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Making housing more affordable means your home's value will have to come down

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Re: Making housing more affordable means your home's value will have to come down

#141

Post by s1artibartfast »

yterdy wrote: post #138
s1artibartfast wrote: post #120

Earlier quoted context omitted.

I still don't know what point you are trying to make or refute. If you asking why I think it is completely unrealistic to expect a 50% decline on a short timeline, there are tons of reasons. You have to ask why housing prices doubled, and ask how easy or likely those underlying conditions are to reverse. 1) First, US GDP/capita went up by 60% in those 11 years.[1] 2) Similarly, US inflation in those 11 years was 40%…

>You have to ask why housing prices doubled, and ask how easy or likely those underlying conditions are to reverse. Massive monetary expansion via QE and low interest rates. Resolved by raising interest rates and taxes on wealth holders (and particularly those holding unused or underutilized real estate) to deflate the asset bubble. https://fred.stlouisfed.org/series/M2SL

Strongly disagree. That is an additional factor, but doesnt change most of the factors I mentioned. It doesnt change population or urbanization. It doesnt change the cost of labor or materials.

Underutilized RE is a red herring.

As long as construction costs remain high, supply remains low, and there are enough buyers that afford the price, you wont see changes.

Re: Making housing more affordable means your home's value will have to come down

#142

Post by jjav »

rickydroll wrote: post #72
jackcosgrove wrote: post #24

> To raise housing affordability, we have to lower prices, or at least get price increases consistently below the rate of inflation. I'll pick door number two, Monty. Not because that's what I actually want, but because I'm pretty certain that's how it will play out. Lowering nominal asset prices is almost as hard as lowering nominal wages. It only happens when policymakers screw up. That's what inflation is for.

Lowering housing prices will put many mortgages underwater. We are seeing the fallout from this today in CRE and across all properties in 2008. Today, affordable housing means someone takes a loss. In new housing, the builder or the lender could take the loss but they won't start a project unless they are guaranteed to make a profit, which means the property owner takes the loss. Deflating prices on existing housing…

> Lowering housing prices will put many mortgages underwater.

But it's important to realize that if a mortgage goes underwater, nothing happens.

If you buy stocks on margin loan and that goes underwater too much you get a margin call and are in deep trouble.

A mortgage is nothing like that, it can happily go underwater and nothing happens. My mortgage has been underwater twice during its existence. No big deal.

Re: Making housing more affordable means your home's value will have to come down

#143

Post by jjav »

bilsbie wrote: post #35

I think non affordable housing makes values come down too. Just I a less controlled way. Eventually people will just stop participating in the housing game and there’s no telling where that will lead.

> Eventually people will just stop participating in the housing game

What game? Not being homeless?

People will always want a place to live.

Re: Making housing more affordable means your home's value will have to come down

#144

Post by jjav »

grecy wrote: post #108
s1artibartfast wrote: post #61

Earlier quoted context omitted.

Housing fundamentally IS and should be a good investment for the homeowner. It retains it's functionality over time, and saves the owner considerable rental expenses. Think about what conditions would need to be true for housing to be a bad investment. >I feel strongly housing is a basic human right, and so we should stop viewing residential property as an appreciating asset. Its not about "views", it is about realit…

> Think about what conditions would need to be true for housing to be a bad investment The most simple of all - It goes down in price.

> The most simple of all - It goes down in price.

I mean yes, of course, tautologically.

But can you at least attempt to explain how something that has a lot of value and can last for centuries, is realistically going to go down in price given inflation?

In general the only scenario where housing can go down in value is if the area/city is decaying. But then you don't want to live there so that's not a useful solution.

Re: Making housing more affordable means your home's value will have to come down

#145

Post by jjav »

grecy wrote: post #18

This is so fundamental to the issue. It is impossible for housing to be simultaneously a good investment and affordable. Policymakers simply have to decide if they cater to those that already own homes, or those desperately wanting to buy one. I feel strongly housing is a basic human right, and so we should stop viewing residential property as an appreciating asset.

> It is impossible for housing to be simultaneously a good investment and affordable.

This is one of those meme-phrases that no longer really means anything.

> Policymakers simply have to decide if they cater to those that already own homes, or those desperately wanting to buy one.

What exactly would you propose this means?

A house is always going to appreciate over the long haul on average, simply due to inflation. Are you proposing policymakers should decide to make inflation go away? (If it were so simple to accomplish that!)

Re: Making housing more affordable means your home's value will have to come down

#146

Post by jjav »

mrcode007 wrote: post #91
throwaway1105q wrote: post #83

Earlier quoted context omitted.

Not sure how is an accounting book relevant. I'd rather ask a tax consultant - the definitions are slightly but significantly different. Anyways, even by your book's definition - later sale for a higher price is economic benefit, protection against inflation is one too. This link considers your viewpoint too: https://www.investopedia.com/terms/a/asset.asp

I’m trying to say that under mortgage, a property isn’t your asset. It’s a bank’s asset. The mortgage is booked under asset side on the balance sheet of the bank. It cannot be booked as an asset on your side. The economy wouldn’t balance. Until you actually paid off stuff the home is a liability. You pay money on it every month (negative cash flow) and that cash flow accrues to the bank (positive cash flow). I don’t…

> I’m trying to say that under mortgage, a property isn’t your asset. It’s a bank’s asset.

No, the property is your asset. The mortgage is your liability. Each month as you pay the mortgage you have an expense (the interest part of the mortgage) and a reduction in your liability.

Re: Making housing more affordable means your home's value will have to come down

#147

Post by snapplebobapple »

s1artibartfast wrote: post #82
ebiggs wrote: post #30

As a homeowner I see little benefit for me for the insane value of my home. Do I want to pay more in property taxes? No. If I sell it’s to just buy a different insanely priced home. I suppose I’m privileged in that I have other retirement plans so my kids will inherit my home - and that’s good I guess if they ever want to afford a home. Homes being an investment is the wrong mindset for a healthy society. Have cheap…

Homes are and should always be an investment because they are. They dont have to beat the stock market, but a well maintained home should track inflation at least. They have real and huge replacement costs in materials and labor. If my house burnt down, it would cost $1M to rebuild. Im all for cheap simple houses for those with less money. However, unless they are so cheap as to be disposable, they too will be invest…

This is incorrect. If they are an investment then they should go up and down in relation to the value of being able to live wherever the property is. The big issue now is all places (but some more than others) are artificially constraining supply with excessive regulation and restriction on what one can do with their property. We need to largely get rid of that excessive regulation (i.e. much less strict zoning allowing much higher density, with drastically restricted ability of neighbours to interfere with what is built and much quicker turn around time on permits to get building rolling as fast as possible). Doing that will destroy a lot of "value" of houses that are only constrained because of these rules. Other places will go up in value as much higher density is allowed more easily on land in higher demand areas.

What your house would cost to replace is only very tangentially relevant to what its resale value is.

Re: Making housing more affordable means your home's value will have to come down

#148

Post by dave333 »

Government policy is hugely biased towards homeowners and against renters. It would be more equitable to help renters more, perhaps by helping them become (first-time or partial) homeowners. Two schemes:

1) Government could put up down payments for first-time buyers in exchange for say 50% of the home equity. Buyers obtain a normal mortgage loan. Such buyers can optionally pay back the down payment over time and get 100% equity or govt regains their share of equity after a sale.

2) Government could offer landlords payments for equity in rented property and convert willing renters into owners. Renters can pay back the government over time to gradually gain equity. Landlord shares ownership with govt and some or all renters.

Re: Making housing more affordable means your home's value will have to come down

#149

Post by kiba »

CuriouslyC wrote: post #111
kiba wrote: post #21

Earlier quoted context omitted.

That's how we get urban sprawl in the first place, and it is not a working strategy in the long run. Cities benefit from high urban density, and reducing density means less benefit.

Cities are trash in my opinion. I don't want to live in a city. I'm happy to visit them once every few months, enjoy the cream of the crop of their culture, then leave and forget about them. It's not worth enduring the constant bullshit, traffic, $10 coffee and $20 cocktails so that you have instant access to culture, the mid live culture that's on offer half the time is less appealing than internet content I could c…

Cities are what people do to make it. It is not inherently trash or unpleasant.

Re: Making housing more affordable means your home's value will have to come down

#150

Post by qeternity »

s1artibartfast wrote: post #87
qeternity wrote: post #36

Earlier quoted context omitted.

The myth of home equity: most people are implicitly short the housing market for most of their lives.

I think that is exactly the opposite. Most people are long on the housing market. They have borrowed cash to purchase an asset they think will maintain or go up. Renting would be the short position. https://www.investopedia.com/ask/answers/100314/whats-differ...

If a buy a house today for $1m and it goes up 50%, great I've made $500k.

But if I really want to buy a $2m house eventually, that house has (probably) also gone up 50% and so it now costs $3m.

So when I bought the first home, the second home was $1m more expensive, after appreciation it is now $1.5m more expensive.

I said "implicitly" for a reason.

(I am well aware of what long and short means, my background is in trading)

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