One of the biggest conundrums today is trying to understand why the mass media and housing activists keep droning on about how expensive U.S. property prices are, when in reality, U.S. property prices are amongst the CHEAPEST in the developed world.
Anybody who has actually spent time house hunting in Hong Kong, Singapore, Tokyo, Mumbai, Paris, London, Zurich, Stockholm, Sydney etc. realize how cheap the U.S. is. Do you think I’m just going to London to eat strawberries and cream at Wimbledon? Of course not! As a personal finance blogger who writes from first-hand experience, I’m diligently pounding the pavement to research the truth to share with all of you.
If you don’t believe how cheap US property prices are, have a look at this chart by the OECD (The Organization for Economic Development And Co-operation).
The United States is at the bottom and New Zealand is at the top based on this OECD property price index. They don’t even highlight Hong Kong where the average flat price equals 19X the median income. 19X vs. 5-6X in the US. That spread is outrageous.
What makes New Zealand property 2X more expensive than United States property? The obvious answers are the country’s natural beauty, Lord Of The Rings, more fluffy sheep than fluffy people, incredible rugby, foreign buyers, a stock exchange with a total market capitalization of roughly $100 billion (1/6th the size of Apple), and the 69th largest economy in the world by GDP.
Wait a minute. Why does the 69th largest economy in the world have the most unaffordable real estate in the world? This makes no sense unless there’s a tremendous amount of policy mismanagement in the form of building restrictions, loose foreign investment regulations, and corrupt government officials who love receiving money under the table.
I’m not saying that all this shady stuff is happening in New Zealand. I’m saying that something artificial is happening to cause such a pricing disconnect. Why else is there traffic around a toll road?
When prices are out of whack, a tremendous amount of social inequality occurs. When there’s enough social inequality, a revolution isn’t far behind (see Brexit, Trump, etc).
Mass Media Manipulation
Take a look at this SF-based Wired magazine tweet. You don’t have to read the article because it is the same populist verbiage about how it’s becoming increasingly difficult for the middle class to afford homes now.
The magazine even goes so far as to write, “A family that makes $100,000 can’t afford to buy a house in most U.S. cities.”
Are you kidding me? The median home price in America is roughly $240,000. Let’s say you put down a typical 20%. Your $192,000 mortgage at 4% is $917 a month. Let’s add another $200 for property taxes and maintenance for good measure.
Is Wired saying that a household who makes $100,000 gross, or $80,000 after taxes, can’t afford $1,117 a month? $80,000 net a year equals $6,667 a month before any 401k contributions. Spending only 17% of your net income to housing is affordable. Even if this household only put down 10%, a $216,000 mortgage at 4% still only costs $1,234 a month.
Now you know why there’s such distrust in the mass media. Either the writer at Wired magazine is incompetent or the writer has an agenda or both. One of the best media strategies is to tap into populist angst to make life better for themselves. The more enraged the population, the more views the article will get.
The great irony is that those people who can afford to go into the dying journalism industry probably don’t come from poor families. If you were poor, you’d study an in-demand major like engineering or computer science so you could land a well-paying job out of college and help support your parents who sacrificed so much for you! Only the rich can afford to study a soft major and willingly enter a struggling industry. Everything is rational.
Besides having a populist agenda, Wired magazine is also DISRESPECTING all of you who don’t live in San Francisco, New York, Seattle, Miami, Boston, Denver, Los Angeles, San Diego, and Washington D.C. That’s right. If you guys don’t live in one of the 10 most expensive cities in America, those of you who live in the other ~20,000 cities in America don’t count according to the phrase, “A family that makes $100,000 can’t afford to buy a house in most U.S. cities.” Note there are roughly 35,000 cities and towns in America, and ~4,000 cities with over 10,000 people.
What Wired and other media organizations writing about unaffordable housing are really trying to say is:
“Families making $100,000 a year have a difficult time affording a home in the top 0.01% most expensive cities in America.”
“Because I can’t afford to buy a home where I work and live, most people can’t either.”
Talk about being myopic. It’s no surprise the largest media organizations in America who like to complain on and on about high real estate prices are mostly based in New York City, Los Angeles, Boston and San Francisco. Their writing clearly ignores the 50% of you who do not live where they live.
Being biased is unavoidable. It’s why organizations are so homogenous in their demographic makeup. To consistently ignore the heartland of America is INSULTING. The brazen disregard for half of America is exactly why Hillary lost.
Why Some Americans Don’t Understand How Good They’ve Got It
1) They believe the mass media. If you live in one of the most expensive cities in America and only earn $48,000 a year as a journalist, then of course you’re going to write about how unaffordable housing is, and extrapolate your situation with your company’s platform. If you start believing everything you read in the news, then of course you’re going to take on their biases. Instead, it’s up to all of us to read with a more critical eye.
2) They haven’t traveled around the world. Once they get outside the country, they’ll realize how truly awesome America is. Everything from real estate, to cars, to gasoline, is so much cheaper here in the States. Do you really want to pay $70,000 for a Toyota Corolla in Singapore? Do you really want to pay $1,500,000 for a 500 sqft studio in Knightsbridge, London? If you don’t have money to travel to London or Singapore to see how truly outrageous prices are, just surf the web and see for yourself.
3) They’re too lazy to do any research. Even surfing the web for comparison property prices in Stockholm takes moving your fingers about 50 times. Instead, it’s much easier to just trust a headline. We expect everything to come to us in America. As a result, we fail at speaking a second language fluently while many of our friends in Europe can often speak three languages quite well. Just look at 18X major champion Roger Federer. He’s a professional tennis player, not a professional linguist, and he speaks three languages fluently (German, French, and English).
4) They want to believe what they want to believe. Have you ever believed in something so hard, only to later realize it wasn’t? Have you ever been so adamant in your belief that you disregarded reality? Like seeing the light after breaking up with your crazy girlfriend or boyfriend. What were you thinking? Obviously, you weren’t when you thought you were in love. Once we believe something to be true, it’s really hard to change our minds.
5) They’re frustrated at their own situation. Just because they can’t afford to buy a $1.1M median home in San Francisco or New York City on a $100,000 salary doesn’t mean you can’t buy an awesome middle class home for $300,000 wherever you live.
Long And Strong U.S. Property
The reason so many foreigners are rushing to buy U.S. property is not only because they realize how comparatively cheap U.S. property prices are, they also believe America offers one of the world’s best lifestyles with the most upside opportunity.
Therefore, if foreigners realize the U.S. value proposition, it’s a good idea for Americans to realize our own country’s amazing value proposition by owning a piece of America too. To do so, we need to gain some perspective and inhale some toxic air in Beijing for a month or hopelessly try to find a well-paying job in Milan. Only then will we truly appreciate our good fortune.
The reason U.S. property prices are so cheap is because we have a large land mass, a stable government, a world currency, a deep bond market, strong IP protection, incredible productivity, a strong work ethic, property rights, human rights, a desire for equality, clean air, drinkable tap water, a deep education system, and innovative technology. Not owning at least a primary residence in such a great country when foreigners are beating down our doors to buy is foolish long term. We’re going to hear the same complaints from the same people 10 years from now.
Foreigners see U.S. coastal city property like U.S. coastal city inhabitants see middle America property: great overall value. But before the tidal wave of new foreign money comes crashing down on the heartland on top of fluid coastal city money looking for new opportunities, I want as much exposure to the heartland as prudently possible. Sooner or later the money is going to start pouring in. Before it really does, I’m happy to earn a healthy yield while I wait.
Readers, why do you think American real estate is so cheap? Why do you think Americans don’t realize how good we’ve got it? With the USD appreciating to a 13-year high, isn’t it obvious there’s tremendous demand for U.S. assets? Why are we letting overseas buyers purchase our properties before we ourselves buy them?