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

Re: Americans still think they can make money flipping houses

#141

Post by lotsofpulp » Sat, Jul 09, 2022, 2:40 PM UTC

s1artibartfast wrote: post #99

lotsofpulp wrote: post #15

Earlier quoted context omitted.

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?

There is always a cost for subsidizing risk.

You shift the demand curve, but not the supply curve, so now more money is chasing the same asset, so buyers pay more and sellers benefit. Same as student loans.

You also increase money supply when taxpayers “eat” the loss for defaulted loans, lowering the purchasing price of the currency in general.

Finally, the decision makers can overshoot or undershoot how much to move the demand curves, resulting in a misallocation of society’s resources. Again, see student loans and even home loans.

Re: Americans still think they can make money flipping houses

#142

Post by RHSeeger » Sat, Jul 09, 2022, 2:45 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.

I guess my problem with this statement is that, if you can sell the asset for more than , has it really depreciated? And, excluding external factors (ex, the area the house is in has declined), this has been possible to do in most areas for longer than I've been alive; half a century at least.

Re: Americans still think they can make money flipping houses

#143

Post by LBJsPNS » Sat, Jul 09, 2022, 2:45 PM UTC

pibechorro wrote: post #68

m0llusk wrote: post #63

Earlier quoted context omitted.

Federal Housing Administration backed loans and the mortgage interest tax deduction worked together to give a big boost to a very specific demographic slice of the population.

This is why we aught to never have subcidies or bailouts.

No.

There is no perfect system. That doesn't mean you don't implement systems. You just police them better to make sure that kind of problem doesn't happen any more.

Re: Americans still think they can make money flipping houses

#144

Post by jmyeet » Sat, Jul 09, 2022, 2:50 PM UTC

fweimer wrote: post #113

jmyeet wrote: post #82

Whoever wrote this doesn't really understand what they're talking about. Side note: this is written in 2019. Can we update the title? First, terminology. "Flipping" houses has a completely different meaning. The author mentions buying a house and "flipping" it 5 years later. That's not what flipping is. Flipping is short-term and typically means rehabing a property. Done quickly, you can make a profit on this if you'…

Regarding lack of margin calls, is there truly no way for the lender to renegotiate or get out of the contract if the market value of the collateral depreciates too much? And well before the borrower fails to meet interest payments?

The first thing to know is that there really is no "lender" in the traditional sense.

The first form of banks we had we had had depositors deposit money for safekeeping. Banks would then lend that money out to earn interest. We then basically decided this was too conservative a strategy so we have fractional reserves, meaning if you have $100,000 in deposits you might be able to lend out $1 million. A lot of Crypto Andys see this as a problem. It's not, particularly because depositor funds are guaranteed by the government (up to a limit) in the US at least.

But in recent decades we say the rise of mortgage-backed securities ("MBS"). Banks will take those mortgages and package them into what are effective bonds and then sell them to the market. This is now completely off the bank's balance sheet so they're not even really the lender anymore. They're basically just the agent who collects the repayments that get packaged up and go to the MBS holder.

Non-payment of a mortgage will give the bank some options depending on your state but there are a lot of varying consumer protections here too (eg non-recourse states mean the bank can typically seize the property being the collateral for the loan or go after you for any outstanding debt but they can't do both).

But if the loan is underwater (meaning the loan value exceeds the asset value) the bank can only really do something if you stop making payments. There is meant to be due diligence here done by the banks to make sure the entire package of property being an MBS isn't underwater. Obviously this failed spectacularly in the subprime era.

But one house being underwater isn't generally a problem.

Re: Americans still think they can make money flipping houses

#145

Post by jmyeet » Sat, Jul 09, 2022, 2:57 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…

This really is a situation that's almost too big to fail. Let me explain.

First, since so many voters are invested in the housing market, it's almost political suicide to do anything about it now. Protection and even increasing property prices has become an explicit political goal on every level.

Second, as you see more and more corporations enter this market and become stakeholders, this trend is only strengthened as corporations are the true constituents. And no it doesn't matter which party is in power. The corporations have bought both of them.

I'd say the biggest difference between now and 30+ years ago is the level of disposable income people have such that second homes, vacation homes and bigger homes have become way more common.

Re: Americans still think they can make money flipping houses

#146

Post by dreamdeath » Sat, Jul 09, 2022, 3:01 PM UTC

endisneigh wrote: post #122

m0llusk wrote: post #74

Earlier quoted context omitted.

I am referring to the United States. In my youth I traveled a great deal, especially around the Midwest and Boston-Washington DC corridor and nearby countryside, much of which has since been developed. If you do a search for long term housing price data you will see that until the burst of inflation in the mid 1970s house prices were mostly flat. There was still inflation and wear, but the prices remained about where…

What you’re saying isn’t true though. https://fred.stlouisfed.org/series/MSPUS Not to mention you can collect or save on rent which also goes up with inflation

The graph you’ve linked doesn’t really include the bit they were talking about (namely all the time before the 70s). Like there’s a bit at the very beginning but hey it’s kinda flat.

Re: Americans still think they can make money flipping houses

#147

Post by giaour » Sat, Jul 09, 2022, 3:05 PM UTC

mistrial9 wrote: post #139

giaour wrote: post #109

Earlier quoted context omitted.

The overall value of a "house" is the value of the structure plus the value of the land, and it's common for the former to depreciate while the value of the latter increases. Construction costs have gone down over time (adjusting for inflation), and most building materials degrade. When I was looking for a house in Seattle, many of the $800K bungalows were sold with the expectation that the buyer would level the exis…

this makes sense, yet there is another lense to view valuation. The value of the house is in the legal statement of ownership. What is owned is important of course, but the legal statement of ownership itself is traded for these values. A corollary is that the ability to trade ownership records is a gating factor. "Do not cast your gaze here, these fine things are not for the likes of you" .. is a poetic line from th…

> The value of the house is in the legal statement of ownership. What is owned is important of course, but the legal statement of ownership itself is traded for these values.

And yet, I own many worthless things that also exhibit that property (like a picture my niece drew of me and my cat). There is a totemic quality to possessing something, but that is almost always personal and independent of the thing's market value. Outside of "collectible" properties (structures with historical significance like castles or Frank Lloyd Wright houses), houses have a market value related to the imputed rent they produce and potential productivity of the land.

Re: Americans still think they can make money flipping houses

#148

Post by lotsofpulp » Sat, Jul 09, 2022, 3:05 PM UTC

kasey_junk wrote: post #89

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 subsidy is Fannie/Freddie buying 30 year mortgages with the now explicit backing of the Federal government. If that didn’t exist there wouldn’t be 30 year mortgages. How that distorts the real estate market is a big open question but my guess is it drives up real estate prices. Of course that has been a continuous policy decision for almost 100 years so it’s nothing new.

For sure, the low cost mortgages cause prices to be much higher.

Re: Americans still think they can make money flipping houses

#149

Post by lotsofpulp » Sat, Jul 09, 2022, 3:08 PM UTC

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

I do not understand this reasoning. Especially because everywhere has property taxes, which sound like the same thing.

Re: Americans still think they can make money flipping houses

#150

Post by jacknews » Sat, Jul 09, 2022, 3:09 PM UTC

briandear wrote: post #119

jacknews wrote: post #34

The problem with this argument is rent. If you can buy a house (to live in) without a mortgage, or with a very low rate, you not only reap the capital gain, but save on paying someone else rent.

You pay the government rent in the form of high property taxes. It’s insane that you can never actually own your house. Taxes should be based on consumption, not income, or simply existing.

Actually, although it makes complete sense to own land rather than pay rent in perpetuity in our current economic system, it is also totally unjust. The land belongs to all of us, like the air. Allowing individuals to own it, and especially to bequeath it, is the root of many of our problems,