Just your annual reminder that the Land Value Tax is the Least Evil Tax. Tax "rent"[0] at 85-100%, allow owner-residents to defer LVT taxes owed to time of sale with modest interest. Speculators would be naturally driven out in favor of people actually using the land.
[0] - Which is gatekeeping/charging for land (finite natural unimproved resources like space, spectrum, water, wildlife, oil, etc)
Another way would be to simply raise capital gains taxes on land. Making money off of land (as opposed to renting) just doesn't make sense. It's basically Bitcoin with real life consequences.
But what if all I want is to park hundreds of millions I managed to steal from eastern state run power company? I dont care about gains, I dont care about rents. I simply know that I wont lose money buried in land/buildings. I already have tens of millions in prime Manhattan commercial real estate, all vacant obviously.
The "least evil tax" probably comes from Milton Friedman, who called land tax the "least bad tax".
Owner-occupiers do pay land tax in Australia — local council rates are effectively land taxes as they are based on the unimproved value of the land (but they often include stormwater and waste charges as well).
Rents have been depressed due to eviction moratoriums So I don’t think this metric is useful right now to gauge the housing bubble. The main mistake usually made with housing is not accounting for inflation. Here is a data driven analysis that does: https://realestatedecoded.com/case-shiller
Housing prices will eventually mean revert like they always do. However, interst rates are so low right now that it still can make sense to buy now.
Clearly there are a lot of variables including interest rates, desire for better space due to Covid lockdowns and more recently FOMO.
One thing that should not be overlooked is the basic economics of supply and demand.
Right now the supply is extremely low compared to much of our historical data. This at the same time as demand has been red hot (due mostly to Covid). Check out the data below, especially over the last year.
We are seeing the same macro level forces impact the used car market. In that case, the supply is off ~30% due to rental car turnover being nonexistent.
Lack of supply is precisely the issue causing panic buying through bidding wars. You need to go 10% over asking to be guaranteed to be close. Low demand and continued increases of buyers coming to market cause the snowball effect.
Rental cars seem to be a mess. I know at least one person who canceled a trip because they couldn't get a rental car. And I reserved one for a trip at the end of September "just in case" and the price seemed significantly higher than normal.
Rental car prices are extremely high. That’s not your imagination. This is a result of car rental companies selling a third of their fleet last year to survive so supply is way down and demand came roaring back.
I wish something is done about these rentiers. Someone I know is amassing a rental property portfolio, while I am struggling to buy my first home. I am not against people making money and getting rich, but it would be nice if it wasn’t so easy to buy up multiple properties simply because they have the cash.
There should be all kinds of incentives for first time home buyers. But it should be made very expensive/very painful from second home onwards. I don’t care that I can’t afford a luxury car or overpay for Google stock. But it annoys me to no end that the so called “investors” (not just rental companies but small time landlords too) buy properties with the sole aim of jacking up the rent and pushing first time buyers out.
Housing is not a luxury, it is a basic human need. People can own a hundred Ferraris for all I care, but there should be some sane policy on letting individuals and companies own entire neighborhoods and blocks.
Along the same lines, Bill Gates owns 242,000 acres of farm land. What for? I don’t know. It is just plain ugly to let someone own huge lands, water supplies (there are companies buying up large water sources) etc. This amount of monopoly on basic human needs is just bad.
I know this is an unpopular opinion here, as many HN readers see real estate as a way to get rich and likely own rental properties themselves. But across the world, in many urban areas, there is severe housing shortage (artificial in most cases, and houses sit empty because “investors”, see Canadian cities for example).
On top of all this, most cities and towns have extremely unfriendly policies towards tiny houses. That is whole another level of unfairness.
It could be that the rich are getting into real estate as a hedge against inflation, even if there is no income. But rental income is really nice... the most extreme version of this is the Duchy of Cornwall, earning rent since the 1300s (currently $21M) for the Prince of Wales:
It's crazy that we created a similar environment to the last economic collapse again. Not as brittle but the same environment where if I have been aggressively going deep into debt and mortgaging one property to buy another I will be making more than highly paid professionals off my assets. I don't know why we love creating these situations where saving and working hard are punished but recklessness and rent seeking are rewarded.
The flip side of high property prices is that its currently a pretty shit investment for new wannabe landlords.
Rental yields on residential property are around 3% in most of the UK, which is roughly where interest rates are. This means landlords are now entirely dependent on leveraged price appreciation to make a decent return.
Many landlords have already sold up because the returns no longer justify the hassle or risk (bad tenants, rent arrears, etc).
Of course, one advantage to having your wealth in rental properties is rents are usually linked contractually to some measure of inflation.
Any taxes that you pay on your second home onwards simply gets factored into the rent and gets passed on to the tenants. It is just cost of doing business, nothing more. The tenants suffer, not the buyers.
But not all landlords have the same costs. When I was renting my landlord bought back in 1998, so their costs were likely $800 for a place that rented for $3,000.
If we're talking the US, that law is for the benefit of the rich. In general, the interest won't exceed the standard deduction unless you've got a rather obscenely priced home.
That didn't use to be the case. The mortgage interest deduction used to be a solidly middle class benefit.
But, yes, with relatively recent changes to the tax code, it's a lot harder for most people to hit the standard deduction and therefore mortgage interest is often not deductible unless someone has a higher end home in an expensive area.
The mortgage interest deduction was and is a benefit for lenders. It's sole benefit is to increase the amount one can borrow by effectively lowering the cost of borrowing.
A solidly middle class benefit would be cash given to the middle class. A benefit for existing home owners selling their homes to middle class buyers is a cash benefit given to middle class buyers. A subsidy for borrowing money is a benefit for the person lending money.
People need places to live and we aren’t making more of them. There’s no world where public policy guarantees such scarcity relative to fundamental demand but speculators look the other way. Let them invest in development instead.
242,000 acres sounds big but it isn’t a significant percentage of US farmland. A large farm (in the $1m sales class) is usually above 3,000 acres in size. So Bill has bought less than 100 large farms. There are somewhere around 78,000 US farms in that class making up about 4% of farms and containing 25% of existing farmland. In other words, Bill owns squat. He probably bought those farms as an investment, there’s no reason to be hysterical about it.
> Along the same lines, Bill Gates owns 242,000 acres of farm land. What for? I don’t know.
The point of freedom is that it doesn't matter why he wants it, he's free to buy it if the owner chooses to sell it. There's a chilling implication in your stance that people should need approval for basic freedoms like buying land. That's how you end up with a dictatorship.
> approval for basic freedoms like buying land. That's how you end up with a dictatorship.
That escalated quickly. Nobody argued you need approval to buy land. We’re talking about purchasing thousands of acres of land, and exerting that kind of influence.
This is exactly a temporarily embarrassed millionaire example - you wanna buy yourself some investment properties, so you’re sitting here arguing on behalf of the richest man on earth.
That is not at all what I am implying. When you buy that much amount of land, which is a basic human necessity, at minimum the public needs to know what the plans are for those lands, right? If someone buys 5 acres of land, that is a different story, nobody cares. The scale is what making the difference here.
Let me ask you another question - recently (2019 I think), Bill bought 14,500 acres of land for 171M in a single deal. 171M is pocket change for Bill. According to your logic, he can continue to buy farmlands across the country (because "freedom") with nobody asking any questions. What happens if he ends up owning half (or 75% or whatever) of all available farmlands? You want one single man to control your food supply?
He can buy all the Ferraris/Picassos/megayachts etc on the planet, that would make zero difference to anyone (except maybe other billionaires). It is when he starts buying water sources, land etc it becomes a problem. It has nothing to do with dictatorship.
Better questions would be - why does one man need so much farmland? What is he going to do with it? How much more is he planning to buy? If he suddenly stops all farming on all farmlands that he buys, what would be the impact on the food supply?
It is amazing that you're arguing in support of a billionaire with a monopolistic, predatory past. He might be doing good things today, but he is also a big supporter of companies like Monsanto. He also has the arrogance of influencing things his way using his money, even when a majority of people/voters don't agree with him. Here is an example : https://www.prwatch.org/news/2016/04/13085/charitable-plutoc...
I do not know if you are arguing in good faith at this point. No single person, especially an unelected person, should have as much influence as Bill has. He is just one example. There are other super shitty examples. At least Bill is doing some good, there are other billionaires that are much, much worse.
The claim is that Bill Gates has bought too much farm land.
If someone is making that claim surely they can clarify exactly what too much is and why.
How do you expect anyone to take this suggestion seriously? How do you expect actual policy to be set without clearly defined boundaries of acceptable behaviour?
To be clear here you're advocating for a law that forbids the private ownership of an unspecified quantity of property. How do you intend for this law to be enforced?
Will every single private transaction be subject to scrutiny by some sort of administrative panel that takes into account the current holdings of the prospective buyer?
It's curious to me that there is such a visceral opposition to Bill Gates owning some farm land in a place neither of us have ever heard of when he has so much more direct power over all of us through Microsoft.
I don't think that there is a specific quantity of stuff that is too much stuff for one person to own. I think that there are issues with wealth concentration but I don't think it's absolute.
The issue isn't that one person owns a lot of stuff the issue is that one person owns a lot of stuff while most other people own nearly nothing or are in debt.
The issue here isn't that one person owns lots of stuff, the issue here is that one person is in the process of accumulating something that is vital for humans to live, something that is also limited in supply. I mentioned Ferraris etc, you conveniently keep ignoring it.
There are alternatives to every Microsoft product. Comparing vital resources like food/water supply etc with a computer operating system makes no sense.
I don't think anyone is proposing any laws here, at least not yet. Simply pointing out the fact that one individual is in the process of amassing insane amounts of a vital resource which will result in him having insane influence on something as basic as food. You seem to be more concerned about causing a minor inconvenience to someone with crap ton of money (if and when some laws are enacted) than the risk of one individual having power over vital resources. Already some 80% of meat in US is controlled by 3 companies, 50% of seeds are controlled by one company and so on. The situation is only getting worse.
I am going to stop arguing. By all means, please support billionaires with hideous monopolistic past/insane amounts of money and let private, unelected individuals influence policies etc if that is what you believe in.
I don’t think you realize how small 14,500 acres is.
Also, that’s nearly 12k per acre for every acre, even the ones you can’t farm. That’s a very good price, hard pressed to find a farmer who wouldn’t sell for that.
Some of it is to take money out of authoritarian regimes and move it into more rule of law countries. Another reason is a hedge against inflation which we may be beginning to see right now.
The very fact that you are trying to rationalize someone buying multiple homes at the expense of someone trying to buy their first home highlights the problem. Take Canada for example. A whole lot of homes are bought by Chinese buyers and are sitting idle, at the expense of Canadians trying to buy their first home.
How can you say this is morally right? It is all find and dandy for the Chinese buyers, but what of Canadians?
In this case I think countries need to implement reciprocating laws. If you as a Canadian have restrictions when buying land or real estate in China, then Chinese should have similar restrictions imposed to them in Canada. Obviously China should reciprocate if Canada is stricter as well.
This is a great example of the many flaws in globalism. If Canada were to put higher restrictions on foreign real estate purchases, Canadians wouldn't be in such a pickle. The flaw of generosity is that it leaves you vulnerable to being taken advantage of, which is what's happening in this case.
If such laws are put in place, it would handle only foreign buyers. It still wouldn't handle local born rentiers. There should be some kind of robust policy change. It would be hard, since landlords aren't exactly a friendly bunch (just look at San Francisco).
That's fine, there's no magic bullet to any issue. I don't have an issue with landlords; property is a human right and that includes the right rent it out (similarly, I expect the freedom to rent if I want to in a private contract with a property owner). But if citizen landlords are being abusive, then there should be separate legislation to keep them controlled as well.
Of course, this is a massive arranged crime akin to and having it's roots in the sub-prime mortgage crash.
Rates are low. corporations can borrow unlimited cash and buy a residence, then rent it out to get 4-5% interest and pay 1.5 to 2.5 = risk free make the spread with no limits.
I would like to borrow 10 billion and buy a zillion homes and make the spread ~~3%.
They hire property managers and that costs .5% to .75%.
And we pay = we MUST HAVE A PLACE TO LIVE.
Easy to fix = make an income property subject to business taxes in addition to the usual real estate taxes. All the small retail shops pay business taxes as well as realty taxes. Make it a law that increased business taxes can not be passed to the people who live there. Exempt people who rent rooms in their own residence.
This would kill the spread and make houses affordable again.
Of course powerful corporates vesteds would whine away = WGAS for them, the people need this racket to be broken NOW.
Another idea, make it so that the more single family homes someone or a corporation owns, they pay a higher tax rate on all their properties. So someone who only owns two or three SF homes they maybe pay 1.5%, but if they own 20 they pay 5%. Similar rules could apply for apartments or condos but with different multipliers.
If set properly it'll be impossible for large landlords to pass those taxes on to tenants, because they'll be undercut by smaller ones and buyers who just want a place to live.
This isn’t how taxation works or even can work. It would be trivial to avoid the tax you propose if it is based on income from the properties. If the tax is more like a property tax then it would be impossible for it to not be passed on to renters. Indeed, ALL taxes are passed onto consumers!
Where do you live? Here in Canada properties are taxed according to their value on an assessment scale. The city does not care if you make money or not, you pay your taxes. If you also operate a business you are also assessed business taxes which you must pay regerdless of your profits.
There are also income taxes on people and corporations and all costs of the business (wages, business taxes, realty taxes raw materials etc) are taken away (called deductions) on the balance the income tax or corporation tax is levied. Usually on a sliding scale, with individuals having a protected basic exemption and then a sliding scale up to around 50% for individuals of great income. A similar scale is applies to corporations but usually peaks at a lower rate.
My suggestion to apply a business tax to the rental of each suite IN ADDITION to the real estate taxes is to make corporations have a greater burden than a person living and owning it to create a disadvantage to the corporation to offset the rent seeking aspect whereby corprations can borrow large sums, pay the spread and have the tenants pay for their equity gains. This has driven property values for a 2 bedroom home to $1 -2 million and in essence makes ownership impossible.
Mmmm, not sure if that would be the case / possible with something like "First home for your use, you get tax exemptions, etc. Second house, for you, X amount of taxes. If rented, Y% of the income. Third house rented, insane % of the income (like 50%)". That would discourage people from buying-to-rent massive amounts of properties, as they would simply not be cost-effective, regardless of how much you want to pass on to the renters.
If you think that would raise rents by a huge %, I don't think so, as it would be completely impossible for people to pay.
> it would be impossible for it to not be passed on to renters. Indeed, ALL taxes are passed onto consumers!
Agreed. While not immediately intuitive, this is unfortunately very true for all taxes that are imposed upon institutions, corporations, investors, etc.
I wish this is something that could be fixed in a fair manner…
All taxes are passed on is a very simplistic view. Do I pass the taxes on to my employer when I negotiate salary? Probably to some extent, but this is like saying all cubes are squares and calling it good enough.
Maybe you misunderstood my post, but I was not arguing that this is a good thing.
But indeed, when you negotiate a higher salary, your employer pays more taxes. And this cost is passed on to the end-users of your employer’s business.
I was pointing out this view of "everything is passed on" is simplistic. There are multiple pots that can all be used.
Profit, R&D, Cost to consumer, etc...
I don’t understand how profit and r&d are pots for tax losses? Could you clarify what exactly you mean?
A great example is Apple/other electronic products in the EU. They’re just straight up 30% more expensive, which is approximately the extra taxes they incur in EU vs USA.
This includes higher VAT, taxes, and even labor/payroll.
COVID added two factors, both positive for housing prices: additional time in the home, making its faults more apparent and spending money to address them more sensible.
It also added trillions of dollars of government borrowing without creating offsetting trillions of dollars of production in the economy, leading many to worry about an uptick in inflation. As inflation fears increase, borrowing money and buying productive or hard assets makes an increasing amount of sense.
Houses are way over valued right now due to the lumber shortage and then are selling for inflated values on top of that due to demand following the pandemic. My house, according to Zillow, has increased in value over 20% since the start of the year and I could likely raise the selling price by another 10% if I were to put it on the market.
> the main driving factor is very low interest rates and massive amounts of credit.
This doesn't tell the whole story. Low interest rates don't make people offer 150k over asking while waiving all contingencies. I'm closing on a home soon and I saw this kind of stuff. I myself went 25k over with all contingencies waived on a condo in a 100 year old multifamily building. Relatively speaking, I was quite lucky to get this condo for this cheap.
There's a legitimate demand here: people, like myself, who renewed a lease on a tiny apartment shortly after the pandemic started then spent a miserable year indoors. Informing each other of your meeting schedule so you aren't loud in the kitchen while your partner is presenting in a meeting. Wishing your relaxation space wasn't the same as your work space.
I'm now roughly doubling the square footage of my living space, adding a garden and a patio. I'm thrilled. And yeah, I'm paying a million bucks for it.
Over asking is a misleading metric as realtors are allowed to list a house at any price they choose. Some properties are listed artificially low to get more people to view them. Since people have some sense of what a property is actually worth, they know after viewing it when an over asking offer is needed. In the same neighborhood I've seen similar properties go for $1.6 mil to $1.65 mil Canadian, one at $50K over asking and the other at $363K over asking.
> Low interest rates don't make people offer 150k over asking while waiving all contingencies
Paying above offer always struck me as strange. In my housing market its very common as well, to the point I believe under-pricing the home is intentional. There's no reason the home should be priced considerably below the market price. Sometimes you get it wrong but homes consistently selling above ask tells you the sellers are under-pricing intentionally. The upside for the seller is that bidders enter blind bids where the top bidder could bid significantly higher than the next highest bid.
I think systematic under-pricing could happen when prices increase a lot in a short period and it takes the brokers a while to adjust their pricing as the trend becomes more clear. But it could also be cultural to a market where brokers feel comfortable under-pricing homes to encourage a bidding war, but that obviously doesn't work in all markets.
As for waving contingencies, that's just another form of incentive in lieu of cash.
> There's no reason the home should be priced considerably below the market price.
Partially because you comp against recent sales in the area to determine market rate, it takes a while to close so the comps you have available are usually a few months old, and the price moved a lot in a few months
This happened to me multiple times. Recent sales as late as January suggested X could win this house, I put in an offer at X+15, I'm later contacted that there's an offer at X+50 and I can put another bid in if I want to one up them
Of course in this example X is already over asking so you're right I think that this is done intentionally.
I would disagree with the part about the bidding war. Purchasing works more like a blind auction. Everybody puts in one bid on the offer date. Often buyers agents will avoid situations that can turn into a bidding war, and I got the sense that shopping offers (by sellers) is considered bad form among agents and can lead to reputational damage.
Imo widespread underpricing has more to do with getting eyeballs on Zillow, Redfin, Trulia, etc. People set list prices to show up in searches.
I don't think this is unique to the US at all. As far as I'm aware most countries allow foreigners to buy land, many even give you residency if you do so.
Also would this have any affect outside of places like Manhattan?
> if they just made it a bit harder for foreigners to buy our land
I fully empathize with how you feel, and I see the same sentiments in various countries. But I think it’s important to not bring the immigrant straw man into this discussion, when it is easily shown that the problem is much much larger than that. Institutions and investors are the real perpetrator, not an immigrant middle class.
Almost all countries allow foreign nationals (or their local subsidiary businesses) to buy land. The only change in recent years is that more ID checks are performed to reduce the extent this gets used for money laundering.
You could campaign to change that, but since it goes strongly against the free market and countries like money it's unlikely to go anywhere.
> The USA is the only country, I can think of, that allows anyone, from anywhere, to buy our land.
The only other country I've specifically looked at, Mexico, only has restrictions on non-citizens owning land near coasts or international borders, for the vast majority of the country anyone can buy land.
Low interest rates do make the monthly payment much much lower so people can pay more and still have a low payment. Someone might just compare against monthly rent vs mortgage.
I would add a continued reduction in supply. In AZ, SFR REITs have and continue to vacuum up 1,000s of homes every year. And they don’t ever sell them. This is a new phenomenon. It may more than offset new development. We may have a shrinking supply. The other downside is they aggressively put upward pressure on rents.
Both of those were true pre-COVID and houses prices were not going up nearly as fast as they are now. People staying in their houses makes them actually pay attention to where they're living. Some end up wanting to renovate and some people just want to move.
It's a high demand low supply time so prices increase and interest rates don't have much to do with that.
Yeah, it's hard not to see it as a COVID-related effect, at least in part. Anecdotally, I know a lot of people renovating and moving, often from an urban apartment to somewhere suburban or rural/small town. One factor is probably that this sort of migration is always going on as people get older and the pandemic has probably pushed up a lot of timetables.
I heard a theory the other day that houses are more affordable than they were in the 70's - because even though the house prices are high, the repayments are lower because the interest rates are a lot lower. It was a business commentator trying to rationalise the housing market.
The repayments seem to stay about the same but the overall payment is incredibly large.
And because getting the % deposit is a big factor in whether you can afford a house, it pushes lower income people out of the market.
And if you bought in 1980, the high rates kept the lid on prices. However while you may have started with the same payment but the rates have been steadily ticking down since then. Creating a massive generation gap between those who bought while rates were high and those who didn't have the opportunity.
And I am sure this is only one of the factors in housing affordability but in my fairly uneducated opinion it seems like the largest.
>And because getting the % deposit is a big factor in whether you can afford a house, it pushes lower income people out of the market.
Median downpayment is 6%, a common low end is 3%, some places and programs go lower. Median house price sold in 2020 was 347k, well over 25% of houses sell for under 250k [1].
So, for a starter home, saving 3% of say 200k is 6k. If someone can pay this mortgage without killing themselves (30%, say 4%, monthly payments ~1K) then they can save a 6K downpayment over a reasonable time. So downpayment should not be keeping many people out of homes that want one that can afford a mortgage.
If their income is so low that they cannot even afford a mortgage, then yes, they are pushed out of the market, but there is no way they could enter anyways.
IF someone is so on the edge that they have zero extras, then they should not get a mortgage, because they're one hiccup away from losing it all.
This is why I put in the phrase "without killing themselves."
And, if you want to save that 6K mortgage downpayment, downsize life by a little - it really is not much to do. If you're so poor you cannot do this, there are federal programs to assist.
Again, this is a non-issue for pretty much every person that is also capable of paying a mortgage.
Maybe things are better in the US but here in the UK it stinks. Deposits of 5% are irrelevant because you still have to mortgage the rest.
Median house prices in the UK are something like 8x median incomes, and banks will only lend a maximum 4-5x earnings. This means average Joe need to save something much closer to 3/8ths, not 5%
As a real world example based on my current circumstances:
- At rough ballpark property prices, with ~15% down, market mortgage rates are about 3.5%.
- At 3.5%, with most I am comfortable paying every month (about 40% more than my current rent), I can only borrow around ~60% of what I need to buy the kind of home that I want (and rent now). On paper this means I have to save 40%.
- However, reality is somewhere in the middle. If I have 25% to put down, mortgage rates drop dramatically to 1.5%, allowing me to afford the same home.
So the long and short of it is you realistically need 20-25% here in the UK.
Those down payments used to be the standard in the US. However, I am surprised that, indeed, median down payments do seem to be significantly below that these days.
There's a few contributing factors to down payments being lower. Like with FHA loans, you can have a very minimal down payment, however unlike a conventional loan, the 'MIP' (the insurance comparable to a Conventional's PMI) will never go away on a new FHA loan if your original down payment was less than 10%.
So, what a lot of people do is either just eat that extra cost (for lower cost homes, it more or less comes out to the equivalent of an additional 0.8-1%) for the life of the loan, or refinance out to a conventional loan once they're below 80% LTV.
There is also the shady case of the 80/20 Mortgage. Basically, you take out one 'primary' mortgage for 80% of the home's value, and then a second mortgage or HELOC on 20% of the rest.
This can in some cases be cheaper, but arguably goes against the whole spirit of PMI in the first place. (Not saying I don't have issues with the way PMI/MIP works...)
When rates were higher total interest payments tended to dominate over the life of the mortgage. In most cases the interest payments would exceed the entire value of the principal over the life of the loan.
Over the life of a loan the interest portion is negotiable while the principal payments are not. A buyer in improving financial circumstances can accelerate payment on the principal and avoid future interest payments. The buyer could also refinance if interest rates came down.
Interest payments in the US were also tax deductible while principal payments were not. This preserved some purchasing power early in the mortgage when interest dominated the payment. Renters can deduct both interest, depreciation and upkeep while homeowners can only deduct interest. Lower interest rates skew the market more towards renting versus buying.
The result of lower interest rates is that today’s buyers are making a very different financial bet then buyers over the last 50 years. The only option buyers have to avoid payments on principal is to default. They won’t be able to accelerate repayment and reclaim future purchasing power like previous generations did.
My main concern right now is that an increase in interest rates is going to cause a drop in home prices and possibly trigger another crash. For example, the relatively modest rate increases in 2018 caused a fairly noticeable swoon in the SF/Bay area housing market.
For those that think buying a house is a good hedge against inflation, it is worth considering that the best tool to combat inflation is to raise interest rates. And considering most buyers budgets are created by working backwards from the monthly payment that they can afford, higher rates naturally translate to lower prices.
And as you alluded to, in a rising interest rate environment, there are no more "escape hatches" for folks that might be struggling to make ends meet. In a rising rate environment, refinancing is off the table, selling might be off the table if you are underwater on the mortgage, etc...
I have been waiting for an opportunity to buy for quite a while now. It has always felt like our household income was a few ticks too low to comfortably afford anything but the dregs of the market. And as our pay increased, the market would rise another 20% and slip out of reach again. And right now I am seeing a few niches in the market that might work for our budget, but the interest rate situation has me spooked, so once again, I am leaning towards sitting this one out. I guess on the plus side, I can buy cryptocurrency at a 100-1 leverage ratio which was something that wasn't available to my parents generation!!!
Increased rates in the future will drop purchase prices, but it's likely that it either slows the rate of increase or doesn't drop them to below current prices. There aren't many markets even after 2008 that weren't at or above those levels 5 years later. You might get lucky in timing the housing market on a 1-2 year scale, but it won't matter at the 10+ year scale.
I hope you're right. As long as home values don't drop -too- much below existing prices, damage would be minimized.
Big second order effect of a potential housing crash: There's a non-negligible part of the population that uses their homes as their own lines of credit. As their home increases in value, they occasionally will do a 'cash-out' refiance of their property. Or will open up a HELOC. If the market tanks, people who rely on this tactic will find themselves in a crunch quickly.
Real state in the UK is increasing in price the fastest since before the 2008 crisis [1]. Lumber is a very specific circumstance to the US, but similar trends are happening in other developed countries.
One specific circumstance of the UK is a tax break introduced last year to incentivise home buying. Beyond that, as others pointed out, some shared causes are more people on the market for a new home due to the pandemic, and historically low interest rates.
HN is endlessly obsessed with disavowing monetary policy and the inflation we are seeing as a result. Your grocery bill and cost of gas are rising similarly to housing...just accept it, this inflation
This measure of value is no longer relevant. Short term rentals are the lucrative market segment now. Long term tenants provide stability, but much lower upside.
There are other factors at play.
Bonus depreciation rules from the tax cut and jobs act. Real estate investors can depreciate 100% of an investment within the first year until 2022.
Low interest rates. Borrow money cheaply now and secure cash flow later.
Interest only financing. Financing schemes that allow investors maximum leverage. More leverage means more buying.
All together the current market is tilted heavily toward real estate investors. Unless the tax law changes, I wouldn’t expect things to fundamentally change until 2025.
This is way more about a drop in rents than anything else, obviously. Rents are super low nationwide right now, as folks abandoned high-rent areas in the pandemic. Meanwhile the housing market is very long-term oriented, and reasonably rational.
'The following cities have experienced the biggest increases in one-bedroom rent prices year-over-year. None of them make the 10 most expensive markets for one-bedroom apartments by rent prices. Three of them — Gilbert, AZ; Buffalo, NY and Durham, NC — have populations of 300,000 or less.
The Fed has turned us all into gamblers. If you've ever wanted to know what living in something like the .com bubble was like, we are in something much bigger now.
The next Fed chair will have no choice but to pull a Volcker
It is weird for me read comments on HN lately. I do not know where it became a thing to argue that being able to buy whatever you want at any time is a god given right. It comes across as rants of a spoiled child that has only seen prosperity. I am seeing the same complaint in crypto wars on GPU shortages and so on.
You are not owed anything. You have a shot at an offer. That is it.
There are a lot of people vaguely guessing around at what the "real value" of a home is. In a world where you need shelter to produce income the value of a house is essentially all your income over the entire span of your life. So really arguments that houses are "overvalued" are ridiculous to me, houses have never decreased in value historically, why would they do so now? I am fully expecting single family residential properties to reach 7 and 8 figures in my lifetime. Why wouldn't they continue the track of the last 100 years?
No, increasing the supply will do nothing, speculators already own most of the available real estate so that will only drive the prices up further. Look at the number of single family home that are being bought and immediately rented out, in new construction the renters far outnumber the owners.
Until speculation is banned or the government locks in reasonable prices, prices will continue to rise in perpetuity.
>Look at the number of single family home that are being bought and immediately rented out, in new construction the renters far outnumber the owners.
I'm not sure I see the problem. People are living in the property one way or the other. It's not like there is some infinite pool of renters not living someplace who will absorb any supply.
What would be (and is in some places) a problem is if speculators/people parking cash bought property and let it sit empty.
I don’t see why only parked properties are a problem? Rentals are always more expensive than the underlying mortgage - that’s what makes it an investment opportunity. This is a big problem since most people could’ve afforded the original property if they weren’t priced out by investors.
the mortgage could have been locked in a long time ago at a much lower valuation. the rent would still be above the underlying mortgage, but that doesn't mean I would have bought the house when I was a child.
the landlord might own the building outright, or the valuation might be increasing so fast that the rent only needs to offset the rent. either way, the rent could be pushed below the mortgage (or what the mortgage would be).
there are some us cities with extremely high price-to-rent ratios. some of those properties must be renting for below the underlying mortgage.
The higher valuation now is exactly the problem. It’s not connected materially to the property value, rather the speculative investment value the market is giving it.
This doesn’t change my point that renting needs to be profitable to happen, and the proof is in the pudding/reality.
Yes literally never in my lifetime, even after the 2008 recession those same houses are worth more now then ever. Any findings that show house values are "going down" are just sampling errors, or more likely people being purposefully misleading by distorting the trends.
Firstly, never and never in your lifetime are two very different timespans.
Second, just because those houses from 2008 recession are now worth more than in 2008 doesn't mean they have been steadily increasing in value since 2008. There have definitely been downturns in the property market. One in particular that springs to mind is the impact of Brexit on house prices in London. Sure, eventually the price might recover to the point that homes are worth more than pre Brexit. But if you are trying to sell in the meantime that drop can have a significant impact on your ability to move.
Ok never ever have housing really prices gone down. Look at any chart of average home prices in the US if you bought a house at any time and waited 10 years you definitely made money. Even in neighborhoods where >50% people were in foreclosure their homes are worth more then ever.
If you can find anywhere housing prices are less then in 2008 please say so.
The Brexit thing is just guesswork on your part those properties will be sell at the same prices they were listed at probably nobody actually purchased them in the first place just for speculation.
Look anywhere in rural areas of high tax states in Great Lakes/Midwest/Northeast, such as southern Illinois or upstate NY. Even homes in CT/NJ away from the urban centers are down in real value, maybe flat or slightly higher in nominal value.
Certain regions of the country are hot, certain regions are nowhere near. Even the differences in the regions of the US where house prices are rising exhibit a wide range from many areas only experiencing slight changes to others in the hundreds of thousands of dollars.
It depends if your region has the amenities people with money are looking for or if it has access to large numbers of high paying jobs.
No region doesn't matter look at the actual statistics on this. I looked at neighborhoods the had above 50% foreclosure rates and those houses STILL increased in value in the long term.
You can argue the real/nominal value, but housing cost are a cause of inflation in this regard not an effect, all prices are relative to the price of shelter for individuals.
1981:
> A word to the wise: The great Los Angeles housing boom is over. The real estate price explosion in southern California, which sparked a national boom still continuing elsewhere, has stopped. The bubble that everyone said could never burst has burst. All over Los Angeles and Orange County, home buyers can buy a property for less than it would have cost a year ago
Of course, prices recovered. Just in time for the 1990s!
[0] - Which is gatekeeping/charging for land (finite natural unimproved resources like space, spectrum, water, wildlife, oil, etc)