Will real estate ever be normal again? • Hacker News Board

Re: Will real estate ever be normal again?

#581

Post by staticman2 » Tue, Nov 16, 2021, 1:34 AM UTC

nostrademons wrote: post #569

staticman2 wrote: post #545

Earlier quoted context omitted.

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…

Housing expenses should be no more than 30% gross isn't a rule of thumb, it's a maximum amount lenders will traditionally lend you. It's called the front end ratio.

  Quoting investopedia "Lenders prefer the front-end ratio to be no more than 28% for most loans and no more than 31% for FHA loans."

Lenders don't care if you can retire or if your kids can go to college, they care if you are likely to default on your loan. So I wouldn't take the front end ratio as personal finance advice.

The 3x income housing advise in not related to the front end ratio. 3x income is the max you should borrow (according to the advise givers, you are of course free to disagree), the front end ratio is what you can borrow.

Re: Will real estate ever be normal again?

#582

Post by the__alchemist » Tue, Nov 16, 2021, 2:15 AM UTC

willis936 wrote: post #153

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…

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?…

This is conflating ownership with single families homes etc. The core issue here is renting vs owning, not flat vs SFH.

Re: Will real estate ever be normal again?

#583

Post by comp_throw7 » Tue, Nov 16, 2021, 3:40 AM UTC

t-writescode wrote: post #543

jshen wrote: post #530

Earlier quoted context omitted.

You aren’t making a typical engineering salary if you can’t afford a $500k place.

I make 150k / year. I'm an SDE 2. The problem isn't the monthly payment, the problem is the down payment. And you've said in several places how engineers make 200k+ after 5 years. Maybe in total compensation and only in FAANG; but there are a loooot of engineering companies in Washington and the Seattle area that aren't getting hundreds of thousands of dollars in stock that's increased 5-10 fold in the last 2 years.

What exactly is the problem with a downpayment on a 350k (or, heck, 500k) unit? Obviously there are exceptional circumstances, e.g. you're supporting multiple people on your salary alone, which might make it difficult to save up 70-100k quickly.

But if you're single, your annual after-tax take-home is ~95k, assuming you max out your 401k contribution, and ~110k, assuming you don't contribute at all. Saving 50% of that does not even require living particularly frugally. That gets you to the top-end of the required down payment in 2 years.

Re: Will real estate ever be normal again?

#584

Post by another_story » Tue, Nov 16, 2021, 4:26 AM UTC

flyinglizard wrote: post #37

another_story wrote: post #20

Earlier quoted context omitted.

I don't think it's fair to put the onus on individual people to move everytime they're priced out of a market, especially a market that has been heavily manipulated to benefit the few via lower interest rates and poor zoning laws. You could see this housing crisis coming from years out and the government did nothing but maintain low rates, block multi-unit zoning changes, and allow the wealthy and foreign investors t…

Low interest rates benefits everyone who takes mortgage and in fact makes (leveraged) investment into building more properties a no brainer. There is no bad guy here, just individuals displacing other individuals.

And it doesn't benefit the working poor and younger people who can't afford a down payment. It's not individuals who are keeping rates low.

Re: Will real estate ever be normal again?

#585

Post by cbozeman » Tue, Nov 16, 2021, 4:42 AM UTC

staticman2 wrote: post #518

cbozeman wrote: post #356

Earlier quoted context omitted.

It's exceptionally good advice. Jerome Powell has already made it clear through his actions that everything is now 'Too Big To Fail'. Capital is at an all-time low in terms of actual real cost to the borrower. You'd be an idiot not to borrow right now. If we keep seeing dramatic inflation, there will be some increase in wages, and it'll be enough to offset whatever interest rate you get, unless you're just an utterly…

You are only giving this advice because we've had a 10 year bull market. You feel excuberant and you are justifying it with fancy words. Meanwhile capital is at an all time high in terms of price to earnings. There's no reason to think you know what the future holds.

> There's no reason to think you know what the future holds.

Prior behavior is the best predictor of future behavior. The world has become complacent and dependent upon cheap capital, and no one - and I mean no one - is ready or willing to turn off the faucet yet.

Re: Will real estate ever be normal again?

#586

Post by grog454 » Tue, Nov 16, 2021, 4:56 AM UTC

zohch wrote: post #533

mebassett wrote: post #435

Earlier quoted context omitted.

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)

> Wealth of nations, book 1, actually. "toil and trouble" could be interpreted as "labour". I certainly take that interpretation. You are free to interpret it any way you like, but then taking your interpretation and saying that is what Adam smith was trying to say, when it is quite literally not what he said, nor even close to what he said, is called lying, and that is not really okay.

What is your interpretation of "toil and trouble"?

Re: Will real estate ever be normal again?

#587

Post by piva00 » Tue, Nov 16, 2021, 7:50 AM UTC

TulliusCicero wrote: post #193

noahtallen wrote: post #138

Earlier quoted context omitted.

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…

I'm not so sure about this line of reasoning. Housing doesn't obey the simplistic demand-supply model [1].

[1] https://alastairparvin.medium.com/if-the-uk-built-1-million-...

Re: Will real estate ever be normal again?

#588

Post by CRConrad » Tue, Nov 16, 2021, 11:31 AM UTC

lmm wrote: post #431

sokoloff wrote: post #391

Earlier quoted context omitted.

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 a…

> 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.

In many countries (including the two I've lived in as an adult) regular people get to make deductions for stuff like the cost of commuting to work, work clothes or equipment (to the extent that's not supplied by their employer), etc. By "deductions" here I mean, subtracting this money[1] from their pre-tax income and have their income tax calculated on what's left. In effect, getting taxed only on "the profits from work".

Surely even the USA must have some similar thing?

___

[1]: Often implemented as a default deduction anyone can make without proof; if your outlies are larger, save the receipts and deduct the actual amount. This general-deduction-amount at least used to be high enough that most people benefited from just checking the box to use it.

Re: Will real estate ever be normal again?

#589

Post by nikanj » Tue, Nov 16, 2021, 12:58 PM UTC

iknowSFR wrote: post #253

IAmGraydon wrote: post #81

Earlier quoted context omitted.

It’s true…the market always seems to turn when you start seeing widespread sentiment that it will never turn.

The article directly addresses this: “The last time U.S. housing saw such rampant price growth was in 2005, and the market corrected itself, infamously, in 2008. But the underlying reality today is different. Back then, a geyser of subprime adjustable-rate mortgages sputtered out as borrowers defaulted. (According to Bloomberg News, 60 percent of mortgages during the bubble years were adjustable rate; fewer than 0.1…

So essentially "This time is different"?

Re: Will real estate ever be normal again?

#590

Post by banannaise » Tue, Nov 16, 2021, 3:14 PM UTC

arcticbull wrote: post #471

bosie wrote: post #400

Earlier quoted context omitted.

> blended average across the US > One caveat is it does reflect only new construction. I am not sure what a blended average is but averaging new constructions makes your stats utterly useless? Where are people living mostly and how does the real estate market go there.

It's the average price of new construction over time. Generally one would not expect new construction to come in dramatically under market right?

You're conflating the market for suburban family homes with the market for real estate. What about apartments, commercial real estate, etc.? Rent has absolutely exploded, which might not be priced into suburban family homes that aren't built to be rented and don't directly compete with more urban apartments.