Hot answers tagged

76

That would be really, really bad. Any house that loses value will be unsellable, and thus virtually worthless. Most people living in such a house would be prevented from moving. They cannot sell it, since no one wants to buy an overpriced house, and they cannot afford buying another house with their capital already tied up in the current house. A black ...


28

And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free "investing" in simply owning ones own house, right? It is true, your investment cannot drop in nominal value (not counting inflation,) but it can become totally illiquid, which is worse in many ways. You see, if a stock drops in value by 5%...


18

Considered a good thing by whom? Financial institutions and speculators: yes, since houses for them are just another asset. Higher asset prices is a key mechanism of profit making for financial institutions (capital gains). In the recent financial crisis house prices collapsed and people defaulted on their mortgage payments. Thus, the fall in the value of ...


12

The first metric to look at is house-price-to-rent ratios. Rental prices capture the value of the housing (and housing-linked) services provided by a property, including things like how safe a neighborhood is, how good the schools are, et cetera. In contrast, house prices are the capitalized value of the future stream of housing services PLUS the price of an ...


12

Mandating a house be sold at last price sold does not mean that people value it at that sticker price. I could mandate that water bottles only be bought for $1,000,000. This does not mean anyone would buy. I'd just be stuck with a bottle that I don't value. Similarly, setting price floors on the housing market would mean many owners will be stuck with homes....


11

If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in. Firstly, it's not that bad, ...


10

Well, rent control is the classic example used in many economics textbooks when talking about price ceilings. A price ceiling is a maximum price one can pay for a good, and is set by a governing body. There are many cons to price ceilings and not many pros. $\textbf{Pros:}$ 1) Because tenants of the property know that apartments are in short supply, they ...


9

House prices usually don't rise in isolation. You make some very good points that are all valid. Nonetheless, house prices typically rise, when the economy is doing well, when unemployment is falling, when wages are rising, etc. So when newspapers welcome rising house prices, they treat it as an indicator of the overall health of the economy and this is why ...


8

The graph below plots average house prices against average incomes for various US cities. The relationship is strong in the cross-section, especially if you ignore Honolulu. Richard Florida, Housing and the Crisis, Part IV Is it also true dynamically, that is, are changes in income associated with changes in house prices (not just levels)? Van Nieuwerburgh ...


7

While it is possible to rigorously define a bubble in principle (see for example asset markets where prices violate transversality conditions), in practice it can be difficult or impossible to identify actual bubbles, even ex-post. For example, @dismalscience discusses looking at house-price-to-rent ratios. This sounds straightforward. If houses are ...


7

Bursting bubbles don't destroy actual wealth. Instead, they stop destructive processes which convert actual wealth into imaginary wealth. Suppose it would cost \$120,000 to build a house that's would be worth \$100,000 in non-bubble conditions,but market conditions in a bubble would cause such a house to sell for \$150,000. Building a house under such ...


6

I feel this barely qualifies as an answer, but doesn't Shiller have house prices data on his webpage? Currently here. Specifically: Historical housing market data used in my book, Irrational Exuberance [Princeton University Press 2000, Broadway Books 2001, 2nd edition, 2005], showing home prices since 1890 are available for download and updated monthly: ...


6

There will be a rapid rise in artificial schemes to get round the letter of the law. For example, an agent may charge you 90% of the minimum legal sale price to officially register your house as uninhabitable and obtain a compulsory demolition order for it. A new house built on the same site would not have any previous price history, so it could be sold for ...


6

They are different businesses. Developers make more money developing than landlording. Some do both. But they are different businesses entirely. Also, there is a limited supply of capital and carrying that capital has a cost. For example. Let's say Bob the Builder borrows $10M to develop a project. The bank lends on the development. Not the completed ...


5

Theoretically, multiperiod borrow and lend models I am familiar with suggest that an increase in ease of credit (increasing the credit supply) should increase demand. This in turn raises the price of housing. So I believe your intuition here is correct. Empirically, I am only familiar with one paper analyzing this relationship, which finds the same thing. ...


5

With apologies for the somewhat journalistic answer (as others have noted, even defining a bubble in a rigorous fashion is difficult). Information on housing supply may be of some use. Demand for housing is quite inelastic (everyone needs somewhere to live) so shifts in supply should show up mostly in prices and less in market quantities. As an example, ...


5

In theory there should be a direct positive correlation (especially in countries where house prices are a part of the index which is used to define rental rates), but in reality there is a lot of variation in the results for this question depending on the country, possible effects of different laws, the business cycle, whether new housing is being built or ...


5

It should not be at all surprising that different people choose different offers: the short-stay accommodation market (let's say 1-30 nights) is characterised by a great deal of product differentiation and yield management. Airbnb has reciprocity at play, as guests and hosts switch roles. Additionally, hotels and airbnb hosts have different cost structures ...


5

Trying to think of what's on my bookshelf... this is an incomplete list, but it should get you started. The Financial Crisis Inquiry Commission Report is the authoritative overview of the housing crisis and its role in the financial crisis. It's unique in that the staff of the FCIC was able to interview essentially all the major players and had access to ...


5

Say you buy a house for \$100. This is paid with: A \$10 down payment (from your own cash). (This is your equity.) A \$90 loan from a bank at 10% annual interest. (We call this a mortgage loan or more simply a mortgage.) Notice you're paying a relatively high interest rate of 10% on your mortgage, perhaps because the bank is not very confident that you'll ...


4

The listed price tells you something about the expectations of the vendor and their estate agent. It's a leading indicator, hinting at where the market may be going next. The transaction price tells you something about the actual market during the period of the sale, in the period between the property going on the market and the date of exchange. It ...


4

It won't help much with the high frequency variation of interest to you but this is a famous and important paper on this topic: I process satellite-generated data on terrain elevation and presence of water bodies to precisely estimate the amount of developable land in U.S. metropolitan areas. The data show that residential development is effectively ...


4

It's actually quite easy. The key things to know are 1) that the majority of house purchases are made via mortgage lending, and that 2) an excess of bank lending over bank loan repayment causes money creation. So first determine if there is an abnormally high increase in the supply of money occurring - if yes, then there is a bubble, and if not, then the ...


4

There is a new paper forthcoming in the American Economic Review by Rebecca Diamond, Tim McQuade, & Franklin Qian on The Effects of Rent Control Expansion on Tenants,Landlords, and Inequality: Evidence from San Francisco They exploit quasi-experimental variation in assignment of rent control to study its impacts on tenants, landlords, and the overall ...


4

This would be a catastrophically bad idea. The next time the economy turns down, what happens? Workers who own houses for which they cannot find a buyer at the same price they paid for the house, will be unable to move house. They will therefore be unable to take up employment elsewhere. So you have compounded an economic downturn with an artificial ...


4

The simple answer is that if it is widely expected that the value of an asset will increase in the future, then the value should rise today as people bid up the price of the asset by trying to get the higher return it can provide. In other words, if an asset is trading at a specific price, the average investor (a term I won't make precise here) should think ...


4

Why not hold onto the property, and sell it later at a higher price? Here is a non-exhaustive list of why not: Real estate bubbles going burst. Depreciation and maintenance costs. A location may become less attractive in the long term due to mass emigration, criminal activity going up, collapsed economy, business could relocate to somewhere with incentives....


4

Yes an example of such study is this Sheppard, S., & Udell, A. (2016). Do Airbnb properties affect house prices. Williams College Department of Economics Working Papers, 3. This is their conclusion: We find that in New York City, the impacts appear to be that an increase in localized Airbnb availability is associated with an increase in property ...


3

Todd Zywicki has tried to directly evaluate this claim. He finds that it housing prices and other costs are much lower than the increase in the tax burden. Thus, taxes increase in the example by \$13,086. By contrast, annual mortgage obligations increased by only \$3690 and automobile obligations by \$2860 and health insurance \$620. Those increases ...


3

I'll direct you to wikipedia which has some pretty good information about it. One of the important things about speculative bubbles is that they are very difficult to identify before they burst. It is very difficult to say the market is overvaluing an asset or a change in economic conditions have raised the true value. That said, there are some signs that a ...


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