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Comment by solaxun | Hacker News Reader

I'm not sure I understand the point being made here. Are you simply saying that higher rates means a higher monthly payment, and that the amount that prices have fallen is still not enough to offset the increase in the mortgage payment? That's fairly obvious.... for now.

The old "it's a supply constraint" argument will not age will IMO. FWIW, the fed agrees:https://www.federalreserve.gov/econres/feds/volatility-in-ho...

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I don't see how home prices can really fall enough to keep the cost of housing equal as interest rates rise. Because don't higher rates also disincentivize sellers and create more of a supply shortage as well, by taking more homes off the market, apart from disincentivizing new construction? I'm admittedly a little daft at economics but... e.g. I've got a fixed rate mortgage around 4%. Suppose I wanted to sell and I think we're at the top of the housing market... my options would be to buy something else now at the top of the market and pay a higher interest rate, or rent for a year until prices come down and probably still pay a higher rate.

Certainly, low mortgage rates drove home prices way up... but does that mean high rates could drive them down? I mean, maybe over a long period of time as existing mortgages get paid off (?) but for now while the vast majority of mortgages out there are lower than the going rate, won't that just keep constraining the supply and prevent the price of houses from dropping significantly?

This is pretty close to the most common counter-argument I've seen to the "this is another 2000s housing bubble" claim - the bubble burst when people had to sell or got foreclosed on, people taking out the mortgages today, or purchasing in cash, appear to be in much better financial shape to weather things and not have to sell.

You'll still have sales - some people will die, some people will have to move for various reason, etc - but how much it will fall seems like a very hard to predict question.

Purchasing cash wasn't really straight handing over a fat stack to the seller. A lot of "all cash" purchases were people who got loans through non-traditional means. So instead of getting a regular mortgage, they got financing through an institution who offered cash to the seller but is still a loan to the buyer.

Something like this: https://www.homelight.com/cash-offer

A TON of investment properties were purchased over the last few years, so those may be sold as investors need to balance out the huge losses they took on stocks, crypto, etc.

With rising rates, the counter pressure on prices from buyers may not exist in large enough supply to prevent the investors selling from driving prices down.

Just anecdotally, a friend who took an enormous shellacking in crypto told me the other day he's glad he'd bought two rental houses before getting into DeFi. He seems totally disinclined at this point to make any high risk moves with what remains of his savings. I suppose if he had to sell that would be another thing, but I don't think most even-marginally-sane people in that position are going to sell property and chase higher returns in the market.

Rents aren’t dropping - so the investment properties are likely going to be better off held as inflation helps push down the cost of those mortgages vs rental income.

How does saying that demand increased more than supply reduced in 2020 contradict the idea the the overall size of supply in in-demand parts of the country is lower than the overall size of demand in those areas? Like, if you look at 50-year price histories in SF or LA, how can you conclude that supply has kept up with demand?

I think we've now just seen that same pattern catch up with more places. I know people in Austin and Houston who were complaining that prices were already getting too high before 2020. That's where the folks priced out of CA were going even then.

I don't know the LA market, but there is a scenario where both supply and demand could remain constant and yet housing prices could still rise, and that's if the income of housing buyers rises. And if the income rises disproportionally, then buyers with relatively lower income can become displaced by higher income people buying additional homes to rent. Even though base demand remained the same, and supply in the sense of actual houses remained constant, a relative scarcity was created by the inequality in purchasing power between the wealthiest buyers and people lower on the income scale. And this can happen even if the lower income tier has actually increased its income over time, simply because it hasn't increased at the same rate as the wealthier segment.

If I'm following, this scenario is basically "as the higher income/wealth people invest more of their money into more property, prices and rent can both continue to increase even if demand is fixed until the lower-income people are spending 100% of their disposable income on rent"?

Which is not entirely dissimilar to the general discussion around gentrification - those who can afford to pay more can displace those who can't - but a sort of special case that doesn't require migration.

Seems like there would be some sort of game theory aspect - this only works if something close to every landlord is pushing prices up?

I think what we're really seeing is more the high-migration "gentrification" case yet applied to populations that normally aren't who you think of as being the ones on the receiving end of gentrification: the 100M-dollar-buyers are pushing out the 10M-dollar-buyers are pushing out the 1M-dollar-buyers from California and then they go to Texas and push out the 500K-dollar-buyers... and it continues to flow out to touch everyone else too.

I think the point is that given typical demand, the amount of supply would have been sufficient to not cause meteoric price increases. Demand exploded due to incompetent monetary policy driving a speculative mania, and that demand was what gave the appearance of a supply constraint. Until recently housing starts were at a 10 year high, and they are still on the higher-end of the past decade: https://fred.stlouisfed.org/graph/?g=Rzky

But Covid was just a blip in a decades-long trend.

I wouldn't argue that two years of insanity will correct itself.

But that doesn't mean the overall housing market is going to go anywhere but "still up and up" in most major US markets.

Austin median price in January of a few years (from https://www.recenter.tamu.edu/data/housing-activity/#!/activ...):

1990: 71,000

2000: 132,872 (+87%)

2010: 174,386 (+31%)

2020: 305,000 (+74%) (pre-covid, January 2020)

2022: 476,000

That 2022 number ramped up hard over that 2020 one, but that overall trend is still nuts. Even with the huge bust towards the end of the 2000s the decade ended well up.

Inflation calculator here (https://www.usdinflation.com/amount/305000/1990) tells me 71,000 in 1990 would otherwise be worth 156K today, so housing has been getting more expensive more quickly than most things for quite a while.

That's a supply issue (EDIT: or total market/policy failure creating an artificial one. Or at least a "construction issue" - you might say the population increase means its a demand one instead, but on this time frame... it's a failure to not serve the continually growing population.)

It doesn't contradict that. The paper looks at the national housing market, which ignores individual market dynamics. Supply constraints still exist, but they don't explain the national increase in housing prices over the last 18 months.

Their argument is that there are fewer houses being built. In the long term, this will constrain supply far more than rising interest rates will push down prices.

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