5 ms·

Not sure I agree with the real estate conclusion in this market. I think there is a lot of uncertainty on how real estate values will change post-COVID as how w

Not sure I agree with the real estate conclusion in this market. I think there is a lot of uncertainty on how real estate values will change post-COVID as how we use places for shopping, working, and travel change (or dont)

runbathtime 5y ago
Real estate might be the best play for the average joe. Where else can you borrow a ton of money at low interest rates for 30 years with a real asset (the house) as collateral? It is like a free call option, with government policies. If you overpay you can always turn in the key or get the bank to write down your loan to fair value for the home. You make money on the debt, paying back in dollars with lower purchasing power, you do not need the home price to go up.
- dagw 5y ago
  Real estate might be the best play for the average joe. I agree with your general analysis, but I'm also seeing that it's becoming harder and harder for the average joe to get into the real estate market. Unless you can make a hefty down-payment banks just won't talk to you. The big driver of inequality going forwards is going to be between those who managed to get on the property ladder and those who didn't.
  - runbathtime 5y ago
    I think that will be a big topic that government will try to solve. I think they will offer policies that help inequality directly in housing, giving away homes to those that qualify, further pushing up home prices ultimately.
    - frockington1 5y ago
      As a home owner, I'm really hoping that the government gets involved in helping with first time buyer down payments. Each $1,000 of government assistance will be a ~$15,000 higher sale price. Would also benefit those renting out units as well as the overall market would surge upwards
  - twiddling 5y ago
    REITs are your friend.
    - dagw 5y ago
      You can't get a mortgage to invest in REITs. Also you can't live in your REIT investment, so you still have to pay rent. Of course if you have an investment portfolio adding an RETI is probably a good idea, but it's not really comparable to investing in actual real estate.
      - twiddling 5y ago
        I can invest in a lot more rental markets and manage idiosyncratic risk. Plus I don't have to deal with maintenance issues with physical property upkeep. I have also invested in vehicles (private offerings) that fund residential construction especially in housing constrained markets. Very nice reliable returns
        dagw 5y ago
        All this is assuming you have liquid funds to invest or have some other access to credit. The only realistic shot your "average joe" has at any sort of reasonable leverage is getting a mortgage and buying some property. Obviously if you're already rich then you have lots of better options to become even richer (like the ones you've mentioned), but they're not really open to your "average joe", if for no other reason than that most of them require you to be an accredited investor or require a high minimum investment.
      - mullingitover 5y ago
        Valid points, but also you don't have to pay maintenance expenses or property taxes on your REIT.
- NhanH 5y ago
  How do you make money on the debt? Rent it out?
  - frockington1 5y ago
    If inflation hits 4% and your mortgage is 3.5% you would be making 0.5% a year off the mortgage interest + the tax deduction you get from it. If inflation picks up to 70s levels, current homeowners will have a great time assuming they do not have a variable rate
    - JumpCrisscross 5y ago
      > If inflation hits 4% and your mortgage is 3.5% you would be making 0.5% a year off the mortgage interest This ignores the rates-price and inflation-rates nexuses. When inflation goes up, ceteris paribus, rates rise. When rates rise, all else held equal, the price of leveraged assets like real estate falls. TL; DR this trade is an arbitrage only if you've perfectly hedged the price of your underlying asset, the house.
      - frockington1 5y ago
        Agreed this is an overly simplified model. Another thing to keep in mind would be population dynamics. Are people moving out of the area the home is in (Chicago) or are people moving in (Nashville).
      - runbathtime 5y ago
        The hedge is refinancing out any market appreciation, like a piggy bank, keeping debt high while interest rates are low, you can always hand back the key if it goes south.
emodendroket 5y ago
I saw an analysis by the LA Times showing that LA traffic was nearly at pre-pandemic levels already. I suspect most people will be going to the office at least part of the week still.
- stadium 5y ago
  Similar for other cities. Also bus and train ridership is still down, and I believe a lot of the road traffic is single person rides that would have taken public transportation pre-pandemic.
PragmaticPulp 5y ago
I’m skeptical that there will be dramatic changes post-COVID. We’ve been bombarded with news stories and think pieces about how COVID is changing everything about how we work and how we live, but most people are excited to return to their pre-COVID normal life ASAP. There are scattered anecdotes about people using COVID to move out of big cities and take up simpler lives working remote, but I also have scattered anecdotes of people taking advantage of the situation to move to big cities and get high paying jobs due to the post-COVID job boom. Housing and rent prices are skyrocketing and lumber prices are up because demand for housing and new construction, including in big cities, continues to increase rapidly. The articles about how we were all going to flee bug cities and work remote jobs after COVID were premature.
- dennisgorelik 5y ago
  > lumber prices are up Lumber futures fell 2x from $1670.9 peak (in 2021-05-07) down to $884.3 (2021-06-23): https://www.tradingview.com/symbols/CME-LBSN2021/ https://www.tradingview.com/symbols/CME-LBSN2021/
mdtancsa 5y ago
There is an assumption too for the long term that you will pick the right market and time it right. Things looked amazing in Buffalo, Cleveland and Detroit for places to invest if you bought in the 50s. Same with New York City. If you had to unload your property in the late 70s, it didnt seem like a great investment. If you could buy and hold in the 70s, and unload 2006, looks good :)
Winsaucerer 5y ago
The following is as I understand it, but I’m no expert. In Australia where house prices are at very high levels, a lot of that price is driven by the availability of cheap loans. Lower interest rates have increased the ability of people to service larger loans, so we Australians have borrowed and paid more for a home. Presumably an increase in inflation reduces how much money people can affordably borrow, and therefore also directly slows or even reverses real estate growth. Conversely, if wages also increase in an inflationary era, that increases affordability of loans. Overall, I have no idea what real estate would do with inflation and wage growth, but in the absence of wage growth I’d guess real estate values would plummet, at least in Australia.

runbathtime 5y ago

Real estate might be the best play for the average joe. Where else can you borrow a ton of money at low interest rates for 30 years with a real asset (the house) as collateral? It is like a free call option, with government policies. If you overpay you can always turn in the key or get the bank to write down your loan to fair value for the home. You make money on the debt, paying back in dollars with lower purchasing power, you do not need the home price to go up.

dagw 5y ago
Real estate might be the best play for the average joe. I agree with your general analysis, but I'm also seeing that it's becoming harder and harder for the average joe to get into the real estate market. Unless you can make a hefty down-payment banks just won't talk to you. The big driver of inequality going forwards is going to be between those who managed to get on the property ladder and those who didn't.
- runbathtime 5y ago
  I think that will be a big topic that government will try to solve. I think they will offer policies that help inequality directly in housing, giving away homes to those that qualify, further pushing up home prices ultimately.
  - frockington1 5y ago
    As a home owner, I'm really hoping that the government gets involved in helping with first time buyer down payments. Each $1,000 of government assistance will be a ~$15,000 higher sale price. Would also benefit those renting out units as well as the overall market would surge upwards
- twiddling 5y ago
  REITs are your friend.
  - dagw 5y ago
    You can't get a mortgage to invest in REITs. Also you can't live in your REIT investment, so you still have to pay rent. Of course if you have an investment portfolio adding an RETI is probably a good idea, but it's not really comparable to investing in actual real estate.
    - twiddling 5y ago
      I can invest in a lot more rental markets and manage idiosyncratic risk. Plus I don't have to deal with maintenance issues with physical property upkeep. I have also invested in vehicles (private offerings) that fund residential construction especially in housing constrained markets. Very nice reliable returns
      - dagw 5y ago
        All this is assuming you have liquid funds to invest or have some other access to credit. The only realistic shot your "average joe" has at any sort of reasonable leverage is getting a mortgage and buying some property. Obviously if you're already rich then you have lots of better options to become even richer (like the ones you've mentioned), but they're not really open to your "average joe", if for no other reason than that most of them require you to be an accredited investor or require a high minimum investment.
    - mullingitover 5y ago
      Valid points, but also you don't have to pay maintenance expenses or property taxes on your REIT.
NhanH 5y ago
How do you make money on the debt? Rent it out?
- frockington1 5y ago
  If inflation hits 4% and your mortgage is 3.5% you would be making 0.5% a year off the mortgage interest + the tax deduction you get from it. If inflation picks up to 70s levels, current homeowners will have a great time assuming they do not have a variable rate
  - JumpCrisscross 5y ago
    > If inflation hits 4% and your mortgage is 3.5% you would be making 0.5% a year off the mortgage interest This ignores the rates-price and inflation-rates nexuses. When inflation goes up, ceteris paribus, rates rise. When rates rise, all else held equal, the price of leveraged assets like real estate falls. TL; DR this trade is an arbitrage only if you've perfectly hedged the price of your underlying asset, the house.
    - frockington1 5y ago
      Agreed this is an overly simplified model. Another thing to keep in mind would be population dynamics. Are people moving out of the area the home is in (Chicago) or are people moving in (Nashville).
    - runbathtime 5y ago
      The hedge is refinancing out any market appreciation, like a piggy bank, keeping debt high while interest rates are low, you can always hand back the key if it goes south.

emodendroket 5y ago

I saw an analysis by the LA Times showing that LA traffic was nearly at pre-pandemic levels already. I suspect most people will be going to the office at least part of the week still.

stadium 5y ago
Similar for other cities. Also bus and train ridership is still down, and I believe a lot of the road traffic is single person rides that would have taken public transportation pre-pandemic.

PragmaticPulp 5y ago

I’m skeptical that there will be dramatic changes post-COVID. We’ve been bombarded with news stories and think pieces about how COVID is changing everything about how we work and how we live, but most people are excited to return to their pre-COVID normal life ASAP. There are scattered anecdotes about people using COVID to move out of big cities and take up simpler lives working remote, but I also have scattered anecdotes of people taking advantage of the situation to move to big cities and get high paying jobs due to the post-COVID job boom. Housing and rent prices are skyrocketing and lumber prices are up because demand for housing and new construction, including in big cities, continues to increase rapidly. The articles about how we were all going to flee bug cities and work remote jobs after COVID were premature.

dennisgorelik 5y ago
> lumber prices are up Lumber futures fell 2x from $1670.9 peak (in 2021-05-07) down to $884.3 (2021-06-23): https://www.tradingview.com/symbols/CME-LBSN2021/ https://www.tradingview.com/symbols/CME-LBSN2021/

mdtancsa 5y ago

There is an assumption too for the long term that you will pick the right market and time it right. Things looked amazing in Buffalo, Cleveland and Detroit for places to invest if you bought in the 50s. Same with New York City. If you had to unload your property in the late 70s, it didnt seem like a great investment. If you could buy and hold in the 70s, and unload 2006, looks good :)

Winsaucerer 5y ago

The following is as I understand it, but I’m no expert. In Australia where house prices are at very high levels, a lot of that price is driven by the availability of cheap loans. Lower interest rates have increased the ability of people to service larger loans, so we Australians have borrowed and paid more for a home. Presumably an increase in inflation reduces how much money people can affordably borrow, and therefore also directly slows or even reverses real estate growth. Conversely, if wages also increase in an inflationary era, that increases affordability of loans. Overall, I have no idea what real estate would do with inflation and wage growth, but in the absence of wage growth I’d guess real estate values would plummet, at least in Australia.