I’m not sure how this would work practically in the US. A huge constituency of people has most of their finances centered around their home as minimally a value store and maximally a growth investment. Having homes go down in price or even just leveling off would create a whole other host of challenges for a society that’s been organized so completely for so long around home values going up.
The problem is that though a lot of homeowners would themselves benefit from dropping prices (most would love to trade up, and as long as we don't end in negative equity, dropping prices would help with that), most people don't seem to understand, and see the house as an investment of the "I can afford a more expensive house" kind (ignoring that those more expensive houses are also more expensive because of the price growth).
Overcoming the psychology of that is politically hard.
This scared the [expletive] out of me until I read it and saw it was mostly theoretical, as I just purchased a home in the Boston area.
I think as you say the main issue (or challenge) here is that it would be a monumental change in perception, and that the perception itself is not insubstantial. In other words, people value homes because homes, land, neighborhoods, cities, and general living arrangements are valuable; not simply because they expect the monetary value to go up. Regulation of that system therefore might be an uphill battle against reality.
In addition, I've had many great conversations with friends in my generation (millennials and whatever the heck children of the mid-80's are called) and the consensus is that we don't actually think of owning a home as an investment much anymore. It's risky, it's unknown whether the value will go up or down in the short or long term, it's costly in a different way (time, energy, maintenance, stress), and it's more about control of your living situation and quality-of-life than anything.
In other words, me and my generation are buying homes if and only if we want to own a home, not because we're bent on investing in our future with property. We understand, for the most part, that you need a diverse strategy for investment and the home isn't by any means a sure bet.
Weirdly, I own a house and think I'd be better off if prices fell-- fell a lot. I bought a few years ago and would be happy if prices uniformly dropped to those levels.
Why? I want a 50% bigger/nicer house in the same area. But bigger/nicer houses have increased in price proportionally to mine. So the gap in absolute dollars between what I have and what I want has expanded quite a bit. My income has increased, but not really enough to cover the gap.
Strong increasing prices really only help homeowners to the effect that they're eventually willing to downsize or move to a lower-cost area.
If prices rise strongly and proportionately I suspect it just causes stagnation. I can't really upgrade without a windfall, thus my house stays off the market. So other folks can't upgrade to my house.
I have bought a house. I think one reason it's so painful is that it is a relatively rare occurrence which usually represents a huge transfer of wealth. If, on the other hand, home sales were more common and (presumably) for less money per transaction, you could imagine that this process would be simpler.
I'm not super-interested in debating the implementational details of what's obviously a thought experiment - mostly what I'm interested in getting input on is: would home prices go down? would monthly mortgage rates go above or below current rental rates? would there be more or less pressure to build new units?
This is already true up to $250k. Look, I certainly don't think it's a good thing to build an economy on people or corporations flipping real estate. But active measures that would make it less attractive for people to buy a house, will drive that money elsewhere. As of 2020, 82.8 million residences in the US are owner-occupied. People have put their nest egg into a place to live, and that's good. It's a good thing that real estate is a safe place for people to put their savings to keep pace or outpace inflation. Imagine that money going into the stock market chasing gains. It would be a catastrophe. There is a true market for real estate driven by demand. A large number of houses in this country are owned by people who live in them, who are not speculators, but would only make the decision to own if it made financial sense.
Oh, it is definitely by design whatever the factors are.
It's a circular problem too. People buy an expensive house somewhere and it becomes a substantial part of their net worth. Home values decreasing would impoverish them. Home values increasing would enrich them. Homeowners vote a lot more than renters, especially in local elections. So you quickly end up with local governments full of people (most of whom are also local homeowners) incentivized to keep property values high.
The problem must be taken out of the hands of local governments, but even at the national level, there's never going to be political will to slash home values.
I'm not really clear on what you're disagreeing on. I've acknowledged that prices could go down for people who are already in homes and who don't own them - that's the only portion of the market that your post and proposal addresses.
As someone who doesn't own a home yet because of insane competition, if I were to buy a home tomorrow and afford the mortgage, and suddenly the value dropped by $300k, I wouldn't care. I'm not looking for a home as an investment, which is the problem. I would still have that same home to live in and raise my family in. If anything, I might be able to reduce that fictional mortgage.
I'm not in favor of homes dropping in value either, but if the argument is it's going to hurt investors, then let's do it.
Yes but I imagine the argument would be that it leads to a reduction in supply & increased demand meaning fewer houses available to compete over which results in a higher over all price which can be applied to all houses, inflating the price beyond a houses intrinsic value.
I agree, I bought my house as a home, I really don't need or want it to go up in value. I think many people would be better of if we had policies discouraging residential housing as an investment.
My home's value has gone up over 30% since I bought it around 18 months ago (and 50% since 3 years ago) - I couldn't afford to buy my own home if I were house shopping today.
The way I like to describe it is that people want home values to go up but home prices to go down, and never seem to realize that this is impossible by definition.
Is this actually a problem? Why would people want more of their net worth tied up in their home? Wouldn't cheaper homes make the properly ladder game more accessible? Are people leveraging their current home value enough to need it to be higher?
Lol seems like you have never tried to do it in real life, easy to say impossible to do.
This is a complex problem that has many stakeholders who want to maintain status quo. Don't forget all the tax evasion and money laundering it supports.No one is asking questions till the market goes up.
Only way for a serious change if prices dropped overnight by 30-50% and people realize a house is just a place to live and make memories in, not a money machine.
As a home owner, I want dropping prices, with some caveats.
The people who want rising prices probably quite often would also benefit from dropping prices.
People who treat their primary home as an investment and/or have investments in property may benefit from rising prices. Even if it is by second mortgages or by trading down to release equity.
But I'd guess most home owners want to trade up or get something roughly the same most of the time when they move - our choice of house is usually constrained by price. And then dropping prices is generally preferable, as we'll get more for our money.
The caveat is that I of course don't want the prices to drop so far that I'm left without equity for a new deposit. A slow steady drop that leave us able to finance a decent deposit after covering our mortgages would be the best deal for most house owners, and generally far better than price increases (that it is probably pretty much impossible is another matter - it'd distort demand badly because people would suddenly want to wait, and be able to aim far higher when they do make the jump)
The reporting of house prices, as you say, really badly reflects this. Presumably because people see the value of their home as a proxy for their wealth, given that it is likely to be substantial compared to savings and other investments for most house owners.
At the risk of sounding brusque, don't just read the headline of this article and then comment because the headline doesn't mean what it reads like on the surface. It's not "house prices are falling and this could be awesome." Instead, the article's thesis is:
> So instead of looking at homes as investments, what if we regarded them like a TV or a car or any other consumer good? People might expect home prices to go down instead of up. Homebuilders would probably spend more time talking about technology and design than financing options. Politicians might start talking about their plans to lower home prices further, as they often do with fuel prices.
The article is going over a paper[0] that asks what would happen to house prices if houses were treated as disposable consumer goods instead of a means of storing wealth. It also points out, correctly in my opinion, that such a shift would be monumental (if only because everyone would have to do it at the same time).
To what end though? Housing prices are just a bidding war to allocate desirable real estate. More and more wealth becomes trapped in real estate.
It's an effective market-based method for allocating scarce resources- a classic tactic. But I'm beginning to wonder.
America's real estate is worth ~$25T. Suppose property was simply assigned. An unfair system, probably vulnerable to corruption and nepotism and such, but on the other hand that's $25T that can be invested in other pursuits. What might that additional liquid $25T do for us?
A gross oversimplification to be sure, and perhaps completely wrong-headed. But it seems like the key difference from many other bidding wars is the money doesn't leave the system. When I sell my house, I probably take the proceeds to buy another house. The seller of that house takes his proceeds, to buy another house, and so on. It seems rare that anyone downsizes houses, and takes the proceeds out of the market.
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