Author Topic: Why are high home prices seen as desirable?  (Read 11689 times)

Offline StreamOfTheSky

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Why are high home prices seen as desirable?
« on: August 24, 2013, 01:36:59 AM »
Read any news report or hear any political toolbag speak on the subject, and they'll basically all uniformly want/hope/squee over higher housing prices and treat falling prices as some sort of horrific calamity.

WHY?!!!!!!  Fucking why?!

Higher is horrible for anyone trying to buy a home (which includes most people selling a home, unless they already have more than 1 to live in, in which case they're loaded so who cares?), obviously.  It's also bad for existing homeowners because higher value = higher property taxes.  The only people higher prices seem to actually help (in my view) are those looking to sell their house in the next 1 - 36 months.  Which is most assuredly a minority of the populace.
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I've always wanted a house, I can't stand having shared walls and flushing money down the toilet on rent instead of actually working towards owning the place I live.  I've tried to save up as best I could but because apparently the U.S. housing market has no settings between high and off, and me being a solid 1.5 years or so from being able to afford the home I want (at today's prices) means I'm gonna get stuck in another housing bubble time period and forced to wait it out.  I refuse to end up like those poor saps in the mid 2000's when prices shot up like crazy cakes.  Not that they're actually much lower today, and climbing...

It doesn't even make sense.  Wages are stagnant or declining, and houses get older and have more problems, if anything prices should slightly go down over time for a given house...  I guess the mortgage rates are low now compared to years ago, but...they recently jumped an entire freaking % point and home prices kept climbing!  If the two aren't even going to be inversely proportional, then what the hell...?

So, rant aside... what makes housing so different from anything else people buy?  A car is a high priced item you buy and consider as part of your net worth and generally sell back when you move on to the next.  But...no one cheers when car prices go up.  Even if the 2013 model being more expensive doesn't directly increase the value of your 2010 model, being pricier makes buying your used 2010 model more attractive to a potential buyer compared to the new 2013 model if it hadn't jacked up in price, after all.  Seriously, WTF is with "our" priorities when it comes to home prices?  It seems so stupid and frustrating to me.

Links:
http://www.politico.com/news/stories/0211/49495.html
http://www.cepr.net/index.php/blogs/beat-the-press/do-we-want-high-house-prices-or-affordable-housing-lessons-on-the-government-debt
http://www.iwillteachyoutoberich.com/blog/housing-prices-cultural-assumptio/
http://www.bbc.co.uk/blogs/thereporters/markeaston/2010/04/do_you_want_house_prices_to_ri.html (British, but same issue)
« Last Edit: August 24, 2013, 01:50:39 AM by StreamOfTheSky »

Offline FlaminCows

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Re: Why are high home prices seen as desirable?
« Reply #1 on: August 24, 2013, 03:46:19 AM »
Almost everybody wants a house, and everybody wants a shorter commute to work. This leads to competition for those houses closest to the city, steadily pushing land prices up in urban areas. You can make more cars, but you cannot make any more land that is within a 45-minute drive of downtown core.

However, there is another factor to this. The construction and real estate industry has convinced people that a house is an investment that you buy for the returns rather than an object that you buy because it is useful. People buy houses that are much more lavish than they need and buy expensive renovations for those houses on the basis that they can make their money back when they sell for a profit. Higher house prices mean more commission for the real estate industry, and the demand for costly renovations keeps the money coming for the contractors. Further, the idea that you can get rich just by living in a house gets people who are okay with living in a high-rise condo to buy a house anyway, leading to even more construction and urban sprawl. The property bubble existed because everyone was speculating on property prices.

Now into conspiracy theory mode: since municipal governments get money from property taxes and newspapers get a lot of their money from real estate advertisements and the banks from the mortgages, everybody works together to keep up the house-as-an-investment propaganda. They probably have secret meetings in backrooms, complete with the evil plotting finger pose and cackling.
« Last Edit: August 24, 2013, 03:52:37 AM by FlaminCows »

Offline linklord231

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Re: Why are high home prices seen as desirable?
« Reply #2 on: August 24, 2013, 03:54:14 AM »
Also, economists use housing prices as an indicator of how well the economy is doing. Most of the time it's a terrible indicator, but people still use it  :rolleyes
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Offline awaken_D_M_golem

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Re: Why are high home prices seen as desirable?
« Reply #3 on: August 24, 2013, 03:15:25 PM »
I don't have the exact stat handy,
but about 1/3rd of Americans have
zero net worth, and nearly the next
1/2 have almost all of their net worth
tied up in their house.  No it's not smart.
At all.  And then there's all the tax
breaks that funnel large amounts of
money toward that, instead of not that.

The top 1% put only a smidge of their
money into REITs.  It's usually scaled
to the relative values of the economy.
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Offline Dkonen

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Re: Why are high home prices seen as desirable?
« Reply #4 on: August 24, 2013, 03:21:42 PM »
Because it leads to an inflated sense of self worth which renders society complacent and more likely to accept unpleasant side effects of political policies? People who believe they're wealthy are more likely to support the government than those who believe themselves impoverished. At least it's a theory.

Honestly high home prices are ridiculous. In our area, my mother (in her late 60s) was thinking of selling their house, which is almost an hour outside of town and thought she could put it up for 250k. Noone's getting more than 150k in her area, but they're all being told their values are over 200k. I'm guessing a property tax gouge before the boomers get entirely out of property.

She said "it would be great house for a young couple to start with". I have no idea what young couple she's talking about, because in this area, a degree gets you minimum wage, which you can use to pay rent or bills, or one bill and be able to eat. And on top of it the mortgage approval process just got tighter and now requires 20% downpayment as well as minimum five years full time employment and solid financial footing. If I had 20% of a downpayment on 250k house, I'd just buy a used car and a lot out of town and build a house.

Honestly, right now it makes no sense, demographically. More and more seniors are aging and looking to move into centres of population for access to health facilities and in home assisted living. The rural and suburban communities are going to become ghost towns, because the elderly can't stay home and noone can afford to buy.

As an amateur hobbyist in economics, I'll be fascinated to see what happens in the next five, ten and fifteen years to the housing market. With everyone selling, noone being able to buy, and prices not getting any cheaper, it can't keep up.

Buck up, though-we had a b*tch of a time finding ours. We had to swap agents and see probably a good twenty five to thirty houses before we got the one we're in now. It was a lucky draw-priced to sell as the folks were looking to move to africa and wanted out and on their way ASAP. Don't give up hope. Our banking agent even told us that the only reason we got our mortgage was because they'd never seen someone try so hard to get a house.
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Offline StreamOfTheSky

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Re: Why are high home prices seen as desirable?
« Reply #5 on: August 25, 2013, 12:36:30 AM »
Thanks.  I'll have a house some day.  It just might be an even longer wait.  As if the 5 years out of college with no career or even a job of any kind for the majority of it didn't set me back enough...

And on top of it the mortgage approval process just got tighter and now requires 20% downpayment as well as minimum five years full time employment and solid financial footing.

That's insane!  Five straight years of full time employment?!  In this economy?!


I am still curious, though, what actual home owners see as the good reasons for higher prices.  I get that the politicians and banking industry loves them, perhaps that's enough to explain the nearly daily "rah-rah house prices are up!" or "house prices dropped 0.10%, I think I just shit myself!" news stories....

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Re: Why are high home prices seen as desirable?
« Reply #6 on: August 25, 2013, 02:33:17 AM »
Higher prices are better for real-estate agents, sometimes.
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Offline X-Codes

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Re: Why are high home prices seen as desirable?
« Reply #7 on: August 25, 2013, 08:02:02 AM »
High home prices are basically desirable for that small part of the old, white people demographic that actually watches CNBC.  It gives these people the chance to sell their real-estate for higher prices, charge higher rents on their rental properties, sell their timeshares for more money, or, in the case of the stupid people who just think they're rich instead of the ones who actually are, get another Home Equity Loan to spend on dumb shit.

There's really not much of a real reason for home prices to actually go up significantly right now.  If it is, then just avoid buying a house for the near future.  Another bubble is forming and it's going to blow a lot sooner than the last because a lot fewer people are going to fall for the same shit twice.

Offline StreamOfTheSky

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Re: Why are high home prices seen as desirable?
« Reply #8 on: August 25, 2013, 02:04:03 PM »
So, it seems the following parties are the ones that want higher prices (even though it may not actually be to their benefit)...

- Banks, for more $$$ off even low interest rates, extra sweet if the buyer needs PMI to reach 20% down
- Realtors, for higher commissions
- Major media, for the greater amount of real estate ads that come in "boom times"
- Politicians, who want complacent constituents and like easy stealth tax hikes
- Those who rent out property, to justify jacking prices higher and higher
- Elderly people who are on the cusp of leaving the housing market entirely and thus only looking to sell, not buy
- Idiotic and/or poor* homeowners with no actual savings who see the house being worth more as their retirement plan
- And possibly economists, because navel gazing over home prices is easier than doing actual work

*In other words, too poor to be able to afford a house and a retirement plan even if they want to be responsible.  Though I used and/or because being poor and being dumb aren't necessarily mutually exclusive, either.

Offline X-Codes

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Re: Why are high home prices seen as desirable?
« Reply #9 on: August 25, 2013, 02:58:11 PM »
- And possibly economists, because navel gazing over home prices is easier than doing actual work
I don't think economists actually care.  They don't do actual work, regardless.

Offline linklord231

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Re: Why are high home prices seen as desirable?
« Reply #10 on: August 25, 2013, 05:31:33 PM »
- And possibly economists, because navel gazing over home prices is easier than doing actual work
I don't think economists actually care.  They don't do actual work, regardless.


As an econ major, I resent that. It may be true, but I still resent it :P
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Offline veekie

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Re: Why are high home prices seen as desirable?
« Reply #11 on: August 26, 2013, 01:24:38 AM »
So, it seems the following parties are the ones that want higher prices (even though it may not actually be to their benefit)...

- Banks, for more $$$ off even low interest rates, extra sweet if the buyer needs PMI to reach 20% down
- Realtors, for higher commissions
- Major media, for the greater amount of real estate ads that come in "boom times"
- Politicians, who want complacent constituents and like easy stealth tax hikes
- Those who rent out property, to justify jacking prices higher and higher
- Elderly people who are on the cusp of leaving the housing market entirely and thus only looking to sell, not buy
- Idiotic and/or poor* homeowners with no actual savings who see the house being worth more as their retirement plan
- And possibly economists, because navel gazing over home prices is easier than doing actual work

*In other words, too poor to be able to afford a house and a retirement plan even if they want to be responsible.  Though I used and/or because being poor and being dumb aren't necessarily mutually exclusive, either.
More like, it's a self sustaining situation now. People are too invested to let go because if they do they'd have to admit they're fucked and everyone is in for a crash landing. "Too big to fail" describes the situation well, nobody involved dares to unplug it because it'd explode, but, as an unsustainable situation the pressure only builds up as more people buy into it.
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Offline Dkonen

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Re: Why are high home prices seen as desirable?
« Reply #12 on: August 26, 2013, 07:20:39 PM »
Also, it depends on the elderly.. a few of them are waking up now, and realizing that high housing values aren't indicative of the amount they can expect to receive for their house.

As a homeowner, I'm glad our house is perceived as worth more, and may possibly even sell for close to the evaluated price, even though we haven't done a damned thing besides put in an office since we bought it seven years ago. But, we're in a spot closer to the amenities, which means elderly who are looking to get closer to said amenities-and who have the security and finances to buy-might actually look at our house for purchase (if we were looking to sell).

Since we're not looking to sell, and by the time we might the real estate market will (likely)crash again (due to the boomers dying off, and gen x, and millenials having crap for finances-often choosing between food *or* rent), higher housing prices are a pain in the butt. Our property taxes have gone up every single year. Not fun.

Gets much higher and I may start importing junkers from autobody shops just to drop it back down to reasonable, and leaving them in our neighbor's yards.  :P
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Offline bhu

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Re: Why are high home prices seen as desirable?
« Reply #13 on: August 26, 2013, 08:41:36 PM »
It would be cheaper to buy vermin in bulk online.   :smirk

Offline StreamOfTheSky

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Re: Why are high home prices seen as desirable?
« Reply #14 on: August 27, 2013, 01:24:27 AM »
Gets much higher and I may start importing junkers from autobody shops just to drop it back down to reasonable, and leaving them in our neighbor's yards.  :P

Heh heh... intentionally ruining your property value reminds me of another disheartening thing about finding a house: in this area at least, it seems nearly impossible to get a house w/o being forced into a Home Owner's Association.    :pout
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Offline altpersona

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Re: Why are high home prices seen as desirable?
« Reply #15 on: August 27, 2013, 07:16:05 AM »
for many people a home is an investment, usually a long term one.

unlike an a monetary investment account homes gain value as prices go up vs adding interest.

if the value stays the same or god forbid goes down, the homeowner is screwed.

and as we learned from lionel luther, they are not making more land. its a limited resource with an increasing number of people wanting it.
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Offline StreamOfTheSky

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Re: Why are high home prices seen as desirable?
« Reply #16 on: August 27, 2013, 11:06:44 PM »
for many people a home is an investment, usually a long term one.

unlike an a monetary investment account homes gain value as prices go up vs adding interest.

if the value stays the same or god forbid goes down, the homeowner is screwed.

and as we learned from lionel luther, they are not making more land. its a limited resource with an increasing number of people wanting it.

That all sounds like BS.  First of all, the birth rate is declining and the median age is rising; elderly people don't need to live near job centers, or even in houses at all as they get older.

As for the investment... they're not "screwed" if the price of the house goes down, unless they buy for a massively inflated price (like, 2006) and are literally selling for a small FRACTION of what they paid.  So long as the costs of maintenance, property taxes, and mortgage interest are less than rent...you're still making out like a bandit over the long term compared to a renter, because you're at least getting *some* of that principle back!  Not to mention the fact that property taxes get factored into the cost of rent (of course lower than for a house on an acre of land, but still), and while house prices may or fluctuate up and down and be unpredictable, rent will definitely go up over time, while as your mortgage payment will be the same year to year.
Seriously, WTF is this?  In the long run, having a house is like renting, except you get some of your money back at the end.

Offline Dkonen

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Re: Why are high home prices seen as desirable?
« Reply #17 on: August 28, 2013, 02:54:40 AM »
You can actually lose money on a house rather easily-it's called renovating.

For example: we could dump 25k+ on our bathroom (which has enough issues it should be torn out-thankfully the second bathroom is still in peak shape). We would not be able to raise our housing value by 25k by having it done.

It's the reason my parents, who were looking at moving into an apartment in town (due to age) have decided against it. In the last few years they've dumped about 50k into their house, in the time they've owned it? Probably more than the house will sell for. And they check for deals and get under the table work done. For someone who isn't in an area where you can do that/small enough community, double the price. Add half again if it's someone unfamiliar with the concept of shopping around. If you take in how much you would spend on rent for the same amount of time, it's still cheaper, but that's not accounting for the work done on the grounds themselves (usually part of a lease agreement).

And then, some houses are money pits, just plain and simple.

The housing market is a swamp right now, I wouldn't suggest looking seriously for a house for another few years at least. A lot of elderly homeowners will be going into apartments, retirement and special care homes. It will leave a huge gap in buyers on the market, and prices should drop as well. There just aren't as many of the succeeding generations as there are boomers, so population wise, there simply won't be enough buyers in NA to buy all the homes that will be vacated (I think Europe's also been looking down that barrel and stuffing it with loose immigration policies but we'll see how that pans out). (As our realtor phrased it-a buyer's market)

And Home Owner's associations... *shudder* I need to go find something else to scrub that particular nightmare from my brain.

Just no. Never ever.

I have enough problems with our cranky not-quite-recovering alcoholic war vet threatening to cut down our oak tree (maybe he doesn't like trees?) and dumping gravel and sand and snow on our front lawn in the winter (he has a snowplow). Who knows he could just be cranky we don't keep him supplied in joints and hash like the previous owners did :P
« Last Edit: August 28, 2013, 02:56:15 AM by Dkonen »
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Offline StreamOfTheSky

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Re: Why are high home prices seen as desirable?
« Reply #18 on: August 28, 2013, 03:11:33 AM »
Yeah, renovating in order to "raise the value" is stupid.  It should only be done for personal preferences and aesthetic reasons, and you shouldn't count on getting nearly as much back as what you paid for it when you go to sell.  I've never even owned nor tried to buy or sell a house and yet even I can understand: 1) That fancy breakfast nook you put in and think is so cool?  Maybe the next owner couldn't care less about it; 2) Materials and construction degrade over time and loose value; 3) That price you paid a contractor to renovate?  That was fully marked up retail; good luck trying to get that kind of money selling it second-hand.

My mom in the past decade has spent over ten thousand dollars renovating the house to look nicer so it has more value.  Meanwhile, the plumbing is continuously failing for a variety of reasons (super old toilets; tree roots messing up the pipes outside underground; etc...) and she can't be bothered to fix the essentials because she's too busy getting vinyl siding and a new roof (they weren't in disrepair)...

I do not understand the mind set.  "Let's spend thousands of dollars on an already depreciating asset for trivial things potential buyers may not even CARE about all so we can pay higher property taxes...err...I mean, raise the value of the property!"   :banghead
(I'm talking about renovations, upgrades, additions, etc...  unnecessary work.  Not repairs, maintenance, and other actual necessary work.  Obviously the latter is important and should be done.)

Offline veekie

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Re: Why are high home prices seen as desirable?
« Reply #19 on: August 28, 2013, 03:35:13 AM »
Not in America here, but when you sell a place generally they'd just rip out most of those extras to put in the stuff they prefer. Renovation is more useful if you're seeking to rent a place out, since you actually might get some returns on that, but it peaks out because past a certain price range they'd rather just buy a place and renovate it later. If you're buying a place, rent it out, so that it's actually making money while the materials depreciate, and then when you finally sell it, you have the rental money + the sale amount.

What's important for selling is location, cleanliness, and state of repair. The new buyer likely won't have the same values about nice furniture, but they WOULD care about any stains, signs of bad plumbing, crumbling wood, rusting metal or infestations, as these would become recurring problems later on.
The same, but more so goes for any attached lawn/garden, you might have a gorgeous planting of flowers and trees, but all that means an ongoing effort to make it look pretty rather than overgrown. They might rather just chop down the tree and make it an open lawn.  Water features and pools are even worse, as they become vermin and fungal breeding sites without sustained care.
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