4 ms·

Weirdly, I own a house and think I'd be better off if prices fell-- fell a lot. I bought a few years ago and would be happy if prices uniformly dropped to those

Weirdly, I own a house and think I'd be better off if prices fell-- fell a lot. I bought a few years ago and would be happy if prices uniformly dropped to those levels. Why? I want a 50% bigger/nicer house in the same area. But bigger/nicer houses have increased in price proportionally to mine. So the gap in absolute dollars between what I have and what I want has expanded quite a bit. My income has increased, but not really enough to cover the gap. Strong increasing prices really only help homeowners to the effect that they're eventually willing to downsize or move to a lower-cost area. If prices rise strongly and proportionately I suspect it just causes stagnation. I can't really upgrade without a windfall, thus my house stays off the market. So other folks can't upgrade to my house.

beamatronic 10y ago
Not to mention: Property taxes are "forever", even with Prop 13. In Santa Clara County, in the Bay Area, taxes are about 1%. So if your purchase price is $1,000,000, your taxes are about $10,000 per year, half payable in December and half in April.
- muzz 10y ago
  They can go up a miniscule amount, 2%. So not exactly forever, but relatively close
deleted 10y ago
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tormeh 10y ago
The more expensive a property is, the less its price falls in bad times. Rich people are rarely forced to sell. It's a different market basically disconnected from the rest. I don't know what kind of house you want, but there's a nonlinearity there that might be important.
- the_economist 10y ago
  Do you have some data to back this up?
- philrapo 10y ago
  Levered people, whether rich or poor, are the ones who are forced to sell. There are always some over levered folks from both ends of the economic spectrum. As long as you can make your monthly payments, you'll never be forced to sell.
- BashiBazouk 10y ago
  That is not what I have seen in the bay area over the last few decades. The high end fluctuates quite a bit but the low end is steady and remains high. Much more competition for starter homes than higher end homes around here...
- bufordsharkley 10y ago
  And to make explicit an obvious fact, because of Prop 13, revaluations on homes are only made when it's resold. A person whose family has owned a house for decades has very little incentive to ever move on.
lisper 10y ago
It's even worse than that. If your house has appreciated more than $250k (or $500k if you're married) then you have to pay capital gains tax on the rest. And this is a fixed amount regardless of how long you've owned your home, so the longer you stay, and the more your house appreciates, the greater the penalty when you ultimately sell.
- kspaans 10y ago
  "Penalty", yeah because people have put in sooo much hard work to make their house values go up. (Sure, some people will spend money on renovations, and there could be tax credits for that. But I don't think that sitting on an asset and letting it appreciate should be a free lunch.)
  - lisper 10y ago
    "Penalty" because someone who sells their house and buys a new one every time it appreciates $250k pays zero tax whereas someone who buys and holds pays significant tax despite having the same net gain over the same time period.
    - kspaans 10y ago
      OK, fair point. I think you're right, it should be all or nothing.
    - guelo 10y ago
      If someone actually tried to execute that sell and buy strategy the large transaction costs would eat up any possible tax savings.
    - dice 10y ago
      There's a two year minimum that you must hold the home to qualify for the exclusion. So it's not "every time" it appreciates, but it is "once every two years". https://www.irs.gov/publications/p523/ar02.html#en_US_2015_publink1000200611 https://www.irs.gov/publications/p523/ar02.html#en_US_2015_p...

beamatronic 10y ago

Not to mention: Property taxes are "forever", even with Prop 13. In Santa Clara County, in the Bay Area, taxes are about 1%. So if your purchase price is $1,000,000, your taxes are about $10,000 per year, half payable in December and half in April.

muzz 10y ago
They can go up a miniscule amount, 2%. So not exactly forever, but relatively close

deleted 10y ago

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tormeh 10y ago

The more expensive a property is, the less its price falls in bad times. Rich people are rarely forced to sell. It's a different market basically disconnected from the rest. I don't know what kind of house you want, but there's a nonlinearity there that might be important.

the_economist 10y ago
Do you have some data to back this up?
philrapo 10y ago
Levered people, whether rich or poor, are the ones who are forced to sell. There are always some over levered folks from both ends of the economic spectrum. As long as you can make your monthly payments, you'll never be forced to sell.
BashiBazouk 10y ago
That is not what I have seen in the bay area over the last few decades. The high end fluctuates quite a bit but the low end is steady and remains high. Much more competition for starter homes than higher end homes around here...
bufordsharkley 10y ago
And to make explicit an obvious fact, because of Prop 13, revaluations on homes are only made when it's resold. A person whose family has owned a house for decades has very little incentive to ever move on.

lisper 10y ago

It's even worse than that. If your house has appreciated more than $250k (or $500k if you're married) then you have to pay capital gains tax on the rest. And this is a fixed amount regardless of how long you've owned your home, so the longer you stay, and the more your house appreciates, the greater the penalty when you ultimately sell.

kspaans 10y ago
"Penalty", yeah because people have put in sooo much hard work to make their house values go up. (Sure, some people will spend money on renovations, and there could be tax credits for that. But I don't think that sitting on an asset and letting it appreciate should be a free lunch.)
- lisper 10y ago
  "Penalty" because someone who sells their house and buys a new one every time it appreciates $250k pays zero tax whereas someone who buys and holds pays significant tax despite having the same net gain over the same time period.
  - kspaans 10y ago
    OK, fair point. I think you're right, it should be all or nothing.
  - guelo 10y ago
    If someone actually tried to execute that sell and buy strategy the large transaction costs would eat up any possible tax savings.
  - dice 10y ago
    There's a two year minimum that you must hold the home to qualify for the exclusion. So it's not "every time" it appreciates, but it is "once every two years". https://www.irs.gov/publications/p523/ar02.html#en_US_2015_publink1000200611 https://www.irs.gov/publications/p523/ar02.html#en_US_2015_p...