Hacker News new | ask | show | jobs
by drfxyjhdyfrhgc 1720 days ago
>The price comes first, and the buyer second.

The price is determined by the intersection of supply and demand. With a bull market in real estate, demand is greater than supply. Buyers have a greater effect on price than sellers. In the extreme, market prices converge to the maximum loan as GP described. In practice, people with higher incomes, liquid investments, or previous home equity can out bid individuals who assume the largest mortgage they can.
1 comments
thaumasiotes 1720 days ago
> The price is determined by the intersection of supply and demand. With a bull market in real estate, demand is greater than supply.

These two sentences cannot simultaneously use the same meanings of the words "supply" and "demand". In the sense of supply and demand required by the first sentence, the second is gibberish.

> In the extreme, market prices converge to the maximum loan as GP described.

What is the maximum loan? Prices cannot converge to "the maximum loan" because there is no such value. Different people can obtain different quantities of financing.

link
vineyardmike 1720 days ago
> Different people can obtain different quantities of financing.

And the people that can obtain the most get the best houses, and the people that can get a little bit less get the next tier of houses... until no houses remain (or no buyers).

Here in seattle (for example) we have a lot of SDEs making ~150k. A mortgage company will give you like 500-750k mortgage for that income. Maybe 1M if you have a couple with that income each. Most houses in areas where software engineers want to live all start at 650-700k for decent homes. Because that's the top end of what the buyers can afford, so that's what sellers ask, knowing there is a cohort of buyers that can afford that as a minimum buy price.

link
drfxyjhdyfrhgc 1720 days ago
>These two sentences cannot simultaneously use the same meanings of the words "supply" and "demand".

The second sentence is technically incorrect. During a bull market, demand is increasing relative to supply. (If supply was decreasing relative to demand, prices would increase, but that would not be a bull market)

>What is the maximum loan?

The GP comment I credited described the "maximum amount of loan" as a function of buyer income and interest rate. Obviously, the house is sold to the highest bidder.

In a hot market, the average price of real estate will approach the largest mortgage available to the average winning bidder (plus some quantity of household wealth).

link
thaumasiotes 1719 days ago
> The GP comment I credited described the "maximum amount of loan" as a function of buyer income and interest rate.

But the price of the house is set without reference to buyer income or interest rate. It therefore cannot depend on "the maximum amount of loan", which is an incoherent concept anyway.

The government program juices demand by making financing more available than otherwise. This raises the price of homes. But that's the limit of what we can say.

link