It's A Terrible Time To Buy An Expensive House • Hacker News Board

Re: It's A Terrible Time To Buy An Expensive House

#131

Post by huherto » Tue, Sep 17, 2013, 4:33 PM UTC

corresation wrote: post #115

AnIrishDuck wrote: post #112

Earlier quoted context omitted.

> when rents are less than the price of the mortgage, people don't rent out houses. The notion makes absolutely no sense So they're just going to let the house sit empty? Buying/selling a house is a long term proposition because of transaction costs. Partially covering a mortgage payment temporarily is better than not recovering it at all. If the rent payments can't cover the mortgage, they're probably going to take…

Awesome, so show me (I don't literally demand that you do, but rather mean anyone) actual data of rents that are lower than corresponding mortgages. Anecdotal evidence is very, very much to the contrary.

It would be useful to be able to compare the rental market with sales market to get a good idea if the houses are good to buy or not. But I have no idea how to monetize such a thing.

Re: It's A Terrible Time To Buy An Expensive House

#132

Post by louthy » Tue, Sep 17, 2013, 4:37 PM UTC

toddmorey wrote: post #68

I think the madness won't end until we stop looking at housing as an investment vehicle. Housing is an expense. We're all renters to some extent. Even when I own my home "in the clear," I'll continue to have tax and maintenance obligations forever. There's also a very real lifestyle component. If it's a purely fiscal decision, we should all be renting in Dayton, Ohio. That's why these sorts of articles drive me nuts.…

The primary reason why people won't stop looking at housing as an investment vehicle is that it is the only way you can go to a bank and say "Loan me $500,000 for an investment".

If you said that you wanted $500,000 to play the stock market they'd laugh you out of the door. So for the average person in the street it's the only way to get significant leverage.

Edit: I agree with your premise btw, I despise the culture that's been created here in the UK with regards to home-ownership.

People here still don't believe that house prices can drop significantly, and the amount of TV programmes about buying a house, renovating a house, or selling a house for more than you paid for it is ludicrous.

What frustrates me even more is during the run up to the crash I was standing my ground that they were overpriced, and there must be a correction soon. So I continued to rent. And now that I'd like to buy I need close to £100,000 deposit to buy a place similar to the one I rent (20% deposit required for places over £400,000).

The fundamentals just don't stack up.

UK average wage: £26,500 UK average house price: £242,415

So that requires a mortgage 9.14 times the individual's average wage, or 4.57 times a couple's average wage.

It seems to me we have a way to fall yet.

However the UK is short of houses. So who knows!

Re: It's A Terrible Time To Buy An Expensive House

#133

Post by [deleted] » Tue, Sep 17, 2013, 4:39 PM UTC

hackula1 wrote: post #90

mkr-hn wrote: post #38

Earlier quoted context omitted.

A tepid Twitter IPO right on the back of Facebook's might convince people to start looking to places with higher growth potential. Anywhere Google takes its Fiber is a good bet. I don't know about a bust, but things can only go so high before people with money and ambition start looking elsewhere.

My money is on Austin. Low taxes, reasonable rents, plenty of culture (SXSW, "Keep Austin Weird", lots of nightlife, etc.), and a history of tech seems like the perfect combination.

[deleted]

Re: It's A Terrible Time To Buy An Expensive House

#134

Post by kyllo » Tue, Sep 17, 2013, 4:42 PM UTC

So you're supposed to put at least 20% down on a house that costs no more than 3x your annual salary, and only buy when interest rates are high, home prices are low, and rents are high.

Easier said than done!

Re: It's A Terrible Time To Buy An Expensive House

#135

Post by dxhdr » Tue, Sep 17, 2013, 4:42 PM UTC

twoodfin wrote: post #76

bradleyland wrote: post #52

When I read this, I can feel the pull of confirmation bias pushing me to nod my head in agreement, but my skeptical side longs for more citation. The author makes many claims of fact in this article, but offers no citations to back them up. For example: > Because there is a huge glut of empty new houses. Builders are being forced to drop prices even faster than owners, because builders must sell to keep their busines…

Agree. And where are the indications that interest rates will rise substantially any time soon? I'm not saying that's impossible, but this piece seems to take it as an article of faith that we're in a period of unsustainably low rates.

http://mortgage-x.com/images/graph/fhfb_contract_rate.gif

We are in unprecedented territory here, interest rates have never been this low. Is it sustainable? Who knows. Given history I'd be more inclined to believe it's not.

Re: It's A Terrible Time To Buy An Expensive House

#136

Post by chollida1 » Tue, Sep 17, 2013, 4:43 PM UTC

mkr-hn wrote: post #80

lsc wrote: post #72

Earlier quoted context omitted.

>Anywhere Google takes its Fiber is a good bet. This... is not as true as you think it is, even here in Silicon valley. If I could get $50/month/resident out of any of the reasonable-sized condos around here, I could easily give everyone gigabit Ethernet. Problem is? even here in the heart of silicon valley, most people don't give a shit. Faster than wi-fi doesn't matter. Hell, even you and me... I talk about bandwid…

It's never obvious why a technology is valuable before someone invents an application for it. No one knew what to do with broadband before VoD and digital delivery (Steam, GoG, app stores, etc.) came along, and we're only a few years into widespread adoption of those technologies. Anything could happen on the 5-15 year time scale we're talking about here. Gigabit Internet and the places that have it could look very a…

> It's never obvious why a technology is valuable before someone invents an application for it.

Well that's just provably false:) Before flight people knew why flight would be useful. And before broadband people already knew that it would be important. I remember my mom in 1995 saying how useful she thought the internet would be once it was fast enough to transfer videos and pictures of her grand kids.

Re: It's A Terrible Time To Buy An Expensive House

#137

Post by dxhdr » Tue, Sep 17, 2013, 4:45 PM UTC

minimax wrote: post #54

badman_ting wrote: post #6

The part about high price/low interest rate vs the opposite was really helpful. I am trying to figure out how to think about this so it's well-timed. Thanks.

I have seen this argument (that higher interest rates will lead to lower prices), but it would be nice to see some historical (or at least anecdotal) evidence of it. I think at least one problem is that it assumes wages will remain flat. If wages start improving, home buyers will be able to spend more money on their mortgage each month which would tend to prop up prices.

The data is out there, but really it's common sense. On the margin, a buyer purchases a house with a monthly payment he/she can afford. The monthly payment is determined based on the purchase price of the house and the interest rate. The higher the rate, the higher the payment. If rates raise, the margin buyer will no longer be able to purchase the same priced house. Prices must fall to clear the market. Yes, increased wages could help make up for the gap. Wages do not have to rise with interest rates (stagflation).

Re: It's A Terrible Time To Buy An Expensive House

#138

Post by malyk » Tue, Sep 17, 2013, 4:46 PM UTC

equalarrow wrote: post #50

jonnathanson wrote: post #10

Some very solid points about the market in general, but I wonder how several of these points (particularly the points about oversupply, baby boomers, etc.) apply to places like SF or Manhattan. SF, in particular, seems to be extremely young (though that could be observational bias on my part), well-monied, in sharp undersupply of housing, with rent matching or in some cases exceeding the cost of a mortgage. Historica…

> But it's conceivable that SF basically becomes the Mahattan of the Bay Area, a playground for the rich, while everyone else gets pushed into the outlying boroughs and beyond. In such a scenario, where money is little object to the buyers determined to own in SF, what happens to pricing? I lived in Manhattan and in SF now and I would say, yah, I can see that. Already though, the 'boroughs' are being pushed further o…

Prices in the east bay are still way over asking and there is a lot of cash. My wife and I paid $75k over asking for our 1300ft2, 1 bed, 1 bath house in north oakland just shy of a year ago. We bid on 6 houses total and every one of those was in the same ballpark over ask.

I'm not sure what it's like over the hills, but in north oakland and berkeley you'll still have to pay over asking and compete against 5-10 other bids.

Re: It's A Terrible Time To Buy An Expensive House

#139

Post by karl_gluck » Tue, Sep 17, 2013, 4:47 PM UTC

creativestuff wrote: post #104

Considering the interest rate is lower than the inflation, what would be some other items to invest $100k to generate some guaranteed income? (except stock, where you could also lose money)

You make a pretty big assumption here: that anything you can invest in to earn money passively CAN be guaranteed. What you mean by "generate guaranteed income" is "to allow me to grow my investment". After all, investing $100k in a house that loses 10% of its value is worse than just keeping the $100k in dollar bills. In fact, if it is still worth $100k nominal down the line means you lost 2-3% per year on your investment. So after mortgage, property tax, maintenance, and everything else, your renters would have to cover about 7-9% of your home's value every year for you to make a 2-3% margin.

What I've found is that the reward is always proportional to the risk--otherwise people invest in it until it isn't proportional anymore.

Please investigate this for yourself, but personally, I take a two-way split-risk strategy to grow my investments:

- Very high risk, very high reward investments that I thoroughly research and believe extremely strongly in, using money I can afford to entirely lose.

- Very conservative investments in indexing ETFs that have rock-bottom annual fees and decent dividends.

Here's an article you might find interesting:

http://www.npr.org/2013/06/05/188306471/resisting-the-tempta...

Re: It's A Terrible Time To Buy An Expensive House

#140

Post by rtpg » Tue, Sep 17, 2013, 4:49 PM UTC

snowwrestler wrote: post #129

rtpg wrote: post #118

Earlier quoted context omitted.

I've always been confused about the housing as investment idea. We don't consider cars to be an investment either do we? I feel like the idea can only help to drive the prices up further.

Cars are not an investment because, unless we are talking about collectible antiques, cars always depreciate. That's why it's more accurate to think of cars as expenses. Real estate can appreciate. It's not guaranteed to do so, but it can, and with significant leverage. That's why it's considered an investment.

but the appreciation only happens because everyone wants it to right?

I get that building a pool makes your house worth more, but trying to ride a bubble seems messy