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Will real estate ever be normal again?

nytimes.com

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Re: Will real estate ever be normal again?

#431

Post by lmm »

sokoloff wrote: post #391
lmm wrote: post #342

Earlier quoted context omitted.

They invest in housing specifically because there's a bunch of tax avoidance loopholes for small-time landlords. There's nothing wrong with honest investing, but tax breaks are for leeches.

Tax breaks are written for two major purposes: giveaways to influential donors and incentives to take certain actions. Rarely are they exclusively the second, but landlords get to deduct the economic costs of doing business. Loan interest and property taxes cost money, buildings and fixtures wear out (but the land does not). Maintenance costs money. Landlords have the ability to deduct these costs of doing business a…

You're begging the question; the fact that regular people are taxed on their gross income while the rich get to be taxed only on their profits is a big injustice in the first place. But on top of that: that rental properties are usually an investment that grows in value, so that's where a lot of the expenses you mentioned actually go, but they're deductible as business expenses; unrealistically high depreciation is also often deductible.

Re: Will real estate ever be normal again?

#432

Post by refurb »

sokoloff wrote: post #405
refurb wrote: post #289

Earlier quoted context omitted.

Precisely. People really underestimate the costs of home ownership. You need to include everything like: 1) mortgage interest, 2) property taxes, 3) insurance, 4) maintenance, 5) opportunity cost of down payment, 6) transaction costs buying and selling. Clearly if you see major appreciation in the value of your house you'll clearly come out ahead of renting, but I've been in two situations (one while renting, one whi…

Most homes are bought with 5x or more leverage. In a year where the stock market is up 50% and houses up 20%, recent homeowners probably did better than renters, not worse.

You just proved my point. Yes, the return is higher, but subtract all the costs and the stock market is ahead.

Re: Will real estate ever be normal again?

#433

Post by darkerside »

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.

This discounts the power of investing on margin because loans are easily available to people. And it makes sense, because people are more likely to pay back a loan on their home then on a stock.

Or, maybe you're right and everyone but you is dumb.

Re: Will real estate ever be normal again?

#434

Post by darkerside »

mgh2 wrote: post #302
uejfiweun wrote: post #45

The Fed at this point controls the whole economy and they have two options: 1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets. 2. Do nothing, keep printing. Inflation picks up massively. The economy keeps humming along but young people, including myself, are permanently pr…

There seems to be a possible, overlooked cause & effect in the current landscape: If FIRE followers scale the strategy of investing and renting multiple homes, are they not limiting housing supply for other potential homeowners or exacerbating homelessness? It is not just that houses are not being built, but that a shortage of supply is caused by the FIRE generation: buying houses as investments rather places to live…

Isn't it likely that this is happening at a larger scale by private equity firms, REITs, and other commercial organizations? I don't see how FIRE is anything more than a drop in the bucket.

Re: Will real estate ever be normal again?

#435

Post by mebassett »

zohch wrote: post #407
aeternum wrote: post #75

Earlier quoted context omitted.

As Adam Smith said, the true price of everything is in human labor. Inflation generally raises the cost/price of new labor at the expense of historic labor. Demand for labor is still high, the price will likely continue to increase. Housing is also not a great comparison metric because it was so perturbed by 2008. New unit starts dropped precipitously and still have not fully recovered: https://fred.stlouisfed.org/se…

> As Adam Smith said, the true price of everything is in human labor. Cite? Also who died and made Adam Smith's word synonymous with fact? Last I checked the true price of anything is the price I have to pay to acquire it, which is incidentally more in line with Adam Smith's actual quote which was: "The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble…

Wealth of nations, book 1, actually. "toil and trouble" could be interpreted as "labour". I certainly take that interpretation.

though Smith really didn't make much use of the labour theory of value, as he thought it would be less relevant in an advanced economy. Riccardo and especially Marx developed and used it much more. (For Marx see the first part of Capital)

Re: Will real estate ever be normal again?

#436

Post by pjmorris »

arcticbull wrote: post #235
pjmorris wrote: post #187

Earlier quoted context omitted.

On the chart shown at your link, Fed-owned assets go from ~.8T to 2.5T (blue line, assuming the MBS (red line) are part of that.) and then grow as QE takes effect and the Fed buys all manner of things. That .8T was all US Treasuries, no longer true of the expanded balance sheet. If you look at the updated chart ( https://fred.stlouisfed.org/series/WSHOSHO ), whatever you make of it, it doesn't look like much in the w…

The bailouts were via Treasury. [1] QE was via the Fed. I believe, and correct me if I'm wrong, back in 2008 the Fed could only pick up bonds and maybe mortgage backed securities? You can see the Fed unwinding its balance sheet here [2], up until 2020, and in the link you provided. [1] https://projects.propublica.org/bailout/ [2] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

If the Treasury lends out ~700B for ~MBS and is repaid ~700B for MBS, and the Fed buys $1-2T (low end of the repayment you mention) in MBS, who is really doing the bailout?

Re: Will real estate ever be normal again?

#437

Post by sokoloff »

refurb wrote: post #432
sokoloff wrote: post #405

Earlier quoted context omitted.

Most homes are bought with 5x or more leverage. In a year where the stock market is up 50% and houses up 20%, recent homeowners probably did better than renters, not worse.

You just proved my point. Yes, the return is higher, but subtract all the costs and the stock market is ahead.

If you buy and sell the house every year, perhaps. Most renters don’t even move every year.

Re: Will real estate ever be normal again?

#438

Post by rsj_hn »

mebassett wrote: post #435
zohch wrote: post #407

Earlier quoted context omitted.

> As Adam Smith said, the true price of everything is in human labor. Cite? Also who died and made Adam Smith's word synonymous with fact? Last I checked the true price of anything is the price I have to pay to acquire it, which is incidentally more in line with Adam Smith's actual quote which was: "The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble…

Wealth of nations, book 1, actually. "toil and trouble" could be interpreted as "labour". I certainly take that interpretation. though Smith really didn't make much use of the labour theory of value, as he thought it would be less relevant in an advanced economy. Riccardo and especially Marx developed and used it much more. (For Marx see the first part of Capital)

The idea of "value" independent of price is something treated by Marx as a normative claim that neither Adam Smith or Ricardo developed. When Ricardo or Adam smith talked of "value", they just meant "price" but in some notional unit of currency which was irrelevant to the discussion at hand. E.g. they wanted to discuss prices in a barter economy.

Adam Smith explored the labor theory of value in the context of primitive societies with fixed capital. In that case, you do get prices scaled to labor inputs, as capital is constant.

Ricardo tried to develop more sophisticated models than those with fixed capital, but did not have the tools to determine price setting, and finally admitted "I am not satisfied with the explanation I have given of the principles which regulate value.".

It wasn't until economists started using math more seriously and included production functions and utility functions that they were able to formulate a more general theory of price setting involving marginal costs and benefits. This allowed the creation of numerical estimates for things like price elasticity that provided useful information for price setting and allowed (in some cases) for falsifiability and even laboratory experimentation. See the famous experiments of Vernon Smith, for which he won a Nobel Prize. https://www.econlib.org/library/Enc/bios/SmithV.html

Thus standard economics was able to go bit beyond the thought experiments of Ricardo and Smith whereas Marx continued the process of philosophically musing about value in a normative sense, now removed from any actually observed prices, and far off into the world of political economy rather than economics per se.

Re: Will real estate ever be normal again?

#439

Post by imtringued »

uejfiweun wrote: post #45

The Fed at this point controls the whole economy and they have two options: 1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets. 2. Do nothing, keep printing. Inflation picks up massively. The economy keeps humming along but young people, including myself, are permanently pr…

>It doesn't even really seem like any of the high paying jobs are enough to keep up with this insane market

That should be a strong signal that the supply of housing is not increasing according to demand and that money is not the problem.

Re: Will real estate ever be normal again?

#440

Post by nly »

julosflb wrote: post #419
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.

Mortgage on your home residence also acts as life insurance. If tomorrow I die, my mortgage will be 100% reimbursed by the mortgage insurance. This was a motivation to buy in my case, to protect my kids.

You're paying for that regardless of whether it's attached to a mortgage payment
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