For those here doing work on your home, why now?
Furthermore, interest rates are very low and there is a perception that this won't last, so people are scrambling to get a loan.
I believe this because I am one of those people and I know several others in similar situations. I'm in escrow right now.
I hope it goes on longer, more time to build up more leverage selling trash to folks who believe oft repeated things as if they were the word of god.
long tail risk: assets that have problems that take a long time to affect the price
HY: high yield, meaning they change quickly in price by large percentages and can make more money quickly
trash: low priced stocks for crappy companies
bottom falls out: market takes a dive
garbage: same thing as trash
collateralized HY coming due: investments backed by assets that will default
leverage: money
"oft repeated things": aphorisms about finance that are often wrong, in this case the poster you replied to's comment.
I'm probably wrong on half of this and I still don't really get what you are saying. Excuse my ignorance.
> long tail risk: assets that have problems that take a long time to affect the price
Not necessarily, could be any asset or derivative that could be susceptible to experiencing large declines in return relative to normal conditions during certain periods of time
> HY: high yield, meaning they change quickly in price by large percentages and can make more money quickly
No, high yield bonds. Avg yield on 4.5-5 year maturing ones right now is about 6%. Or at least the 1217 cusips I track ASOF mon close.
> trash: low priced stocks for crappy companies
Not just stocks, but yes
> garbage: same thing
^^^
> collateralized HY coming due: investments backed by assets that will default
about 91.8% of HY bonds coming due in 4.5-5 years are not backed by any collateral. "Will default" is subjective, but my work has about 61% have a good chance of default (from ratings, current price of the bonds, 10-q/10k data available), not including liquidity premiums/discounts for people who "want out now", not including leverage actors take when buying/lending such now like they do.
> leverage: money
Borrowing money in order to increase ones exposure (or contracts that act as such), larger returns/drawdowns are expected if (not) managed properly compared to not borrowing to finance a position (or buying the underlying out right in cash).
> "oft repeated things": aphorisms about finance that are often wrong
Or wrong in certain contexts.
Under the efficient market hypothesis, if the prices are dropping because of many bankruptcies forcing a sale, you will also feel that the price is not worth buying, or if there's actually little to low risk, then the price would get bid up by many buyers (assuming all buyers are perfectly rational).
textbook vs reality… having a rational for buying something is not the same as an objectively rational choice.
Imagine a $500k house. If you paid cash then you save interest payments and you could invest that into other things. But paying $100k and keeping the other $400k to invest will out perform the former strategy considering today’s interest rates of 3%.
If rates go way up then home asking prices will fall and a cash purpose begins to make more sense. But they haven’t for nearly 40 years. And there’s more money than ever out there which means there is less demand to borrow it which means interest rates continue to fall as the bid drops since there are so many eager lenders.
* historically low interest rates in the last ten years means the actual amount of interest you're paying each month vs principle is not that high.
* Tax Cuts and Jobs Act reduced the amount of property tax deductions that were typically available in HCOL blue states like NY and California.
* Standard deduction increase (also part of Tax Cuts and Jobs Act) was increased so high that many would be now be better off not even bothering to itemize deductions, even if they had a mortgage.
When I was thinking of buying in about 2017, I did the math, and due to the low interest rates and the lack of any other deductions, neither mortgage interest nor state property taxes would have been high enough to offset the standard deduction. In effect, not a single tax advantage would be available to me with buying a house vs just continuing to rent.
Honestly, the tax cuts really benefit people in this situation. Your effective tax rate is much lower than before and although you only get a piece of the property/income tax write-offs, it might make for lower effective taxes.
In terms of buying VS renting, although I bought a home I still think renting makes a whole lot of sense for a lot of people. Buying a home is expensive in terms of furnishing it, customizing it, etc. But also in selling it and related expenses.
Imagine your home can be sold for 900k. Around 6% ($54k) of that is going to be taken away from an agent. You'll probably be buying a new home so you have to factor in closing costs for the new mortgage, assume $15k and then moving expenses, etc and you're looking at $75k-$80k. So unless your home has appreciated to cover these costs, you're losing potentially significant money. A renter doesn't have to face this at all and likely pays less in rent than the mortgage and property taxes would be.
Buying a home makes sense if you plan on living in it 10 years or more in many cases I believe. By then you'll likely get back anything you've put into it and have built decent equity. The best part of buying is that as time goes on, your monthly payment begins to look like a bargain as rents and home prices continue to rise - once again, about 10 years in.
https://tradingeconomics.com/united-states/housing-starts
That being said, lumber prices are up 50% for just six months ago.
How much of this is because of wildfires causing disruptions?
This site[1] has an outdated table. California was 6% of lumber production in 2015.
Most of the timber production in California comes from way up north, in the Eureka area and in the Sierra Nevadas. This area is somewhat resistant to fires since it gets so much more moisture and precipitation.
No idea was just thinking out loud
Saw mills aren't sure they are going to buy logs and living trees are better than rotting logs and so on.
> Construction of new U.S. homes surged 22.6% last month as homebuilders bounced back from a lull induced by the coronavirus pandemic.
"bounced back" being the takeaway. It's just bouncing back to somewhat normal levels after it being down a lot.
It's a non-story.
Industries recovering to pre-pandemic levels is anything but a non-story. There's nothing inevitable about that happening right now. It's news.
Even the people that are there for work and already knew their city reality may also be realizing their gained happiness out of the city is worth more than the financial boost of their job in the city.
Well, I do not have a huge sample to drive any conclusions. But I know a couple whose adult children live in other parts of the world (one in Miami, the other in London).
So the couple is choosing, finally, to sell their NY city home and move to south east Florida closer to one of the children.
Largerly, besides emotional reasons (lack of feeling secure, feeling of being unwanted, feeling of being robbed by local taxes, wanting to be closer to their children) -- they no longer see that their home price will continue to go up to justify sitting there as an 'investment vehicle'.
They are closer to retirement age, so their needs, perhaps are different then others.
They also do not want their children, under any circumstance to move back to NY city or NJ.
Long term thinking isn't something everyone has.