5 ms·

I'm glad someone is pointing out something that nagged away at me for a long time. With every other cost-of-living product, we celebrate when their prices go do

by whack 10y ago

I'm glad someone is pointing out something that nagged away at me for a long time. With every other cost-of-living product, we celebrate when their prices go down, because we recognize that a lower cost-of-living translates to better qualify-of-life, at the aggregate. So why is it that we do the exact opposite with housing. Imagine if house prices tomorrow were to increase by 10% across the board, throughout the country. Who exactly would that help? Not the vast majority of home-owners who own a single home. They're still going to continue living in their house, and will be unaffected by the 10% increase in any meaningful way. And if they ever decide to sell the house and claim the 10% increase as profit, where are they going to live next? They will just have to buy/rent another house, where their earlier profit will be going entirely towards paying the higher housing prices for their new home. So what you really have is a situation where all the renters face dramatically higher costs of living, the single home owners are mostly neutral, and the upper-class with multiple homes suddenly find themselves with a windfall. And we think this is cause for celebration? Personally, I can't wait for the next housing crash.

uola 10y ago
"Who exactly would that help?" The banks. I don't even think they pretend otherwise at this point?
HeyLaughingBoy 10y ago
Yup. I had a friend who always said that he wished housing prices kept going down so his property taxes would drop, and then went back up a month before he wanted to sell :-)
resolaibohp 10y ago
I agree with you here. It really annoys me when people tell me they hope their house continues to increase in value at an exponential rate. Houses are not like stocks, families don't buy and sell them to make money. They are places to live. The people I hear this the most from are in the middle class, the ones who are most likely not to benefit from the increases. I hope this thinking stops.
- AnimalMuppet 10y ago
  If it continues, it's going to help me a lot when my kids are gone, and I can downsize to a smaller (less expensive) house.
  - superuser2 10y ago
    Kids may not leave if they can't pay for their own housing.
  - ZoeZoeBee 10y ago
    And there is the rub, the Boomers have treated their homes as investments, on average their homes are by far their largest "investment", with plans of downsizing to finance their retirement. The problem with this is you need to find someone to purchase the home. Over the last few years a large part of the reason in the increase in the value of homes has had to do with historically low interest rates and a statistically low inventory due to the number of homes underwater or with low equity. The Boomers are just starting to retire, over the next decade many will attempt to do as you describe creating a glut of homes for sale, while the median household income has continued to decrease making it impossible for the generations coming behind to absorb those homes based upon their income and Demographics, remember Gen X is much smaller than the Boomers and the Millenials have not come into their own yet.
    - AnimalMuppet 10y ago
      Well, with each generation containing more members than the previous, it would all work out, except for that pesky "median household income continuing to decrease" part...
      - ZoeZoeBee 10y ago
        Well that would be the case if Demographics and birthrates supported that. The Boomers were the largest generation by births Gen X was much smaller and the only reason there are more Millenials than Boomers at the moment is immigration and some of the Boomers have died off. Birthrates at or below replacement level in most of the developed world for the last 40 years are begging to show their consequence, the problems will grow over the next few decades as Demographics take hold. As of this year more people are dying in the EU every year than are born, Japan has been mired in this for years and China will see the problem as well as their working age population is in decline.
smileysteve 10y ago
> if they ever decide to sell the house and claim the 10% increase as profit, where are they going to live next? They will just have to buy/rent another house, where their earlier profit will be going entirely towards paying the higher housing prices There is a small argument that this is why we use leverage when buying house. There's also the idea that 10% growth is hit with a 6%+ transaction fee because of real estate agents, brokers, and lenders.
StillBored 10y ago
Rising housing values probably don't help a lot of people who think they are getting a windfall when they sell their house either. Property taxes and 5% interest eat into the housing appreciation if anyone is willing to run the numbers. But there are other drivers of housing costs too, for example real estate agent fees, serve to guarantee that no one can actually afford to sell a house for less than they paid for it. Bottom line, is unless you happen to be lucky enough to live in a neighborhood experiencing >10% growth, its likely your just getting a refund on years of paying a significant portion of your income on housing.
- breischl 10y ago
  >>real estate agent fees, serve to guarantee that no one can actually afford to sell a house for less than they paid for it. That just makes it harder to sell if you haven't built up much equity. And if you're going to sell houses before you build up equity, you would've been better off renting anyway.
- AnimalMuppet 10y ago
  But see, if I didn't own a home, I still would have to live somewhere. So I'd rent. So then I pay the owner's interest and taxes, and more besides. So if you run the numbers of what I pay to own vs. what I pay to rent (because homeless is not a desirable option), then I think you'll find that housing appreciation helps the owner (if after many years the owner sells and then moves into something smaller, or else sells and then rents).
  - StillBored 10y ago
    Owners that are paying interest on a note and passing it on to you are the reason that rents are out of control. If housing were a healthy market your rent would be the taxes+upkeep+something around market interest rates (on paid off property)-inflation. Which means you might be better off renting (economies of scale on maintenance/etc) and putting the extra cash into the stock market (or growing your business). AKA, your rent would be significantly less than the cost of taking out a mortgage to own the same properly. Obviously that isn't the case, and there are a number of reasons, starting with artificially low interest rates, government tax incentives for home ownership and backstoping 30 year mortgages for homes that weren't peoples primary residence.
dragonwriter 10y ago
> Imagine if house prices tomorrow were to increase by 10% across the board, throughout the country. Who exactly would that help? Not the vast majority of home-owners who own a single home. Since home equity is a gateway to access to lower-cost credit, those people are exactly who would benefit.
- breischl 10y ago
  In the long run credit is only beneficial if you use it for a productive purpose. Giving credit to people who are just going to use it for lifestyle inflation, which is most Americans, is not doing them any favors.
  - dragonwriter 10y ago
    > In the long run credit is only beneficial if you use it for a productive purpose. Having a lower cost of borrowing is, ceteris paribus, a benefit. For one thing, it increases the range of uses which are net productive.
    - ZoeZoeBee 10y ago
      If people were logical and not prone to treat their equity as an ATM creating more debt you'd be on to something. Ceteris Paribus only exists in econ 101
nugget 10y ago
> and will be unaffected by the 10% increase in any meaningful way Not unaffected - property taxes would increase by 10% in many jurisdictions (where no cap exists), and other costs like insurance and maintenance would likely increase by lesser amounts. As to why people celebrate this trend: https://en.wikipedia.org/wiki/Wealth_effect https://en.wikipedia.org/wiki/Wealth_effect
dragontamer 10y ago
> Imagine if house prices tomorrow were to increase by 10% across the board, throughout the country. Who exactly would that help? Lets say you bought a $400,000 house with $50k down (12% down). You have 88% LtV. Which means you have PMI and all sorts of extra fees on there. If prices rose 10%, to $440,000, your LtV is now 79.5%, which means you qualify for a standard refinance and can knock PMI off of your payments. So now you have a lower monthly payment (no more PMI). -------- If you flip the house, you would have made $90k on a $50k investment, or a 80% growth of your money. ----- There are plenty of ways to benefit from increased equity. And no, the bank definitely doesn't benefit. The homeowner does.
SilasX 10y ago
>So why is it that we do the exact opposite with housing. Because we've made it national policy that people should have most of their usable savings in a home, meaning they benefit from policies that push its price up. Then pat ourselves on the back for letting the poor play a lottery where maybe one in a thousand of them get to live to live in artificially-cheap "affordable housing" set-asides, while at the same time displacing someone who's actually in the ballpark of affording the area. (I'm talking about the affordable housing lotteries that decide who gets those units, not the regular money-lotteries, to be clear.)
- internaut 10y ago
  > Because we've made it national policy that people should have most of their usable savings in a home, This is one of the greatest insanities our culture has developed. I am confident wages would rise were it the case workers owned their houses free and clear. The economic stimulation from investing the surplus (between inflated and historically realistic prices) would be incredible. I even think it would help class and race tensions considerably.
hiram112 10y ago
You don't realize that many people (less since 2008 albeit) use home price increases as a piggy bank via home equity lines of credit. Personally I think it's financially absurd, but then again I'm a single guy. If I had 2 kids in college, a spouse that just lost a job, medical emergency, I could see how tempting home equity might be.
internaut 10y ago
> So why is it that we do the exact opposite with housing. Bingo my friend! I've been preaching it for years. There is one prominent nation I know of that depreciates housing. That is Japan. http://freakonomics.com/2014/02/26/why-are-japanese-homes-disposable-full-transcript/ http://freakonomics.com/2014/02/26/why-are-japanese-homes-di... As always, the people of glorious Nippon are superior lifeforms in every way. <polite bow>

by whack 10y ago

uola 10y ago

"Who exactly would that help?" The banks. I don't even think they pretend otherwise at this point?

HeyLaughingBoy 10y ago

Yup. I had a friend who always said that he wished housing prices kept going down so his property taxes would drop, and then went back up a month before he wanted to sell :-)

resolaibohp 10y ago

I agree with you here. It really annoys me when people tell me they hope their house continues to increase in value at an exponential rate. Houses are not like stocks, families don't buy and sell them to make money. They are places to live. The people I hear this the most from are in the middle class, the ones who are most likely not to benefit from the increases. I hope this thinking stops.

AnimalMuppet 10y ago
If it continues, it's going to help me a lot when my kids are gone, and I can downsize to a smaller (less expensive) house.
- superuser2 10y ago
  Kids may not leave if they can't pay for their own housing.
- ZoeZoeBee 10y ago
  And there is the rub, the Boomers have treated their homes as investments, on average their homes are by far their largest "investment", with plans of downsizing to finance their retirement. The problem with this is you need to find someone to purchase the home. Over the last few years a large part of the reason in the increase in the value of homes has had to do with historically low interest rates and a statistically low inventory due to the number of homes underwater or with low equity. The Boomers are just starting to retire, over the next decade many will attempt to do as you describe creating a glut of homes for sale, while the median household income has continued to decrease making it impossible for the generations coming behind to absorb those homes based upon their income and Demographics, remember Gen X is much smaller than the Boomers and the Millenials have not come into their own yet.
  - AnimalMuppet 10y ago
    Well, with each generation containing more members than the previous, it would all work out, except for that pesky "median household income continuing to decrease" part...
    - ZoeZoeBee 10y ago
      Well that would be the case if Demographics and birthrates supported that. The Boomers were the largest generation by births Gen X was much smaller and the only reason there are more Millenials than Boomers at the moment is immigration and some of the Boomers have died off. Birthrates at or below replacement level in most of the developed world for the last 40 years are begging to show their consequence, the problems will grow over the next few decades as Demographics take hold. As of this year more people are dying in the EU every year than are born, Japan has been mired in this for years and China will see the problem as well as their working age population is in decline.

smileysteve 10y ago

> if they ever decide to sell the house and claim the 10% increase as profit, where are they going to live next? They will just have to buy/rent another house, where their earlier profit will be going entirely towards paying the higher housing prices There is a small argument that this is why we use leverage when buying house. There's also the idea that 10% growth is hit with a 6%+ transaction fee because of real estate agents, brokers, and lenders.

StillBored 10y ago

Rising housing values probably don't help a lot of people who think they are getting a windfall when they sell their house either. Property taxes and 5% interest eat into the housing appreciation if anyone is willing to run the numbers. But there are other drivers of housing costs too, for example real estate agent fees, serve to guarantee that no one can actually afford to sell a house for less than they paid for it. Bottom line, is unless you happen to be lucky enough to live in a neighborhood experiencing >10% growth, its likely your just getting a refund on years of paying a significant portion of your income on housing.

breischl 10y ago
>>real estate agent fees, serve to guarantee that no one can actually afford to sell a house for less than they paid for it. That just makes it harder to sell if you haven't built up much equity. And if you're going to sell houses before you build up equity, you would've been better off renting anyway.
AnimalMuppet 10y ago
But see, if I didn't own a home, I still would have to live somewhere. So I'd rent. So then I pay the owner's interest and taxes, and more besides. So if you run the numbers of what I pay to own vs. what I pay to rent (because homeless is not a desirable option), then I think you'll find that housing appreciation helps the owner (if after many years the owner sells and then moves into something smaller, or else sells and then rents).
- StillBored 10y ago
  Owners that are paying interest on a note and passing it on to you are the reason that rents are out of control. If housing were a healthy market your rent would be the taxes+upkeep+something around market interest rates (on paid off property)-inflation. Which means you might be better off renting (economies of scale on maintenance/etc) and putting the extra cash into the stock market (or growing your business). AKA, your rent would be significantly less than the cost of taking out a mortgage to own the same properly. Obviously that isn't the case, and there are a number of reasons, starting with artificially low interest rates, government tax incentives for home ownership and backstoping 30 year mortgages for homes that weren't peoples primary residence.

dragonwriter 10y ago

> Imagine if house prices tomorrow were to increase by 10% across the board, throughout the country. Who exactly would that help? Not the vast majority of home-owners who own a single home. Since home equity is a gateway to access to lower-cost credit, those people are exactly who would benefit.

breischl 10y ago
In the long run credit is only beneficial if you use it for a productive purpose. Giving credit to people who are just going to use it for lifestyle inflation, which is most Americans, is not doing them any favors.
- dragonwriter 10y ago
  > In the long run credit is only beneficial if you use it for a productive purpose. Having a lower cost of borrowing is, ceteris paribus, a benefit. For one thing, it increases the range of uses which are net productive.
  - ZoeZoeBee 10y ago
    If people were logical and not prone to treat their equity as an ATM creating more debt you'd be on to something. Ceteris Paribus only exists in econ 101

nugget 10y ago

> and will be unaffected by the 10% increase in any meaningful way Not unaffected - property taxes would increase by 10% in many jurisdictions (where no cap exists), and other costs like insurance and maintenance would likely increase by lesser amounts. As to why people celebrate this trend: https://en.wikipedia.org/wiki/Wealth_effect https://en.wikipedia.org/wiki/Wealth_effect

dragontamer 10y ago

> Imagine if house prices tomorrow were to increase by 10% across the board, throughout the country. Who exactly would that help? Lets say you bought a $400,000 house with $50k down (12% down). You have 88% LtV. Which means you have PMI and all sorts of extra fees on there. If prices rose 10%, to $440,000, your LtV is now 79.5%, which means you qualify for a standard refinance and can knock PMI off of your payments. So now you have a lower monthly payment (no more PMI). -------- If you flip the house, you would have made $90k on a $50k investment, or a 80% growth of your money. ----- There are plenty of ways to benefit from increased equity. And no, the bank definitely doesn't benefit. The homeowner does.

SilasX 10y ago

>So why is it that we do the exact opposite with housing. Because we've made it national policy that people should have most of their usable savings in a home, meaning they benefit from policies that push its price up. Then pat ourselves on the back for letting the poor play a lottery where maybe one in a thousand of them get to live to live in artificially-cheap "affordable housing" set-asides, while at the same time displacing someone who's actually in the ballpark of affording the area. (I'm talking about the affordable housing lotteries that decide who gets those units, not the regular money-lotteries, to be clear.)

internaut 10y ago
> Because we've made it national policy that people should have most of their usable savings in a home, This is one of the greatest insanities our culture has developed. I am confident wages would rise were it the case workers owned their houses free and clear. The economic stimulation from investing the surplus (between inflated and historically realistic prices) would be incredible. I even think it would help class and race tensions considerably.

hiram112 10y ago

You don't realize that many people (less since 2008 albeit) use home price increases as a piggy bank via home equity lines of credit. Personally I think it's financially absurd, but then again I'm a single guy. If I had 2 kids in college, a spouse that just lost a job, medical emergency, I could see how tempting home equity might be.

internaut 10y ago

> So why is it that we do the exact opposite with housing. Bingo my friend! I've been preaching it for years. There is one prominent nation I know of that depreciates housing. That is Japan. http://freakonomics.com/2014/02/26/why-are-japanese-homes-disposable-full-transcript/ http://freakonomics.com/2014/02/26/why-are-japanese-homes-di... As always, the people of glorious Nippon are superior lifeforms in every way. <polite bow>