14 ms·

You Are Naturally Short Housing

307 points by soundsop 14y ago

roel_v 14y ago
- Author fails to make the distinction between two aspect of owning a house: for shelter and as an investment. These are two, although related, distinct aspects. - Author fails to acknowledge that the point of making money an a house ('using it as investment') hinges on not rising prices, but prices that rise faster than inflation / COL, and/or inflation being above the mortgage rate the house was financed with. So no you're not 'just covering a short position', you're covering a short position and going long at the same time, with the same vehicle. But this is of course where the analogy falls apart. I posit that his analogy is unhelpful in understanding the role of a house in personal wealth management.
- nullc 14y ago
  I don't think there is any failure there: - You are inherently short the hypothetical minimum shelter requirement home— this is your future housing obligation. - You may also be long a highly correlated actual home asset. Appreciation of the latter is not beneficial to you when it is matched by the former. This means, for example, that you should think carefully before obtaining a HELOC against "appreciation" because you can have paper appreciation while staying equal or actually becoming worse off relative to your future obligations.
mmphosis 14y ago
Depending where you live there are alternative shelters. The alternatives are not for everyone, and they are usually not "easy", but there are advantages and disadvantages to not owning (a house) and to not renting.
- lsc 14y ago
  example? I mean, assuming one wants to live within society and not as an "outlaw" wanderer, I'm having a difficult time thinking of how you can avoid buying or paying for shelter.
  - mappu 14y ago
    You could live with your parents, or couchsurf with an understanding friend / partner. Richard Stallman famously lived out of his MIT office for a long period of time. Of course, these lifestyles all have costs, just not necessarily financial ones.
    - loeg 14y ago
      (Neckbeards are a cost.)
    - joezydeco 14y ago
      So do you plan to continue your genetic lineage? Um, I mean, have kids and reproduce? If not, cool. You can die alone in your office. If you do plan to have kids, where are you going to house them? Okay, so they're going to share the RV with you. Do you plan to home-school them? Do you have time? Okay, maybe take advantage of the public system then. Whoops, you need a permanent address for that. I guess you're going private. Hope you saved up.
      - drewcrawford 14y ago
        > Okay, maybe take advantage of the public system then. Whoops, you need a permanent address for that. False, at least in NJ. > For instance, the commissioner of education found that year-long residency in a local campground in violation of zoning laws had no impact on the determination of domicile under New Jersey’s school residency law. It is therefore unlawful for a school board to deny admission to a student on the basis of the legal status or physical condition of his or her home. http://www.edlawcenter.org/assets/files/pdfs/publications/ResidencyRequirementsGuide.pdf http://www.edlawcenter.org/assets/files/pdfs/publications/Re...
      - psc 14y ago
        First off, sure, there are circumstances that make it difficult to seek alternative shelters, but the root poster in this thread said "the alternatives are not for everyone." If you have have kids, you're not gonna be couch surfing. The idea, however, is that for some people, alternative housing is definitely an option, and that point seems perfectly valid. Secondly, there's no need to be negative in your reply. Some people might have different goals than you and it's not very kind to disparage them for that. There are people that don't continue their genetic lineage and have fulfilling lives. Perhaps you're just exaggerating to make a point, or the humor didn't quite convey over text and I'm just taking it too literally, but I don't see what you're trying to achieve with that harshness.
jessepollak 14y ago
Question, what if you own a permanent shelter and then buy/rent/lease another (or multiple) shelters as an investment. Would you still consider that shorting the housing market?
- ukoki 14y ago
  This would make you 'long' in the housing market, but I fail to understand why people are so eager to buy individual properties as an investment. Individual properties are incredibly risky because the price is tied to so many local factors, what if the area goes bad? What if a bad tenant destroys it or doesn't pay rent for a few months? - for those who believe investing in property is a 'sure thing', why not simply invest in real-estate investment trusts, spreading the risk to thousands of properties around the country (or world), and getting a much less volatile return which is more representative of the 'true' housing market.
  - ww520 14y ago
    The benefits of investing in individual properties are: - Other people's money (leverage via loan) - Tax write-offs (interest deduction, expense shelter, depreciation). - Appreciation. - Equity growth. - Rental income. The first two probably can't be obtained via REIT.
    - skorgu 14y ago
      There's a bit of a tail risk benefit too: the utility of a house is somewhat uncorrelated to the rest of the financial market. I.e. in 2008 when the world was utterly insane your house still kept rain off your head. It's easy to overstate but it's a thing.
  - robryan 14y ago
    You might think you have local knowledge which allows you to purchase and charge a higher than average rent. Also you might be choosing a house that you want to live in down the track as an investment now. You are correct though that this can carry added risk.
  - 14y ago
dxbydt 14y ago
Wtf?! Yes you are short housing...then u buy one...prices go up... you sell the damn thing...at which point you become short again...but with that extra money you can cover your short and come out ahead in a different market. It isn't like gold in that the prices are fairly constant across markets. If my house in the bay area goes up 30% i sell that and relocate to illinois you can bet i will cover the short and come out ahead since home prices in illinois lag ca by a good 150-200k.
- zecho 14y ago
  But there's a reason home prices lag, generally speaking. Pay also tends to lag. But honestly, the Bay Area is an outlier in the housing market. Imagine moving from Chicago to San Francisco...
- elpool2 14y ago
  That's true, but not many people are willing to completely relocate themselves to a different part of the country just for a good deal on real estate.
  - deleted 14y ago
    [deleted]
- moocow01 14y ago
  "If my house in the bay area goes up 30% i sell that and relocate to illinois you can bet i will cover the short and come out ahead since home prices in illinois lag ca by a good 150-200k" You need to factor in interest paid on your bay area loan to get the full picture. Just because your house value goes up by a certain margin does not come close to meaning you have profited by that much. This is especially important to understand in areas with large home prices in that the cost of holding the asset (interest) is very high especially early into the loan.
  - simonh 14y ago
    Very true, but don't also forget to deduct the cost of renting liveable accommodation from your mortgage costs. Otherwise your comparing the cost of living in a house to the cost of living in a cardboard box.
robryan 14y ago
What about if you get to 60, sell your house and use the money to rent for the rest of your life. In that case you might have higher short term costs as well but to you can stay in short term as you will likely not need a house for long enough to make long term more economical. Also housing markets in different places don't move in unison so there is some room to trade markets and turn a profit. Not sure any of this effects the point of the article though.
- ksherlock 14y ago
  And don't forget a reverse mortgage.
- caf 14y ago
  Yes - you are only naturally short the housing you will need for the rest of your life, but if you own a house then that represents housing for the rest of the asset's life. If the life of the asset is expected to be significantly longer than your life, then you are indeed slightly long in housing.
  - pcwalton 14y ago
    Similar reasoning applies to willing your house to your kids (or whoever else) -- that's potentially a lot of value you can transfer when you no longer have housing needs yourself.
tomasien 14y ago
This is true, you can't sell your house and then NOT have shelter. What older people can do is sell their house and then move into an apartment and gain financially from this transaction, assuming they don't live for many many more years. However, if they do they "lose" on the transaction: and this proves the "covering a short" nature of the transaction. Wonderful piece.
csallen 14y ago
I know next to nothing about trading. But it's become apparent to me that some of the core concepts/terms in trading (long, short, hedge, liquidity, futures, cover, etc) are very useful for modeling things in other walks of life. So, trading-savvy HNers: Are there any books, websites, or habits that you'd highly recommend to help a newbie become familiar with basic trading concepts?
- dekayed 14y ago
  I've been taking the Computational Investing course on Coursera. I knew next to nothing about trading and its definitely been helpful with the basics. https://class.coursera.org/compinvesting1-2012-001/ https://class.coursera.org/compinvesting1-2012-001/
  - ch00 14y ago
    I have also been following this course and am extremely disappointed in its quality -- not just in poor production, but also in the coverage of course material. I would not recommend this as a primer on investing.
    - 1wheel 14y ago
      http://blogs.reuters.com/felix-salmon/2012/11/21/online-course-of-the-day-investing-department/ http://blogs.reuters.com/felix-salmon/2012/11/21/online-cour...
- A__MJ 14y ago
  Open an account on thinkOrSwim (etrade, whoever), fund it, trade with small amounts of money and research everything as you go. Arbitrarily, SLV, which is an ETF that tracks silver futures. If you want to play with fire (and learn a lot of cool stuff), trade options (that's what I used to do) Websites: SeekingAlpha (side note: financial articles, SA included, are sophisticated-sounding babble put out by someone that has to meet their quota, not well-thought-out logical explanations by people in-the-know) Make a list of terminology and learn directly what it means to your trading. Pretty much any trading term that has general meaning and isn't arcane and quant-y is googleable. I recall Khan Academy also having very useful videos explaining a lot of terminology (Salman Khan used to be a trader) For example, in SLV: Liquidity: How easy (read: cheap) it is to open and close a position. If the spread on an option is $33.00 (sell) and $33.33 (buy), you lose 1% (most people say $0.33 - I prefer to look at the percentages) just by getting in and out of a position regardless of your trade (I'm ignoring commissions), and assuming the trade reliably goes through instantly. The higher the cost (time, risk of nonfulfillment, money) of opening and closing a position, the more illiquid the position is. In the context of houses, the time and effort and money put into maintenance and time and uncertainty involved in buying/selling, etc make them extremely illiquid investments. If you own AAPL stock and it crashes, you can hit a button and sell it. If you own a house and the housing market collapses, good luck! If I were to invest the cost of a house in some high-volume stock with a tight bid-ask ratio and sell it two years later for the same price by hitting a button on my phone, my losses are just the bid-ask difference and I was never really at much risk of being unable to sell it instantly (during market hours at least). It's a very liquid position. That's just one example, but there are plenty out there. Jump in feet first, google all the things, and don't wager stupid amounts of money.
lotharbot 14y ago
Broadly speaking: you are not "investing" in any market if you only own the amount you intend to use or consume for yourself. You are only "investing" if you own (or have contracts on) more than you intend to consume. For example, having a few bananas in your fruit bowl does not give you a position in the banana market. Owning thousands of bananas you intend to resell, or shorting a banana company, gives you a position in that market. Likewise with housing. Owning enough housing to live in (at whatever standard of living you intend) is a market-neutral position, so you should not be particularly excited by price changes in the market. If you own too little housing, you're "short" and price raises are a negative, and if you own excess housing (extra properties, or a larger-than-desired property) you're "long" and price raises are a positive.
- javajosh 14y ago
  The more interesting game is the one in which the housing market is not assumed to be homogenous. If you can somehow anticipate a positive change in a local housing area, buy a house there and then sell it after the change occurs, moving to a cheaper, less desirable house, you can indeed make a profit. However, this requires two things: a) that you correctly anticipate the change and b) that you don't want the change for yourself. The nice thing about this play is that even if the change never occurs you still have a house. (There are many examples of positive change - e.g. the new railroad going through Rock Ridge in Blazing Saddles.)
  - Datonomics 14y ago
    You can do this. This may seem idiotically simple, but you can easily see how very possible this is. Track the market you are interested in purchasing a home. Watch the number of homes sold vs the number of homes coming up for sale. (simple supply and demand) If you see more homes coming on than being sold you are going into a buyer's market (price dropping) If the opposite, then seller's market (price goes up). By doing this, you can stay ahead of the market. Note: you must seasonally adjust, which is very easy to by getting a history of the market you are tracking. Proof: Look up historical solds vs "on the market." (ask a realtor for this info, keep calling you will eventually find one who will give it to you) Then look at zillow or any other site that tracks historical home prices. You will see the supply leads price, usually by months/years not days or weeks. How can this the be possible? 1. Realtors, on average, are wildly misinformed and much more interested in making a sale than doing market research. 2. It does not pay for large investors to buy individual properties so you do not have savvy investors correcting market errors. (this does not apply to commercial property)
hayksaakian 14y ago
It'd be great if my parents understood this concept. They always seem excited to sell their house when prices go up, and plan on buying a new one in a couple years after buying the first.
kjackson2012 14y ago
My parents bought their house 25 years ago 250k and sold it for 1.5m. Now they are renting a 2 br apt for 1500/month. Their housing cost will be roughly 25k/yr and they are millionaires. The idea that the article talks about how you can't be long the housing market is just dumb. His analogy doesn't work and to say that you can't benefit from house prices going up is dumb.
- kelnos 14y ago
  If your parents took out a loan when they bought the original house, you're likely neglecting the cost of interest. If not, that's fine too. So they "made" $1.25MM at the sale of their house. That's a taxable capital gain. The rules for that can be complicated, but let's just say 15% to keep it simple. So that drops the gain about $188k down to $1.06MM. Let's say they live for the rest of their lives in the 2BR apartment (I have no idea how old your parents are, but lets just say that's another 30 years). So you say your parents' housing costs will be $25k per year. Let's say that goes up 2% per year. In a rent-controlled area it might be a little lower than that, and otherwise it might be a bit higher. Over those 30 years, your parents' housing costs will be $970k. So now your $1.06MM is down to about $90k. So, effectively, your parents have "made" $90k on their $250k home. That's 36%, or about 1.5% per year. Not great, but better than most savings accounts. Er, wait. Inflation. Wolfram Alpha says that 250k 1987 dollars is worth just over $500k today. So under this model, your parents just "lost" $410k. Not to mention that your parents are now living in a 2BR apartment instead of a presumably-larger house. And maybe that's fine: you can say that your parents' innate housing short got smaller because they've decided that they don't need such a large house anymore, and something smaller and not free-standing will be fine for them. But that's basically like saying you bought a case of beer, then decided you didn't need that much, sold it, and bought a half-case of beer to replace it. Sure, you now have a half case of beer worth of money that you didn't have before, but you can't say you "made money" selling the beer. Now, I'm sure I left out some costs (housing upkeep, property taxes, etc.), and didn't get the capital gains tax quite right, but I hope you see my point here. It may make financial sense to sell your house and downsize, but this in no way means that a home purchase was an "investment".
  - 14y ago
jameslin101 14y ago
If you are "naturally" short housing because you need it, can't you could make the same case for all hard commodities and stocks in companies that produce all your future consumption needs?
- mbetter 14y ago
  No.
brandall10 14y ago
"If house prices rise, the value of your house (the hedge) increases but so does the cost of shelter." What about the ability to rent? As demand for purchasing housing goes up, demand for renting typically goes down (ie. either levels off or regresses). Sure over time both go up, but at a particular slice of time, usually on a cost of living basis one is advantageous over the other. And while you're renting at a cheaper cost than it would be to essentially rent money (let's not kid ourselves, you don't own a house if you have a mortgage), you have liquidity to place in other investment vehicles. Small observation... maybe there's something to it, maybe not, but it seems I'm 2/2 on calling when market swings happen here in downtown San Diego over the past 10 years. Take a look at the delta in rental prices in properties in various classes and compare verses actual selling prices. Just like a P/E for a company, if you can't at least turn a profit on owning a piece of property as a rental, it is likely overpriced. As much as people love to talk about various market factors much of this is emotionally driven. For instance, last year I observed an entry level condo complex in a marginal area rent 1 beds in the $1800-1900 range. The latest comps for that building were $150k for like properties. About 5 blocks away 1 beds in a luxury high-rise were renting in the $2200-2300 area. Comps? High $300k. At the height of the market comps for the luxury high-rise were in the mid $500k area and the marginal property were in the upper $300k area. Back when that was happening, the luxury high-rise unit was renting just shy of $2k. The marginal unit? About $1400. I took another 4-5 other buildings in the area of varying quality and this trend was intact. To be fair this is a small, insular market and these swings are largely driven by speculation from the bubble-tastic situation many overheated markets found themselves in (ie. people owning and flipping multiple properties found the bottom of the market being rented cheaply).
- drewcrawford 14y ago
  > As demand for purchasing housing goes up, demand for renting typically goes down (ie. either levels off or regresses) While it's true that we had a rather large anomaly 2004-2009 (a.k.a. the housing bubble), and that there are tiny boom/bust cycles in which it is possible to get a little leverage to cover switching costs, prices and rents seem to be mostly linearly correlated [1]. This means that as prices go up, rent goes up. In order for prices to be divorced from rents, you have to hypothesize some weird market externality, like a major recession, or crazy incentives for mortgages, city suddenly becomes a tourist destination, etc. [1] http://static3.businessinsider.com/image/4fb9fad169beddbc29000015/image.jpg http://static3.businessinsider.com/image/4fb9fad169beddbc290...
ash 14y ago
Seems to be overloaded. I had better luck with (Coral) cached version: http://thezikomoletter.com.nyud.net/2012/12/10/you-are-naturally-short-housing/ http://thezikomoletter.com.nyud.net/2012/12/10/you-are-natur...
bitteralmond 14y ago
Can someone please translate the trader jargon out of this article?
- mdonahoe 14y ago
  I cant figure it out either, but I think it just means that you will always need shelter, so prices going up is bad for you. At first I took "shorting" literally, and thought it meant I borrowed a house, sold it, and now I need to buy it back at some point. It probably just means "in need of", with a bit of financial connotation? "Define short" 7. low in amount; scanty: short rations. 9. below the standard in extent, quantity, duration, etc.: short measure. 10. having a scanty or insufficient amount of (often followed by `in or `on ): He was short in experience.
  - regularfry 14y ago
    It's literally the last definition there: "having an insufficient amount of." "Shorting" refers to the process of getting to the position of having an insufficient amount, assuming you start neutral or long. He's saying you are "born short", not that you interact in any "shorting."
- mdda 14y ago
  Because everyone needs to live somewhere, if they don't own a house, they are hurt if house prices (and 'therefore' rents) rise. To avoid being affected by something external (like house price fluctuations), it makes sense to own a property (or invest in property-related stocks). But only enough to cover your needs. If you buy a too-big house, or several houses, you'll be in the situation of hoping for house prices rises - meaning that you'll benefit if prices rise - beyond the additional cost that you'll face in the current property markets. The surprising point of the article is that it is natural to assume that no property = no exposure. But that's not true in the case of housing.
  - CrankyPants 14y ago
    I'd pay for you to do this in higher volume.
benjaminwootton 14y ago
I'm surprised we don't see more discussion of house prices on sites such as this. In my opinion it is THE issue affecting our generation. Specifically for HN, the high cost of housing severely restricts entrepreneurship. If you are paying 50% of your income on a rent or mortgage, you are of course less likely to start a business, and the cost of doing that business in terms of employees salaries and commercial rents make it less viable. Also consider that your suppliers, and their suppliers, and their suppliers ad infinitum, all have the same high costs ultimately derived from high housing costs for their employees. This all adds up across the country and the whole economy is made less competitive and agile as a result. With lower housing costs there would certainly be less unemployment. The sad thing is that the even intelligent people are duped into believing the myth that high house prices are good for them. Clearly lower prices mean more disposable income, which is usually a good thing? Clearly high house prices barely benefit anyone as we all need a house, and the next house you buy would likely have gone up by a greater price than the one you have now? And yet we persist - 'we MUST get on the housing ladder' and we blame those nasty banks because 'they aren't lending any more' when all they are doing is scaling back lending multiples from the absurd back to the ridiculous. All that high house prices achieve is to keep young people into debt serfdom, keeping us on a treadmill servicing massive mortgages for the same bricks our parents bought for 20% of the price. We really could be out doing something much more worthwhile. Edit - you may wish to read this to put the madness of this credit bubble into perspective: http://www.housepricecrash.co.uk/forum/index.php?showtopic=53593 http://www.housepricecrash.co.uk/forum/index.php?showtopic=5...
- jseliger 14y ago
  Word about this problem is trickling out, slowly—I like to cite Edward Glaeser's The Triumph of the City and Ryan Avent's The Gated City on the subject—but I think a lot of people simply don't understand supply and demand. One time in Seattle I was driving home a friend, who was in law school, and she complained that there was too much construction in the city, and that construction made it less affordable. I said that more units make the city less affordable than it would be otherwise, and she said that they were tearing down "affordable" housing to put up housing for "rich people." I tried to explain that, if given space that had 12 units now has 200, the overall affordability rises, but she totally didn't or wouldn't get that point. It was a bit like the scene where the Martian and man meet in The Martian Chronicles. Except that I'm right and she isn't. But until more people connect supply restrictions with cost, we won't get (much) improvement. (Side note: I just read this: http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_cool_it_needs_more_housing_units.html http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_c... on the subject.)
polskibus 14y ago
I found the author's style engaging and simple enough for the broader audience. I'd like to see more of this, perhaps continuation of the thought and description of mortgage backed bonds and CDOs ?
- thisone 14y ago
  maybe the PlanetMoney podcast? The episodes they did with This American Life about the mortgage crisis back in like 2008-2010 were brilliant (imo), and then they bought their own CDO toxic asset in 2010, I think, and reported on it. http://www.npr.org/blogs/money/ http://www.npr.org/blogs/money/ http://www.thisamericanlife.org/radio-archives/episode/418/toxie http://www.thisamericanlife.org/radio-archives/episode/418/t...
  - zecho 14y ago
    Toxie (the given nickname for the toxic asset they purchased) was a long-running recurrence on Planet Money. Here is the archive: http://www.npr.org/templates/archives/archive.php?thingId=153290839 http://www.npr.org/templates/archives/archive.php?thingId=15...
stanfordkid 14y ago
what about renting vs. owning? Can't you arbitrage between the two. http://www.nytimes.com/2008/05/28/business/28leonhardt.html?pagewanted=all&_r=0 http://www.nytimes.com/2008/05/28/business/28leonhardt.html?...
- josephlord 14y ago
  Absolutely. But you should realise that while you are renting you are 'short' on housing and you will either need to keep buying housing monthly (a.k.a. renting) for the rest of your life or buy a house later (hopefully cheaper or at least more affordable to you than you could now). There is nothing wrong with being short on the housing market you may have no alternative or you may have much better places to invest your assets or you may just think house prices will fall. No option is risk free but the lowest risk approach is to match your lifetime needs to your assets so that you don't care what happens to house prices.
hans 14y ago
this can't be good, that hedge funds are currently buying up housing in a huge way, moving into rentals especially, going long housing, expect a rent grip like no other in the next 3-5yrs : http://www.marketplace.org/topics/economy/hedge-funds-crowd-first-time-buyers-out-housing-market http://www.marketplace.org/topics/economy/hedge-funds-crowd-... http://www.nytimes.com/2012/12/09/business/financiers-bet-on-rental-housing.html?pagewanted=all&_r=0 http://www.nytimes.com/2012/12/09/business/financiers-bet-on...
paulsutter 14y ago
This is an extremely long-winded way of saying that rising house prices are only good for owners who want to move to a smaller house. The article misses that rising house prices can also be good for a person who intends to move to a place with cheaper housing. Net net: rising prices good for near-term retirees and rental property investors, bad for almost everyone else.

307 points by soundsop 14y ago

- Author fails to make the distinction between two aspect of owning a house: for shelter and as an investment. These are two, although related, distinct aspects. - Author fails to acknowledge that the point of making money an a house ('using it as investment') hinges on not rising prices, but prices that rise faster than inflation / COL, and/or inflation being above the mortgage rate the house was financed with. So no you're not 'just covering a short position', you're covering a short position and going long at the same time, with the same vehicle. But this is of course where the analogy falls apart. I posit that his analogy is unhelpful in understanding the role of a house in personal wealth management.

nullc 14y ago
I don't think there is any failure there: - You are inherently short the hypothetical minimum shelter requirement home— this is your future housing obligation. - You may also be long a highly correlated actual home asset. Appreciation of the latter is not beneficial to you when it is matched by the former. This means, for example, that you should think carefully before obtaining a HELOC against "appreciation" because you can have paper appreciation while staying equal or actually becoming worse off relative to your future obligations.

mmphosis 14y ago

Depending where you live there are alternative shelters. The alternatives are not for everyone, and they are usually not "easy", but there are advantages and disadvantages to not owning (a house) and to not renting.

lsc 14y ago
example? I mean, assuming one wants to live within society and not as an "outlaw" wanderer, I'm having a difficult time thinking of how you can avoid buying or paying for shelter.
- mappu 14y ago
  You could live with your parents, or couchsurf with an understanding friend / partner. Richard Stallman famously lived out of his MIT office for a long period of time. Of course, these lifestyles all have costs, just not necessarily financial ones.
  - loeg 14y ago
    (Neckbeards are a cost.)
  - joezydeco 14y ago
    So do you plan to continue your genetic lineage? Um, I mean, have kids and reproduce? If not, cool. You can die alone in your office. If you do plan to have kids, where are you going to house them? Okay, so they're going to share the RV with you. Do you plan to home-school them? Do you have time? Okay, maybe take advantage of the public system then. Whoops, you need a permanent address for that. I guess you're going private. Hope you saved up.
    - drewcrawford 14y ago
      > Okay, maybe take advantage of the public system then. Whoops, you need a permanent address for that. False, at least in NJ. > For instance, the commissioner of education found that year-long residency in a local campground in violation of zoning laws had no impact on the determination of domicile under New Jersey’s school residency law. It is therefore unlawful for a school board to deny admission to a student on the basis of the legal status or physical condition of his or her home. http://www.edlawcenter.org/assets/files/pdfs/publications/ResidencyRequirementsGuide.pdf http://www.edlawcenter.org/assets/files/pdfs/publications/Re...
    - psc 14y ago
      First off, sure, there are circumstances that make it difficult to seek alternative shelters, but the root poster in this thread said "the alternatives are not for everyone." If you have have kids, you're not gonna be couch surfing. The idea, however, is that for some people, alternative housing is definitely an option, and that point seems perfectly valid. Secondly, there's no need to be negative in your reply. Some people might have different goals than you and it's not very kind to disparage them for that. There are people that don't continue their genetic lineage and have fulfilling lives. Perhaps you're just exaggerating to make a point, or the humor didn't quite convey over text and I'm just taking it too literally, but I don't see what you're trying to achieve with that harshness.

jessepollak 14y ago

Question, what if you own a permanent shelter and then buy/rent/lease another (or multiple) shelters as an investment. Would you still consider that shorting the housing market?

ukoki 14y ago
This would make you 'long' in the housing market, but I fail to understand why people are so eager to buy individual properties as an investment. Individual properties are incredibly risky because the price is tied to so many local factors, what if the area goes bad? What if a bad tenant destroys it or doesn't pay rent for a few months? - for those who believe investing in property is a 'sure thing', why not simply invest in real-estate investment trusts, spreading the risk to thousands of properties around the country (or world), and getting a much less volatile return which is more representative of the 'true' housing market.
- ww520 14y ago
  The benefits of investing in individual properties are: - Other people's money (leverage via loan) - Tax write-offs (interest deduction, expense shelter, depreciation). - Appreciation. - Equity growth. - Rental income. The first two probably can't be obtained via REIT.
  - skorgu 14y ago
    There's a bit of a tail risk benefit too: the utility of a house is somewhat uncorrelated to the rest of the financial market. I.e. in 2008 when the world was utterly insane your house still kept rain off your head. It's easy to overstate but it's a thing.
- robryan 14y ago
  You might think you have local knowledge which allows you to purchase and charge a higher than average rent. Also you might be choosing a house that you want to live in down the track as an investment now. You are correct though that this can carry added risk.
- 14y ago

dxbydt 14y ago

Wtf?! Yes you are short housing...then u buy one...prices go up... you sell the damn thing...at which point you become short again...but with that extra money you can cover your short and come out ahead in a different market. It isn't like gold in that the prices are fairly constant across markets. If my house in the bay area goes up 30% i sell that and relocate to illinois you can bet i will cover the short and come out ahead since home prices in illinois lag ca by a good 150-200k.

zecho 14y ago
But there's a reason home prices lag, generally speaking. Pay also tends to lag. But honestly, the Bay Area is an outlier in the housing market. Imagine moving from Chicago to San Francisco...
elpool2 14y ago
That's true, but not many people are willing to completely relocate themselves to a different part of the country just for a good deal on real estate.
- deleted 14y ago
  [deleted]
moocow01 14y ago
"If my house in the bay area goes up 30% i sell that and relocate to illinois you can bet i will cover the short and come out ahead since home prices in illinois lag ca by a good 150-200k" You need to factor in interest paid on your bay area loan to get the full picture. Just because your house value goes up by a certain margin does not come close to meaning you have profited by that much. This is especially important to understand in areas with large home prices in that the cost of holding the asset (interest) is very high especially early into the loan.
- simonh 14y ago
  Very true, but don't also forget to deduct the cost of renting liveable accommodation from your mortgage costs. Otherwise your comparing the cost of living in a house to the cost of living in a cardboard box.

robryan 14y ago

What about if you get to 60, sell your house and use the money to rent for the rest of your life. In that case you might have higher short term costs as well but to you can stay in short term as you will likely not need a house for long enough to make long term more economical. Also housing markets in different places don't move in unison so there is some room to trade markets and turn a profit. Not sure any of this effects the point of the article though.

ksherlock 14y ago
And don't forget a reverse mortgage.
caf 14y ago
Yes - you are only naturally short the housing you will need for the rest of your life, but if you own a house then that represents housing for the rest of the asset's life. If the life of the asset is expected to be significantly longer than your life, then you are indeed slightly long in housing.
- pcwalton 14y ago
  Similar reasoning applies to willing your house to your kids (or whoever else) -- that's potentially a lot of value you can transfer when you no longer have housing needs yourself.

tomasien 14y ago

This is true, you can't sell your house and then NOT have shelter. What older people can do is sell their house and then move into an apartment and gain financially from this transaction, assuming they don't live for many many more years. However, if they do they "lose" on the transaction: and this proves the "covering a short" nature of the transaction. Wonderful piece.

csallen 14y ago

I know next to nothing about trading. But it's become apparent to me that some of the core concepts/terms in trading (long, short, hedge, liquidity, futures, cover, etc) are very useful for modeling things in other walks of life. So, trading-savvy HNers: Are there any books, websites, or habits that you'd highly recommend to help a newbie become familiar with basic trading concepts?

dekayed 14y ago
I've been taking the Computational Investing course on Coursera. I knew next to nothing about trading and its definitely been helpful with the basics. https://class.coursera.org/compinvesting1-2012-001/ https://class.coursera.org/compinvesting1-2012-001/
- ch00 14y ago
  I have also been following this course and am extremely disappointed in its quality -- not just in poor production, but also in the coverage of course material. I would not recommend this as a primer on investing.
  - 1wheel 14y ago
    http://blogs.reuters.com/felix-salmon/2012/11/21/online-course-of-the-day-investing-department/ http://blogs.reuters.com/felix-salmon/2012/11/21/online-cour...
A__MJ 14y ago
Open an account on thinkOrSwim (etrade, whoever), fund it, trade with small amounts of money and research everything as you go. Arbitrarily, SLV, which is an ETF that tracks silver futures. If you want to play with fire (and learn a lot of cool stuff), trade options (that's what I used to do) Websites: SeekingAlpha (side note: financial articles, SA included, are sophisticated-sounding babble put out by someone that has to meet their quota, not well-thought-out logical explanations by people in-the-know) Make a list of terminology and learn directly what it means to your trading. Pretty much any trading term that has general meaning and isn't arcane and quant-y is googleable. I recall Khan Academy also having very useful videos explaining a lot of terminology (Salman Khan used to be a trader) For example, in SLV: Liquidity: How easy (read: cheap) it is to open and close a position. If the spread on an option is $33.00 (sell) and $33.33 (buy), you lose 1% (most people say $0.33 - I prefer to look at the percentages) just by getting in and out of a position regardless of your trade (I'm ignoring commissions), and assuming the trade reliably goes through instantly. The higher the cost (time, risk of nonfulfillment, money) of opening and closing a position, the more illiquid the position is. In the context of houses, the time and effort and money put into maintenance and time and uncertainty involved in buying/selling, etc make them extremely illiquid investments. If you own AAPL stock and it crashes, you can hit a button and sell it. If you own a house and the housing market collapses, good luck! If I were to invest the cost of a house in some high-volume stock with a tight bid-ask ratio and sell it two years later for the same price by hitting a button on my phone, my losses are just the bid-ask difference and I was never really at much risk of being unable to sell it instantly (during market hours at least). It's a very liquid position. That's just one example, but there are plenty out there. Jump in feet first, google all the things, and don't wager stupid amounts of money.

lotharbot 14y ago

Broadly speaking: you are not "investing" in any market if you only own the amount you intend to use or consume for yourself. You are only "investing" if you own (or have contracts on) more than you intend to consume. For example, having a few bananas in your fruit bowl does not give you a position in the banana market. Owning thousands of bananas you intend to resell, or shorting a banana company, gives you a position in that market. Likewise with housing. Owning enough housing to live in (at whatever standard of living you intend) is a market-neutral position, so you should not be particularly excited by price changes in the market. If you own too little housing, you're "short" and price raises are a negative, and if you own excess housing (extra properties, or a larger-than-desired property) you're "long" and price raises are a positive.

javajosh 14y ago
The more interesting game is the one in which the housing market is not assumed to be homogenous. If you can somehow anticipate a positive change in a local housing area, buy a house there and then sell it after the change occurs, moving to a cheaper, less desirable house, you can indeed make a profit. However, this requires two things: a) that you correctly anticipate the change and b) that you don't want the change for yourself. The nice thing about this play is that even if the change never occurs you still have a house. (There are many examples of positive change - e.g. the new railroad going through Rock Ridge in Blazing Saddles.)
- Datonomics 14y ago
  You can do this. This may seem idiotically simple, but you can easily see how very possible this is. Track the market you are interested in purchasing a home. Watch the number of homes sold vs the number of homes coming up for sale. (simple supply and demand) If you see more homes coming on than being sold you are going into a buyer's market (price dropping) If the opposite, then seller's market (price goes up). By doing this, you can stay ahead of the market. Note: you must seasonally adjust, which is very easy to by getting a history of the market you are tracking. Proof: Look up historical solds vs "on the market." (ask a realtor for this info, keep calling you will eventually find one who will give it to you) Then look at zillow or any other site that tracks historical home prices. You will see the supply leads price, usually by months/years not days or weeks. How can this the be possible? 1. Realtors, on average, are wildly misinformed and much more interested in making a sale than doing market research. 2. It does not pay for large investors to buy individual properties so you do not have savvy investors correcting market errors. (this does not apply to commercial property)

hayksaakian 14y ago

It'd be great if my parents understood this concept. They always seem excited to sell their house when prices go up, and plan on buying a new one in a couple years after buying the first.

kjackson2012 14y ago

My parents bought their house 25 years ago 250k and sold it for 1.5m. Now they are renting a 2 br apt for 1500/month. Their housing cost will be roughly 25k/yr and they are millionaires. The idea that the article talks about how you can't be long the housing market is just dumb. His analogy doesn't work and to say that you can't benefit from house prices going up is dumb.

kelnos 14y ago
If your parents took out a loan when they bought the original house, you're likely neglecting the cost of interest. If not, that's fine too. So they "made" $1.25MM at the sale of their house. That's a taxable capital gain. The rules for that can be complicated, but let's just say 15% to keep it simple. So that drops the gain about $188k down to $1.06MM. Let's say they live for the rest of their lives in the 2BR apartment (I have no idea how old your parents are, but lets just say that's another 30 years). So you say your parents' housing costs will be $25k per year. Let's say that goes up 2% per year. In a rent-controlled area it might be a little lower than that, and otherwise it might be a bit higher. Over those 30 years, your parents' housing costs will be $970k. So now your $1.06MM is down to about $90k. So, effectively, your parents have "made" $90k on their $250k home. That's 36%, or about 1.5% per year. Not great, but better than most savings accounts. Er, wait. Inflation. Wolfram Alpha says that 250k 1987 dollars is worth just over $500k today. So under this model, your parents just "lost" $410k. Not to mention that your parents are now living in a 2BR apartment instead of a presumably-larger house. And maybe that's fine: you can say that your parents' innate housing short got smaller because they've decided that they don't need such a large house anymore, and something smaller and not free-standing will be fine for them. But that's basically like saying you bought a case of beer, then decided you didn't need that much, sold it, and bought a half-case of beer to replace it. Sure, you now have a half case of beer worth of money that you didn't have before, but you can't say you "made money" selling the beer. Now, I'm sure I left out some costs (housing upkeep, property taxes, etc.), and didn't get the capital gains tax quite right, but I hope you see my point here. It may make financial sense to sell your house and downsize, but this in no way means that a home purchase was an "investment".
- 14y ago

jameslin101 14y ago

If you are "naturally" short housing because you need it, can't you could make the same case for all hard commodities and stocks in companies that produce all your future consumption needs?

mbetter 14y ago
No.

brandall10 14y ago

"If house prices rise, the value of your house (the hedge) increases but so does the cost of shelter." What about the ability to rent? As demand for purchasing housing goes up, demand for renting typically goes down (ie. either levels off or regresses). Sure over time both go up, but at a particular slice of time, usually on a cost of living basis one is advantageous over the other. And while you're renting at a cheaper cost than it would be to essentially rent money (let's not kid ourselves, you don't own a house if you have a mortgage), you have liquidity to place in other investment vehicles. Small observation... maybe there's something to it, maybe not, but it seems I'm 2/2 on calling when market swings happen here in downtown San Diego over the past 10 years. Take a look at the delta in rental prices in properties in various classes and compare verses actual selling prices. Just like a P/E for a company, if you can't at least turn a profit on owning a piece of property as a rental, it is likely overpriced. As much as people love to talk about various market factors much of this is emotionally driven. For instance, last year I observed an entry level condo complex in a marginal area rent 1 beds in the $1800-1900 range. The latest comps for that building were $150k for like properties. About 5 blocks away 1 beds in a luxury high-rise were renting in the $2200-2300 area. Comps? High $300k. At the height of the market comps for the luxury high-rise were in the mid $500k area and the marginal property were in the upper $300k area. Back when that was happening, the luxury high-rise unit was renting just shy of $2k. The marginal unit? About $1400. I took another 4-5 other buildings in the area of varying quality and this trend was intact. To be fair this is a small, insular market and these swings are largely driven by speculation from the bubble-tastic situation many overheated markets found themselves in (ie. people owning and flipping multiple properties found the bottom of the market being rented cheaply).

drewcrawford 14y ago
> As demand for purchasing housing goes up, demand for renting typically goes down (ie. either levels off or regresses) While it's true that we had a rather large anomaly 2004-2009 (a.k.a. the housing bubble), and that there are tiny boom/bust cycles in which it is possible to get a little leverage to cover switching costs, prices and rents seem to be mostly linearly correlated [1]. This means that as prices go up, rent goes up. In order for prices to be divorced from rents, you have to hypothesize some weird market externality, like a major recession, or crazy incentives for mortgages, city suddenly becomes a tourist destination, etc. [1] http://static3.businessinsider.com/image/4fb9fad169beddbc29000015/image.jpg http://static3.businessinsider.com/image/4fb9fad169beddbc290...

ash 14y ago

Seems to be overloaded. I had better luck with (Coral) cached version: http://thezikomoletter.com.nyud.net/2012/12/10/you-are-naturally-short-housing/ http://thezikomoletter.com.nyud.net/2012/12/10/you-are-natur...

bitteralmond 14y ago

Can someone please translate the trader jargon out of this article?

mdonahoe 14y ago
I cant figure it out either, but I think it just means that you will always need shelter, so prices going up is bad for you. At first I took "shorting" literally, and thought it meant I borrowed a house, sold it, and now I need to buy it back at some point. It probably just means "in need of", with a bit of financial connotation? "Define short" 7. low in amount; scanty: short rations. 9. below the standard in extent, quantity, duration, etc.: short measure. 10. having a scanty or insufficient amount of (often followed by `in or `on ): He was short in experience.
- regularfry 14y ago
  It's literally the last definition there: "having an insufficient amount of." "Shorting" refers to the process of getting to the position of having an insufficient amount, assuming you start neutral or long. He's saying you are "born short", not that you interact in any "shorting."
mdda 14y ago
Because everyone needs to live somewhere, if they don't own a house, they are hurt if house prices (and 'therefore' rents) rise. To avoid being affected by something external (like house price fluctuations), it makes sense to own a property (or invest in property-related stocks). But only enough to cover your needs. If you buy a too-big house, or several houses, you'll be in the situation of hoping for house prices rises - meaning that you'll benefit if prices rise - beyond the additional cost that you'll face in the current property markets. The surprising point of the article is that it is natural to assume that no property = no exposure. But that's not true in the case of housing.
- CrankyPants 14y ago
  I'd pay for you to do this in higher volume.

benjaminwootton 14y ago

I'm surprised we don't see more discussion of house prices on sites such as this. In my opinion it is THE issue affecting our generation. Specifically for HN, the high cost of housing severely restricts entrepreneurship. If you are paying 50% of your income on a rent or mortgage, you are of course less likely to start a business, and the cost of doing that business in terms of employees salaries and commercial rents make it less viable. Also consider that your suppliers, and their suppliers, and their suppliers ad infinitum, all have the same high costs ultimately derived from high housing costs for their employees. This all adds up across the country and the whole economy is made less competitive and agile as a result. With lower housing costs there would certainly be less unemployment. The sad thing is that the even intelligent people are duped into believing the myth that high house prices are good for them. Clearly lower prices mean more disposable income, which is usually a good thing? Clearly high house prices barely benefit anyone as we all need a house, and the next house you buy would likely have gone up by a greater price than the one you have now? And yet we persist - 'we MUST get on the housing ladder' and we blame those nasty banks because 'they aren't lending any more' when all they are doing is scaling back lending multiples from the absurd back to the ridiculous. All that high house prices achieve is to keep young people into debt serfdom, keeping us on a treadmill servicing massive mortgages for the same bricks our parents bought for 20% of the price. We really could be out doing something much more worthwhile. Edit - you may wish to read this to put the madness of this credit bubble into perspective: http://www.housepricecrash.co.uk/forum/index.php?showtopic=53593 http://www.housepricecrash.co.uk/forum/index.php?showtopic=5...

jseliger 14y ago
Word about this problem is trickling out, slowly—I like to cite Edward Glaeser's The Triumph of the City and Ryan Avent's The Gated City on the subject—but I think a lot of people simply don't understand supply and demand. One time in Seattle I was driving home a friend, who was in law school, and she complained that there was too much construction in the city, and that construction made it less affordable. I said that more units make the city less affordable than it would be otherwise, and she said that they were tearing down "affordable" housing to put up housing for "rich people." I tried to explain that, if given space that had 12 units now has 200, the overall affordability rises, but she totally didn't or wouldn't get that point. It was a bit like the scene where the Martian and man meet in The Martian Chronicles. Except that I'm right and she isn't. But until more people connect supply restrictions with cost, we won't get (much) improvement. (Side note: I just read this: http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_cool_it_needs_more_housing_units.html http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_c... on the subject.)

polskibus 14y ago

I found the author's style engaging and simple enough for the broader audience. I'd like to see more of this, perhaps continuation of the thought and description of mortgage backed bonds and CDOs ?

thisone 14y ago
maybe the PlanetMoney podcast? The episodes they did with This American Life about the mortgage crisis back in like 2008-2010 were brilliant (imo), and then they bought their own CDO toxic asset in 2010, I think, and reported on it. http://www.npr.org/blogs/money/ http://www.npr.org/blogs/money/ http://www.thisamericanlife.org/radio-archives/episode/418/toxie http://www.thisamericanlife.org/radio-archives/episode/418/t...
- zecho 14y ago
  Toxie (the given nickname for the toxic asset they purchased) was a long-running recurrence on Planet Money. Here is the archive: http://www.npr.org/templates/archives/archive.php?thingId=153290839 http://www.npr.org/templates/archives/archive.php?thingId=15...

stanfordkid 14y ago

what about renting vs. owning? Can't you arbitrage between the two. http://www.nytimes.com/2008/05/28/business/28leonhardt.html?pagewanted=all&_r=0 http://www.nytimes.com/2008/05/28/business/28leonhardt.html?...

josephlord 14y ago
Absolutely. But you should realise that while you are renting you are 'short' on housing and you will either need to keep buying housing monthly (a.k.a. renting) for the rest of your life or buy a house later (hopefully cheaper or at least more affordable to you than you could now). There is nothing wrong with being short on the housing market you may have no alternative or you may have much better places to invest your assets or you may just think house prices will fall. No option is risk free but the lowest risk approach is to match your lifetime needs to your assets so that you don't care what happens to house prices.

hans 14y ago

this can't be good, that hedge funds are currently buying up housing in a huge way, moving into rentals especially, going long housing, expect a rent grip like no other in the next 3-5yrs : http://www.marketplace.org/topics/economy/hedge-funds-crowd-first-time-buyers-out-housing-market http://www.marketplace.org/topics/economy/hedge-funds-crowd-... http://www.nytimes.com/2012/12/09/business/financiers-bet-on-rental-housing.html?pagewanted=all&_r=0 http://www.nytimes.com/2012/12/09/business/financiers-bet-on...

paulsutter 14y ago

This is an extremely long-winded way of saying that rising house prices are only good for owners who want to move to a smaller house. The article misses that rising house prices can also be good for a person who intends to move to a place with cheaper housing. Net net: rising prices good for near-term retirees and rental property investors, bad for almost everyone else.