patrick.net

Adjusted for inflation only worth $225-250K.

Paying $700K was just insane... paying $500K is equally nuts.

$250K @ 4.25% works out to an average housing expense of $800/mo over the next 30 years.

$500K works out to $1500/mo. Doesn't seem out of line. Rents in 30 years will be, what, $6000/mo?

thomas.wong1986 says

Adjusted for inflation only worth $225-250K.

Well by that logic then a 1995 Toyota Camry should sell for $50,000 not $1,800

Troy says

$500K works out to $1500/mo. Doesn’t seem out of line. Rents in 30 years will be, what, $6000/mo?

Perhaps DT will turn in to Melrose Ave for the cool and hip...
But I doubt it ...

Tenouncetrout says

Well by that logic then a 1995 Toyota Camry should sell for $50,000 not $1,800

A properly maintained house lasts forever, at least until an Act of God wipes it out.

And much of the purchase price of a home is actually the land component -- the site value -- which generally does not depreciate at all, though this certainly can should an area's safety, commute to jobs, or other worsening factors impact the assortment of locational advantages that go into site value.

1B Rents in West LA were $700/mo in 1991, now they are ~$1350/mo. This is 1.6X the inflation of CPI alone.

Housing is not a 1995 Camry. If you don't possess a Camry there are millions of other transportation options, and one does not even actually need a car in most areas.

One does, however, need a place to live on this planet, and more specifically in some community, and the supply of living space in any given area is lot more fixed, compared to the used car market.

Since the supply of housing is so fixed, as our incomes inflate ever upwards, proportionally more of our take-home pay is sucked out in rents (and mortgages, as people buy instead of rent).

Houses are not cars.

thomas.wong1986 says

Perhaps DT will turn in to Melrose Ave for the cool and hip…

$6000/mo sounds like a lot now, but my parents were paying $400/mo 30 years ago, about 1/3 what rents are now. Another 3X inflation by 2040 would not surprise me, not in the least.

Troy says

$6000/mo sounds like a lot now, but my parents were paying $400/mo 30 years ago, about 1/3 what rents are now. Another 3X inflation by 2040 would not surprise me, not in the least.

Certainly the case in the last half of the 20th century, but TODAY and going forward other factors such as globalization will depress prices/rents.

House prices rise with wages. Today, prices of houses in many parts of the USA will fall because 1. there are 2 million 90 days behind mortgage payment 2. there are 7 million 30 days behind. ETC.
Interest rates are essentially zero to banks and this must eventually change, which means prices of houses will fall some more.
So, say houses go down another 30% in some locales.
How fast will wages rise to make the prices of houses begin to climb back up?
The last post explains how globalization and offshoring will depress wage growth, as the millions of illegal aliens (no education) do already.
Without wages rising much, house prices cannot rise very much either.
The good old days are gone. My father's 15 room house on 3/4 acre in NYC cost him $125/month mortgage way back when. Now he spends that on his cable tv probably.

clambo says

My father’s 15 room house on 3/4 acre in NYC cost him $125/month mortgage way back when. Now he spends that on his cable tv probably.

What was the minimum wage back then? Yes, house prices have gone higher than inflation rates, but using the "In my day things were cheaper" argument is complete B.S.

Troy says

thomas.wong1986 says

Perhaps DT will turn in to Melrose Ave for the cool and hip…

$6000/mo sounds like a lot now, but my parents were paying $400/mo 30 years ago, about 1/3 what rents are now. Another 3X inflation by 2040 would not surprise me, not in the least.
“Nessuna soluzione . . . nessun problema!„

they have also gone through the inflation when wages kept on rising. Something we aren't going to experience in the economy where our wages have to compete with Chinese/Indian and other countries with low wages.

Troy says

1B Rents in West LA were $700/mo in 1991, now they are ~$1350/mo. This is 1.6X the inflation of CPI alone.

It's actually more like 1.4X CPI (65.9% from 1991 to 2011), although I'm not convinced that your figures are right. I'm fairly certain friends of mine rented a 1BR place in West LA for $1100-1150 about 6 months ago. I doubt it's gone up more than $200 since then. I believe they also got 1 month free, so really it's 11/12 of that in effective rent.

clambo says

The last post explains how globalization and offshoring will depress wage growth, as the millions of illegal aliens (no education) do already.

Perhaps, but immigration reform would allow many more high education immigrants to come here and raise wages. There are many studies on this, and even the Cato Institute agrees that immigration reform would raise GDP significantly. Instead, the powers that be are listening to the protectionist wings.

Immigrants need to have money to come in this country if there broke what good value other than low wage earners can they do for the economy? Keeping your gardening and tree trimming cheap.

As Dad told me things roughly double every 10 yrs. It's inflation you can't do anything about.

beershrine says

Immigrants need to have money to come in this country

It sounds like you are agreeing with me. The high education immigrants that I mentioned have money. If you can afford a 4-figure plane ticket to get here, you probably aren't broke.

corntrollio says

Perhaps, but immigration reform would allow many more high education immigrants to come here and raise wages. There are many studies on this, and even the Cato Institute agrees that immigration reform would raise GDP significantly. Instead, the powers that be are listening to the protectionist wings.

I dont see the point of hiring from overseas when you have plenty of people in the states who are better educated, trained and have more experience. Its not like the other nations were the creators of much of the inventions (tech) in recent years.

Its sadly become more of question their need for some social engineering/diversity agenda vs what has always worked in the past, hire quickly, training and mentoring for the next generation of leaders.

thomas.wong1986 says

I dont see the point of hiring from overseas when you have plenty of people in the states who are better educated, trained and have more experience.

That's not what business leaders say. Look at the people getting PhDs here in science and engineering, and tell me we have enough people here in those fields.

As I've mentioned, the studies agree -- here is a quote from the executive summary:

http://www.americanprogress.org/issues/2010/01/raising_the_floor.html

Comprehensive immigration reform generates an increase in U.S. GDP of at least 0.84 percent. Summed over 10 years, this amounts to a cumulative $1.5 trillion in additional GDP. It also boosts wages for both native-born and newly legalized immigrant workers.

Even the Cato Institute agrees on this point, and I never agree with them on anything.

EncinoMan says

they have also gone through the inflation when wages kept on rising. Something we aren’t going to experience in the economy where our wages have to compete with Chinese/Indian and other countries with low wages.

This is my thesis, yes, but I'm used to having my theses shot down by the PTB.

EMan says

Something we aren’t going to experience in the economy where our wages have to compete with Chinese/Indian and other countries with low wages.

The latest sentiment, by the way, is that cheap labor in China for goods sold in America might be a past tense thing in the near future:

http://www.economist.com/node/18682182

Pay for factory workers in China, for example, soared by 69% between 2005 and 2010. So the gains from labour arbitrage are starting to shrink, in some cases to the point of irrelevance, according to a new study by BCG.

“Sometime around 2015, manufacturers will be indifferent between locating in America or China for production for consumption in America,” says Mr Sirkin. That calculation assumes that wage growth will continue at around 17% a year in China but remain relatively slow in America, and that productivity growth will continue on current trends in both countries. It also assumes a modest appreciation of the yuan against the dollar.

Hopefully we can get these jobs back to the USA where they belong.

thomas.wong1986 says

Hopefully we can get these jobs back to the USA where they belong.

Yes, although, as I've mentioned before, we are outsourced labor for other countries too. The German car companies make cars here, and so do the Japanese and Koreans. Ford makes some cars in Canada (even though that part of Canada is south of Detroit).

The German model is probably better for us -- what frightens me is our policies and failure to invest in education and innovation often seem more skewed towards having low- or no-skilled labor here as opposed to high-skilled labor for high quality products here. That's not a good thing.

thomas.wong1986 says

Adjusted for inflation only worth $225-250K.
Paying $700K was just insane… paying $500K is equally nuts.

What do you count the inflation since 1996, 1% per year?
Even a nominal 3% would give 273 K.
I sure wouldn't expect a house in San Jose under $100/sq. ft:
you can hardly find that even in the Midwest (major urban areas).