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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

#981

Post by bumby »

nemo44x wrote: post #974
bumby wrote: post #342

Earlier quoted context omitted.

This is also, IMO, part of the problem. As you “move up” more and more undiversified wealth is tied up in your illiquid “investment” leading to overly protectionist policies. Imagine if 70% of Americans invested their wealth in, I dunno, IBM. Don’t you think that’s going to incentivize some crony policies?

A house/property isn't as illiquid as you think. You can take out loans against it and invest those, often at below or near inflation rates and very often below average market returns. The equity in a home is collateral for more property, investments, etc. I can't sell it on the stock market in an instant, but I can use the equity in my properties for a ton of things.

Right, that’s part of the same problem. Let’s go revisit the IBM stock example and say 70% of Americans wealth is tied up in it.

Now imagine we make a rule that you can’t exit that position. But you can borrow against your unrealized gains. That obliviously incentivizes even more protectionist policy.

Just like with housing, you can rarely fully exit the market because you’ve got to live somewhere. But when people have most of their wealth tied up in a single asset that also acts as a revolving line of credit, it tends to overly inflate the value of that asset. It just makes people protect those unrealized gains that much more or risk being upside down on an asset you can’t sell.

Re: Maybe treating housing as an investment was a mistake

#982

Post by tradertef »

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…

Sorry but you are whining.

Re: Maybe treating housing as an investment was a mistake

#983

Post by aetherson »

brewdad wrote: post #884
aetherson wrote: post #829

Earlier quoted context omitted.

People with a $300k/year income don't face a 50% tax rate all in.

It can start to push up that way if you count 20-ish% in Federal income taxes, 10-13% in state income taxes, 6.25% (on the first $150k for social security). 4.5% for Medicare, a 3.8% surcharge on any capital gains or non-qualified dividends. Add in a 10% sales tax and plenty of misc fees (another name for a tax) and while you might not get to 50% exactly, it's a pretty good approximation.

California marginal income tax rates for a single person on $300k are less than 10%. On the other hand, federal rates are higher than 20%. You don't pay 10% sales tax unless you're using your entire income (uh, including the stuff that was taxed away?) on items that the sales tax applies to (and you certainly aren't).

If you're a single person in California, at $300k, if you have no special tax situation, you'll pay a bit less than 40% tax. If you're married, significantly less than that.

Re: Maybe treating housing as an investment was a mistake

#984

Post by secabeen »

steveBK123 wrote: post #139
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.

Any job where the amount of labor has a fixed proportion to the possible economic output will at best track inflation. Software can pay well because the code you write can service 100, 1K, 1M, or 1B customers.. with some time spent on scaling. There's not much a single chef can do such that their labor which serves 100 tables/night can suddenly scale to serve 1000 tables/night. The only way the replicate that kind of…

Yes, this. Doctors and Lawyers do pretty well, but they delegate a lot of stuff to paralegals, associates, PAs and nurses, so that they can focus on the high-value work. The work itself in those fields also generates a lot of value either in a legal decision that can scale with the business, or a life saved, so they can capture a lot of that value. It doesn't matter how good a meal you can make, it's not going to give someone 5 more years of life or keep them out of jail for 5 years.

Re: Maybe treating housing as an investment was a mistake

#985

Post by mulmen »

humanrebar wrote: post #866
mulmen wrote: post #813

Earlier quoted context omitted.

Yep. Even if I bought a house at the peak and the market tanks I can still sell it (at a loss) and buy a comparable house because those are cheaper too. The people who get screwed are the multiple-home-owning rent seekers and I'm ok with that. Treating your primary residence as an investment has been bad financial philosophy for all of time.

> The people who get screwed are the multiple-home-owning rent seekers and I'm ok with that. Well, also people who were planning on retiring to a lower cost of living area (i.e., NY to Florida) and using the difference difference in housing costs as part of their retirement income.

I don't think it is a good long term plan to subsidize poor retirement savings strategies at the cost of affordable housing. This is why we need to provide safety nets, in case people paint themselves into these corners. But we don't need to bend over backwards to make those bad ideas passable ideas, the cost to society is too great.

Re: Maybe treating housing as an investment was a mistake

#986

Post by mulmen »

panopticon wrote: post #888
mulmen wrote: post #813

Earlier quoted context omitted.

Yep. Even if I bought a house at the peak and the market tanks I can still sell it (at a loss) and buy a comparable house because those are cheaper too. The people who get screwed are the multiple-home-owning rent seekers and I'm ok with that. Treating your primary residence as an investment has been bad financial philosophy for all of time.

> The people who get screwed are the multiple-home-owning rent seekers and I'm ok with that. And people who suddenly find themselves underwater on their mortgage. Assuming they face no economic shocks they might be able to ride it out, but that sounds like a very stressful situation to be in.

Going in to a mortgage without a plan for the market tanking and being upside down means you shouldn't have gone into the mortgage. They can stay in the house and continue making the payments they can afford. They can afford the payments, right? Right??

If they can't then they fall back on some social safety net that prevents bad decisions from being ruinous. Our lack of these mechanisms is why we have to keep propping housing up. The problem is we can't keep doing that.

Re: Maybe treating housing as an investment was a mistake

#987

Post by gangstead »

carlosjobim wrote: post #961
mxkdodi wrote: post #273

Earlier quoted context omitted.

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…

> I just paid a fifteen thousand dollar plumbing bill. That has to be for commercial real estate, or you've been ripped off. There is no possibility of a single family dwelling ever having plumbing problems of that scale. But maintenance costs are in general a landlord lie. They wouldn't rent out their properties if costs where anywhere near income. As for my own anecdote, my landlord has spent at most 0,5% of what h…

That is a very believable number. I had a leak in my concrete slab last year. The plumbing bill was $20k, which didn't include fixing all the holes in the drywall nor the bathroom remodel after they went through the shower to jackhammer a hole in the foundation.

Re: Maybe treating housing as an investment was a mistake

#988

Post by gniv »

ashwagary wrote: post #939
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…

>I'm a new immigrant to the US In your position, I would recommend renting as long as possible until house price correct in maybe 2-5 years. There is no reason to feed the bubble on already massively inflated properties with your hard earned money.

Agree, but with the caveat that the prices might not come down at all. But still I think that's ok. What will come down are the interest rates, and right now you can make 5+% risk-free on savings, so it makes sense to keep renting and saving.

Re: Maybe treating housing as an investment was a mistake

#989

Post by spopejoy »

marcus_holmes wrote: post #640

I love this, but it missed out one factor: the banks. Mortgages before the 80's were tied to your income, and for most households that was a single income. House prices couldn't rise beyond a fairly low point because no-one could get a mortgage for them. Then in the 90's this broke two ways: most households had 2 incomes as the norm became that married women also worked, and the banks started giving mortgages on much…

This wasn't some accident of demographics though but a specific objective achieved by the banks in the late 70s and early 80s, as documented in Liar's Poker.

They had to push congress hard to do something they knew was dodgy, that is, secuiritizing mortgages. The quid pro quo was the mortgage interest deduction, but even that is correctly seen as a subsidy to banks. Indeed if the government really wants to "help homebuyers", why only support the debt part?

By the end of the 80s this mess was already in full swing.

Re: Maybe treating housing as an investment was a mistake

#990

Post by pradn »

davidw wrote: post #64
pradn wrote: post #25

It's practically impossible for US society to get out of treating housing as an investment. Americans believe in home ownership as evidence of prudence (hard work + savings), acumen (housing always goes up so it's smart to buy a house!), and sense of security and achievement. These ideas aren't going to change any time soon. That's the ideological component. Home-owners also protect their investments because they're…

> But it's hard to see evidence of much political will to solve these problems. Disagree. The YIMBY movement is picking up steam in a big way. Here in Oregon, we re-legalized 4-plexes in our cities and the woman responsible, Tina Kotek, is now our governor. She's pushing another big housing bill. Our mayor in the city I live in regularly attends our YIMBY group meetups. It's gotten bad enough in enough places that th…

That's great to see! I haven't been aware of this news.

I do hope it doesn't become one more of those red state vs blue state ideological lines. "Come to Texas, we won't build a condo complex next to your American Dreams-style picket fence."

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