Other reasons why housing prices rise

[Escoguy]

Much of our discussion is based on comparing todays market with that of 10 years ago. Interest rates are a factor as well as a growing population and lack of new construction.

I think there are other reasons why housing prices can go up and be more sustainable than in the past and it has to do with general consumption patterns:

1. products like cars/computers last longer and have more features (replacing a car that lasts 10-15 years is a real discretionary purchase)
2. longer lifespans (older persons buy fewer things) but still need housing
3. some cultures embrace multi generational housing arrangements
4. glut of consumer products at ever cheaper prices
5. systems to reuse consumable items: Goodwill stores
6. renewable energy/solar/electric vehicles eliminates energy bills
7. wide range of tax credits/government benefits/food stamps
8. discounts for food at many fast food places
9. cheaper transportation/Uber/Lyft

In effect, some of these trends mean that housing has the potential to absorb excess funds which in the past would have been spent on other items which are either no longer needed or have a longer lifespan. Or which can be bought cheaply.

Or conversely, there are opportunity to save everywhere else by economizing except for housing where policy limits urban redevelopment and new supply so the money flows to the item which has the tightest supply constraint.

[gzz]

I completely agree. The same trend of physical things becoming cheaper and better drives college tuition and medical care to keep rising faster than inflation.

—some cultures embrace multi generational housing arrangements—

This factor is negative for housing however, as “household formation” is a very strong driver of housing prices.

[XBoxBoy]

For the most part I disagree with the items you’ve listed.

Items may last longer but we just buy more of them or new items that weren’t available in the past. Think cellphones. Twenty years ago almost no one had one. You phone bill was not much at all. Now you have a family of four paying $200 a month for phones. Also in the past tv came over the air for free. Now, $100 a month is probably the average.

People spend significantly more at restaurants and eating out now than they did in the past. Eating out and/or eating already prepared food cost more and is much more common now.

Reuse centers like Goodwill are not new. These places have been around for years.

Renewable energy is still not cheap. You still have to pay for the solar system. I would seriously question if spending on energy is dropping for reasons other than declining oil prices.

Certainly here in CA prop 13 combined with longer lifespans has lead to house hording so I won’t argue with that, but I doubt food stamps or most govt benefits have impacted house prices.

I don’t know if cheaper transportation will cause prices to go up or down. An argument could be made that as Uber and Lyft roll out autonomously driving vehicles we could see a lot of job loss due to automation. That in turn could cause housing to drop precipitously. Not convinced that will happen but worth considering.

[FlyerInHi]

Depends where you want to live.

1) interest rates. lower rates makes it easier to buy.. but low rates also encourage investor interest in real estate for the cash flow.

2) Demographics. Educated professionals and immigrants want to live in gateway glamour cities.

Compare that to after WWII when people were moving to new suburbs. That trend reversed in the late 80s.

3) Subsidies. After WWII there were lots of subsidies for housing (Fred Trump made a fortune off of housing subsidies), including freeway construction to get people to edge cities and new suburbs.

Today, the gas tax to fund freeways can hardly keep up with maintenance, least of all fund new construction to new supply of land.

The auto industry is no longer the top driver of the economy. GM doesn’t have as much lobbying power to encourage the automobile.

[The-Shoveler]

Actually people really DO want to live in suburbs but land use restrictions and labor shortages are what is really holding back new inventory.

Mostly there is a lot more household formation than new inventory being added so it becomes a classic supply and demand thing.

Millennials seem to have very little interest in construction jobs so there is your labor shortage.

And yes they DO want to buy cars, (we were just having record car sales), they just dropped off a smidgen and you get everyone who is trying to convince everyone else that they should not own cars trying to make an issue that does not exist.

[SoCalBakerman]

I live in Escondido, and you cant swing a dead cat without hitting a construction worker with a lifted truck and a Glamis sticker, so just from observations I really don’t see a labor shortage, as for land use restrictions I agree but only that it is hard to build large housing tracks, infill not so much.

Also, you could build the houses off site in a factory and just truck them in, just look at Blu Homes, they make great looking prefab houses better than most of that Temecula track stuff.

Lastly, I am shocked that Row homes are not making a come back, they built some in downtown Escondido and look great and sold pretty fast, and you don’t have that Apartment/ Condo problem like the people stomping overhead or lack of parking.

[FlyerInHi]

Shoveler, here’s an article on Costco and changing demographics.

http://www.msn.com/en-us/money/companies/why-costco-is-fading-away/ar-AAiyVFr?li=BBmkt5R&ocid=spartandhp

I don’t disagree with you, the suburban lifestyle still has allure that’s why some places are expensive. But the good locations on the edge of gateway cities are already expensive, and expanding further requires freeways. The model today is toll roads which adds to housing costs.

Again, it depends where. Educated people and immigrants want to be in and around coastal gateway cities.

Look at the period after WWII where younger cities flourished. Now, the educated tech savvy class wants to be in established gateway cities. New multi-family products makes it more palatable. In contrast, after WWII to the 80s, people were abandoning city tenement housing for the suburbs.

Do you think Scaredy’s kids will get married and start families in Temecula? Or will they move to LA, NY, SF, or maybe North Park or UTC in San Diego?

[flyer]

“Most workers don’t have enough money to retire
Total savings and investments, 2015

Less than $1,000 28%
$1,000 – $9,999 17%
$10,000 – $24,999 12%
$25,000 – $49,999 9%
$50,000 – $99,999 10%
$100,000 – $249,999 10%
$250,000 or more 14%

Source: Employee Benefit Research Institute”

From the horrendous stats above, apparently, most people are not placing their excess funds in retirement savings.

Unbelievable, especially when you consider it is estimated that most couples will need $250K to cover medical expenses alone between the ages of 65-85, even if you have Medicare and supplemental insurance.

[njtosd]

[quote=FlyerInHi]

Again, it depends where. Educated people and immigrants want to be in and around coastal gateway cities.

[/quote]

Brian – I just shouldn’t read stuff you write because my blood pressure spikes every time one of your ridiculous statements dribbles onto one of these threads. Have you ever been to Chicago? Or Ann Arbor? Or Detroit or anywhere other than the coasts?Frankly, it’s easier to find smart, well educated people in many areas of the Midwest than it is around here. Do you know where the TOP school for musicians is in the country??? I’m sure you would say New York or maybe Los Angeles where the coastal intelligentsia congregate. But no, the answer is Bloomington, Indiana – (University of Michigan is in the top 5, just behind Julliard). In fact, just took a look and, according to the FIRST article I pulled up, Ann Arbor is the most educated city in the country http://www.forbes.com/pictures/fjle45iglg/no-1-most-educated-city-/

You remind me of New Jerseyans who would say “Jersey is the BEST”. And then you’d ask them if they ever lived anywhere else and they’d say no. Just once, please evaluate one of your ridiculous pronouncements before it makes its way here.

[FlyerInHi]

njtosd, I was making a broad statement. University towns are included in what I mean by desirable cities.
In fact I have a cousin who works at Indiana university. And I know that cook engineering is there. It’s an ok town. Very boring! But guess what? University towns are expensive!

[The-Shoveler]

I completely disagree on the Costco article.

Just like the Auto industry pessimist after 7 years of good sales and sales records they have one bad quarter and suddenly it is the end of an era in america LOL.

Talk to builders, if there are enough construction workers they can’t find them.

[flyer]

Excellent points, nj. My wife, who attended a music conservatory in Paris, has friends who attended Juilliard, Eastman, Yale and Oberlin, as well as the relatively newly named (2005) Jacobs School in Bloomington, which boasts Joshua Bell as one of its most famous attendees, and now faculty members.

[spdrun]

You remind me of New Jerseyans who would say “Jersey is the BEST”.

Problem with the country outside of NJ, NYC, LA, and Miami, all of which are about 40% foreign-born is, in a nutshell … TOO MANY AMERICANS. I’d sooner live abroad than in a city that’s mostly US-born.

Americans are too often brainwashed by US media, fearful, and spoiled. I love that I can go to parts of NYC and barely hear any English spoken.

[FlyerInHi]

Immigrants and savvy people with a 21st century global outlook like large metros for the diversity of opportunities. It’s not about the number of educated people per capita that would exist in college town, but how large metro attract people with means/jobs.

It’s all about growth. You need more people wanting to buy houses in order to have fast housing appreciation.

Another thing is that because of relative peace around the world immigrants have cash from their home countries for down payment. Sure, Syrian refugees don’t have cash. But people from China, Korea, Mexico, even Guatemala have savings.

[FlyerInHi]

[quote=The-Shoveler]I completely disagree on the Costco article.

Just like the Auto industry pessimist after 7 years of good sales and sales records they have one bad quarter and suddenly it is the end of an era in america LOL.

Talk to builders, if there are enough construction workers they can’t find them.[/quote]

Actually Sears reflects the end of the post WWII middle-class order. Sears is an interesting case study.

Costco and Walmart reflect the 80s on. That will change also. I think change is happening faster and that’s creating anxiety for people who can’t or won’t adapt.

[Author]

Posts