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

Re: Americans still think they can make money flipping houses

#151

Post by tyjen » Sat, Jul 09, 2022, 3:14 PM UTC

Kon-Peki wrote: post #25

tyjen wrote: post #17

House price fluctuation is still local market dependent. People who purchased overpriced, new mass developer homes in saturated newer markets may suffer a contraction. Areas with supporting high demand, low inventory, and inability to develop newer properties will maintain increasing valuation, but not at the same rate. A savvy home flipper can still make money, it's just harder to do so with increased competition in…

> Areas with supporting high demand, But most people think that this is an accurate description of their local market, and I'm not so sure that it is.

Most people don't know how to evaluate a market and are more short-sighted than they want to admit to themselves. It's reflected within entrepreneurship too, with ~50 percent failure within 5 years.

Seattle: Severely limited land area mass surrounded by water with robust business sector. Single-family homes will become rarer across time with local pushes to develop multi-family domiciles. And, if you buy waterfront, your security increases substantially.

Colorado Springs: Mountains impede development slightly with large military presence, but you can build suburban developments for as far as the eye can see in most directions.

Prior to a slowdown, people see prices increasing and apply it too strongly to future results. But, one of these areas will be far more insulated from price fluctuations than the other.

Re: Americans still think they can make money flipping houses

#152

Post by jaclaz » Sat, Jul 09, 2022, 3:14 PM UTC

smcl wrote: post #83

rdubz wrote: post #40

Earlier quoted context omitted.

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?

I did some very rough spreadsheet work, collecting average UK house prices[0] and rates of inflation[1] and tried to figure this out. So starting with January 2007's average price of GBP 176,758 I tried to repeatedly apply the annual interest rates I end up with: * Jan 2007 price (inflation adjusted to 2022): GBP 243,199 * Jan 2022 price (actual): GBP 273,762 So it seems that in the UK at least the prices do seem to…

>Further still I think many people's wages have kept pace with inflation.

Inflation: 243,000/177,000-1=37%

House: 274,000/177,000-1=54%

In 2007 the yearly wage for a 22-29 year old was 20,000 pounds, in 2021 it was 26,000:

https://www.statista.com/statistics/802196/full-time-annual-...

26,000/20.000-1= 30%

If you try with an higher income, let's say 30-39, respectively 26,000 and 33,000

33,000/26,000-1= 27%

I think we can say that average houses have appeciated almost double average wages in these 15 years, which is the essence of the crazyness about houses being not affordable to most, and - as you said - it's not like in 2007 houses were cheap, data for a longer period show even more how young people then could actually buy a house and now it has become impossible:

https://landregistry.data.gov.uk/app/ukhpi/browse?from=1990-...

Re: Americans still think they can make money flipping houses

#153

Post by s1artibartfast » Sat, Jul 09, 2022, 3:16 PM UTC

robjan wrote: post #134

s1artibartfast wrote: post #108

Earlier quoted context omitted.

>If real estate is to be a good investment, it must become less affordable over time. False. Value can increase if gdp increases without changing the %income spent on housing. If house prices double while salaries double, affordability is the same but dollar value still went up.

In that scenario the value is going up relative to the currency the property was purchased in but that's because the value of the currency is diminished.

not necessary. You can have income growth without inflation.

Any time income growth is higher than inflation, you can buy more goods with your income

This is why people can buy more goods and services in 2022 than in 1 AD.

If income growth always lead to equal currency devaluation, economic development would be impossible.

In growing economies, income growth exceeds inflation rate. If the value of a purchase tracks income and not inflation, the real value goes up.

In the USA, real GDP per capita (adjusted for inflation) has increased 30+% since 2020.[1]

https://fred.stlouisfed.org/series/A939RX0Q048SBEA

Re: Americans still think they can make money flipping houses

#154

Post by [deleted] » Sat, Jul 09, 2022, 3:19 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?

[deleted]

Re: Americans still think they can make money flipping houses

#155

Post by s1artibartfast » Sat, Jul 09, 2022, 3:20 PM UTC

lotsofpulp wrote: post #141

s1artibartfast wrote: post #99

Earlier quoted context omitted.

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…

Only if you subsidize it below the expected value of return.

Market rates are very different. There are a host of middle men making massive profits on loans. This is why there is an industry around it.

If you offer non-profit loans at break even cost, this is much lower than a company with higher overhead and a profit margin

Re: Americans still think they can make money flipping houses

#156

Post by mistrial9 » Sat, Jul 09, 2022, 3:32 PM UTC

giaour wrote: post #147

mistrial9 wrote: post #139

Earlier quoted context omitted.

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 va…

yes agree -- the insight is into the additional restrictions on access. Market values react to scarcity in most cases. The legal titles, the ability to obtain and dispense of loans, the ability to exchange titles and resolve blocks in titles, contribute to the valuation. In the case of a child's drawing, very few impediments exist to exchange or declare title to that one drawing, and there is little scarcity since most children draw a lot of pictures.

Re: Americans still think they can make money flipping houses

#157

Post by nwatson » Sat, Jul 09, 2022, 3:32 PM UTC

m0llusk wrote: post #63

BrianOnHN wrote: post #52

Earlier quoted context omitted.

What programs?

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.

Plus explicit contracts in new housing developments barring current sales and future sales to specific "undesirable" demographics. This "red-lining" was widespread from post-WW2 boom through the 80s or so to keep those demographics out of some areas. Those demographics were locked out of the housing markets and in big urban areas like NYC this created an artificial demand for rental that forced these people to pay above-market rental rates for substandard housing, a double-slam on generational wealth accumulation.

Re: Americans still think they can make money flipping houses

#158

Post by gonzo41 » Sat, Jul 09, 2022, 3:34 PM UTC

ryan93 wrote: post #103

gonzo41 wrote: post #75

Earlier quoted context omitted.

It's a massive failure of neoliberal economics that this has occurred. Mortgage prices, along with the cost of electricity are two massive handbrakes on economic growth and potential productivity. Yet somehow the banks and power companies have captured the public to make people think that paying a million dollars to the bank is a great way to live. It's just crazy.

You have to get government approval to build. What are you talking about?

The government should have disincentivized using houses as an investment vehicle.

Houses are for families to live in. The primary asset houses should provide are the family and the work they do, not the house. But if a house costs so much money that the family can't really take risks, then the house just becomes a debt prison.

Re: Americans still think they can make money flipping houses

#159

Post by ip26 » Sat, Jul 09, 2022, 3:42 PM UTC

mchusma wrote: post #4

If real estate is to be a good investment, it must become less affordable over time. The idea that real estate in general is a good investment is dangerous to our economy. The solution to housing is reducing subsidies and removing supply side restrictions. However these are not politically popular in a world where people want housing prices to go up.

The idea that even as a locale becomes more desirable it should remain just as affordable is dangerous to our economy.

Re: Americans still think they can make money flipping houses

#160

Post by lotsofpulp » Sat, Jul 09, 2022, 3:49 PM UTC

s1artibartfast wrote: post #155

lotsofpulp wrote: post #141

Earlier quoted context omitted.

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…

Only if you subsidize it below the expected value of return. Market rates are very different. There are a host of middle men making massive profits on loans. This is why there is an industry around it. If you offer non-profit loans at break even cost, this is much lower than a company with higher overhead and a profit margin

>Only if you subsidize it below the expected value of return.

I do not see how anyone could know this, since it requires predicting economic conditions 30 years in the future. The government is guessing just as much as a non taxpayer funded lender would, except the government does not have to worry about running out of cash.