4 ms·

>Take the analysis a step further though, population density matters, not median income. With respect, I'll maintain that it's an issue if the supporting cash-

by ABCLAW 8y ago

>Take the analysis a step further though, population density matters, not median income. With respect, I'll maintain that it's an issue if the supporting cash-flow underlying the market can no longer, numerically, support the market pricing. >You will find that all housing is consumable by households for which their income exceeds the ownership costs. That's not what's going on in Vancouver's case and the numbers make it very, very clear. No one here is confused about supply and demand. If housing prices tracked 'people's ability to pay for housing', as you're positing, then the ratio of income to total ownership costs would remain reasonably linked. The issue is that demand isn't from 'households'. It's from REITs, speculators and foreign capital. You can feel free to look at the spread between total ownership costs and rental rates. In the most expensive cities the spread is largest. In other words, the rental rates have changed far less than the total cost of ownership, because there is very little ability for personal incomes to absorb the housing price increases. What's more, the correction isn't going to be quick, nor is it going to be soon. The only rational move as a real estate investor in most of these markets is to continue pumping capital and re-leveraging on the basis of accrued equity. When the bubble pops and speculators are suddenly underwater, they'll prune their portfolio and keep the accrued equity gains, which will put them very far ahead of those who didn't get in. This is why people advocate for regulatory intervention. Because the only way this train stops is when it slams into the concrete wall at the end of the track.

throwaway082729 8y ago
"The only rational move as a real estate investor in most of these markets is to continue pumping capital and re-leveraging on the basis of accrued equity." - Can you ELI5? I recently sold a home that I bought for $600k a while back in a decent school district for $1.15M and bought a $1.8M home near Sunnyvale. Was that a stupid thing to do?
- mandelbrotwurst 8y ago
  Maybe some of that jargon went over my head, but I'm not convinced that his option for investors to "prune their portfolio and keep the accrued equity gains" ... "When the bubble pops and speculators are suddenly underwater" is practical. Are said investors not themselves speculators who would be underwater post bubble pop? If you have a high confidence that "the correction isn't going to be quick, nor is it going to be soon", then sure, it makes sense to lever up and take on more debt - IFF you're similarly confident that you can get out before prices drop! Re: your situation - I wouldn't call it stupid, but you do now have a ~50% larger share of your assets in your home, and so you're now that much more subject to future shifts in home prices in your area.
  - ABCLAW 8y ago
    >Are said investors not themselves speculators who would be underwater post bubble pop? Not really? A lot of the institutional money sloshing around is being invested as a de-risked hedge against more volatile returns. They don't really care if the market goes down temporarily, because their other options would have gone down even more. Additionally, there's a significant chunk of money that's being laundered through these home sales, so they don't really care if they lose 20%. They care that they can now show a source for the capital when they want to funnel it into other investments that have AML requirements. Home owners who are underwater have a disincentive to sell, but functionally unless their income is tied to their home valuation, they can just ride out the downturn, like most people do with their other equity holdings. It only sucks if you're forced to sell. That said, for the actual small to mid sized speculator, the 'being underwater' fears only hurt if you commence your leveraging the year before the bubble pops. You can just sell some of your portfolio to cover the loss and still end up ahead. The comparison is between owning 20% of 10 properties vs. 85% of 1. Even if your portfolio takes a haircut, the total volume of equity you build dramatically outstrips the more conservative approach.
- raincom 8y ago
  There are many who bought second or third homes using the equity from the first home. That's how I understand that comment. At least, you sold it and bought another one.
- refurb 8y ago
  I think what he's saying is the smart move for investors is to keep the process going (buy property, see appreciation, capture gains upon sale, re-invest gains to buy at even higher price point) until it goes bust. By "continuing to pump in capital and re-leverage based on equity", the prices will continue to go higher until they bust. When prices go bust, you take your hit on your portfolio, but even then you probably made a ton of money in the process even if you lose some equity at the end. It's a little different for a homeowner since you need a home to live in (if you don't want to sell does it matter if your home drops in value?). However, it will still suck if the housing market bubble pops and that $1.8M house you bought is now worth $1M, but you still have a $1.2M mortgage to pay.
  - ABCLAW 8y ago
    >I think what he's saying is the smart move for investors is to keep the process going (buy property, see appreciation, capture gains upon sale, re-invest gains to buy at even higher price point) until it goes bust. By "continuing to pump in capital and re-leverage based on equity", the prices will continue to go higher until they bust. Close, but it's even easier on that. You don't need to sell to extract value from the currently financed properties. Selling incurs transaction fees. You don't want that! Instead, you just use repaid principal/appreciation to lower the cumulative LTV against the entire portfolio of properties. This means if the market in your area is going up 10% yoy and your down payment is 20% to avoid insurance fees, you basically get .5 house downpayments per year off appreciation, before rent. Do that for a few years, and suddenly you own a lot of property.
ChuckMcM 8y ago
The issue is that demand isn't from 'households'. It's from REITs, speculators and foreign capital. I would love it if you could forward a source for this statement. Speculators I understand, and they are out there and every down turn burns a bunch out. But REITs and Foreign Capital is less clear. There was a big "the Chinese are buying all the houses" narrative that went around on Nextdoor and elsewhere so we analyzed the County Assessors data base of tax assessments to try to identify how many homes were owned by companies vs individuals. Only a small percentage of homes were owned by corporate entities. But that was just one county so if people have done this in their county and come up with different results it would be great to see them.
- ABCLAW 8y ago
  >I would love it if you could forward a source for this statement. You can look up any of the mortgage and housing industry financial reporting pieces. I normally use the ones produced by RBC when looking at the issue, because they're well put together. There's a few put together for assets in the US and EU that I respect, but they're a lot more work to sort through - maybe who has good material for those areas could chime in? To your second main point: 1) you don't need to be a majority owner of the market to move the market. 2) Foreign laundered capital is not channeled through corporate entities. I think the published literature is conflicted but leans towards what I'm saying, but there's a lot of behind the scenes things that make the picture s bit more clear, but I can't disclose more for professional reasons.
- bleriot 8y ago
  There’s no way to know how many of those were Chinese nationals because the only group with that data is FINCEN. So how exactly did you do this, and which county was it?
  - ChuckMcM 8y ago
    The county tax assessor records are public in California. They include the person or entity who is on the hook for paying the property tax and their address. Most homes in Santa Clara county are owned by the people who live in them and their name and the address of the parcel match the title (also a public record). Companies and property managers have the tax bill sent to the company office. Typically (but not always) LLC ownership included the "LLC" in the name so "Snow garden LLC" was a good sign that it was owned by an LLC but if it went to the same address as the parcel we counted it as being the owner. Similarly for trusts (a lot of people put their property into living trusts) and they have the same sorts of rules. It was possible to just crawl the web for this information however California has tightened things up a bit and made it harder to do so, you can always go into the county clerk's office however and get access there. Realtors use a service which collects this data and I got access to it through a friend who owns a realtor's license.

by ABCLAW 8y ago

throwaway082729 8y ago

"The only rational move as a real estate investor in most of these markets is to continue pumping capital and re-leveraging on the basis of accrued equity." - Can you ELI5? I recently sold a home that I bought for $600k a while back in a decent school district for $1.15M and bought a $1.8M home near Sunnyvale. Was that a stupid thing to do?

mandelbrotwurst 8y ago
Maybe some of that jargon went over my head, but I'm not convinced that his option for investors to "prune their portfolio and keep the accrued equity gains" ... "When the bubble pops and speculators are suddenly underwater" is practical. Are said investors not themselves speculators who would be underwater post bubble pop? If you have a high confidence that "the correction isn't going to be quick, nor is it going to be soon", then sure, it makes sense to lever up and take on more debt - IFF you're similarly confident that you can get out before prices drop! Re: your situation - I wouldn't call it stupid, but you do now have a ~50% larger share of your assets in your home, and so you're now that much more subject to future shifts in home prices in your area.
- ABCLAW 8y ago
  >Are said investors not themselves speculators who would be underwater post bubble pop? Not really? A lot of the institutional money sloshing around is being invested as a de-risked hedge against more volatile returns. They don't really care if the market goes down temporarily, because their other options would have gone down even more. Additionally, there's a significant chunk of money that's being laundered through these home sales, so they don't really care if they lose 20%. They care that they can now show a source for the capital when they want to funnel it into other investments that have AML requirements. Home owners who are underwater have a disincentive to sell, but functionally unless their income is tied to their home valuation, they can just ride out the downturn, like most people do with their other equity holdings. It only sucks if you're forced to sell. That said, for the actual small to mid sized speculator, the 'being underwater' fears only hurt if you commence your leveraging the year before the bubble pops. You can just sell some of your portfolio to cover the loss and still end up ahead. The comparison is between owning 20% of 10 properties vs. 85% of 1. Even if your portfolio takes a haircut, the total volume of equity you build dramatically outstrips the more conservative approach.
raincom 8y ago
There are many who bought second or third homes using the equity from the first home. That's how I understand that comment. At least, you sold it and bought another one.
refurb 8y ago
I think what he's saying is the smart move for investors is to keep the process going (buy property, see appreciation, capture gains upon sale, re-invest gains to buy at even higher price point) until it goes bust. By "continuing to pump in capital and re-leverage based on equity", the prices will continue to go higher until they bust. When prices go bust, you take your hit on your portfolio, but even then you probably made a ton of money in the process even if you lose some equity at the end. It's a little different for a homeowner since you need a home to live in (if you don't want to sell does it matter if your home drops in value?). However, it will still suck if the housing market bubble pops and that $1.8M house you bought is now worth $1M, but you still have a $1.2M mortgage to pay.
- ABCLAW 8y ago
  >I think what he's saying is the smart move for investors is to keep the process going (buy property, see appreciation, capture gains upon sale, re-invest gains to buy at even higher price point) until it goes bust. By "continuing to pump in capital and re-leverage based on equity", the prices will continue to go higher until they bust. Close, but it's even easier on that. You don't need to sell to extract value from the currently financed properties. Selling incurs transaction fees. You don't want that! Instead, you just use repaid principal/appreciation to lower the cumulative LTV against the entire portfolio of properties. This means if the market in your area is going up 10% yoy and your down payment is 20% to avoid insurance fees, you basically get .5 house downpayments per year off appreciation, before rent. Do that for a few years, and suddenly you own a lot of property.

ChuckMcM 8y ago

The issue is that demand isn't from 'households'. It's from REITs, speculators and foreign capital. I would love it if you could forward a source for this statement. Speculators I understand, and they are out there and every down turn burns a bunch out. But REITs and Foreign Capital is less clear. There was a big "the Chinese are buying all the houses" narrative that went around on Nextdoor and elsewhere so we analyzed the County Assessors data base of tax assessments to try to identify how many homes were owned by companies vs individuals. Only a small percentage of homes were owned by corporate entities. But that was just one county so if people have done this in their county and come up with different results it would be great to see them.

ABCLAW 8y ago
>I would love it if you could forward a source for this statement. You can look up any of the mortgage and housing industry financial reporting pieces. I normally use the ones produced by RBC when looking at the issue, because they're well put together. There's a few put together for assets in the US and EU that I respect, but they're a lot more work to sort through - maybe who has good material for those areas could chime in? To your second main point: 1) you don't need to be a majority owner of the market to move the market. 2) Foreign laundered capital is not channeled through corporate entities. I think the published literature is conflicted but leans towards what I'm saying, but there's a lot of behind the scenes things that make the picture s bit more clear, but I can't disclose more for professional reasons.
bleriot 8y ago
There’s no way to know how many of those were Chinese nationals because the only group with that data is FINCEN. So how exactly did you do this, and which county was it?
- ChuckMcM 8y ago
  The county tax assessor records are public in California. They include the person or entity who is on the hook for paying the property tax and their address. Most homes in Santa Clara county are owned by the people who live in them and their name and the address of the parcel match the title (also a public record). Companies and property managers have the tax bill sent to the company office. Typically (but not always) LLC ownership included the "LLC" in the name so "Snow garden LLC" was a good sign that it was owned by an LLC but if it went to the same address as the parcel we counted it as being the owner. Similarly for trusts (a lot of people put their property into living trusts) and they have the same sorts of rules. It was possible to just crawl the web for this information however California has tightened things up a bit and made it harder to do so, you can always go into the county clerk's office however and get access there. Realtors use a service which collects this data and I got access to it through a friend who owns a realtor's license.