5 ms·

>Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. Buying a house isn't for everyone, sure. But this is a serious mis

>Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. Buying a house isn't for everyone, sure. But this is a serious misunderstanding of what "going into debt" is. You're not buying a TV you'll throw out in 5 years, you're buying an asset class that has a history of appreciating in value over 100+ years that you can get incredible leverage on. In the US and Canada, at least, buying a house for a decent deal (in "normal" times, not at insane prices) is a no-brainer investment. You mention buying companies...that's just a different asset class, but the idea is the same. It's not valueless the moment you buy it, you now have an asset. >Buying estate = de facto being in debt for the entire career and then some, plus having to pay all repairs, anything. Do you think this is all happening for free as a renter? At what point in your life do you plan on not paying for shelter?

agent008t 5y ago
>buying an asset class that has a history of appreciating in value Correction - over a time period of decreasing interest rates. Housing, on its own, is a depreciating asset. It is a consumable like a TV. It deteriorates with time. "Housing always goes up", without an understanding of why it has been going up, can be a dangerous belief and could be one of the reasons why housing at the moment is so expensive relative to rents.
- milkshakes 5y ago
  housing might depreciate, but the same is not generally true for the real estate it sits on
  - bombcar 5y ago
    Land values can turn around, especially if desirability of the area changes.
  - ratsforhorses 5y ago
    Is this also true for places like Detroit, small inner towns in the mid ? West... my impression was that once banks got involved lending money the prices took off, I was under the impression that getting a house loan directly contributes to the amount of money in circulation...thereby increasing ? inflation.... another myth?) I heard was that in China houses are leased for x years (80?) thereby leading to a lot of Chinese buying foreign Real Estate.... if RE has the reputation of accruing value surely it'd be a good thing to put the brakes on companies from investing in it? I mean seeing endless same housing is kind of mind numbing.... I also have a theory that high RE prices are a perfect vehicule for stashing/laundering large sums of money.... Also to what extent isn't it political cronyism with the construction industry that leads to such shitty urbanistic decisions like we have in Romania where people are pawns to short term greed ...
    - rfoo 5y ago
      > in China houses are leased for x years (80?) It's worse. It's the land being leased for 70 years. House usually can't last that long anyway. But not owning the land and no guaranteed usufruct after 70 years is big.
      - neon_electro 5y ago
        Thank you for teaching me a new word, "usufruct": https://en.wikipedia.org/wiki/Usufruct https://en.wikipedia.org/wiki/Usufruct
- llampx 5y ago
  Exactly. I believe interest rates bottomed sometime in 2020-2021. Those rates are not going to be seen for another few decades. It remains to be seen what this will do to house prices. What happened to most speculative tech stocks since 2021 can also happen to other asset classes.
  - MGriisser 5y ago
    It seems pretty premature to say that mortgage interest rates that happened barely over a year ago won't happen for a few decades. You could have looked at interest rates below 3.5% in 2013 and said the exact same thing; that was the lowest interest rate in over 40 years!
    - llampx 5y ago
      I am absolutely sure. Look at inflation, for one. We haven't seen these inflation numbers since the 1980s, and this is in just 2 years since the biggest central banks opened the money spigots. I'm a millenial so I don't relish it, but "you ain't seen nothin' yet."
- BirdieNZ 5y ago
  Most of the housing bubble is actually a land price bubble. Land is only a long-term depreciating asset in shrinking cities, because demand for the land is decreasing.
  - agent008t 5y ago
    Simply put, house price is a function of rents for similar houses and the multiple of annual rent that houses sell for. The multiple is primarily a function of interest rates, and a significant proportion of house price increases in recent decades has been the increase in multiple. It is also a function of expected future house price growth - the higher the expectation, the higher the multiple, which is where psychology and FOMO comes into play. The interesting thing about these ingredients that decide the multiple, is that they can turn sharply. If interest rates go up, and multiple starts to contract, at some point the belief that house prices always go up will be shaken, and instead of pricing in future house price growth, people will start pricing in future contraction. Level of rents is a function of the state of local economy (broad salary levels, more or less) and house supply. Can probably broadly be approximated as GDP growth - so fairly low. So at interest rates at very low levels and arguable on the way up, and growth expectations seemingly very positive, and economic growth looking shaky, it looks as if house prices may have more downside than upside.
    - gbasin 5y ago
      Housing [land] prices have been grinding higher long before the Great Decline in interest rates https://fred.stlouisfed.org/graph/?g=kYEb https://fred.stlouisfed.org/graph/?g=kYEb
      - agent008t 5y ago
        That chart seems to only go back to 1987, which is after the decline in interest rates started: https://fred.stlouisfed.org/series/REAINTRATREARAT10Y https://fred.stlouisfed.org/series/REAINTRATREARAT10Y
        5y ago
- throw8383833jj 5y ago
  Interest rates for mortgages follow 30 yr treasuries which won't get very high. The Fed will come in with full on yield curve control at some point. 30yr treasuries are at almost 3%, already. I can't imagine they'll get higher than 4 or 5%, at least for not too long. The world is way too addicted to low rates. if interest rates rise for any long period, something will break, really badly, there will be a fear filled crash and the fed WILL come in: you can bet on that.
junofan 5y ago
Not sure I want to leverage up on housing through the boomer die-off. Plus, there are way better investments.
- lmt55 5y ago
  Doesn't the boomer die-off mean that the boomers' children will be inheriting, not just homes, but piles and piles of liquid assets, much of which they will use to get into the housing market? After all the boomer generation, on average, has over-provisioned for old age, whereas millenials are still underhoused.
  - lotsofpulp 5y ago
    >After all the boomer generation, on average, has over-provisioned for old age, whereas millenials are still underhoused. Have they over-provisioned? Everything I have read indicates meager savings for the vast majority of the population, who will need to rely on Medicaid and Social Security to eek out the remainder of their living costs. Nursing home care is especially costly in the event one does not die quickly, and the government can and I assume will seek to reimburse itself from the estate once the elder dies.
    - lmt55 5y ago
      I think the reality is more subtle. A large number of poorer elder people will be in dire financial straits, forced to work beyond their ability to do so and unable to pay for health care. However there are also a smaller number of extremely rich baby boomers and a very large number of comfortable middle-class ones. The former will obviously pass on large amounts of wealth. The latter have been forced to save large amounts for their old age, because they have known since middle age that the state would not provide for them very well. In some cases they have decent final salary based pensions and other very good retirement benefits, no longer available to younger generations. In other cases, they have invested significant sums over the last decades and also made large investment gains. This group has tended to save for the 'worst case' scenario - a long retirement of leisure spending, followed by drawn out old age with significant care needs. Most of them will not need all this capital - they'll either die younger than expected, or have better health into their 80s and 90s than they feared. The excess will be handed on to their children - and will be a significant source of intra-generational inequality in the future. Remember also that middle-class baby boomers remain an electoral 500-lb gorilla. Governments have been very reluctant to claw back their benefits and care provisions as fast as has happened to other groups. In some cases they will be provided for better than expected when they planned for retirement.
fzeroracer 5y ago
>you're buying an asset class that has a history of appreciating in value over 100+ years that you can get incredible leverage on This is precisely the problem. It's not just companies buying up homes, it's also private individuals buying up housing to relist on AirBnB or other sites in order to further extract value out of their purchase. If you look at a country like say, Japan they don't have this issue because housing depreciates and is not treated as an investment.

agent008t 5y ago

>buying an asset class that has a history of appreciating in value Correction - over a time period of decreasing interest rates. Housing, on its own, is a depreciating asset. It is a consumable like a TV. It deteriorates with time. "Housing always goes up", without an understanding of why it has been going up, can be a dangerous belief and could be one of the reasons why housing at the moment is so expensive relative to rents.

milkshakes 5y ago
housing might depreciate, but the same is not generally true for the real estate it sits on
- bombcar 5y ago
  Land values can turn around, especially if desirability of the area changes.
- ratsforhorses 5y ago
  Is this also true for places like Detroit, small inner towns in the mid ? West... my impression was that once banks got involved lending money the prices took off, I was under the impression that getting a house loan directly contributes to the amount of money in circulation...thereby increasing ? inflation.... another myth?) I heard was that in China houses are leased for x years (80?) thereby leading to a lot of Chinese buying foreign Real Estate.... if RE has the reputation of accruing value surely it'd be a good thing to put the brakes on companies from investing in it? I mean seeing endless same housing is kind of mind numbing.... I also have a theory that high RE prices are a perfect vehicule for stashing/laundering large sums of money.... Also to what extent isn't it political cronyism with the construction industry that leads to such shitty urbanistic decisions like we have in Romania where people are pawns to short term greed ...
  - rfoo 5y ago
    > in China houses are leased for x years (80?) It's worse. It's the land being leased for 70 years. House usually can't last that long anyway. But not owning the land and no guaranteed usufruct after 70 years is big.
    - neon_electro 5y ago
      Thank you for teaching me a new word, "usufruct": https://en.wikipedia.org/wiki/Usufruct https://en.wikipedia.org/wiki/Usufruct
llampx 5y ago
Exactly. I believe interest rates bottomed sometime in 2020-2021. Those rates are not going to be seen for another few decades. It remains to be seen what this will do to house prices. What happened to most speculative tech stocks since 2021 can also happen to other asset classes.
- MGriisser 5y ago
  It seems pretty premature to say that mortgage interest rates that happened barely over a year ago won't happen for a few decades. You could have looked at interest rates below 3.5% in 2013 and said the exact same thing; that was the lowest interest rate in over 40 years!
  - llampx 5y ago
    I am absolutely sure. Look at inflation, for one. We haven't seen these inflation numbers since the 1980s, and this is in just 2 years since the biggest central banks opened the money spigots. I'm a millenial so I don't relish it, but "you ain't seen nothin' yet."
BirdieNZ 5y ago
Most of the housing bubble is actually a land price bubble. Land is only a long-term depreciating asset in shrinking cities, because demand for the land is decreasing.
- agent008t 5y ago
  Simply put, house price is a function of rents for similar houses and the multiple of annual rent that houses sell for. The multiple is primarily a function of interest rates, and a significant proportion of house price increases in recent decades has been the increase in multiple. It is also a function of expected future house price growth - the higher the expectation, the higher the multiple, which is where psychology and FOMO comes into play. The interesting thing about these ingredients that decide the multiple, is that they can turn sharply. If interest rates go up, and multiple starts to contract, at some point the belief that house prices always go up will be shaken, and instead of pricing in future house price growth, people will start pricing in future contraction. Level of rents is a function of the state of local economy (broad salary levels, more or less) and house supply. Can probably broadly be approximated as GDP growth - so fairly low. So at interest rates at very low levels and arguable on the way up, and growth expectations seemingly very positive, and economic growth looking shaky, it looks as if house prices may have more downside than upside.
  - gbasin 5y ago
    Housing [land] prices have been grinding higher long before the Great Decline in interest rates https://fred.stlouisfed.org/graph/?g=kYEb https://fred.stlouisfed.org/graph/?g=kYEb
    - agent008t 5y ago
      That chart seems to only go back to 1987, which is after the decline in interest rates started: https://fred.stlouisfed.org/series/REAINTRATREARAT10Y https://fred.stlouisfed.org/series/REAINTRATREARAT10Y
      - 5y ago
throw8383833jj 5y ago
Interest rates for mortgages follow 30 yr treasuries which won't get very high. The Fed will come in with full on yield curve control at some point. 30yr treasuries are at almost 3%, already. I can't imagine they'll get higher than 4 or 5%, at least for not too long. The world is way too addicted to low rates. if interest rates rise for any long period, something will break, really badly, there will be a fear filled crash and the fed WILL come in: you can bet on that.

junofan 5y ago

Not sure I want to leverage up on housing through the boomer die-off. Plus, there are way better investments.

lmt55 5y ago
Doesn't the boomer die-off mean that the boomers' children will be inheriting, not just homes, but piles and piles of liquid assets, much of which they will use to get into the housing market? After all the boomer generation, on average, has over-provisioned for old age, whereas millenials are still underhoused.
- lotsofpulp 5y ago
  >After all the boomer generation, on average, has over-provisioned for old age, whereas millenials are still underhoused. Have they over-provisioned? Everything I have read indicates meager savings for the vast majority of the population, who will need to rely on Medicaid and Social Security to eek out the remainder of their living costs. Nursing home care is especially costly in the event one does not die quickly, and the government can and I assume will seek to reimburse itself from the estate once the elder dies.
  - lmt55 5y ago
    I think the reality is more subtle. A large number of poorer elder people will be in dire financial straits, forced to work beyond their ability to do so and unable to pay for health care. However there are also a smaller number of extremely rich baby boomers and a very large number of comfortable middle-class ones. The former will obviously pass on large amounts of wealth. The latter have been forced to save large amounts for their old age, because they have known since middle age that the state would not provide for them very well. In some cases they have decent final salary based pensions and other very good retirement benefits, no longer available to younger generations. In other cases, they have invested significant sums over the last decades and also made large investment gains. This group has tended to save for the 'worst case' scenario - a long retirement of leisure spending, followed by drawn out old age with significant care needs. Most of them will not need all this capital - they'll either die younger than expected, or have better health into their 80s and 90s than they feared. The excess will be handed on to their children - and will be a significant source of intra-generational inequality in the future. Remember also that middle-class baby boomers remain an electoral 500-lb gorilla. Governments have been very reluctant to claw back their benefits and care provisions as fast as has happened to other groups. In some cases they will be provided for better than expected when they planned for retirement.

fzeroracer 5y ago

>you're buying an asset class that has a history of appreciating in value over 100+ years that you can get incredible leverage on This is precisely the problem. It's not just companies buying up homes, it's also private individuals buying up housing to relist on AirBnB or other sites in order to further extract value out of their purchase. If you look at a country like say, Japan they don't have this issue because housing depreciates and is not treated as an investment.