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

Re: Maybe treating housing as an investment was a mistake

#601

Post by dkrich » Mon, Mar 06, 2023, 7:09 PM UTC

Markets are funny. They are colored by recency bias. You have an investment nobody cares about for years and years and then all of a sudden there’s a ground shift and it becomes extremely valuable overnight. Then the value seems like it was self-evident all along.

But markets are also cyclical and ground shifts work both way. Right now anyone owning a home seems like a genius and anyone renting seems like a poor sucker. I suspect that eventually the pendulum will swing back for unforeseen reasons and people will swear off ever owning more things than they need. The minimalist theme seems to come up every cycle.

Btw, to the point about housing not producing anything but relying on the greater fool theory- that is not unique to housing. For example, right now beyond meat is an investment nobody is interested in. But suppose you get some sort of terrible virus that wipes out half the cattle population and the price of beef goes up 80x. All of a sudden beyond meat will likely have more demand than they can satisfy. They didn’t necessarily innovate more than they did previously, but a ground shift brought them a spike in demand. Housing is no different. ZIRP followed by a very fast move to 4% on the 10 year created an environment of owners who suddenly found themselves locked into low interest mortgages in a very high interest rate environment. There doesn’t have to be an increase in productivity for an asset price to increase, just an increase in demand for it.

Re: Maybe treating housing as an investment was a mistake

#602

Post by loldk » Mon, Mar 06, 2023, 7:09 PM UTC

aeternum wrote: post #362

arberx wrote: post #5

That implies housing has risks. Since 2009, that risk has been eliminated by the FED owning 30% of all mortgages on its balance sheet. We've nationalized housing risk and privatized the gains.

Not sure if it counts as privatized when the vast majority of Americans are homeowners. The gov had a ton of programs to increase the home ownership rate over the last 50 years, they were somewhat successful. Now you have a situation where the networth of 65-70% of the population is tightly coupled to their home price. And we wonder why it's so hard to get them to vote for new housing. As Munger says, Show me the inc…

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Re: Maybe treating housing as an investment was a mistake

#603

Post by btilly » Mon, Mar 06, 2023, 7:09 PM UTC

abeppu wrote: post #454

btilly wrote: post #382

Earlier quoted context omitted.

It was presented in a confusing way, but it is accurate. Rent tends to move with housing prices. If the price of housing goes up, rent also goes up, and vice versa. In scenario 1, buying cost $1.1 million today and saved $600k, meaning that renting cost $1.7 million. In scenario 2 the house cost more and renting cost left making them about equal. We aren't given either number. In scenario 3 the house cost $1.7 millio…

I think as presented this still can't be comparing things sensibly between these conditions. > more houses = cheaper houses and cheaper rent So why do we say that buying in scenario 3 costs ~$1.75M and buying in scenario 1 costs ~$1.1M? Everything in the preceding paragraphs makes it sound like her mortgage is fixed. In scenario 1, property taxes and insurance would be higher. Nothing should make scenario 3 more expe…

They were counting the present value of the buying decision. Which includes the present value of the resale 20 years later.

I have no idea if the calculator that they used factors in property taxes and insurance. But insurance averages something like $5k/year for $1 million of coverage, so does not significantly alter the prices. Whether property taxes do depends strongly on where you live. But generally it is much less than a mortgage.

Re: Maybe treating housing as an investment was a mistake

#604

Post by goosinmouse » Mon, Mar 06, 2023, 7:10 PM UTC

gwright wrote: post #293

e40 wrote: post #276

Earlier quoted context omitted.

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.)

I'm not saying there isn't a disparity but a comparison like this would need to include taxes, maintenance, and utilities on top of the mortgage to be comparable to a rent (well utilities may or may not be included).

And at the end of 3 years the homeowner will have 3 years of equity and the renter will have nothing.

Re: Maybe treating housing as an investment was a mistake

#605

Post by joejerryronnie » Mon, Mar 06, 2023, 7:10 PM UTC

ep103 wrote: post #21

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…

My rent for my cockroach invested, 150 sq ft apartment is larger than my parent's mortgage for their suburban McMansion about 45m-1h away, and my rent is absolutely on the cheap side for a 1bd room in the area.

If this is not worth it for you (maybe it is because of amenities), couldn’t you just buy a place closer to where your parents live?

Re: Maybe treating housing as an investment was a mistake

#606

Post by rcme » Mon, Mar 06, 2023, 7:10 PM UTC

riku_iki wrote: post #600

rcme wrote: post #157

Earlier quoted context omitted.

> This is pretty much the crux of it. High housing prices could be "fixed" almost overnight This is a crazy thing to state with almost no justification. How could housing prices be fixed overnight? Please don't say "zoning changes." Plenty of places without zoning issues have really expensive real estate.

high enough property tax.

Wouldn't that make homes less affordable and increase rents?

Re: Maybe treating housing as an investment was a mistake

#607

Post by varelse » Mon, Mar 06, 2023, 7:10 PM UTC

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Re: Maybe treating housing as an investment was a mistake

#608

Post by swatcoder » Mon, Mar 06, 2023, 7:11 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…

> My current plan involves saving for a few years and dump a good chunk of cash into a down payment

That's exactly the on-paper ideal for how one comes to buy a home here. With rents soaking available income, and a high average debt load because of education costs, most young American's now struggle to see any non-negligible growth in their savings until later in life (if then). If you have substantial savings and anticipate growing it further in the near future, you're already winning the game. You're fine.

Re: Maybe treating housing as an investment was a mistake

#609

Post by keerthiko » Mon, Mar 06, 2023, 7:11 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.

In NYC, a lot of the affordable housing stock are part of co-ops, where the board has to approve your finances before you can move forward with a purchase. If your monthly income is less than a certain multiple (you would think 3x, but it's usually 5x - 10x depending on the co-op) of your monthly payments ie maintenance + mortgage + insurance, they can reject your application.

And even if you found a condo (usually 2x as expensive as a co-op for same QoL) without a board to reject you or just lived in a city without co-ops holding a lot of housing stock, banks have similar requirements in co-op applications as well. So you really need to have a massive income to go in without a >20% down.

Among the young people who may like to buy a house, this probably applies to a few rare folks working for a bay area tech company salary but are allowed to live in any other city where the home prices are more affordable.

Re: Maybe treating housing as an investment was a mistake

#610

Post by angarg12 » Mon, Mar 06, 2023, 7:12 PM UTC

eddsh1994 wrote: post #575

angarg12 wrote: post #551

Earlier quoted context omitted.

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.

Nope, Greater Seattle Area.

Still, we are a couple nearing our 40s, it seems insane to me that we need to "settle down" for a 1 bedroom flat while making ~3x the median local income.