“You won’t lose the house. Everybody has three mortgages nowadays.” – Ghostbusters
When Zoomers start to pass away, will they have eulogis?
FYI – no podcast tonight. I’m sure you’re shocked. I’m out travelling. Next week???
The American economy is broken in several ways, but one of the biggest is housing. When I was a wee Wilder in my twenties, I bought a house that was about twice my income. The mortgage payment was doable, just barely.
I just looked up what it’s going for today, and the answer was . . . over 10 times what I paid for it. Was it a nice house? Sure. But not that nice. Why did it go up 10 times in value?
Several reasons, and not because it grew a hot tub and a golden toilet, either.
This particular house was nice because it was in a suburban neighborhood where the schools weren’t . . . bad. The local elementary school and high school were pretty safe which was why we bought it in that area in the first place. Places with “good schools” tend to have much higher property values than those that don’t have good schools.
But good schools lead to high home prices because a mother will sacrifice her husband’s kidney to the Hong Kong black market to get her kid into a good school.
Why does that picture remind me of the media during COVID?
A lot of that is bounded by driving distance – people will drive a long ways to have good schools, but there is a limit. The suburbs were set up based on just that mathematical tradeoff. The fact that the ‘burbs had much higher appreciation just means people will pay a lot to avoid . . . bad schools.
Around this time, people stopped looking at homes as a place to live, and started looking at them as an investment. What they noticed was that prices in the ‘burbs seemed to go up faster than their salary, so houses began to resemble shake-shingled slot machines.
Places like California saw this effect first – as big city with a very desirable climate, people flocked there for the jobs created by a variety of businesses, from defense to entertainment to manufacturing to importing illegals.
Enter the predators.
Blackstone® is now there in California. Recently, they’ve been building housing in San Diego. Rent? $3000 to $4000. A month. But it’s not just California – the median housing payment for people who bought homes is now a record – $2,819, not including taxes and insurance.
There are, of course, two sides to the equation: my freshman economics prof would note that supply and demand have led to this situation.
During COVID, there were a lot of trials held on Zoom™. Does that mean the case was settled out of court?
Demand is up because tens of millions of illegals have flooded this country in an unabated wave. Whereas a typical American family has three or five people living in it (nine if you’re the Brady family) the average foreigners will often rent a cot in a kitchen so that the houses are packed with people, India-style, so that 10 or 15 people are paying $200 a week to live in these homes. A landlord could make $8,000 or $12,000 gross profit if they rented to people to whom that would still be better than living in Haiti or India.
Yup, turning suburban houses into Mumbai Motel 6 one cot at a time.
Oh, and I mentioned Blackrock™. Not content to strip mine American companies by loading them down with debt and ejecting them like Osama Bin Laden’s corpse off a flight deck, the private equity firms have entered as a competitor, buying houses with one goal: to turn people from one-time purchasers into full-time wagie wealth engines who end up paying but never owning.
You’ve heard their slogan: You’ll own nothing, and like it™. Hey, at least you can put a happy face on your rent check. Wait. It’s all direct withdrawal now.
So, there’s the demand problem. Americans didn’t ask for this, but here it is.
What do you say to your English teacher when she’s crying? “There, they’re, their.”
What about supply?
Supply isn’t increasing to match demand. There are lots of reasons for this, among them zoning laws, environmental laws, contractor requirements, building codes, and other Not In My BackYard (NIMBY) restrictions that make it complicated and expensive to build anything. In fact, in places like California, it’s turned into BANANA – Build Absolutely Nothing Anywhere Near Anyone.
That reduces supply.
If you bought a home 25 or 35 years ago in a place like this, congratulations. The restrictions in supply of housing make your investment worth a lot more than it would normally be worth if the market were functioning properly. I suppose the upside is that very expensive houses create the perfect environment for . . . good schools.
That has other consequences, though.
The Mrs. asked me if I had a police record. “No, but I do have one by Sting.”
Whereas I could get into a house at the age of 24, that’s simply not the case for kids today in most areas. My modest first home (I checked its current value) would lead to a full-in payment of at least $5,000 a month. That’s $60,000 a year, after tax.
Not a lot of just out of college kids can afford that, so forgetaboutit.
Young families are locked out in that area.
That has a knock-on effect: lower family formation, lower numbers of children being born, and miserable young men. Oh, there are miserable women, too, but they’re older than forty and they’re miserable when they find out that the only role left for them in society is Cat Loving Wine Aunt™.
As I said above – the economy is broken, and housing is part of it. Oh, wait, now we have an oversupply of wine aunts.
Will that result in making box Chardonnay too expensive?