House prices not necessarily. House prices are driven by demand and by ability to borrow. If everyone takes a pay cut, everyone can pay less and house prices should go down. The only reason house prices have gone so silly recently is insanely cheap credit has let everyone bid against each other to drive house prices up.
That's only part of the story. Current house prices are so high that only the absolute top of the income class can afford to pay off a mortgage.
Just an example: In Berlin you will pay around 850.000EUR for a newly-built single family home of around 160qm on a 600qm plot. With realistic interest rates of around 1.5 to 1.8% it will take you around 4.8% per year to pay this off in the (roughly) 25 to 30 years you have left of working years if you are a mid-thirties professional. This (conveniently) gives you a factor of 0.004 per month to pay for this house. That's a whopping 3400EUR per month.
Now normally you should not pay more than 33% of your net income for living. That means, such a house is affordable, even with the relatively low interest rates, for families with a net income of 10kEUR per month. How many mid-thirty families have that kind of income?
So what drives these prices is actually inherited wealth. Inherit real estate and you can cut that price easily in half. 1700EUR a month is much more reasonable and that does not even account for the even better interest rates you will see. Notably you just transfer your inherited wealth, you do not lose it.
>So what drives these prices is actually inherited wealth.
This is so true for Germany/Most of Western Europe. Buying property is a pipe dream at this point, even for white collar professionals, if you have no help from the bank of mom and dad.
Building has just not kept up with demand (can't build and dilute the value of established NIMBY property owners) and wages have not kept up with the rising property prices.
And rent freezing for the established ones further increases the cost for those new to the market. So good luck building wealth for a mortgage when you'll be paying over half of your net income for big city rent.
I feel like unless something changes, we're looking at some massive revolts in the next decades if things continue along this path of squeezing the middle and lower classes to further transfer their wealth to the rich, all carefully enabled by the ruling politicians.
That's why so many desperate young ones are gambling their savings on GME and other memes, since they realized that unless you're born into wealth, the game is rigged against you building wealth no matter how hard you work. So then, why bother working hard as that just makes the rich even richer but not you.
Real estate rarely goes down, outside of a total bubble deflation. People just hold onto it longer, unable to profitably sell, further trapping others in a cycle of rent.
The current bubble will drain money from producers to the value-empty mortgage sector for decades.
Your model that people can afford to hold onto an asset with maintenance costs forever seems like it can't be true. It's possible for your primary residence, but that's because homes have a use - you can live in them. If you're using it and paying the mortgage then it doesn't matter if you're underwater.
Anyway, this can be solved by waiting for them to die, and in the meantime building more houses with more efficient land use.
It's almost totally true for homeowners who live in the "flooded" home, trapped and unable to move. For investors it depends if they can afford the loss from selling at below purchase, and how much profit they have to eat into. Large companies can afford to liquidate and leave the space temporarily, putting their real-estate funds into development or something other than retail rent. Small investors with only a few houses are the ones who most impact retail house rent (not apartments) and this is where the rent trap is, they aren't living in these homes (cancelling rent with ownership) but their reluctance to sell for a new reasonable price means their renters are denied a chance to get ahead.
As for new builds, much of that money is held by the large rental companies and needs them to transfer out of the rental space, which they won't do until the market looks sane. Maybe not as long as waiting for people to die, but still painful.
What a trap we built by trying to make our residences an investment.
My city Pittsburgh would also like to have a word with you. It's doing well now after a 40 year downturn. Long enough to ruin many peoples lives permanently where they couldn't outlast the cycle.
There are A LOT of places in the US where real estate has not been a panacea of wealth accumulation.
