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View Poll Results: Don't vote right away, but what do you think is the main correlating factor for home price changes?
Job Creation 16 27.59%
Change in Population 15 25.86%
Loan Availability 6 10.34%
Land/Building Scarcity 20 34.48%
Environmental Factors 0 0%
Land Rights 1 1.72%
Voters: 58. You may not vote on this poll

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Old 07-08-2018, 09:05 PM
 
Location: Dallas
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None of the above.

The answer is: cheap money (aka super low interest rates created by the FED)
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Old 07-09-2018, 05:37 AM
 
Location: Silicon Valley
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Quote:
Originally Posted by justsomeguy View Post
None of the above.

The answer is: cheap money (aka super low interest rates created by the FED)
That would be a vote for loan availability.
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Old 07-09-2018, 06:04 AM
 
Location: Silicon Valley
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Quote:
Originally Posted by jghorton View Post
How people feel about the economy and their own job security is probably the greatest overall housing market driver. Beyond that, local market drivers vary widely across the U.S.. Florida, for example (like Arizona, Nevada, Colorado and other) housing markets are more heavily dependent on warm weather, beaches, mountains and geographic factors. Other states are more dependent on new job creation or manufacturing or construction growth trends.

Within local markets, good schools, local amenities or other 'environmental' factors may influence some moves, but, people are less likely to move exclusively because of these considerations.
Thanks for the post, and it's a good clarification. I'm going to restate, to see if I've got the micro/macro separated correctly. People go to/stay in a region for a number of reasons, the biggest influencer may be economic stability, but there are other reasons, especially in places with nice environmental attractions.

Once there, the person will determine to buy or not buy based upon the length, expected need and security of the location's attractive benefit. More benefits, stable items, more likely to attract long standing community members who want to buy a home. So if the reason was economic incentive, a person may be drawn to an area, but a tenured professor vs a fracking oil driller may make the same money, but perhaps only one will buy as the other will need to leave again later.

Of course, once in area, pricing will be determined further by local amenities such as proximity to attractions, school district, not being in a crime zone or under an airport landing area.
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Old 07-09-2018, 06:37 AM
 
Location: Silicon Valley
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Quote:
Originally Posted by Mircea View Post
Supply & Demand.

Supply is very high in Detroit, while Demand is simultaneously low.

The exact opposite is true for San Fransisco. The Supply is very low, while the Demand is extremely high.

For any product or service, there is a base price, which is the cost to produce the product or provide the service. That price is modified by the Price Elasticity of the product or service. Some products and services are highly elastic, because people don't really need them, or because there are myriad alternatives and substitutes. Other products and services are highly inelastic, like medical services. I'm sure there's a Useless Tube video on how to remove your own appendix or tonsils, but you probably wouldn't want to do that. Housing is inelastic. There aren't many substitutes or alternatives for housing. Some products or services are inelastic in the short-term, but elastic over the long-term. Gasoline is like that. People will pay $4.00/gallon for gasoline over the short-term, but after a certain point, they'll starting seeking alternatives like car-pooling, combining trips, reducing or eliminating trips, or using mass transit, if available.

The final arbiter is the Market itself. What exactly are people really willing to pay for your product or service?

One time, the group Yes came to town, but none of my friends or I could get out of school or off work to camp out for tickets, which only cost $7.50, and which sold out before the end of the day. We went anyway, and when the ticket scalper said $50, I said, "Yes", because that's how badly I wanted to see the show. Not everyone was willing to pay $50, yet there were also some who would pay even more than that.

That's what the Market is about.

So long as people are willing to pay $2,295/month for a studio/efficiency apartment in San Fransisco, then that's what the Market will bear.

Even if no one was willing to pay that, it doesn't guarantee the price will decrease.

Case in point, the vacancy rate around the University of Cincinnati runs in the 70% range, meaning about 1 in 4 apartments stand vacant for months on end. The problem is not the rent, which ranges from $375/month to $450/month, it's the parking. Most of the neighborhoods are pre-WW I, so there's no driveway or off-street parking, and some streets don't allow parking, and the ones that do only allow you to park on one side of the street. That means you have to spend 5 to 15 minutes hunting for a parking space that is 2 to 5 blocks from your apartment, and a lot of women don't like that, especially if they have to walk at night.

These are nearly all private landlords who typically own the buildings out-right, with no mortgage, so it's chump change that finances their kids' education or their retirement or vacation, and they don't really care if a unit is vacant 6 to 12 months, and the won't rent it at a lower rate, because in the end, there's always someone who'll come along and rent it.


The problem with dense urban areas is that demand will always grow at a rate faster than supply can be increased, and there are spatial geographic issues, meaning once the area is saturated, there's no further expansion, and the only expansion that would be possible is to tear down existing multi-family units and replace them with larger multi-family units, like replacing a four-story dwelling with a 20-story dwelling, but even that would never reach a level sufficient to meet demand.
What’s the full story behind Cincinnati’s 50-year population decline? — UrbanCincy

I didn't read into the man's story, but the only thing I'm interested in is the graph showing Cincinnati's population trend. I show it mainly to point out one thing. If the buildings were built in WWI, the population today is about 25% lower from then, even 100 years on. I don't know why everyone left, but I could imagine that has helped shaped the landlord's expectations for vacancy rates and they've set a floor thinking that renting 60% of 10 units at 500 each is worth more than renting 100% of 10 units at $150 each, while the landlords play the bad math...I hope my neighbor quits and goes away before I do.

So the question is what is the biggest component of price, which is where supply and demand cross. In the rust belt scenario I could see an argument that sheer population drop was the largest factor, but because there is a stark difference between half deserted communities and communities that are well established, safe and lively that price difference becomes sharper locally. So perhaps not many people want to see Yes today, but the ones that do, definitely want to sit in the first 5 rows, and we're older and richer now so those prices will go crazy where the nosebleeds may stay empty.

As for supply being inelastic, it depends on how you define housing stock. People here rent rooms, rent out garages, some basically live at work/in their cars, rent sheds in the back yard, get roommates. I recall a waiter that I was chatting with in Shanghai, and the waiter was from Manilla. He said they had 19 people in their one bedroom and they all had sleeping shifts in hot-racked bed setting. Shanghai had been building to the limit, just a few years before 1 out of ever 3 cranes in the world was in Shanghai. They were building skyscrapers. The entire Pudong side of the city just came out of nothing. Still the costs of everything flew up.

Certainly there was demand. The entire country was avoiding Hokou laws and moving to Shanghai to work. Those people needed a place to live. They were attracted to the area because there were lots of big companies expanding there. But there was also controlled supply. Controls on what got developed and by who. (The "mayor" was later executed.) This wasn't Dallas with it's unabated sprawl.
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Old 07-09-2018, 06:40 AM
 
Location: Silicon Valley
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Quote:
Originally Posted by GeoffD View Post
The question is "what do you think is the main correlating factor for home price changes?".


In any local suburban market, it's largely school quality and commute time. The houses in those towns tend to be in short supply so the price there goes up faster than the rest of the market. They also tend to be more stable in a real estate correction. Socioeconomic segregation. The American way.


Urban markets tend to not care about the school system. For affluent people, it tends to be people with no children who flee to the suburbs the moment they reproduce. Prices rise in the parts of the city where people want to live. That's usually some blend of safety, "things to do", and public transportation access/job access.
Thank you. I think you're right, many cities will have different attributes for in city vs suburbia.
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Old 07-09-2018, 09:39 AM
 
Location: Raleigh
7,039 posts, read 5,224,011 times
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Quote:
Originally Posted by artillery77 View Post
I have education under environmental factors. Originally was thinking about calling it community, but basically wanted a section of non-economic aspects. This might be important draw to moving to an area. Religion might lead one to goto (or avoid) Salt Lake City, or one might go where there is a large ethnic grouping that is the same, or go for a good school district....but is that the biggest determinant in home prices?
It ultimately comes down to supply and demand...hardyharharhar

Supply can become restricted due to a few things you mentioned (loan availability, lack of buildable land,) demand is influenced by things you mentioned (economy, etc.)

Its different in every market. Sure, some things like the National Economy and loan availability can influence home prices all over, but economy can be local, too.

The Bay Area is an example of everything being ripe for high prices. Geography restricts supply, Government reg's restrict the supply further, The economy is strong...

In some markets, like here in Raleigh, the economy and a lack of supply of new housing causes a firm market. BUT, it isn't as if there is nothing left to build on, and they don't make it hard for builders to build.
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Old 07-09-2018, 09:08 PM
 
Location: Brawndo-Thirst-Mutilator-Nation
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Various "emergency measures" taken after the start of "The Great Recession", many of them targeted at propping-up home prices.
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Old 07-10-2018, 06:18 PM
 
Location: Ohio
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Quote:
Originally Posted by artillery77 View Post
As for supply being inelastic, it depends on how you define housing stock. People here rent rooms, rent out garages, some basically live at work/in their cars, rent sheds in the back yard, get roommates. I recall a waiter that I was chatting with in Shanghai, and the waiter was from Manilla. He said they had 19 people in their one bedroom and they all had sleeping shifts in hot-racked bed setting.
This is the United States, not China.

County and city ordinances, or State laws, and HOAs bar people from renting out garages or storage sheds.

There's also maximum occupancy rates for each type of rented dwelling, so it isn't possible for 19 people to live in a 2-bedroom. Not only is the landlord obligated to evict, the landlord would be civilly liable for deaths and injuries in the even of fire, flood, tornado, earthquake or should the building or floor collapse in the event of structural failure.

Regarding your poll, Job Creation and Change in Population are functions of Supply & Demand, and thus cause Scarcity or the lack thereof in the housing market.
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Old 07-10-2018, 09:25 PM
 
Location: Tucson/Nogales
16,499 posts, read 20,055,588 times
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I once read that up to 20% of the housing in CA was being bought up by wealthy Chinese. That's not a factor? When the RE market crashed here in Las Vegas, it was estimated that 40% of the buyers were Chinese. Not a factor?

Take Santa Monica with, reportedly, the 2nd highest RE prices in the L.A. area. A year ago, a developer was planning to build a 21 story, Frank Gehry designed, condo building in DT Santa Monica, which would have been the first high rise added to the Santa Monica skyline since 1970. The Nimby's reacted as if the developer was going to put in a toxic waste dump!

And, not surprisingly, the Coastal Commission of CA won't allow any high rises along the CA coastline, from San Francisco to the Mexican border.

And 72% of L.A. county is still, antiquatedly, zoned for single family homes.

And San Fran-Nimby-o, don't get me started!
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Old 07-11-2018, 12:49 AM
 
Location: Silicon Valley
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Thank you for the replies. There's lots of good reasons and I like hearing the inputs. It is undoubtedly multi-factorial, and said factors will change given a scenario. In that manner, to me, it seemed like an impossible question, but not having an answer myself doesn't mean there isn't an answer.

At first, I proposed to myself that it must be population increase. It seems to be a leading vote getter at the moment. Of course, an increased population might in and of itself cause economic growth (construction grows, existing firms have more customers and thus they hire more help), but it didn't explain areas of the fastest economic growth. Quite distinctly, areas flooded with refugees don't seem to see noticeable price appreciation. Even areas such as California during the Depression, may not see home prices increase despite the migration of a population. However, if population comes and sets up shantytowns instead of blending in, the price of homes seems unlikely to go up as a result.

When I thought of shantytowns, it made me think of the plight of small subsistence farmers and their inability to get loans on their property because they have no property rights. Or how development in communist/socialist countries slows dramatically as property values matter less as there's no legal right to them. As these aren't really factors here, and I see that's a pretty unpopular choice. However, if we look at former communist countries today, some of them have the most expensive land in the world. Now that people have rights to acquire it, the pent up demand of decades seems to have pushed prices quite high, but there hasn't been a significant change in property rights here, so this probably isn't something to pursue.

What is a little more familiar to us, given the run-up in home prices, is the availability of home loans. As the US has matured, the government has truly subsidized these loan amounts in an attempt to have more buyers in the game. Beyond the requirement to give loans to low income, substantially all banks have become loan originators, buying all conforming loans at prices nobody else would consider buying from them, and then paying banks to service the loans. Both of these moves increased the ability of would be homeowners to get loans...and arguably affected home builder forecasts...though the mismatch was apparent in the latest financial trial. Even then, it's frankly odd that anyone would want to carry my 15 year at a lower rate than they'd accept on an applicable Federal bond. Certainly that's kept a lot of money from going to interest...but as a result, everyone is now able to afford "more" home.

The cost of homes, or the availability of building sites is certainly a factor. Nimbyism is certainly a factor as is local red tape, though I was rather surprised to see this as a top vote getter. It makes sense that an area that requires 20 department approvals and union labor would be more expensive than someplace that doesn't, and prior non-union built places could experience a boom due to a coattail affect. It would be the worst case scenario if indeed this was the major culprit, because it would almost demonstrate that replacement cost is inflating more than any type of growth in utility.

I was surprised to see no votes for environmental factors/community. I would imagine this was less understood and is my fault. The biggest argument I hear off here is often washed together under gentrification, but I think that overlooks certain reasons why gentrification occurs in an area. (lower crime rates, better schools, better mass transit etc.)

Finally, our last big vote-getter is economic activity/jobs. Presumably people in an area with growing economic options are well positioned to grow more, and if it's shared, a bidding war could ensue that might not be able to be dealt with by a construction company that would also presumably have to pay higher wages for labor and compete with commercial interests for building space. In the end I voted here, but the more examples I see here, the more I realize it's going to be an impossibly broad question....still of interest, but there won't be a right answer in all cases.

I did find a paper from the Fed on the same thing:
https://www.newyorkfed.org/medialibr...orts/sr345.pdf

Unless you're a really good econ wonk, I'd skip to the actual words. In a nutshell, they are looking at regional productivity as a leading indicator. It's also interesting that home prices have risen 4.6% since 1952, which is higher than consumption, and they attribute more value to the land (constraint) than previously. They could be full of it to, but they have better letters behind their name.

Last edited by artillery77; 07-11-2018 at 12:56 AM.. Reason: kindof explain the link
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