Great Housing Article
I just read this amazing article in the New York Times magazine on the recent housing boom.
It's left me convinced that housing prices are not going to drop, but that interest-only home loans are ridiculously fiscally irresponsible, that more stringent zoning is a huge factor in increased home prices, that unfortunately this zoning is the same zoning that encourages the "sprawl model", that one way or another housing "build out" is going to start hitting in the next 10-15 years, and that:
In Britain, on average, you pay seven times your annual income for your home, in the US it is only 3 1/2.
Historical precedent, current economic models, existing zoning structures, immigration patterns, all these indicate that housing is going to continue to appreciate in the very least at a steady rate.
This is fascinating:
"In the past couple of years, Toll and his deputies have begun analyzing European housing data to see if they hold any lessons for a maturing American housing market. Toll has been talking up the research to stock analysts and the financial press for the past year. His conclusions carry a whiff of new-paradigm thinking, but he nevertheless seems convinced that Europe's present-day reality is America's destiny. I asked Toll what our children - my kids are both under 8, I told him - would be paying when they're ready to buy. "They're going to live with us until they're 40," Toll said matter-of-factly. "And when they have their second kid, then we'll finally kick them out and make them pay for the house that we paid for. And that house will cost them 45 to 50 percent of their income."
I grew alarmed. Was he kidding? He assured me he was not. "It's all just logic," Toll said. "In Britain you pay seven times your annual income for a home; in the U.S. you pay three and a half." The British get 330 square feet, per person, in their homes; in the U.S., we get 750 square feet. Not only does Toll say he believes the next generation of buyers will be paying twice as much of their annual incomes; in terms of space, he also seems to think they're going to get only half as much. "And that average, million-dollar insane home in the burbs? It's going to be $4 million."
Urban Planning | By Josiah Roe | 04:42 PM
Comments
Check out the economist's web site (www.economist.com). They examine house prices by looking at Prices/rents (similar ot a Price/earnings ratio for stocks). This measure displays house prices are extremely high in several countries. House prices have begun to fall in Australia, which once had a red hot housing market. House prices may not fall in Chattanooga, but I would bet that certain pockets (see coastal Florida) will experience a decline in house prices. The prices are simply too high right now to be sustainable. In some areas of Florida, one can't hope to rent out a house to cash flow the associated mortgage. This is a very good indicator that these assets are over-valued given that their worth is the rents they generate.
Posted by: hancock at October 16, 2005 07:05 PM
Even if house prices do not fall, they will almost certainly grow more slowly, which when coupled with inflation in food and gas prices, could force many to sell. Those most vulnerable will be single-family homeowners who stretched for a house they couldn't really afford. Those who used creative financing and live in high-priced areas such as coastal Florida and almost every major city in the US may walk away from a house owing money.
Posted by: mark at October 26, 2005 01:12 PM
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