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There is a third outcome, which is that mortgages continue increasing with rents not following suit, making buying homes unaffordable for increasing numbers of

by est31 4y ago

There is a third outcome, which is that mortgages continue increasing with rents not following suit, making buying homes unaffordable for increasing numbers of people. Currently there is a "mortgages must be cheaper" rule enforced by many landlords who refuse to rent out their properties for less than the mortgage. But if new landlords, say wall st, show up, who buy houses in cash, then it might cause an increase in purchase prices without an increase in rents.

burlesona 4y ago
That’s an interesting point: higher interest rates offer increasing advantage to those who already have cash on hand.
- foogazi 4y ago
  Yes, to put it in the bank While the drive towards lower interest rates has made that money come out of savings accounts and drive up all asset prices
- sfblah 4y ago
  Yes. The Fed's low interest rate policy has been a huge tax on those prudent investors who held safer assets like cash and T-bills. At the same time, they maximally rewarded extreme gambling in the markets. That's why we live in world that somewhat resembles the 80s TV show "20 minutes into the future" -- all just crazy schemes and advertising plastered everywhere. Who knows what comes next.
nkingsy 4y ago
Just here in the Bay Area, prices have doubled while rents have gone up maybe 5% in desirable areas post pandemic and are still way down in SF. Just moved into a bigger place with a pool for $100/m more than my last rent (Marin county). We want to buy, but our monthly cost would literally double to own the house we are in now.
- swimfar 4y ago
  House prices may have doubled (even that sounds high), but in a lot of places condo prices are down to where they were 5 years ago, with listing prices often being reduced from the initial price. This is the opposite of what you hear about houses where they are being sold above list price. In any discussion about housing prices in the Bay Area it's important to distinguish between condos and houses. The markets are very different because lots of new condos are being built while the supply of houses is (mostly) fixed.
  - nkingsy 4y ago
    Single family homes in Marin, yes. Our last rental was sold in 2022 for 1.57, in 2017 in the exact same condition for 1.05m, in 2010 pre remodel .57m. Not sure about rental data but it was already crazy expensive to rent in Marin in 2014. I’ve seen no noticeable increase while prices have more than doubled.
sokoloff 4y ago
In a durably desirable area, I would feel comfortable taking a mortgage in the same range as projected inflation. If you think inflation will stay at 7%, a 5.5% mortgage interest rate is no barrier at all to buying for an investor.
rco8786 4y ago
This is basically how Manhattan has been operating for decades.
crisdux 4y ago
Institutional investor purchases of residential real estate may be largely all cash offers, but the money that funds those purchases come from a mix of debt, rental earnings and invested capital. I think it’s worth pointing that out because they are more susceptible to interest rates moving because their debt is short term. We may see institutional investors start to divest their real estate holdings if interest rates rise and their margins get squeezed.
- gnicholas 4y ago
  What asset classes do you think they will move into as they exit RE? Why not just de-leverage a bit and stay in RE, which is more inflation-proof than many other investments?
causality0 4y ago
I'd prefer a fourth (unrealistic) option where we go to legislative war against house ownership by any entity that isn't going to live there. Land area is a finite natural resource and owning more than you can use is as perverse as selling off acres of the ocean or cubic miles of the atmosphere.
- Guest42 4y ago
  I think there should be a tax structure that disincentivizes the behavior.
- foogazi 4y ago
  > I'd prefer a fourth (unrealistic) option no need to be unrealistic - there’s plenty of cheap land (at least in the US) - there’s people that live in Alaska or North Dakota or upstate NY (or whatever inhospitable climate you can choose) We don’t need more rules
UncleEntity 4y ago
> Currently there is a "mortgages must be cheaper" rule enforced by many landlords who refuse to rent out their properties for less than the mortgage. That is traditionally how houses were priced — pre-mini depression that is. People wrote whole articles and books trying to explain how this isn’t the case anymore, how you can lose money every month by subsiding your tenants and still come out ahead because housing prices always go up. It wasn’t even a question anymore and you were guaranteed to come out ahead because the fundamentals of the market had changed. Seriously, no way you could possibly lose money by investing in real estate. I think we all know how that new economic theory turned out…
axg11 4y ago
This is essentially Toronto. There is a fairly big delta between mortgage payments (with a reasonable downpayment) and rent. If you only care about monthly cash flow, renting is a far better option. For the last decade the wisdom has been that buying a place is a good idea, despite the cash flow delta, due to appreciation. If people no longer believe this to be true, there could be a sharp shift in the housing market. Perhaps we’re seeing the beginning of that.

by est31 4y ago

burlesona 4y ago

That’s an interesting point: higher interest rates offer increasing advantage to those who already have cash on hand.

foogazi 4y ago
Yes, to put it in the bank While the drive towards lower interest rates has made that money come out of savings accounts and drive up all asset prices
sfblah 4y ago
Yes. The Fed's low interest rate policy has been a huge tax on those prudent investors who held safer assets like cash and T-bills. At the same time, they maximally rewarded extreme gambling in the markets. That's why we live in world that somewhat resembles the 80s TV show "20 minutes into the future" -- all just crazy schemes and advertising plastered everywhere. Who knows what comes next.

nkingsy 4y ago

Just here in the Bay Area, prices have doubled while rents have gone up maybe 5% in desirable areas post pandemic and are still way down in SF. Just moved into a bigger place with a pool for $100/m more than my last rent (Marin county). We want to buy, but our monthly cost would literally double to own the house we are in now.

swimfar 4y ago
House prices may have doubled (even that sounds high), but in a lot of places condo prices are down to where they were 5 years ago, with listing prices often being reduced from the initial price. This is the opposite of what you hear about houses where they are being sold above list price. In any discussion about housing prices in the Bay Area it's important to distinguish between condos and houses. The markets are very different because lots of new condos are being built while the supply of houses is (mostly) fixed.
- nkingsy 4y ago
  Single family homes in Marin, yes. Our last rental was sold in 2022 for 1.57, in 2017 in the exact same condition for 1.05m, in 2010 pre remodel .57m. Not sure about rental data but it was already crazy expensive to rent in Marin in 2014. I’ve seen no noticeable increase while prices have more than doubled.

sokoloff 4y ago

In a durably desirable area, I would feel comfortable taking a mortgage in the same range as projected inflation. If you think inflation will stay at 7%, a 5.5% mortgage interest rate is no barrier at all to buying for an investor.

rco8786 4y ago

This is basically how Manhattan has been operating for decades.

crisdux 4y ago

Institutional investor purchases of residential real estate may be largely all cash offers, but the money that funds those purchases come from a mix of debt, rental earnings and invested capital. I think it’s worth pointing that out because they are more susceptible to interest rates moving because their debt is short term. We may see institutional investors start to divest their real estate holdings if interest rates rise and their margins get squeezed.

gnicholas 4y ago
What asset classes do you think they will move into as they exit RE? Why not just de-leverage a bit and stay in RE, which is more inflation-proof than many other investments?

causality0 4y ago

I'd prefer a fourth (unrealistic) option where we go to legislative war against house ownership by any entity that isn't going to live there. Land area is a finite natural resource and owning more than you can use is as perverse as selling off acres of the ocean or cubic miles of the atmosphere.

Guest42 4y ago
I think there should be a tax structure that disincentivizes the behavior.
foogazi 4y ago
> I'd prefer a fourth (unrealistic) option no need to be unrealistic - there’s plenty of cheap land (at least in the US) - there’s people that live in Alaska or North Dakota or upstate NY (or whatever inhospitable climate you can choose) We don’t need more rules

UncleEntity 4y ago

> Currently there is a "mortgages must be cheaper" rule enforced by many landlords who refuse to rent out their properties for less than the mortgage. That is traditionally how houses were priced — pre-mini depression that is. People wrote whole articles and books trying to explain how this isn’t the case anymore, how you can lose money every month by subsiding your tenants and still come out ahead because housing prices always go up. It wasn’t even a question anymore and you were guaranteed to come out ahead because the fundamentals of the market had changed. Seriously, no way you could possibly lose money by investing in real estate. I think we all know how that new economic theory turned out…

axg11 4y ago

This is essentially Toronto. There is a fairly big delta between mortgage payments (with a reasonable downpayment) and rent. If you only care about monthly cash flow, renting is a far better option. For the last decade the wisdom has been that buying a place is a good idea, despite the cash flow delta, due to appreciation. If people no longer believe this to be true, there could be a sharp shift in the housing market. Perhaps we’re seeing the beginning of that.