Americans still think they can make money flipping houses • Hacker News Board

Re: Americans still think they can make money flipping houses

#51

Post by nemo44x » Sat, Jul 09, 2022, 12:44 PM UTC

m0llusk wrote: post #18

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wa…

In many locales the house is the least valuable thing on the property. When you buy real estate you’re buying a location above all else. As the population has grown and high paying jobs have increasingly consolidated into fewer urban areas, the demand for real estate in those locations has increased.

So it’s the land and location you’re investing in which is certainly not a depreciating asset. Where I live it’s an old town that doesn’t have anymore room to build and way more people want to live here than there could ever be homes. So prices continue their rise even if you invest very little in the home. Saying that, you’re right that owning a house means taking care of it which costs money.

Re: Americans still think they can make money flipping houses

#52

Post by BrianOnHN » Sat, Jul 09, 2022, 12:44 PM UTC

nwatson wrote: post #39

qeternity wrote: post #35

Earlier quoted context omitted.

> The current attitude toward housing is based on the recent explosion of house prices which is driven by financialization, extremely low interest rates, and demand outpacing supply where there are jobs. These are the mechanisms by which the housing market has been driven to absurdity. But that reason why were here is that politicians and by extension the electorate on whose behalf they govern, decided to turn housin…

And a big swath of the US population were barred from participating in those programs and so didn't get the benefit of relative inflation.

What programs?

Re: Americans still think they can make money flipping houses

#53

Post by snowwrestler » Sat, Jul 09, 2022, 12:46 PM UTC

Waterluvian wrote: post #3

Is real estate in the US one of those industries where corner cutters think, “oh that’s an easy career” ? My Instagram timeline has become filled, for some reason, with local (not to me) agents insisting that there is no bubble and now is the time to buy. And they’re all really unprofessional looking and sounding and seem to be worried about one thing: their business.

Real estate is a field where you can succeed on hard work and hustle without much expensive professional education. A good real estate agent in a nice area can make as much as a dentist, but they didn’t have to go to expensive school for years just to get started. The required training is relatively minimal.

There are certainly “corner-cutters” in real estate just like any industry. But to make real estate a sustainable career, it really does take a lot of hard work, hustle, and integrity. Most long-term agents live off of referrals and repeat customers. Or have enormous marketing costs, which also takes skill to manage.

Re: Americans still think they can make money flipping houses

#54

Post by findthewords » Sat, Jul 09, 2022, 12:47 PM UTC

Demand-side economics:

Low mortgage rates create a shortage of affordable housing by increasing demand. For example:

-Speculators buying things and selling them for higher price later, that is a rational thing to do.

-Normal folk who simply want a home rarely think long term, 50 years into the future, during which rates may vary and only look at what they can afford to pay monthly, right now.

In a high interest rate, high inflation, high wage growth world houses are a BAD INVESTMENT because of erosion of value by inflation. What happens to bad investments? Their prices collapse, investors seek targets elsewhere. The only people who buy affordable housing in a high inflation environment are people who don't mind the deprecation in value and have a steady income to afford it.

Re: Americans still think they can make money flipping houses

#55

Post by nemo44x » Sat, Jul 09, 2022, 12:48 PM UTC

mrjin wrote: post #48

m0llusk wrote: post #18

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wa…

There was one obvious reason: too much money was printed, for decades. Virtually unlimited supply of cheap money not only push up asset prices but also make it super easy to blindly take loans to invest in assets and make tones of money. Once you tasted the easy money, you want more and earn from hard working would look super stupid. Properties are the most accessible way of getting involved, so people flock in. It's…

Falling interest rates for 40 years wasn’t the problem. If anything there has been less demand for money which is why rates fall. Things are far less capital intensive than they used to be in many cases.

Falling interest rates have been great for people as more people own homes than at any other point in history.

But printing trillions more last year was a flaw. At least got physical proof that MMT doesn’t work.

Re: Americans still think they can make money flipping houses

#56

Post by Schiendelman » Sat, Jul 09, 2022, 12:49 PM UTC

civilized wrote: post #20

hardwaresofton wrote: post #12

This isn’t 2008, at this point I think people are underestimating the speculative home buyer. The people who are buying houses now are more likely people looking to build rental income cash cows. In a world where productivity is somewhat slowing after massive growth, people are taking to rent seeking activity and the disincentives aren’t there to encourage productive behavior. Why buy and sell when you can buy, charg…

So, if houses were to become investments on a massive scale, and -- as seems inevitable -- they ended up in the hands of only a few, does that change the politics of housing supply? Before, your neighborhood's voters were homeowners who benefit from rising property values; after, they're renters who benefit from falling rents. I've heard that Germany has more of this renting situation but no idea about the politics o…

Renters are so much less likely to be voters that this has little impact.

In Seattle, for instance, municipal elections are on odd-numbered years. As a result, get out the vote operations that tend to increase renter turnout during presidential elections don’t have much impact on local elections.

We had a vote in the 90s that reduced housing supply considerably, “Citizens Alternative Plan.” It was a February special election with 23% turnout. 15% of Seattle voters downzoned the city.

Re: Americans still think they can make money flipping houses

#57

Post by blululu » Sat, Jul 09, 2022, 12:51 PM UTC

chrisseaton wrote: post #42

m0llusk wrote: post #18

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wa…

> House prices were bounded by wages and were understood to be depreciating assets. When was this ever true? If you literally abandoned a house and let it rot then yeah maybe in ten years it will have lost value because it will need a lot of work, but other than that I think it's never been the case they're depreciating in any meaningful sense.

Pretty much every capital asset depreciates. Even with basic maintenance everything wears out over time. Only legal entities are immune from the ravages of time.

Re: Americans still think they can make money flipping houses

#58

Post by civilized » Sat, Jul 09, 2022, 12:53 PM UTC

taneq wrote: post #45

civilized wrote: post #20

Earlier quoted context omitted.

So, if houses were to become investments on a massive scale, and -- as seems inevitable -- they ended up in the hands of only a few, does that change the politics of housing supply? Before, your neighborhood's voters were homeowners who benefit from rising property values; after, they're renters who benefit from falling rents. I've heard that Germany has more of this renting situation but no idea about the politics o…

Are houses not considered an investment where you’re from? Ever hear the term “safe as houses”?

In the US, I think people still mostly buy homes primarily to live in them.

Re: Americans still think they can make money flipping houses

#59

Post by epistasis » Sat, Jul 09, 2022, 12:54 PM UTC

mrjin wrote: post #48

m0llusk wrote: post #18

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wa…

There was one obvious reason: too much money was printed, for decades. Virtually unlimited supply of cheap money not only push up asset prices but also make it super easy to blindly take loans to invest in assets and make tones of money. Once you tasted the easy money, you want more and earn from hard working would look super stupid. Properties are the most accessible way of getting involved, so people flock in. It's…

Every modern bank loan is "printing money" because there is no amount of corresponding money that the bank is actually loaning out. The bank must survive stress tests, but not have actual deposits on hand for the amount loaned out.

However, even if the bank needed to have deposits or collateral on hand, to stop the "printing money" aspect of new loans, this same thing could happen because homes are collateral on mortgage.

Really I think it mostly driven by the supply demand mismatch, and in particular a belief that local governments will not allow the supply to meet demand.

There's a great recent Fed paper that shows the absolute huge correlation between prices and the supply/demand mismatch. It further shows that demand volatility has been higher than supply volatility so recent effects are explained by that demand volatility.

The only way to solve this is to out build demand and shock prices down. IMHO.

Re: Americans still think they can make money flipping houses

#60

Post by chrisseaton » Sat, Jul 09, 2022, 12:54 PM UTC

blululu wrote: post #57

chrisseaton wrote: post #42

Earlier quoted context omitted.

> House prices were bounded by wages and were understood to be depreciating assets. When was this ever true? If you literally abandoned a house and let it rot then yeah maybe in ten years it will have lost value because it will need a lot of work, but other than that I think it's never been the case they're depreciating in any meaningful sense.

Pretty much every capital asset depreciates. Even with basic maintenance everything wears out over time. Only legal entities are immune from the ravages of time.

> Even with basic maintenance everything wears out over time.

There's basic ongoing maintenance yeah, but I don't think that counts as deprecation in any sensible way does it? If you keep your oil paintings in a mouldy cupboard they'll rot, but we don't say art is a deprecating asset because of this. You just make sure they don't rot and clean them every now and again.

Houses can stand for hundreds and hundreds of years. As they get older they get more valuable because people like older buildings for aesthetic reasons.