In January, there were more real-estate agents than homes for sale in the U.S.
wsj.com
wsj.com
I suspect that once the moratorium is up, there will be a lot of landlords looking to sell. They've been not getting rent for a long time, and they may have to sell in order to get out of the hole they're in. Many still have mortgages, but they will have a hard time collecting a year worth of rent. But the bank won't have the same problem foreclosing.
Local governments should consider all of the perverse incentives they create when making these sorts of changes.
(If you do this, note that if you let someone stay in your Airbnb for a month, they also cannot be evicted in some jurisdictions.)
Say a potential buyer has a mountain of cash. They can scoop up a property with no issue. Financially, owning makes sense to them (no interest payments due to a mortgage), especially if they pick location correctly and see a property value increase.
Next, say a potential buyer has a small pile of cash. A mortgage will almost certainly be needed to finance property, though this buyer should be able to cover the down payment. If location is right, it should work out well for this person, but it will take decades to see a positive return.
Finally, say a potential buyer has little-to-no cash, living month-to-month on rent. They simply cannot afford to purchase a property and/or get approved for a mortgage.
Let's consider each of these three categories of buyer in your scenario, where a local government makes it more difficult to seek rent. The wealthy buyer doesn't care, unless they own many rental properties, in which case they'll possibly have a harder time filling their units. The second buyer will benefit the most, potentially allowing more of this class to purchase properties (theoretically, more properties will be on the market). However, the third buyer is out-of-luck because they simply don't have the financial resources to outright purchase a property. Decrease the number of rental properties, and rents will increase, unless the number of new buyers balances existing renters.
In summary, in your scenario, I would bet the wealthy will sell some properties and cash out, while the middle class will scoop up more properties and be able to pay for higher rents. The poorest, however, will likely need to settle for a lower overall standard of living.
This is why home buying assistance exists and is a very very good program for the government to subsidize, renting should, ideally, be a tool for those just starting life and those with the means to indulge in luxury - most people should own their homes since most people are living in the same place for extended periods of time. The exceptions to that are rare and need consideration, but the majority of renters today are people who are stuck in the rent cycle or don't know any better.
I'd be very curious to know what kind of exceptions you mean.
I've owned where I live a few times, each time it ended poorly. Now, I rent. The problem is, I can't buy what I want to live in even if I wanted to buy. Here's what I want to buy:
- Inside the city limits of Seattle; location is not fungible, I can't substitute a property in Spokane or Atlanta for one in Seattle.
- Within a 10-minute walk to a train station or rapid bus route.
- An outdoor space of my own, not a shared garden but a balcony or private garden of some sort.
That's it. That's the Tweet.
You'd think that would be trivially easy, but the exactly two places I've seen where property can be owned (one is a townhouse development in Rainier Valley with an astoundingly expensive HOA, yet still sold out and the other is a condominium development near the stadiums but the handful of units with a balcony sold out immediately) are unavailable.
There's nowhere else. No condos, no townhouses, no rowhouses, not even any detached houses. It's all rented apartments. No one is building ownable properties, because of a combination of striving for rental returns, zoning, and Washington's condo liability law.
It is financially advantageous to own a property, it is usually financially advantageous to own a property if you purely want to rent it out - renting is a profitable business that's why there are a lot of really large companies holding insane amounts of property in the US. If the city/region has some guaranteed demand for rental numbers (like uni stundents and young people working their first job) then the math changes to make it even more advantageous to rent - what you're essentially seeing is that owning property is the correct decision, it's so correct that the market for property is being soaked up by landlords that can make a tidy profit on the margin and are more reliable load recipients than individuals.
I'm sorry you're in the housing situation you're in because it sucks but, if you did see two identical places you liked and one was available for sale and the other for rent then it'd be the correct financial decision (really correct in fact) to buy the property.
Various regions within the US have toyed with ideas around taxing property ownership for investment more heavily but there is a lot of lobbying money pushing back on that. A lot of places (including BC where I'm at) actually have a primary residence tax credit for owners - if you own your property and use it as your primary residence you get a bit off your taxes to help swing the balance back toward individual owners.
Is it still the correct decision if I do not have a 20% down payment (or even a 5% down payment)?
Depending on the real estate market and your specific property, a monthly mortgage payment has a good chance at being lower than comparable monthly rental payments. Bear in mind: every dollar paid for rental is burned, whereas every dollar paid to a mortgage has at least some potential to be recovered in the future. And think a few years out: say you pay $800/month for rent. Over three years, that adds up to $28,800. If you live in a hot area, your rent will likely increase, so you'll pay more in the long run. A mortgage payment, however, will not, and you might get that $28,800 back through renting it and/or selling.
I see renting vs ownership as "XaaS" vs in-house. Renting is essentially Housing as a Service. There's a use case for XaaS, but at a certain point, owning critical infrastructure just makes sense.
This is a valid rule of thumb only because transaction costs are generally much higher when buying a home than when renting. Typically 6% of the cost is siphoned off by brokers (3% to each side) and the fees people pay to take out a mortgage loan are significant. Fees you pay to start a lease generally amount to only a small fraction of these.
1: This gets complicated because (at least in the US) most people don't leverage their investments at a 5:1 ratio, but do leverage their home value by that much.
In markets where people want to live. Owning a couple acres around the far-flung suburbs of Seattle or DC will net you some good money.
No one is buying housing in Gary, Indiana. Floods have annihilated many towns around the Mississippi River, and there is plenty of real estate in Detroit and New Orleans that sure as hell ain't gonna exceed the S&P 500 anytime soon.
As far as "markets where people want to live" goes: yes, in any market, you can outperform the average if you can predict the future better than other investors. Some of the places around the Mississippi River probably used to be considered good investments; now they aren't. If this whole full-time remote thing catches on, it's possible that the bay-area will drop in prices. It's also possible that only part-time remote catches on, and interviews resume in person so people want to stay in the Bay Area. Heck, it's unlikely, but possible, that Cupertino or Saratoga decides to rezone large swaths of the town for more density and the increase in supply drops prices.
Basically - you're trying to avoid the scenario where you live in a place so short that the exchange cost you pay to flip it on the far side exceeds the amount of rent you'd pay to reside in it.
Determining the exchange cost isn't always straight forward - the 6% given above may or may not be realistic for you, there are some brokers that will take a 1% cut and those folks are more common in hot markets, and there may also be taxes you need to take into consideration.
Also, there is a risk of getting stuck with a lemon - if you purchase a house which seems fine but actually has extensive water damage and mold you could lose a portion of the value, this is a really significant consideration in quiet housing markets (like the midwest) and less important in areas like SF where most of the property's value is likely the land itself - in either case you're taking a big chunk of the value of the structure out of the equation when reselling the property but in the later case the value of the structure is rather minimal while in the former case the land is essentially free.
Basically you almost always want to buy if you are able to. The money you're spending on housing when you own a property is accruing as equity instead of being siphoned off by a landlord.
In principle, the principal payments are doing that (interest payments are being siphoned off by a bank, instead of a landlord), as is any delta in the property value (but if that's negative, that's anti-equity).
Put 10% down on 1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon.
Also, if it's your primary, then tax free income up to that 500k if filing jointly when you sell if you lived in it for 2 years. Hard to beat.
1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon.
lol what? Trees fall on houses all the time. Pipes break and water damage can seriously impact structure & foundation. Dumb-ass kids accidently drive their mom's car through the veranda. Houses burn down and kill people. A factory shuts down and now there are no more jobs so everyone leaves, driving your house price down.
Assuming a home is a secure investment -- even in a hot market like SF or DC -- is foolish.
> More than one-quarter (27%) of reported fires in 2014-2018 occurred in homes. Even worse, more than three-quarters (77%) of civilian fire deaths and almost three-quarters (73%) of all reported injuries were caused by home fires.
> During this five-year period, US fire departments responded to an estimated average of 353,100 home structure fires per year. These fires caused an annual average of 2,620 civilian deaths; 11,030 civilian fire injuries; and $7.2 billion in direct property damage.
https://www.nfpa.org/News-and-Research/Data-research-and-too...
Meanwhile, someone not investing on margin will be up 60%.
Even in a mildly inflationary economy, making fixed nominal payments on a salary rising more in line with inflation for an asset valued more in line line with inflation can be a fairly attractive deal.
But none of the above is meant to be investment advice. Homeownership has its risks and certainly loses flexibility.
- $3300 in principal + interest
- $1000 property tax
- $500+ HOA
- $200 homeowners insurance
That is $5000+ monthly and requires $200k upfront (and significant upfront cost as the brokers are paid off). How is that comparable in after-tax payments to renting a $3000 apartment?
I must admit that I had forgotten how high property taxes in the US can be, though. HOA surely depends a lot on what exactly you'd be buying.
The standard deduction was increased for everyone to compensate for it.
Owning in SF is generally more expensive than renting. Why? Because house prices have appreciation assumptions already priced in. Plenty of people lose money every month versus rent but appreciation more than covers it.
In a market where housing development is less restricted and construction occurs to meet demand, the addition of more investor capital means that more houses will get built. This is a good thing! It means that renters who don’t have enough wealth to build a house still get a place to live. In that case, you want to make it easy to be a landlord to encourage more capital to be in the landlord business and building homes.
I’m not convinced higher prices means more supply for housing. Building a house is labor intensive, and labor costs increase with housing costs. As stupid high as Bay Area housing prices are, new construction costs are even worse. It’s literally cheaper to build houses elsewhere and ship them in. However, in SF, at least, the construction worker unions are trying their best to block such projects: https://news.ycombinator.com/item?id=26526455
It doesn't always work that well in practice as investor demand can drive housing stock that is a poor match for housing demand. In theory this should all wash out in a free enough market, but no guarantee that won't take many decades - so it's not much help to people needing housing now.
The structure of investment vehicles for this makes a big difference in what is actually built too, and how the development companies are funded.
Only if you don't count the equity built from the rent that you can cash in by selling at pretty much any time.
Point is, when renting out an appropriating asset for the same as the monthly payments on your loan, defining "making a profit" as "completely paid off my loans on the appreciating asset that I can sell at any time" is a bit disingenuous.
What do you mean by this? You still have the property which presumably hasn't depreciated in price.
Oh yeah, one of the towns where I have property just pulled a new rental regulation out of thin air requiring a notification filing and fee for each rental property per year or on each new tennant lease. This country is turning into regulation hell.
Why would you personally own the property as opposed to putting it under an LLC or Corp? You would still have to pay taxes on personal income but it offers a lot more options on how to recieve the income and handle expenses.
So on one hand you could say the renters get a good deal but in the long run the upward price pressure makes it tougher for everyone.
In some jurisdictions, they can establish residence within 3 days and then can't be evicted without a court/judge being involved.
Too move we’re left with living in a hotel until something opens up.
My mother-in-law has 2 properties in SoCal and is dealing with this exact situation. She is speaking with a lawyer this week, in fact. I won't get into all of the details but will say that she owns these properties outright but has not collected rent on either since April and May of last year...
Is this not just due to the eviction moratorium?
I am almost certain this will be a trend.
This is weird to me - the renter wouldn't get an extension on remaining in their domicile if they payed for ten years straight and then hit financial hardships - if the renter is going to be bankrupted by Covid then they're better off hording as much as possible until that point.
Also, you need to remember that, during this pandemic, people are feeling real financial pain. There is a possibility this renter is trying to stretch their budget to afford food and power as-is, the landlord is, at worst, going to lose some value out of their held properties which may hurt their long term financial health but won't threaten them with immediate homelessness unless they're extremely overleveraged.
This isn't to dismiss the pain and stress of being a landlord - but there is a lot of pain going around right now and if your representative in congress or senators aren't fighting to distribute some relief for it then it'd be better to take that up with them. The economy is under heavy stress.
I fail to see how people could be struggling so when the US treasury has gifted people with tens of thousands of dollars.
Loss of work, loss of child supervision (in-person schooling and childcare closures), at times sharply restricted number allowed in stores (meaning parents have neither time without children to shop nor practically the ability to take children to shop) => increases reliance on delivery services for essential shopping with extra charges and higher losses; extra unemployment at its highest level (which wasn't maintained) was calculated to be approximately full-income replacement, so with the lower boosts, it still wasn’t full income reimbursement and large areas of the economy either haven't fully reopened or haven't fully rebounded., and for those who have been out of work the $3000 (+some for children) only compensates for a few weeks of the gap that hasn't been filled by the partially-boosted unemployment.
> froze evictions
Freezing evictions doesn't reduce the financial hardship of renters (who still owe the debt, they just aren't evicted for owing it), but does increase the hardship of landlords. It's not the same thing as covering rent.
> I fail to see how people could be struggling so when the US treasury has gifted people with tens of thousands of dollars. Because people have faced more tens of thousands of lost income or added expenses.
The US government acts slowly to provide relief and the last bill passed purely on a party line (even with one person celebrating the bill while voting against it for political reasons) - if people are facing financial uncertainty I'd definitely understand if they're counting every dollar that comes in and hording it due to the uncertainty of when this will actually end.
Also, most people, even most people on here, don't have 20k to throw around willy-nilly even if they have assets exceeding that amount.
Maybe Bill Gates and Bezos could execute a one time rent forgiveness program from their personal values - that might even work out pretty well in the short term, but it'd be placing too high of a burden on those two in particular.
All the billionaires in America do not just have that much money just laying around. This would be a budgetary concern of the federal government. No citizens could individually pay everyone's rents.
Well, to that I'd say, if my money had anywhere near the impact of everyone's money pooled together I'd do it. Until then I'll keep advocating for public funds to be spent this way, and I assume OP would as well.
If you lend each completely broke person $100 they are still about to be completely broke and your investment will be wiped out after a brief respite. But if you hand each bankrupt person $X,000 then many might be able to dig themselves out of the hole and remain productive members of society.
You can stress about this and spend a lot of your time chasing down someone for repayment. This is the wrong approach IMHO.
Instead just sure in small claims court (limited to $5,000). This is done without lawyers. You simply present your lease agreement, bank statement and any relevant communications.
Once you get that judgment give it to a collections agency and forget about it. The agency will take a percentage of anything they collect.
Then just look at anything you get back as a bonus.
Depends on your state. Here, small claims is limited to $25,000 with no limit for eviction suits.
Also, as others have noted, different jurisdictions may have higher limits.
But to go to civil court to recover $20,000 just isn’t worth it. Your legal expenses will be significant and you face the prospect of losing or being unable to collect.
So by limiting your potential damages you don’t incur litigation expenses, spend less time and stress on it and your net return may be similar.
What’s better? $5,000 it costs you nothing to get a judgement for (other than a nominal filing fee) minus 10-20% for the collection agency or $20,000 you may need to spend $10-20K to litigate?
> I often wonder how people on the verge of eviction think about this kind of thing — whether it is salient or even understandable.
If they're on the verge of eviction they're probably more worried about keeping heat, water, or food going. Landlords are an abstraction if your kid hasn't eaten in 2 days.
Sure, but the issue is that the suing party isn't getting anything out of it. You sue for damages, the defendant has nothing, so their credit score goes down.
That's fine, they get punished+the credit score decrease helps future landlords avoid the same situation with that tenant. But as a suing party, you get literally nothing out of it. The defendant's credit score going down doesn't help you personally one bit, you get no restitution or compensation.
People who aren’t paying rent after the pandemic started likely aren’t doing it for fun. Most likely they are underemployed, hence collections will stack up. “Living within your means” assumes it is even possible to find employment and a handful of life/medical/mental/family stability that not everyone has.
You seem to underestimate how much of modern life in the USA depends on credit. Electric, water, telephone, internet service require credit or suffer the costs and inconveniences of prepayment. Rental housing almost always requires credit checks in any desirable market.
You also seem to assume that collections can never be converted into a lean on your assets or garnishment of your wages. And that doesn’t even begin to crack the strange and painful tactics debt collectors use on your family, employment, friends, and other social pressures.
> This is all a result of me living responsibly within my means.
Implying that not using credit cards is how one lives responsibly within their means is kinda weird and wrong. Yes, you can live irresponsibly with a credit card. You can also live responsibly with it too. And it will give you extra consumer purchase protection (in case of a fraud or a bad fair vendor), as well as 1-5% return on purchases.
Some would argue that missing out on that 1-5% return and extra consumer protections is the irresponsible move. But either way, the whole "using credit cards means living irresponsibly and outside of their means" is absolutely nothing but a complete lack of understanding of how credit works.
The preceeding is a statement about most of my life. I've gotten better at such stuff and my lifestyle has changed after grad school -- and since I didn't have credit cards while living below the poverty line and generally being a schlub, I didn't fuck up my credit, so a few months of having a credit card as a de facto adult earned me a near-perfect credit score when I needed it.
Functionally, a credit card would work exactly like your debit card or cash, except you would also be reaping all the benefits of credit cards and improved credit scores.
But overall, I agree with your point about cost-benefit analysis and impulse control being difficult to overcome.
> I often wonder how people on the verge of eviction think about this kind of thing — whether it is salient or even understandable
My answer is that people in those situations think about these things very differently than people who have never encountered them. Or, flip it -- if dings on your credit score are the worst speedbump that society has thrown in your path, you probably don't have the skills necessary to live broke.
I didn't come for financial advice, but thanks
This situation is going to play out over the next decade at least and it will be terrible for (almost) everyone involved.
If you're renting and can afford to: pay your damn rent! In five years, you don't want to be staring down a judgement for a year of rent, plus interest, plus "collection" fees.
Or, in today’s market helps get you to the front of the line in a multi-offer situation. Since the sellers agent automatically becomes the buying agent, the listing realtor is highly incentived to push your offer to the seller. In a standard 3/3% commission, even if you negotiate a 2% discount, the listing agent nets 33% higher commission if your offer wins.
If you go in without an agent, you must write into the sale contract that you want part of the seller's commission taken off the price, otherwise the seller's agent gets the whole 6% for herself. But in my experience, most buyers are clueless about how all this works and would never know to do that, and would not get a discount, regardless what the seller's agent might say.
(Of course actually it's a bit more complicated, the 6% actually goes to the seller's broker, who pays out both the seller's agent and also the buyer's broker, who then pays out the buyer's agent.)
The 3% is now $24,000. At that rate, the agent only needs to sell 1 house a month, to earn a decent living making $288,000/year.
It’s no wonder the real estate profession’s goals are to make houses more expensive for everyone. This is a racket, and they just skim off the top.
But getting 1-3% of the delta on a higher offer that doesn't exist yet is not only a meaningless money difference, if it slows the deal down it costs them money.
Now if they could get a stronger offer by still keeping it on market, and they're only the listing agent, then yes a new offer of like 50k more isn't going to mean that much for them. They'd rather get it sold. That is messed up too because that delta is meaningful for the owner.
From what the parent said, they stopped taking calls because they wanted to represent both sides. It's fucked up.
The seller signs an agreement with their agent, and that agreement dictates the commission and fee structure. You, the buyer, don’t pay the commission, and you don’t negotiate the commission with the buyers agent.
And in my experience, a buyer without an agent is just treated as an amateur. The offer is weighed against the headache of dealing with an amateur. It would be an extraordinary conflict of interest, and potentially illegal in some markets, for the listing agent to negotiate a reduced fee structure with the buyer.
"This buyer has a higher down payment". "They have more reserves if it under appraises". etc.
Price doesn't always win. And it shouldn't. But there are a lot of shady agents that do shady things.
Of course there can be other issues, like the realtor "helpfully" setting up the appraisal with their own company, the one that just happens not to notice any major issues with the sale.
I also think that the convention of the the realtor taking a percentage of the sale as their commission is problematic as it incentivizes them to show you the most expensive houses instead of the ones that are best for you. I'd be happier if they charged a flat fee or a flat hourly rate.
The inspector is working for the sale, but indirectly.
One house that my family sold, the inspector showed up at the appointed time, and mentioned that he was the buyer broker's brother. He didn't find any problems with the house.
Don't they have any legal liability if they miss something obvious?
I had a friend who had a house with termite issues that 2 inspectors missed. He tried to get lawyers involved and they all told him he had absolutely no resource besides the inspection fees, which would have been swamped by lawyer fees anyways.
He ended up ripping out all the drywall to repair the termite damage bit by bit.
If the realtor pays the opposite happens.
I don't think that the incentive to show you more expensive homes is that strong. Impression from a friend of mine is a real estate agent wants to close as many deals a year as possible. Closing houses a year, more money. Being known as someone that closes fast and often means hopefully being poached by more upscale agencies.
Buyers agent though has an incentive to soft bully the buyer into over bidding.
Don't know everyone's experience but Realtors show whatever house the client wants to visit and clients can and do find houses for them selves.
>flat fee or a flat hourly rate
Does the client still pay this flat fee/hourly rate if they don't buy or sell the home? I'm sure a realtor would have no problem showing you up to X homes for $Y,000 paid upfront.
It is an outdated monopoly that preserves itself by laws they have lobbied for and by bullying people with lawyers. They used to offer an advantageous network effect that we needed before we had stuff like zillow.
I have found that they want the sale as quick as possible.
You can always try to negotiate the agent’s price. I know a few sellers that had agents agree to 3% commission recently. It’s all about supply and demand, and if agents get desperate, they’ll agree to lower prices.
With that said, my realtor in this market has been doing RE for decades and has a proven record of delivering.
You'll miss the wealthy out of towner with a different brokerage, more likely to be the top bidder.
Most listing brokers will accept a 1% discount, and many buyers will use a discount (refund) broker on their side, so 4% "in house" isn't a substantial discount to miss the one buyer who might go higher.
It's very hard for potential buyers to become aware of the house you have for sale without it being in the MLS system
Realtors control access to the MLS system.
See where I'm going with this?
https://www.nar.realtor/nar-doj-settlement/multiple-listing-...
If you don’t want to pay the real estate agent organizations, you can put your real estate listing on Craigslist, buy online ads, stick a sign on your yard, go door to door to various real estate agent offices, etc.
Our real estate agent worked pretty hard for us buying and selling and we were glad to have him. When we found our new house, it was on Zillow for only 8 minutes and he got us in first during a peak market. It was his tip that "sellers will often stick with the first buyer who offers selling price instead of waiting for better offers" that allowed us to beat everyone else, even though our sellers had actually gotten a higher offer because it made us give them an offer immediately after our first tour. This was after we had basically lost out on three other sales for houses that we wanted (not his fault - we weren't first or highest on those).
The next two sentences are simply false.
But if a group of people want to organize and maintain that info in a certain way, and have their notes, and get paid for doing that, is that not their right?
Did they create/curate the info? If so, then yes, just like anyone else is able to use IP laws.
> They use that IP law to grant themselves information asymmetry to gain 6% commissions whereas many countries have commissions half that.
No, they use supply and demand for their services to collect 6% commission. And it’s very negotiable, also showing that the amount a real estate agent charges is due to supply and demand.
I’m only familiar with the way real estate agents work in the US, so I can’t comment on how it works in other countries. But all I can say is, in my experience, the sales history data is all available on the government website, and otherwise, you’re paying for the marketing and whatnot. If you don’t like the price, then negotiate lower, and if that fails, don’t pay it and do the work yourself.
Actually, no. There is extensive evidence that real estate commissions are not tied to supply & demand due to collusion in the marketplace.
If you and I have the same information as the agents, then their use goes down a lot.
This is how collusion in the real-estate market functions.
If you're a seller, you might very well get fewer agents bringing their clients to you. You're free to advertise that you will pay a commission to entice agents though. And the buyer is also free to side step the real estate agent or tell their agent they will make up for commissions from non agent represented sellers.
It's 2021, using Redfin/Zillow/Trulia/Craigslist/Realtor.com is trivial.
I foresee less and less opportunity for collusion as information becomes more and more accessible to everyone.
For years, a Broker’s license could be obtained by 8 courses, An easy test, and a four year degree.
The Realator's Lobby decided their were too many Brokers.
They introduced a bill (A bill requiring years of training under a broker in order to get the license) to Arnold Schwarzenegger. Arnold said he didn’t see the need, and didn’t want to stifle competition.
Governor Brown signed the bill though. (I stopped judging a politician by there party that day. Both sides take a lot of money.)
I would love to see the entire real estate industry decimated. We have given a very few of these people so much money for what? In the mean time, I would like to see more Brokers. More competition for the popular cheerleaders, handholding, and Omission and error insurance?
Sorry about the tone. Realator’s have always irritated me, and most people pick them out by a personality contest?
Can you expand on that? Republican doesn't want regulation, Democrat does, doesn't sound like a party defying happening.
We also purchased a new home without having a realtor involved. These days, the Internet makes things so easy that there isn't a need for a realtor like there used to be.
Basically, if a lot of people buy houses they can't really afford, a crash will happen soon: when all those people get foreclosed on in large numbers because they can't pay the mortgage.
- It's probably very uneven across housing types and locations
- If people are moving from apartments to houses, they're net taking homes for purchase off the market
- Anecdotally, I see people moving into larger homes to have more room
- I expect you end up with some overlap when people are in the process of moving
It's a zero sum game unless you upzone and build more housing to meet the demand, because the population of this country has only gone up.
In December 2019, there were about 1.4 million existing homes for sale. [0]
That same month, there were about 2,000,000 active real estate agents [1]
[0] https://www.nar.realtor/blogs/economists-outlook/existing-ho...
[1] https://www.nar.realtor/research-and-statistics/quick-real-e...
Sadly it works. If you have an older relative who may be in cognitive decline try to make them aware of this trick!
This is essentially a scam
You learn to differentiate the home seekers from the property flippers.
Two years ago my cousin sold his house even though it wasn't up for sale(in a small town in Indiana) because someone liked it so much that they kept offering them more and more money.
A small number of people (often elderly) have no idea how much their home is actually worth and will sell it for a lowball offer because the price seems so high to them.
Yes it is. Watch "The Big Short" if you think the housing market might be less crazy. So take my advice with the appropriate skepticism:
With the lock downs and rise in remote work there has been upward pressure on rural and low density housing prices, same as toilet paper and weightlifting equipment. That makes it a seller's market. I have rural neighbors moving forward their plans to sell for that reason. As a buyer I might be inclined to wait for the pandemic to pass and for prices to revert somewhat to the mean.
This advice is brought to you by someone who managed to buy at the very top of the real estate market. I think the crash happened when I signed my purchase agreement.
The opposite force (motivating you to buy now) is that interest rates are very low, and that will probably change in the future.
It's low for you, but also low for everyone else. Low interest rates push purchase prices higher because people care about monthly payments, not the final price. Overall it's a wash and you don't gain/lose for buying in a low/high interest rate environment.
Low interest rates means house prices are high now, and they will fall when interest rates climb, giving you capital losses. Much better to buy when interest rates are high, as rates will fall in the future and house prices will increase, giving you capital gains.
In both cases, you will pay the same amount for the same house in terms of monthly payments, as households are payment constrained, and they don't particularly care what percentage of their monthly payment goes to pay for principle and what percentage pays for interest. They max out what they can afford in terms of the total monthly payment, and thus houses prices go up and down in the opposite direction of interest rates.
But be careful, even though it is much better to buy when rates are high, that doesn't mean that waiting for rates to go up is a good strategy, as rates may not go up for twenty years, or even a hundred years - you don't know. But certainly a low interest rate environment is a terrible time to buy a house, even if you have to suck it up and buy anyway.
Bottom line, rates will change when there is a financial regime change due to the current system no longer working. I think it's obvious that what we are doing now is unsustainable: running massive deficits, enormous capital account inflows, and dollar appreciation. In terms of what would be the breaking point, one can only speculate as to whether it is too much inflation, or too many defaults, etc. At some point, the snowballing side effects of our current policies will just stop working, at which point a new regime will be needed. I don't know when.
For a big picture view, I recommend Sydney Homer's A History of Interest Rates. It's a great read and discusses long term interest rate regimes as well as various triggers that changed them.
In terms of trying to time these regime changes, I wouldn't bother. What you can do is hedge a bit so that you are not financially ruined in case there is a regime change. I would not use the low IR regime we have now to massively go into long term variable rate debt, for example, or massively go into long term fixed rate debt if you can't handle a rate increase. So just be aware that rates will go up at some point, and make sure you can handle that before taking on a lot of leverage.
You can't paint with such a broad stroke without crunching numbers - I think the better, but less satisfying answer is "it depends". It depends on the specific market and pricing dynamics (past and future), as well as on the length of the mortgage term and how high interest will go in the future - which is hard to know beforehand. Further complicating this are objective factors such as flexibility (of renting), and how much you're willing to pay for it. Buying a house is huge time-sink: expect to screen hundreds of houses and actually viewing dozens of them. Then you have to put together an offer quickly. If you're unlucky, your offer may be tied to some other buyer and the seller may ask you to write a motivating essay on why they should sell you their house - which I find insulting and time-wasting.
To GP: you need to write down actual figures and work it all out for best & worst cases - estimates are fine. When you are done, pick a path you are comfortable with.
https://www.appraisalinstitute.org/Nearly50PercentofHomeSale...
Edit: Also worth noting that real estate markets are more local, so there exists the chance that you might still be able to find some affordable houses but depends on the area.
This is true, but assumes that prices drop significantly rather than merely stop rising like crazy and also doesn't include that if you're renting, you never get that rent back from the period of time you were waiting.
Yes, pretty much. We are definitely in an asset price bubble but "the [housing] market can remain irrational longer than you can remain solvent" (with apologies to Keynes).
The strategy I have successfully pursued in two cross-USA moves: find a not-too-expensive house in a neighborhood that has some kind of long term value, whatever that means (good schools? close to nature? cultural opportunities?). Remote work is great, but try to be within commutable distance of non remote opportunities in your field as a hedge against future change.
That way, even if the market plunges in absolute terms by the time you need to move again, relative value should hold up? Hopefully?
Unlike my experience buying in France, the US does not do bridge loans. You are a) lucky and close as a seller and buyer, b) take on 2 mortgages hoping the old house sells, c) are temporarily homeless, d) or temporarily renting.
Housing is super emotional and I hate having to make emotional decisions. You have to make a lifelong decision based on a 30 minute tour. And buying in a hot market just makes everything more stressful. I'm not surprised people are making lightning quick decisions because hesitating is not an option.
- Do you have confidence that you'll be able to continue working from wherever you move to?
- Are you looking at a house or a condo? (It's generally easier to rent an apartment than a house.)
- What are your motivations to buy? There's plenty out there on the financial side. Some of it is even reasonably accurate. However, IMO you should probably be thinking more about whether you want stability and the ability to customize a home or are you wanting to maintain a degree of flexibility if you decide to move somewhere else in a few years?
- Do you know the area(s) you're thinking of moving to? If not, it may make sense to rent for a while while you decide if that's where you really want to be.
> The usual rule of thumb is that you can afford a mortgage two to 2.5 times your annual income.
So for the median family, $140K-$170K.
I'm not sure where the median family lives that they're buying $170K homes that they were previously renting for $2K/month, but it sure ain't anywhere near here.
Not to mention appraisal discrepancies, which require you to have the funds for the downpayment, for the closing, and to cover the appraisal discrepancy dollar for dollar.
But generally, I'm just trying to figure out how we come to the conclusion that the average family is putting anything close to a fraction of $200K to a downpayment.
House prices are ballooning for two reasons right now- COVID and interest rates. COVID means you are going to pay premium regardless rightn now, interest rates are more interesting. Interest rates are up a bit from their bottom at the beginning of 2021, but are still historically low. Because so much of a house price is financed, if your time frame is long enough paying a premium on a house right now might be worth it now if you expect interest rates to rise. Using some VERY bad financial math, a $500,000 house financed at 3% for 30 years is "cheaper" than a $400,000 house financed at 5% on a cash flow basis.
Transaction costs for houses are high- expect to pay 8-10% of the price of the house to get is sold (this goes to real estate agents fees, taxes, prep work, etc.) If you aren't sure you are going to stay in the area for a long time than definitely don't buy- think of it as your house immediately depreciating by 10% when you buy it.
Traditionally, housing prices has also been considered a good inflation hedge, if you want to factor that into your calculations. However, that has been way less true post 2000 (where there hasn't been much inflation and housing prices have been way over the map.)
Finally though, housing isn't just a investment, it is also a consumption good. In my case that was probably the deciding factor for us- we choose to increase the amount of money we are spending on housing because that is what we wanted to buy.
Some more insight into our thought process: 1) We knew we wanted to buy a house in one of three neighborhoods and had always planned to move within within the 2022-2024 timeframe. We moved up our time frame by the year, but this was always happening for us. 3) We are already bought into the area, so we had already benefited from the overheated market. 4) We timed our interest rate lock just about perfectly- interest rates are now 0.5% higher. 5) The house that came on the market is across the street from friends of ours, we were willing to pay a premium to be near our social circle.
In the end, we bought a house I fully believe will be worth less next year than today, but will be OK (althought not great) as an investment in 20 years (which is our time horizon.) In your case, if you aren't super familiar with the area or aren't sure you have a 10+ year time horizon you might want to rent just to give you time to understand the new city your are moving to- the type of mistakes you can make in buying a primary residence aren't just that you lose money on the asset, but that you don't like where you live for years.
To the degree it's actions that would have happened anyway, it probably implies there will be something of a dip after the current spike.
As long as you don't put more than ~30% of your money into a single asset (e.g. a house), then you're pretty certain to always make money in the long-term.
Everyone I know who "owns" a home first had to save up for a 3-20% down payment, which translates to having 500-3,300% of their money in the asset.
Biggest outlier I know personally put 50% down, so 200%.
Obviously I know that cash buyers exist too but that's not most people, unless I'm woefully wrong.
That wasn't what I was referring to. Net worth is (assets - debts), so the money for a down payment is largely the only part of a house that contributes to net worth at purchase time.
In other words, your down payment should be less than 30% of your net worth. Still hard to do in many places.
This is probably one of the few times when building new is cheaper than buying old. New builds with modern finishes are more likely to hold value if/when there’s a downturn.
If you're small fry, you're not going to be able to secure the best workers, and you can easily get taken advantage of because you have no idea what shortcuts people are taking if you're not checking up on things.
Also, materials costs are insane right now, if you can even get them in a timely fashion. I know someone who took out a construction loan early 2020 based on estimates pre pandemic. They started building recently, and blew threw their budget on lumber alone and had to draw from retirement accounts to keep going.
It is a great learning exercise, but not one many can afford on their primary residence.
This. Not just materials but parts because of supply chain backups. Oh, and general worker rates. I just had to replace a hot water heater. Big box stores had prices listed (~$1300 but no stock). Plumber wanted to charge $4k for the equipment and installation. Luckily I knew someone who had wholesale accounts, called all over the state, and found one. Then I did the install in ~2 hours. Dealing with that for an entire house, sounds like a terrible experience.
What matters for average real estate agent wages is average price of real estate time number of houses that sell per month. If the number of houses on the market is small because they sell immediately, that’s it necessarily a problem for them.
Housing is a decent hedge against inflation but not the great investment make it out to be unless you’re a landlord. The truth is there is a lot of upkeep and if housing prices rise you will have to pay the same as your sale when you sell. It’s great if you’re downsizing, or moving from an expensive city to a rural spot, but if you’re just changing locales you have to eat the transaction cost.
Housing prices are now 4x or 5x of a husband/wife dual income.
1) Average homes sold per real estate agent, per year: 2.8 [0]
It means that on average, on a given month, only 1/2.8 = 35.7% of active real estate agents will be listing a home for sale.
2) Homes for sale per year: 6,220,000 [1], however it seems that January 2021 saw that number go to an annualized of 6.69M. [2]
3) To say that in January there were "more real estate agents than homes for sale", would mean that there are at least 6.69M / 2.8 = 2,389,000 active real estate agents in the US.
I don't have a WSJ membership, and therefore can't read in the article what this number is. I can only try to guess that it's either the total number of real estate agents (2M in 2019), or realtors (1.3M in 2019) [3].
The title seems clickbaity. The essence, I guess, should be that realtors are competing against each other more than before?
[0]: https://www.rtrsells.com/can-you-tell-how-many-homes-a-realt...
[1]: https://cdn.nar.realtor/sites/default/files/documents/ehs-02...
[2]: https://www.wsj.com/articles/u-s-home-sales-edged-higher-in-...
[3]: https://www.homelight.com/blog/how-many-realtors-in-the-us/
[1]: https://www.nar.realtor/research-and-statistics/quick-real-e...
RE agents historically provided massive value because they were the market-makers. Nowadays, they are glorified paper pushers and it's baffling they're still demanding a percentage of a massive purchase.
But during a bull market being a buyer's agent is more work. People have full time jobs and can't spend all their time researching or managing multiple offers. Buyer's agents put in dozens to hundreds of hours of work per client and get no guarantee of a return (if your client goes to another agent, you have no recourse and you get no income from that transaction).
If you're getting 20 offers on your house, then 19 of those buyers are gonna be disappointed and gonna have to regroup and find something else.
During a bear market, the opposite is true. Being a listing agent now takes better marketing, networking, presentation and sales skills and it is easier to be a buyer's agent.
At any rate, there are countless numbers of obstacles that can cause a deal to fall through, from financing, inspections, FHA approvals, title issues, personal issues, etc that skilled agents can much more easily navigate and close a deal much more reliably. For me, no two deals were the same, and it was always interesting to try to thread the needle when it at first seemed hopeless.
But, I was wondering...
Is this one of those click-bait article titles that should read:
“In January [, similarly to the last 120 months,] there were more real-estate agents than homes for sale in the U.S.”
Note: I’m referring to the sub-heading of the actual article... not implying OP put the wrong title.
That's what a "realtor" is BTW: A used house salesman.
When I've been unemployed, I've gotten solicitations that are crafted to sound like a "real" job, but are actually sales, and it doesn't appear they care about qualifications at all. I assume you sell stuff or you don't.
And real estate agents I've met are very...variable.
Each agent may still sell a dozen a year.
There are also more stock brokers than stocks, but we slice them up and shuffle them around a lot.
Seriously. It creeps me out that RE people call things nobody has even lived in "homes". Places somebody else lived in are even worse. How do they know it was a home? It might have been crack house. "Crack home"? Anyway what you can buy is just the house part. It becomes home after you make it that, if you succeed.
The idea that you can buy a home emphasizes the worst of American capitalism.
There is intrinsic value in different words having different meanings. There are reasons why we had two words. Those reasons were inconvenient to RE agents, so they fixed it. Everybody downvoting me has swallowed it whole.