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I'm always confused when I see the claim that anyone can "wait it out" when it comes to housing. Rich people still get divorced, suffer job losses, trade up, re

by bink 4y ago

I'm always confused when I see the claim that anyone can "wait it out" when it comes to housing. Rich people still get divorced, suffer job losses, trade up, retire, etc. And they're more likely to be able to stomach a drop in value as they've owned longer and even if they haven't they can actually bring money to the table. The vast majority of people in the country who own residential real estate did not purchase it in the last few years. If the "value" of their home doubled and then dropped 20% they really aren't going to care, regardless of the mortgage rates. And beyond all that, there are always going to be people who have to sell, whether they bring money to the table, still have a profit, use a short sale, or what have you. And those sales will still set comps for entire neighborhoods. I'd love to see some concrete examples of rich neighborhoods "holding out" during downturns as I simply do not believe that has ever happened.

Clubber 4y ago
They have the option to rent while they wait for the market to pick up, assuming they have another place to live.
lazide 4y ago
Rich people wait things out all the time, they have options. If the couple thinks the estate in Atherton is worth $15m, but market says $10m, they can horse trade so whoever wants it keeps it, or put it in a trust, or whatever. If someone holds that property and dies, they’ll have a trust setup for it already, and almost no one will be in a rush to lose $5m liquidating it right away. Anyone owning a place in Atherton (who bought recently) doesn’t have a ‘job’ in any every day person sense, and certainly isn’t relying on a paycheck to pay the mortgage. You literally can’t even get a conforming mortgage for those places. Someone can (and will!) go full Kanye eventually of course, if it’s a big enough area, but those are few and far between and there is a LOT of pressure to not screw up the neighbors comps. They’re often weird, special places anyway, so many games can be played. A friend of a friend lives there and his neighbors include a member of the Saudi Royal family, and a prominent VC LP. That kind of wealth means there is no rush to lock in losses, and plenty of reason to pretend they haven’t happened - as usually, prices go back up. It’s going to be easier to rent too than a terrible place in a terrible part of town. If you’re poor? No one has those luxuries. Hell, many times no one can even afford lawyers! Trying to buy into Palo Alto in ‘09-11 was impossible. No price drops, even less inventory, almost no volume at all. Atherton was laughable, there was even some price increases. Sunnyvale? Near 101 (the ‘bad part’), prices literally halved. I know, I bought one. Most of San Jose was similar. The closer you got to Los Altos/Campbell, the more frozen and ridiculous it got. Most of sunnyvale had movement. A LOT of San Jose turned over. I’ve seen the same thing play out in other markets of course, and know professional real estate investors. The writing has been on the wall for YEARS pre-pandemic. Hell, good luck finding anything that would even cashflow for renting in the entire state of CAlifornia even by ‘18.
- bink 4y ago
  I think your definition of "rich" is more my definition of "ultra wealthy", but even so I don't think the rich want to be landlords. We're still talking feelings rather than data. As far as anecdotes go the news media is full of stories of the ultra wealthy taking a bath on residential real estate in downturns. Sure, they might hold onto it for a year or so with an outrageous asking price, but they're also going to cut that asking price by 25-50% at the drop of a hat in my experience. I'm not really all that concerned with the real estate habits of the ultra-wealthy. Like most people (even on this site) I'm more concerned with general trends in neighborhoods with less than 2 swimming pools per property. And I just don't think those neighborhoods are going to hold out to the extent that values will not fall and properties won't be available for purchase. That's a myth, IMHO.
  - lazide 4y ago
    Those aren’t the ultra wealthy, they’re .01%’ers. The ultra wealthy (of which a couple are familiar names like Bezos or Musk or Gates, but most of which don’t want to be known as it brings unwanted attention), pretty much never sell. Maybe if they’re rebalancing their portfolio somewhere. They also wouldn’t be landlords (in the sense you’re talking about), that’s what they hire people for. If the property is irritating them and they can’t offload it, then sure some won’t bat an eye at losing a couple million (or 10) on something. Most of them would stab their own mothers in the back for $100 though. But most of them literally never need to care to that level. In the Bay Area at least, the 1%’er wealthy areas like Palo Alto? Most of the city just… stops. I’ve seen it myself last downturn. You don’t need to be ultra wealthy to not need to sell if you hit a rough spot for a few years. They might lay off the gardeners though.
SQueeeeeL 4y ago
It's just the better choose to wait it out, even if you get divorced, fired, etc. It's the more optimal financial play to treat housing as an asset, and because the US has proven historical to have a wildly fluctuating housing market. If you want to sell, and know waiting 4 years could net you a free $500,000 bonus, why wouldn't you
- bink 4y ago
  You'd prefer to share ownership of a property with an ex-spouse, potentially for years, rather than sell for the market price? I don't think most would agree. There are just as many examples of real estate stagnating or depreciating over the course of 5 years as there are it appreciating by $500k. We shouldn't treat the last 10 years as typical for any residential real estate market. It wasn't that long ago that a typical real estate cycle was 17 years peak-to-peak. The Fed can't intervene and keep rates artificially low and buy up tens of billions in mortgages each month forever. In a market where a cycle is 17 years, 5 years at the beginning of a downturn is nothing. And that's wasted opportunity, especially for experienced investors.
  - lazide 4y ago
    Literally seen those scenarios you’re saying never happen, happen. Hell, I held a property for years with an angry ex-spouse because the market was doing well. We both did really well on it - she’s still angry though.
ozi 4y ago
Yeah, agree that generalizations like "rich people will hold out" don't really hold true when you zoom in on individual home sale scenarios. Yes, the uber wealthy may wait, but those with a W2 often move for a number of reasons related to job, family, health, economic, or other life circumstances that trump the prevailing wisdom of what they should be doing. And then there are those who aren't paying attention or don't care. People want what they want.

by bink 4y ago

Clubber 4y ago

They have the option to rent while they wait for the market to pick up, assuming they have another place to live.

lazide 4y ago

Rich people wait things out all the time, they have options. If the couple thinks the estate in Atherton is worth $15m, but market says $10m, they can horse trade so whoever wants it keeps it, or put it in a trust, or whatever. If someone holds that property and dies, they’ll have a trust setup for it already, and almost no one will be in a rush to lose $5m liquidating it right away. Anyone owning a place in Atherton (who bought recently) doesn’t have a ‘job’ in any every day person sense, and certainly isn’t relying on a paycheck to pay the mortgage. You literally can’t even get a conforming mortgage for those places. Someone can (and will!) go full Kanye eventually of course, if it’s a big enough area, but those are few and far between and there is a LOT of pressure to not screw up the neighbors comps. They’re often weird, special places anyway, so many games can be played. A friend of a friend lives there and his neighbors include a member of the Saudi Royal family, and a prominent VC LP. That kind of wealth means there is no rush to lock in losses, and plenty of reason to pretend they haven’t happened - as usually, prices go back up. It’s going to be easier to rent too than a terrible place in a terrible part of town. If you’re poor? No one has those luxuries. Hell, many times no one can even afford lawyers! Trying to buy into Palo Alto in ‘09-11 was impossible. No price drops, even less inventory, almost no volume at all. Atherton was laughable, there was even some price increases. Sunnyvale? Near 101 (the ‘bad part’), prices literally halved. I know, I bought one. Most of San Jose was similar. The closer you got to Los Altos/Campbell, the more frozen and ridiculous it got. Most of sunnyvale had movement. A LOT of San Jose turned over. I’ve seen the same thing play out in other markets of course, and know professional real estate investors. The writing has been on the wall for YEARS pre-pandemic. Hell, good luck finding anything that would even cashflow for renting in the entire state of CAlifornia even by ‘18.

bink 4y ago
I think your definition of "rich" is more my definition of "ultra wealthy", but even so I don't think the rich want to be landlords. We're still talking feelings rather than data. As far as anecdotes go the news media is full of stories of the ultra wealthy taking a bath on residential real estate in downturns. Sure, they might hold onto it for a year or so with an outrageous asking price, but they're also going to cut that asking price by 25-50% at the drop of a hat in my experience. I'm not really all that concerned with the real estate habits of the ultra-wealthy. Like most people (even on this site) I'm more concerned with general trends in neighborhoods with less than 2 swimming pools per property. And I just don't think those neighborhoods are going to hold out to the extent that values will not fall and properties won't be available for purchase. That's a myth, IMHO.
- lazide 4y ago
  Those aren’t the ultra wealthy, they’re .01%’ers. The ultra wealthy (of which a couple are familiar names like Bezos or Musk or Gates, but most of which don’t want to be known as it brings unwanted attention), pretty much never sell. Maybe if they’re rebalancing their portfolio somewhere. They also wouldn’t be landlords (in the sense you’re talking about), that’s what they hire people for. If the property is irritating them and they can’t offload it, then sure some won’t bat an eye at losing a couple million (or 10) on something. Most of them would stab their own mothers in the back for $100 though. But most of them literally never need to care to that level. In the Bay Area at least, the 1%’er wealthy areas like Palo Alto? Most of the city just… stops. I’ve seen it myself last downturn. You don’t need to be ultra wealthy to not need to sell if you hit a rough spot for a few years. They might lay off the gardeners though.

SQueeeeeL 4y ago

It's just the better choose to wait it out, even if you get divorced, fired, etc. It's the more optimal financial play to treat housing as an asset, and because the US has proven historical to have a wildly fluctuating housing market. If you want to sell, and know waiting 4 years could net you a free $500,000 bonus, why wouldn't you

bink 4y ago
You'd prefer to share ownership of a property with an ex-spouse, potentially for years, rather than sell for the market price? I don't think most would agree. There are just as many examples of real estate stagnating or depreciating over the course of 5 years as there are it appreciating by $500k. We shouldn't treat the last 10 years as typical for any residential real estate market. It wasn't that long ago that a typical real estate cycle was 17 years peak-to-peak. The Fed can't intervene and keep rates artificially low and buy up tens of billions in mortgages each month forever. In a market where a cycle is 17 years, 5 years at the beginning of a downturn is nothing. And that's wasted opportunity, especially for experienced investors.
- lazide 4y ago
  Literally seen those scenarios you’re saying never happen, happen. Hell, I held a property for years with an angry ex-spouse because the market was doing well. We both did really well on it - she’s still angry though.

ozi 4y ago

Yeah, agree that generalizations like "rich people will hold out" don't really hold true when you zoom in on individual home sale scenarios. Yes, the uber wealthy may wait, but those with a W2 often move for a number of reasons related to job, family, health, economic, or other life circumstances that trump the prevailing wisdom of what they should be doing. And then there are those who aren't paying attention or don't care. People want what they want.