This isn't discussed much, but I think homes would become noticeably more affordable for families just by having the government stop subsidizing the mortgages of investment properties (e.g. only one mortgage subsidy is available for each family). This isn't even getting into tax write offs which are too complicated for me to understand the consequences of changing.
As it stands, mortgage rates being below the rate of inflation make housing a very attractive investment.
The sources of mortgage subsidy that I am aware of are secondary market purchases:
* Federal reserve mortgage purchases
* Fannie Mae/Freddie Mac mortgage purchases
A big portion of quantitative easing by the Federal Reserve is buying billions of mortgages every month. The Fed is trying to start unwinding this now, but they have had trillions of mortgages on their books since the GFC.
The subsidies aren't the root of the problem. It's municipal zoning laws. Just look at Japan. Went from having the worst housing bubble in world history to affordability in 20 years thanks to sweeping zoning reform.
Your point should be a pretty easy hypothesis to test, you may not know this unless you are from Texas but Houston effectively doesn't have zoning laws.
Cost of living calculation between Dallas and Houston says costs are roughly 15% different (as apples to apples a city I can identify to isolate zoning effects). So definitely some effect and a good lever to pull (in addition to others I am sure.)
I agree that zoning reform is part of the issue, I think zoning reform combined with other tweaks would go a long way.
I think that multiple issues cause these problem, we have runaway negative feedback loops in multiple areas, the problems has evolved organically over time so I doubt any one factor is enough to resolve the issue (as nice as that would be.)
I'm not making the assertion that zoning is the sole issue so I don't need to defend it but I figured I could take a quick look and bring some numbers into the mix so we have some numerical grounding for conversation and exploring the problem.
40% of homes in my city were bought by institutional investors with basically cash offers that no one can compete with. They openly state the point is to corner the market on a scarce resource and drive up rents which are also up 30+%. This is clearly a problem zoning or not.
The zoning laws didn’t change in between. Japan got burned on property speculation, and no one no longer sees residential real estate as much of an investment. Also, no one wants to buy second hand structures, so your appreciation is limited to land and the existing housing on that land is a liability (buyers have to tear it down before building a new house on the land). Japan has a large amount of housing starts because they have a large amount of demolitions. Liberal zoning allows for this, for sure, but I’m not sure many Americans would be willing to go that route.
2) Unfuck building codes. Person signs their own death warrant? Let them live in a yurt or a the kind of shack people keep their garden tools in. There's a county east of Tucson like this, guess what, people no ded.
3) End all subsidies and government involvement in mortgages. Best way for skyrocketing price is for government to guarantee loans in a way a relatively free market would not.
4) Permit fees dropped for building housing. Cost of evaluating permits should drop without zoning or building codes. Only examine development to make sure it doesn't cause imminent harm to those outside the property line.
I’ve developed a heuristic where anytime I hear phrases like “affordable housing”, “make college affordable”, “affordable healthcare” I simply translate it to “unaffordable”.
Inevitably when these become government programs, they simply throw money at the problem without addressing fundamental supply and demand issues and accomplish very little except drive up prices. Then, when investors see prices going up and to the left, they rationally throw money at it in a way to make even more money, which drives up prices even more.
There’s a really good book I recommend called “Systems Bible” [https://www.amazon.com/Systems-Bible-Beginners-Guide-Large/d...] that beautifully articulates this phenomenon in a way that applies to government policy, software systems, management, org structures, or any complex system of people or machines.
It's insane how these once affordable services like healthcare or university, that you could pay with a summer job, now take years off your life.
You may enjoy this article [0]. To quote from it:
> In the past fifty years, education costs have doubled, college costs have dectupled, health insurance costs have dectupled, subway costs have at least dectupled, and housing costs have increased by about fifty percent. US health care costs about four times as much as equivalent health care in other First World countries; US subways cost about eight times as much as equivalent subways in other First World countries.
That would require a much larger change to the tax code as currently interest on business loans are tax deductible. I suspect changing this would be a good idea, but it’s a huge change.
The obvious fix is a nationwide property tax that doesn’t apply to primary residences, but again it’s hard to say what that would do.
Somehow there need to be less incentives for investors/hedgefunds to buy up homes and more help for people who need housing and are increasingly priced out of the market. Housing affordability is a serious crisis right now and neither political party seems to be recognizing it. The party that makes this a priority and actually addresses the underlying problems could do well, but neither of them are taking it as seriously as it needs to be taken.
Wouldn't the obvious fix be elimination of 1031b exchange, capital gains on all house appreciation, and only allowing 1 active federally backed mortgage at a time (with some consideration for allowing a purchase of a new place & selling the old place).
They've eliminated this deduction in both the UK and NZ in the past couple years, at least for individual landlords. NZ does allow it for new builds to incentivise construction of new housing.
> having the government stop subsidizing the mortgages of investment properties (e.g. only one mortgage subsidy is available for each family).
I think you are confusing home loans (which are subsidized) and business loans which are not subsidized).
Fannie Mae/Freddie Mac loans are only on 1 primary home and 1 secondary home for individuals. These loans are limited and really don't work in high property value states. You should google the difference between "conforming" and "non conforming" loans.
You might be thinking of the mortgage deduction on the income tax. Trump already did this. This only hurt young people in high property value states.
Business real estate loans are more expensive because they are not subsidized. However, businesses do pay taxes only on earnings (income-expenses). Loan payments are expenses that reduce the earnings. Good luck on getting rid of business expenses. Yang proposed changing the tax law because of this.
All this means your proposal would have a very limited impact. It would only hurt individuals who live in an expensive property where the homeowner has mostly paid off their mortgage (old people) and used the principal to buy a rental (up to 750k).
For Freddie/Fannie: some sources say that they support investment properties for conforming loans [1]. They have information about loans for investment properties that I am still trying to make sense of [2]. I have seen other sources say they support loans for 10 properties.
Even if the support were only for 1 secondary home, why should the government be subsidizing this?
I understand these policies work differently in expensive markets. But as per this article, investors are targeting rentals in less expensive markets.
Idk how this translates into policy if it's even possible, but people just shouldn't be so attached to home ownership. It's a not a great way to invest your money and it doesn't make any sense at all to tie your personal net worth to a piece of real estate you rely on to live. In high cost areas especially, renting is usually more fiscally sensible.
On the smaller scale, and for certain kinds of multi family purchases, government-backed financing is available and it is usually cheaper than what one might find on the private market
Not for the mortgage itself, but real estate investors typically pay very little tax on their rental income. You can take depreciation, and deduct maintenance/repairs, property management fees, property taxes, insurance, etc. in addition to mortgage interest.
So if they increase interest rates, buyers won't buy the homes that would liquidate their balance sheet and prices would drop as well, undercutting the value of their balance sheet.
So what is the Fed's motivation to raise interest rates to curb inflation in this case?
Housing will never be relatively cheap until it’s easier to build a house. It will never be easier to build a house until zoning is more lenient.
No state is incentivized to make zoning more lenient. Therefore it falls on the federal government, who lack the authority.
The only thing they can do is something similar to what they do with the highways and threaten to take away funds unless all plots of land can be zoned for up to 4-family houses (FHA limit).
Potentially quadrupling the amount of housing will do it.
Zoning is an issue but there's also the onerous costs to building something today even when you do have the zoning to add capacity to a given lot. For example, you might notice every apartment you see has a balcony. That's because code dictates balconies for every living unit, meaning the build just got that much more expensive per unit just because some people on city council 50 years ago thought apartments with balconies were more seemly or something. There's also long review periods. It's typical even in growing urban areas to see lots bought for development, raised, then seemingly left to sit vacant for years sometimes even with earth-moving equipment or cranes laying idle, biding time, while the permits cycle through the purgatory that is the building office in city hall.
This is all the result of corruption. City councilmembers in cities across this country found themselves in the position of kingmaker. Decades of entrenchment of the political class saw this role refined, distilled, and now it's practically impossible to remove the layers and layers of ossified process that has corrupted anything we do. This is why housing is not being built, why construction costs on projects are so high, why timetables of doing anything at all are decades out, and why the FBI indicts major local politicians for corruption every year. Decades and decades of systemic corruption that has not ever been rooted out has led us to this current broken state.
> Decades of entrenchment of the political class saw this role refined, distilled, and now it's practically impossible to remove the layers and layers of ossified process that has corrupted anything we do.
I would love to see a federal regulation stating that any housing construction permit that isn't reviewed within ten business days is automatically approved.
Not all states are that bad. In the midwest things tend to be approved much faster. Which is why our housing costs are not as bad as CA (still not great, but they much more reflect the cost of building)
Yes, I'm really disappointed to see so many other comments here that misidentify this fundamental problem. Investors are only interested in housing now because prices were already rising thanks to constraints on building due to zoning.
These investors aren't the ones making the prices higher (or they weren't initially, at least); they're responding to conditions that were already making prices higher, which makes their investment more attractive.
But you don't have to take my word for it; it's literally what they say in their prospectuses:
Everybody has their favorite group that's easy to hate in this space -- it's the vacant investment properties, or the foreign investors, or the REITs, or the rich people with vacation homes -- but those are tiny factors relative to the main driver of this, which is your typical one-house-occupying all-American homeowner who opposes any new housing in their neighborhood.
Exactly this. Investors aren’t buying up housing for fun, it’s because their investment thesis tells them they’ll make a lot of money.
As soon as the prospect of housing appreciation disappears so will the investors. But then we’ll have sad stories about people being underwater on their mortgages.
Massachusetts is trying to force Boston suburbs to lift single family restrictions. Great intention, though i have feeling each town is going to fight for years against it.
It's not compulsory and it's not lifting, only requiring multifamily zoning around transit catchment areas. Towns that refuse to implement it lose out on state funding meaning the wealthy towns are free to ignore it. Perversely, those towns will now cost even more to live in because they need to offset the lost state money.
> No state is incentivized to make zoning more lenient.
Zoning is largely a local issue. And zoning is talked about a lot at local council meetings. The problem is people have very strong opinions when it comes to how the place they live will change. It's trivial to get a sizable contingent of people to oppose zoning permits.
There's a huge argument going on a few towns down from me as to whether a 100yo, vacant building in disrepair should be torn down to make room for a community center. One would think this is something obvious that would go unchallenged by locals, but nope.
Making zoning a state issue would probably help a lot, but it would piss off home owners. Even early champions of the change are going to hate it when their neighbor's houses get torn down so that a casino or something can be built in their place.
>Making zoning a state issue would probably help a lot, but it would piss off home owners.
Given the current situation in many state governments, this would have huge ramifications. You might live in a mid-size city and have the wingnut state government refuse to let you build any more homo-muslim-crack housing anywhere in the city center. Or the rural/exurb dominated state house will only let you build a unit in downtown if it comes with 3 parking spots large enough for lifted Ford F350s.
Personally, I live in the South in a city where local politics are dominated by the suburbs and it's bad enough already. "Not enough parking downtown" because you might have to walk 3 blocks to the nearest street parking lot, so of course more lots must be subsidized. Huge portions of downtown taken up by 6-lane corridors impossible for pedestrians to cross so that suburbanites can zoom through at 50 MPH. And that's set up by people who live and work 20 minutes away! Imagine the situation if zoning and city planning was primarily determined by car dealership scions who will never come here in their lives.
> Even early champions of the change are going to hate it when their neighbor's houses get torn down so that a casino or something can be built in their place.
Even the strongest critics of the status quo don't think we should eliminate all zoning, so that you'd be able to put a casino on a residential street. What we believe is that you should able to build more residences (and maybe a corner store) on residential streets.
I agree completely. While its fun to place the blame for high prices on the investors, in reality the high prices are for the same reason that we see high prices of everything else: there is a shortage.
Zoning reform is a solution to get out of this mess, but zoning is not the only cause of this problem. If you look at the last 10 years of housing construction in this country, and you compare it to the previous 50 years, you see that we have simply not been building enough housing:
If a nation spends 10 years not building enough housing, high prices are what happen. If you add low 2020 interest rates to the mix, the effect on housing prices are explosive in the short term.
>No state is incentivized to make zoning more lenient.
All states are actually incentivized to increase their supply of housing, because an increasing population allows them to eventually gain greater representation in Congress relative to states with less growth. States like California, New York, and Illinois are losing out to states like Texas, Florida, and North Carolina.
Zoning laws are determined at the municipal level. It's local government that is the problem. State governments have actually started pushing reforms thankfully.
Exactly, this is one of clearest examples I know of where small, local government backfires. For example, my small town recently passed a law allowing all homes to have an accessory dwelling unit. Come to find out the only reason it was passed was because the state required it by law. But within my towns borders there's an HOA that doesn't have to allow them, since of course HOA's are a loophole to the law. I imagine more HOA's are going to start appearing.
I don't think it would take quadrupling. It would take adding enough housing that housing quits being a good investment for investors, so they stop buying up houses and start selling the ones they have. I suspect we reach that point long before we quadruple the supply.
Why? Because investors would have more and more houses sitting empty. That would force a change fairly soon... wouldn't it?
The people electing the officials that make these policies are the ones that want to keep low-density housing. It's suicide for a politician to sponsor rezoing legislation.
We're in the housing hunt right now and we're losing to all-cash offers and ridiculous terms (like months of rent-free to the previous occupany: those sort of terms don't come from someone looking for a new place to live). We even lost on two offers where we were the high bid. We have pre-approval, solid financing and were willing to even waive the appraisal. It's not enough.
Also on the housing hunt and have had the same experience. It's really disheartening to tell someone I'm going to give you exactly what you are asking for and have that transaction, that seems so easy without any kind of counter-offer back and forth, fall apart... multiple times. An article like this definitely brings out a little anger.
You said it. One of the most galling things was sellers' agents that don't even let your agent know that you didn't get the bid (let alone ask for counteroffers). We only found out we lost out a couple times when it went pending on the MLS; we never heard a word. We're just interchangeable piggy banks to these people, apparently.
Do you expect things to get better in the future? I'm not in the market to buy right now, but I'm trying to understand if the current situation is the new normal or still a reaction to covid upheavals. My gut tells me that in 2-3 years things will be much closer to normal as rates rise and people that fled to suburbs decide to move back to the city.
My theory is that places that are inherently more desirable, whether because of culture, geography, or employment opportunities, will remain high. This probably includes most coastal regions and trendy inland spots (Austin, Boulder, etc.).
I think a lot of 'secondary' markets could take a hit. These are places that the main appeal is their current relative affordability or proximity to a more-desirable area. I think buyers that are priced out of 'desirable' areas today are effectively settling for these secondary areas, which is raising those prices. I feel like those will be the first areas to take a hit. How big that hit will be, I certainly can't say. It could be as little as a reduced rate of property appreciation, or it could be as large as a 20% hit.
I'd expect a lot of this depends on where you are. Some places it won't matter a whole lot what happens with Covid/rates.
Friends in the DC region aren't worried as this has been an ongoing trend for quite a long time (they have enough equity that a dip won't matter much). Friends in Southern California would probably say the same thing. But in Phoenix, I already hear some questions as to whether this will come tumbling down in a year or two.
Myself, bought a place (not a city and not quite the 'burbs) last year and I'm still curious about my local market so I still constantly check the real estate sites/apps just to see how things are moving in my area. Would suspect I'm not alone in doing this.
Sometimes (or often?) mortgages and financing can fall apart at the last minute, so sellers often prefer all-cash offers because they know there's virtually nothing that can make the deal fall through or drag on long. Pre-approval is usually done by different people than much stricter people who do the underwriting, so things can fall appart there, too.
When I bought my last house (newly built), on the DAY OF closing, 2 hours before the closing appointment, my mortgage officer calls me to tell me I'd need to bring another $5000-ish (due to a reason I've blocked from my mind). He told me my builder would bring a check for an equivalent amount made out to me, but to make the accounting/financial all legal, we couldn't just "zero each other out". The money had to clear from both accounts. (I wish I could remember exactly the circumstances). And, this money couldn't just be a check but had to be a cashier's check that was guaranteed. It couldn't be cash, either, because it had to be from an account that the underwriters had reviewed and done money laundering screening for.
Due to the logistics of that day, I had to go through herculean efforts to get that cashier's check made. I usually bank with online-only banks, and thank god that I had a local bank with just enough balance to make it all work... And that's for someone who is lucky enough to be able to bring that extra money and to be able to take the day off of work to make happen. I imagine many others wouldn't be as lucky.
That closing could've been easily pushed off a couple days had this surprise made us unable to close that day.
Sellers like not dealing with this, so they prefer cash offers.
It de-risks and accelerates the transaction. Most mortgage based purchasing requires the loan lender to approve the house for the value (even if you are 'pre-approved' for a loan of $X, if the bank doesn't think the house is worth $X it won't let you take the loan out for it). All cash offers don't have those approvals or risks, however slight, and also have no/less time delay - you can close in a week (just a title/deed history search, generally).
Because with cash you have the money to actually make the deal happen. With a mortgage you depend on a bank giving you the money.
A bank says they will lend 75% LTV, you are preapproved for a $2M house, so will bring $500K to the table and bank will provide $1.5M you think.
But wait, the appraisal comes back for $1.6M instead of the $2M you bid. Bank says no problem, we will lend 75% LTV or $1.2M. Now you have to find (within days) $300K. And you can't borrow it because that will mess up underwriting on your current loan.
Or you buy a car before closing. Whamo - your DTI is toast.
Or you have someone open a CC in your name. Whamo - no closing.
One reason I can think of is because the bank does an appraisal and may reject the loan if the appraised price is too low. They don't want to be stuck with a house worth less than the loan. I had this happen several years ago with a house I bid on (I was also pre approved and all that stuff).
Time to close a loan is couple of weeks at the very least (could be 4 or more). The cash offer closes in days. Sellers prefer the latter: bis dat, qui cito dat.
What kind of mortgage allows you to waive the appraisal? Seems a little negligent for the bank. How can they finance something if they don't know how much it is worth?
No, you waive the appraisal contingency; the bank still does their own appraisal. If the property appraises low, you pay the difference. In this market, we kept some reserve for that eventuality to make the application competitive. The sellers want a buying frenzy and that's what's happening, so many properties don't appraise since those values are usually calculated on historical sales.
The bank will only cover what it is appraised at. You have to split the difference with cash. Some banks might be willing to give you different terms (higher apr, more down) but that is generally how it works in my experience.
I'm in this boat too. It feels like a line was drawn sometime in 2020 or 2021: either you bought before then, and now you can enjoy your appreciation and relatively low mortgage, OR you're currently desperately trying to grab onto the last rung of the ladder as it gets lifted above you.
Regarding all cash offers, have you looked at all cash options that are available through lenders like accept, inc [0] or better.com [1]?
I’m in the market for a place now and recently lost to an all cash bidder. Turns out they were using [0]. I was already pre-approved through a conventional lender, but all-cash seems to be the new norm.
pre-approval doesn't amount to much. One thing you can do to compete with cash is to get a fully underwritten mortgage (you need to find a lender that does this). For a fully underwritten mortgage, the lender will give a $10,000 guarantee that the mortgage will close: this makes the offer more similar to a cash offer.
These still have lots of stars. They will close IF property appraises at value you bid. Heads up, in a multiple offer scenario it very likely WILL NOT.
I went though exactly that, and it's disheartening, indeed. I was fortunate enough to finally get my financed offer accepted, but only because the sellers were explicitly rejecting cash offers from investors. It was a family home, and they wanted it to go to someone who would maintain and live in it. Keep looking, keep trying, and maybe you'll get lucky too.
I dunno, I'm looking for a place to live, but ideally starting in July, so if I can get a better deal by offering the current owner/tenants free rent until then, that'd be perfect.
If you're starting a job in a new town in March, it's not a great option, but if you're looking months ahead of your preferred move date, why not?
Another why not-- you've just signed a tennancy lease. If they don't voluntarily leave on the assigned date, you need to run eviction proceedings.
where do you start? what grounds for evicition? Unpaid rent? You've already agreed that rent is zero...
Why would a REIT/Private Equity not care about this? Because their goal is to rent the property in any case. Professional landlords already have this in their risk models.
Why not pay thousands of dollars to let someone else live in your house for free? Is that a serious question?
The idea of rent-free occupancy wasn't even a thing two years ago. It's just sellers taking advantage of the current market where a lot of the buyers have no intention of living in the house and so a few months of rent-free occupancy make absolutely no difference as long as they get to buy the house.
I wanted to highlight the alternative approach take by China. I don't agree with what their government, does but its useful to see what they're doing.
China has essentially realized they're in a demographic crisis so they've enacted the following policies:
- Stopped their speculative debt fueled housing bubble, this I hope makes it affordable for their citizens to own homes, without prices skyrocketing.
- Stopped for profit educational institutions, this is so that education and specifically tutoring aren't exclusively for the rich.
I think they're enacting policies for childcare as well.
Given in the US investors are buying up property, and costs of both education and childcare are skyrocketing. I don't see how the US won't avoid a demographics crisis as well.
The US can't mandate its industry to follow a similar approach, but can't the government provide stimulus or some other Manhattan Project type drive to encourage entrepreneurship and companies to start and resolve these underlying issues?
Why look to China when we can look to Japan? They had the worst housing bubble in world history, now housing is affordable. All thanks to a streamlined national zoning code that took power out of the hands of local government. There are twelve nuisance levels and you can build anything that falls below the maximum allowed nuisance level for a lot, no community approval process necessary.
Oh yes, I've seen videos about Japan's approachable housing. [1]. I'm sure Korea and other Asian nations have similar approaches.
I mainly wanted to highlight a market driven approach that works with the other industries in the US as opposed to a government directed one. Albeit the government provides stimulus of some type to kick start it, like how NASA drove the privatization of Space and now we have lots of launch vehicles via different companies.
Japan's population has also been flat since 1993. It's quite a different situation. Many countries have struggled to maintain sufficient new housing development to keep up with rising population numbers.
it appears that the US is heading in the other direction, with mandates to force developers build % affordable housing. Just let developers develop. Rich people move up, middle people move up, making the cheap places cheaper for low income residents. It's all backwards
China's alternative approach is hukou, which is in practice the only way US superstar cities could get what they want, to be both quaint and affordable: just ban people from moving there. China is allowing the countryside to urbanize but they are doing it at their own pace; it's not a free for all where every bright kid from every backwards place is simultaneously bidding up the price of housing in Beijing.
In the US these kinds of internal migration controls violate the Equal Protection clause, so they are mostly a pipe dream. Like anywhere, the US has a lot of places not worth living in, but the people from those places are all able to compete for spots in the cities, so those spots will necessarily be competitive.
So if that's the case, won't investing gov't funds into those uncompetitive places (e.g., by moving gov't agencies there, moving some industries that could move there etc) even out the level of competition?
Rather than spending money subsidizing the poor in these competitive places, it's better and cheaper imho, to add/create a good place to be in a currently bad place.
There's just too many folks here who'd rather make a quick buck then provide some longevity to the nation (at the top and in politics).
China and other nations realize that there is more money and happiness in the long term view, so they're either pivoting or have pivoted. I'm afraid we just don't have the gumption / community oriented view to do that here in the USA. Folks want "freedom", even if that freedom means degrading into massive poverty / wage slavery. I don't blame them particularly, our education system massively touts the successes of USA above all.
Seems like there has been pretty heavy asset inflation across the board for the past ~decade and investors are desperate for returns. I mean it seems to make sense, the ultra cheap money isn't really available to most people. Most people's marginal rate is probably a credit card at 20+%.
Big businesses/very wealthy can access very low rates by 1. pledging collateral and borrowing-> buy assets-> pushes asset prices up-> collateral worth more-> back to step 1.
With houses they know the average person(who is a homeowner) will fight tooth and nail to keep prices high. Especially people who have bought recently. The higher prices are the more incentive people have to keep them high as it becomes a greater % of their net worth. Tyranny of the majority.
Feels like in Canada we are basically seeing the emergence of some sort of neo-serfdom where the majority of young people(and older renters) who don't have significant family support are spending so much on rent they will never be able to own and year after year rent takes up a greater and greater amount of their salary. It's not at all uncommon to hear about people living in hallways or many people to a room in the GTA/GVA.
This is largely an artifact of low rates. Most retail thinks in terms of cash flow: what can I afford to buy (relative to rent) based on monthly cost. This includes mortgage (both principal and interest), insurance and taxes.
But investors, particularly institutions, think in terms of return on capital. The very important distinction is that the part of the mortgage payment going towards principal does not constitute a cost from a corporate accounting standpoint. Rather, principal payment goes on the balance sheet as accumulated equity in the property.
In other words retail is sensitive to total mortgage cost, whereas institutions are only sensitive to the interest component. As interest rates fall to zero, principal grows to nearly 100% of the mortgage payment. Even at todays rates principal constitutes about a third of the mortgage payment from day one, giving institutions nearly 50% more buying power. (Particularly in low property tax states like California.)
Besides raising rates, the only real option is to underwrite increasingly longer duration mortgages. When interest rates fall, extending the mortgage duration makes principal fall proportionately. Hence why many countries in the low rate macro environment have moved to 50 year mortgages to avoid systematically disadvantaging retail.
It's become basically impossible to buy a house as a normal person, even on a higher tech salary. In most markets around the US now, the expectation is that buyers will waive inspection requirements, make an offer as all-cash (e.g. pre-approved financing), with no contingencies (e.g. not based on sale of their previous home).
I'm currently trying to buy a different house, my older sister just bought a different farm, we both have had a horrible experience. My sister had multiple properties where her bid was beat out by someone offering $100k+ over ask, all-cash, mostly REITs and other types of corporate investors. This wasn't even in a city (farm obviously). I'm trying to find both a house and a place to rent, because my realtor/broker has advised me that I need to rent for at least a few months while I sell my existing house so I can buy with no contingencies, or I'll never get under contract. I finally found a proper spot for us to rent, was supposed to be available April 1st and was accepting leases starting March 15th according to the listing. Was just informed yesterday that the owner has already got it under application and has four other renters waiting in the wings.
This market is ridiculous if you actually need a place to live, and it's not even a matter of income. I'm in the top 1% of earners overall in the US, and I can't even close the deal on a place to live. I've had my current house for a bit over ten years, and it makes me almost want to give up and not move, although I must for family reasons. When I look into it, most of the properties being swept under me (and others) aren't even being bought by people, they're being bought by REITs or other investment vehicles, mostly by foreign money. You've also got companies like OpenDoor and Zillow scooping even high-earners trying to buy a place to live.
> It's become basically impossible to buy a house as a normal person, even on a higher tech salary. In most markets around the US now, the expectation is that buyers will waive inspection requirements, make an offer as all-cash (e.g. pre-approved financing), with no contingencies (e.g. not based on sale of their previous home).
In some places that may be true, but I was able to get a home last January on a single relatively moderate-high tech salary, I have a friend that signed for a home on a single person decent salary as well near me, and my next door neighbors again single relatively decent tech salary just bought a new home elsewhere.
You may be right about places in like LA or Toronto or NYC, but to generalize that everywhere is a little absurd. I know that the market I fled in UT was that way, and things are getting pricier here in the neighborhood that I am living in, but we are definitely in the middle of a crazy bubble right now; however it won't last forever, things are going to pop eventually. There are good affordable places to live even if they aren't in CA. Much of the Midwest is great, I think part of the bump we are seeing is rise of remote work exacerbated an already existing bubble brought about by government subsidization as it allowed tech salaries to be redistributed geographically.
I do agree that part of the problem is large investment firms purchasing housing as an investment and an article the other day on here pointed out how they are able to take advantage of government subsidies to purchase more homes, but a bubble can't last forever it will pop, and I feel like the popping is going to come soon.
It's just more anecdata but I live in Western MA and this is exactly the situation we have out here: people are being pressured to waive inspection and to offer in cash and without contingencies. Honestly, it seems crazy risky to me to buy a home under those terms and I suspect that regular people simply end up renting.
> This market is ridiculous if you actually need a place to live, and it's not even a matter of income.
The US needs to make a policy decision: are houses investments or a way to nurture and grow the lower and middle class?
If it's the former, they can use tax policies to encourage the desired behavior. Tax every residential home (single family or condominium) at 10-30% of its total value per year, regardless of who owns it. Give a complete write off for your first home. Maybe give a partial write off for your second home. Make owners bear the cost of appraisals, and if appraisals aren't available, tax them at the most expensive 90th percentile.
But of course maybe the US decides homes are investments. Great for the wealthy, but the lower and middle classes are really going to get hurt. Birth rates will slip even further.
> The US needs to make a policy decision: are houses investments or a way to nurture and grow the lower and middle class?
They already have. home buyer loans are backed by the government. You can write off loan interest. Investors pay taxes on income from the investment (net rent and capital gains) ...
Also just like in education space the more the government subsidizes the pricing, the more it gets inflated. So more incentives will just lead to more demand and higher prices.
What we really need is more supply and elasticity. More houses, and more people willing to say "F--- this I'm moving to CheapTown"
> But of course maybe the US decides homes are investments
They have. By not deciding, they have decided. It would be incredibly harmful to reverse course now. Typical US policy is to get backed into a corner until doing the right & obvious thing is incredibly difficult and practically impossible.
I found your comment thoughtful, but it seems to me you meant “latter” rather than “former”? iirc hacker news let’s you edit a comment for up to an hour after posting.
Wouldn't that tax proposal just increase rent for people who don't own their home (landlords pass on the costs) and not affect homeowners other than lowering the value of their home if they come to sell it (i.e. upside-down on mortgage).
Do you actually have any evidence this is true in "most" markets? It seems like only in a few markets around highly-desirable cities is this true. Farms don't sound like they're going to be representative of the types of housing that most people are looking for.
I'm 45 minutes south of Seattle and I purchased a large house with a backyard, recent-ish construction, no contingencies waived, for less than what a 500sqft loft is going for in Seattle.
Farms are also what investors are looking for, at least the types of farms this person seems to be talking about. "Farm" the land for 10-20 years, and then put in a development as the city grows out. These investors are betting that the land will be worth a lot more in a few years.
I put farm in quotes because they are intentionally mining the land of all long term fertility - not a problem as it won't be farmed in a few years anyway, but if you intended to farm for more than 10 years then proper care for the land will ensure better profits of the wrong run.
I live in a rural area (relatively speaking - town of about 1000 people) - around me if you don't show up to look at a house, ready to buy, and with no contingencies - you are not going to get a house. I know many folks near me who have listed their house, had 40 people show up the first day (open house) and sold it the next day, for cash, for 20% over the asking price - around me, those stories are very common.
I study the RE market in several places that I am connected to every day - I watch houses come on the market, and are under deposit within days. I feel really bad for young people looking to buy their first place (including my kids) - they can't pay cash, and they are on a budget - they have almost zero real options other than to continue to rent and wait for a RE crash. IMO, it's coming, but who knows when.
Home prices around where I am (LCOL area in MI) are creeping up, but not to the absurd degree they are in actually desirable places to live. That said, anywhere that's decent to live is getting slammed. For instance, sticking to MI, Grand Rapids and the Ann Arbor area are insane compared to where they were a few years ago.
The only reason there are any decently priced houses where I am is that a lot of them are over 100 years old and some of the school systems are so bad even our current asset bubble can't make families want to live there. (So no point in buying to rent out for twice the mortgage because no family is paying 2000/mo for a house in a school district with a math proficiency rate of 15%.)
It's also creating a situation where the actual quality/value of properties for price is completely out of whack. There are large swaths of the country where low-grade cookie cutter houses in the suburbs that are legitimately worth maybe $350k at the current inflation rate are asking for $850k+ and generally selling $100k+ over ask. I have a $1.25M budget for a house and I can't find anything that's not a trash heap I can afford, and I'm not even looking in a coastal area, this isn't the legendary market in California, this is in the middle of the US.
I'm really curious about opinions regarding "how this ends..."
Seems to me that, if current trends continue, home ownership will basically become extinct; everyone will become renters. Home ownership will take the same path as music over the last 20 years, where we used to "own" music (CDs), now we just "rent" music through streaming services like Spotify. But that's just my 2-cents. I'm curious about others' thoughts.
It ends with all homes being controlled and rents skyrocketing because they can make it as artificially scarce as they like and then god knows, squatting?
Yes, and in the interim, their behavior overpaying worsened the housing crisis and further inflated the assets in the markets they operated in. They absolutely did (and continue to) contribute to the problem.
> "In most markets around the US now, the expectation is that buyers will waive inspection requirements, make an offer as all-cash (e.g. pre-approved financing), with no contingencies (e.g. not based on sale of their previous home)."
It's ridiculous trying to buy a house now is like it's buying from the Louis Vuitton store or trying to get into a fancy club - especially when the "thing" is a normal-ass house in the suburbs.
Calgary (albeit Canada in this case, but [Canada is just as bad if not worse than the US with regards to housing](https://www.cbc.ca/news/business/crea-housing-december-1.631...) is a great example of a city like this. They aren't landlocked and so they can expand as they want. Also a decent sized city, and world class skiing within an hours drive.
My gut tells me people will then complain that the housing market in places like this are not worth buying into as houses are only increasing at the cost of inflation.
When you're born into a HCOL area, and all your friends and family are in a HCOL area, it's not exactly such an easy thing to just move out to some random cheaper place. For one, I don't even know where to look, there are too many choices and too many of them are shitty places to live. And that's to say nothing of having to start a brand new social life from scratch.
I find it silly that appraisal waivers are the norm now. It's like saying, "yes, I know I'm going to overpay for this house" before any negotiation even takes place
Very true. We have faced this and we know friends across different cities facing the same issue. Houses in previously affordable neighborhoods are so expensive that even with 2 tech salaries people are barely able to afford. This is great for people who already have home whose prices have doubled but I cant imagine how anyone is able to afford a home let alone good homes near good schools (this may be specific to the US). I am personally really hoping for a real estate correction.
I’m truly not trying to be rude or snarky, but there are a massive number of people living out of cars/RVs/vans in California already. I don’t have a source for this, but I’ve lived in LA and the Bay over the last 3 years. You just gotta drive around.
The Instagram accounts with the $90k tricked-out sprinter vans are a vanishingly small fraction of that.
The “bubble” you’re describing is California’s homelessness crisis.
The book Nomadland covers the roaming vanlife pre 2017 that was supplying a lot of seasonal workers to Amazon warehouses, forest service employees and farm workers. (recruiters for all those places targeted people living vanlife who could move and live close to the place of work.) There are several streets I commuted on in the peninsula area of San Jose/San Francisco where all of the parking is used by people living in cars and RVs since 2005 at least.
This doesn't mirror my experience looking at housing over the last year in a major metro. Houses are going quickly and for maybe 5 to 10 percent over asking, but that's about it.
You must be in an abnormally hot market. That sounds pretty awful.
> My sister had multiple properties where her bid was beat out by someone offering $100k+ over ask
This really isn't bad, consider Toronto, Canada where house that's over 100 years old (tear downs) cost well over 1 million and increase in value by over $2000 a week, yeah you heard that right.
There are houses outside the city (almost anywhere in Southern Ontario)that were anywhere from 200k -400k pre pandemic that are now approaching 1-2 million. I have seen 50 year old 1200 sq/ft Condos in Toronto go from 300k pre pandemic to now 800k. I believe by the end of this year the average price of a house in Toronto Canada will be approaching 1.5 million plus and is probably on a trajectory of 3-5 million in the next 5-10 years. Before you say it can't keep going, it's been on this path for the last 15 years and is showing no sign of letting up.
Governments are bankrupt and can't raise interest rates meaningfully ever again.
> This really isn't bad, consider Toronto, Canada where house that's over 100 years old (tear downs) cost well over 1 million and increase in value by over $2000 a week, yeah you heard that right.
How much of that is completely self-imposed with out of control immigration quotas and a lax policy on foreing money laundering? [0]
I'm not sure you understand what I meant by someone offering $100k+ over ask. In the current market properties generally get listed and then are under contract in under 72 hours, which means in the market you're describing in GTA this would be like someone listening a property for $1.5M, expecting it to increase in value by (let's be generous) $10k in the 72 hours it takes to sell, and the bidders offer $1.7-$1.8M for that property. It's hard to express how much importance is also being put on these offers having NO clauses and being all-cash. It's just a straight, NSA cash offer, which is something investors can do with hedge fund / foreign money laundering capital, that someone who actually has to live in the place cannot. Personally, I will NEVER waive an inspection because I don't want my family's health put at risk.
> Multi-generational mortgages. Again not great, but not everyone has access to $1-2MM.
This sounds like literal debt slavery. I'm not sure this is even legal in the United States, and if it is, it shouldn't be. This is a type of financing that cannot be described in any other terms than being predatorily usurious.
I imagine you are getting downvoted because other users believe that you are proposing these as viable options. Mobile homes are not constructed to even the horrid minimal building codes that a free-standing structure must meet, so don't even remotely qualify as "efficient, reliable, and safe", and I've already said my piece about multi-generational mortgages.
So, why not the Midwest? I actually grew up in the Midwest and have nothing against it, in point of fact. I think a lot more people should move to the Midwest and that it has a lot to offer. For me, particularly, I am moving locations for family reasons, so the location I move to isn't so much my choice. If I had my choice, I'd actually really enjoy some places in the Midwest, in fact one of my favorite cities is KCMO and I also really enjoy parts of Arkansas. The reality though, is even in the Midwest the places that are actually nice to live and have real broadband Internet service cost quite a bit, maybe not $1M, but at least $450-500k for a decent house.
FWIW, the methodology note at the bottom of the interactive:
> The Post analyzed Zip code-level data provided by Redfin. Redfin defined investors as buyers whose name included the keywords “LLC,” “Inc,” “Corp” or “Homes,” or whose ownership code includes the keywords “association,” “corporate trustee,” “company,” “joint venture” or “corporate trust.” (For our analysis, Redfin excluded the buyer keyword “Trusts” from its analysis to be more conservative in its findings, since some families own their homes through trusts.) Redfin included the 40 most populous metros where counties disclose sales prices. Redfin’s metro boundaries are either Metropolitan Statistical Areas or metropolitan divisions, depending on the metro.
The Post excluded Zip codes with fewer than 10 sales in 2021 from the maps, and those with fewer than 25 sales from the race and income analyses.
Race and income data is from the U.S. Census Bureau.
This is a bit problematic. In the text of the article it says:
> Real estate investors can be large corporations, local companies or wealthy individuals, and they generally don’t live in the properties they are buying. Some look to flip homes to new buyers, while others rent them out.
The methodology described above does not catch individuals buying houses to rent out.
I actually like the methodology, because I think residential housing capture by corporations is an important (and negative) feature. But the article text makes it sound as if they are also describing people choosing to buy a single rental property, and I suspect that even though this may have negative effects on the housing market, it should likely be considered differently from the purchases made by entities caught by Redfin's methodology as described.
"Some families" interesting language. In Berkeley, where I have comprehensive data on the subject, about 13000 parcels are held by family trusts, in a city with only 29000 parcels. Everybody uses them because it's the best way to scam Prop. 13.
We have our house in trust not because of some prop 13 reason but simply because putting your major assets in a living trust is the right thing to do avoid probate.
It massively reduces headaches for your descendants upon death but AFAIK it makes no difference in terms of taxes.
Anyone who has a little bit of assets (a single house is enough) would be a fool to not have a living trust.
Readit News
As it stands, mortgage rates being below the rate of inflation make housing a very attractive investment.
The sources of mortgage subsidy that I am aware of are secondary market purchases:
A big portion of quantitative easing by the Federal Reserve is buying billions of mortgages every month. The Fed is trying to start unwinding this now, but they have had trillions of mortgages on their books since the GFC.Cost of living calculation between Dallas and Houston says costs are roughly 15% different (as apples to apples a city I can identify to isolate zoning effects). So definitely some effect and a good lever to pull (in addition to others I am sure.)
I agree that zoning reform is part of the issue, I think zoning reform combined with other tweaks would go a long way.
I think that multiple issues cause these problem, we have runaway negative feedback loops in multiple areas, the problems has evolved organically over time so I doubt any one factor is enough to resolve the issue (as nice as that would be.)
I'm not making the assertion that zoning is the sole issue so I don't need to defend it but I figured I could take a quick look and bring some numbers into the mix so we have some numerical grounding for conversation and exploring the problem.
I think this is a "Yes, and..." situation
My plan to cheap housing
1) Unfuck Zoning. Be like Texas.
2) Unfuck building codes. Person signs their own death warrant? Let them live in a yurt or a the kind of shack people keep their garden tools in. There's a county east of Tucson like this, guess what, people no ded.
3) End all subsidies and government involvement in mortgages. Best way for skyrocketing price is for government to guarantee loans in a way a relatively free market would not.
4) Permit fees dropped for building housing. Cost of evaluating permits should drop without zoning or building codes. Only examine development to make sure it doesn't cause imminent harm to those outside the property line.
Inevitably when these become government programs, they simply throw money at the problem without addressing fundamental supply and demand issues and accomplish very little except drive up prices. Then, when investors see prices going up and to the left, they rationally throw money at it in a way to make even more money, which drives up prices even more.
There’s so many charts like https://ritholtz.com/wp-content/uploads/2018/02/pricechanges... that clearly show the trend. It’s insane.
There’s a really good book I recommend called “Systems Bible” [https://www.amazon.com/Systems-Bible-Beginners-Guide-Large/d...] that beautifully articulates this phenomenon in a way that applies to government policy, software systems, management, org structures, or any complex system of people or machines.
You may enjoy this article [0]. To quote from it:
> In the past fifty years, education costs have doubled, college costs have dectupled, health insurance costs have dectupled, subway costs have at least dectupled, and housing costs have increased by about fifty percent. US health care costs about four times as much as equivalent health care in other First World countries; US subways cost about eight times as much as equivalent subways in other First World countries.
Of course adjusting for inflation.
Thank you for the book recommendation.
[0] https://slatestarcodex.com/2017/02/09/considerations-on-cost...
The obvious fix is a nationwide property tax that doesn’t apply to primary residences, but again it’s hard to say what that would do.
That said I would support a hard progressive tax on non-primary residence homes. It should really hurt for them to own multiple homes.
I think you are confusing home loans (which are subsidized) and business loans which are not subsidized).
Fannie Mae/Freddie Mac loans are only on 1 primary home and 1 secondary home for individuals. These loans are limited and really don't work in high property value states. You should google the difference between "conforming" and "non conforming" loans.
You might be thinking of the mortgage deduction on the income tax. Trump already did this. This only hurt young people in high property value states.
Business real estate loans are more expensive because they are not subsidized. However, businesses do pay taxes only on earnings (income-expenses). Loan payments are expenses that reduce the earnings. Good luck on getting rid of business expenses. Yang proposed changing the tax law because of this.
All this means your proposal would have a very limited impact. It would only hurt individuals who live in an expensive property where the homeowner has mostly paid off their mortgage (old people) and used the principal to buy a rental (up to 750k).
I understand these policies work differently in expensive markets. But as per this article, investors are targeting rentals in less expensive markets.
[1] https://www.quickenloans.com/learn/conforming-loan-limits
[2] https://sf.freddiemac.com/working-with-us/origination-underw...
The neighborhood supported the increase in value, but gets nothing in return.
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So what is the Fed's motivation to raise interest rates to curb inflation in this case?
Dead Comment
No state is incentivized to make zoning more lenient. Therefore it falls on the federal government, who lack the authority.
The only thing they can do is something similar to what they do with the highways and threaten to take away funds unless all plots of land can be zoned for up to 4-family houses (FHA limit).
Potentially quadrupling the amount of housing will do it.
This is all the result of corruption. City councilmembers in cities across this country found themselves in the position of kingmaker. Decades of entrenchment of the political class saw this role refined, distilled, and now it's practically impossible to remove the layers and layers of ossified process that has corrupted anything we do. This is why housing is not being built, why construction costs on projects are so high, why timetables of doing anything at all are decades out, and why the FBI indicts major local politicians for corruption every year. Decades and decades of systemic corruption that has not ever been rooted out has led us to this current broken state.
I would love to see a federal regulation stating that any housing construction permit that isn't reviewed within ten business days is automatically approved.
These investors aren't the ones making the prices higher (or they weren't initially, at least); they're responding to conditions that were already making prices higher, which makes their investment more attractive.
But you don't have to take my word for it; it's literally what they say in their prospectuses:
https://mobile.twitter.com/mattyglesias/status/1482762838074...
Everybody has their favorite group that's easy to hate in this space -- it's the vacant investment properties, or the foreign investors, or the REITs, or the rich people with vacation homes -- but those are tiny factors relative to the main driver of this, which is your typical one-house-occupying all-American homeowner who opposes any new housing in their neighborhood.
As soon as the prospect of housing appreciation disappears so will the investors. But then we’ll have sad stories about people being underwater on their mortgages.
Yet this is exactly what is happening in California via SB9 (though admittedly with significant local opposition):
https://www.mercurynews.com/2021/09/16/gov-newsom-abolishes-...
Ironically, single family zoning as a tool was invented in California.
https://www.mass.gov/info-details/multi-family-zoning-requir...
In short, it's a good idea but needs more teeth.
Zoning is largely a local issue. And zoning is talked about a lot at local council meetings. The problem is people have very strong opinions when it comes to how the place they live will change. It's trivial to get a sizable contingent of people to oppose zoning permits.
There's a huge argument going on a few towns down from me as to whether a 100yo, vacant building in disrepair should be torn down to make room for a community center. One would think this is something obvious that would go unchallenged by locals, but nope.
Making zoning a state issue would probably help a lot, but it would piss off home owners. Even early champions of the change are going to hate it when their neighbor's houses get torn down so that a casino or something can be built in their place.
Given the current situation in many state governments, this would have huge ramifications. You might live in a mid-size city and have the wingnut state government refuse to let you build any more homo-muslim-crack housing anywhere in the city center. Or the rural/exurb dominated state house will only let you build a unit in downtown if it comes with 3 parking spots large enough for lifted Ford F350s.
Personally, I live in the South in a city where local politics are dominated by the suburbs and it's bad enough already. "Not enough parking downtown" because you might have to walk 3 blocks to the nearest street parking lot, so of course more lots must be subsidized. Huge portions of downtown taken up by 6-lane corridors impossible for pedestrians to cross so that suburbanites can zoom through at 50 MPH. And that's set up by people who live and work 20 minutes away! Imagine the situation if zoning and city planning was primarily determined by car dealership scions who will never come here in their lives.
Even the strongest critics of the status quo don't think we should eliminate all zoning, so that you'd be able to put a casino on a residential street. What we believe is that you should able to build more residences (and maybe a corner store) on residential streets.
Deleted Comment
Zoning reform is a solution to get out of this mess, but zoning is not the only cause of this problem. If you look at the last 10 years of housing construction in this country, and you compare it to the previous 50 years, you see that we have simply not been building enough housing:
https://fred.stlouisfed.org/series/HOUST
If a nation spends 10 years not building enough housing, high prices are what happen. If you add low 2020 interest rates to the mix, the effect on housing prices are explosive in the short term.
All states are actually incentivized to increase their supply of housing, because an increasing population allows them to eventually gain greater representation in Congress relative to states with less growth. States like California, New York, and Illinois are losing out to states like Texas, Florida, and North Carolina.
Why? Because investors would have more and more houses sitting empty. That would force a change fairly soon... wouldn't it?
Why not? Wouldn't it encourage more people to move to the state and increase income tax / sales tax / property tax revenue?
I think a lot of 'secondary' markets could take a hit. These are places that the main appeal is their current relative affordability or proximity to a more-desirable area. I think buyers that are priced out of 'desirable' areas today are effectively settling for these secondary areas, which is raising those prices. I feel like those will be the first areas to take a hit. How big that hit will be, I certainly can't say. It could be as little as a reduced rate of property appreciation, or it could be as large as a 20% hit.
Friends in the DC region aren't worried as this has been an ongoing trend for quite a long time (they have enough equity that a dip won't matter much). Friends in Southern California would probably say the same thing. But in Phoenix, I already hear some questions as to whether this will come tumbling down in a year or two.
Myself, bought a place (not a city and not quite the 'burbs) last year and I'm still curious about my local market so I still constantly check the real estate sites/apps just to see how things are moving in my area. Would suspect I'm not alone in doing this.
Why do the sellers care if you're buying with cash or a mortgage?
When I bought my last house (newly built), on the DAY OF closing, 2 hours before the closing appointment, my mortgage officer calls me to tell me I'd need to bring another $5000-ish (due to a reason I've blocked from my mind). He told me my builder would bring a check for an equivalent amount made out to me, but to make the accounting/financial all legal, we couldn't just "zero each other out". The money had to clear from both accounts. (I wish I could remember exactly the circumstances). And, this money couldn't just be a check but had to be a cashier's check that was guaranteed. It couldn't be cash, either, because it had to be from an account that the underwriters had reviewed and done money laundering screening for.
Due to the logistics of that day, I had to go through herculean efforts to get that cashier's check made. I usually bank with online-only banks, and thank god that I had a local bank with just enough balance to make it all work... And that's for someone who is lucky enough to be able to bring that extra money and to be able to take the day off of work to make happen. I imagine many others wouldn't be as lucky.
That closing could've been easily pushed off a couple days had this surprise made us unable to close that day.
Sellers like not dealing with this, so they prefer cash offers.
A bank says they will lend 75% LTV, you are preapproved for a $2M house, so will bring $500K to the table and bank will provide $1.5M you think.
But wait, the appraisal comes back for $1.6M instead of the $2M you bid. Bank says no problem, we will lend 75% LTV or $1.2M. Now you have to find (within days) $300K. And you can't borrow it because that will mess up underwriting on your current loan.
Or you buy a car before closing. Whamo - your DTI is toast.
Or you have someone open a CC in your name. Whamo - no closing.
I don't know much about the US house buying process, but from what I've read about it it sounds insane. Fees everywhere, two realtors involved etc.
Deleted Comment
might be others but that’s what i inferred last time we lost out.
I’m in the market for a place now and recently lost to an all cash bidder. Turns out they were using [0]. I was already pre-approved through a conventional lender, but all-cash seems to be the new norm.
[0] http://www.accept.inc/
[1] https://better.com/content/better-cash-offer-faq
If you're starting a job in a new town in March, it's not a great option, but if you're looking months ahead of your preferred move date, why not?
where do you start? what grounds for evicition? Unpaid rent? You've already agreed that rent is zero...
Why would a REIT/Private Equity not care about this? Because their goal is to rent the property in any case. Professional landlords already have this in their risk models.
The idea of rent-free occupancy wasn't even a thing two years ago. It's just sellers taking advantage of the current market where a lot of the buyers have no intention of living in the house and so a few months of rent-free occupancy make absolutely no difference as long as they get to buy the house.
Dead Comment
China has essentially realized they're in a demographic crisis so they've enacted the following policies:
- Stopped their speculative debt fueled housing bubble, this I hope makes it affordable for their citizens to own homes, without prices skyrocketing.
- Stopped for profit educational institutions, this is so that education and specifically tutoring aren't exclusively for the rich.
I think they're enacting policies for childcare as well.
Given in the US investors are buying up property, and costs of both education and childcare are skyrocketing. I don't see how the US won't avoid a demographics crisis as well.
The US can't mandate its industry to follow a similar approach, but can't the government provide stimulus or some other Manhattan Project type drive to encourage entrepreneurship and companies to start and resolve these underlying issues?
I mainly wanted to highlight a market driven approach that works with the other industries in the US as opposed to a government directed one. Albeit the government provides stimulus of some type to kick start it, like how NASA drove the privatization of Space and now we have lots of launch vehicles via different companies.
[1] https://youtu.be/iGbC5j4pG9w
In the US these kinds of internal migration controls violate the Equal Protection clause, so they are mostly a pipe dream. Like anywhere, the US has a lot of places not worth living in, but the people from those places are all able to compete for spots in the cities, so those spots will necessarily be competitive.
Rather than spending money subsidizing the poor in these competitive places, it's better and cheaper imho, to add/create a good place to be in a currently bad place.
China and other nations realize that there is more money and happiness in the long term view, so they're either pivoting or have pivoted. I'm afraid we just don't have the gumption / community oriented view to do that here in the USA. Folks want "freedom", even if that freedom means degrading into massive poverty / wage slavery. I don't blame them particularly, our education system massively touts the successes of USA above all.
Have they actually done this? Last I checked the cost to buy a home as a multiple of average income was far higher in China than it is in the US.
China is going to have a massive housing correction - a la Japan.
https://www.numbeo.com/property-investment/rankings_by_count...
Big businesses/very wealthy can access very low rates by 1. pledging collateral and borrowing-> buy assets-> pushes asset prices up-> collateral worth more-> back to step 1.
With houses they know the average person(who is a homeowner) will fight tooth and nail to keep prices high. Especially people who have bought recently. The higher prices are the more incentive people have to keep them high as it becomes a greater % of their net worth. Tyranny of the majority.
Feels like in Canada we are basically seeing the emergence of some sort of neo-serfdom where the majority of young people(and older renters) who don't have significant family support are spending so much on rent they will never be able to own and year after year rent takes up a greater and greater amount of their salary. It's not at all uncommon to hear about people living in hallways or many people to a room in the GTA/GVA.
But investors, particularly institutions, think in terms of return on capital. The very important distinction is that the part of the mortgage payment going towards principal does not constitute a cost from a corporate accounting standpoint. Rather, principal payment goes on the balance sheet as accumulated equity in the property.
In other words retail is sensitive to total mortgage cost, whereas institutions are only sensitive to the interest component. As interest rates fall to zero, principal grows to nearly 100% of the mortgage payment. Even at todays rates principal constitutes about a third of the mortgage payment from day one, giving institutions nearly 50% more buying power. (Particularly in low property tax states like California.)
Besides raising rates, the only real option is to underwrite increasingly longer duration mortgages. When interest rates fall, extending the mortgage duration makes principal fall proportionately. Hence why many countries in the low rate macro environment have moved to 50 year mortgages to avoid systematically disadvantaging retail.
I'm currently trying to buy a different house, my older sister just bought a different farm, we both have had a horrible experience. My sister had multiple properties where her bid was beat out by someone offering $100k+ over ask, all-cash, mostly REITs and other types of corporate investors. This wasn't even in a city (farm obviously). I'm trying to find both a house and a place to rent, because my realtor/broker has advised me that I need to rent for at least a few months while I sell my existing house so I can buy with no contingencies, or I'll never get under contract. I finally found a proper spot for us to rent, was supposed to be available April 1st and was accepting leases starting March 15th according to the listing. Was just informed yesterday that the owner has already got it under application and has four other renters waiting in the wings.
This market is ridiculous if you actually need a place to live, and it's not even a matter of income. I'm in the top 1% of earners overall in the US, and I can't even close the deal on a place to live. I've had my current house for a bit over ten years, and it makes me almost want to give up and not move, although I must for family reasons. When I look into it, most of the properties being swept under me (and others) aren't even being bought by people, they're being bought by REITs or other investment vehicles, mostly by foreign money. You've also got companies like OpenDoor and Zillow scooping even high-earners trying to buy a place to live.
In some places that may be true, but I was able to get a home last January on a single relatively moderate-high tech salary, I have a friend that signed for a home on a single person decent salary as well near me, and my next door neighbors again single relatively decent tech salary just bought a new home elsewhere.
You may be right about places in like LA or Toronto or NYC, but to generalize that everywhere is a little absurd. I know that the market I fled in UT was that way, and things are getting pricier here in the neighborhood that I am living in, but we are definitely in the middle of a crazy bubble right now; however it won't last forever, things are going to pop eventually. There are good affordable places to live even if they aren't in CA. Much of the Midwest is great, I think part of the bump we are seeing is rise of remote work exacerbated an already existing bubble brought about by government subsidization as it allowed tech salaries to be redistributed geographically.
I do agree that part of the problem is large investment firms purchasing housing as an investment and an article the other day on here pointed out how they are able to take advantage of government subsidies to purchase more homes, but a bubble can't last forever it will pop, and I feel like the popping is going to come soon.
The US needs to make a policy decision: are houses investments or a way to nurture and grow the lower and middle class?
If it's the former, they can use tax policies to encourage the desired behavior. Tax every residential home (single family or condominium) at 10-30% of its total value per year, regardless of who owns it. Give a complete write off for your first home. Maybe give a partial write off for your second home. Make owners bear the cost of appraisals, and if appraisals aren't available, tax them at the most expensive 90th percentile.
But of course maybe the US decides homes are investments. Great for the wealthy, but the lower and middle classes are really going to get hurt. Birth rates will slip even further.
They already have. home buyer loans are backed by the government. You can write off loan interest. Investors pay taxes on income from the investment (net rent and capital gains) ...
Also just like in education space the more the government subsidizes the pricing, the more it gets inflated. So more incentives will just lead to more demand and higher prices.
What we really need is more supply and elasticity. More houses, and more people willing to say "F--- this I'm moving to CheapTown"
They have. By not deciding, they have decided. It would be incredibly harmful to reverse course now. Typical US policy is to get backed into a corner until doing the right & obvious thing is incredibly difficult and practically impossible.
Do you actually have any evidence this is true in "most" markets? It seems like only in a few markets around highly-desirable cities is this true. Farms don't sound like they're going to be representative of the types of housing that most people are looking for.
I'm 45 minutes south of Seattle and I purchased a large house with a backyard, recent-ish construction, no contingencies waived, for less than what a 500sqft loft is going for in Seattle.
I put farm in quotes because they are intentionally mining the land of all long term fertility - not a problem as it won't be farmed in a few years anyway, but if you intended to farm for more than 10 years then proper care for the land will ensure better profits of the wrong run.
I study the RE market in several places that I am connected to every day - I watch houses come on the market, and are under deposit within days. I feel really bad for young people looking to buy their first place (including my kids) - they can't pay cash, and they are on a budget - they have almost zero real options other than to continue to rent and wait for a RE crash. IMO, it's coming, but who knows when.
The only reason there are any decently priced houses where I am is that a lot of them are over 100 years old and some of the school systems are so bad even our current asset bubble can't make families want to live there. (So no point in buying to rent out for twice the mortgage because no family is paying 2000/mo for a house in a school district with a math proficiency rate of 15%.)
My friends who are double income but not tech are trying to buy a home now. Same experience as you. Cash offers always arrive and beat them.
I don't know how this ends but it's not going to be tenable for many folks to "live" in the USA as it stands.
Seems to me that, if current trends continue, home ownership will basically become extinct; everyone will become renters. Home ownership will take the same path as music over the last 20 years, where we used to "own" music (CDs), now we just "rent" music through streaming services like Spotify. But that's just my 2-cents. I'm curious about others' thoughts.
So on the one hand you've unaffordable homes/apartments, and on the other automation coming at full speed.
So much uncertainty and insecurity. I'm sure civil unrest is coming.
Zillow’s home-buying program called “Zillow Offers” has been shut down. They overpaid and had $400 million losses in 3 months
https://www.nytimes.com/2021/11/02/business/zillow-q3-earnin...
It's ridiculous trying to buy a house now is like it's buying from the Louis Vuitton store or trying to get into a fancy club - especially when the "thing" is a normal-ass house in the suburbs.
In the highest demand cities. Move somewhere that is either 1) Building a crap ton or 2) in lower demand
My gut tells me people will then complain that the housing market in places like this are not worth buying into as houses are only increasing at the cost of inflation.
let me translate..
"Quit your job and leave behind everyone you love"
Now image you missed out on ten houses you wanted to buy before this one, and are exhausted by all the effort.
The Instagram accounts with the $90k tricked-out sprinter vans are a vanishingly small fraction of that.
The “bubble” you’re describing is California’s homelessness crisis.
You must be in an abnormally hot market. That sounds pretty awful.
I don't get how people are still buying houses at these prices. Are they paying beyond their means? Wiping out their savings? Or what?
This really isn't bad, consider Toronto, Canada where house that's over 100 years old (tear downs) cost well over 1 million and increase in value by over $2000 a week, yeah you heard that right.
There are houses outside the city (almost anywhere in Southern Ontario)that were anywhere from 200k -400k pre pandemic that are now approaching 1-2 million. I have seen 50 year old 1200 sq/ft Condos in Toronto go from 300k pre pandemic to now 800k. I believe by the end of this year the average price of a house in Toronto Canada will be approaching 1.5 million plus and is probably on a trajectory of 3-5 million in the next 5-10 years. Before you say it can't keep going, it's been on this path for the last 15 years and is showing no sign of letting up.
Governments are bankrupt and can't raise interest rates meaningfully ever again.
How much of that is completely self-imposed with out of control immigration quotas and a lax policy on foreing money laundering? [0]
[0] https://en.wikipedia.org/wiki/Snow_washing
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* Plenty of places in the Midwest (Arkansas and Kansas, for example) are depopulating. Affordable real estate exists there - https://www.arkansasonline.com/news/2021/oct/08/populations-...
* Mobile homes seem a not-great-but-doable alternative. Still money to be made, particularly if they have a "tiny home" vibe.
* Multi-generational mortgages. Again not great, but not everyone has access to $1-2MM.
This sounds like literal debt slavery. I'm not sure this is even legal in the United States, and if it is, it shouldn't be. This is a type of financing that cannot be described in any other terms than being predatorily usurious.
I imagine you are getting downvoted because other users believe that you are proposing these as viable options. Mobile homes are not constructed to even the horrid minimal building codes that a free-standing structure must meet, so don't even remotely qualify as "efficient, reliable, and safe", and I've already said my piece about multi-generational mortgages.
So, why not the Midwest? I actually grew up in the Midwest and have nothing against it, in point of fact. I think a lot more people should move to the Midwest and that it has a lot to offer. For me, particularly, I am moving locations for family reasons, so the location I move to isn't so much my choice. If I had my choice, I'd actually really enjoy some places in the Midwest, in fact one of my favorite cities is KCMO and I also really enjoy parts of Arkansas. The reality though, is even in the Midwest the places that are actually nice to live and have real broadband Internet service cost quite a bit, maybe not $1M, but at least $450-500k for a decent house.
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> The Post analyzed Zip code-level data provided by Redfin. Redfin defined investors as buyers whose name included the keywords “LLC,” “Inc,” “Corp” or “Homes,” or whose ownership code includes the keywords “association,” “corporate trustee,” “company,” “joint venture” or “corporate trust.” (For our analysis, Redfin excluded the buyer keyword “Trusts” from its analysis to be more conservative in its findings, since some families own their homes through trusts.) Redfin included the 40 most populous metros where counties disclose sales prices. Redfin’s metro boundaries are either Metropolitan Statistical Areas or metropolitan divisions, depending on the metro.
The Post excluded Zip codes with fewer than 10 sales in 2021 from the maps, and those with fewer than 25 sales from the race and income analyses.
Race and income data is from the U.S. Census Bureau.
> Real estate investors can be large corporations, local companies or wealthy individuals, and they generally don’t live in the properties they are buying. Some look to flip homes to new buyers, while others rent them out.
The methodology described above does not catch individuals buying houses to rent out.
I actually like the methodology, because I think residential housing capture by corporations is an important (and negative) feature. But the article text makes it sound as if they are also describing people choosing to buy a single rental property, and I suspect that even though this may have negative effects on the housing market, it should likely be considered differently from the purchases made by entities caught by Redfin's methodology as described.
It massively reduces headaches for your descendants upon death but AFAIK it makes no difference in terms of taxes.
Anyone who has a little bit of assets (a single house is enough) would be a fool to not have a living trust.