4 ms·

>Keep in mind that with an 8% inflation rate, a 5.85% interest rate on a 30-year fixed is a -2.15% real interest rate. You are leaving out (as so many do): Tax

>Keep in mind that with an 8% inflation rate, a 5.85% interest rate on a 30-year fixed is a -2.15% real interest rate. You are leaving out (as so many do): Taxes, Insurance and Maintenance. For example, where I live, those add up to a minimum of 3%. On top of all that, you need to factor in your personal stability - what's the risk that your career or partnership could intervene in your plans and force you to sell < 7-10 years out? If that happens, you are eating closing costs and potentially being forced to sell at a bottom out moment in house prices due to interest rate instability.

arcticbull 4y ago
That’s fine but not relevant to my point. Those things also all existed last time nominal rates were at this level. My point is real rates are dramatically lower now than last time. This is going to keep demand high, maybe not from the same individual buyer as before but there’s a good reason we see institutional gobbling up all this real estate. The market doesn’t differentiate between institutional and retail buyers when a house goes up for sale. However all those property taxes and HOA fees are tax deductible for institutional buyers. I don’t think that’s good of course - and I’m not advocating people run out and buy a house either - I’m just saying, there’s a ton of factors that make “housing market collapse imminent” more of a pipe dream than a sure thing. How much did housing go down in SF during COVID? Charts say zero, and that’s during the biggest exodus of people actually living there in recent memory.
- wintermutestwin 4y ago
  You raise a very good point about institutional buyers. I haven't done enough research, but I wasn't able to find a good way to invest in a REIT that was focused at single family in the right areas. It would be great way to hedge against the risks they pose to the market for retail investors.
  - arcticbull 4y ago
    Huh, that's a really interesting idea. I hadn't thought about that!

arcticbull 4y ago

That’s fine but not relevant to my point. Those things also all existed last time nominal rates were at this level. My point is real rates are dramatically lower now than last time. This is going to keep demand high, maybe not from the same individual buyer as before but there’s a good reason we see institutional gobbling up all this real estate. The market doesn’t differentiate between institutional and retail buyers when a house goes up for sale. However all those property taxes and HOA fees are tax deductible for institutional buyers. I don’t think that’s good of course - and I’m not advocating people run out and buy a house either - I’m just saying, there’s a ton of factors that make “housing market collapse imminent” more of a pipe dream than a sure thing. How much did housing go down in SF during COVID? Charts say zero, and that’s during the biggest exodus of people actually living there in recent memory.

wintermutestwin 4y ago
You raise a very good point about institutional buyers. I haven't done enough research, but I wasn't able to find a good way to invest in a REIT that was focused at single family in the right areas. It would be great way to hedge against the risks they pose to the market for retail investors.
- arcticbull 4y ago
  Huh, that's a really interesting idea. I hadn't thought about that!