6 ms·

All of this is true, but...housing markets are extremely regional. In the SF Bay Area, for example, despite much more new construction, there is still not nearl

by zamfi 4y ago

All of this is true, but...housing markets are extremely regional. In the SF Bay Area, for example, despite much more new construction, there is still not nearly enough housing being built to satisfy demand, and as a result prices are driven extremely high. In other parts of the US, there is much more housing supply and relatively low demand, making housing more affordable. Nationwide stats hide a lot of regional realities.

deleted 4y ago
[deleted]
zeusk 4y ago
I recently joined a real estate group, and the kinds of things I'm seeing there are beyond explanation. People have basically come to understanding that house prices only go up, they use exotic financing and stupid leverage (BRRR method) to keep buying "assets" and jacking up their rental yield which then re-prices the asset so they can take an even bigger loan to buy more "assets". Recently someone in the group asked how they could afford a house in Seattle and most answers resonated around buying houses in midwest/lcol areas and jacking up rent/renovating to take out further financing and keep buying properties till you can afford to buy a house in the hcol area. This has to end, with FED inflicting pain on the stupid leveraged folks. Homes should be for people to live in, not to purely speculate and grow their money.
- heavyset_go 4y ago
  This is the same musical chairs of loans that the short term rental market uses.
- zamfi 4y ago
  > Homes should be for people to live in, not to purely speculate and grow their money Wait, if those speculating investors have “rental yield” then doesn’t that imply people are living in those homes?
  - zeusk 4y ago
    The investor's objective is to maximize yield, not minimize homelessness or keep affordability in check. In that, if they don't find a renter for their jacked up rent - they "renovate" the property - get a higher appraisal and sell it to the next schmuck. Housing can’t both be a good investment and be affordable. You can't make economic decisions on the basis that real estate will always grow more than income or even real gdp forever. Which is what these group of investors are doing.
    - zamfi 4y ago
      > Housing can’t both be a good investment and be affordable This gets repeated a ton, but isn’t true unless you assume density never increases. Buying a SFH and replacing it with a 4-plex would be profitable in almost every market — were it allowed, which it almost never is in the US. In that alternate universe, the SFH owner makes money, the developer makes money, and the new units in the new building can be affordable.
      - concordDance 4y ago
        Wouldn't they also be oppressively small and bad for mental health (which is already pretty bad compared to fifty years ago)?
        zamfi 4y ago
        No, it would be a taller building. American new construction has doubled in size (in terms of sqft/unit) over the past 50 years. If “oppressively small” were the problem, things should have gotten better, not worse?
lazide 4y ago
I think you’re talking past each other a bit. The demand you’re talking about in the SF Bay Area is not necessarily driven by ‘butts in seats’ (aka actual people needing a roof and willing to pay a concrete price for it), but also by the cheap money narrative the FED has been feeding for a very long time. Which is what they are referring to in their post as having changed.
- zamfi 4y ago
  I don’t think we are talking past each other. There is absolutely a housing supply crisis in the Bay Area that is not reflected in the national stats. I’m not sure why so many people believe that housing prices in high-demand markets are dominated by things like interest rates — there is certainly an effect, sure — but by far the predmoinant reason a 2br house on a small lot with a small yard costs $2m+ in Palo Alto is that there are thousands if not tens of thousands of well-off workers for nearby tech companies who would like to live there, there is not enough housing to go around, and $2m is the market clearing price. The idea that the “demand” is being “driven” by some “cheap money narrative” is missing the forest for the trees. Low interest rates might be why that house is $2m and not $1.8m. But the narrative is definitely not the reason the median home price across the Bay Area is many multiples higher than the national average of $350k. That’s pure supply and demand.
  - adam_arthur 4y ago
    Firstly, I'm talking nationally. Secondly, the Bay Area is one of the markets subject to some of the more severe headwinds if remote work becomes the new normal, for the reasons you stated. SF population declined ~7% over the past two years. https://www.sfgate.com/bayarea/article/San-Francisco-population-decline-us-census-data-17203868.php https://www.sfgate.com/bayarea/article/San-Francisco-populat... The concept of being forced to live in a hyper local area for work may be a thing of the past, which doesn't bode well for employment driven locales. NYC being another example. Bay area is one of the last places in the country I'd want to own a home right now
    - vostok 4y ago

by zamfi 4y ago

deleted 4y ago

[deleted]

zeusk 4y ago

I recently joined a real estate group, and the kinds of things I'm seeing there are beyond explanation. People have basically come to understanding that house prices only go up, they use exotic financing and stupid leverage (BRRR method) to keep buying "assets" and jacking up their rental yield which then re-prices the asset so they can take an even bigger loan to buy more "assets". Recently someone in the group asked how they could afford a house in Seattle and most answers resonated around buying houses in midwest/lcol areas and jacking up rent/renovating to take out further financing and keep buying properties till you can afford to buy a house in the hcol area. This has to end, with FED inflicting pain on the stupid leveraged folks. Homes should be for people to live in, not to purely speculate and grow their money.

heavyset_go 4y ago
This is the same musical chairs of loans that the short term rental market uses.
zamfi 4y ago
> Homes should be for people to live in, not to purely speculate and grow their money Wait, if those speculating investors have “rental yield” then doesn’t that imply people are living in those homes?
- zeusk 4y ago
  The investor's objective is to maximize yield, not minimize homelessness or keep affordability in check. In that, if they don't find a renter for their jacked up rent - they "renovate" the property - get a higher appraisal and sell it to the next schmuck. Housing can’t both be a good investment and be affordable. You can't make economic decisions on the basis that real estate will always grow more than income or even real gdp forever. Which is what these group of investors are doing.
  - zamfi 4y ago
    > Housing can’t both be a good investment and be affordable This gets repeated a ton, but isn’t true unless you assume density never increases. Buying a SFH and replacing it with a 4-plex would be profitable in almost every market — were it allowed, which it almost never is in the US. In that alternate universe, the SFH owner makes money, the developer makes money, and the new units in the new building can be affordable.
    - concordDance 4y ago
      Wouldn't they also be oppressively small and bad for mental health (which is already pretty bad compared to fifty years ago)?
      - zamfi 4y ago
        No, it would be a taller building. American new construction has doubled in size (in terms of sqft/unit) over the past 50 years. If “oppressively small” were the problem, things should have gotten better, not worse?

lazide 4y ago

I think you’re talking past each other a bit. The demand you’re talking about in the SF Bay Area is not necessarily driven by ‘butts in seats’ (aka actual people needing a roof and willing to pay a concrete price for it), but also by the cheap money narrative the FED has been feeding for a very long time. Which is what they are referring to in their post as having changed.

zamfi 4y ago
I don’t think we are talking past each other. There is absolutely a housing supply crisis in the Bay Area that is not reflected in the national stats. I’m not sure why so many people believe that housing prices in high-demand markets are dominated by things like interest rates — there is certainly an effect, sure — but by far the predmoinant reason a 2br house on a small lot with a small yard costs $2m+ in Palo Alto is that there are thousands if not tens of thousands of well-off workers for nearby tech companies who would like to live there, there is not enough housing to go around, and $2m is the market clearing price. The idea that the “demand” is being “driven” by some “cheap money narrative” is missing the forest for the trees. Low interest rates might be why that house is $2m and not $1.8m. But the narrative is definitely not the reason the median home price across the Bay Area is many multiples higher than the national average of $350k. That’s pure supply and demand.
- adam_arthur 4y ago
  Firstly, I'm talking nationally. Secondly, the Bay Area is one of the markets subject to some of the more severe headwinds if remote work becomes the new normal, for the reasons you stated. SF population declined ~7% over the past two years. https://www.sfgate.com/bayarea/article/San-Francisco-population-decline-us-census-data-17203868.php https://www.sfgate.com/bayarea/article/San-Francisco-populat... The concept of being forced to live in a hyper local area for work may be a thing of the past, which doesn't bode well for employment driven locales. NYC being another example. Bay area is one of the last places in the country I'd want to own a home right now
  - vostok 4y ago