5 ms·

Turned into? This has been the expectation in the US going back at least 60 years, that you buy a house as an investment. On the one hand it is fundamentally i

by cactus2093 5y ago

Turned into? This has been the expectation in the US going back at least 60 years, that you buy a house as an investment. On the one hand it is fundamentally incompatible with making housing affordable and having "housing as a human right". But still, hundreds of millions of people planning their entire lives around this existing model will have a really painful time if there is some kind of sudden shift in this social contract.

btilly 5y ago
Well, it is only in the last couple of years that random people started calling me to ask if I want to sell my house for cash. So the trend has definitely accelerated. That said a driver for housing has been that over time we have had more people with bigger houses. So it has long been a demographic concern that as the Baby Boom retires, and goes to downgrade, we could wind up with a glut on the market. On top of that telecommute has opened up a significant move away from expensive urban areas like San Francisco. Both together mean that some housing markets have nothing to keep them from a severe fall. And if there is a crash, speculators trying to cover their shirts are likely to need to sell housing elsewhere, and the result could be a cascading problem.
bluGill 5y ago
60 years ago housing was an investment in a very different form than it is today. 60 years ago was before Reagan and Trump tax reforms - both of which changed the rules in major ways. (every year the tax rules change in minor ways) 60 years ago also had much higher interest rates than today. Those two are very significant. Back then deducting your interest from your taxes was very important. The middle class could hardly afford to live in a tiny apartment, but the interest tax deduction meant they could afford to live in a good sized house. Back then you bought a house with the understanding that in 30 years it would be paid for - right about the time you were ready to retire, and then you lived rent free for the rest of your life (nobody considered nursing home expenses). Today housing as an investment to most people mean do a cash out refinance every few years so they can live beyond their means, then sell to some bigger sucker when they are done. If you think of housing as the first type of investment it can still be good in some cases. You need less money when you are retired and can live a long life in the place where you made your memories. Of course when talking about investing in housing it must be repeated "location location location". For some of you your location (and in particular change of location over time!) means buying a a bad investment. For others your location means buying is great. You have to figure this out for yourself.
- xxpor 5y ago
  >Back then deducting your interest from your taxes was very important. Because of how mortgages are amortized, the deduction's value to the taxpayer doesn't vary directly with the interest rate, but with the total value of the mortgage. Your payments are always going to be mostly interest in the first few years, transitioning over to principal in the later years.
  - bluGill 5y ago
    Most people are getting raises, so as the deduction loses value the raise is making up for the loss. Not important today when basically nobody qualifies for the deduction.
- dragontamer 5y ago
  > 60 years ago also had much higher interest rates than today. 60 years ago had much higher inflation as well. People are scoffing at 6% inflation during this dramatic COVID19 period... but 1974 had 11% inflation, and 1980 had 13.50% inflation. Under such a market, you had to have higher interest rates. After all, 10% interest rates would _LOSE_ money under real terms in 1974, 1979 and 1980 (all three years famous for having "double-digit" inflation rates). When banks are charging maybe 15% or 20% for mortgages, housing prices necessarily have to plummet to make those houses affordable to the masses.
  - mywittyname 5y ago
    I've been really amused at the news reports stating "highest rate of inflation in the US in 30 years!" Because 1991 is well remembered for...inflation.
  - bluGill 5y ago
    The 1970s were 40 years ago not 60. Inflation has varried a lot over the years. Though a house as a real good. Is an investment against inflation which is sometimes more important than others.
Panzer04 5y ago
What? That makes no sense. More expensive housing increases the incentive to build more, which decreases prices. The problem is many governments, local councils etc regulate land use so heavily that if a developer wants to build a block with 200 apartments NIMBYs are up in arms to protect their own interests while locking out anyone trying to get into the market. House owners are fine with this arrangement, as they get all the benefits and bear none of the costs inherent with excessive land regulations. Non-owners get screwed.
- nemothekid 5y ago
  Why do governments regulate land use so heavily? Why are house owners fine with this arrangement? Why do NIMBYs go up in arms? The root cause is the same - each actor is trying to protect the value of their investment. It makes perfect sense.
  - Panzer04 5y ago
    Sure, but that’s not due to houses being an “investable” item insamuch as regulatory capture. What would be your proposed alternative? Arbitrary planned construction? Like it or not, prices are one of the best ways to choose where our resources go. Land has always been an investment, that’s nothing new (The whole concept of nobility centred on owning and controlling land). I would propose that outcomes would be significantly better if we stuck to deregulating land use and construction as much as possible and let what people are willing to pay for it dictate construction and land use.
    - nemothekid 5y ago
      >Sure, but that’s not due to houses being an “investable” item insamuch as regulatory capture. I don't understand. Do you think that politicians wake up and do regulatory capture for fun? When I say housing as America's primary investment asset is a problem I mean that it is primary driver in how houses are priced. You don't, for example, have the same attitude when it comes to cars. It's understood that cars are a depreciating asset. Imagine the inverse - which you see in some assets like super cars. Can you imagine if people lobbied to have Toyota stop producing Priuses because they did not want to value of their own Prius to go down? You would have government blocking the development of factories in the same way NIMBYs do today. You don't have this problem in places where housing is not asset, for example Japan (who has already kind of learned this lesson with their own housing bubble). At the end of the day, when an entire generation of people have their entire net worth tied up in their houses, of course they are going to do everything to protect it. Regulatory capture are down stream effects of that - people wouldn't burn political capital on regulatory capture if they weren't gaining anything from it. Saying de-regulation of land use is a solution completely ignores this reality. Forget deregulation, the bay area has been trying to get areas simply rezoned for multi-family housing. The same people who stand in the way of rezoning, will also stand in the way of deregulation. And those same people are primarily motivated to protect their investment. You must look at the whole picture.
dahfizz 5y ago
There is a big difference between modelling the purchase of your own house as an investment, and the speculative investment of large banks in the housing market. Housing prices do not have to go up for them to be a good investment for the person living in the house. If a homeowner can sell the house for the same price they got in at, then they have lived rent free. Even if they lose the interest on their mortgage, that's still likely to be a better deal than renting.

btilly 5y ago

Well, it is only in the last couple of years that random people started calling me to ask if I want to sell my house for cash. So the trend has definitely accelerated. That said a driver for housing has been that over time we have had more people with bigger houses. So it has long been a demographic concern that as the Baby Boom retires, and goes to downgrade, we could wind up with a glut on the market. On top of that telecommute has opened up a significant move away from expensive urban areas like San Francisco. Both together mean that some housing markets have nothing to keep them from a severe fall. And if there is a crash, speculators trying to cover their shirts are likely to need to sell housing elsewhere, and the result could be a cascading problem.

bluGill 5y ago

60 years ago housing was an investment in a very different form than it is today. 60 years ago was before Reagan and Trump tax reforms - both of which changed the rules in major ways. (every year the tax rules change in minor ways) 60 years ago also had much higher interest rates than today. Those two are very significant. Back then deducting your interest from your taxes was very important. The middle class could hardly afford to live in a tiny apartment, but the interest tax deduction meant they could afford to live in a good sized house. Back then you bought a house with the understanding that in 30 years it would be paid for - right about the time you were ready to retire, and then you lived rent free for the rest of your life (nobody considered nursing home expenses). Today housing as an investment to most people mean do a cash out refinance every few years so they can live beyond their means, then sell to some bigger sucker when they are done. If you think of housing as the first type of investment it can still be good in some cases. You need less money when you are retired and can live a long life in the place where you made your memories. Of course when talking about investing in housing it must be repeated "location location location". For some of you your location (and in particular change of location over time!) means buying a a bad investment. For others your location means buying is great. You have to figure this out for yourself.

xxpor 5y ago
>Back then deducting your interest from your taxes was very important. Because of how mortgages are amortized, the deduction's value to the taxpayer doesn't vary directly with the interest rate, but with the total value of the mortgage. Your payments are always going to be mostly interest in the first few years, transitioning over to principal in the later years.
- bluGill 5y ago
  Most people are getting raises, so as the deduction loses value the raise is making up for the loss. Not important today when basically nobody qualifies for the deduction.
dragontamer 5y ago
> 60 years ago also had much higher interest rates than today. 60 years ago had much higher inflation as well. People are scoffing at 6% inflation during this dramatic COVID19 period... but 1974 had 11% inflation, and 1980 had 13.50% inflation. Under such a market, you had to have higher interest rates. After all, 10% interest rates would _LOSE_ money under real terms in 1974, 1979 and 1980 (all three years famous for having "double-digit" inflation rates). When banks are charging maybe 15% or 20% for mortgages, housing prices necessarily have to plummet to make those houses affordable to the masses.
- mywittyname 5y ago
  I've been really amused at the news reports stating "highest rate of inflation in the US in 30 years!" Because 1991 is well remembered for...inflation.
- bluGill 5y ago
  The 1970s were 40 years ago not 60. Inflation has varried a lot over the years. Though a house as a real good. Is an investment against inflation which is sometimes more important than others.

Panzer04 5y ago

What? That makes no sense. More expensive housing increases the incentive to build more, which decreases prices. The problem is many governments, local councils etc regulate land use so heavily that if a developer wants to build a block with 200 apartments NIMBYs are up in arms to protect their own interests while locking out anyone trying to get into the market. House owners are fine with this arrangement, as they get all the benefits and bear none of the costs inherent with excessive land regulations. Non-owners get screwed.

nemothekid 5y ago
Why do governments regulate land use so heavily? Why are house owners fine with this arrangement? Why do NIMBYs go up in arms? The root cause is the same - each actor is trying to protect the value of their investment. It makes perfect sense.
- Panzer04 5y ago
  Sure, but that’s not due to houses being an “investable” item insamuch as regulatory capture. What would be your proposed alternative? Arbitrary planned construction? Like it or not, prices are one of the best ways to choose where our resources go. Land has always been an investment, that’s nothing new (The whole concept of nobility centred on owning and controlling land). I would propose that outcomes would be significantly better if we stuck to deregulating land use and construction as much as possible and let what people are willing to pay for it dictate construction and land use.
  - nemothekid 5y ago
    >Sure, but that’s not due to houses being an “investable” item insamuch as regulatory capture. I don't understand. Do you think that politicians wake up and do regulatory capture for fun? When I say housing as America's primary investment asset is a problem I mean that it is primary driver in how houses are priced. You don't, for example, have the same attitude when it comes to cars. It's understood that cars are a depreciating asset. Imagine the inverse - which you see in some assets like super cars. Can you imagine if people lobbied to have Toyota stop producing Priuses because they did not want to value of their own Prius to go down? You would have government blocking the development of factories in the same way NIMBYs do today. You don't have this problem in places where housing is not asset, for example Japan (who has already kind of learned this lesson with their own housing bubble). At the end of the day, when an entire generation of people have their entire net worth tied up in their houses, of course they are going to do everything to protect it. Regulatory capture are down stream effects of that - people wouldn't burn political capital on regulatory capture if they weren't gaining anything from it. Saying de-regulation of land use is a solution completely ignores this reality. Forget deregulation, the bay area has been trying to get areas simply rezoned for multi-family housing. The same people who stand in the way of rezoning, will also stand in the way of deregulation. And those same people are primarily motivated to protect their investment. You must look at the whole picture.

dahfizz 5y ago

There is a big difference between modelling the purchase of your own house as an investment, and the speculative investment of large banks in the housing market. Housing prices do not have to go up for them to be a good investment for the person living in the house. If a homeowner can sell the house for the same price they got in at, then they have lived rent free. Even if they lose the interest on their mortgage, that's still likely to be a better deal than renting.