
Another U.S.-Wide Housing Slump Is Coming - harambae
https://www.bloomberg.com/opinion/articles/2020-04-10/coronavirus-fallout-u-s-housing-prices-will-tumble
======
arcticbull
Interesting that "housing is still overvalued" \-- I'm not entirely sure that
it's drastically priced out of line with history. The price per square foot of
the average American home, when adjusted for inflation, is almost exactly the
same as in 1978 -- right around $130. What's changed is houses have gotten
bigger (1600 sqft vs 2400). [1]

Now there are pools where arbitrary supply constraints have created massive
price increases above inflation (SF, NY) but those markets are historically
the ones least affected by a downturn anyways. With that in mind, it's clear
that in SF and NY the price of housing is tied to the economic productivity of
the area, and frankly, the chances big tech is going to cut pay is below zero.

The dot-com bubble only took 10% off the average house price in SF. The 2008
_mortage crisis_ took 27% over the entire time period -- which was followed by
an 88% increase. [2]

[1] [https://www.supermoney.com/inflation-adjusted-home-
prices/](https://www.supermoney.com/inflation-adjusted-home-prices/)

[2]
[https://www.bayareamarketreports.com/trend/3-recessions-2-bu...](https://www.bayareamarketreports.com/trend/3-recessions-2-bubbles-
and-a-baby)

~~~
IkmoIkmo
Yeah it's insane these simply facts are completely devoid of any discussion.

Inflation as we talk about it colloquially is supposed to measure price
changes of the same thing. Like an apple. What actually happens in most
discussions is that we measure wildly different things and then say 'look,
prices changed'.

Not just have homes gotten bigger, the heating and cooling is better, they're
safer, they're equipped with more amenities etc. My grandparents didn't have a
shower, but went to the communal bathhouse once a week. My parents didn't have
central heating in one of their homes.

I see the same discussion in healthcare. Life expectancy in many western
countries grew by 20-30 years since the second world war, which is a radically
improved outcome which proxies health throughout life, yet we are shocked this
outcome is much more expensive than before.

College is trickier, there's tons of inflation there and you can wonder if
education really improved. By some measures, it worsened, by some it's much
better. What's clear however is that educational attainment has never been
higher.

That's not to say there's no inflation in any of these areas. But rather that
it's much more nuanced if corrected for some values.

~~~
bradleyjg
_I see the same discussion in healthcare. Life expectancy in many western
countries grew by 20-30 years since the second world war, which is a radically
improved outcome which proxies health throughout life, yet we are shocked this
outcome is much more expensive than before._

There’s been more than 300% increase in the last thirty years. How much better
off are we health wise than 1990? 1945, sure, but 1990?

~~~
Gibbon1
What you are arguing against is a classic smoke and mirrors job where two
unrelated things are linked together. If you look outside the US you see
similar huge gains in life expectancy. Which are 95% due to basic public
health measures.

Seriously:

Life expectancy Cuba: 79.18 years.

Life expectancy US: 79.11

~~~
yostrovs
Only those that never lived under communism would believe those numbers. Same
as the information on the coronavirus from China.

[https://www.econlib.org/about-that-cuban-life-
expectancy/](https://www.econlib.org/about-that-cuban-life-expectancy/)

~~~
arcticbull
Sure if you just pretend, anything's possible!

Your article begins with: "Wealth and health are correlated because greater
wealth can buy better health care."

Wealth is not the only way to obtain good health outcomes, Cuba has a ton of
doctors and they don't get paid massive, overwhelming salaries. Just because
they don't get paid outsized amounts doesn't mean they're bad at their jobs.

Based on all the OECD charts, there's very much a point of diminishing returns
re: spending on healthcare and outcomes -- and very much so re: life
expectancy. [1] It's pretty clear that spending 8X as much money didn't make
people live 8X longer.

[1] [https://ourworldindata.org/the-link-between-life-
expectancy-...](https://ourworldindata.org/the-link-between-life-expectancy-
and-health-spending-us-focus)

~~~
yostrovs
I lived in the most prosperous communist country and I know for a fact that
the numbers reported are lies. You are free to believe whatever you want since
you haven't established the need for skepticism in this sphere. But when lied
to often enough, folks like me KNOW were being lied to. Cuban healthcare is
that perfect lie the ignorant fall for.

------
battery_cowboy
I know this is going to happen because my apartment's management company gave
everyone the chance to renew now for an additional 12 months for the same rent
as previous, while also fear mongering that this offer was only available for
1 month.

I immediately knew that within the next few months rent would drop a ton,
because this management company had never given a single shit about us
previously, and I'm sure they're only offering this to lock in another year
for everyone.

------
bradleyjg
Housing is a universal _cost_. When prices come down human flourishing goes
up. How did we get to a place where governments across the west desperately
manipulate markets to increase the cost of a basic necessity? How perverse!

~~~
arcticbull
I agree with part of your premise -- artificial supply constraints caused by
NIMBY-ism precludes building up in highest-demand metros which causes prices
to go up.

On the other hand, "human flourishing" is unlikely tied to real estate. Real
estate is an investment vehicle, and one that is pretty broadly indexed to
inflation on average in the US. It's often the case that renting somewhere
cheaper will leave you economically advantaged as compared to ownership. I'd
suggest playing with the variables on the New York Times rent vs. buy
calculator from a few years back [1]. Owning is by no means a "clear win" but
rather part of the American wealth-building narrative.

[1] [https://www.nytimes.com/interactive/2014/upshot/buy-rent-
cal...](https://www.nytimes.com/interactive/2014/upshot/buy-rent-
calculator.html)

~~~
rwmj
I guess the OP means that humans are less able to function if they have to pay
out a large proportion of their salary in rent, which is basically true for
people living in cities near to jobs. It becomes a constant source of anxiety,
and could mean that any break from work threatens to make them homeless. So
it's probably fair to say that humans don't "flourish" if house prices (and
therefore rent or mortgage payments) are very high in the specific places
where jobs are located.

~~~
arcticbull
> I guess the OP means that humans are less able to function if they have to
> pay out a large proportion of their salary in rent, which is basically true
> for people living in cities near to jobs.

I hear you but owning isn't a solution to that for most people. When you take
into account the interest on a 30-year fixed-rate mortgage, HOAs, property
taxes, homeowners insurance and 1% per year in repairs/upgrades, and periodic
remodels. As a renter you're on the hook for none of that.

A 1-bedroom 700sqft apartment in downtown SF rents for ~$3750 in my building.

It's worth about $840K. You're out:

\- The opportunity cost on a $168,000 investment.

\- $2080/month in interest.

\- $870.00/month in HOA fees.

\- $83.33/month in homeowners insurance.

\- $1260/month in property taxes.

\- $700/month saved up towards your 1%/year repair bill.

That means you're paying $4700 per month in what amounts to rent, and you're
setting aside $1000 per month in principal saved in the first year. Once you
deduct those from the salary you need to afford it in the first place, we're
talking right around what rent would be.

In general, especially in these areas, not only are your PITI payments really,
really high -- rent tracks all-in expenses. Basically the cost of renting an
apartment is approximately what the non-recoupables would be owning, for much
of the first decade of ownership.

~~~
ag56
Not that I disagree with your point, but to finish the conclusion: in the rent
scenario you save $12k a year, or about 1.4% of the purchase price.

As the return on investing that $12k will be so low (in dollar terms), it is
perfectly rational to own if you believe the condo will increase in value by
even a little more than 1.4% per year. And as our government goes out of its
way to prop prices up, that seems like a safe assumption over the long term.

~~~
bradleyjg
I don’t think you are taking into account leverage and the cost of it.

That’s the major difference between stocks and homes. In the first case the
government sharply limits private lending, in the second it has nationalized
the industry and subsidizes it significantly.

------
voodooranger
a housing slump may be coming but then so are pay cuts. in fact they’re
already here for many people. prices are also falling for energy and lots of
other commodities as aggregate demand collapses.

all of this amounts to textbook deflation. those with debts to service
(mortgage, auto, student) are going to be feeling a lot of pain in this
environment. good news is gov’t just needs to print money to bring nominal
prices up.

bad news is there’s no free lunch for young people hoping to buy homes. imo
wages are largely going to move in unison with home prices.

------
roenxi
US national debt [0] is at wartime levels and I believe US private debt is
also at or approaching all time highs relative to income. At a guess, any
surprise of any sort away from best-case is going to cause a crisis in debt-
exposed markets.

The coronavirus is one of many of paths to an ugly slump. The level of debt is
a story in itself; it is a creeping horror that comes to a head suddenly at
difficult moments. Somebody is expecting money to come to them that is not
going to.

[0]
[https://en.wikipedia.org/wiki/National_debt_of_the_United_St...](https://en.wikipedia.org/wiki/National_debt_of_the_United_States)

~~~
IkmoIkmo
People keep talking about debt as if all debt is made equal. It's not.

It's a bit like someone talking about his salary as an amount, without
specifying whether it's per hour, per year, per minute, in a world where the
unit of time is constantly changing. That'd be completely meaningless.

Fact is that interest rates reached levels between 10-20% in the post-war era.
Today they've reached 0-3%. Higher debt levels aren't necessarily a problem if
interest rates drop meaning debt servicing is low, and inflation mitigates
rising nominal debt levels meaning debt in real terms stays low.

I'm not saying that debt is not a problem at all, but that it's completely
taken out of context by looking at nominal debt figures rising. Even if you
express debt as a percentage of GDP, you're still missing interest. Debt
servicing as a percentage of GDP isn't at particularly high levels.

Second, we must consider what the alternative is: less debt the past decade,
or decades, would've likely meant we'd see a deflationary cycle, inhibited
investments, research, development and growth. As long as there's a bail-out
for the 'reasonably' losers of systemic crises (which is not trivial, but
mostly feasible and which we're seeing now), the use of debt the past few
decades has probably been a net benefit.

------
woofie11
This article ignores stimuluses, printing money, and inflation.

------
alkibiades
i hope so. millennials might finally be able to own

~~~
ketzu
While homeownership of millennials is lower than that of their parents'
generation at the same age in the US, it is far from being zero. Most results
I've seen point it at 32-37% compared to the parents' generation at the same
age in the US at 42-47%.

It's not a small gap (with various factors leading to it), but it's not like
millennials don't own anything or previous generations even owned mostly at
that age. (But the data is not the most recent, so actually previous
generations might have had more than 50% ownership at that age in the US)

~~~
mschuster91
The key issue is the rural-urban gap, and it's not just only in the US
(although it's the most extreme there). In Germany, if you live in the more...
remote parts that don't have much in terms of jobs or public transportation,
you can live for cheap or continue living in your parents' house. No biggie.

But getting started with ownership in urban areas? Next to impossible without
financial assistance from parents. 500k minimum for a 3 room/60 m2 is the
ultimate lowest of the low you'll get in Munich. 10% downpayment is 50k plus
closing costs of 35k (17k taxes, 17k realtor) which means prospective owners
have to save _at least_ 85k (and better 100k to account for moving costs,
furniture, repairs)... which means that if you want to own an apartment at 35
you have to save 10k a year beginning with 25 - and no one I know here in my
age group can put aside 900€ a month, not with regular rents gobbling up 50%
or more of your paycheck!

And... even with 1% interest rate you'll end up with 1.100€ mortgage payment
_at least_ plus hundreds of euros a month in HOA fees (if applicable, usually
only in condos/bigger private developments), insurances (fire, weather, ...),
some emergency fund for issues such as heating or renovations), that is next
to unaffordable.

~~~
ketzu
While I agree in general, I don't think it's as easy as urban-rural. Germany
has some cities with extreme housing prices, notably Munich, but the
discrepancy is big within the group of larger cities as well.

I can't say much about my friend group, as we don't talk about buying houses
often. The few I talked to have an even split between the ones that want to
buy (or just did) and the ones that don't even want to, even though we're in
an income segment where it would be affordable.

I was surprised to find that home-owner rates in Germany have been quite low
compared to other countries, but I couldn't find data before 2005 (it was
51-55% overall). It's really interesting to look into these kinds of things!

