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Comment by mdorazio | Hacker News Reader

The article seems to imply some meltdown in housing is around the corner, but it seems more like the housing market is just leveling off as a result of market forces. You can only drive home prices so high before there aren't enough people who can afford them anymore. Hopefully that means that rent prices will also level off in the area in the near future.

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From the article:

>> "...historically low inventory"

>> "...many sellers are sitting this year out."

>> "...The median sale price ... fell by 1.8 percent..."

The article's authors are confused. Their explanation for falling prices consists entirely of "Supply is down."

That's exactly the opposite of how supply, demand, and prices are related. If they wanted to claim that low prices are scaring sellers out of the market, since those sellers are hoping for a future rebound in prices, I might believe it. But the article claims the causality is going the other way.

In Cambridge, a faction of candidates for city council promises that they will make housing affordable by opposing the construction of new housing.

Apparently you can just tell people that supply and demand work the opposite way in the housing market, and people will believe you.

The reasoning might be that if a place gets luxury apartments, rich people will flood the area. Then the crime rate per capita goes down. The criminal population becomes diluted. It starts a snowball effect where crappy apartments in the area looks more and more attractive to the upper middle class as more upper middle class outbid previous poorer renters for the old housing.

I know that's the argument, but it doesn't make much sense to me. It's comparing to a fictitious alternative where rich people don't move in. Why wouldn't they? It's already a desirable place to live, so rich people desire it too, and by definition they can afford to act on that desire.

It is not hard for a rich person to outbid a poorer renter. I mean, this doesn't require a complicated explanation. Whether or not there's new housing, rich people can already outbid current renters because they have more money.

And when this happens without new housing, not only does a rich person move in, someone else moves out. By trying to prevent gentrification from indirectly causing displacement, you just cause the displacement right away.

This still sounds like supply and demand doing what one would expect, not doing the opposite.

This is a phenomenon that's not unique to Cambridge. In many places around the country NIBY forces convinced people that if they don't build new housing neighborhoods will stay (or become affordable) because there won't be new people moving in. At least that's the logic.

This kind of line of reasoning is happening in East New York (far east neighborhood in BK). The local population / community board / local city council people were protesting re-zoning currently mostly industrial stretch of land. But it looks like the rezoning got pushed through.

If it didn't happen folks who no longer had money for the spaces they wanted in eastern Bedstuy & Bushwich already have started pushing more eastward into East New York / Cypress hill area. This can be evidences by the increase in housing prices in those area in the last few years and number of new smaller buildings and gut renos happening.

I too found many of the facts stated difficult to relate. Every listing results in a bidding war-> prices are finally coming down?

With very illiquid assets, like San Francisco real estate, it's often not so much how high or low prices are but whether the market even exists.

Indeed, but supply & demand says that less inventory in an otherwise normally-operating market should see prices increase. Yet, price-to-list is < 100%.

It's hard to know what that means. Are sellers pricing the low-inventory situation into their list price and then only getting a fraction of that markup? Does the inventory suck, meaning lenders won't even finance it, thus reducing the price? Are all-cash offers at the $1mm+ price point so tempting that sellers are giving up 8%? Are buyers just giving up?

> That's exactly the opposite of how supply, demand, and prices are related.

Just add in a dash of human behavioral economics.

There's a pretty strong narrative that the process of buying in the Bay Area is intense and demoralizing. There's only one winner in each of these bidding wars and many losers. At some point the losers may get fed up and stop looking. They'll also tell their friends and family how awful it was to look for a place.

Note, this is all speculation on my part. I am nowhere near an Economist just someone living in this depressing home/rental market.

Well, the housing market behaves in extremely irrational ways because the decisions have so much impact on people's lives. It doesn't behave like the market for tomatoes or aluminum.

That's not exactly true. A lot of REIs are built on complex structures. The SF estate market might be fueling other investments. Once one starts to collapse it can have a domino effect. Basically if investors were expecting 10% annual return and you tell them this year might be 1-2% they'll take that money and move it elsewhere. Now you have to raise money or sell.

When I used to live in downtown Miami there were high rises going up everywhere with prices starting at 500k-1mm. These same places would later be short sales for 150-250k after the GFC. There was a glut of luxury apartments and few buyers.

I wanted to buy one of these condos but couldn't find a bank that would give me a loan. They're were petrified at what was happening there

<< Basically if investors were expecting 10% annual return and you tell them this year might be 1-2% they'll take that money and move it elsewhere. Now you have to raise money or sell. >>

How can they take that money and move it somewhere? Most such investment contracts don't allow it. Am I missing something?

They stop adding more money in. Less future investment?

Some REITs are publicly traded. Investors can simply sell their shares and buy into something else.

REI means Real Estate Index? Or do you mean REIT (RE Investment Trust)?

I think Real Estate Investment.

> When I used to live in downtown Miami there were high rises going up everywhere with prices starting at 500k-1mm. These same places would later be short sales for 150-250k after the GFC.

This sentence doesn't make any sense to me. The definition of a short is to sell something you dont' own with the explicit intention of buying it back later at a lower price.

How can you sell a condo you don't own? and then why plan on buying the condo back at a later date?

You're thinking of the practice of shorting stocks, which is different than a short sale. From Wikipedia:

A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished.

Well how about that. I learned something today!

I appreciate you taking the time to write this out!

https://en.wikipedia.org/wiki/Short_sale_(real_estate)

In real estate a short sale is when the bank allows the borrower to sell the property for less than what they owe on it.

I buy a condo for $500k, sell it for $250k in a short sale but I need the agreement of the lienholder in order for this to happen.

And Miami is hot again from foreign (Russian and South American) buyers. Blocks of housing in Edgewater are razed to put up huge luxury condos.

My wife (Brazilian) and I joke that we won't have to take the kids all the way to Brazil. We just need to go to Miami.

Given the way the economy has crashed, this won't go on for long.

Which economy has crashed?

Probably Brazil's. It's a shitstorm at the moment. I think the smart, rich brazilians moved their money overseas, Miami for example.

In years past, there was a surge in the market due to the IPOs of companies like Twitter and Facebook. This could indeed just be a return to the mean.

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