Comment by jollybean | Hacker News Reader

Comment by jollybean | Hacker News Reader

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"Buyers are competing against other buyers with seemingly unlimited cash offers. "

So this should be the alarm bell that contradicts the argument.

In 2008 the Fed took what was then seen as a 'generational' bump in assets on it's balance sheet, namely bad real estate, effectively bailing out banks and home-owners, and arguably exasperating inequality.

But the money printing going due to COVID has dwarfed everything, to the point of multi-generational consequence, and what we might argue is a 'New Financial World Order'.

The Central Bank realignment due to COVID may be as significant as the start/end of Bretto-Woods etc. because the degree of social intervention is on an unimaginable scale. Aside from the 'raw numbers' it means social intervention and governmental direction of the economy like we have not seen since WW2 but this time without the obvious and easy infrastructural and educational adjustments to make: in the 1950's there were no highways - so they got build, and nobody had College degrees so getting former Officers/NCO's into College was a no-brainer.

Interest rates have been going down, and historically lower since the end of Bretton Woods, and they are now in the range of where it's causing considerable strain with massive leveraging, negative central bank overnight rates etc..

The result of this is a 'primary driver' of the Housing Boom, and it's the same thing happening in almost all asset class.

Or in other words: we are playing flirting dangerously with real, scary inflation, it's just happening in our homes so we think it's all good.

COVID has caused us to 'look the other way' with regards to financial reality, which is understandable, but that can't go on forever.

I am not a supporter of Crypto, BTC or any of the like, and I generally loathe the anti-fiat fanaticism etc. because I don't think these arguments are data driven or made in good faith, however, COVID has brought a lot of credibility to the fiat debauching concerns.

Housing prices are one element of that.

> Or in other words: we are playing flirting dangerously with real, scary inflation, it's just happening in our homes so we think it's all good.

Home prices have gone up way more than incomes over the last 10 years. Economists don't seem to want to call it inflation until incomes are rising. I'm glad I bought a house for $180K in 2011 that's worth $360K now 10 years later, but I really wonder how folks who are entering the market now are able to deal with the much higher monthly payment. That's going to divert spending away from other parts of the economy for quite a while.

>Home prices and rents have gone up way more than incomes over the last 10 years

Home prices, maybe. But rents (aka housing)? AFAIK it's kept pretty consistent: https://www.aei.org/wp-content/uploads/2020/01/cpi2020-875x1...

Depends on location. I was charging $850/mo for a detached 3BR/2BA house in 2010. I'm charging $1500/mo for the same now - and I could easily be charging $1800/mo, but I like the renters and don't want to lose them.

Looking at an old lease of mine, in 2007 I paid $959 for this 3bd/B style. Now they are at least $1360. https://www.sunblest.com/floorplans.aspx

These are the best value apartments in this area. The new ones they built down the street have a $3300 list price for a 3bd.

This is an affordable midwest area.

To clarify, the raise is about 8% over the regular inflation rate.

The bigger issue is the fact that all new stuff is not significantly different or better, but almost 3 times the price. The floor is falling out.

>I was charging $850/mo for a detached 3BR/2BA house in 2010.

Out of curiosity, what was the comparable rent in 2005/before the crash in 2008?

My rent went up 5% two years ago, another 5% a year ago, and we just renewed at +33%. The housing crisis is hitting the rental market.

Why should landlords extract more from their renters, just because they can?

That's exactly it, maximizing profit. Lots of rental units, at least in my area, aren't owned by individuals anymore. They're owned by corporations or private equity who have an obligation to their shareholders to maximize profit. If I stop renting, someone else will pick up the bill.

The landlords' operating costs haven't gone up significantly either. They own the property outright, the same maintenance crew is around, they're down a leasing agent and manager from a year ago, and property tax increases are capped in this city. Any rent increase they can push beyond inflation directly lines their pockets.

> If I stop renting, someone else will pick up the bill.

aka, they are charging the market rate, which other people in the market are willing to pay for the use of the building.

The increase in rental income for landlords mean that there should be pressure to build more buildings to let out. Market forces _should_ cause stablization, if only it is allowed to work long term. Short term, there will be pain, because you can't build a new building instantly, but this pain is what causes new buildings to spring up. Market-distorting forces, such as building density/height regulation, and local residents' complaints (NIMBYism) is the cause for the lack of stablization imho.

The things to compare are not home prices vs rents but home monthly payments vs rents. Having a mortgage is like renting capital, after all.

> I really wonder how folks who are entering the market now are able to deal with the much higher monthly payment.

I’m simply choosing not to play, I’ll keep renting my place for $9900 a year in a metro area of 3.5 million, I’m not tripling my housing costs just to get ‘equity’, I’ll dump the extra 20k a year into VTI and come out ahead in the long run, equities don’t require roofs or furnaces.

Maybe. IF the inflation predictions are right this time your rent will jump to $50k/year, while the mortgage of those who bought stays the same, so they have the money to invest not you.

That is a big if, and there are lots of different ways things can turn out. God doesn't advise me, so only time will tell what really happens...

If his $10k/year rent goes to $50k/year he probably won't want to live there anyway on account of the constant looting and rioting.

One would assume wages go up you compensate.

Is that how it worked out in Venezuela recently with those levels of inflation?

There is typically a lag between wages going up an inflation, and that lag will catch a lot of people, but in general it does work that way in the long run. The long run can be 10+ years though, which isn't good for the person caught in the cycle.

Equities can also drop 50% in a matter of weeks. Be circumspect about the risks that you willingly choose for yourself.

Indexes? Lol when has that happened and not rebound within a few months?

Your comment reflects the level of certainty that often precedes major bearish volatility. In other words, pride comes before the fall.

But seriously US indexes like the SP were down big at most for like 6 months. If you need the cash just hold and take out at 6 months. Keep 6 months emergency and you're set.

There are a few indices for which that has not played out. Look at QQQ 20 years ago. I'm not trying trying he argumentative, just suggesting that past performance doesn't always dictate future performance, and past sell-offs were not always critically damped.

The thing is, the person owning the place you rent is looking at their asset appreciating under you. They are going to either: raise your rent to keep pace, or, sell it out from under you to someone who will rent it out for much more than you are paying. You should not count on your rent being stable in your calculations. They may still make sense, they may not.

Rent is a cost that is going to need to be paid whether you live in the place, or rent it out.

If you live in it, you pay (or lose) imputed rent anyway. If you currently can rent for lower than the cost of capital, you are ahead (except for taxation, which does change the equation - cost of capital for investment is cheaper, usually, than for home residence due to tax incentives).

Joe Wiesenthal on twitter sometimes has some good anti-anti-fait shtick. https://twitter.com/TheStalwart

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