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Americans still think they can make money flipping houses

cbsnews.com

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Re: Americans still think they can make money flipping houses

#91

Post by metacritic12 »

Is CBSNews doing novel research in this article?

It starts with reporting a survey on Americans' beliefs (specifically that they can make money flipping houses). This is fine and normal news.

Then it transitions to novel research where the not-explicitly-questioned ground truth is "no: real estate flipping can't make money". How about cite some economists about bad future returns. Or at least some bank analysts?

Instead, CBSNews's "analysis" that real estate doesn't make money starts with this gem:

"Sadly, real estate is no better an investment today than it was in the previous century—and that's to say, mediocre at best. For people with a bit of money to put away, the stock market will almost always give the best return.

Between 2006, the peak of the previous housing bubble, and 2019, average home prices have increased just 13%, according to the S&P/Case-Shiller Home Price Index. In that same time period, the S&P 500 rose 125%. In other words, stocks did 10 times better than real estate."

The author assumes:

- That returns to housing measured from the past peak is an unbiased estimate of housing returns.

- That returns to stocks measuring up to today (one of the biggest stock bull runs) is an unbiased estimate of stock returns.

- And that past returns from these periods will predict future performance.

- To put the cherry on top, she compares two price indexes, not total return indexes. Dividends (rents) are totally excluded from the series.

None of this is pointed out by the article itself, or even questioned. The most basic first-year-econ-undergrad mistakes are being made here. Which is unsurprising since this analysis seems like a journo LARPing as an economist to finish a writing assignment.

Re: Americans still think they can make money flipping houses

#93

Post by HFguy »

rdubz wrote: post #40
iddan wrote: post #26

Earlier quoted context omitted.

This is exactly what happened in Israel. Everyone who bought houses have doubled or tripled their investment in three decades.

Is this accounting for inflation? 4% inflation per year (the most common estimate I see in the US) means 3x over 30 years doesn't even break even (1.04**30 ≈ 3.24). I often wonder how much people obsessed with home prices rising (in the US at least) take this into account. How much housing mania is fueled by people getting excited about gains that aren't as real as they think?

This is great point I often make. Not many people take this into consideration. Now, inflation has been lower than 4% for last 10-20 years. But the point stands.

Re: Americans still think they can make money flipping houses

#94

Post by matsemann »

jaclaz wrote: post #43
coldcode wrote: post #36

Earlier quoted context omitted.

I just sold my house for a ridiculous number. My realtor got 50 people to tour the house in a single weekend, and 5 places offers and I took the one 10% over the asking price. It's not a mansion or anything, and not in some high tech city, but nice area and a bit of land. The 6% commission is not really that much. Just prepping the house took all of my energy; trying to do marketing as well would have been too much.…

>The 6% commission is not really that much. Sure, because you (or your agent) managed to sell 10% more than asking price. Try re-evaluating this 6% if all offers were 85-90% of asking price, and confirm that it is not really that much.

But who determines the asking price? Not hard to claim success if the realtor themselves sets the bar.

Re: Americans still think they can make money flipping houses

#95

Post by arminiusreturns »

epistasis wrote: post #59
mrjin wrote: post #48

Earlier quoted context omitted.

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 mort…

This is called the fractional reserve rate and is a vital part of controlling monetary policy in a fiat system.

The reserve rate was taken to 0 during covid...

Re: Americans still think they can make money flipping houses

#96

Post by jaclaz »

Waterluvian wrote: post #50
jaclaz wrote: post #37

Earlier quoted context omitted.

>So the more a house sells for, the more they make. A falling market will drive some agents out of the field. Yes and no. This was a chapter in Freakonomics which showed how since their fee is a small fraction of the value, changes in prices would not affect them so much (within limits), i.e. the 3% fee on - say - 1,000,000 is 30,000, if the house price gets to 900,000 the 3% fee is still 27,000, but in order to be a…

Aka. “volume.”

Yep, and "time" the original Freakonomics chapter was about comparing prices between houses owned by the realtors against those owned by their customers and it came out that houses owned by realtors took more time to sell but were sold at a higher price, whilst in case of a slow sale the incentive was to convince the customers to lower the asking price:

http://pricetheory.uchicago.edu/levitt/Papers/LevittSyverson...

Re: Americans still think they can make money flipping houses

#97

Post by pooper »

zacherates wrote: post #69
lotsofpulp wrote: post #33

Earlier quoted context omitted.

I was referring to taxpayers subsidizing the actual loan itself, not the act of owning a home. What are the tax incentives (in the US)? On a federal level, all I can think of is mortgage interest tax deduction, but that was greatly neutered in 2017 TCJA, and less than 10% of Americans can benefit from it. And that is a tax incentive to borrow money to buy a home, not a tax incentive for home owners. Only other one is…

The biggest tax benefit of living in an owner occupied home is that nobody pays income tax on the rent you would pay if you were living in a house someone else owned. ... but most places don't have the stones to tax imputed rent [1]: Belgium, Iceland, Luxembourg, the Netherlands, Slovenia, Spain and Switzerland being exceptions. [1] https://en.m.wikipedia.org/wiki/Imputed_rent

If the choices are between implementing tax on imputed rent and killing all economists by boiling them all alive, I'll gladly start gathering firewood. I'm just joking. I am all for higher taxes on everyone.

I have one condition though. If I should pay tax on imputed rent, then Google and Facebook should pay taxes everytime someone clicks on a sponsored link that takes them to their own property. Every time I bring up this idea that companies must pay taxes on funny money they spend within the organization, people yell at me. Microsoft should pay taxes Windows licenses that they use internally. No, you can't give yourself a "discount" and say well we charged ourselves zero dollars so we owe no taxes. Pay taxes on the market rate. Either make it free of cost for everyone or pay taxes when you use things internally.

Re: Americans still think they can make money flipping houses

#98

Post by matsemann »

seanalltogether wrote: post #88
coldcode wrote: post #36

Earlier quoted context omitted.

I just sold my house for a ridiculous number. My realtor got 50 people to tour the house in a single weekend, and 5 places offers and I took the one 10% over the asking price. It's not a mansion or anything, and not in some high tech city, but nice area and a bit of land. The 6% commission is not really that much. Just prepping the house took all of my energy; trying to do marketing as well would have been too much.…

To add onto this, many buying realtors will not show a house to their client that is for sale by owner. They know they won't get their cut of the commission so they leave it out of the options. They will only visit if their client specifically finds it and brings it to them.

Always trips me up hearing about how house sales work in the US. Soo inefficient and many people involved that need their fees.

And is the inspection done after, by the buyer?? Why isn't it done by the seller and included in the ad? That's mandatory here. Sounds like a recipe for disaster and conflicts.

Re: Americans still think they can make money flipping houses

#99

Post by s1artibartfast »

lotsofpulp wrote: post #15
pmorici wrote: post #8

Housing is unique in that it is one of the few, maybe the only, assets where leverage in the form of a loan is relatively easily available to even people without a lot of assets. Where as other forms of leverage like margin loans require the borrower to already have assets for collateral. To buy a house you basically just need a reasonable job and a few thousand for the down payment.

Because taxpayers subsidize it by accepting looser underwriting standards.

Is it really subsidized tho if there is no cost to do so and no loss incurred on the lender and government?

Re: Americans still think they can make money flipping houses

#100

Post by HWR_14 »

lotsofpulp wrote: post #33
alphabettsy wrote: post #27

Earlier quoted context omitted.

It’s subsidized regardless. There are countless tax incentives for homeowners.

I was referring to taxpayers subsidizing the actual loan itself, not the act of owning a home. What are the tax incentives (in the US)? On a federal level, all I can think of is mortgage interest tax deduction, but that was greatly neutered in 2017 TCJA, and less than 10% of Americans can benefit from it. And that is a tax incentive to borrow money to buy a home, not a tax incentive for home owners. Only other one is…

If you sell an owner-occupied house (something like primary residence for 3 years) your first $500k of capital gains aren't taxed.
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