Most of the housing bubble is actually a land price bubble. Land is only a long-term depreciating asset in shrinking cities, because demand for the land is decreasing.

Simply put, house price is a function of rents for similar houses and the multiple of annual rent that houses sell for. The multiple is primarily a function of interest rates, and a significant proportion of house price increases in recent decades has been the increase in multiple. It is also a function of expected future house price growth - the higher the expectation, the higher the multiple, which is where psychology and FOMO comes into play.

The interesting thing about these ingredients that decide the multiple, is that they can turn sharply. If interest rates go up, and multiple starts to contract, at some point the belief that house prices always go up will be shaken, and instead of pricing in future house price growth, people will start pricing in future contraction.

Level of rents is a function of the state of local economy (broad salary levels, more or less) and house supply. Can probably broadly be approximated as GDP growth - so fairly low.

So at interest rates at very low levels and arguable on the way up, and growth expectations seemingly very positive, and economic growth looking shaky, it looks as if house prices may have more downside than upside.

Housing [land] prices have been grinding higher long before the Great Decline in interest rates

https://fred.stlouisfed.org/graph/?g=kYEb

That chart seems to only go back to 1987, which is after the decline in interest rates started: https://fred.stlouisfed.org/series/REAINTRATREARAT10Y

Here you go https://observationsandnotes.blogspot.com/2011/07/housing-pr...

According to this, home prices were mostly flat from 1900 up until the 1970s. The proves the opposite of the point you are trying to make.

This is adjusted for inflation

Residential real estate valuations haven't been based on the house itself for a while. Prices are based on:

1) the house itself (this generally depreciates)

2) land (this generally appreciates)

3) a retirement account with great tax benefits (this value can fluctuate based on local, state, and federal laws)

4) a ticket into a good school district (this value will fluctuate based on the the performance of local schools)

5) a ticket to partake in a thriving local economy (this value will fluctuate with the local economy, and has recently been shaken up by the rise of remote work)

Any speculation on real estate prices and whether or not we're in a bubble has to take these things into account.

Interest rates for mortgages follow 30 yr treasuries which won't get very high. The Fed will come in with full on yield curve control at some point. 30yr treasuries are at almost 3%, already. I can't imagine they'll get higher than 4 or 5%, at least for not too long. The world is way too addicted to low rates. if interest rates rise for any long period, something will break, really badly, there will be a fear filled crash and the fed WILL come in: you can bet on that.

housing might depreciate, but the same is not generally true for the real estate it sits on

Is this also true for places like Detroit, small inner towns in the mid ? West... my impression was that once banks got involved lending money the prices took off, I was under the impression that getting a house loan directly contributes to the amount of money in circulation...thereby increasing ? inflation.... another myth?) I heard was that in China houses are leased for x years (80?) thereby leading to a lot of Chinese buying foreign Real Estate.... if RE has the reputation of accruing value surely it'd be a good thing to put the brakes on companies from investing in it? I mean seeing endless same housing is kind of mind numbing....

I also have a theory that high RE prices are a perfect vehicule for stashing/laundering large sums of money....

Also to what extent isn't it political cronyism with the construction industry that leads to such shitty urbanistic decisions like we have in Romania where people are pawns to short term greed ...

> in China houses are leased for x years (80?)

It's worse. It's the land being leased for 70 years. House usually can't last that long anyway. But not owning the land and no guaranteed usufruct after 70 years is big.

Thank you for teaching me a new word, "usufruct": https://en.wikipedia.org/wiki/Usufruct

Land values can turn around, especially if desirability of the area changes.

Exactly. I believe interest rates bottomed sometime in 2020-2021. Those rates are not going to be seen for another few decades. It remains to be seen what this will do to house prices. What happened to most speculative tech stocks since 2021 can also happen to other asset classes.

It seems pretty premature to say that mortgage interest rates that happened barely over a year ago won't happen for a few decades.

You could have looked at interest rates below 3.5% in 2013 and said the exact same thing; that was the lowest interest rate in over 40 years!

I am absolutely sure. Look at inflation, for one. We haven't seen these inflation numbers since the 1980s, and this is in just 2 years since the biggest central banks opened the money spigots. I'm a millenial so I don't relish it, but "you ain't seen nothin' yet."