

Ask HN: when will property prices go back up? - phd_student

Having never actually worked in the real world, and always wondering "how to make money" in theory ...<p>why hasn't property prices gone back up?<p>it seems that in these days, rich people (like those with dynasty wealth) can easily buy up entire blocks ... wait until prices go back up, and rent them out in the future?<p>like in the biblical story, when Egypt had the huge food famine, the rich (Pharaoh) bought up all the poor people's land<p>except that in this case, why aren't the rich and wealthy buying it up? seems like a beautiful 'hack' in the classical sense
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patio11
You don't need "dynasty wealth" to manage property. It is one of the most
common small businesses in the United States. (Fairly low capital requirements
by the standards of physically-extant businesses, low expertise requirements,
well within the capability of many middle class families.) It also has
_significant risk_ and requires _lots of manual labor_. (That is why I don't
do it. You can outsource the manual labor but that ends up outsourcing the
positive part of the cash flow, too.)

Risks:

\+ Property prices fall.

\+ Competitive options for housing in vicinity of your property decline in
price, causing rent you can charge to fall. For example: if you can buy a
modest house in Detroit for $10,000 why would any worthwhile prospective
renter pay you the $500 a month you need to cover the mortgage and maintenance
on the modest home you bought back when Detroit had viable industries in it?

\+ Can't find a tenant, get to eat mortgage.

\+ Renters trash house, enjoy $20,000 repair bill.

\+ Renters stop paying rent. Enjoy eviction process.

\+ Your local government decides evil landlords are exploiting poor people to
make money, institutes rent control. Enjoy low rents, impossibility to unload
property on another sucker, etc.

~~~
RyanGWU82
Exactly, and at the moment, people are incredibly risk-averse. Everyone's
worried about losing their jobs; consumer confidence is low; etc.

Demand will rise again once the general mood changes and people are willing to
take on a bit more risk. Renters will be more likely to buy homes when they
feel their jobs are safer. And landlords will buy more rental properties when
they feel more confident about the risks patio11 outlined above.

------
pg
There is no such thing as "back up." Prices go up and down. "Back up" presumes
a certain price is the appropriate one, but in reality no price is more
appropriate than another.

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davidmathers
You should look at the chart:

[http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27...](http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html)

We recently passed 150 on the way down. Still got a ways to fall.

When will prices go back up? 10 years? 20 years? Never? Why should they go up?
I've only heard one reasonable explanation for increasing prices. Apparently
certain areas, like New Jersey, are now effectively "full". Therefore people
who want to live there will be spending a higher percentage of their income on
housing going forward.

I don't know if it's true, but it sounds plausible at least.

EDIT: the reason for New Jersey being completely built out is NIMBY laws, not
that all the land has been used.

------
ars
Prices go up when babies are born, and down when homes are built.

Except that in many cities there is no room to build any more houses, so
prices go up based on how many people want to live in a city.

People want to live in a city usually for economic reasons. (Close to jobs,
cheap services etc).

So basically, unless you are buying rural property, prices will go up when
people want to move to cities.

All that's economics - but the real world is a bit more complicated. People
determine how much to pay for a house based on two things: how much the seller
wants, and how much money they have.

Easy loans made it such that people had lots of money for houses. Sellers like
to make a profit when they sell a house (it's emotional, not logical).

Put those together and you have a housing price boom. But it can't (couldn't)
last because it doesn't match the real economics of the situation.

At the end of the day prices should move based on population in cities, and
inflation.

And BTW people are already buying up city blocks in Detroit. The biggest
problem there is crime though, which makes it hard to buy a house and hold it
for a while.

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anamax
> wait until prices go back up, and rent them out in the future

Or sell - rental housing is work and illiquid. After "back up", there's
probably something better to own.

> except that in this case, why aren't the rich and wealthy buying it up?

What makes you so sure that they aren't? (I know folks who are.)

Also, some may be waiting for a better deal. For example,

[http://justoneminute.typepad.com/main/2009/03/give-
investors...](http://justoneminute.typepad.com/main/2009/03/give-investors-a-
place-to-rest-their-fulcrum.html)

and

[http://www.marginalrevolution.com/marginalrevolution/2009/03...](http://www.marginalrevolution.com/marginalrevolution/2009/03/at-
first-i-thought-these-numbers-were-a-typo.html)

~~~
anamax
More info on "the deal".

[http://www.nytimes.com/2009/03/21/business/21bank.html?_r=1&...](http://www.nytimes.com/2009/03/21/business/21bank.html?_r=1&hp)

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noonespecial
Prices were bid up to artificially high levels by the pretend money that banks
were lending. (Pretend because there was no reasonable way it could be paid
back and nearly anyone could get it).

Prices probably won't "go back up" the way anyone hopes. The prices were fake.
The crisis will end when the prices either 1) Fall to their "real" market
value, or 2) The government pulls a fast one and inflates the currency until
the shrinking value of the dollar meets the prices people have come to expect
at that real value. (And everything on the dollar menu at McD's costs $2.50)

I think its fairly obvious which choice has been made by the suit-monkeys.

------
alnayyir
Hopefully never. Why should housing for humans grow more expensive? We aren't
running out and materials continue to grow cheaper.

It seems inhumane to me to hope that one can profit off of homelessness and a
reduction in the overall quality of life of your fellow citizenry.

~~~
patio11
_inhumane to me to hope that one can profit off of homelessness_

Umm... landlords profit off of homelessness by _eliminating it_. That would
normally strike me as socially beneficial.

It's about as inhumane as a grocery profiting off of people's urgent need to
eat on a daily basis.

~~~
alnayyir
_Umm... landlords profit off of homelessness by eliminating it. That would
normally strike me as socially beneficial._

Not quite what I mean. I'm talking about the fact that housing is a poor field
in which to apply demand-side economic policies.

Housing is a place, where, if one wanted to make housing more accessible, you
must improve the supply. Supply-side policies are necessary here in order to
bring down materials costs and to continue to build more housing to bring
prices down.

If the cost became low enough, and people learned proper saving habits,
mortgages would no longer be necessary and people would stop treating a
durable consumer good like an investment.

Housing is not an investment, it should never be treated as an investment.
Only by artificial tampering with the market or a self-perpetuating case of
mass delusion could ever make people believe housing was anything other than a
durable consumer good.

The real estate situation leading up the crisis of today was wholly unnatural
and unhealthy.

If you want to increase your net worth, invest your money in a solid business
or make your company.

~~~
anamax
> Supply-side policies are necessary here in order to bring down materials
> costs and to continue to build more housing to bring prices down.

In a large number of places, housing prices are not all that dependent on
materials costs. (Or rather, other things drive up the price to the point that
people spend more on materials because that doesn't have much effect on the
overall price.) Instead, they're driven by land use and other policies.

> Housing is not an investment, it should never be treated as an investment.

Housing is a large pile of resources. While it's a durable good for consumers,
it's an investment for housing providers, builders, and so on.

More to the point, things that people do for profit are far more likely to
happen than things that people do "for the common good" or some other reason.
And the desire for profit is what drives prices down.

Investment is a great way to get profit involved.

