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That's not shorting, in fact by renting you're financing the bubble. After all, valuation is done on the present value of future cash flows. Firms that earn a l

That's not shorting, in fact by renting you're financing the bubble. After all, valuation is done on the present value of future cash flows. Firms that earn a lot of money are thus valuable, as are firms that will grow into firms that make a lot of money. By renting, you're constructing that cash flow. To pop the bubble you must not exercise any demand at all. And to short, you have to construct a financial scheme that benefits when the price goes down. For example, you could 'borrow' a home, sell it at market price, then 10 years later when prices are much lower, buy it back, then give back the home to the person you lent it from. Or in fact, housing prices could rise, as long as they do not rise more than another guaranteed investment, it makes sense to short this stock and reinvest it into the other investment, and you'd still make money, interestingly, without having to need money in the first place. Of course in practice all of the above is tricky and risky, and so I appreciate that within the opportunity set of a normal citizen, renting is preferable to buying, but let's not call it the equivalent of shorting.

pfarnsworth 11y ago
It depends on the rent price vs price to own. If renting is much cheaper, which it is in Vancouver unlike SF, then you are wrong. If the rent prices are equivalent to buying, like they are in the Bay Area, then you would be correct.
- gmarx 11y ago
  Renting and buying prices are equivalent in the Bay area? Not in Palo Alto or the few surrounding cities.
  - pfarnsworth 11y ago
    10 years ago or more, the rent prices were much lower than the price to buy a place so it made sense. Now, it doesn't matter which you do, either buy or rent. They are both wrong, because both are sky-high.
    - illicium 11y ago
      When the Bay Area housing bubble collapses in the future, renting will get cheaper, and your mortgage will stay the same.
- rconti 11y ago
  No it doesn't. If you're renting, you're financing someone else's ownership of the property. It doesn't matter if they own it outright, or if you're only paying 1/10th of their mortgage. It only matters in degrees.
  - gozur88 11y ago
    >No it doesn't. If you're renting, you're financing someone else's ownership of the property. That's only true if your rent covers their payment, which tends to not be true in a bubble. Where I am, in the years leading up to 2008 there were more rentals available than the market could really support. People were buying houses and getting rents that only covered part of the payment because they were counting on capital appreciation to make them money. If you were a renter it was a great deal. For $1600 you could rent a house that would sell for $700k, which isn't even close to covering the payment. After the bubble popped the price of housing went down dramatically, and the price of rentals went up dramatically as people stopped buying houses assuming they would appreciate forever. Also, people who've never owned a house drastically underestimate the costs associated with owning one. I bought my house after the crash, for cash. My housing outlay (with no mortgage) is about 75% of what I paid in rent. And that's not counting maintenance, like painting and appliance repair, or major stuff like a new roof. If the bubble had never popped I would have come out far ahead just staying in the apartment and investing the savings.
aminok 11y ago
"That's not shorting, in fact by renting you're financing the bubble." You're not financing the bubble.. The bubble is based on valuations that assume much higher income than what you provide by renting at going market rates.
- IkmoIkmo 11y ago
  I agree on the latter part of your statement, but that bubble valuation is based on an incorrect multiple and momentum of housing income, both of which are partially created and sustained by demand, which renting is, which is why I disagree on the former part of your statement. Bubbles usually start with actual high returns that are valued fairly, which attracts investors and turns it into a disproportionately large self-fulfilling prophecy. To keep renting in Vancouver now thereby definitely does contribute to the bubble, even though of course it doesn't create the bubble all by itself. If you want to short it, or do something with similar intentions, like the person I was replying to suggested, then I wouldn't recommend renting like that person suggested.
  - aminok 11y ago
    To the extent that the valuation is inaccurate, it's not based on the housing income created and sustained by demand. It's a based on a projection of the growth in that housing income. I believe you're mis-blaming real demand for rental units the for the mistakes being made by real estate investors in projecting growth in housing income.
    - IkmoIkmo 11y ago
      No. Someone suggested that, to pop a bubble, you must 'short' by renting. I explained that no, that's technically not shorting, and no, if shorting the market is not an opportunity to you, then renting will indeed contribute to sustaining a bubble more relative to getting out of exercising demand on the market completely (i.e., not buying or renting but relocating). Both of those statements of mine are completely correct, and none of them imply that renting in and of itself creates a bubble, which are the words you seem to be putting in my mouth.

pfarnsworth 11y ago

It depends on the rent price vs price to own. If renting is much cheaper, which it is in Vancouver unlike SF, then you are wrong. If the rent prices are equivalent to buying, like they are in the Bay Area, then you would be correct.

gmarx 11y ago
Renting and buying prices are equivalent in the Bay area? Not in Palo Alto or the few surrounding cities.
- pfarnsworth 11y ago
  10 years ago or more, the rent prices were much lower than the price to buy a place so it made sense. Now, it doesn't matter which you do, either buy or rent. They are both wrong, because both are sky-high.
  - illicium 11y ago
    When the Bay Area housing bubble collapses in the future, renting will get cheaper, and your mortgage will stay the same.
rconti 11y ago
No it doesn't. If you're renting, you're financing someone else's ownership of the property. It doesn't matter if they own it outright, or if you're only paying 1/10th of their mortgage. It only matters in degrees.
- gozur88 11y ago
  >No it doesn't. If you're renting, you're financing someone else's ownership of the property. That's only true if your rent covers their payment, which tends to not be true in a bubble. Where I am, in the years leading up to 2008 there were more rentals available than the market could really support. People were buying houses and getting rents that only covered part of the payment because they were counting on capital appreciation to make them money. If you were a renter it was a great deal. For $1600 you could rent a house that would sell for $700k, which isn't even close to covering the payment. After the bubble popped the price of housing went down dramatically, and the price of rentals went up dramatically as people stopped buying houses assuming they would appreciate forever. Also, people who've never owned a house drastically underestimate the costs associated with owning one. I bought my house after the crash, for cash. My housing outlay (with no mortgage) is about 75% of what I paid in rent. And that's not counting maintenance, like painting and appliance repair, or major stuff like a new roof. If the bubble had never popped I would have come out far ahead just staying in the apartment and investing the savings.

aminok 11y ago

"That's not shorting, in fact by renting you're financing the bubble." You're not financing the bubble.. The bubble is based on valuations that assume much higher income than what you provide by renting at going market rates.

IkmoIkmo 11y ago
I agree on the latter part of your statement, but that bubble valuation is based on an incorrect multiple and momentum of housing income, both of which are partially created and sustained by demand, which renting is, which is why I disagree on the former part of your statement. Bubbles usually start with actual high returns that are valued fairly, which attracts investors and turns it into a disproportionately large self-fulfilling prophecy. To keep renting in Vancouver now thereby definitely does contribute to the bubble, even though of course it doesn't create the bubble all by itself. If you want to short it, or do something with similar intentions, like the person I was replying to suggested, then I wouldn't recommend renting like that person suggested.
- aminok 11y ago
  To the extent that the valuation is inaccurate, it's not based on the housing income created and sustained by demand. It's a based on a projection of the growth in that housing income. I believe you're mis-blaming real demand for rental units the for the mistakes being made by real estate investors in projecting growth in housing income.
  - IkmoIkmo 11y ago
    No. Someone suggested that, to pop a bubble, you must 'short' by renting. I explained that no, that's technically not shorting, and no, if shorting the market is not an opportunity to you, then renting will indeed contribute to sustaining a bubble more relative to getting out of exercising demand on the market completely (i.e., not buying or renting but relocating). Both of those statements of mine are completely correct, and none of them imply that renting in and of itself creates a bubble, which are the words you seem to be putting in my mouth.