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U.S. now short 4.5M homes as housing deficit grows

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Re: U.S. now short 4.5M homes as housing deficit grows

#41

Post by onlyrealcuzzo »

goalonetwo wrote: post #28
onlyrealcuzzo wrote: post #22

Earlier quoted context omitted.

If you're up 55% in 5 years on 5:1 leverage - that's a 275% return - or an annualized return of 22.5%. S&P returned ~16% over the same period. This is pretty consistent for the last ~20 years. A 6.5% annualized return might not sound like a huge difference - but over 40 years - that's an order of magnitude difference in your outcome. i.e. the difference in a $100k investment being worth $335M or $37M ($102M vs $11M i…

Except that you don't have a 5:1 leverage, not even close once you account for the fees. The math is surprising. I recommend the NYT Rent or Buy calculator. There is also absolutely zero chance that you will get a 22.5% chance return on your house over 40 years. Those have been the crazy covid returns that will most probably be reverting to the mean over the next few years. "House Price Index YoY in the United States…

> Except that you don't have a 5:1 leverage,

Except if it's your primary residence, you can get close to 30:1...

The fees on $1m homes are usually less than 1.5%. It's essentially 5:1 unless you're investing in very low value homes which are a completely different type of investment - that you're usually going after cash-flow instead of appreciation.

> House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024

4.63% on 5:1 leverage is... 23%... And you cherry picked at the start of a recession...

Re: U.S. now short 4.5M homes as housing deficit grows

#42

Post by goalonetwo »

onlyrealcuzzo wrote: post #41
goalonetwo wrote: post #28

Earlier quoted context omitted.

Except that you don't have a 5:1 leverage, not even close once you account for the fees. The math is surprising. I recommend the NYT Rent or Buy calculator. There is also absolutely zero chance that you will get a 22.5% chance return on your house over 40 years. Those have been the crazy covid returns that will most probably be reverting to the mean over the next few years. "House Price Index YoY in the United States…

> Except that you don't have a 5:1 leverage, Except if it's your primary residence, you can get close to 30:1... The fees on $1m homes are usually less than 1.5%. It's essentially 5:1 unless you're investing in very low value homes which are a completely different type of investment - that you're usually going after cash-flow instead of appreciation. > House Price Index YoY in the United States averaged 4.63 percent…

Again, I'm not disputing the leverage.

I'm disputing the fees that are removing at least 3 or even 4% a year, and that is on top of the interest. (I'm in the housing industry and I can tell you for a fact that everybody underestimate the fees until the tax increase, insurance increases and you need a new roof)

Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you?

You quickly realize that in order to make the math work you need your house to go up AT LEAST 5 or even 6% a year. In the current environment your house even needs to go up close to 8/9% a year to just break even.

And you are right that you use leverage so if it goes up above those numbers you start to make up equity very quickly. But there is almost no chance those type of returns will hold in the future.

Re: U.S. now short 4.5M homes as housing deficit grows

#43

Post by pavon »

pavon wrote: post #39
hooo wrote: post #14

Earlier quoted context omitted.

How does it not support the claim? More people more housing need.

The link is about the number of people Border Patrol caught, and thus won't be using US housing (or will be doing so legally as refugees). It's safe to assume there are others who don't get caught, but it provides no information about whether this is increasing, decreasing or forms a significant portion of the population growth. From 2007 to 2019 the estimated number of unauthorized immigrants was slightly declining[…

Furthermore, the housing supply is supposed to be responding to demand. Its failure to do so is a problem regardless of where that demand is coming from. It has been clear that we have had a growing housing shortage for decades, but it took a generation of population turnover and insanely unsustainable prices before political pressure grew to the point to change regulations and allow the housing market to be able to even begin to respond. Without the migrant population growth there is a very good chance we would have still allowed the problem to get just as bad before we finally responded, it just would have taken a bit longer.

Re: U.S. now short 4.5M homes as housing deficit grows

#44

Post by BugsJustFindMe »

goalonetwo wrote: post #30
BugsJustFindMe wrote: post #17

Earlier quoted context omitted.

> Do we really have a housing deficit? The number of new families goes up more every year than the number of new places to live. How's your algebra? > If you look at rent on the other hand it has stabilized in most location. This is false. https://fred.stlouisfed.org/series/CUSR0000SEHA Zoom in on the 5 and 10 year windows.

Comparatively to the increase in house prices, rents have definitely stabilized. It is now clearly better to rent in most of the US than buy an equivalent house. Use the rent or buy NYT calculator

> Comparatively to the increase in house prices

That doesn't mean rent has stabilized. That just means it's the less shitty of two very shitty options.

Re: U.S. now short 4.5M homes as housing deficit grows

#45

Post by onlyrealcuzzo »

goalonetwo wrote: post #42
onlyrealcuzzo wrote: post #41

Earlier quoted context omitted.

> Except that you don't have a 5:1 leverage, Except if it's your primary residence, you can get close to 30:1... The fees on $1m homes are usually less than 1.5%. It's essentially 5:1 unless you're investing in very low value homes which are a completely different type of investment - that you're usually going after cash-flow instead of appreciation. > House Price Index YoY in the United States averaged 4.63 percent…

Again, I'm not disputing the leverage. I'm disputing the fees that are removing at least 3 or even 4% a year, and that is on top of the interest. (I'm in the housing industry and I can tell you for a fact that everybody underestimate the fees until the tax increase, insurance increases and you need a new roof) Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy…

> Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you?

This is not how it works.

You would have to pay rent.

You'd take the opportunity cost of the difference in rent vs the cost of your house after the mortgage interest deduction (discounting principal, since that isn't a cost).

If it's an investment - you'd consider your cash-flow and principal.

Re: U.S. now short 4.5M homes as housing deficit grows

#46

Post by bryanlarsen »

silverquiet wrote: post #26
baggy_trough wrote: post #19

Earlier quoted context omitted.

When you move into a 3m home, you generally leave a vacancy in a sub-3m home.

Yeah, but if the interest is sub-3% on a mortgage that's like half value of the hose, you can probably rent the sub-3m home at a profit while it appreciates.

Whether they rent or sell the old house, it's available to a new family.

Re: U.S. now short 4.5M homes as housing deficit grows

#47

Post by pavon »

silisili wrote: post #15

Question for anyone who may know from experience: where are all the people coming from? It's a question everyone in my home city keeps asking after seeing all the new developments, and never really investigating an answer I guess. They keep squishing in apartments and tract housing everywhere there's a postage stamp of land, and it's sold the next day. Even wayyy out in the rural county. My very quiet road was a traf…

While the birth rate is currently below replacement rate, it wasn't 20-30 years ago when the now new homeowners were being born. US birthrate hit a local maximum in 2007, so that will continue to add pressure to housing demand over the next several years. Furthermore, life expectancy grew over the baby boomer population, so people are staying in their houses longer than before. Eventually we will get over this hump as the boomers pass away, and new homeowners decrease due to lower birth rate, but that doesn't help today.

Re: U.S. now short 4.5M homes as housing deficit grows

#48

Post by goalonetwo »

onlyrealcuzzo wrote: post #45
goalonetwo wrote: post #42

Earlier quoted context omitted.

Again, I'm not disputing the leverage. I'm disputing the fees that are removing at least 3 or even 4% a year, and that is on top of the interest. (I'm in the housing industry and I can tell you for a fact that everybody underestimate the fees until the tax increase, insurance increases and you need a new roof) Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy…

> Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you? This is not how it works. You would have to pay rent. You'd take the opportunity cost of the difference in rent vs the cost of your house after the mortgage interest deduction (discounting principal, since that isn't a cost). If it's an investment - you'd co…

you are right and you also need to include the rent equivalent, yes.

I would advise to use the rent or buy calculator: https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...

It is the best one I have found so far. Even in the ZIRP era, I couldn't find places that made sense buying based on that calculator. Nowadays it is even more clear cut that buying doesn't make sense financially (it could make sense for you if you put a ton of personal value on owning).

Re: U.S. now short 4.5M homes as housing deficit grows

#49

Post by silisili »

headcanon wrote: post #18

I'm looking for a house now and the market is crazy, every house is subject to a bidding war and selling for at least 25% over asking, which sucks for folks who don't have the cash on hand to pay the difference (since the bank only covers so much). There is no way this is sustainable. I looked into building a house and while its certainly possible its so expensive that everyone is trying to talk me out of it. Why is…

I can help a little as I went through the same decision a while ago. In the end, I decided to buy a house someone else had built as I don't like tract housing, as it gave me a bit of the best of both worlds - I got a well built custom house, but didn't pay out the nose for it.

There are a lot of factors that play in, certainly labor, but the biggest unique costs I think were the permitting and utility tie ins. When you can bulldoze 10 acres and build 80 houses at once, the cost amortizes way down on everything, including those. When you buy land and want someone to build on it, they have to do all of that work just for your one house.

I personally don't think it's worth it to build a house, unless you already own the land, want something really custom, plan to live there forever, or just have the extra money to spend. The day after it's built, it's not worth the money you spent on it, typically. Of course, over time, that changes.

All of that said, I stepped inside about a dozen 2023 new builds across three builders, and was absolutely mortified by their build quality. Dozens of nail pops, soft spots in floors, misaligned doors, broken rafters, and even a roof truss that wasn't connected to anything on one end.

Re: U.S. now short 4.5M homes as housing deficit grows

#50

Post by silisili »

pavon wrote: post #47
silisili wrote: post #15

Question for anyone who may know from experience: where are all the people coming from? It's a question everyone in my home city keeps asking after seeing all the new developments, and never really investigating an answer I guess. They keep squishing in apartments and tract housing everywhere there's a postage stamp of land, and it's sold the next day. Even wayyy out in the rural county. My very quiet road was a traf…

While the birth rate is currently below replacement rate, it wasn't 20-30 years ago when the now new homeowners were being born. US birthrate hit a local maximum in 2007, so that will continue to add pressure to housing demand over the next several years. Furthermore, life expectancy grew over the baby boomer population, so people are staying in their houses longer than before. Eventually we will get over this hump a…

That's a really good point, not sure why I wasn't thinking of that delay. Thanks!
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