"Sunk costs are such a large part of the cost of a home that the potential downward price discovery of existing homes is large enough to find a buyer in all but the most extreme circumstances."
What I was trying to say is that it costs a lot to build a home from scratch. Maintenance costs would have to be very high to be worth building new instead of using an existing home on affordability grounds.
Mostly the price is driven by landlords and new buyers from outside the neighborhood. Price/income ratios that high are associated with strong outmigration of the existing tenants.
If it's associated with new buyers, couldn't the pattern mainly reflect that poorer neighbourhoods in Los Angeles are underpriced relative to general demand and in the process of adjustment to demand have become overpriced relative to incomes of current inhabitants (while this is not the case in Phoenix)? Of course, general demand (and so price) could be lower if there were fewer supply constraints in the higher income zip codes (and so flatten the negative correlation), but the negative correlation itself doesn't seem obviously that it has to be evidence for that?
I might need you to clarify what you're saying, but if I understand you, I think the regularity of these price patterns confirms the existing filtering and chain of sale evidence that each metropolitan area is effectively a unified market, with regard to supply, so that metropolitan area supply is the key, and intra-metro substitutions spread the effects of supply (or lack of it) across the metro. The effect of lacking supply tends to be this tilted price/income pattern.
California net migration was -250k. That is a radical change in just a few years. Maybe it is both supply and demand? I'd be interested in international migration numbers from Asia in particular. Also maybe people follow companies like Tesla out and it becomes a bit of a self-reinforcing phenomenon.
Since housing is the binding constraint to growth in coastal California, outmigration is usually associated with higher home prices in neighborhoods with low incomes and higher economic growth.
This could be a really good thing if it persists in California, which requires sustaining political momentum. Given that the majority of voters benefit from this I'm allowing myself to feel some optimism for continued reform.
Here in the Boston Metro area things are still messed up--no new supply, transaction volume in decline, and no price decreases in the high end market. Not sure how the rest of the region is, or where it's headed, but so far it's different than 2008ish.
"Sunk costs are such a large part of the cost of a home that the potential downward price discovery of existing homes is large enough to find a buyer in all but the most extreme circumstances."
.....?
What I was trying to say is that it costs a lot to build a home from scratch. Maintenance costs would have to be very high to be worth building new instead of using an existing home on affordability grounds.
Re; Fig 1, who on Earth in LA's poorest ZIP codes is getting given 14:1 price:income mortgages and why?
Mostly the price is driven by landlords and new buyers from outside the neighborhood. Price/income ratios that high are associated with strong outmigration of the existing tenants.
If it's associated with new buyers, couldn't the pattern mainly reflect that poorer neighbourhoods in Los Angeles are underpriced relative to general demand and in the process of adjustment to demand have become overpriced relative to incomes of current inhabitants (while this is not the case in Phoenix)? Of course, general demand (and so price) could be lower if there were fewer supply constraints in the higher income zip codes (and so flatten the negative correlation), but the negative correlation itself doesn't seem obviously that it has to be evidence for that?
I might need you to clarify what you're saying, but if I understand you, I think the regularity of these price patterns confirms the existing filtering and chain of sale evidence that each metropolitan area is effectively a unified market, with regard to supply, so that metropolitan area supply is the key, and intra-metro substitutions spread the effects of supply (or lack of it) across the metro. The effect of lacking supply tends to be this tilted price/income pattern.
California net migration was -250k. That is a radical change in just a few years. Maybe it is both supply and demand? I'd be interested in international migration numbers from Asia in particular. Also maybe people follow companies like Tesla out and it becomes a bit of a self-reinforcing phenomenon.
Thanks for the article!
Since housing is the binding constraint to growth in coastal California, outmigration is usually associated with higher home prices in neighborhoods with low incomes and higher economic growth.
This could be a really good thing if it persists in California, which requires sustaining political momentum. Given that the majority of voters benefit from this I'm allowing myself to feel some optimism for continued reform.
Here in the Boston Metro area things are still messed up--no new supply, transaction volume in decline, and no price decreases in the high end market. Not sure how the rest of the region is, or where it's headed, but so far it's different than 2008ish.