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House prices surpass housing-bubble peak on price-to-rent ratio

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Re: House prices surpass housing-bubble peak on price-to-rent ratio

#61

Post by ghaff »

mumblemumble wrote: post #53
TimPC wrote: post #37

Earlier quoted context omitted.

If only there was a law that allowed you to deduct a significant amount of mortgage interest from taxes on a home but not on other property.... Oh wait...

If we're talking the US, that law is for the benefit of the rich. In general, the interest won't exceed the standard deduction unless you've got a rather obscenely priced home.

That didn't use to be the case. The mortgage interest deduction used to be a solidly middle class benefit.

But, yes, with relatively recent changes to the tax code, it's a lot harder for most people to hit the standard deduction and therefore mortgage interest is often not deductible unless someone has a higher end home in an expensive area.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#62

Post by yunohn »

leetcrew wrote: post #58
yunohn wrote: post #48

Earlier quoted context omitted.

> I'm not sure I see the problem. I don’t see why only parked properties are a problem? Rentals are always more expensive than the underlying mortgage - that’s what makes it an investment opportunity. This is a big problem since most people could’ve afforded the original property if they weren’t priced out by investors.

there are a few ways this could not be true. the mortgage could have been locked in a long time ago at a much lower valuation. the rent would still be above the underlying mortgage, but that doesn't mean I would have bought the house when I was a child. the landlord might own the building outright, or the valuation might be increasing so fast that the rent only needs to offset the rent. either way, the rent could be…

The higher valuation now is exactly the problem. It’s not connected materially to the property value, rather the speculative investment value the market is giving it.

This doesn’t change my point that renting needs to be profitable to happen, and the proof is in the pudding/reality.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#63

Post by yunohn »

pnutjam wrote: post #56
yunohn wrote: post #46

Earlier quoted context omitted.

> it would be impossible for it to not be passed on to renters. Indeed, ALL taxes are passed onto consumers! Agreed. While not immediately intuitive, this is unfortunately very true for all taxes that are imposed upon institutions, corporations, investors, etc. I wish this is something that could be fixed in a fair manner…

All taxes are passed on is a very simplistic view. Do I pass the taxes on to my employer when I negotiate salary? Probably to some extent, but this is like saying all cubes are squares and calling it good enough. EDIT: typo

Maybe you misunderstood my post, but I was not arguing that this is a good thing.

But indeed, when you negotiate a higher salary, your employer pays more taxes. And this cost is passed on to the end-users of your employer’s business.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#64

Post by miketyson2000 »

throwaway210222 wrote: post #21
ChrisLomont wrote: post #17

Earlier quoted context omitted.

>And because getting the % deposit is a big factor in whether you can afford a house, it pushes lower income people out of the market. Median downpayment is 6%, a common low end is 3%, some places and programs go lower. Median house price sold in 2020 was 347k, well over 25% of houses sell for under 250k [1]. So, for a starter home, saving 3% of say 200k is 6k. If someone can pay this mortgage without killing themsel…

> If someone can pay this mortgage […] then they can save a 6K downpayment Not if they are paying rent - there would be no surplus every month to save.

The sad reality is that if you can't save 6k, house ownership may not be a viable option for you. Things break. Things need maintenance.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#66

Post by qqqwerty »

slv77 wrote: post #57
chadcmulligan wrote: post #11

Earlier quoted context omitted.

I heard a theory the other day that houses are more affordable than they were in the 70's - because even though the house prices are high, the repayments are lower because the interest rates are a lot lower. It was a business commentator trying to rationalise the housing market.

When rates were higher total interest payments tended to dominate over the life of the mortgage. In most cases the interest payments would exceed the entire value of the principal over the life of the loan. Over the life of a loan the interest portion is negotiable while the principal payments are not. A buyer in improving financial circumstances can accelerate payment on the principal and avoid future interest payme…

My main concern right now is that an increase in interest rates is going to cause a drop in home prices and possibly trigger another crash. For example, the relatively modest rate increases in 2018 caused a fairly noticeable swoon in the SF/Bay area housing market.

For those that think buying a house is a good hedge against inflation, it is worth considering that the best tool to combat inflation is to raise interest rates. And considering most buyers budgets are created by working backwards from the monthly payment that they can afford, higher rates naturally translate to lower prices.

And as you alluded to, in a rising interest rate environment, there are no more "escape hatches" for folks that might be struggling to make ends meet. In a rising rate environment, refinancing is off the table, selling might be off the table if you are underwater on the mortgage, etc...

I have been waiting for an opportunity to buy for quite a while now. It has always felt like our household income was a few ticks too low to comfortably afford anything but the dregs of the market. And as our pay increased, the market would rise another 20% and slip out of reach again. And right now I am seeing a few niches in the market that might work for our budget, but the interest rate situation has me spooked, so once again, I am leaning towards sitting this one out. I guess on the plus side, I can buy cryptocurrency at a 100-1 leverage ratio which was something that wasn't available to my parents generation!!!

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#67

Post by silicon2401 »

akudha wrote: post #35

I wish something is done about these rentiers. Someone I know is amassing a rental property portfolio, while I am struggling to buy my first home. I am not against people making money and getting rich, but it would be nice if it wasn’t so easy to buy up multiple properties simply because they have the cash. There should be all kinds of incentives for first time home buyers. But it should be made very expensive/very p…

> Along the same lines, Bill Gates owns 242,000 acres of farm land. What for? I don’t know.

The point of freedom is that it doesn't matter why he wants it, he's free to buy it if the owner chooses to sell it. There's a chilling implication in your stance that people should need approval for basic freedoms like buying land. That's how you end up with a dictatorship.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#68

Post by aurizon »

bequanna wrote: post #27
aurizon wrote: post #20

Of course, this is a massive arranged crime akin to and having it's roots in the sub-prime mortgage crash. Rates are low. corporations can borrow unlimited cash and buy a residence, then rent it out to get 4-5% interest and pay 1.5 to 2.5 = risk free make the spread with no limits. I would like to borrow 10 billion and buy a zillion homes and make the spread ~~3%. They hire property managers and that costs .5% to .75…

This isn’t how taxation works or even can work. It would be trivial to avoid the tax you propose if it is based on income from the properties. If the tax is more like a property tax then it would be impossible for it to not be passed on to renters. Indeed, ALL taxes are passed onto consumers!

Where do you live? Here in Canada properties are taxed according to their value on an assessment scale. The city does not care if you make money or not, you pay your taxes. If you also operate a business you are also assessed business taxes which you must pay regerdless of your profits. There are also income taxes on people and corporations and all costs of the business (wages, business taxes, realty taxes raw materials etc) are taken away (called deductions) on the balance the income tax or corporation tax is levied. Usually on a sliding scale, with individuals having a protected basic exemption and then a sliding scale up to around 50% for individuals of great income. A similar scale is applies to corporations but usually peaks at a lower rate.

My suggestion to apply a business tax to the rental of each suite IN ADDITION to the real estate taxes is to make corporations have a greater burden than a person living and owning it to create a disadvantage to the corporation to offset the rent seeking aspect whereby corprations can borrow large sums, pay the spread and have the tenants pay for their equity gains. This has driven property values for a 2 bedroom home to $1 -2 million and in essence makes ownership impossible.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#69

Post by silicon2401 »

akudha wrote: post #51
mc32 wrote: post #36

Earlier quoted context omitted.

Some of it is to take money out of authoritarian regimes and move it into more rule of law countries. Another reason is a hedge against inflation which we may be beginning to see right now.

The very fact that you are trying to rationalize someone buying multiple homes at the expense of someone trying to buy their first home highlights the problem. Take Canada for example. A whole lot of homes are bought by Chinese buyers and are sitting idle, at the expense of Canadians trying to buy their first home. How can you say this is morally right? It is all find and dandy for the Chinese buyers, but what of Can…

This is a great example of the many flaws in globalism. If Canada were to put higher restrictions on foreign real estate purchases, Canadians wouldn't be in such a pickle. The flaw of generosity is that it leaves you vulnerable to being taken advantage of, which is what's happening in this case.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#70

Post by mc32 »

akudha wrote: post #51
mc32 wrote: post #36

Earlier quoted context omitted.

Some of it is to take money out of authoritarian regimes and move it into more rule of law countries. Another reason is a hedge against inflation which we may be beginning to see right now.

The very fact that you are trying to rationalize someone buying multiple homes at the expense of someone trying to buy their first home highlights the problem. Take Canada for example. A whole lot of homes are bought by Chinese buyers and are sitting idle, at the expense of Canadians trying to buy their first home. How can you say this is morally right? It is all find and dandy for the Chinese buyers, but what of Can…

In this case I think countries need to implement reciprocating laws. If you as a Canadian have restrictions when buying land or real estate in China, then Chinese should have similar restrictions imposed to them in Canada. Obviously China should reciprocate if Canada is stricter as well.
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