|
|
|
|
|
|
by roel_v
1785 days ago
|
|
|
But then why not before these low rates? If people were bidding up to maximum lending capacity as a % of total income back when mortgage rates were, say, 6%; and now they do the same but at mortgage rates of 2%; then there is a ceiling to house prices, but we've passed that ceiling a long time ago. So something else must have changed, too. (I did this math some time ago for the Dutch market and our prices were already like 20 or 30% over what you would expect by this logic; and prices have gone up 20% since then, just in the last year. How insane is that?). Maybe another factor is that people who are not first time buyers now have a lot more money from the sale of their previous house. We always focus on the first time buyers, but those are only a small part of the market, and for couples with two high incomes, houses are affordable still. So maybe higher assortative mating leads to higher spending potential in first time buyers, and the rest of the money just comes from people selling their first houses and upgrading. It's quite hard to model though, I don't really see a way to test this hypothesis in a few spare minutes here or there like many simpler theories are. |
|
|
If you can borrow 800k based on your income and you accept 200 square metres for that price, and there is such scarcity (100 viewings per home, 2% success rate) that you're unable to find a home, it may lead you to accept a 190 square metre home at the same 800k price.
If such a trend continuous for a decade, you may see that suddenly people accept to pay 800k for a 100 square metre home (such as happened in Amsterdam, the Netherlands).
The net effect is that housing prices per square metre doubled: a 100 square home went from 400k to 800k, and a 200 square home went from 800k to 1.6m.
No change in financing capacity is necessary for this to occur. Only a shortage of homes creating a cycle where people keep accepting less space at the same price, thereby increasing the prices per square metre throughout the entire market, thereby pushing prices of homes up.
I believe that's what's happening. The media fuels this process by constantly writing articles about shortages (even though objectively speaking, in the past decades home sizes have sharply increased while household size (persons-per-home) has decreased, i.e. there is objectively more housing per person than ever before).
Of course there is a limit to this logic. But in the Netherlands for example, the average space per person is about 50% higher than in Germany (culturally quite similar country). So there seems room for Dutch to accept smaller homes. And there's some examples (e.g. Hong Kong) that show that a high-income country with housing shortages also can push people to accept smaller homes in their budget.
This effect isn't immediate because prices are sticky. People cannot accept too much change rapidly without believing its overpriced. Over time, these 'overpriced' price levels are normalised and seen as the new normal, accepted, and a new concept of 'high' emerges. But it's not instant. Second, homes are mortgaged and thus must pass an appraisal. Appraisers also don't accept radical changes as they're based on reference objects of a few months ago, so there's a limit to the speed of price change.