Maybe treating housing as an investment was a mistake • Hacker News Board

Re: Maybe treating housing as an investment was a mistake

#271

Post by whiddershins » Mon, Mar 06, 2023, 5:55 PM UTC

got to the free nerd wallet calculator

https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator

plug in all the numbers given in TFA with this reasonable modification:

Increase in housing prices (rent and buy) exactly match whatever your inflation number is.

return on investment is 4% over inflation, and you pay 15% capital gains on it.

Lo and behold, the break even point is 20 years, after which buying is actually better.

tweak a couple of variables ... move your marginal tax rate up to what someone making 175,000/year makes in NY or CA and the break even point gets earlier.

Etc.

Real Estate doesn't have to beat inflation to be a good investment. It only has to beat inflation when the price it is being sold at assumes it will beat inflation in the future and has baked that in.

The article is drawing way too much conclusion from a small amount of observation.

Re: Maybe treating housing as an investment was a mistake

#272

Post by swexbe » Mon, Mar 06, 2023, 5:55 PM UTC

rcme wrote: post #12

Buying a house is an investment. You're making a bet that worker productivity will improve near you. After all, what is the value of land? Some land can be farmed or house a factory. But usually, when we talk about residential real estate, we're talking about land that houses workers. So, the value of that land is directly proportional to the economic value those workers can provide. We refer to "economic value provi…

This would makes sense if everyone was self-employed. But the demand side of housing is decided by salaries which do not necessarily follow productivity.

Re: Maybe treating housing as an investment was a mistake

#273

Post by mxkdodi » Mon, Mar 06, 2023, 5:55 PM UTC

jedberg wrote: post #195

Muromec wrote: post #165

Earlier quoted context omitted.

And here at the bottom of the see, there is no down payment (financing up to 100%), but young renters still can't get the a mortage of the same monthly amount as they pay rent, because of regulatory reasons -- mortage ceiling is defined as something like 5x gross yearly salary. Somehow it's fine to pay half the salary in rent, but not fine if it's financing the mortage.

That sort of makes sense. When you own a property, you have to maintain it and pay property taxes. When you add all that up, you either need a lot more than rent, or you need the mortgage to be lower than rent so you can afford those other expenses.

It makes absolute sense, because maintenance costs are non-negligible. I just paid a fifteen thousand dollar plumbing bill. Since rent would include the ability to call the landlord to make him fix that, I sure would expect rent to be higher for the same place than my mortgage is.

Last year I spent twenty grand on a new roof. What's next? Idk, but that's why my mortgage isn't half of my salary. If it was rent, these things wouldn't be my problem.

That's the trade-off.

Re: Maybe treating housing as an investment was a mistake

#274

Post by pcthrowaway » Mon, Mar 06, 2023, 5:56 PM UTC

czbond wrote: post #57

photon12 wrote: post #38

Earlier quoted context omitted.

Yes, there is an inconsistency in the amount of effort expended to survive versus the outcomes of that effort. I can't reconcile them in my head. I'm watching my friend trying not to physically deteriorate and have some modicum of comfort while I sit here on my couch living off savings from the job I recently quit. Nothing I do can be so much more valuable than what he does.

I mean... that's life. What schools should teach is not just "here is a career that matches you're skills" - but more so, "if you choose this career, these are the most probable outcomes and life paths you'll end up in" If AI takes engineering, medical, and law work away from those professionals - they too could have spent many hours to learn, to then earn little. Every human has worth, but we all value the type of w…

Medical and Legal are 2 of the last professions that are likely to get automated.

Lawyers are entirely composed of people who can legislate away the threat of AI practicing law (taking their jobs)

And robots aren't known for their bedside manner yet. Also, there's a lot of liability in practicing medicine, which companies would probably be unwise to take on

Re: Maybe treating housing as an investment was a mistake

#275

Post by fnordpiglet » Mon, Mar 06, 2023, 5:56 PM UTC

mjr00 wrote: post #10

> While the rich are more likely to own homes, tons of middle class and poor people also bought homes and planned their lives under the assumption that housing prices would go up. Tanking housing prices would destroy their trust in the system that they bet everything on. This is pretty much the crux of it. High housing prices could be "fixed" almost overnight, but for almost every citizen of the first world, their ho…

I don’t understand this. There are a lot of places in the US, and certainly globally, where housing prices decrease. There are also plenty of folks who got soaked in 2008 and lost everything, and no one helped them. How precisely does “the government” do this house price propping up? Via loan guarantees to ensure liquidity in the mortgage market? These make houses affordable and accessible to most people. Without loan guarantees people would still be buying houses all cash, and through loans for high credit quality, but primarily by high value entities who can afford to buy and rent many properties. In this world housing would largely be corporate owned rental units. Prices alone wouldn’t be keeping people out, but rather lack of loan liquidity would ensure a lack of lending. What keeps housing values high isn’t loan liquidity, it’s the ability to convert property into cash flow via rentals. Ultimately to stay risk neutral in pricing the cash flow option for renting is what supports home values.

But I’ve seen nothing that guarantees anyone pricing continues to rise or that their home investment will make them rich. What it does do is force savings by allocating a portion of their loan to principal growth. Even if it doesn’t grow at all or even declines, it’ll be worth a lot more later than the latte they forwent 20 years ago.

If you want guaranteed returns, buy treasuries.

Re: Maybe treating housing as an investment was a mistake

#276

Post by e40 » Mon, Mar 06, 2023, 5:56 PM UTC

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…

Yeah, my mortgage is $800 for a 2,000 sq ft house and my son's rent for 1/2 of a 1 bdrm apt is $1700. The situation is completely out of control. (We're both in CA.)

Re: Maybe treating housing as an investment was a mistake

#277

Post by dirck » Mon, Mar 06, 2023, 5:56 PM UTC

kwhitefoot wrote: post #235

highwaylights wrote: post #175

Earlier quoted context omitted.

Tax on non-primary properties solves this if you can get it past vested interests. Reasonable tax breaks for your primary or only home, and none for second homes / investments you let out. That gives a valve to perform qualitative easing on the housing market whenever you need to, and is not uncommon in other parts of the world. EDIT: Having read the responses below I’ve realised I didn’t clearly word what I meant he…

You mean that in the US you don't pay tax on the capital gain when you sell a property that is not your home? It's a great country to be rich in!

There is definitely capital gains tax on non-primary residence homes. Only primary homes are exempt up to certain dollar.

Re: Maybe treating housing as an investment was a mistake

#278

Post by sokoloff » Mon, Mar 06, 2023, 5:56 PM UTC

xapata wrote: post #173

highwaylights wrote: post #140

Earlier quoted context omitted.

This astonishes me about the US real estate market and is something I was only educated to on HN in the last week or so. I had absolutely no idea that 30 year fixed mortgages were not only widely available but the common standard there.

I'm an economist, yet I only recently realized that adjustable-rate mortgages are economists' consensus best choice for consumers. Based on the expectation that personal economics are well-correlated with broad market economics, and that interest rates will decline when the economy struggles.

I have a hard time squaring that with 15 year fixed rate mortgages being under 3% for several years in the very recent past and 30 year fixed mortgages being at/under 3% for part of that time.

How would an adjustable rate mortgage be the best choice for consumers in that situation?

I got an initial mortgage at 5.625%, refi’d to 3.875%, then again to some ~3% 15-year. I never seriously considered an ARM (and now wish I'd refi'd a third time back to a fresh 30-year fixed just to keep using that cheap money for longer).

Re: Maybe treating housing as an investment was a mistake

#279

Post by [deleted] » Mon, Mar 06, 2023, 5:57 PM UTC

kwhitefoot wrote: post #235

highwaylights wrote: post #175

Earlier quoted context omitted.

Tax on non-primary properties solves this if you can get it past vested interests. Reasonable tax breaks for your primary or only home, and none for second homes / investments you let out. That gives a valve to perform qualitative easing on the housing market whenever you need to, and is not uncommon in other parts of the world. EDIT: Having read the responses below I’ve realised I didn’t clearly word what I meant he…

You mean that in the US you don't pay tax on the capital gain when you sell a property that is not your home? It's a great country to be rich in!

[deleted]

Re: Maybe treating housing as an investment was a mistake

#280

Post by mypalmike » Mon, Mar 06, 2023, 5:57 PM UTC

tempsy wrote: post #107

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…

This is an absurd statement. Median rent in Seattle for a 1 bedroom is $2k. Using the 40x rule someone who makes $80k could easily afford this, which is a low bar for someone with a moderately decent job. Locking in a low rate alone has nothing to do with whether owning is more affordable than renting. The rate could be 0% but with a sales price high ala 2021-2022 buying mania and then adding property taxes, insuranc…

The median annual salary in Seattle is around $60K. So $80K is, based on the actual data, a high bar.