when something was
overvalued and buy when it is undervalued. This is the essesnce of good
investment and you would think machine learning would be able to gather much
more raw information than any person and come to these conclusions.

I think this is what Renaissance Investments does to make such amazing
returns.

~~~
ThrustVectoring
Merely having a correct investment thesis isn't enough to make money - you
have to also get the trade timing and execution correct, and bubbles have a
nasty tendency to stay inflated long enough to squeeze out the shorts.

Like, the more profitable plays are often the ones that _contribute_ to the
boom/bust cycle. In the 2008 crisis, the big winners were people who took out
as much mortgage debt as possible and aggressively did cash-out refinancing,
ending up strategically defaulting on houses they got more money out of than
they put in. When you're in a bubble, people tend to assume that the worst-
case scenarios won't happen, so they'll extend credit that you cannot pay out
in those scenarios, and you wind up getting some free expected value and
positive skew that way.

~~~
im3w1l
Now that's a depressing perspective.

------
fouc
A recession is coming in the next 2-3 years due to demographics (peak baby
boomer retiree is happening right around now). I think part of the housing
boom is caused by the retirees.

~~~
Latteland
A recession is due for lots of reasons, like the boom has continued this long
because we juiced the economy with a bunch of tax cuts for rich people and
companies that are basically a sugar high. At least since we raised interest
rates we'll be able to cut them to stimulate the economy. On top of that sugar
high we are pushing it down with stupid tariffs on most of our major allies.
And growth periods in our history don't usually run this far. I think our
future growth in the us will be significantly retarded because of high student
loan debt. That gets some attention here at hacker news, but I don't see
'regular people' talking about it much.

------
EGreg
Time to get out while you still can.

A lot of the current value is tied up in stuff that will implode like in 2006.

The Fed has created another asset bubble. We are sitting on a powderkeg.

But where to invest instead?

~~~
hnarn
> But where to invest instead?

There's literally nowhere you won't lose money when investing in a recession,
the point is to find the place where you'll lose the least amount of money --
a.k.a. the place where you are most certain the price has bottomed out -- and
go for it. Then wait 5-10 years.

~~~
EGreg
What about a basket of really promising startups or VCs?

~~~
rhexs
I presume this is a joke, but, if not, good luck. If you can pick the next
Google reliably, you're presumably already worth tens of millions.

~~~
EGreg
How about a vanguard index of stoks

~~~
Latteland
You need a mixture of assets. If you don't need your investments to live on
(cause you've got a job and an affordable place to live), then follow the
standard policy of different categories of stocks, plus other areas.

In 2007-2009 I noticed that I lost as much in my retirement accounts as I put
into them in those years, Ie the value at the end of the year after putting
20k was about the same as at the start. That was something that really
reminded me that it was great and lucky to have a good job as a software
engineer.

~~~
rhexs
The trick is to maintain your job during the recessions and keep investing.
Easier said than done, but if you do succeed, you'll be in very good shape
when the market bounces back during the next cycle.

------
gonvaled
Maybe it is not an anomaly, but a message: the huge amount of liquidity pumped
into the system is going to break soon in the form of hyperinflation. [0]

[0]
[https://www.google.de/amp/s/seekingalpha.com/amp/article/404...](https://www.google.de/amp/s/seekingalpha.com/amp/article/4045250-velocity-
money-mean-u-s-inflation)

~~~
partiallypro
The Fed is planning to shrink its balance sheet by $2 Trillion between now and
2022. They've already shrunk it by almost $350 billion (basically, shredding
digital cash.) It is more likely the global economy is more fragile than the
Fed realizes (due to China) and we will experience asset deflation, not
inflation. We likely (imo) won't see any significant velocity of money changes
in the US until well after the unwind is complete. Because banks, while flush
with cash, are still hesitant to lend during the unwind and high yield credit
markets are not doing well at all.

I suspect we could see a mild recession with little Fed action other than just
pausing their unwind for a while, unless there is some serious crisis (which I
can't see happening unless the high yield credit market were to completely
implode.) One problem that could allow that to happen, is if oil were to
completely and utterly nosedive and make a lot of oil service companies with
high debt loads default. Again, I doubt this. I am not a doom and gloomer, I
think we are about to enter a recession/bear market but the "great recession"
has gotten something in people's heads that every recession must be a systemic
collapse instead of a resource reallocation...

~~~
ryacko
If we have deflation with rising incomes, there would be no issue. If there is
deflation with declining incomes, it would create a downward spiral,
potentially.

~~~
partiallypro
Real incomes have fallen during/after virtually every US recession; at least
in -real- terms. Nominal incomes almost never fall and just remain flat.
Monetary theory is complex, but what the flow of credit remains in tact.

[https://fred.stlouisfed.org/series/MEHOINUSA672N](https://fred.stlouisfed.org/series/MEHOINUSA672N)

[https://fred.stlouisfed.org/series/MEHOINUSA646N](https://fred.stlouisfed.org/series/MEHOINUSA646N)

The only way I can see hyperinflation in the US is some cataclysm or inability
to service debt through normal means. Most countries that have hyperinflation
generally have massive debt loads they are printing out of with no economic
output to back it up. They also are usually very centrally planned economies
or war torn.

~~~
ThrustVectoring
When employers contract their payroll, they do so with layoffs rather than pay
cuts. The reasons for this are fairly complex, but if we take this as a given
it implies a lot about our monetary policy. Specifically, it argues for
something like NGDP targeting, so that employers as a whole continue to have
enough money to avoid layoffs even as total real wages decline.

------
holdenc
It would be nice to see an analysis of the cost to build over time. Obviously,
if 5% YoY increase is the new method of valuation accepted by all (per the
article) there must come a time when builders create new units and compete on
price.

~~~
isostatic
Not when the majority of the price is in the value of land.

------
dawhizkid
As a 30 yo male who doesn’t intend to have kids, I’m wondering if it is a bad
idea to buy a 1 bedroom in sf even though the math doesn’t seem to work out
right now and 1 bedrooms historically do not appreciate as fast as multi
bedroom homes.

~~~
segmondy
buy a multi unit, you can have 1 or 2 rooms and rent out the rest.

~~~
afarrell
That sounds like a job

------
bsenftner
Housing Booms is the United States longest running con. It makes no sense, and
is so completely disconnected from reality it creates a separate one most
American's participate: the housing lottery for retirement.

------
sjg007
It's funny cause I just bought my house in 2016 and now prices are declining..
Can't win.

