Full Version: Housing Prices
Since 1995 housing prices have increased by 35 percent above inflation. Just like the tech stock bubble of the late 1990's the housing market seems overvalued. Mark Weisbrot's column in Business Week discusses whether the housing market bubble will follow the same fate as the stock market bubble and burst.
http://www.cepr.net/columns/weisbrot/housing_bubble.htm
In my opinion the housing prices are way above real value, especially in California where prices in the San Francisco Bay Area are becoming ridiculous.
Questions for discussion:
1. Do you think that the current Housing Market represents a Bubble?
2. If so, what do you think the repercussions would be if that bubble burst?
3. Is there anything that policy makers can do, or is it in the hands of market?
http://www.cepr.net/columns/weisbrot/housing_bubble.htm
In my opinion the housing prices are way above real value, especially in California where prices in the San Francisco Bay Area are becoming ridiculous.
Questions for discussion:
1. Do you think that the current Housing Market represents a Bubble?
2. If so, what do you think the repercussions would be if that bubble burst?
3. Is there anything that policy makers can do, or is it in the hands of market?
First of all, if I have not said it before, Welcome to America's Debate TOTD ! 
1. Do you think that the current Housing Market represents a Bubble?
For the most part, No.
It mostly depends on what part of the country you're talking about. Housing prices seem to be overvalued on the coasts. But in other areas they are more reasonable. For Example: A 4 bedroom, 1 and 1/2 bath house built in the 50's in a marginally good neighborhood in New Jersey would sell for at least $400,000.00. While a 4 bedroom, 1and 1/2 bath house built in the 20's, in a similar neighborhood (and similar state of repair) on twice the land with two small rental houses on the lot in the St. Louis area will sell for around $160,000.00. The higher the demand to live in a particular area the higher the housing costs.
Many other cost of living factors vary as well. For example while I was in upstate New York and the Bronx this year I saw gas prices at $2.23 while the gas price at home in St. Louis was $1.68 on the same day. My mother has a 4 bedroom, 1 and 1/2 bath house on a quarter acre and pays over $5000.00 a year in property taxes. In St. Louis, where we have property taxes on houses and cars I have to pay on a 2 bed 1 bath house on a quarter acre, a 2003 voyager and a 2000 commercial Astro. My total property tax bill was just over $800.00 last year (the bill on the similar house above was $1100.00 last year). In New York I had to pay around $70.00 for a carton of cigs, while in St. Louis I pay 24.00 (both on name brands). In New York, a dinner our averaged $30.00 for just me while in St. Louis a dinner out averages $30.00 for my family of three. In New Jersey there are several main roads and bridges with tolls, in Missouri there are no toll roads or bridges.
Another interesting note is that wage variation is not always that different. In the security and Loss Prevention Industry, you make about the same money in N.J. as you do in MO. In manufacturing, like General Motors (Where my Father worked), the contracts are usually national so those working in N.J. make exactly the same as those in MO. In the alarm industry, at my company, union piece work installers in St. Louis actually make slightly more per job then their counterparts in New York.
When you decide where to live you decide how you are going to live and how hard it will be to pay for that life.
2. If so, what do you think the repercussions would be if that bubble burst?
This has happened once before. In 1993 many people ended up "upside down" when the market crashed and thus trapped in their homes as they could not sell them for anywhere near what they owned. It was also one of the primary reasons for the S&L mess. However, this only lasted for few years. I bought a duplex in New Jersey at the bottom of the market crash for $55,000 I sold it if three times that just 10 years later and it was in worse shape then when I bought it.
3. Is there anything that policy makers can do, or is it in the hands of market?
The housing market is unlikely to crash. It is demand driven and our population keeps growing so demand will continue to grow. The best thing the Government can do is leave it alone. It was the actions of the government that helped start the real estate crash of 1993.
However, most of the other cost of living issues are government related. Tolls, gas taxes, property taxes, etc. If government would learn some fiscal responsiblity and restraint these fees and taxes could be reduced, allowing Americans to live less expensively. Part of the reason for the much lower cost of living in Missouri is that the state constitution was Amended to require a balanced budget and a refund of any surplus to the people.
1. Do you think that the current Housing Market represents a Bubble?
For the most part, No.
It mostly depends on what part of the country you're talking about. Housing prices seem to be overvalued on the coasts. But in other areas they are more reasonable. For Example: A 4 bedroom, 1 and 1/2 bath house built in the 50's in a marginally good neighborhood in New Jersey would sell for at least $400,000.00. While a 4 bedroom, 1and 1/2 bath house built in the 20's, in a similar neighborhood (and similar state of repair) on twice the land with two small rental houses on the lot in the St. Louis area will sell for around $160,000.00. The higher the demand to live in a particular area the higher the housing costs.
Many other cost of living factors vary as well. For example while I was in upstate New York and the Bronx this year I saw gas prices at $2.23 while the gas price at home in St. Louis was $1.68 on the same day. My mother has a 4 bedroom, 1 and 1/2 bath house on a quarter acre and pays over $5000.00 a year in property taxes. In St. Louis, where we have property taxes on houses and cars I have to pay on a 2 bed 1 bath house on a quarter acre, a 2003 voyager and a 2000 commercial Astro. My total property tax bill was just over $800.00 last year (the bill on the similar house above was $1100.00 last year). In New York I had to pay around $70.00 for a carton of cigs, while in St. Louis I pay 24.00 (both on name brands). In New York, a dinner our averaged $30.00 for just me while in St. Louis a dinner out averages $30.00 for my family of three. In New Jersey there are several main roads and bridges with tolls, in Missouri there are no toll roads or bridges.
Another interesting note is that wage variation is not always that different. In the security and Loss Prevention Industry, you make about the same money in N.J. as you do in MO. In manufacturing, like General Motors (Where my Father worked), the contracts are usually national so those working in N.J. make exactly the same as those in MO. In the alarm industry, at my company, union piece work installers in St. Louis actually make slightly more per job then their counterparts in New York.
When you decide where to live you decide how you are going to live and how hard it will be to pay for that life.
2. If so, what do you think the repercussions would be if that bubble burst?
This has happened once before. In 1993 many people ended up "upside down" when the market crashed and thus trapped in their homes as they could not sell them for anywhere near what they owned. It was also one of the primary reasons for the S&L mess. However, this only lasted for few years. I bought a duplex in New Jersey at the bottom of the market crash for $55,000 I sold it if three times that just 10 years later and it was in worse shape then when I bought it.
3. Is there anything that policy makers can do, or is it in the hands of market?
The housing market is unlikely to crash. It is demand driven and our population keeps growing so demand will continue to grow. The best thing the Government can do is leave it alone. It was the actions of the government that helped start the real estate crash of 1993.
However, most of the other cost of living issues are government related. Tolls, gas taxes, property taxes, etc. If government would learn some fiscal responsiblity and restraint these fees and taxes could be reduced, allowing Americans to live less expensively. Part of the reason for the much lower cost of living in Missouri is that the state constitution was Amended to require a balanced budget and a refund of any surplus to the people.
Good topic. I'm really not an expert on the economy or housing and I guess have more questions than answers, but I'm not as upbeat as overlandsailor. I worked for GM as well, and not all GM employees are paid the same....some are paid $5/day and those workers are growing (if you catch my drift).
My question is, is there a colliding of two forces regarding house prices. One is the steady flat wage increase against inflation, i.e. people can't afford the increased cost of newer homes. The other is the booming population that is coming mostly from the wide open immigrant flood gates.
Most of the new immigrants are not wealthy, so they're in the mix with being unable to afford expensive housing....BUT they present new DEMAND.
So which wins out? With a clamp down on immigration I think the bubble bursts. Wages are so stagnant, prices are at least going to level off. But with immigration exploding, I'm not sure which factor wins out....maybe there will be a boom in low cost housing??
One interesting stat is that with the boom in financing/refinancing, there's been an increase in foreclosures by 45%.
I live in Michigan and our economy is getting murdered. GM just let everyone know they were laying off 8,000 workers. Our manufacturing is going to China and Mexico. Yet, our home prices, outside of the impoverished Detroit, continue to rise.
It's an interesting phenomena, it's like having rain when there's a blue sky....or losing jobs during a recovery.
My question is, is there a colliding of two forces regarding house prices. One is the steady flat wage increase against inflation, i.e. people can't afford the increased cost of newer homes. The other is the booming population that is coming mostly from the wide open immigrant flood gates.
Most of the new immigrants are not wealthy, so they're in the mix with being unable to afford expensive housing....BUT they present new DEMAND.
So which wins out? With a clamp down on immigration I think the bubble bursts. Wages are so stagnant, prices are at least going to level off. But with immigration exploding, I'm not sure which factor wins out....maybe there will be a boom in low cost housing??
One interesting stat is that with the boom in financing/refinancing, there's been an increase in foreclosures by 45%.
I live in Michigan and our economy is getting murdered. GM just let everyone know they were laying off 8,000 workers. Our manufacturing is going to China and Mexico. Yet, our home prices, outside of the impoverished Detroit, continue to rise.
It's an interesting phenomena, it's like having rain when there's a blue sky....or losing jobs during a recovery.
1. Do you think that the current Housing Market represents a Bubble?
No, I don't believe the Housing Market is a bubble. It is really just simple economics in my opinion. Land is a scarce resource and especially so in coastal cities with large populations.
To speak to your example of San Francisco, the city is built on a piece of land that is 7 miles by 7 miles where about 700K+ people live. To put that in perspective DFW airport in Dallas, TX occupies roughly the same amount of land. There is no room for new construction there and the city (rightly so in my opinion) is very much against throwing up a bunch of huge towers of condos on the areas that are available. Given that it is a very desirable area to live and work, people are going to continue to pay big bucks to live there and someone will always be willing to pay more than you will thus driving up the price of housing.
To a lesser extent you see this in almost every major city in the US. The areas where here is new construction are always the most affordable and they are also the furthest out from the main areas of the city. The areas closer to work and in more developed areas generally appreciate quite a bit once the neighborhood is completed.
3. Is there anything that policy makers can do, or is it in the hands of market?
I think this is and should remain purely in the hands of the market. I personally don't want to government legislating the price of a home or anything like that. Our lawmakers can't manufacture more land and that is really the only thing that would cause prices to decline.
I think the solution here is that the expectations of people are just going to have to change. If you ask someone in New York City if they aspire to own a home in the city they'd probably laugh at you because growing up there they know that you rent an apartment or you go live in Connecticut. People aspire to have a nice apartment in a good building, not a 4 bedroom house in the burbs.
In other areas of the country it is exactly the opposite attitude, but that will have to change as major cities start getting more and more crowded and populated. If you don't want to drive 2.5 hours to work each way you might just have to settle for a nice apartment rather than a 4 bedroom house in the burbs.
No, I don't believe the Housing Market is a bubble. It is really just simple economics in my opinion. Land is a scarce resource and especially so in coastal cities with large populations.
To speak to your example of San Francisco, the city is built on a piece of land that is 7 miles by 7 miles where about 700K+ people live. To put that in perspective DFW airport in Dallas, TX occupies roughly the same amount of land. There is no room for new construction there and the city (rightly so in my opinion) is very much against throwing up a bunch of huge towers of condos on the areas that are available. Given that it is a very desirable area to live and work, people are going to continue to pay big bucks to live there and someone will always be willing to pay more than you will thus driving up the price of housing.
To a lesser extent you see this in almost every major city in the US. The areas where here is new construction are always the most affordable and they are also the furthest out from the main areas of the city. The areas closer to work and in more developed areas generally appreciate quite a bit once the neighborhood is completed.
3. Is there anything that policy makers can do, or is it in the hands of market?
I think this is and should remain purely in the hands of the market. I personally don't want to government legislating the price of a home or anything like that. Our lawmakers can't manufacture more land and that is really the only thing that would cause prices to decline.
I think the solution here is that the expectations of people are just going to have to change. If you ask someone in New York City if they aspire to own a home in the city they'd probably laugh at you because growing up there they know that you rent an apartment or you go live in Connecticut. People aspire to have a nice apartment in a good building, not a 4 bedroom house in the burbs.
In other areas of the country it is exactly the opposite attitude, but that will have to change as major cities start getting more and more crowded and populated. If you don't want to drive 2.5 hours to work each way you might just have to settle for a nice apartment rather than a 4 bedroom house in the burbs.
The bubble has started to burst a bit in Las Vegas. The real estate market, like the stock market, is driven by fear and greed. Those who are interested in buying for investment value tend to dump property to either secure profit or check their losses when the values start going down (people stop buying due to interest rate increase, for example) or they can't rent them out. That floods the market with more sellers than buyers, which drives house values further down...and it can happen virtually overnight. Right now there are about 3 houses for sale for every buyer. 8 months ago, it was roughly the opposite (people were in bidding wars and houses sold within minutes) and house values have dropped approximately 20 percent (so far) as a result.
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