Record low housing inventory is 'freaking us out' says Redfin CEO
cnbc.com
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7% typical agent + escrow fee (3% buyer, 3% seller, 1% escrow). May be able to get as low as 5%
~15% capital gains tax
~10% CA income tax
Even on a sale of a 1br condo, these fees can add up to $50-100k depending on the purchase price and net gain. That's quite a chunk of change! Enough to make one keep the unit on rental market
agent fees is a big reason that I don't buy a house. unless you're in a booming market it's tough to make back that fee.
The tax credits, inflation working in your favor (instead of against) alone is generally enough to cover the fee after 5 years.
https://www.nahb.org/en/research/housing-economics/special-s...
The 37% are mainly rural/midwest where the houses are under $500k.
You've succinctly described why so many parties have a vested interest in sustaining any housing bubble. Many palms getting greased along the way, and very few people who benefit form the implosion.
...you're not looking for sympathy, are you?
Just before the Oracle sale when it did a reverse split to get back over $10 a share I sold it for less than 5% of its value from 1999.
That taught me a very painful but very solid lesson. You take profits because they are profits, not taking them puts them at risk. When Facebook went public its stock went down. When it got to about 1/2 its opening price I bought some. When the value of that holding doubled (100% return less taxes) I sold it. Had I kept it I would have more now, the profits from that sale helped fund a purchase of some Tesla, which I sold when it doubled in value. Which has helped in other purchases.
Translating that back to your situation, if you're in real estate and you have some solid gains, consider selling, getting the gains and then re-investing in additional real estate to continue to ride the bubble. By taking out profits over time you may not make as much as you could but you also won't lose as much as you could.
There is always the possibility you will lose more by moving the funds. Like if Facebook had fizzled, that move would have lost you money.
You could have the situation you by 100 of A at $10, for $1,000. Then you sell it when it goes up to $15, and after paying fees/taxes keep $250, then invest the $1,000 in B at $10 each. And B craters and you lose all of the value in B.
In that scenario you lost $750. ($1,000 lost in B, $250 gained in profits from A).
Now its true that A could continue on its path to $20, and had you kept it you would have instead made a profit of say $750 after taxes and still have your $1,000.
What I learned in 1999 was that that is not a good strategy. But it is the first strategy that everyone sticks with it seems (and certainly I was holding on to!), "Hey this has doubled in 5 years, in another five it will double again!".
And part of my thinking was "Gee if I sell it I'll have to pay all these taxes, I'd much rather think of my self as having a net worth of $x rather than $0.66x." Lesson learned.
It's that you do all the stupid stuff when it's only $5k to lose instead of 25 or 50.
For one thing, real estate doesn't seesaw with such ferocity as stocks. Sure, bubbles form and prices crash. But the floor for real estate is that people need a place to live, and population goes up. A stock can go to zero, while a house can be underwater (figuratively, let's hope), which matters if it's financed. Stock options can become worthless, while land very rarely becomes worthless.
Buy and hold is an option with real estate, because in general the asset price will at least track inflation at a minimum. It doesn't rot like an overripe banana like in your Sun stock example, where holding it too long was a punishment.
Real estate developers will sometimes take a condo project and turn it into rentals if the market turns before they're done with construction. The reverse can happen, rentals can turn into condos in a hot neighborhood. Those aren't the only elements to consider, but for an illiquid asset real estate is surprisingly flexible, as I'm finding out.
Put aside the fact that I can't live inside my stock options if I need to downsize my expenses.
> Put aside the fact that I can't live inside my
> stock options if I need to downsize my expenses.
So they eat ~8% (tops).
Landlords have to buy and hold because they eat the taxes.
Redfin caters primarily to homeowners so you aren't really their target market.
I read it as simply a recount of why inventory is low:
1. Credit worthiness is preventing many families from owning a home
2. Home sellers are opting to rent out rather than sell
3. Cities are adding workforce population but the amount of single family units is not keeping pace.
I'm definitely seeing this in my area (Beaverton, Oregon). A house down the street sold in a few hours this past weekend for $500,000; which is $300,000 above what the owners bought it for a year ago ($200,000). They had a steady stream of people going in an out of the house the entire day.
I'm tempted to put my house on the market, but where would I move to? I love my job and don't want to move out of the area.
I'd worry about buying another one later.
Your market is red-hot BTW, so if you feel like a gamblin' man/woman...
Edit to add: The above statement is false.
http://www.bankrate.com/finance/taxes/capital-gains-and-your...
https://www.nytimes.com/2017/05/09/magazine/how-homeownershi...
My advice (for the little it is worth, as I am not a professional in these things) is not to assume you know the buffer to apply if you're trying to make an offer. We used our own previous attempts and our studies of comparable sales in the area to inform our offers.
As far as I am aware, the FNMA/FDMC system only guarantees mortgage loans for properties with existing [appraisable] structures, so borrow-to-build lenders face significantly higher risks and lower liquidity. It's harder to buy undeveloped land and build a hovel on it from local materials, than it is to buy an overvalued 5-bedroom McMansion, built from twigs, bird spit, and a 10-year horizon for its planned obsolescence.
And if true, it'd also be interesting to know to what extent: the current overheated markets in SV/NYC are skewing the numbers; and (2) foreign investment (read: money laundering) may be weighing in on the numbers, as well.
Well, plenty of people would very much like to. But in practice this is often quite difficult in many high-value jurisdictions, for various reasons.
"[on Calculated Risk, housing economist Tom Lawler estimates] that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.56 million in April, down 2.6% from March’s preliminary pace and up 1.5% from last April’s seasonally adjusted pace. Unadjusted sales as estimated by the NAR last month should be about 2.8% LOWER than last April’s pace, with the “adjusted/unadjusted” YOY growth difference reflecting this April’s lower business day count, as well as the different timing of Easter (April 16 this year vs. March 27 last year.)
On the inventory front, local realtor/MLS data suggest that the monthly increase in the number of homes for sale last month was slightly higher than last April’s increase, and I project that the NAR’s estimate of the existing home inventory for April will be 2.00 million, up 9.3% from March and down 5.7% from last April."
EDIT: link: http://www.calculatedriskblog.com/2017/05/lawler-early-read-...
"It's a new landlord nation where everybody is renting out their basement.
When somebody moves up they don't sell their old place, they rent it out to
somebody else, and it's because they want to keep that 30-year mortgage for 30 years,
and it's because they can easily find somebody on Airbnb who will take the place," Kelman said.
The bigger point is that the rental pool is so large, that it's really easy to fill a vacancy even if it's just a single home rather than a large rental complex.
I am not informative on the housing market, neither do I work in related industries, so I could very well have the wrong impression here about this matter. But I haven't heard housing inventory reaching record low (like the current level) before, given CL/BP/local newspapers exist for a few decades by now.
For someone who aspired to one day own a home, the realization that prices have jumped 125% over the last decade is disheartening to say the least.
The incentives of existing owners are against development.
Many reasons, of course. But one is that, perhaps, builders see the demand being temporary and unsustainable. I'll assume the OP is talking about VanCity (which is the most overpriced market on the planet last I heard); is it really smart to build units in such an environment, when housing demand is outpacing all forms of economic growth? Wouldn't want to be the bagholder...
The other issue that builders are incentivized to build property for investors and speculators rather than for people to actually live in them.
Faced with a choice between a change in zoning laws that would allow more construction (thereby preventing price increases that would benefit current holders of real estate), and maintaining the status quo with the effect of driving up the value of their own holdings as well as the value held by any homeowners who voted for them, what do you think they are going to do?
But I get it... I have been in my house for the 10 of the worst real estate year but on paper, my head is above water however if I sell I loose money.