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Why can't you just live in the house? I mean it sucks when your investment doesn't work out, but at least you have a roof over your head. Isn't that all you rea

Why can't you just live in the house? I mean it sucks when your investment doesn't work out, but at least you have a roof over your head. Isn't that all you really need (unless you're some kind of real estate mogul, in which case it's hard to feel bad since it's just business then).

nostrademons 10y ago
It works as long as you maintain the income you had when you qualified for the loan. The problem is that real-estate downturns are heavily correlated with economic downturns and job losses. The bloodbath isn't people with stable jobs suddenly wanting out of their homes because they're underwater (although you do sometimes get that too), it's people who buy a house they can barely afford and then lose their job.
danhak 10y ago
Real estate is usually leveraged. You don't simply get to keep living in a house if you are insolvent and owe more on the property than it is worth. See also: 2008 Global Financial Crisis.
- morgante 10y ago
  Sure you do. As long as you can continue to pay the mortgage each one, nobody is going to come along and kick you out of the house. The "problem" is that you can't sell your house for a profit to exchange it for an even more expensive house. Hence, the rest of us are on the hook to ensure that your house can continue to appreciate in price.
  - danhak 10y ago
    "Insolvent" implies inability to continue mortgage payments.
    - morgante 10y ago
      Oh, I completely missed that you said "insolvent." That being said, insolvency by itself sufficient to lose your house—even if you're not underwater.
- dragonwriter 10y ago
  > Real estate is usually leveraged. You don't simply get to keep living in a house if you are insolvent and owe more on the property than it is worth. Right, but the problem there is the insolvency, not being underwater (conceptually, you have the same problem if you are insolvent but owe a nonzero amount that is less than or equal to the worth of the property, though if its less you may be able to stay off insolvency by increasing indebtedness -- though that will probably take convincing a lender that your income/expense balance will change soon enough that you won't end up insolvent and overleveraged.)
kbenson 10y ago
Because a significant portion of many, many peoples' savings and retirements are tied up in the value of their housing. Whether you think that's a smart choice of them or not, it's the reality we live in.
shostack 10y ago
In addition to the other accurate responses, there's also the notion that these days, most people are not buying their "forever home" that they will "just live in." They are buying a ($1m+) "starter home" and then hoping to ladder their way up into what might be their "forever home." That involves selling at some point.
josh-wrale 10y ago
Real estate taxes don't bother with purchase price and many times lag behind market value (for better or worse).
- danhak 10y ago
  It's even worse than that. In California, Prop 13 has de-coupled property taxes from market value altogether, essentially subsidizing landlords in perpetuity: https://en.wikipedia.org/wiki/California_Proposition_13_(1978) https://en.wikipedia.org/wiki/California_Proposition_13_(197...
  - dragonwriter 10y ago
    > In California, Prop 13 has de-coupled property taxes from market value altogether Incorrect; there are limits to annual increases in tax basis value outside of qualifying events (changes of ownership, new construction on property, etc.), but tax basis isn't divorced from market value altogether.
  - wrong_variable 10y ago
    >The proposition decreased property taxes by assessing property values at their 1975 value and restricted annual increases of assessed value of real property to an inflation factor, not to exceed 2% per year. Sounds pretty insane.
    - clock_tower 10y ago
      This is why you don't really want to live under a democracy (always assuming you can find a non-democracy that respects human rights). California's government-by-referendum has made it impossibly dysfunctional, because the populace consistently votes for two types of referendum: "spend money on things I like" and "don't raise my taxes."
    - seanp2k2 10y ago
      Yeah, it's hard to argue that 20% yearly increases in SF rent are fine while property owners get limited to 2% .
eldavido 10y ago
Because housing in California is just different than the rest of the US; there's really no other way to describe it (Illinois born and raised, now living in SF). A lot of CA people explicitly treat their home equity as their retirement fund, planning to "cash it out" when they retire. Then there's the people with loans they might be cashflow-negative on month-to-month (paying down a sliver of principal), who are hoping to re-amortize into a new 30-year loan when their value goes up, hopefully cutting some of their payments. I'm 31. My household income is well over 200K and I have many friends in the same boat, and none -- I really mean it -- zero -- of us own homes. The only hope is to get into a "starter home" as some other commenters describe and then hope to have enough equity that if you ever want to have a kid or live in a non-shoebox, you'll be able to afford to make a big down payment on a new place. I hate this because it seems extremely financially imprudent, but realistically, your options are to play the game or move. There just isn't sanity in/around the Bay Area housing market.
- galdosdi 10y ago
  This is why I don't understand (at a practical/economic level) the allure in the tech world of moving to the Bay Area. In NYC we complain like crazy about housing, but it's honestly fine compared to what you describe. In NYC you can't have it all but you do get to pick any two of: spacious, cheap, or short commute. Apparently in the Bay Area it's pick any zero? Why do people keep going there?
  - dragonwriter 10y ago
    > Apparently in the Bay Area it's pick any zero? No, its not. You can find spacious, reasonably cheap places within tolerable -- though not short -- commutes of most Bay Area jobs. I suspect that young, high-income tech workers very often (1) want short commutes, and (2) want other aspects of the urban lifestyle of the core of the Bay Area whether or not it comes with a short commute, which makes the peripheral, long-commute places with such housing unattractive. (Plenty of families where the adults work in the core areas of the Bay Area do live in those peripheries, though.) > Why do people keep going there? Because that's where the (tech, for instance) jobs are?
imh 10y ago
Many young-ish people live in 1 bedroom apartments they own, while planning to sell it eventually for a multiple room place they can raise a family in. If there is a permanent downturn, it screws them.

nostrademons 10y ago

It works as long as you maintain the income you had when you qualified for the loan. The problem is that real-estate downturns are heavily correlated with economic downturns and job losses. The bloodbath isn't people with stable jobs suddenly wanting out of their homes because they're underwater (although you do sometimes get that too), it's people who buy a house they can barely afford and then lose their job.

danhak 10y ago

Real estate is usually leveraged. You don't simply get to keep living in a house if you are insolvent and owe more on the property than it is worth. See also: 2008 Global Financial Crisis.

morgante 10y ago
Sure you do. As long as you can continue to pay the mortgage each one, nobody is going to come along and kick you out of the house. The "problem" is that you can't sell your house for a profit to exchange it for an even more expensive house. Hence, the rest of us are on the hook to ensure that your house can continue to appreciate in price.
- danhak 10y ago
  "Insolvent" implies inability to continue mortgage payments.
  - morgante 10y ago
    Oh, I completely missed that you said "insolvent." That being said, insolvency by itself sufficient to lose your house—even if you're not underwater.
dragonwriter 10y ago
> Real estate is usually leveraged. You don't simply get to keep living in a house if you are insolvent and owe more on the property than it is worth. Right, but the problem there is the insolvency, not being underwater (conceptually, you have the same problem if you are insolvent but owe a nonzero amount that is less than or equal to the worth of the property, though if its less you may be able to stay off insolvency by increasing indebtedness -- though that will probably take convincing a lender that your income/expense balance will change soon enough that you won't end up insolvent and overleveraged.)

kbenson 10y ago

Because a significant portion of many, many peoples' savings and retirements are tied up in the value of their housing. Whether you think that's a smart choice of them or not, it's the reality we live in.

shostack 10y ago

In addition to the other accurate responses, there's also the notion that these days, most people are not buying their "forever home" that they will "just live in." They are buying a ($1m+) "starter home" and then hoping to ladder their way up into what might be their "forever home." That involves selling at some point.

josh-wrale 10y ago

Real estate taxes don't bother with purchase price and many times lag behind market value (for better or worse).

danhak 10y ago
It's even worse than that. In California, Prop 13 has de-coupled property taxes from market value altogether, essentially subsidizing landlords in perpetuity: https://en.wikipedia.org/wiki/California_Proposition_13_(1978) https://en.wikipedia.org/wiki/California_Proposition_13_(197...
- dragonwriter 10y ago
  > In California, Prop 13 has de-coupled property taxes from market value altogether Incorrect; there are limits to annual increases in tax basis value outside of qualifying events (changes of ownership, new construction on property, etc.), but tax basis isn't divorced from market value altogether.
- wrong_variable 10y ago
  >The proposition decreased property taxes by assessing property values at their 1975 value and restricted annual increases of assessed value of real property to an inflation factor, not to exceed 2% per year. Sounds pretty insane.
  - clock_tower 10y ago
    This is why you don't really want to live under a democracy (always assuming you can find a non-democracy that respects human rights). California's government-by-referendum has made it impossibly dysfunctional, because the populace consistently votes for two types of referendum: "spend money on things I like" and "don't raise my taxes."
  - seanp2k2 10y ago
    Yeah, it's hard to argue that 20% yearly increases in SF rent are fine while property owners get limited to 2% .

eldavido 10y ago

Because housing in California is just different than the rest of the US; there's really no other way to describe it (Illinois born and raised, now living in SF). A lot of CA people explicitly treat their home equity as their retirement fund, planning to "cash it out" when they retire. Then there's the people with loans they might be cashflow-negative on month-to-month (paying down a sliver of principal), who are hoping to re-amortize into a new 30-year loan when their value goes up, hopefully cutting some of their payments. I'm 31. My household income is well over 200K and I have many friends in the same boat, and none -- I really mean it -- zero -- of us own homes. The only hope is to get into a "starter home" as some other commenters describe and then hope to have enough equity that if you ever want to have a kid or live in a non-shoebox, you'll be able to afford to make a big down payment on a new place. I hate this because it seems extremely financially imprudent, but realistically, your options are to play the game or move. There just isn't sanity in/around the Bay Area housing market.

galdosdi 10y ago
This is why I don't understand (at a practical/economic level) the allure in the tech world of moving to the Bay Area. In NYC we complain like crazy about housing, but it's honestly fine compared to what you describe. In NYC you can't have it all but you do get to pick any two of: spacious, cheap, or short commute. Apparently in the Bay Area it's pick any zero? Why do people keep going there?
- dragonwriter 10y ago
  > Apparently in the Bay Area it's pick any zero? No, its not. You can find spacious, reasonably cheap places within tolerable -- though not short -- commutes of most Bay Area jobs. I suspect that young, high-income tech workers very often (1) want short commutes, and (2) want other aspects of the urban lifestyle of the core of the Bay Area whether or not it comes with a short commute, which makes the peripheral, long-commute places with such housing unattractive. (Plenty of families where the adults work in the core areas of the Bay Area do live in those peripheries, though.) > Why do people keep going there? Because that's where the (tech, for instance) jobs are?

imh 10y ago

Many young-ish people live in 1 bedroom apartments they own, while planning to sell it eventually for a multiple room place they can raise a family in. If there is a permanent downturn, it screws them.