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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

#411

Post by Glyptodon »

I think there are some factors missing in this piece:

1. Values go up because of density changes related to location desirability. My house is more valuable because more people want to live here, but space is finite. This should lead to it being worthwhile to pay me to leave so an apartment complex can replace the single family homes on my block. But it's more likely that someone will pay a lot to have the single family experience at a larger price.

2. The value of location has increased. I could buy a nice home for $350k in a small town that would go for $650k in my city. But we can't move there because the downsides of working there for my SO are too large.

3. Not being adjacent to a major urban area is in many respects like going back in time some proportion to your distance from one. Finding appropriate doctors is harder. Finding employment that has modern working conditions is harder. Etc.

That said, I think it's reasonable to expect housing to be stable relative to inflation rather than being a high performance asset. And retaining wealth at the rate of inflation minus borrowing costs should beat just renting at the rate of inflation without a need for tremendous price growth. But there's obviously a big issue with supply.

Re: Maybe treating housing as an investment was a mistake

#412

Post by loeg »

Muromec wrote: post #165
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…

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.

> mortage ceiling is defined as something like 5x gross yearly salary.

No -- mortgages are limited to 50% debt-to-income. The exact principal that relates to income depends on prevailing interest rates.

You can see this fairly easily by using any mortgage calculator, e.g., Google's (in the "Purchase budget" tab).

Keeping fixed: $100k household income, 0% down, California, Google's tax and fees estimates, 800+ credit score (just to eliminate that as a factor).

At 2% interest, Google thinks you can get a $512k (~5.1x income) mortgage (at 50% DTI).

At 6% interest, that falls to $368k (~3.7x income).

At 10%, $274k. You get the idea.

(For all of these loans, your annual payments would be about $50k/year.)

Re: Maybe treating housing as an investment was a mistake

#413

Post by sevenf0ur »

Housing is, historically, a not-so-great investment. It has transaction fees, requires maintenance, and you often do not get back the money you put into upgrades. The article paints an overly optimistic picture of owning. Nobody expects housing to go up like it did the last few years. Invest in stocks or index funds. Spend your weekends on your hobbies, not lawn care or painting walls.

Re: Maybe treating housing as an investment was a mistake

#414

Post by dragonwriter »

Muromec wrote: post #165
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…

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.

> Somehow it's fine to pay half the salary in rent, but not fine if it's financing the mortage.

Because eviction is easier than foreclosure (and, actually, a lot of big property management companies look at similar affordability criteria as lending banks, but you can find mom & pop landlords; mom & pop mortgage lenders, unless they are literally rich family members making an informal loan, probably not.)

Re: Maybe treating housing as an investment was a mistake

#415

Post by ParksNet »

lalos wrote: post #116

Easily fixed with a tax system: 1) first home tax-free - the address you submit your yearly taxes on. Incentivize people to own at least one home. 2) second property you pay taxes for both homes now - no more tax free benefit since you are able to afford more than one place. 3) more than 2 properties you pay taxes for all of them times some factor 0.05*N houses. Fudge around with the factor to allow more supply for a…

Simpler than that: just enact State, County, or HOA bans on corporations from owning single-family homes. Let them pour money into apartment complexes.

Re: Maybe treating housing as an investment was a mistake

#417

Post by lacrosse_tannin »

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…

The mortage payment isn't less than rent, at least for me. IF I got a "3.5% FHA loan" it'd be.. more. I don't know how to check how much mortage insurance would add at the moment.

OK I found a calculator and it'd be 5k instead of 3k per month.

Re: Maybe treating housing as an investment was a mistake

#418

Post by kortilla »

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…

Mortgage insurance isn’t much. It’s really just the difference in extra interest on the larger balance that gets you. You also get worse rates in general for under 20%.

Re: Maybe treating housing as an investment was a mistake

#419

Post by jedberg »

DanTheManPR wrote: post #310
jedberg wrote: post #195

Earlier quoted context omitted.

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.

But it's not as though property taxes and ongoing maintenance costs don't exist for apartments. The income the owner receives from the rents has to cover all of that.

Exactly. That's why if your mortgage == rent then you're behind. Because rent already includes those things.

Re: Maybe treating housing as an investment was a mistake

#420

Post by NineStarPoint »

nineplay wrote: post #268
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 discussio…

While you’re right that how hard someone works doesn’t determine their pay, how much money someone brings in at best loosely correlates to their pay as well. I think a lot of people have dissonance there as well, thinking “well surely if it’s not how hard the work is, it’s how much value they bring in!” But no, all that matters from a business perspective is that the sum of all paychecks is less than is needed to make a profit. It’s all about the cost of replacement, or how much money it would take to hire the next best chef you can find. It’s the supply demand curve of “how many chefs are looking for work” vs “how many people want to hire them”. If there are many more people who want to be chefs than there are slots for chefs, they can easily end up working for many times less than they bring in to the business.
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