One major mistake in this article is comparing houses to cars or appliances and saying they should lose value. Things go wrong in houses but while cars and appliances can't last forever, houses can last for hundreds of years with regular maintenance costs.
Maybe treating housing as an investment was a mistake
321–330 of 1001 posts
Re: Maybe treating housing as an investment was a mistake
#322Earlier quoted context omitted.
Normative statements don't hold much weight for justifying why things are the way they are.
Downpayments need to be substantial because the owner needs to have skin in the game. Otherwise the borrower could walk away from the house and the mortgage with very little downside.
The owner does have skin in the game. It's their home. If the down payment is too high, many people are prevented from owning a home. This causes these people to be stuck in the rental trap, paying >2x what a mortgage payment would cost. Good for landlords & those in the rental industry, bad for everyone else.
Re: Maybe treating housing as an investment was a mistake
#323"Housing prices only keep pace with inflation. America realizes it totally forgot about a few million homes it built, greatly expanding supply. Housing prices rise only 2%. Alice is much, much worse off for buying. In total, buying costs ~$1.75M, where renting would have cost her ~$1.3M."
Err.
What?
In this scenario, Alice lives in a world where a homeowner is allowed to subdivide their lot and sell homes worth about the same to N more people. Sure, one "home" costs the same, but she'll be allowed to fit a lot more homes onto her lot. She comes out way ahead in this world.
Re: Maybe treating housing as an investment was a mistake
#324Earlier quoted context omitted.
The standard in Canada, for example, is a 25 year mortgage which you renew every 5 years (fixed or variable, your choice).
Could you clarify what you mean by "renew"? That sounds a mortgage with rates that are reset every five years, which doesn't sound like "fixed" to me.
I think the technical term for this is a 5/5 ARM which is NOT a "fixed" rate loan. Most of the world borrows with ARMs.
Re: Maybe treating housing as an investment was a mistake
#325> 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…
> every citizen of the first world Where I lived in Italy, people certainly purchase houses, but they don't expect them to have crazy returns like in the US. It's just a way to not pay rent and have something that you can hang on to even if there's inflation or other funny business (something that Italy has seen a lot of). People even invest in, say, apartments, but it's a similar story: they expect them to hold thei…
There is lots of boring housing in the US. It is not going to be in the Willamette Valley in Oregon. Just like houses in the Alps in Italy versus less desirable places in Italy.
Re: Maybe treating housing as an investment was a mistake
#326> 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…
But the problem of your friend is not that you treat your house as an investment.
By definition, if people "invest" in goods that can be produced at a certain price, then production should kick in and restore balance. In a functional housing market you shouldn't be able to get a better appreciation of housing than the inflation rate, except for perhaps some very limited and irreplaceble houses in the Hamptons or designed by famous architects.
Housing should behave much like the painting market: a few are worth millions, but everybody can get a cheap painting for their living room because more painters are born every day.
So the actual problem that enables this housing pyramid scheme is the lack of production and the entrenched policies of class and race discrimination in real estate development. Existing homeowners rationally want to exclude builders away from their neighborhoods to keep supply limited, so they are politically fighting for restrictive legislation. This problem can only be solved politically, with the state taking a major role in the supply of housing.
Re: Maybe treating housing as an investment was a mistake
#327> 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 discussio…
There's no reason to want to make it better (or understand it at all) unless you're also thinking about something besides the raw numbers.
Re: Maybe treating housing as an investment was a mistake
#328I think the real problem is that we have rigged our the nominally democratic but mostly capitalist system to favor wealth accumulation above all else, and have given most people a crappy deal: provide some incentives (in the tax code and local laws) for most people to use their home as their primary wealth repository as long as they don't make a peep about the essentially untaxed wealth of rich people and corporations. Taxing income instead of wealth (except for homes, which is most of us) is really the way modern society is broken, and until we address it we will continue to pull away from each other.
Re: Maybe treating housing as an investment was a mistake
#329> 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 discussio…
They’re talking about how it is ridiculous that nothing but pure luck and circumstance of a screwed up housing market/system means they ended up with a sweet deal with affordable quality housing while their friend is forced to deal with living in a closet for much higher prices despite working hard.
Re: Maybe treating housing as an investment was a mistake
#330> 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…
20% is a huge requirement. The following can help anyone who's a veteran and reading this, regarding the downpayment: