| > It is very hard to point to any non-bubble explanation for it. > I find it difficult to believe this is sustainable. As someone who just got approved for a million dollar loan in the Bay Area earlier this year, and decided to let that approval expire, I feel the same. But I still feel nervous about “timing the bubble” by delaying. Here are my “non-bubble explanations” for housing value increases: 1) Investors who want something like a bond. If you park a million dollars in a rental, let’s say you got back $3,000 a month. That’s something like a 2.3% interest rate. Not bad if your other options are 0% or less. 2) Investors who want to get out of the dollar (or any other currency): maybe they don’t care about the rental income they just don’t want cash. They want something that will track or slightly outpace cash. 3) Inflation is real. It’s happening, and in cities employers will have to increase wages to match. This is already happening for many of us, when we negotiate salary it’s not just “how big is you grocery bill”, it’s “how much do you need to pay me for me to pay a mortgage”. If city employers keep keeping up and housing stock keeps staying low then the houses really will do have value for people who need to work in the city. 4) Short term rental investors: Housing stock is now competing with hotel stock. This has the potential to be much more than $3000/month of revenue, although costs are higher to realize that revenue. 5) Government assistance: at the moment the government is paying or deferring anyone’s rent who can’t pay. Which I have to assume is reducing supply. Who knows how long this can continue. But as long as it stays true, the gain stay real. And here are my explanations for why the value might be DECREASING: 1) Government assistance will likely end soon? And bankruptcies both of renters and landlords should increase supply and decrease demand? 2) Work from home: got a real shot in the arm from COVID, especially in the Bay Area, it seems like this might be a structural change for many companies. VR won’t affect this until headsets support eye contact, but that seems poised to happen around the timeframe COVID becomes manageable. The “end of offices” seems to be increasing in probability which would massively change the housing demand in cities. So I don’t know. At the moment I am having a hard time believing there is that much headroom in housing prices to justify their current “only upper middle class can afford to buy housing” levels. But I really do see an argument on both sides. |