Thursday, January 06, 2005

Maryland home prices up

The Washington Post reports that Montgomery County home prices have risen nearly 70% in the past three years.

This represents a huge and unfair transfer of wealth from non-homeowners to homeowners. It hurts young single people like me, because we aren't usually homeowners. And with housing prices rising and rising, maybe my whole generation will be shut out of home ownership and condemned to second class status.

Housing prices have risen not by accident, but because of government policies that prohibit new home construction, resulting in an artificial shortage of houses. But this obvious reason wasn't mentioned in the article, because liberals will never say anything in favor of construction.

16 comments:

Bowly said...

And you're subsidizing anyone with a mortgage to boot. Yay!

Paul Snively said...

While I would certainly agree that limiting construction arbitrarily is undesirable, in the final analysis the reason real estate prices go up is that real estate is the ultimate non-renewable resource: they just aren't making any more of it.

However, if you're interested in buying real estate (and you should be; it's still the most reliable path to financial independence in America), be aware that there are lending institutions falling all over themselves to make that possible, be it with 100% financing (but watch out for PMI costs!) or a simultaneous first and second mortgage, which at what interest rates have been for the last few years has made a ton of sense, with a blended interest rate that was still better than what many folks in the previous generation were paying on their first mortgage. With interest rates rising now, though, I'd say wait for the cycle to repeat itself unless you're in a position to close on a property, say, this month.

Jeremy said...

He's right. Gov't zoning regulations may exacerbate the scarcity of land a bit, but it doesn't create the scarcity in the first place. I would say any artificial shortage is just about negligable.

Libertarian Girl said...

Land is scarce, but our ability to make residential living space out of it is nearly infinite.

The same lot used for a single house could support a skycraper with hundreds of units. Local governments choose not to allow the land to be developed.

Jeremy said...

But didn't you just say that you don't want to be condemned to apartment-renting "second class" status?

Jeremy said...

Are you arguing that the space for apartment development in the Va/DC/Md area is tapped out?

I see an awful lot of apt complexes going up in the metro area...

runreason said...

Also, let's not forget that the primary factor driving the housing bubble is central bank manipulation of money and credit. More specifically, the Fed is supressing interest rates which artificially raises demand for housing thereby fueling the speculative mania. The December 11th issue of The Economist thinks the current global housing bubble might be "the biggest financial bubble in history."

Mr. X said...

This represents a huge and unfair transfer of wealth from non-homeowners to homeowners. It hurts young single people like me, because we aren't usually homeowners. And with housing prices rising and rising, maybe my whole generation will be shut out of home ownership and condemned to second class status..

As a young, single homeowner in Montgomery County, let me just say: Woo-hoo!Now that the gloating is out of the way, why is my choosing to invest my money in a house which has subsequently appreciated in value a "huge and unfair transfer of wealth from non-homeowners to homeowners?" When property values fall, is that a "huge and unfair transfer of wealth from homeowners to non-homeowners?"

The housing around here has always been expensive because of demand. Lots of people want to live here and a lot of the people who already live here don't want high-density housing (apartments) near their expensive homes because rentals decrease property values.

Yours truly,
Mr. X

...whining is unattractive...

Jeremy said...

Yeah, I think houses are way overpriced. At a certain point the interest rates will cross a threshold, and values are gonna plummet.

Paul Snively said...

Libertarian Girl: "Land is scarce, but our ability to make residential living space out of it is nearly infinite."

Eh, not so much: there are a combination of physics and cost issues that impose serious constraints on how true this is. That's ignoring the very Libertarian your-right-to-swing-your-arm-ends-where-my-nose-begins issue that, IIRC, Jeremy raised that not everyone wants a skyscraper full even of the nicest luxury condominiums in their neighborhood. Whether appropriate to the times or not, a tremendous number of people still want a home that's not physically connected to someone else's home, has a yard, etc. I expect that to be the dominant form of human housing for several thousand more years at least. People like to point to the counterexample of Japan, but a) the only really good counterexample is Tokyo, which is like saying America is like New York City, and b) Japan is such a tiny landmass that they encountered the pressures to go up much, much earlier than Europe or the Americas have.

I'm also not so sure about this "housing bubble" idea. People have been saying that forever and ever, and it's funny how you've never heard of a "housing market crash." What does seem to be the case is that housing is very cyclical, so real estate remains a domain in which speculating can lose your shirt, but it's so easy to get into without speculating, I honestly think you'd be foolish not to: consider the $250,000 tax exclusion (twice that if you were married) on selling your home that you've owned as your primary residence for two years when you sell it. This means that you could buy a home (cf. 100% financing, simultaneous first/second mortgage, etc.) and, as long as you didn't mind moving every two years for a while, accumulate significant amounts of money to invest elsewhere, e.g. in rental properties. You could then take advantage of the 1031 tax-deferred real estate exchange to upgrade your rental properties without incurring a nasty tax hit.

I sure wish I'd known all of this when I was 23 and living/working in Silicon Valley. I'd probably already be financially independent.

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marti said...

Why name yourself like "second class"? I don't think so. BTW- you need to think about moving somewhere else.

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