No — a bubble is "a situation in which asset prices appear to be based on implausible or inconsistent views about the future."[1]
Home value increases have not been particularly steady. And to the extent there is a sustained effect, it is in part due to long-standing government priority of individual home ownership, implemented in a policy of subsidizing home ownership, and in part due to concentration of jobs and people in cities as part of a labor shift.
Edit: almost_unusual makes a good remark that some locales are probably in bubbles and others not; it's something specific to any given region rather than some sweeping statement about the national market.
I think your first argument can be summarized as "everything is uncertain, so the future asset value of anything should be assumed to be zero." This is not an especially useful valuation strategy, so nobody else uses it.
> [remarks on US promotion of homeownership] strikes me as a commonly-bandied, well-debunked talking point.
Please provide a "debunking" of the idea that the US government does not explicitly prioritize, as a matter of policy, and subsidize, home ownership. Here are some facts that run counter to that idea:
1. The US literally has a "National Home Ownership Month" (it's June).
2. The mission statement of HUD's Office of Housing includes "Maintain and expand homeownership."
3. FHA loans.
4. Mortgage interest deduction on primary residences.
5. Capital gains exemption on (a large portion of) primary residence sales.
No, the first argument is that you, and others, are underestimating the certainty of the examples given coming to pass. Should they, the assumptions under which the market seems to be operating become falsified.
>Here are some facts that run counter to that idea:
Well, first, I'd like to see facts that actually run counter to that idea. What you've shown is that the government supports and promotes home-ownership for a portion of the population. They don't prove that the government prioritizes home ownership over other policy that could be contributing to asset value increases - say, signals to our national bank to manipulate the money supply. One way to check would be to compare the amount of funding vested in pro-home ownership policy to the amount related to the aforementioned.
Suffice it to say, I'd love the government to invest in the average American to the degree that they've invested in the people who can most directly access the benefits of liberal monetary policy.
I wouldn’t be surprised if some markets were in bubbles and others weren’t.
I think there is a lot of speculation about the Bay Area and SF being in a bubble due to high prices. The demand is still there though and it’s actually grown quite a bit in recent weeks ( SF specifically ).
Cities with a lot of service and factory workers will see a larger correction.
The Bay Area isn’t in a bubble either, it’s a market whose pricing dynamics are determined by constant strong demand due to economic prospects combined with city councils artificially constraining supply to the benefit of landowners.
Especially with rents as high as they are. Some higher end 1BR condos are cash flow positive immediately at purchase at the moment. Much more tax efficient, too.
This is the sort of reasoning that scares me, because it assumes prices stay the same across wide economic shocks. Prices don't stay the same. In my neighborhood I've seen widespread move-outs at the end of March and April - as in I'd take a 10 minute walk around the block and see 5 families moving out at that instant. When you've got 20% vacancies you have a very strong incentive to drop prices and fill that apartment now, or else you get foreclosed upon because you're not getting rent. I just took a quick glance at Craigslist and am seeing a $200-300/month drop in rent just in the last couple weeks. My neighborhood is at the bottom of the market, but economic distress tends to travel up-market as spending drops, people seek cheaper digs, and vacancies trickle down.
If lots of people were buying 1BR condos because they saw a profit opportunity arbitraging the difference in rent vs. mortgage payments, then a small drop in rents might mean that a large number of people can't make their mortgage payments. That's a big problem, because it implies a foreclosure wave that'll put further downward pressure on prices.
That's the risk, right. You have to account for that or you're doing a really bad job of building a real-estate business. This is often cited as a reason multi-family homes (or larger) are better for landlords than individual units: if you have an apartment you rent out and you have a vacancy, that's a 100% vacancy rate. If you buy a 10-plex and you have a vacancy thats a 10% vacancy rate.
Luckily, or not depending on how you look at it, SF properties and rents tend to be fairly predictable as compared to other markets in large part due to the artificial supply constraints imposed by city council, and the huge demand of the tech industry which tends to weather downturns pretty well. If you can afford $4500/month in rent for a 1 bedroom, chances are you're not going to be fired first.
Personally I'm a huge fan of 855 Folsom (https://www.redfin.com/CA/San-Francisco/855-Folsom-St-94107/...). It's got that prison-chic aesthetic I love -- kidding, but not kidding -- the architect was Stanley Saitowitz [1]. I nearly bought a unit there. Went with something north of Market instead.
So with 20% down, 30 Year Fixed, 3.905% Interest, you're paying $3353 in mortgage, $903 in taxes, $605 in HOA and $163 in homeowners insurance. Set aside 1%/year for damages and repairs - $74/mth. (total $5100).
66% of your mortgage in the first year and all those fees are tax deductible, so you can deduct a total of $3900/month. [2] Depending on your tax bracket you can expect to get back $1500.
So your total expenses ($5100) minus tax deductions ($1500) is $3600/month, and it's renting for $4500. You could realize $900 free cash flow, assuming you're a well paid tech worker. Not to mention you'd have your renter building equity in your unit for you -- another $1106/month. Depending on how you account for that, your monthly realized profit could be about $2000.
NOTE: That's after-tax cash flow, which is the model I went with when I was running numbers on my own unit, and it depends on your tax bracket. I picked pretty generous numbers so YMMV.
Nope, on average in the United States home price per square foot is the same in constant dollar terms (give or take) as it was in the 70’s - since then the average size of an American home has gone up, however.
Productivity in construction is actually trending downwards, not up.
The big advancements in tech happened in the mid-20th century with suburban developments that made construction into something of a factory, on site.
In recent years, there have been a few startups trying to make a factories for multi family housing. The idea is to construct modules in a remote factory where you can drive economies of scale, and workers have consistent schedules with steady employment. Then ship modules to the site and stack the blocks in a tiny amount of time to minimize disruption.
Traditional construction management is some absolutely hellish logistics, involving all sorts of waiting for just the right contractor, and everybody carrying risk in weird ways. It's amazing that anything even gets built.
And then the planning stage is even more hellish, especially in places with high cost of construction like California. Only single-family-home builds have any sort of guarantee that if you meet code and zoning, you will be allowed to build. For any thing that is more affordable, like townhomes or apartments, the political process takes priority over the planning department. California cities are also completely cash strapped because of insane unfair property tax breaks for old wealth, meaning that impact and permit fees can easily eat of 10%-25% of the entire project cost. And that's after huge expense of re-planning many times according to community and politician whim, and it only takes a tiny number of housing opponents to force builders into a game of multi-year delays to try to stop all development, by running out the clock on financing that was secured to begin the whole process.
All this is to say is that our housing problems are, at the moment, a political problem much akin the US's healthcare problems. Intractable conflicts between entrenched interests prevent common sense wins for everybody. Technology can seem like a solution (e.g. EHRs) but seldom have any impact, either positive or negative.
I mean, they could, but that doesn’t change matters - house pricing has been consistent for decades. While larger buildings and new tech put downward pressure, things like better building standards, tighter codes, efficiency programs, more expensive materials, permitting and so on, add cost.
Fair enough. However the reason I mentioned house size is because housing on average "effectively" became more expensive in real dollar terms because the median home got bigger. So while it's the same price per square foot, it doesn't matter if you can only buy square feet in bulk.
Home value increases have not been particularly steady. And to the extent there is a sustained effect, it is in part due to long-standing government priority of individual home ownership, implemented in a policy of subsidizing home ownership, and in part due to concentration of jobs and people in cities as part of a labor shift.
Edit: almost_unusual makes a good remark that some locales are probably in bubbles and others not; it's something specific to any given region rather than some sweeping statement about the national market.
[1]: https://en.wikipedia.org/wiki/Economic_bubble