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Will real estate ever be normal again?

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Re: Will real estate ever be normal again?

#191

Post by willis936 »

bumby wrote: post #185
willis936 wrote: post #153

Earlier quoted context omitted.

Screw the apartment. You could save so much money living out of a van. I honestly don't understand this line of thinking. "Why do people even want [tangible good]?" If an explanation is really needed: it's nice to have a large, private space. People like cars in garages, a room for their work, a room to cook, a room to relax, a room to sleep, a room to store stuff, etc. Why do people bother with any of these things?…

I think this argument gets confused because some people refer to it as an investment/asset while others refer to it in emotional terms as a means to pursue happiness. They aren’t always the same thing.

For most people it's both. There's a reason home ownership is often a component of "the American Dream".

Owning land and a house is a huge step in status and financial security. Owning a house is also a huge luxury. It's strange to deny either of these realities. Some people don't want luxuries, okay, but it should be clear that nearly everyone does.

Re: Will real estate ever be normal again?

#192

Post by drdec »

chii wrote: post #144
setr wrote: post #125

Earlier quoted context omitted.

It’s money you have to spend (shelter is non-optional), and mortgage is definitely a better investment than renting (you’ll get at least some of it back on selling, unless it dips very far) whereas rent is guaranteed to be burnt. And the difference between rent and mortgage as a monthly payment isn’t that far for same-lifestyle, assuming you can put up the standard up-front capital requirements. As far as I can tell,…

interest payments from the mortgage can be directly compared with rent, but not the principle repayment portion of the mortgage. > assuming you can put up the standard up-front capital requirements. which is also a cost - just more difficult to imagine as a cost. This cost is called the cost of capital, and is non-zero. If you take the minimum return, which is the risk-free rate from buying treasuries, this can be co…

> interest payments from the mortgage can be directly compared with rent, but not the principle repayment portion of the mortgage.

You keep saying this but my mortgage payment for the past six years has been 0. And when I had a mortgage the payment always was comparable with the rent I was paying on a 2 bedroom apartment before buying the house. That apartment would never accommodate my family of four.

If renting works for you that's great, keep renting. But don't pretend it's because it is somehow cheaper than owning - it's not.

Re: Will real estate ever be normal again?

#193

Post by TulliusCicero »

noahtallen wrote: post #138
arcticbull wrote: post #122

Earlier quoted context omitted.

This is only part of the problem - and a small part of the problem at that. The real problem as always is zoning. Houses cost roughly the same on a $/sqft basis, adjusted for inflation, as they did in the 1970s. They're more expensive now because outside of town they're twice as big on average [1] - in part due to zoning rules. In town, zoning rules preclude densification necessary for supply to meet demand [2]. And,…

Part of the problem with the first item you mentioned is that developers don’t really want to build cheap housing (I guess this is an assumption, but it makes sense financially.) They can make way more money catering to the people who can “afford” to build a $500k home, and people who want a very custom design and lots of space. On the renting end, “luxury” apartments will make more money than really basic cheap unit…

> Part of the problem with the first item you mentioned is that developers don’t really want to build cheap housing (I guess this is an assumption, but it makes sense financially.)

This is like saying that Toyota would rather sell Lexuses than Camrys.

Yes, it's true, but they sell Camrys anyway. Why? Because the market for luxury is only so big. They can make more money total addressing other parts of the market.

So why doesn't this apply to housing? Land + zoning. Imagine if Toyota was only allowed to produce 10,000 cars a year. What kind of models would they choose to make?

Re: Will real estate ever be normal again?

#194

Post by kelnos »

mesh wrote: post #117
throwvirtever wrote: post #107

Earlier quoted context omitted.

I don't quite understand the obsession with homeownership. If a large enough percentage of people rented from property management companies, there would be more impetus to have strong tenant's rights laws to protect residents, and people would have more flexibility to move around. Moreover everyone would have an interest in increasing supply to keep their own rent down, pushing prices down toward cost-of-materials an…

It seems pretty simple, I can spend money to rent a place, and after 30 years (rent), have nothing to show for the money I put in, or I can buy a house (mortgage), spend money for 30 years, and then have an asset I own. Not to mention the freedom to do whatever you want to your home / house without having to ask for permission, or being in a position of putting money into an asset that you don't own.

It's not that simple. Right now the interest portion of my mortgage, plus my property taxes, plus my HOA dues, not to mention maintenance and upkeep, is more than what I was paying in rent right before I bought my house. That money is "thrown away" in the same sense as rent is; only money going toward mortgage principal gives me something to show for it. It absolutely would have been more economical to rent than buy. But I wanted to buy (see: your totally valid argument about having the freedom to do whatever I want to my home), and was lucky enough to be able to afford it, so I did it.

Sure, you can make the argument that I can hopefully expect some capital gains down the road if/when I sell the place. But that's not guaranteed (consider all the people underwater on their mortgages, for example, after the 2008 financial crisis; I wouldn't be at all surprised if something like that happens again during my lifetime), and it may well be that putting that money in the stock market would net me better returns over time.

But it really just depends on your local housing market. In some places it makes more financial sense to rent (rent interest+taxes+upkeep). And sometimes the financials aren't the #1 driver of the decision, anyway.

Re: Will real estate ever be normal again?

#195

Post by [deleted] »

A4ET8a8uTh0 wrote: post #134
paulcole wrote: post #127

Earlier quoted context omitted.

I think people who parrot this line try to ignore the total cost of their mortgage being quite different from the purchase price of their home, property taxes, repairs, etc. As a lifelong renter, I’ve done quite well by keeping my rent low (my preference is studio/1-bedrooms in relatively dense urban areas) and putting extra money into the market. 30 years from when I started renting, I’ll have quite a lot to show fo…

It can be both, but in US real estate historically was seen as a good way to park money. I will venture to say that you are an outlier. I remember renting with my SO. The jumps in rent were getting onerous to the point, when it became cheaper for us to actually buy a place. But again, each situation varies. Before living with my now wife just like you I lived in a small apartment, because that was all I really needed…

[deleted]

Re: Will real estate ever be normal again?

#196

Post by kelnos »

paulcole wrote: post #127
mesh wrote: post #117

Earlier quoted context omitted.

It seems pretty simple, I can spend money to rent a place, and after 30 years (rent), have nothing to show for the money I put in, or I can buy a house (mortgage), spend money for 30 years, and then have an asset I own. Not to mention the freedom to do whatever you want to your home / house without having to ask for permission, or being in a position of putting money into an asset that you don't own.

I think people who parrot this line try to ignore the total cost of their mortgage being quite different from the purchase price of their home, property taxes, repairs, etc. As a lifelong renter, I’ve done quite well by keeping my rent low (my preference is studio/1-bedrooms in relatively dense urban areas) and putting extra money into the market. 30 years from when I started renting, I’ll have quite a lot to show fo…

> Housing is an expense to me, not an investment.

I wish more people (in the US, especially) would think of housing in this way. I think we'd have much more sane housing markets just with that change, even without fixing a lot of the other structural problems we have around housing.

Re: Will real estate ever be normal again?

#197

Post by robbedpeter »

mylons wrote: post #113
rootsudo wrote: post #109

Earlier quoted context omitted.

Then you don't have an asset. You paid for the option of living there for the duration of your leas, but you have no control on the property, or your future.

a house isn’t a particularly good investment. it’s just the one everyone, in america, makes because they’re financially illiterate. anyone can buy ETFs now with zero commission and zero gate keeping.

Life is not all about money or investment. Sometimes it's about stability - owning a home lets you plan for the future in ways that nothing else allows for. It puts you out of reach of all sorts of predatory folks and companies.

Re: Will real estate ever be normal again?

#198

Post by meowtimemania »

seanmcdirmid wrote: post #184
arcticbull wrote: post #122

Earlier quoted context omitted.

This is only part of the problem - and a small part of the problem at that. The real problem as always is zoning. Houses cost roughly the same on a $/sqft basis, adjusted for inflation, as they did in the 1970s. They're more expensive now because outside of town they're twice as big on average [1] - in part due to zoning rules. In town, zoning rules preclude densification necessary for supply to meet demand [2]. And,…

> The real problem as always is zoning. If the real problem was always zoning, wouldn't dense cities like NYC and Shanghai be cheaper than average, not way over average? > Check out Japan housing CPI - a market where supply meets demand thanks to federal zoning rules, and is also centrally banked. Japan went through a huge bubble in the 1980s. Also, housing (the structures at least) rapidly depreciates in Japan, whic…

Zoning is also an issue in NYC. The suburbs are unable to become dense do to zoning which causes the prices to go up.

Re: Will real estate ever be normal again?

#199

Post by seanmcdirmid »

mbesto wrote: post #182
jedberg wrote: post #53

Earlier quoted context omitted.

Yes, it’s for the whole US, which tells us nothing useful for this debate. If there were 10,000,000 jobs in NYC and 1 job in Kansas or 10,000,000 jobs in Kansas and one in NYC, the graphs would look the same. So they tell us nothing.

> So they tell us nothing. You should re-read my comment - I was inferring this was the case (to your point) based on the regional numbers. It's not perfect but it's indicative. I didn't have the time to dig into more data. > If there were 10,000,000 jobs in NYC and 1 job in Kansas or 10,000,000 jobs in Kansas and one in NYC, the graphs would look the same. These numbers are irrelevant anyway because they're always g…

> You should also check housing prices in states like Kansas, they're all through the roof - https://www.zillow.com/ks/home-values/

How is a $184,486 average "through the roof?"

Re: Will real estate ever be normal again?

#200

Post by hogFeast »

danhak wrote: post #155
paulcole wrote: post #127

Earlier quoted context omitted.

I think people who parrot this line try to ignore the total cost of their mortgage being quite different from the purchase price of their home, property taxes, repairs, etc. As a lifelong renter, I’ve done quite well by keeping my rent low (my preference is studio/1-bedrooms in relatively dense urban areas) and putting extra money into the market. 30 years from when I started renting, I’ll have quite a lot to show fo…

This is a reasonable take but the government really does everything in its power to put its finger on the scale toward homeownership: - up to $500,000 in tax-free capital gains for couples - cheap leverage via low interest rates courtesy of the Fed and further subsidized by renters via mortgage interest deduction - SALT deduction (albeit reduced as of 2017)

You also have government guaranteed mortgages. This is probably the most unusual aspect of the American home market in comparison to other markets...it is essentially publicly owned (the only place that has a similar structure is Denmark, and even then there is no Freddie Mac/Fannie Mac...just a large secondary market for resi mortgages) and makes mortgages very cheap with little rate risk (I am in UK, 30yr fixed mortgages are unheard of, the most you can get is 5yr fixed and it costs 200bps more than a 30yr fixed in the US).

Just a broader comment: the main financial argument against home ownership is really the size of the deposit. If you are paying 25% down (this is now standard where I am in the UK, we went from 120% mortgages to 75% mortgages in the last ten years...and house prices kept rising, so the upfront cost of housing is way way way up) then it may be close for some people. But you add in the security, the potential for capital growth...it is attractive financially (and I wouldn't say this is true in the UK, downpayments are too high, mortgage rates are too expensive and come with massive interest rate risk...it isn't worth it on a pure financial basis).

I can't see myself every buying a house because I just don't like having a lot of stuff, it tends to worry/distract me. But I think it is unfortunate that housing has become associated with this "I got mine" mentality. Germany is a nation of renters, it has led to levels of wealth inequality higher than the US because all that value from rising property prices has gone into the pockets of a few large corporations (the median net financial wealth of a German citizen is EUR20k, about the same as Greece...and they have one of the highest per capita rates of billionaires). Maybe we can tax rising property values more efficiently but the US model (essentially, publicly guaranteed mortgages) works quite well too.

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