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Will real estate ever be normal again?

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561–570 of 620 posts

Re: Will real estate ever be normal again?

#561

Earlier quoted context omitted.

In the early 80s a 13% mortgage rate was not uncommon. People survived. Very little blood was spilled

I think people forget just how bad the early 80s recession was, possibly because most of the people affected then are dead or senior citizens now. Nationwide was 10% (on par with the 2009 recession), and in some cities it went up to 25%. Farmers drove their tractors into Washington DC and blockaded the Eccles building. Car dealers sent coffins containing the keys of unsold vehicles. Construction workers sent 2x4s to…

> Car dealers sent coffins containing the keys of unsold vehicles

This sounded so strange that I had to look it up and found this article https://www.federalreservehistory.org/essays/anti-inflation-...

Re: Will real estate ever be normal again?

#562

Earlier quoted context omitted.

50% of the developable land in Seattle is designated for single-family homes, and not one single inhabitable SFH in Seattle city limits is what anyone would call "affordable". The fact that it's illegal to replace those SFHs with duplexes, quadplexes, or midrises is a primary driver of housing unaffordability. Seattle's population growth has outpaced its housing growth for multiple decades. There's a huge amount of "…

They’re replacing SFHs with multiplexes all over the city all the time. Instead of assigning A/B/C units or fractions they just split the numbers already designated for the lot. Zoning for MFHs won’t change that. It’ll maybe bring more skepticism to luxury developments. But people buying million dollar units with no lot will know they’re buying the same thing. And mixed use luxury apartments are the only development…

Dude have you been to lake city? The only area that’s dangerous is where there city built one street up with all projects. It’s significant safer than Ballard university district and and capital hill

Re: Will real estate ever be normal again?

#563
post #148
post #142

Earlier quoted context omitted.

rent is often lower, or the same, as the interest payments. The mortgage consists of both interest and principle payments, which is higher, but the principle payments can be considered equity, so it cannot be compared with rent.

Rent is easily comparable to a mortgage, my old rent is $3750, my new “rent” including property taxes is $3040.

Also, keep in mind rents only ever go up (barring a major economy crash) and mortgages only ever go down or stay same.

Long time ago when I was renting, my rent (Silicon Valley) was $1200. I bought a very similarly-sized house and my monthly costs went up to ~$3000. So it hurt for a little while.

In just a couple years I had refinanced down to a sub-$2000 mortgage and the rent on my previous place was up to $1500. Getting close to even already.

Couple decades later, rent over there is up around $5000 and my mortgage has been refinanced down to $800.

By the time I'm retired my mortgage will be $0 and rents might be $8000 or more, let's see what future inflations brings.

My advice to anyone early in their career, just buy a home as soon as you can. It'll hurt initially for a few years but you'll set yourself up for a lifetime of being better off than renting.

Re: Will real estate ever be normal again?

#564
post #113

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.

> anyone can buy ETFs now

If you're ok with living in a homeless encampment and putting the money into ETFs, sure.

Otherwise, you still need to rent so might as well buy.

Re: Will real estate ever be normal again?

#565
post #181
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,…

> And the difference between rent and mortgage as a monthly payment isn’t that far for same-lifestyle That doesn't seem to be true in the Bay Area which has a very high buy/rent ratio because everyone expects housing here to be a great investment. The property tax alone on a townhouse can be higher than the rent on a similar apartment. And property tax, mortgage interest, HOA fees/utilities like garbage and water, ar…

> And property tax, mortgage interest, HOA fees/utilities like garbage and water, are pure expenses like rent, not investments.

You're paying for all of that when renting as well, so not a differentiator.

Re: Will real estate ever be normal again?

#566
Here's the reality. The reason why home prices have increased in a short time is simply, supply and demand. The supply issue has been caused primarily because of the moratorium on foreclosures. Additionally, in my opinion, there's one other item that's been overlooked by most economists, and that's the increased usage of an escalation clause.

For the most part, there haven't been foreclosures for almost two years. The timeline to allow foreclosures have been delayed multiple times. Once they turn that faucet on, the supply issue will virtually dissipate overnight, and not to be pessimistic, but, overnight we could see a collapse in the real estate market that would make 2008 look like a little annoying gnat. It does appear they will start the foreclosure process in phases, and in short, starting with those that have ignored their bank.

With the 2022 midterms, it wouldn't surprise me if they continue to delay the foreclosure process and have support from both sides of the aisle, because no one running for re-election wants a depression before an election; IMHO. This could simply be another regulatory delay, it could come as a two-week shutdown after Christmas to give a political reason for another delay, or some other cause; just throwing ideas out.

However, the most likely solution to an all-out real estate collapse is the Federal Reserve using one of its tools. They could loan a large sum of the trillions they have available to large corporations at a low rate and encourage them in one way or another to purchase foreclosures at the current market price. For example, search "Blackrock Houston." The problem with this tool is that if it's executed like it was in the past, the corporations put the homes on the market and offer them as rent to own. And in mass, IMHO, this threatens the middle class. Off the top of my head, I believe the stats on those who end up purchasing a home from rent to own contract was somewhere in the mid to low 30% range.

Re: Will real estate ever be normal again?

#567

Earlier quoted context omitted.

Sorry but it's zoning's fault haha. > Zoning issues/lack of supply would imply that there are lots of homeless people without a roof over their head. The price of housing only matters to people who don't already have homes they own. 65% of Americans own homes, so that cuts down your working set dramatically. There are a lot of homeless people, yes - 0.2% of the population - but lack of affordable housing tends to be…

the conflict you ond i have is you believe investors are benevolent and are helping poor folk who can't buy. i don't believe anything of what youre arguing simply because more supply will continue to be purchased by investors to further drive up prices.

Ah, I may just be doing a bad job of explaining myself. I certainly don't believe investors are benevolent :)

> i don't believe anything of what youre arguing simply because more supply will continue to be purchased by investors to further drive up prices.

I think Japan shows us there are limits to this.

Anyways, I appreciate your thoughts!

Re: Will real estate ever be normal again?

#568
post #343

Earlier quoted context omitted.

To explain more about the logic used by the guy you replied to... ...the problem is people think: interest rates go up, economy slows down, we can never raise interest rates. This logic takes on a life of its own. The US economy was in this position in the late 60s: the Fed was under pressure to accommodate govt financing, they raised rates in 1959 and were blamed for causing a recession that influenced the outcome o…

This is the exact situation many financial commentators highlighted post-2008, so I think your historical points are very relevant. The Federal Reserve is supposed to have independence from the government. It will develop its own monetary policy which doesn't need government approval. In reality, the President appoints all the Governors, so people get selected based on doing what the President wants done. The Fed's m…

Chairman McChensey Martin (who served in the late 60s when all this started to blow up) used to say that the Fed is independent within government. So the Fed is able to develop policy independently but doesn't have room to actually run counter to whatever the Executive is doing.

I don't think the impact is necessarily elections anymore, if it ever was. But the Fed was supporting bond auctions through 2020. I don't think it will stop them raising rates but it has stopped them raising rates fast enough imo.

Re: Will real estate ever be normal again?

#569

Earlier quoted context omitted.

3x is based on early-80s interest rates (12%). I did out the math [1] for someone on Reddit and it turns out that if you buy 3x your income @ 3% interest, you'll only be spending about 12% of your income on housing. To get to 30% of gross on housing (the other common rule of thumb), house prices need to be about 7x income. [1] https://www.reddit.com/r/investing/comments/oawyqu/is_there_...

3x is not based on 80s interest rates. And the mortgage is only part of your expenses, you need to budget for home repair, taxes, and insurance. Plus any other savings that are needed, like putting yoyr kids through college or retirement.

I did out the math in the Reddit comment, and you can run the numbers by Googling [mortgage calculator] and plugging them in. 12% is the equilibrium interest rate where the "home price = 3x income" and "housing expenses should be no more than 30% of gross" rules of thumb are both true. At 3% interest rates, a 3x home will cost you about 12% of monthly gross, and 30% of gross will get you 7.5x income. Those two rules of thumb cannot both be true at 3% interest rates.

With taxes and insurance, those numbers change to 3x = 17% of gross and 30% of gross = 5.4x, assuming California tax rates. Things like emergency funds, retirement savings, etc. are included in the "housing should cost no more than 30% of gross" rule of thumb.

Re: Will real estate ever be normal again?

#570

Earlier quoted context omitted.

The apparently only empirical study relating interest rates and growth was done by Richard Werner, concluding growth actually historically happened in high interest rate environments, whereas the current economic dogma states exactly otherwise. https://youtu.be/JD2z4l1DiBw

I don't know what his point is. There is no absolute level of low or high interest rates. Interest rates merely balance the supply and demand of/for labor. Growth usually happens when there is high demand for labor and that means interest rates are high during periods of growth. When you think about it, interest is just the risk adjusted yield of a labor saving investment plus minus bank fees and profit share of the…

Richard Werner is a bit nutty but his work does have value. He takes a heavily heterodox position on interest rates, some of this is him being misleading in order to be controversial. But his points about the impact of interest rates on bank profits are very trenchant (and btw, the reason why he is a bit nutty is because his professional experience was Japan in the late 80s/90s, that scenario tested all the assumptions about macro and found a lot of them were false, his book Princes of the Yen is good...although, again, very heterodox).
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