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Maybe treating housing as an investment was a mistake

goodreason.substack.com

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Re: Maybe treating housing as an investment was a mistake

#261

Post by FollowingTheDao »

photon12 wrote: post #112
lotsofpulp wrote: post #72

Earlier quoted context omitted.

One can define effort in that way, and arrive at the conclusion you did, but it is not what cognitive dissonance is typically used to mean. But that definition of effort as it relates to the ability to “survive” does not seem useful to me. It takes a lot of effort to manually dig a ditch compared to using an excavator, but you would not pay the person that shows up with a shovel more than the person that shows up wit…

I used to dig ditches in places where excavators couldn't go for a living, and I'm familiar with the contract rate differences for that type of labor and equipment. My point is that the disparity is such a chasm that my brain can't reconcile it. We aren't talking about ditch digging, we are talking about serving food to the people of Seattle. All the software engineers in Seattle, in my experience, love to frequent d…

This is what a profit driven society does. I am not condemning it, but that is just the reality.

If you had to pay more at their restaurant then your quality of life (profit) will go down.

I am glad you are still human and your gut cannot take it. Maybe look at using some of your savings to help the chef start a coop restaurant?

Re: Maybe treating housing as an investment was a mistake

#262

Post by nemo44x »

dfxm12 wrote: post #58
photon12 wrote: post #6

> Meanwhile, renters are desperate. They’re begging for housing prices not just to slow, but to fall. I have a friend who is a head chef at a decently popular bar and restaurant on Broadway in Capitol Hill, Seattle (very trendy part of town if you aren't familiar, steep commercial rent). He lives in a 400 sq ft studio and is barely, barely making it from one paycheck to the next. I am sitting on a 2.6% interest rate…

What sucks is a lot of young renters with steady jobs can afford to pay off a mortgage month to month, but they just can't afford that down payment (especially the 20% needed so as to not need to get mortgage insurance)! I was in that position for a while. Every time it seemed like I could afford to put that money down, the housing prices went up! It took a handful of years of renting cheap places (with roommates), l…

Buy a "starter house" and begin to build equity. It's how people have always done it. You buy a really small house that isn't in the most desirable location and start making payments into it. Down the road you have built equity and you can sell your starter home and buy a nicer, larger house. You maybe have some family to support then and need more room.

But you see young people renting for 15 years in expensive places of cities because they want to be close to nightlife/etc. and then trying to figure out how to come up with a 15%-20% down payment on a dream house when they're nearing 40 and wondering how anyone does it and complain the system is broken.

They do it by buying a small house in an expensive location and building equity and then upgrading.

Re: Maybe treating housing as an investment was a mistake

#263

Post by darod »

The math is suspect. Author doesn't take into consideration that rents increase annually vs a locked mortgage with a conventional loan. Rent is also 100% loss vs mortgage you're gaining equity. Additionally if you think beyond one generation, your kids have an asset they can use to borrow against, rent out, and live in if they so choose, which if it's paid off by that time, they just have to worry about maintenance and taxes.

Re: Maybe treating housing as an investment was a mistake

#264

Post by phkahler »

lotsofpulp wrote: post #20
photon12 wrote: post #6

> Meanwhile, renters are desperate. They’re begging for housing prices not just to slow, but to fall. I have a friend who is a head chef at a decently popular bar and restaurant on Broadway in Capitol Hill, Seattle (very trendy part of town if you aren't familiar, steep commercial rent). He lives in a 400 sq ft studio and is barely, barely making it from one paycheck to the next. I am sitting on a 2.6% interest rate…

Cognitive dissonance means harboring contradicting thoughts. The difference in you and your friend’s situation is caused by the fact that they are selling labor which has a much lower price than the labor you are selling. This is not contradictory, just a consequence of supply and demand.

>> The difference in you and your friend’s situation is caused by the fact that they are selling labor which has a much lower price than the labor you are selling. This is not contradictory, just a consequence of supply and demand.

I think the difference between labor and engineering is that most engineering (and software development) is a precursor to charging rent. Lets look a bit closer:

The marginal cost of software is zero. Therefore, every commercial software package is collecting rent for its use - SaaS being the most blatant (but honest) form. They will ostensibly be using the money to fund future versions of the software, but the efficiency of that effort is not terribly relevant - profits can be had, and high pay to developers.

In product design and manufacturing, the engineering effort goes into designing a product and plant to produce it. The key thing the business looks at is something like ROI (return on investment). Since the lifetime of a product isn't certain, anything that goes beyond the planned lifespan is pure profit. One could view the business as collecting rent on the equipment/process that makes the product.

At the highest level, investors are looking for a return on their investment. The investors don't actually have any part in the transaction between the company and its customers. Only when raising funds do investors bring anything to the table. After that, people trading stocks bring nothing and are looking for ROI. It's probably not correct to call ROI rent, but it's got some similarities.

So the low-end labor guy is getting paid to do work. All our fancy office jobs are building systems to generate revenue for someone. That may be the primary reason those jobs pay so much better. One is labor to an end customer, the other is labor to the money-making machine that is a large company ;-)

On a related tangent, perhaps engineering should not be considered a cost center but an investment.

Re: Maybe treating housing as an investment was a mistake

#265

Post by __derek__ »

czbond wrote: post #188
__derek__ wrote: post #170

Earlier quoted context omitted.

Wait, why 6?

Picked a higher number to not be scary. "supposedly" GPT-4 can pass the bar exam

Gotcha. I thought maybe they were planning to skip GPT-5 or something.

That's actually a pretty low bar, FWIW. (rimshot) Law students spend a few months in bar prep to memorize a bunch of crap that doesn't even apply to their real jobs. Maybe the AI will encourage bar associations to finally ditch it, a development that gained some steam during the pandemic.[1]

[1]: https://www.reuters.com/legal/legalindustry/bar-exam-who-nee...

Re: Maybe treating housing as an investment was a mistake

#266

Post by gwright »

dfxm12 wrote: post #58
photon12 wrote: post #6

> Meanwhile, renters are desperate. They’re begging for housing prices not just to slow, but to fall. I have a friend who is a head chef at a decently popular bar and restaurant on Broadway in Capitol Hill, Seattle (very trendy part of town if you aren't familiar, steep commercial rent). He lives in a 400 sq ft studio and is barely, barely making it from one paycheck to the next. I am sitting on a 2.6% interest rate…

What sucks is a lot of young renters with steady jobs can afford to pay off a mortgage month to month, but they just can't afford that down payment (especially the 20% needed so as to not need to get mortgage insurance)! I was in that position for a while. Every time it seemed like I could afford to put that money down, the housing prices went up! It took a handful of years of renting cheap places (with roommates), l…

> It took a handful of years of renting cheap places (with roommates)

Is this now considered unusual? I didn't purchase my own home for almost 12 years after graduation from college. I lived at home, then with roommates, which was a completely normal thing to do at the time (1987 college graduation).

Re: Maybe treating housing as an investment was a mistake

#268

Post by nineplay »

photon12 wrote: post #6

> Meanwhile, renters are desperate. They’re begging for housing prices not just to slow, but to fall. I have a friend who is a head chef at a decently popular bar and restaurant on Broadway in Capitol Hill, Seattle (very trendy part of town if you aren't familiar, steep commercial rent). He lives in a 400 sq ft studio and is barely, barely making it from one paycheck to the next. I am sitting on a 2.6% interest rate…

People aren't paid by how hard they work, they're paid by how much money they generate and how hard they are to replace. A head chef might be hard to replace but popular bars and restaurants are not, as we saw during Covid. They have often been replaced by people deciding to save money and eat at home.

Your cognitive dissonance isn't unusual but I think it does a disservice to our ability to have productive discussions on any number of issues. Whenever issues come up of who deserves to make more or less, they get bogged down with who works harder and who's work is more meaningful.

It's economics and it starts and ends with raw numbers. Acknowledge that first, then move on to how to make it better.

Re: Maybe treating housing as an investment was a mistake

#269

Post by wankle »

> But now, if she buys a home, she needs housing prices to keep going up to make her decision financially sound.

If you buy a home, you're living rent free, that's true regardless if the price goes up. If you live in it for 30 years and sell for exactly what you bought it for, you still made money because you lived rent free for 30 years. That's even including the cost of maintaining the home, roof replacement, HVAC, water heaters, appliances. Then there's the reduced taxes on mortgage interest.

Re: Maybe treating housing as an investment was a mistake

#270

Post by mgkimsal »

kongolongo wrote: post #214
dfxm12 wrote: post #58

Earlier quoted context omitted.

What sucks is a lot of young renters with steady jobs can afford to pay off a mortgage month to month, but they just can't afford that down payment (especially the 20% needed so as to not need to get mortgage insurance)! I was in that position for a while. Every time it seemed like I could afford to put that money down, the housing prices went up! It took a handful of years of renting cheap places (with roommates), l…

I don't think that necessarily is a a bad thing. Just because someone can theoretically afford a mortgage payment now its pretty difficult to predict say 5+ years out whether or not that steady job will hold, especially if they're young and have a short credit history. The down payment adds a cushion for that risk. There's less inherent risk to renting, you're looking at a commitment of 6 months to a max of maybe 2 y…

> Being too risky with handing out mortgages is partly what lead to the housing bubble in 2008 afterall.

Being aggressively risky with little downside was a bigger root.

I worked in a mortgage comp for a bit before the big crash. "You want a 150% loan-to-value loan, no money down, no intention of proving income or ability to repay... sure, that'll be 7% instead of 5%. Sign on the dotted line..."

I was blown away when I learned about 'no down, no doc' loans, which... yes, it's another variation, but... the interest rate was all of ~2% higher, which seemed in no way to cover the risk. But no one cared, because everything was just sold to someone else, and packaged up in to CDOs, and resold again.

Someone who has 'only' 18% of a purchase price down, good credit, and steady income... to be charged extra PMI - possibly for years, because "we need to re-valuate the property 3 more times".... seems to be just more price gouging, not actually addressing real risk.

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