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Real estate speculation has likely been around for thousands of years; it’s certainly not new. But, do you see any difference between A. individuals in the mid

Real estate speculation has likely been around for thousands of years; it’s certainly not new. But, do you see any difference between A. individuals in the mid-2000s speculating on real estate based on individual whims and taking out mortgages they should not and B. large corporations with access to massive datasets previously unavailable, teams of PhDs trained to work on this, equipped with game-changing modeling capabilities that were computationally infeasible until the past decade, along with access to massive amounts of capital? In my opinion, the former case seems less of a concern than the latter. Also, maybe I’m dense but I’m not able to see any relevancy to GME at all.

lotsofpulp 5y ago
A sounds like it would lead to increased chances of people overpaying and overextending themselves, and B sounds like it would lead to more accurate pricing.
- toolz 5y ago
  I agree B) isn't being employed by only malicious companies. We're talking about a huge market and tons of competition. It would take a lot of effort to keep honest companies from making money also bringing prices down if there was artificial price inflation. I've definitely not studied the market extensively, but it seems rather intuitive to me that if you artificially give everyone access to the best loans in any market, you'll see prices continue to inflate until everyone in the housing market is educated and capable on benefiting from the subsidized loans.
- drnonsense42 5y ago
  That’s one of the talking points parroted by HFT firm representatives defending their business. There’s a lot of research on it as well. I bet successful real estate firms will use that same argument. I personally have a hard time believing this will benefit the average consumer buying a home.
- long_time_gone 5y ago
  You are right that the pricing is more accurate. But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates). The calculations used are entirely different and so is the capital available. In the world without this type of behavior, that pricing difference could be captured by an actual homeowner over the life of their mortgage. It's another thing we are seeing "optimized" right in front of us. Meanwhile, housing, education, and healthcare get more expensive for actual humans.
  - lotsofpulp 5y ago
    > But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates). Also for the house seller (prior to the company), who is getting paid a more accurate, higher price. And a price is accurate all the same for buyer and seller, since there exists a range with the minimum price the seller wants to receive and a maximum price the buyer wants to pay. The smaller this range, the more accurate the price. With more data and more accurate projections, it may be possible for current owners to capture more of the gain that may have happened down the road.
VRay 5y ago
those hedge funds don't have access to enough money to move the market that much $2.6 billion is chump change to a medium-sized city with a few hundred thousand residents, much less the US at large We just need to remove zoning restrictions so that market forces can bring houses back down to being an affordable, depreciating asset. https://www.worksinprogress.co/issue/the-housing-theory-of-everything/ https://www.worksinprogress.co/issue/the-housing-theory-of-e...
- drnonsense42 5y ago
  I agree that 2.6b is chump change relative to the US housing market. In fact, it’s not a large hedge fund, regardless of what they’re trading. I think the real concern here is if this model proves to be profitable and that 3b increases by several orders of magnitude across a much larger set of firms and funds. I’m not saying that will happen, but that is an alarming potentiality.
- KaiserPro 5y ago
  > $2.6 billion is chump change For the entire US yes. For new york city, that's just under ~3% of total sales. Given how fundamentally illiquid residential housing market is, thats more than enough to push prices up/down as the player sees fit.
  - thebean11 5y ago
    I bet it's even an even bigger part of the pie if you exclude $10m+ homes. My hunch is that the middle and low end of the market is more attractive because they are easier to rent.
- PaulDavisThe1st 5y ago
  Someone in a related thread here on HN yesterday said that at some recent point in time, US$200M would have bought every piece of residential real estate for sale in Boston (proper). Didn't try to verify if that was true.
cudgy 5y ago
Scenario B and A are more similar than you acknowledge. Both are fueled by low cost capital driving prices to unsustainable levels. Scenario B will be a problem too if/when interest rates rise and companies have insufficient cash flow from rents to pay the new debt service. In fact, scenario B may result in a deeper crash, since selling will be swift and by many actors at the same time since they are using similar valuation models. Scenario A was predominately driven by actual homeowners whom are more reluctant to sell in a down market.
- PaulDavisThe1st 5y ago
  > companies have insufficient cash flow from rents to pay the new debt service. If they are pouring their own capital into purchases, why would there be any debt? Are the entities (companies) in scenario B actually borrowing money?
  - brewdad 5y ago
    Given the current interest rate market, I think it's safe to assume they are borrowing money to purchase homes. They aren't taking out individual mortgages but I would be shocked to learn that they aren't borrowing millions through other forms of financing and then paying "cash" for homes.
    - PaulDavisThe1st 5y ago
      I had the impression that this was happening because they had excess cash and nowhere particularly interesting to put it. Why would you borrow if you have cash sitting around and expectations of a good-to-crazy rate of return?
      - dlp211 5y ago
        Why use your own money when you can use other people's money? Apple, MSFT, Google, etc. All these companies have massive piles of cash on hand yet continue to finance operations. Irrespective of that, I agree that even if Zillow fails here, it doesn't bode well for the future of the RE market.

lotsofpulp 5y ago

A sounds like it would lead to increased chances of people overpaying and overextending themselves, and B sounds like it would lead to more accurate pricing.

toolz 5y ago
I agree B) isn't being employed by only malicious companies. We're talking about a huge market and tons of competition. It would take a lot of effort to keep honest companies from making money also bringing prices down if there was artificial price inflation. I've definitely not studied the market extensively, but it seems rather intuitive to me that if you artificially give everyone access to the best loans in any market, you'll see prices continue to inflate until everyone in the housing market is educated and capable on benefiting from the subsidized loans.
drnonsense42 5y ago
That’s one of the talking points parroted by HFT firm representatives defending their business. There’s a lot of research on it as well. I bet successful real estate firms will use that same argument. I personally have a hard time believing this will benefit the average consumer buying a home.
long_time_gone 5y ago
You are right that the pricing is more accurate. But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates). The calculations used are entirely different and so is the capital available. In the world without this type of behavior, that pricing difference could be captured by an actual homeowner over the life of their mortgage. It's another thing we are seeing "optimized" right in front of us. Meanwhile, housing, education, and healthcare get more expensive for actual humans.
- lotsofpulp 5y ago
  > But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates). Also for the house seller (prior to the company), who is getting paid a more accurate, higher price. And a price is accurate all the same for buyer and seller, since there exists a range with the minimum price the seller wants to receive and a maximum price the buyer wants to pay. The smaller this range, the more accurate the price. With more data and more accurate projections, it may be possible for current owners to capture more of the gain that may have happened down the road.

VRay 5y ago

those hedge funds don't have access to enough money to move the market that much $2.6 billion is chump change to a medium-sized city with a few hundred thousand residents, much less the US at large We just need to remove zoning restrictions so that market forces can bring houses back down to being an affordable, depreciating asset. https://www.worksinprogress.co/issue/the-housing-theory-of-everything/ https://www.worksinprogress.co/issue/the-housing-theory-of-e...

drnonsense42 5y ago
I agree that 2.6b is chump change relative to the US housing market. In fact, it’s not a large hedge fund, regardless of what they’re trading. I think the real concern here is if this model proves to be profitable and that 3b increases by several orders of magnitude across a much larger set of firms and funds. I’m not saying that will happen, but that is an alarming potentiality.
KaiserPro 5y ago
> $2.6 billion is chump change For the entire US yes. For new york city, that's just under ~3% of total sales. Given how fundamentally illiquid residential housing market is, thats more than enough to push prices up/down as the player sees fit.
- thebean11 5y ago
  I bet it's even an even bigger part of the pie if you exclude $10m+ homes. My hunch is that the middle and low end of the market is more attractive because they are easier to rent.
PaulDavisThe1st 5y ago
Someone in a related thread here on HN yesterday said that at some recent point in time, US$200M would have bought every piece of residential real estate for sale in Boston (proper). Didn't try to verify if that was true.

cudgy 5y ago

Scenario B and A are more similar than you acknowledge. Both are fueled by low cost capital driving prices to unsustainable levels. Scenario B will be a problem too if/when interest rates rise and companies have insufficient cash flow from rents to pay the new debt service. In fact, scenario B may result in a deeper crash, since selling will be swift and by many actors at the same time since they are using similar valuation models. Scenario A was predominately driven by actual homeowners whom are more reluctant to sell in a down market.

PaulDavisThe1st 5y ago
> companies have insufficient cash flow from rents to pay the new debt service. If they are pouring their own capital into purchases, why would there be any debt? Are the entities (companies) in scenario B actually borrowing money?
- brewdad 5y ago
  Given the current interest rate market, I think it's safe to assume they are borrowing money to purchase homes. They aren't taking out individual mortgages but I would be shocked to learn that they aren't borrowing millions through other forms of financing and then paying "cash" for homes.
  - PaulDavisThe1st 5y ago
    I had the impression that this was happening because they had excess cash and nowhere particularly interesting to put it. Why would you borrow if you have cash sitting around and expectations of a good-to-crazy rate of return?
    - dlp211 5y ago
      Why use your own money when you can use other people's money? Apple, MSFT, Google, etc. All these companies have massive piles of cash on hand yet continue to finance operations. Irrespective of that, I agree that even if Zillow fails here, it doesn't bode well for the future of the RE market.