Category: Real Estate

Is it bad that Florida is no longer affordable for the middle class?

by philg

Recent Wall Street Journal article, “Florida’s Population Boom Fizzles as High Costs Drive Away Middle Class”:

Florida’s migration patterns are changing dramatically. Residents in their prime working years are heading to other states, often citing affordability concerns. At the same time, the stream of people arriving from other states is shrinking.

Meanwhile, an influx of wealthy people from other states—turbocharged during the pandemic—has helped drive up home prices. Inflation in parts of Florida outpaced the national average over the past decade and home-insurance rates soared.

These side-by-side trends could spell trouble for a state whose economy relies on continued population growth and real-estate development.

“The affordability picture has changed in Florida almost more than anywhere else in the country,” said Eric Finnigan, vice president of demographics research at John Burns Research & Consulting.

First, note the assumption that underlies almost all American politics: infinite growth should be the goal. (Never mind that growth without limit in an organism, and without regard to available resources, is known as “cancer”.)

Second, the WSJ implicitly assumes that a place that is affordable is better than a place that is unaffordable for median-income residents.

Third, the WSJ lumps all of “Florida” together. Florida is about the same size as all of New England. The WSJ wouldn’t lump together Boston and western Maskachusetts, much less Bridgeport, Connecticut and Houlton, Maine. (It’s still possible to get a brand-new single-family house in central Florida for less than $300,000, though the same can’t be said for coastal Florida; the house will be about 1500 square feet, which is the size of the house I grew up in (family of five) and with the added advantage that Floridians don’t need as much indoor space.) The most convenient housing for a SpaceX or Blue Origin engineer is in Titusville, where a decent (not new) house can be purchased for $300,000 (relocation guide).

Fourth, the WSJ assumes that the market is full of stupid people who bid up the prices of houses in places that aren’t desirable. Single-family home prices are $10.15 million in Palm Beach and $212,000 in Dearborn Heights, Michigan, where Ayman Ghazali mostly peacefully lived. From this we can infer that living among Iraqi and Lebanese immigrants in Dearborn Heights is better than living among Manhattan immigrants in Palm Beach (perhaps not an unreasonable inference!).

Maybe in a country with a shared language and culture it would make sense to try to find an inexpensive place to live. However, in a country that is jammed with low-skill migrants from all of the world’s most violent and dysfunctional societies (our asylum-based immigration system ensures that someone from Switzerland or Japan goes to the back of the line), isn’t it actually an advantage from a typical native-born perspective that a place is out of reach for the median present-day American? Google AI: “Newport Beach has lower racial diversity and worse racial disparity across various indicators compared to the average for California cities.” Given the stratospheric real estate prices, it seems that a lot of people are willing to pay for low racial diversity and “worse racial disparity”. As of 2021, the town was supposedly 85 percent white (source):

The Dallas metro area is more affordable than most parts of the US with jobs, which has enabled a mostly-immigrant community of 130,000 Muslims to set up more than 60 mosques and lay out EPIC City, “a master-planned Islamic community-centered residential development project”. Non-Muslim Americans who don’t want to hear the muezzin calling five times per day might prefer to spend more on a house that is in an area that is “unaffordable” to immigrants from Syria, Egypt, Afghanistan, and Somalia.

We could take this to an extreme. Aspen, Colorado is absurdly unaffordable for the median worker. My friend doesn’t like Aspen (see An actual skier goes to Aspen to ski), but apparently a lot of people do like it. Would we say that Dearborn Heights, Michigan is a better place to live than Aspen? That Aspen is bad because the population isn’t growing 3% per year like Gaza’s or Somalia’s? (Maybe Gaza and the West Bank are the ultimate examples of affordability. US and EU taxpayers pay for all of the basics, e.g., shelter, food, health care, education, etc. Nobody needs to work. Hamas-ruled Gaza is a model society by Ivy League standards, but wouldn’t the typical American rather be in St. Barts, Aspen, or Nantucket (all of which rank near the bottom for affordability on a median income)?) We could also consider a massive public housing project in Chicago or New York City. They’re “affordable” by definition since no tenant is charged more than 30% of his/her/zir/their income (often 30% of $0 since the tenants aren’t stupid!). Would a typical American prefer to live in the 6000-person Queensbridge Houses (“well known for its contributions to hip hop and rap music”; “a problem with drug dealers and drug users”) or in Atherton, California (population 7,000; home to Larry Ellison before he spent $450 million to escape to Florida)?

In short, given the continued flood of low-skill migrants (70 million since 1976) maybe “affordability” shouldn’t be the goal for any city or state that seeks to maintain a pleasant environment.

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Good news for gold bugs: houses are cheap

by philg

Happy National Fair Housing Month (“A Fundamental Right, Year-Round”; for Americans dumb enough to work: the “fundamental right” is to pay taxes so that others can relax in public housing) to those who celebrate.

Recent message from a friend who was smart enough to sell everything in Maskachusetts and buy in Texas in early 2009:

My contrarian view: Real Estate prices are at an all time low….. if measured in gold

Given that peasants can’t afford to buy at current prices/mortgage rates, my first reaction was “this is dumb”. On the other hand, I think my friend is closing in on billionaire status due to his previous real estate investments so maybe it is me who is dumb.

There is some support for his theory from this chart (source):

Does this make sense, though? Gold can be purchased by anyone in the world as an investment or for decoration. It is easy to transport. Residential real estate is impossible to transport and most of it has to be purchased by or rented by someone who lives where the real estate is. Rich people in Switzerland, India, San Francisco, Miami, and Singapore might buy up all of the world’s gold, but they’re not going to pay anything for a house in Detroit.

We’re now at a point where it takes 40-45% of a median household income to pay the mortgage on a median-priced house (source), i.e., back to the situation circa 2006 at the peak of the real estate bubble that burst in 2008:

This reflects the prevalance of two-income households since it looks at median household income. In the old days, the man worked and the woman stayed home (those days were so old we could tell the difference between a man and a woman!). Now everyone is in the workforce, except those smart enough to live in public housing, and the monetary fruits of all that extra toil are scooped up by real property owners. Median household income is a mixture of single-income and dual-income households. Houses are priced right now to be a stretch for the median household, which I guess means that they’re affordable for median two-income households and entirely unaffordable for a median one-income household. I asked ChatGPT “What’s the difference in median household income for one-income vs. two-income households?” and it came back with $70,137 for one-earner “family” and $127,256 for two-earner families from Census ACS data, cautioning that “Family is narrower than household. A household can be one person, roommates, an unmarried couple, etc., while a family is related people living together.” It added “For context, the overall 2024 median household income was $83,730.”

So… I’m pretty sure that my friend is wrong, which makes me+Google+ChatGPT smarter than a billionaire! There’s a first time for everything.

Also from my friend, bad news for people who love open borders and/or high birthrates, both of which necessitate new housing construction:

on the construction side, prices went crazy during [coronapanic] and never came down. It is now about 50% more expensive to build anything as compared to 2019.

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When do rising sea levels make Florida beachfront real estate less valuable?

by philg

Ten years ago, here on this blog… Are markets so inefficient that global warming isn’t being priced properly?:

During our two weeks in Ft. Lauderdale we learned that a beachfront house costs between $3 and $8 million. Most of these are approximately the same height above sea level as a crushproof cigarette pack. If the seas are rising up to swallow Florida, as the climate change doomsayers predict is imminent, why are these houses still worth so much?

The beachfront houses of Ft. Lauderdale aren’t worth $3-8 million anymore, just as the Climate Doomers predicted. The price to live in a house that Science proves will be swept away soon is $5-40 million. Is there any new Science that could explain this meteoric rise in the nominal price? “A Global Perspective on Local Sea Level Changes” (Journal of Marine Science and Engineering 2025) looks at IPCC predictions vs. observations. The paper says that sea level worldwide is rising at about 1.5 mm per year. How does that compare with the Climate Doom narrative from the IPCC? The authors say that the observed sea level rise is somewhat lower than predicted and dramatically lower for Florida: “the overestimation along the Atlantic coast of North America is 4 mm/year to 5 mm/year; the highest overestimation found anywhere”.

The authors found little evidence of acceleration of sea level rise (Conclusions), but the same section seems to contradict the above map: “Empirically derived long-term rates of sea level rise in 2020 were in majority found to be in excess of the contemporary projected rates of rise. The current generation of projections can therefore be considered conservative”. Maybe someone here can read this more carefully and figure out how most of the rates based on local measurements are lower than the model predictions while at the same time the model predictions are “conservative” regarding doom.

The IPCC:

[Global mean sea level] GMSL from tide gauges and altimetry observations increased from 1.4 mm yr–1 over the period 1901–1990 to 2.1 mm yr–1 over the period 1970–2015 to 3.2 mm yr–1 over the period 1993–2015 to 3.6 mm yr–1 over the period 2006–2015.

GMSL will rise between 0.43 m (0.29–0.59 m, likely range; RCP2.6) and 0.84 m (0.61–1.10 m, likelyrange; RCP8.5) by 2100 (medium confidence) relative to 1986–2005.

If we take the 1.5 mm/year rate of the new paper and a 50-year time horizon for beachfront house ownership, the sea level rises 3 inches in Fort Lauderdale over the next 50 years. If we use the 3.6 mm/year rate, the sea level rises 7 inches. In other words, the acceleration prediction by the IPCC would need to materialize in order for the sea level to rise by half a meter (20 inches).

Our house is at 11′ above sea level (approximately 3 miles inland within Abacoa) so I think we need a rise of about 7′ (2 meters) before it becomes impractical to occupy (need a bit of buffer to handle storm surges). Even under the Doomiest Doomer’s prediction, that will take so long that the house will have required reconstruction, potentially elevated by a few feet, purely due to age.

From September 2024, WSJ, regarding a (present-day) sea level house too shabby to be left standing:

(Imagine the environmental impact of dumping all of those almost-new solar panels into a landfill!)

Finally, let’s look at the climate change alarmists. Here’s Democrat Senator Merkley saying “Climate chaos is the existential threat of our time. We need bold climate action now, before it’s too late” less than a year ago:

Today, however, he/she/ze/they demands that gasoline be as cheap as possible so that people will maximize consumption and CO2 emission:

(Curiously, the tweet complaining about “Trump’s illegal war” was posted a day after Trump had announced the U.S.’s surrender to Iran (“ceasefire”), i.e., when the war was already over.)

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No possibility of future conspiracy among realtors…

by philg

… because there will be only one realtor.

“Home Sellers Win $1.8 Billion After Jury Finds Conspiracy Among Realtors” (New York Times, October 2023):

The influential National Association of Realtors and several brokerages were ordered to pay damages to home sellers who said they were forced to pay excessive fees to real estate agents.

A federal jury ruled on Tuesday that the powerful National Association of Realtors and several large brokerages had conspired to artificially inflate the commissions paid to real estate agents, a decision that could radically alter the home-buying process in the United States.

… under the verdict, the sellers would no longer be required to pay their buyers’ agents, and agents would be free to set their own commission rates, which could be slashed in half or less. For example, a home seller with a $1 million home can now pay as much as $60,000 in agent commissions — $30,000 to their agent and $30,000 to the buyers’ agent.

It looks like the problem has been solved for the long run (not in the short run, though; “Why broker fees have barely changed since the big settlement” (Axios, May 1, 2025)). It won’t be possible for brokerages to conspire because there will be only one brokerage. “Brokerage Giant Compass Agrees to Acquire Rival Anywhere for $1.6 Billion” (WSJ, today):

Leading real-estate brokerage Compass said it has agreed to acquire rival Anywhere Real Estate for $1.6 billion, the clearest sign yet that a long stretch of lackluster home sales is sparking industry consolidation.

The all-stock transaction would create a new industry giant with an enterprise value of about $10 billion, including debt, in one of the largest deals ever in the residential brokerage industry.

Compass and Anywhere were already the first- and second-biggest brokerages by volume in 2024, respectively, according to RealTrends. Compass has about 40,000 agents, while Anywhere has about 51,000 agents at brokerages it owns and another 250,000 agents at its franchises.

I’m trying to figure out why the U.S. has antitrust laws if something like this is allowed to occur.

Separately, if you’re about to buy the new iPhone, here’s a photo of where some of the money you previously gave to Apple went, from “Ex-Apple CEO John Sculley sells Palm Beach mansion for $37 million” (USA Today, 9/10/2025):

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Wall Street Journal warns New Yorkers not to move to Florida

by philg

New York-based journalists love to write about how New York taxpayers shouldn’t flee to Florida and skip paying 14.8 percent state/city income tax, 8.9 percent sales tax, and 16 percent estate tax (vs. 6-7 percent sales tax in FL and 0 percent income/estate). Here’s a recent example, “The Worst Housing Market in America Is Now Florida’s Cape Coral”:

The median home price soared nearly 75% to $419,000 in three years, transforming the character of this middle-income community that for decades has catered to retirees and small investors. … Home prices for Cape Coral-Fort Myers have tumbled 11% in the two years through May

So the prices went up about 56 percent, over a five-year period. That’s before adjusting for Bidenflation. What happened in the U.S. overall? Prices went from 218 to 331 (source), a rise in nominal dollars of 52 percent:

In other words, for people who bought a house five years ago (the average tenure in a house for an American is about 12 years), what the WSJ calls “the worst housing market in America” outperformed the U.S. residential real estate market overall.

What Zillow shows is that the Cape Coral market was more volatile than the national average:

So Cape Coral actually has been a bad market for home-flippers who had the misfortune to buy in at the peak, but for the typical Cape Coral homeowner it has been a better market (albeit, not by much) than the average U.S. real estate market. What about for the elites who put the Wall Street Journal together? How has their Manhattan real estate done by comparison? Zillow:

(“New York County”=Manhattan)

So Cape Coral is objectively speaking the worst housing market in the U.S. (reported as fact/news by the Wall Street Journal rather than as opinion). At the same time, people who owned property in Manhattan fared far worse over the past 6 years or almost any time window within those 6 years.

Related:

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Coronapanic and landlords

by philg

An aviation connection owns 250 apartments in the middle of the country. I asked him whether he’d lost a lot of money during coronapanic when nobody had to pay rent and he was barred by order of the CDC from evicting anyone. “No,” he said. “Nearly all of my tenants kept paying and, in fact, many of them applied for and received government assistance to pay their rent. I already had 20 percent Section 8 vouchers and ended up with about half of my income coming from the government.”

He took the opportunity to refinance his properties at a 2 percent rate and also substantially raised the rents that he was charging (i.e., his costs fell and his revenue soared). He estimates that his property doubled in nominal value between 2019 and today. He raised rents by 50 percent.

Who else got rich? “The local car dealer [in his small town] bought a Phenom 300 and a Bell 407” (that’s $15 million worth of aircraft; the Phenom 300 is made by Embraer in Brazil)

What else has been working for him? Open borders. “I love having Latinos as tenants,” he said (sorry about the hateful failure to use proper English (“Latinx”), but it is a direct quote), “but sad to say that the English-speaking tenants get upset if there are too many Latinos in their complex. They complain about Mexican music being played and noise. I don’t want to be racist and exclude people on the basis of being Hispanic because it makes other tenants upset.” Has the rising cost of labor eroded his increased profit margin from the 50 percent rent boost? “No,” he replied. “White people have pretty much stopped working, but there are plenty of hard-working Latinos. I wish that I spoke Spanish because then I could do a better job explaining what I need.”

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Climate change leader tosses a $110 million 6-year-old house into a landfill

by philg

Let’s start off in the Department of Sick with Envy… “Lavish Palm Beach mansion built just six years ago, then bought for $110m last year ‘by Estée Lauder boss’ will be TORN DOWN and replaced with new property” (Daily Mail):

A never-lived-in oceanfront mansion that quietly sold for $110 million last year is to be torn down and replaced with a new property.

The mansion, built in 2016 at 1071 N. Ocean Blvd, Palm Beach, is owned by a company linked to cosmetics billionaire William P. Lauder.

He owns an empty lot next door and is believed to want to combine both parcels of land before building his dream home, just six miles from former President Trump’s Mar-a-Lago.

The home was originally purchased for $40.42 million by Philadelphia businessman Vahan Gureghian and his wife, Danielle, an attorney, but they never moved in.

There is even room for a two-lane bowling alley in the basement – although it’s soon to be destroyed by the wrecker’s ball.

He purchased that lot, at 1063 N Ocean Blvd, for $25.4 million in April 2020 at which point he demolished the existing home which had stood there since the early 1960s.

(What kind of engineering was involved to make a watertight basement? Almost nobody in Florida has one.)

To make our envy even more intense, the article includes a photo of the dilapidated eyesore:

It is at times like these that I’m glad I voted for Bernie!

What does the guy who is throwing out a 6-year-old 36,000-square-foot house have to say about our beloved planet? A 2021 talk from the committed environmentalist:

During the pandemic, concerns about the environment have intensified and Lauder noted that, at this point, sustainability is no longer a choice for companies.

“We have to think about what we make and sell from cradle to grave,” he noted. “How can we get more recycled material in our packaging? How can we reduce the use of plastic and other components that end up in landfills?”

The entire house will go into a landfill, but that’s okay because very little of it is plastic?

It’s all about the Science:

Sustainability and science go hand-in-hand. Lauder said…

See also “Estée Lauder Companies Reaches Milestone Climate Goal, Net Zero” (2020):

The Estée Lauder Companies (ELC) announced on November 2nd that it has achieved Net Zero emissions and sourced 100% renewable electricity globally for its direct operations, reaching the target it set on joining RE1001.

Building upon this achievement, the company has also met its goal to set science-based emissions reduction targets for its direct operations and value chain, positioning the company to take even more decisive action against climate change in the coming decade.

The Estée Lauder Companies commits to reduce absolute scope 1 and 2 GHG emissions 50% by 2030 from a 2018 base year. This target is consistent with reductions required to keep warming to 1.5°C, the most ambitious goal of the Paris Agreement. The Estée Lauder Companies also commits to reduce scope 3 GHG emissions from purchased goods and services, upstream transportation and distribution, and business travel 60% per unit revenue over the same timeframe.

It was Science who said “toss that 6-year-old house into the landfill”!

So we started off sick with envy, but ended up learning something profound about the role that each of us can play in saving Spaceship Earth.

Update, 10/26: Government moves fast in Florida! The environmentalist got a demolition permit and the house is on its way to the landfill.

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Dramatic change in mortgage rates contributes to America the Static

by philg

As loyal readers are aware, when it comes to homeownership I am a hater. The culture of homeownership is a huge drag on the U.S. economy, in my view, for the following reasons:

  • homeowners spend a lot of time working as amateur property managers, e.g., arranging maintenance or actually performing maintenance, that is much more efficiently done 100-600 units at a time
  • the high transaction costs, e.g., 5 percent real estate commission, discourage people from moving in response to the availability of better job opportunities

(This is not to say that I hate the single-family home as a living space. But I would think we’d be way more productive as a society if our single-family homes were owned commercially and managed professionally or, at the very least, owned in a condo-style arrangement where we didn’t have to touch anything beyond the interior.)

The “high transaction costs” in the second bullet point above are now vastly higher due to 2022 having become the Year of Mortgage Rate Drama. Someone who locked in a 3% rate, either via an initial purchase or a refinance, is sitting on an annuity that ends the minute he/she/ze/they decides to sell the house and move closer to where the better jobs are, potentially eliminating all of the economic benefit of switching jobs.

“After Years of Low Mortgage Rates, Home Sellers Are Scarce” (Wall Street Journal, 9/22/2022):

Housing inventory has risen from record lows earlier this year as more homes sit on the market longer. But the number of newly listed homes in the four weeks ended Sept. 11 fell 19% year-over-year, according to real-estate brokerage Redfin Corp. That is an indication that sellers who don’t need to sell are staying on the sidelines, economists say.

Larry and Corina Lewis of Tarrytown, N.Y., have two children and expect to need a bigger home in the next few years. But their current 30-year mortgage rate is 2.75%.

“The thought of giving this up in order to pay double in interest, that’s a nauseating thought for me,” Mr. Lewis said. Even if the average mortgage rate falls from its current level, he said, “I still don’t see it ever getting quite that low.”

The lack of housing inventory is one of the major reasons home prices have remained near record highs, despite seven straight months of declining sales as interest rates have roughly doubled since the start of the year.

Economists say it is difficult to predict how much the increase in mortgage rates could reduce home listings, because rates haven’t climbed this rapidly in decades.

Related:

  • “More Residents Looking to Leave San Francisco Than Any Other Major U.S. City, Report Finds” (Mansion Global (sister publication to WSJ), 9/20/2022): Despite life returning in force to big cities across the U.S., residents are still looking to leave them, and in even greater numbers than they were last year … In July and August, residents of San Francisco were the biggest flight risk. All told, San Francisco had a net outflow of 40,432 over the two summer months, a measure of how many more Redfin users looked to leave the city rather than move to it. Next on the list was Los Angeles with a net outflow of 34,832, followed by New York at 26,786. Washington, D.C., and Boston rounded out the top five. [Other than extended periods of public school closure, what do these cities have in common?] Miami was the most popular migration destination, “continuing a year-plus streak of the South Florida metro taking the number-one spot,” the report said.

Speaking of South Florida, here’s a fan of relocation to Jupiter. Mindy the Crippler’s priorities for a neighborhood are squirrels, rabbits, squirrels, rabbits, and, more importantly, squirrels:

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The Case-Shiller housing bubble isn’t so bubbly if we adjust for rising rents

by philg

“Rising Home Prices Are Mostly from Rising Rents” (Kevin Erdmann) was sent to me by a retired bond fund manager. He starts by noting that the Case-Shiller real estate index, when adjusted for CPI (“real”), shows dramatic apparently irrational price swings. We go in and out of housing bubbles based on sentiment.

The problem with that theory is that rent inflation has definitely risen faster than general inflation for the past 40 years or so. So, instead of adjusting for inflation based on a reasonable theory that has stopped reflecting reality, why not adjust home prices with rent inflation instead of general inflation? When you do, it turns out that prices have become more volatile, but the deceptively compelling long-term flat pattern that suddenly jumps to a higher range isn’t so clear any more. Persistently high rent inflation is driving the rise in the “real” Case-Shiller index.

When the adjust-by-rent system is applied to individual cities, the purchase price of housing looks even flatter. Here the author generates smooth curves fit to data points from 50 metro areas. 2007 does look like irrational exuberance, but primarily in the higher-cost cities (even in 2007, in cities where rent was low, the buy/rent ratio was about the same as in 1991, 2012, 2015, and 2018).

Thanks to the miracle of population growth and the inability of Americans to come up with a cheaper way of building housing…

In Figure 8, we can see that prices are now rising in every city like they were in Los Angeles before. Low rates of building, with constrained lending, means that residents with low incomes are suffering from our policy choices now everywhere.

[Blaming “policy choices” is where I part company with this author, who talks about “systematic, persistent lack of housing production” as though that could be changed with the wave of a central planner’s wand. As I noted in City rebuilding costs from the Halifax explosion, even when land is free and there are no zoning restrictions, the basic cost of building an apartment now exceeds what a couple with two median incomes can afford (maybe the answer is that Americans need to live in throuples?). A simpler explanation is that we’re simply not wealthy enough, on average, to afford the things that we believe we deserve, including high quality housing for 333+ million people. We’re a medium-skill country, trending toward low-skill via our immigration system, demanding all of the stuff that properly belongs to a high-skill country.]

I’m not sure what we should take away from this as investors. The residential real estate market isn’t as irrational as previously portrayed. House prices, like apartment building prices, track rents. But how do we make money unless we have a crystal ball to forecast future rents? The friend who forwarded this to me said that historically real estate provides lower returns than investing in the stock market (but maybe this isn’t true if you consider leverage and the ability to stick lenders with the downside risk while keeping the upside benefit) and real estate ownership carries idiosyncratic risks, such as litigation risk (the owners of a hotel were hit for $26 million because a jury found that a clerk employed by the owners allowed a pervert to check in next to a sports journalist and film her naked (and that she suffered $55 million in damages from this, more than if she had been killed)).

As taxpayers one take-away is that we’re going to be paying the rent for a high percentage of our brothers, sisters, and binary-resisters who either don’t want to work or whose skills don’t yield a sufficient income for housing that we consider suitable for a resident of the U.S.

Speaking of real estate investing, you can’t go wrong by doing the opposite of whatever I suggest. My theory was that Cambridge, Maskachusetts real estate would go up in value once the Followers of Science abandoned their fears, masks, school closures, lockdowns, and vaccine papers checks. When everyone was back at his/her/zir/their desk in the office towers of Kendall Square or the academic buildings of Harvard Square, real estate in Cambridge would catch up to real estate in South Florida. The brilliant minds of the AI software within Zillow disagree, forecasting a down round for Harvard Square:

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When does the vacation home market collapse?

by philg

A combination of inflation and stock market saggage means that Americans aren’t as rich as we thought we were. When we thought that we were crazy rich (2020-2021) and it was illegal to buy a variety of services, such as international travel to most destinations, we loaded up on real estate. Now the collapse is forecast, partly due to sky-high interest rates that the Fed hopes will tame inflation despite the government continuing to borrow and spend $trillions more than is raised via taxation.

On the theory that “people need to live somewhere” and the U.S. population is being dramatically expanded via low-skill immigration (see “Modern Immigration Wave Brings 59 Million to U.S., Driving Population Growth and Change Through 2065” (Pew 2015), I don’t think prices for primary houses will go down in nominal dollars. Perhaps the values will be eroded by inflation, but I will guess that that real (inflation-adjusted) price of a house in 2027 is no more than 10 percent lower than today’s price. Americans are not competent at planning and building infrastructure and therefore new construction to accommodate the migrant-fueled population boom is going to be super expensive (see City rebuilding costs from the Halifax explosion).

On the other hand, an individual person or family does not need two houses. So if there needs to be a real estate collapse, I am thinking that it will happen in the vacation house market.

Arguments in favor of continued high demand for houses in vacation destinations:

  • the laptop class can pretend to work from anywhere
  • demand for ski resort lift tickets has never been higher (Smithsonian)
  • those who support lockdowns, school closures, masks, and vaccine papers checks are voluntarily traveling like crazy now, packing themselves into 100% full airliners, going to theme parks, etc.

Arguments against continued high demand for recently purchased vacation houses:

  • a second property tax bill every year
  • a second set of contractors to beg
  • rising maintenance and utilities prices

We rented a cozy cabin in the Great Smoky Mountains (report). Zillow says that the pre-Biden value of the 1,344 square-foot mansion was $350,000 and that it is currently worth about 725,000 Bidies, down from a peak of 763,000. It actually was sold by the builder, brand new, in August 2019 for $305,000.

We enjoyed being there for a few nights, but is it worth more than a townhouse within commuting distance of a highly paid job in a dynamic city? I don’t see how that is possible in the long run.

Related:

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