Rents are up 40 percent in some cities(washingtonpost.com)
washingtonpost.com
Rents are up 40 percent in some cities
https://www.washingtonpost.com/business/2022/01/30/rent-inflation-housing/
139 comments
I wouldn't discount the cost of maintenance, utilities, and taxes on a home, particularly for houses on the more affordable end of the spectrum. If you buy a house at a price point where you can't regularly absorb multi-thousand dollar surprises, you're going to be in a world of pain. Utilities are also much more than you'd expect when you live in a detached unit. Sure you can pay $1,600/month on a mortgage, but between insurance, utilities, and amortized maintenance, you'll be spending closer to the $2,500-$3,000/month range depending on where you live.
Completely agree with this. I bought last April and have already needed a new roof and a new water heater. These were not expected expenses based on the age of the home. For me it was an unpleasant surprise but not a big deal, but people who overextend to buy can end up in a very serious situation.
It's crazy what is gotten away with in CA real estate. Homes that were dirt cheap when they were built 100 years ago on rotting posts and piers that will just slide off with the next quake. Whenever we get the winter rains about half the neighborhood just throws a tarp on the roof; not much pressure to have a solid roof in CA it seems, or insulation, or a noleaky basement because there is no basement. People have no idea how terrible most of the housing stock is that they are paying north of $1m for here in CA, because its so competitive buyers are waiving inspectors.
That’s a self inflicted wound for most CA though due to difficulty permitting and building and lack of knowledge in how to do so. It doesn’t cost much more to build a house in a city or in the middle of nowhere and if it wasn’t so difficult in a city you would replace those houses right away.
So my calculation of 1600 a month includes everything except maintenance and utilities, assuming a $60 HOA.
Maintenance even if you assume $150 a month average still skews towards buying.
Maintenance even if you assume $150 a month average still skews towards buying.
Average utilities accross the US are $170 a month.
And general rule of thumb for maintenance (which includes budgeting for only occasional but large expenses like roofs, furnances, water heathers...) are between 1% of 4% of the purchase price per year. At the very low end, that's at least $300 bucks a month, at the high end that's $1200 or more per month.
So you'd be looking at $1600 + (somewhere between $500 and $1300).
And general rule of thumb for maintenance (which includes budgeting for only occasional but large expenses like roofs, furnances, water heathers...) are between 1% of 4% of the purchase price per year. At the very low end, that's at least $300 bucks a month, at the high end that's $1200 or more per month.
So you'd be looking at $1600 + (somewhere between $500 and $1300).
At least in NYC the HOA fees can be crazy. I have seen as high as 3k/ko for a 1.25M condo
insurance is included in the mortgage for 99% of people getting one. the rule.of thumb is about 1% of the home value in maintenance. and untils are usually combined 25-33% of the mortgage. I just don't see 2500-3000 on a 1600/m
Most people need a down payment to buy a home. Most renters don't have enough to make a down payment, I imagine.
edit: Wow, I'm probably pretty wrong about this. 3% loans are really quite affordable. Why aren't more people buying homes? Being a renter is total hell
edit: Wow, I'm probably pretty wrong about this. 3% loans are really quite affordable. Why aren't more people buying homes? Being a renter is total hell
EDIT: forgot the link: https://www.hud.gov/buying/loans
FHA loans can be 3.5% down ($14k on a $400k loan) and closing costs can often be financed (most of them, but usually not all).
There are also first-time buyer programs and other specialized lending options like VA (if you served/active), etc.
It’s also not always a good idea to start with an SFD where you are responsible for everything (roof, plumbing, etc). It’s easier to do a condo first and get the hang of it/build some equity. If you can do SFD in a given area for $400k, condos are likely half that or cheaper. Beats renting unless you need the ability to move quickly as selling can take a bit of waiting (unless market turns, and then you could be waiting a few years or have to sell at a loss).
FHA loans can be 3.5% down ($14k on a $400k loan) and closing costs can often be financed (most of them, but usually not all).
There are also first-time buyer programs and other specialized lending options like VA (if you served/active), etc.
It’s also not always a good idea to start with an SFD where you are responsible for everything (roof, plumbing, etc). It’s easier to do a condo first and get the hang of it/build some equity. If you can do SFD in a given area for $400k, condos are likely half that or cheaper. Beats renting unless you need the ability to move quickly as selling can take a bit of waiting (unless market turns, and then you could be waiting a few years or have to sell at a loss).
In this market sellers will prefer all cash or a traditional loan over these.
Sellers will prefer cash or a stronger borrower in all markets when given the choice - that’s very relational to seek to reduce risk.
There are other ways to help craft an offer that could be stronger, including offering better other terms (usually not just the offering price).
There are other ways to help craft an offer that could be stronger, including offering better other terms (usually not just the offering price).
Everyone is waiving contigencies and inspections and anything else they can offer already with their cash offer. IDK if you even have any cards left you could play in your hand with a weaker offer that won't also be played by the person with the stronger offer if they really want the house. It's almost like you have to luck out that no one is driving harder than you on the property.
What’s wrong with renting?
Aside from having to move if the owner sells, it’s pretty nice not have to think about maintaining the house.
Here in the sf bay (Marin sfh with two kids) our landlords just decided to sell. It’s been stressful, but we found a place that we like better for about the same rent.
The owners offered the place to us at a reasonable price, but our monthly payments would have been about double what we pay now, and we would have had to put 20% down. Prices have gone up 40% since we last moved three years ago but rents haven’t budged.
Aside from having to move if the owner sells, it’s pretty nice not have to think about maintaining the house.
Here in the sf bay (Marin sfh with two kids) our landlords just decided to sell. It’s been stressful, but we found a place that we like better for about the same rent.
The owners offered the place to us at a reasonable price, but our monthly payments would have been about double what we pay now, and we would have had to put 20% down. Prices have gone up 40% since we last moved three years ago but rents haven’t budged.
If you purchased 3 years ago your property would be worth 40% more. In SF you probably left a million on table.
I rented for 9 years in Beijing. An apartment that was technically worth $1 million for sale was renting for $1200/month, buying didn’t make sense at all in that market. Given the American market where rents are much closer to a mortgage payment, it makes much more sense to buy.
Because a seller is not going to take a 3% offer in this market.
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Not really. You can get an FHA loan with only 3% down.
From reaching up to a 3% down payment, one owes and pays interest on 32 times their former net worth, for a home they are highly committed to. Paying it off may require an entire lifetime of work and obedience. Attempting to move will require the expensive and/or time consuming effort to find a buyer. I don't want to just be a complainer about it, sometimes life simply is that difficult, but it bears cognizance that this is an exceptionally tough spot to be in with or without access to debt.
but your offer will never be accepted. someone will offer more down, conventional, or even multiple cash offers. especially for homes in the starter price range.
The seller doesn't care about how much you put down. Cash offers will beat a comparable offer with a mortgage contingency. At the margin, sellers may compare equivelent offers based on how likely they think the mortgage is to be approved; but most buyers are pre-approved regardless of down payment or mortgage type, so this wouldn't be that significant of a factor.
The bigger factor sellers look at is how much money you offer them. At 20% on a conventional, you may be able to get your lender to wave the appraisal requirement, which would be a help if you try offering much over the list price (unless you also have the cash to make up the difference, which if you need the 3% down payment, you probably dont).
The bigger factor sellers look at is how much money you offer them. At 20% on a conventional, you may be able to get your lender to wave the appraisal requirement, which would be a help if you try offering much over the list price (unless you also have the cash to make up the difference, which if you need the 3% down payment, you probably dont).
FHA loans are less attractive to a seller than an equal conventional loan because they have stricter inspection and appraisal requirements.
Sellers care about down payments in so much as they can gauge how serious you are about closing successfully. Everything else being equal (if the bids are the same, if not it doesn’t matter).
You can get a conventional mortgage for 3.5%
you can do conventional with only 3% too. your down payment has no affect on the offer chosen, the seller doesn't even get to know.
That's for sure not accurate. Sorry friend. The seller both sees your down payment and it also affects which offer is chosen.
Let me give an example to explain why they see it and why it's important. let's say that the agreed contract says that the buyer and seller agree to pay $600,000 for the house. Let's pretend that you have 10% down or $60,000 down. You need a loan for $540,000
The loan requires an appraisal to make sure that the bank (the loan) is a safe investment. The bank/loan only agrees to lend you the amount the house appraises at.
Back to the example and the appraiser comes out and says that the house is worth $500,000. In this case, again the signed offer says $600,000 with a $60,000 deposit.
The buyer either has to bring $100,000 to the table or the seller has to agree to make less money than the original offer (or some combination of the two) , but the bank will only give $500,000.
So if a buyer had a $100,000 downpayment and offered $600,000 and a second buyer offered $600,000 as well but only had $60,000, the seller would most likely choose the offer with more money down. it would be more likely to close.
Hope that helps
Let me give an example to explain why they see it and why it's important. let's say that the agreed contract says that the buyer and seller agree to pay $600,000 for the house. Let's pretend that you have 10% down or $60,000 down. You need a loan for $540,000
The loan requires an appraisal to make sure that the bank (the loan) is a safe investment. The bank/loan only agrees to lend you the amount the house appraises at.
Back to the example and the appraiser comes out and says that the house is worth $500,000. In this case, again the signed offer says $600,000 with a $60,000 deposit.
The buyer either has to bring $100,000 to the table or the seller has to agree to make less money than the original offer (or some combination of the two) , but the bank will only give $500,000.
So if a buyer had a $100,000 downpayment and offered $600,000 and a second buyer offered $600,000 as well but only had $60,000, the seller would most likely choose the offer with more money down. it would be more likely to close.
Hope that helps
I sold a house last year in Washington and I saw the down payment amounts in the offers I received.
Some markets have home buyers picked based on earnest and Diligence monies. Usually these are applied to closing / down payment. In those instances it’s clearer.
How do loans help when desirable properties are selling for 10-15% above asking price in cash?
While technically possibly, it's harder in practice. And while talked about less, there are many other upfront costs than just the down payment; there are so many fees to actually close on a home.
And in warm markets (for get about hot markets like NY and SF), even an offer with 20% down is not pleasing to the seller. 20% or less down means that if the bank under appriases for whatever reason would cause a massive delay and/or cause the deal to fail.
For the buyer, many costs at this point or unrecoverable. Inspecting, lawyers, etc. This is a huge hit to a low income person.
And in warm markets (for get about hot markets like NY and SF), even an offer with 20% down is not pleasing to the seller. 20% or less down means that if the bank under appriases for whatever reason would cause a massive delay and/or cause the deal to fail.
For the buyer, many costs at this point or unrecoverable. Inspecting, lawyers, etc. This is a huge hit to a low income person.
It's not technically possible, it's pretty readily available. A real estate lawyer for a simple transaction is like 500 dollars, same with a basic inspection. You don't need the lawyer unless your offer is accepted.
In a warm/hot market, anyone with a mortgage is going to lose to someone with cash, so not really an issue.
Anecdotally from friends buying their first homes, very few to zero of them put down anywhere near 20%.
In a warm/hot market, anyone with a mortgage is going to lose to someone with cash, so not really an issue.
Anecdotally from friends buying their first homes, very few to zero of them put down anywhere near 20%.
Exactly - where is that $60k-$80k coming from other than maybe the bank of mum and dad?
Everybody on HN makes $500K per year as a Senior Software Engineer with three years of experience.
only need 3% down for most conventional mortgages. I might be out of the loop, but are 2mil+ houses for first time home buyers normal outside of places like Manhattan or the bay area?
People usually save for their first mortgage. I worked for 15 years before buying my first house.
It's even more skewed than that because $600 of that is principal, so you're just effectively paying $1,000 interest net if you assume the house appreciates at $0. However we know long term it's at least the long term targeted inflation rate of 2% (and could be 7-10% for some periods).
There's got to be a catch, right? Otherwise people would be buying these homes and renting them out
Are there that many people sitting on $75K like that are renting?
I'm buying a similarly priced home via FHA in Texas, and my monthly payment on an FHA loan will be closer to $2800 (PITI + HOA + PMI) (only 3.5% down, the FHA minimum)
I'm buying a similarly priced home via FHA in Texas, and my monthly payment on an FHA loan will be closer to $2800 (PITI + HOA + PMI) (only 3.5% down, the FHA minimum)
You're acting like down payments aren't a thing.
Consider the neighborhood. Cheap SFH are likely to be in ugly areas with poor walkability.
Walkability? Lol that doesn’t exist in 99% of the country
If you have money you can live in a walkable city. I can afford rent in a walkable area but not a condo/house.
I know this article is about rents in the US, but in many European countries we are dealing with the same situation. I'm in the Netherlands, and seeing quite some people leave for Germany where rents are much lower. But rents in Germany are the highest they have been. I'm personally moving to SEA soon, where I am paying for a 4br house what I'd pay for a 1-room student apartment in NL. I can actually save money there, and in a few years move back and buy a house in NL. I'm wondering how long this is sustainable though, isn't the exodus of people moving abroad (whether its state lines, country or continent) for these reasons slow cooking housing prices globally?
Is this a consequence of demand, or is this a consequence of private equity buying up rental units and manipulating pricing?
Demand and lack of new supply. After the housing bubble in 2008 there was a major contraction of new home construction. It has been slowly recovering ever since but is still off the highs by quite a bit. So the combination of very low rates of new construction for nearly a decade and a current rate of new construction that is still depressed.
The notion that private equity is some how manipulating home prices independent of true supply and demand dynamics is largely a lie being told by people who’s politics fit well with that narrative.
https://fred.stlouisfed.org/series/HOUST
The notion that private equity is some how manipulating home prices independent of true supply and demand dynamics is largely a lie being told by people who’s politics fit well with that narrative.
https://fred.stlouisfed.org/series/HOUST
I would say private equity entering the single family home market is a factor in addition to the lack of supply.
They’re not manipulating prices but they’re in the market now watching the mls (listing services) and can make an all cash offer quite quickly.
https://www.washingtonpost.com/business/interactive/2021/inv...
They’re not manipulating prices but they’re in the market now watching the mls (listing services) and can make an all cash offer quite quickly.
https://www.washingtonpost.com/business/interactive/2021/inv...
Wether a corporation owns the home and rents it out or the home is owner occupied their is still someone living there. That doesn’t effect the supply demand dynamics. Those families have to live somewhere.
It may seem vaguely unfair that they have a possible advantage being an all cash buyer but that isn’t what is driving up prices. If they were buying places and not renting them that would be a different story but that isn’t what is going on here.
It may seem vaguely unfair that they have a possible advantage being an all cash buyer but that isn’t what is driving up prices. If they were buying places and not renting them that would be a different story but that isn’t what is going on here.
PE enters markets only when there is a lack of supply. Don't take my word for it. Read their prospectuses. They are completely upfront about entering markets only when the local government has constructed impenetrable barriers to entry.
Of course, they go where they can make a good return. But they’re new to this market and increase the demand side of things. They can move much faster than individual home buyers. Real estate is constrained by regulations and it does get I the way of supply. I’m pretty sure My building couldn’t be built in our “historic district” today
Why were new construction rates depressed? It seems bad for the structure of our housing economy that we've had such a bull run in real estate over the past decade and the supply couldn't catch up and profit off of it. Too little too late shouldn't have been possible according to free market theory, but here we are with far too little much too late. I wonder what failed? Zoning changes in the last 10 years? CEQA and similar abuses becoming more prolific?
The crash drove home builders to bankruptcy and construction isn’t generally a trade to can just get into without some training and experience. I’m sure government over regulation doesn’t help but outside markets like SanFrancisco where they are hostile to new development I doubt it is a primary factor in prices.
I got a feeling it's because of the increased risk due to the eviction moratorium.
There is no solid evidence of the private equity hypothesis, and ample evidence of underbuilding and increased demand in certain urban centers. So, absent some injection of new information, I think we have to favor the basic economics explanation of this phenomenon.
Everyone has their own opinions on how important each factor is.
What’s the difference?
I'm not familiar with housing market in USA. If the prices are going up so much does that mean that there are people that can afford housing at that price and that there is so much demand for it? Or do those houses/apartments stay vacant for a long time?
The correct strategy is not to rent, but to buy on credit at a fixed rate, then let inflation take care of it for you.
There's no way governments can repay their debts (and not just in the US: EU, Japan... about anywhere!)
So it make sense to act after having seen the writing on the wall: first, they said inflation wasn't going to happen because... reasons, then they said it was totally going to be temporary, now I'm sure they'll find other plausible excuses, but it looks to me they are trying to delay the inevitable and let the mortgage market adjust by stalling those who still think inflation is uncertain.
So simply align your interests to the government interests, and manage your money just like they do: without a care in the world about the petty needs of say having a stable budget!
There's no way governments can repay their debts (and not just in the US: EU, Japan... about anywhere!)
So it make sense to act after having seen the writing on the wall: first, they said inflation wasn't going to happen because... reasons, then they said it was totally going to be temporary, now I'm sure they'll find other plausible excuses, but it looks to me they are trying to delay the inevitable and let the mortgage market adjust by stalling those who still think inflation is uncertain.
So simply align your interests to the government interests, and manage your money just like they do: without a care in the world about the petty needs of say having a stable budget!
> The correct strategy is not to rent, but to buy on credit at a fixed rate, then let inflation take care of it for you.
I’m reasonably sure the people who are leaving because the rent is too high aren’t just neglecting to buy a home. Not everyone can just get a half million dollar loan.
I’m reasonably sure the people who are leaving because the rent is too high aren’t just neglecting to buy a home. Not everyone can just get a half million dollar loan.
> Not everyone can just get a half million dollar loan.
You are still optimist, in some part of the world, it is way other one million.
And this is the core of the problem: We are making the poorest even more poor by excluding them of the housing market and making them renters for life.
It can only finish tragically on the long term: constant growing social instability or 2008-style housing crisis. Choose your weapon.
You are still optimist, in some part of the world, it is way other one million.
And this is the core of the problem: We are making the poorest even more poor by excluding them of the housing market and making them renters for life.
It can only finish tragically on the long term: constant growing social instability or 2008-style housing crisis. Choose your weapon.
Where I am (NYC), I'd say renting is a smart choice.
Every time I check, I see that buying an apartment (or a house) would make me pay significantly more per month for the best 30-year loan than I pay to rent a comparable place. This is even before the property tax.
I suppose that the future appreciation is priced into the cist of a dwelling. Realty is universally seen as an investment vehicle.
If we for a brief moment imagine that it won't be such a great investment, and maybe would go down when adjusted to inflation, the idea to break your back to own it loses its luster.
Every time I check, I see that buying an apartment (or a house) would make me pay significantly more per month for the best 30-year loan than I pay to rent a comparable place. This is even before the property tax.
I suppose that the future appreciation is priced into the cist of a dwelling. Realty is universally seen as an investment vehicle.
If we for a brief moment imagine that it won't be such a great investment, and maybe would go down when adjusted to inflation, the idea to break your back to own it loses its luster.
I had the same thoughts as you tens years ago. Kept doing the calculations and renting worked out so much cheaper but I struggled into the market and purchased a house after a year of searching and low balling.
What you are missing is: - They are not creating new land in New York. New York has reached a critical mass and will continue to grow - Part of your mortgage payment goes towards principle. That's your money.. you are paying yourself back. - A mortgage is the cheapest interest rate you will ever get
If you can pull it off a house in New York I would say go for it. Apartments can have better locations and can be cheaper but it's riskier. A house with land will not go down if at all for long.
What you are missing is: - They are not creating new land in New York. New York has reached a critical mass and will continue to grow - Part of your mortgage payment goes towards principle. That's your money.. you are paying yourself back. - A mortgage is the cheapest interest rate you will ever get
If you can pull it off a house in New York I would say go for it. Apartments can have better locations and can be cheaper but it's riskier. A house with land will not go down if at all for long.
> A mortgage is the cheapest interest rate you will ever get
There are cheaper margin loans.
There are cheaper margin loans.
Have they tried just not being poor? /s
> The correct strategy is not to rent, but to buy on credit at a fixed rate, then let inflation take care of it for you.
The problem is getting access to the credit in the first place and being able to afford the legal fees.
To buy my flat. I had to put down a payment of £15,000. I bought the property about £30,000 cheaper than it probably should have been. So I would have had to put £20+k as a deposit. Not many people can afford it. Then on top of that I paid about £2-3k in legal work.
I earn decent money in the UK and it wasn't straight forward to me. I can only imagine the trouble people who are less well off.
> So simply align your interests to the government interests, and manage your money just like they do: without a care in the world about the petty needs of say having a stable budget!
Which will lead you to ruin but has almost no repercussions at all for them. The game is fixed.
The problem is getting access to the credit in the first place and being able to afford the legal fees.
To buy my flat. I had to put down a payment of £15,000. I bought the property about £30,000 cheaper than it probably should have been. So I would have had to put £20+k as a deposit. Not many people can afford it. Then on top of that I paid about £2-3k in legal work.
I earn decent money in the UK and it wasn't straight forward to me. I can only imagine the trouble people who are less well off.
> So simply align your interests to the government interests, and manage your money just like they do: without a care in the world about the petty needs of say having a stable budget!
Which will lead you to ruin but has almost no repercussions at all for them. The game is fixed.
Sounds like a sensible strategy and there is not a day I regret for not getting in the housing market sooner like two years ago when things were still affordable (it looked quite expensive even back then but compared to now it looks Like a great deal).
Question is what happens during the inevitable impending credit default crisis as you outline. Would the housing market just floor to zero? Or your hypothesis is they would let the inflation go run away? Either way (default or inflating debt away strategy) I am not sure how the housing market will adjust just because I am not sure what the outcome of downfall would be to all the middle class families who stretched to max and bought SFH post 2015.
Question is what happens during the inevitable impending credit default crisis as you outline. Would the housing market just floor to zero? Or your hypothesis is they would let the inflation go run away? Either way (default or inflating debt away strategy) I am not sure how the housing market will adjust just because I am not sure what the outcome of downfall would be to all the middle class families who stretched to max and bought SFH post 2015.
You ride it to the top and then take the government bailout.
A friend told me about a friend in Las Vegas who bought a big house prior to 2008, then HELOC’d it to the max to buy new vehicles, boats, etc. Took advantage of every opportunity to leverage himself to the hilt.
Housing went tits up, so he stopped paying the mortgage for two years, then mailed the keys back and walked away keeping the cars and boats.
Sure he had to declare bankruptcy, but after a couple years was able to repair his credit and buy another home. (The seven year mark remained but hey there were willing lenders).
Bastard made out like a bandit despite going bankrupt.
A friend told me about a friend in Las Vegas who bought a big house prior to 2008, then HELOC’d it to the max to buy new vehicles, boats, etc. Took advantage of every opportunity to leverage himself to the hilt.
Housing went tits up, so he stopped paying the mortgage for two years, then mailed the keys back and walked away keeping the cars and boats.
Sure he had to declare bankruptcy, but after a couple years was able to repair his credit and buy another home. (The seven year mark remained but hey there were willing lenders).
Bastard made out like a bandit despite going bankrupt.
Aren't they supposed to repo those big purchases?
During a typical bankruptcy yeah, but 2008 wasn’t typical.
Banks were losing paperwork, mortgages had passed through multiple hands, they couldn’t deal with the foreclosure volume. Hell, banks were going under. It was a complete mess. That’s why if you stopped paying your mortgage it was often 1-2 years before anyone even came knocking.
In many cases, if you simply sent the keys back and were in a non-recourse state, nothing more happened. The bank added the home to the foreclosure backlog and deemed the debt “uncollectable”.
If they balked, you go through a bankruptcy process, but who had time for that? Plus the government had programs to help relieve underwater homeowners.
There was a bit of a financial “reset” in a sense. Many people were allowed to wipe the slate clean and start over.
Banks were losing paperwork, mortgages had passed through multiple hands, they couldn’t deal with the foreclosure volume. Hell, banks were going under. It was a complete mess. That’s why if you stopped paying your mortgage it was often 1-2 years before anyone even came knocking.
In many cases, if you simply sent the keys back and were in a non-recourse state, nothing more happened. The bank added the home to the foreclosure backlog and deemed the debt “uncollectable”.
If they balked, you go through a bankruptcy process, but who had time for that? Plus the government had programs to help relieve underwater homeowners.
There was a bit of a financial “reset” in a sense. Many people were allowed to wipe the slate clean and start over.
And that man's name? - 400 FICo
Why do you think that there is going to be a credit default crisis.
The governments around the world are experts in printing money and kicking the can down the road. In the US, medicare is going to not be able to repay its bills in less than 4 years. They will combat all of that just by printing more money and letting inflation run at 6-7%.
The governments around the world are experts in printing money and kicking the can down the road. In the US, medicare is going to not be able to repay its bills in less than 4 years. They will combat all of that just by printing more money and letting inflation run at 6-7%.
That doesn't make any sense. Higher inflation won't keep the Medicare program solvent. The usual approach has been to cut the fees paid to healthcare providers. That's why Medicare beneficiaries in many areas have trouble finding doctors willing to take them on as new patients.
This time is different.
There's increases in wages right now as well and employees are demanding higher salaries.
They don't care about asset price inflation, they care deeply about wage-price spirals.
There's increases in wages right now as well and employees are demanding higher salaries.
They don't care about asset price inflation, they care deeply about wage-price spirals.
A government that takes on debt in its own currency like the US isn’t going to default except perhaps as a political stunt. The likely outcome is that they let inflation eat away at the debt until the ratio of debt to GDP is back to a more normal level. This benefits anyone with debt including those with a fixed rate mortgage.
Where people could get into trouble is if they take out a variable rate mortgage because rates will probably rise as inflation heats up. The other risk is I f the economy hits a bump and you can’t get or keep a job that pays the mortgage payment. These can be mostly mitigated by not trying to over extend yourself financially.
Where people could get into trouble is if they take out a variable rate mortgage because rates will probably rise as inflation heats up. The other risk is I f the economy hits a bump and you can’t get or keep a job that pays the mortgage payment. These can be mostly mitigated by not trying to over extend yourself financially.
This keeps China in check as the debt they hold becomes worth less value. Because other western countries are doing something similiar the US dollar will stay strong.
There was a popular internet sentiment ~10 years ago where everyone was convinced renting was superior to buying. "Invest the extra cash in an index fund!"
Meanwhile housing is an amazing handout to the middle and upper classes through the 30-year fixed rate mortgage plus the mortgage interest tax deduction. Inflation increases rents, but the fixed-rate mortgage never increases. One of my property's mortgage is now only 40% of the rental rate after 8 years of inflation. It's like an annuity with an automatic inflation adjustment - I'm going to get rent until I die, which always goes up as the cost of living increases.
Meanwhile housing is an amazing handout to the middle and upper classes through the 30-year fixed rate mortgage plus the mortgage interest tax deduction. Inflation increases rents, but the fixed-rate mortgage never increases. One of my property's mortgage is now only 40% of the rental rate after 8 years of inflation. It's like an annuity with an automatic inflation adjustment - I'm going to get rent until I die, which always goes up as the cost of living increases.
> There was a popular internet sentiment ~10 years ago where everyone was convinced renting was superior to buying. "Invest the extra cash in an index fund!"
I think you're stating the sentiment wrong, as someone who did and still does to some extent sympathize with it. The default view in American personal financial discourse has been that you need to buy a house. The heterodox view to which you're referring was that renting and investing is not obviously worse than buying a house. I don't recall any widespread view that you would come out way ahead by renting.
And, to be fair to that viewpoint, compared to buying a house outright, you would have been better off keeping your money in the market and renting over the last five years! S&P is up 91% over that period, and that's not even the total return index! Housing is up quite a bit, but in most places it is not up 91%. I sold a house in the Bay Area around five years ago for around $2.4M, and Zillow is telling me that it's now worth a little over $3M. Zillow could be off by a few hundred thousand in any direction, but I doubt it's off by $1.5M.
What the viewpoint fails to consider is the availability of extremely cheap leverage for houses. If housing does go up, and you have a 4:1 debt to equity ratio, then your appreciation is 4x the asset appreciation if you're at the beginning of your mortgage. If you're the person who bought my house, your $700k of appreciation on a downpayment of $500k is a 140% return (before transaction costs). Of course, if housing ever goes down . . . well, we all remember that well enough.
All in all, I'm not sure the case is closed on the rent and invest vs buy issue. Things look very favorable for buy over the last five to ten years! There is no question about that. However, I personally am not sure how to adjust for the risk associated with the increased leverage you use when you buy. I don't think it's an apples to apples comparison.
I think you're stating the sentiment wrong, as someone who did and still does to some extent sympathize with it. The default view in American personal financial discourse has been that you need to buy a house. The heterodox view to which you're referring was that renting and investing is not obviously worse than buying a house. I don't recall any widespread view that you would come out way ahead by renting.
And, to be fair to that viewpoint, compared to buying a house outright, you would have been better off keeping your money in the market and renting over the last five years! S&P is up 91% over that period, and that's not even the total return index! Housing is up quite a bit, but in most places it is not up 91%. I sold a house in the Bay Area around five years ago for around $2.4M, and Zillow is telling me that it's now worth a little over $3M. Zillow could be off by a few hundred thousand in any direction, but I doubt it's off by $1.5M.
What the viewpoint fails to consider is the availability of extremely cheap leverage for houses. If housing does go up, and you have a 4:1 debt to equity ratio, then your appreciation is 4x the asset appreciation if you're at the beginning of your mortgage. If you're the person who bought my house, your $700k of appreciation on a downpayment of $500k is a 140% return (before transaction costs). Of course, if housing ever goes down . . . well, we all remember that well enough.
All in all, I'm not sure the case is closed on the rent and invest vs buy issue. Things look very favorable for buy over the last five to ten years! There is no question about that. However, I personally am not sure how to adjust for the risk associated with the increased leverage you use when you buy. I don't think it's an apples to apples comparison.
Property is probably a larger percentage of my portfolio than most people. You can get screwed on renting too - sure, you can always move, but moving sucks and I like stability. I have super-safe investments and insanely risky ones, and I'd put property much closer to the safe side than the risky side.
The bottom line is, in a truly free market I think housing would be a way less-good mechanism for investment. In our subsidized, zoning-restricted, NIMBY world housing can be a very good investment.
The bottom line is, in a truly free market I think housing would be a way less-good mechanism for investment. In our subsidized, zoning-restricted, NIMBY world housing can be a very good investment.
Shouldn’t you include 5 years of lost Bay Area rental income in that comparison? That could be another 250-300k on the side of the house.
They didn’t include the dividends of the S&P 500 either (they said they didn’t use the TR index)
You act like home-ownership isn't an absolutely essential part of the economy, or like driving roughly half the population from their homes is not an undesirable thing?
Of course there are compelling financial products which incentivize home-ownership. It's massively important for homeownership to be possible for as many people as possible.
Homes are extremely expensive, but the down payment really isn't a problem, relative to the time and expense of keeping the damn thing running. The down payment continues to be reasonably proportional to home much money needs to be in place for someone to control the equity at stake.
What you're actually asking for, I think, is for home building to be subsidized, in order to drive down the construction and sale price. Because it's not like home builders are earning 50% margin on these structures, the reason house prices rise is because prices rise.
The reason home interest prices are low are also because prices rise, meaning risk at long timeframes is negligible. The only crucial point is to make a squeeze impossible and you can ride out anything - hence why it's so important for government to back-stop it, because if you can squeeze the US dollar we have bigger problems.
Of course there are compelling financial products which incentivize home-ownership. It's massively important for homeownership to be possible for as many people as possible.
Homes are extremely expensive, but the down payment really isn't a problem, relative to the time and expense of keeping the damn thing running. The down payment continues to be reasonably proportional to home much money needs to be in place for someone to control the equity at stake.
What you're actually asking for, I think, is for home building to be subsidized, in order to drive down the construction and sale price. Because it's not like home builders are earning 50% margin on these structures, the reason house prices rise is because prices rise.
The reason home interest prices are low are also because prices rise, meaning risk at long timeframes is negligible. The only crucial point is to make a squeeze impossible and you can ride out anything - hence why it's so important for government to back-stop it, because if you can squeeze the US dollar we have bigger problems.
I'm not asking for anything - I'm stating that because of the government, buying housing is artificially propped up and is advantageous as an investment. I would support removing market-warping incentives that make me richer at the expense of others. But for various reasons I seriously doubt that will ever happen, so if you have cash to invest owning property should be some part of your portfolio. Active management takes effort which a lot of people don't want to do - I don't mind it myself - but good cities with healthy rental markets are attractive.
There is a long list of things that the government messes with. As an investor you should keep an eye on the political winds and what is favored for reasons outside of market forces. 1 to 5% boost per year compounds significantly.
There is a long list of things that the government messes with. As an investor you should keep an eye on the political winds and what is favored for reasons outside of market forces. 1 to 5% boost per year compounds significantly.
The mortgage tax deduction is really hard to take these days given the increased standard deduction. I’ll try again this year, but unless I have something else to itemize, I’ll probably stay stuck with the standard deduction.
Being a landlord can suck even in a good market. If it were easy and risk free, everyone would do it.
Being a landlord can suck even in a good market. If it were easy and risk free, everyone would do it.
Mostly it's the fixed rate mortgage - if you are wealthy it doesn't help - but it's still a handout that can tip the scales to owning over renting.
> There was a popular internet sentiment ~10 years ago where everyone was convinced renting was superior to buying. "Invest the extra cash in an index fund!"
This is still something people should look into, but it depends on your real estate market and taxation. It's not black magic after all, there are calculators for that: https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Sometimes it is indeed better to rent.
This is still something people should look into, but it depends on your real estate market and taxation. It's not black magic after all, there are calculators for that: https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Sometimes it is indeed better to rent.
It’s clearly market specific. I bought a house 3 years ago, house is up ~15% but I would be ahead if I just put the down payment into the market instead.
Ya, that's why I'm thinking that it might be good to ban owning multiple properties
Well, you're kinda right but houses are the most expensive they've ever been. You need a hefty downpayment which is gonna take a lot from your savings. It's not like houses are given for free now.
For first-time homeowners, you only need 3.5% + closing costs for an FHA. That can represent several thousands of dollars, but there's plenty of folks with $600+ car payments and $100+ cell phone bills living in apartments, so it's not like saving up $10-15K is completely unreasonable.
You can "house hack" by continually moving into the house you buy. Each time you move you need just 5% down.
https://www.biggerpockets.com/forums/311/topics/857256-fha-l...
OK where I live that's impossible, you need 25% down and it's very expensive, realistically it will take most of your savings. For 3.5% downpayment, if the interest isn't too high, I'd take it yesterday.
Where are you located? FHA is available to pretty much anyone in the US. (though depending on the market, since some sellers will choose not to consider FHA buyers)
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There's 0 down 30 year fixed mortgages.
https://liberty.financial/lending/mortgages/community-hero-1...
Unfortunately at least in Texas taxing authorities can outstrip annual cost of living increases and inflation by a wide margin.
> There's no way governments can repay their debts (and not just in the US: EU, Japan... about anywhere!)
Population growth, persistent production....there are several factors that could help governments dig themselves out of debt.
Population growth, persistent production....there are several factors that could help governments dig themselves out of debt.
But there's a democrat in the white house, which means it's time to wring our hands and gnash our teeth and wail about the national debt...
The central banks of the major governments, especially Japan, own a huge percentage of their government debt. Quantitative easing, of which we've had a lot recently, prints money and buys debt. If the government pays down the debt, the payment goes to the central bank destroying the money (aka the opposite of printing it). So paying down the debt will be deflationary.
Except if the fed hikes interest rates and crashes the economy, and with it the real estate market.
My rent went up 29%. I have no choice because my kid is acclimated to the school.
I'm always surprised people are against rent control when instances like this are possible, while they turn around and pay their fixed rate mortgage that is the same price for 30 years straight. Rent control would have capped this increase to like 4% if that.
Rent control would just create another class of citizens who would hold onto units for longer than necessary.
The real solution is to build more housing.
Many people don’t advocate for rent control because rent control placates the masses and doesn’t increase housing affordability in the long run. What we need is reasonable housing policies that increases the amount of higher density housing with good public transit availability.
But no one wants to do it because they are gatekeeping.
The real solution is to build more housing.
Many people don’t advocate for rent control because rent control placates the masses and doesn’t increase housing affordability in the long run. What we need is reasonable housing policies that increases the amount of higher density housing with good public transit availability.
But no one wants to do it because they are gatekeeping.
We need both more supply and rent control. There has to be some mechanism to keep local rents from running away from local wages and that mechanism is rent control. If you don't have rent control, rents fall into an average point. This doesn't help because oftentimes the distributions of income in an area is bimodal or multimodal; you can have a renter making minimum wage and you can have a renter making substantially more and when rents hit the average between these two incomes, the minimum wage worker ends up rent burdened and the high income worker can comfortably absorb huge rent spikes. Rent control makes little sense to remove, but if you are also not building enough supply it makes even less sense to remove, as without it the rising rents are just crushing your working class who are essential in your local economy and also don't see wage increases along with cost of living like the high income earners do.
Rent control basically benefits only the renters in place when rent control is instituted, which will almost always excludes new projects since...no one would invest in new buildings if it didn't. Even for older buildings, new units rarely become vacant because renters do everything possible to keep their "much lower than everyone else" rents, including subletting to friends and families if they really move on. How hard to you think it is to get a rent controlled apartment in NYC?
> as without it the rising rents are just crushing your working class who are essential in your local economy and also don't see wage increases along with cost of living like the high income earners do.
Again, rent control simply creating a new class of winners who were in place when the rent control was instituted, at the expensive of everyone else. It doesn't actually solve any problems like say, public housing, would.
> as without it the rising rents are just crushing your working class who are essential in your local economy and also don't see wage increases along with cost of living like the high income earners do.
Again, rent control simply creating a new class of winners who were in place when the rent control was instituted, at the expensive of everyone else. It doesn't actually solve any problems like say, public housing, would.
Being forced to make new friends builds social skills and character.
You're right, they're not happy enough about being forced out of their home, and care too much about the well-being of their kids. This is actually a blessing, and probably a boon to their community.
/s
/s
Can we fix the title of the article please? Landlords raise rents up to 40%. Rents aren't raised by themselves nor are they some sort of natural phenomenon. Real people perform these raises to benefit from the rest of the population that rents. Literally making more money from doing nothing more than before.
I get the impression history is repeating itself. Are we repeating the same events that lead up to ww2? It feels a tad too similar for comfort.
It's saddening that our government hasn't treated housing becoming un-affordable as a national risk. Somehow we can spend trillions on bailing out businesses and corporations yet we can't muster the strength to build additional housing?
Is not the rise in housing cost the single largest contributor to many of our problems?
It's saddening that our government hasn't treated housing becoming un-affordable as a national risk. Somehow we can spend trillions on bailing out businesses and corporations yet we can't muster the strength to build additional housing?
Is not the rise in housing cost the single largest contributor to many of our problems?
Every US politician in my lifetime has had the brain disease of believing that you build wealth by owning a home, even though this belief is fundamentally incompatible with affordable housing. We have to break this belief, somehow.
It's the other way around. Every homeowner wants the value of their home to appreciate and the politicians they choose to elect uphold these values. Politicians listen to these homeowners over renters because turnout and political contributions are both substantially higher among homeowners.
> Somehow we can spend trillions on bailing out businesses and corporations yet we can't muster the strength to build additional housing?
Government "strength" doesn't encourage new buildings, it discourages it. It's extreme regulations which makes building houses expensive and unappealing for investors. So, a big rise in rents and housing prices is required to make it appealing again... which is happening... but it doesn't mean the rent is going to go down in the future.
Government "strength" doesn't encourage new buildings, it discourages it. It's extreme regulations which makes building houses expensive and unappealing for investors. So, a big rise in rents and housing prices is required to make it appealing again... which is happening... but it doesn't mean the rent is going to go down in the future.
One of the primary sources of the problem is that housing is seen as something "for investors", rather than for people to live in.
Government strength should be used to impose prohibitive taxes/fees/whatever you want to call it on people who buy extra housing as investments.
Government strength should be used to impose prohibitive taxes/fees/whatever you want to call it on people who buy extra housing as investments.
Government "Strength" could offer zero down no interest loans for converting SFH to triplexes and duplexes. Government "Strength" could fund large scale public commuter rail projects to cheaper, more rural areas. Government "Strength" could inject cash to build lots of housing, similar to what we did with the national highways.
There's much the federal government could do to alleviate the situation.
There's much the federal government could do to alleviate the situation.
paywalled
We could build enough housing for everyone, out of all these paywalls.
Is no one going to blame the unconstitutional seizure of private property that is eviction bans? Some cities previously banned background checks (https://reason.com/2017/08/18/seattle-bans-landlords-from-ru...) and many are considering banning banning use of credit scores. Seattle also instituted a number of laws these last few years that restrict landlords in a number of ways (https://www.seattlepi.com/local/politics/article/seattle-cit...). I imagine rents are going up in response to such laws and policies, which increase costs, and in response to inflation.
Personally I see a mass move to lower cost areas as a good thing. People should move to cheaper places and live within their means instead of barely making it in high demand high expense locations, and then complaining when the costs outrun their means. A more distributed workforce means a more distributed economy and that’s great for everyone. We would have a more resilient society and people wouldn’t have to live packed densely like sardines either. And instead of having a handful of cities monopolize the economy, we will see a revival among otherwise downtrodden areas.
Personally I see a mass move to lower cost areas as a good thing. People should move to cheaper places and live within their means instead of barely making it in high demand high expense locations, and then complaining when the costs outrun their means. A more distributed workforce means a more distributed economy and that’s great for everyone. We would have a more resilient society and people wouldn’t have to live packed densely like sardines either. And instead of having a handful of cities monopolize the economy, we will see a revival among otherwise downtrodden areas.
> People should move to cheaper place
Translation: "People should quit their current jobs, which are typically bound to the old location that they've been priced out of."
> and live within their means
"I am confident that somehow they can find new jobs in the boonies that will pay the same, or at least be no-worse versus other expenses, because... reasons."
> A more distributed workforce means a more distributed economy
"The free market will always overcome geographical issues, which is why ghost-towns are, like literal ghosts, fictional problems."
Translation: "People should quit their current jobs, which are typically bound to the old location that they've been priced out of."
> and live within their means
"I am confident that somehow they can find new jobs in the boonies that will pay the same, or at least be no-worse versus other expenses, because... reasons."
> A more distributed workforce means a more distributed economy
"The free market will always overcome geographical issues, which is why ghost-towns are, like literal ghosts, fictional problems."
> "I am confident that somehow they can find new jobs in the boonies that will pay the same, or at least be no-worse versus other expenses, because... reasons."
The variability of housing prices is much higher than the variability of wages in most occupations, especially at the low end. So, yes.
Ghost towns? Median house in the USA is ~$410k (St Louis Fed) (and was $320k before the recent government-induced inflation), in WA that makes for a ~$2k mortgage payment including taxes and insurance (via Google calculator with 4+% rate; I think its property tax estimate is too large, actually). Slightly more with 10% down.
I'm pretty sure median house is located nearby a median job. Median household income in the USA is was $69k in 2019, $67k in 2020 (latest that I can find from a good source). By a common affordability metric, that makes $1.85k/mo perfectly affordable - 2k is almost there. I'm pretty sure nominal income increased in 2 years (given past trends), and of course 2019 median house was very affordable on 2019 median income.
Sorry, not everyone can live exactly where they want, mostly because too many people tend to want to live in the same places. That said, I think /another/ way government could get out of the way of progress is by repealing many/most zoning and related laws, so that more housing could be built.
The variability of housing prices is much higher than the variability of wages in most occupations, especially at the low end. So, yes.
Ghost towns? Median house in the USA is ~$410k (St Louis Fed) (and was $320k before the recent government-induced inflation), in WA that makes for a ~$2k mortgage payment including taxes and insurance (via Google calculator with 4+% rate; I think its property tax estimate is too large, actually). Slightly more with 10% down.
I'm pretty sure median house is located nearby a median job. Median household income in the USA is was $69k in 2019, $67k in 2020 (latest that I can find from a good source). By a common affordability metric, that makes $1.85k/mo perfectly affordable - 2k is almost there. I'm pretty sure nominal income increased in 2 years (given past trends), and of course 2019 median house was very affordable on 2019 median income.
Sorry, not everyone can live exactly where they want, mostly because too many people tend to want to live in the same places. That said, I think /another/ way government could get out of the way of progress is by repealing many/most zoning and related laws, so that more housing could be built.
Seems like the rents were probably within their means, and they're being forced out because now they're not. More sparsely distributed populations mean more socially isolated populations, more dependance on personal motorized vehicles, less cost savings at scale, more environment destruction, less interesting urban spaces, less access to specialist professions that demand close proximity
> Seems like the rents were probably within their means, and they're being forced out because now they're not.
But that’s the thing. If they have little tolerance or flexibility to accommodate those costs, then they were living too close to their limits. As for the rest of what you said…
I have lived in an urban environment for most of my life, and still do. But more recently I’ve come to feel that urban spaces are overrated - living in cramped apartments, huddled in wet and slushy subways, shadowed by tall buildings, is a certain kind of hell. You claimed that distributed populations are more socially isolated, but that’s not true. Having more space and slightly more physical isolation doesn’t mean you’re more socially isolated. Cities rarely have the sense of community and neighborly friendliness that rural areas have. Plenty of people are lonely in big cities in a fundamental way, and no, access to a collection of bars and restaurants does not make up for it. As for cost savings at scale - clearly that’s not true given we are talking about ballooning costs in cities. The environmental destruction is debatable - more people occupy cities, enabled by the model of living densely, and they still consume all the same plastics and electronics. Urban areas also have a massive amount of concentrated environmental impact, while less dense populations are more in line with their local environment‘s capacity. As an example, Seattle regularly has to dump millions of gallons of untreated sewage into the local waterways, leading to beach closures and marine life effects that are a result of the big concentrated impact (https://www.q13fox.com/news/heavy-rain-sends-11-million-gall...). As for dependence on motor vehicles - that feels like a positive to me, as cars are fast and convenient and let me get to where I want when I want, instead of being restricted to the timetables and destinations of public transit.
I get that there are other perspectives on all of this. But I wanted to share this perspective because it would be a mistake to take the alleged superiority of urban lifestyles as a foregone conclusion.
But that’s the thing. If they have little tolerance or flexibility to accommodate those costs, then they were living too close to their limits. As for the rest of what you said…
I have lived in an urban environment for most of my life, and still do. But more recently I’ve come to feel that urban spaces are overrated - living in cramped apartments, huddled in wet and slushy subways, shadowed by tall buildings, is a certain kind of hell. You claimed that distributed populations are more socially isolated, but that’s not true. Having more space and slightly more physical isolation doesn’t mean you’re more socially isolated. Cities rarely have the sense of community and neighborly friendliness that rural areas have. Plenty of people are lonely in big cities in a fundamental way, and no, access to a collection of bars and restaurants does not make up for it. As for cost savings at scale - clearly that’s not true given we are talking about ballooning costs in cities. The environmental destruction is debatable - more people occupy cities, enabled by the model of living densely, and they still consume all the same plastics and electronics. Urban areas also have a massive amount of concentrated environmental impact, while less dense populations are more in line with their local environment‘s capacity. As an example, Seattle regularly has to dump millions of gallons of untreated sewage into the local waterways, leading to beach closures and marine life effects that are a result of the big concentrated impact (https://www.q13fox.com/news/heavy-rain-sends-11-million-gall...). As for dependence on motor vehicles - that feels like a positive to me, as cars are fast and convenient and let me get to where I want when I want, instead of being restricted to the timetables and destinations of public transit.
I get that there are other perspectives on all of this. But I wanted to share this perspective because it would be a mistake to take the alleged superiority of urban lifestyles as a foregone conclusion.
you can find some well reasoned counter arguments in this thread over here: https://news.ycombinator.com/item?id=30138545
Thanks - I hadn’t seen that thread and will check it out.
Why should people be allowed to make a profit simply on buying property as a speculative investment?
The irony of this is that likely the very people most affected by this issue are the ones who supported the policies like loose monetary policy for social programs and uncontrolled immigration that has added tens of millions of more people to the USA, who, guess what, will drive up rents, doubly ironically, paid for by the governments welfare given to the millions flooding into the USA at an increasing rate.
A basic 1800 sqft 3BR 20 year old SFH with a 2 car garage is like $365K in the same area with 8+ rated schools. Its even lower if you don't care about schools. This brings your monthly PITI+HOA ex-utilities to like $1600 a month at 20% down (slightly higher now with interest rates going above 3.5%). Nice 2500 sqft ones at $450K.
This is all in the past year. It wasn't this expensive to rent compared to buying pre-pandemic. My apartment rent went up like 15% when I renewed.