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

Re: Maybe treating housing as an investment was a mistake

#571

Post by sokoloff » Mon, Mar 06, 2023, 6:58 PM UTC

kilgnad wrote: post #358

xapata wrote: post #173

Earlier quoted context omitted.

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.

Why don't you get fixed rate so that the rate never goes up. When the background rate goes down you refinance for another lower fixed rate.

It used to be the case that the adjustable rates were lower than the fixed rate. When a 30-year fixed was 8%, a 5/1 (5-year fixed, then adjusting every year) mortgage may have been 5% and a 10/1 may have been 6% for the fixed period.

Once fixed rates got down to the 3-4% range, that seemed to no longer hold and I was frequently offered fixed-rate jumbo mortgages at rates slightly lower than adjustables (I have no idea why they even bothered to quote an adjustable at that point).

If you could get a 10/1 cheaper than a fixed-30 and were pretty sure you'd be moving in 7 years, that's why someone would take out an ARM. (Or, if they could qualify for the ARM but not the fixed-rate payment.)

Re: Maybe treating housing as an investment was a mistake

#572

Post by kqr2 » Mon, Mar 06, 2023, 6:59 PM UTC

pfannkuchen wrote: post #450

Have we considered simply making mortgages illegal? Allowing the inclusion of future money (and thus future labor, usually) in bids must increase the cost of land (at least) as a percent of income, no?

I don't think we need to make mortgages illegal. We just need the government to not subsidize and guarantee mortgages. 30 year fixed rate mortgage most likely would not exist. Instead ARMs would likely be the norm which would probably drive down purchase prices due to future rate risks.

Re: Maybe treating housing as an investment was a mistake

#573

Post by judge2020 » Mon, Mar 06, 2023, 6:59 PM UTC

entangledqubit wrote: post #494

I don't understand why people just don't call out mortgages for what they are - leveraged loans that let you get ~4-5x the return on housing gains. (Assuming a simplified 20% down scenario and you refi on a regular basis.) I suspect that most housing demand stems from just people wanting in on this (subsidized) investment. From what I can tell, this is the retirement plan foundation for many Americans. I guess this w…

> I suspect that most housing demand stems from just people wanting in on this (subsidized) investment. From what I can tell, this is the retirement plan foundation for many Americans.

Renting hardly makes sense when buying is an option. Instead of giving your landlord $2k a month or $24,000 a year, it goes into a de-facto savings account that either keeps its value or goes up in value in case you ever need to sell it (with the only obstacles being times like right now where the high interest rates make it hard for prospective buyers to qualify - a $2,500 payment house at 2% from 2022 is $4,000 today at 7%).

Re: Maybe treating housing as an investment was a mistake

#574

Post by undersuit » Mon, Mar 06, 2023, 7:00 PM UTC

lolinder wrote: post #383

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…

> especially the 20% needed so as to not need to get mortgage insurance The mortgage insurance isn't nothing, but it's not a big enough cost to warrant waiting until you have 20% down if that's still a long way off. You can also very easily remove the mortgage insurance once you get to 20% equity, so it's not like it sticks around throughout the entire mortgage if you can't scrape enough together at the beginning.

I scraped together 10% and various fees brought it down to 8%. Still closed on a house(2019) and now dog-friendly rentals in my area have passed my monthly mortgage. Math changes away from my favor if I didn't choose to have dogs.

Re: Maybe treating housing as an investment was a mistake

#575

Post by eddsh1994 » Mon, Mar 06, 2023, 7:01 PM UTC

angarg12 wrote: post #551

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…

I'm a new immigrant to the US, and housing is my single biggest worry together with my work visa. Our household income is north of 300k, but housing still seems unaffordable. It might sound like whining, but we only achieve this level of income recently, so our lifelong savings are in the low 6 figures. We got no assets or property abroad, and no family that can help us to get in the property ladder. Even old, basic…

Are you in the Bay Area? If so I saw an ad in SF for condos/1 bed flats starting at high $300k on the weekend. With recent zoning changes it might get easier for you soon.

Re: Maybe treating housing as an investment was a mistake

#576

Post by steveklabnik » Mon, Mar 06, 2023, 7:01 PM UTC

hammock wrote: post #254

svachalek wrote: post #87

Earlier quoted context omitted.

See the graph halfway down the page https://www.bls.gov/productivity/home.htm

Why does the chart start at 1973?

'73 to '23 is fifty years. I'd imagine it's just the arbitrary choosing of the chart maker.

Re: Maybe treating housing as an investment was a mistake

#577

Post by dukeofdoom » Mon, Mar 06, 2023, 7:01 PM UTC

From landlords perspective. things are build with very poor quality materials, that require constant maintenance. Also weather damage of all sorts from trees to roofs, to water in basement. plumbing now made from plastic that leaks. long list. Also people fail to consider how much of the rent money is going to interest, about half over a lifetime. In cities like Toronto, the rent doesn't even cover the mortgage on most rented out houses. So landlord will need to pay the difference, with the hope of getting it back evnetually do to inflation or rising prices.

Re: Maybe treating housing as an investment was a mistake

#578

Post by ethanbond » Mon, Mar 06, 2023, 7:02 PM UTC

s1artibartfast wrote: post #405

ethanbond wrote: post #367

Earlier quoted context omitted.

A high Land Value Tax accomplishes this. It negates the appreciation generated merely by land scarcity and value of surrounding land, which means the only way to get gains from your real estate holdings is indeed to put labor and capital into improving it.

I think annual land value taxes are efficient at resource allocation but unacceptably punitive on owners. You should not be penalized or motivated to sell simply because a 3rd party can get a higher return. Similarly, value gains from land appreciation are taxed at the time of sale. IF I pay annual taxes on land appreciation, I should be exempt from taxes at the point of sale, otherwise I am paying for that appreciat…

Yep I (and many other LVTers) are okay with zero taxes at time of sale.

Re: Maybe treating housing as an investment was a mistake

#579

Post by hd95489 » Mon, Mar 06, 2023, 7:02 PM UTC

dbjacobs wrote: post #480

wankle wrote: post #365

Earlier quoted context omitted.

Our home was $200K. If we own it for 30 years, the property taxes will average to about $180K over that time. If we have $70K expenses (roof, HVAC, etc.) then the total would be 250K. If we sell our home at the end of 30 years for exactly what we bought it for, no raise in value at all, 200K, then 250K of maintenance works out to around $700 per month for each month of those 30 years. Any amount we can sell the house…

Don't forget the opportunity cost of that $200K of equity. If that money invested earned 5%/yr on average that is another $10K/yr bringing your $700/mo to $1,533/mo. If you sell at $450K after 30 years, that mostly just makes up for that opportunity cost (30yrs at 5% would be 432K).

No tax on the house. 30% tax on investment.

Re: Maybe treating housing as an investment was a mistake

#580

Post by whymauri » Mon, Mar 06, 2023, 7:02 PM UTC

ericmay wrote: post #501

lukeschlather wrote: post #470

Earlier quoted context omitted.

In a well-functioning city, a head chef should be able to comfortably afford to rent a 2-3 bedroom apartment within walking distance of their restaurant. They should not be spending 1/3rd of their income and only getting a studio out of it.

You can, just move out of Capitol Hill in Seattle which is one of the most desirable areas in one of the most desirable cities located in one of the most desirable geographies in the wealthiest country on earth. This place looks nice! https://www.zillow.com/homedetails/2742-Lincoln-St-NE-Minnea...

There are many cities in the world where a head chef can live in the desirable neighborhood within a desirable city while working at their desirable restaurant. For example, the owners of a local wine bar where I live in Bogota are able to operate a wine bar below their apartment with relaxed zoning laws. Just not possible in the U.S.

Not just high-end restaurant jobs. The local owner of the ferreteria (home repair goods) lives above his store as does a window/glass store owner. And this is in a relatively pricey, high end neighborhood. In other neighborhoods is even more common. My family recently sold a restaurant in Bogota and the new owners are converting the top floor into a home for themselves.