Zillow seeks to sell 7k homes for $2.8B after flipping halt

If you have a great mistrust of the future, then there's never going to be a good time to buy a house. If you think politicians are going to mess things up yet again, buying a house is foolish. Hanging off every word the next three or four presidents make is going to make your heart sink and your blood pressure rise on bad news, and curse the name of whomever convinced you to buy an millstone of a house to hang around your neck.

If, however, you're convinced that buying a house (for you to live in, not as part of a basically-liquid REIT) is your path to financial freedom, then when the refrigerator or other large appliance breaks, that's just part of owning a home, and you'll relish in picking the one you want.

How do you want to live for the next few years? (One thing to keep in mind is that houses can be sold before the full 15-30 years is up, which may be advantageous, depending on your finances.)

But consider a thought experiment where you could borrow $1m at a low rate of interest, suppose 3%, from a generous lender who requires no collateral and requires an amortizing repayment. You take the $1m and reserve, say, $100k in "no-touch" cash (your cushion) and invest the remainder in the market, and suppose that the market returns an average of 7% over the long run.

In this scenario, you obviously pay much more interest than not taking the loan. The interest you pay is nearly $500k, which sounds like a lot - almost half the loan! Yet you make a tidy profit over 30 years: after paying back the loan, you have a portfolio worth over $4 million, plus the $100k reserve you still have.

While that's just a thought experiment, the math works fairly similarly for a mortgage. So long as the market returns more (over the long term - it'll be bumpy short term) than the cost of money, you will be paid handsomely for assuming lots of long-term, fixed low-interest debt and investing the proceeds.

And this leads to a second surprising conclusion: you should not pay off your mortgage. Once you've built equity, releverage the house and borrow more, so long as you take the proceeds and invest it in an instrument that will pay more than the cost of money over the long run. If interest rates rise, the math might not work.

This is bad advice for some people, because a pile of savings and investments can be a tempting target to use for luxury vehicles, or boats or whatever, and that can upset the math, although eventually you make enough with it that might be OK. But for people who can live as if those investments were illiquid, it's quite a rewarding path.

And for some people, the psychological value of living in a house with no mortgage exceeds whatever financial gains come from continuing to pay for a mortgage. And while there's nothing wrong with that, it does come at a stiff financial cost.

Purchase a house where you can afford the 15-year fixed mortgage, but take out the 30-year fixed mortgage. Pay it off as if it were the 15-year fixed (ensure that your loan has no penalties for prepayment or extra payments, and that 100% of extra payments go toward the principal).

If things go smoothly for you, you’ll pay a marginal amount of additional interest (because your % will be higher as a 30-year than a 15-year). However, if you run into cash flow issues, you have a good amount of reduction in mortgage payments that you can make while keeping the bank completely satisfied.

You're right about the compound interest, but compound interest can work for you as well.

Depends on how much better the same amount of money would perform if invested in an index fund. It could be more profitable to throw the difference in monthly payments into a vanguard account instead of a higher 15yr monthly payment.

Personally my view is exactly your second point: Buy small enough that you can consistently put $x extra each month against the principle + one full extra payment each year. It's a good middle ground to maintain flexibility

And absolutely-- buying the biggest you can fit into monthly expenses may even seem responsible: "I'm not living beyond my means!" but is a razors edge of risk for unanticipated expenses or more significant life disruptions.

In real terms cash is losing significant money every year while assets are gaining money. Debt makes sense as long as you have a margin of safety and can multiply the impact with leverage.

IF you believe inflation will be significant over 30 years say, and can lock in a low rate, it is better to go with a longer term.

This is the worst of both worlds. You pay the interest penalty of a 30 year, with the payment of a 15 year (well, slightly more). The interest difference between a 30 and 15 year mortgage is about 30% (2.x% v 3.x% APR).

I did a 15 year mortgage, then refinanced it every 12m or so ($250 each time), resetting the payments back to 180 months each time. That way, I get the interest savings of a 15 year, which is significant, and each refinance makes your payment quite a bit lower because a 15 year loan actually pays back principal. After six years, my mortgage will be the same as it would have been if I originally got a 30 year, but it will be paid off in 21 years instead of 30.

There's a risk interest rates rise, or I lose my job and can't refinance. But so far, so good. And honestly, my mortgage now is so close to what it would have been with an original 30 year loan that it doesn't even matter if I can never refinance. The hardest part was the first two years.

> Those are the only mandates that make sense to me, and I would hope that by Jove, even our most brainwashed vaccine-loving brethren could get onboard with.

I'm afraid that on a planet with 8ish billion meat-based life forms of extremely similar cellular makeup, vaccine mandates are going to be the norm going forward. Covid won't be the last pandemic, and vaccines are the best defense we have against them. It's not brainwashing to accept vaccination as a countermeasure, it's very clear-eyed realism.

How into the geopolitics of China-US relations are you? I ask because my reason that we're at high risk for a conflict and now low over Taiwan is that China just upgraded their navy, while we have a refresh going on right now. Once that investment is complete China will have essentially the window closed on any hope of winning the conflict. They have to move relatively quickly to have a realistic chance at taking over Taiwan, if US determination is resolute in stopping them at least. It could happen at any time.

If California would allow anyone to build an apartment complex nearly anywhere (as Minneapolis does in many neighborhoods) then there would automatically be more housing, and more affordable housing for blue collar workers and entry level workers. Instead, we have so many neighborhoods where each house is forced to be on .25 acres, or .15 acre, with forced single family occupancy. Affordability is a construction, zoning, and permission problem in California.

And that high expense for housing then trickles up and makes everything more expensive from child care to healthcare to services ... as everyone has to pay workers ever more just so they can get a roof over their heads. People are making $25/hour with no college degree and feel poor.

You can see the transaction history here:

https://www.zillow.com/homedetails/125-Mays-Blf-Fayetteville...

Add in whatever fees go along with the sale, and they're out a fair bit more than that.

Opendoor still holds it, Zillow is already marking down a similar one by 14%.

Today they essentially function as data brokers and unofficial labor organizers, collecting membership dues from agents in exchange for ensuring that the agent's name is on their listing wherever it's shown online and (along with NAR) pushing agents to keep "standard" commissions on their listings (5-6%).

Some further flaws in the system: I was shocked to find out that the new home buyers tax credit only applies to homes under $500k - which in vancouver means it only applies to a handful of small condos. It's also not poolable, so two first-time buyers going in on a $501k condo are disqualified.

Could you point me at some more reading that talks about this? The increase in prices makes perfect sense to me, but I don't really have a good handle on why things would come back down.

I seriously doubt that to be true in a low supply situation. In the Netherlands, the government reduced real estate transfer tax from 8% to 2%, and sometimes even 0%. This should make houses more affordable to newcomers.

Another well intended measure was for older people to share their wealth to their children via early inheritance, tax free.

The market simply adds this discount and extra start capital to the price "room". In a situation of perpetual scarcity, the price will rise to the maximum people can afford/borrow.

And with "people", I mean only the buyers. It doesn't matter if 90% of the population is priced out of the market if the richest 10% is still enough people to buy up all supply.

This last bit is most worrisome, because it means that even the nuclear instrument of increasing interest rates is unlikely to resolve the issue. The interest cannot be jacked up much because that would bankrupt the middle class. A minor tweak will be no issue at all for the richest 10%, so the price will not come down.

Increasing supply in a dense and popular area isn't a structural solution. Not only does it meet a lot of resistance, new demand will forever continue to outpace the constraint of delivering new supply.

Which is why I believe in reorganizing demand. These dense areas are dense because it gives people access to jobs and education. If we reorganize that into a more sane distributed way, we truly address the problem.

Yes, one effects people like you and the other effects people like me.

This leaves out one major factor: they need somewhere to live but that doesn't mean it needs to be the same real-estate market or size. Someone who sells a house large enough to have a family in a major market and retires to a cheaper market can see a very comfortable return. Probably nowhere near enough to make up for the other impacts of the policies people voted for to drive up their home value but it's harder to get people to give equal weight to different factors when one of them will show up directly in their personal bank account.

Raising property taxes on SFH rentals, but not apartments will make apartments more attractive. Sure, renting a house has advantages, but those advantages have a price, and how many renters are going to be willing to pay 40% more per square foot for a SFH over an apartment.

At some point, even an expensive mortgage is a better deal.

Apartments are great, we should incentivize apartments. They are high density and can be built in a variety of sizes.

I guess what you'd want is to tax the hell out of rental properties, then put that money to first-time mortgage assistance.

  * New construction isn't going up fast enough, so the housing supply will decrease and 
  * the number of people that want to buy a home increases as long as the total population of an area increase. Bundle that with
  * fewer people getting married, and you need more houses per person than before, and that further reduces the housing supply; AND, further that with the reality that
  * houses are seen as an investment vehicle, so anything that reduces the value of a house rather than increases it causes people to recoil back because that's literally their retirement in there (see Australia's housing situation, for example)

It's a very, very good bet as long as major things don't change.

That doesn't mean 'cheap' if demand is also increasing, but it does cause prices to be lower relative to cities that restrict supply. This is just basic economics, people twist themselves in knots to come up with reasons why the obvious supply/demand is somehow not applicable in this case.

If you allow building in capitalist markets then increased supply will reduces prices as demand is met.

I mean in general the only possible solution is more housing ... which would mean

1) zoning up neighborhoods

2) make it financially interesting to convert properties and make them denser

From the financial crisis to COVID low interest rates (and inflating asset prices) seemed almost a consequence of their inflation+unemployment mandate: even with the interest rate around zero unemployment was slow to come down and inflation was mostly in financial assets and not the consumer price level.

Post-COVID seems to be a different story though. I guess we'll see in the next year or so how they react if the inflation pressure turns out to be persistent - personally I wouldn't be surprised if they do raise rates, even though that would obviously lower most asset prices.

Could it be that they're essentially captured by the likes of Blackrock, etc. I mean, it's been this way for a while, but it's getting to where government is openly a tool for the corporations without voter involvement.

This is the exact policy adopted by the Fed in 1929: purge the bad out of the system. Let the failing banks go bankrupt. That turned what was a recession into a full-blown deflationary credit crunch.

All the high-and-mighty theory and bloviating may not mean much in the face of 25% unemployment, wages falling 50%, and 15%+ contraction of global GDP.

I agree there needs to be moral hazard to investing and interest rates are to low... but be careful what you wish for.

IME, people have lots of theories that look good to amateurs. Look at physics, as a striking example of how wrong amateurs can be for thousands of years.

Anyway, you aren't required to do research for me, but some person on the Internet writing economic theory is not persuasive to me. Oh well.

Basically you're asking renters to pay for this behavior...

I don't think that's a useful framing, because it's again putting the framing in terms of market dynamics in a vacuum. People don't pick where they're born, they don't pick who their parents are, and they don't pick the socioeconomic status that they're born into or have as children. The majority of people are born somewhere and cannot really afford to leave. For example, 72% of Americans live in or near the city where they were raised (https://www.northamerican.com/infographics/where-they-grew-u...). Most people don't have the agency to pick where they live based on price alone, because other non-market factors become comparatively larger when you have less money. If you can pick where you live based on price and how interesting it sounds, congratulations, that is privileged position. That's not to shame that position or anything, I'm just saying that the problem has to be viewed from the standpoint that most people aren't in that position. People are interdependent with their relatives, their friends, and their neighbors. Moving costs more than simply the price sticker of your new home minus the price sticker of your old home: the social costs are enormous. I think that a basic right of modern societies should be that people should not be priced out of their homes because of the whims of investors. So again, I think the idea that these things should be viewed through the lens of market dynamics alone is inhumane.

> Your proposed solution will increase rent prices for people who can't afford to buy a house while pushing the housing prices down and making them more affordable to middle class.

ok maybe. My point isn't that I have the perfect solution, my point is that there are far more levers to pull than what was being suggested, and that I do not want to live in a society that considers the problem by only looking at markets and pricing.

I own my home and I pay property taxes, nice try though.

> Comrade, I am speaking about "how it works" not "what would be really nice if..."

faced with "the rent going up is a problem for working class people" you're instantly taking the side of investors and positioning it through this lens:

> I want to make sure people understand the dynamics.

the problem is not that people don't UnDeRsTaNd ThE dYnAmIcS, the problem is that the dynamics actively incentivize the creation of an investor and speculator class that owns a substantial portion of the housing stock and drives price up based on speculation and not based on any actual need to use the product. The supply is artificially held low by the investor and speculator class, my argument is that this is actively harmful and that the idea that the only way to raise supply is to build more houses is wrong, because your framing assumes a vacancy rate of zero, which no major city has.

One thing to remember is that sqft != quality of life. I know where to get tons of sqft, but I will be driving an hour every day to even find food. Quality of life... maybe if you never leave the house? ha!

Except the reason people in my social circle would never move to Austin isn’t about guns, it’s about women’s access to quality reproductive care, including abortion.

And I don’t think the democrats are exaggerating the extent to which that is not an option in Texas.

> The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this.

I once heard someone who ran an investment floor say, paraphrased: During a bull market, I want my floor staffed with people too young to have lived the last bull market.

They didn't want the risk aversion - drilled into people by the last bust cycle - on their trading floor.

The cycle will repeat itself, folks will go from being unbelievably wealthy to bankrupt overnight (overnight as a figure of speech speaking, the crash will come but might drag out). Folks who bet it all will have their lives ruined. We will have another generation of market participants who are risk averse from hard earned lessons.

The flip side of this is that _everything will go on sale_ for those who had stable investments and those who are income rich.

If everything doesn't go on sale soon (soon might mean many years) it'll be the first time in history we broke out of the boom/bust cycle.

For me, personally, I track my net worth and check in monthly. For the past year I've excluded my home's valuation from my net worth, it's monopoly money; by the time I'm willing to liquidate my house we will be on the other side of a bust cycle. I'm mentally prepared for my home to lose 50% of its value "overnight."

The massive buy-ups in West & Central FL have led to an unprecedented shortage in housing. Rentals get 400 applicants each day and people with money in the bank are facing homelessness. People without have little hope.

The U.S. built on average 276,000 fewer homes per year between 2001 and 2020 compared to the period between 1968 and 2000, according to the report which was covered earlier by the Wall Street Journal.

Had building continued at the same pace, there would be 5.5 million more units of housing, the report estimated.

To make up the shortage, the NAR report says the U.S. would have to build 2.1 million homes each year for a decade—more than it built each year during the housing boom of the mid-2000s.

https://www.cato.org/sites/cato.org/files/pubs/pdf/pa-823.pd...

I found the section "New Evidence on the Effects of Land-Use Regulation" to be quite interesting in past reads (and discussions) and probably relevant.

Seattle is a weird example for me (anecdotally). When I lived there in 2017-18 I found the rental market to be great. The city had incentivized building rental units and as a result there were great deals to be had. I was able to negotiate a 15% discount and dictate the length of my lease on Capitol Hill. I don't know what it looks like now, but it was great at the time.

1. https://fred.stlouisfed.org/series/WSCNDW01JPA489S

2. https://fred.stlouisfed.org/series/WSCNDW01USA470S

https://www.aeaweb.org/articles?id=10.1257/mac.20170388

>>We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by 36 percent from 1964 to 2009.

If you look at California exodus data, its mainly people making less than 100K, population is increasing for people making more than 100K.

Despite this, property prices are still increasing elsewhere. This is a worst of all worlds scenario.

Yes - https://www.npr.org/2021/07/30/1022642064/planet-money-why-a...

In summary, the US has been underbuilding ever since the housing crisis, and this makes people avoid construction trades. Fixing it will take years.

The last part about Prop 13 seems like a bit of a cheap shot. CA is anything but a natural market.

CA government set that poison pill to ensure it must listen to its constituents and remain as "natural" as possible. Now we find they can't enact meaningful reform around zoning, building requirements, parking, or making the city more welcoming to trades, etc.

Why should old taxpayers carry the water for ineffectual govt ?

CA: "We refuse to make the changes needed to let more people in at a reasonable cost. We will instead take more money from one group, so that they leave and we can fleecce someone else ! "

You'd need at least one of these factors to be reversed, or demand for standalone housing to go down for cultural or economic reasons, before you see long term downward trends.

In general though I agree with the poster above that the affordability "crisis" is really an expectations crisis. Everyone wants to live in a nice neighborhood with great schools that is close to the top employers, but there's simply not enough space, so this results in high competition and therefore prices. For some reason nobody wants to move to the rust belt where houses are nice and cheap. People don't want houses, they want the BEST houses.

The monthly cost to own a home is the same as it ever was, inflation adjusted. It's interest rates that have changed.

There are currently 71 homes for sale in Nashville, TN at or under $175K.

You don't need to be a good stock picker if you know that someone sent a buy out, and you can get there first, buy it and then sell it to them.

You don't need to find good domain names, just wait for someone to search if one is available and then buy it.

Or when you Google for Verizon and the first thing you see is an ad for verizon.com. Most people will click the ad instead of the first listing.

I suppose it could mean voting in people to write a law that makes it exceedingly unattractive for institutional investors to buy single family homes. You could probably even do such a thing "neutrally" since people really only need one home and if you own more than two you're almost certainly investing in some way. Apply some onerous tax on each unit owned above 100, and all these investors will flee the market.

Edit: IIRC, the companies that buy up all these single family homes are large corporations. I'm pretty sure you could write a law like I described that they wouldn't try to use some cheeky corporate shell game to try to bypass (e.g. in their tax filings require them to declare how many single family homes they're the beneficiary owner of, regardless of any intermediary shell companies/special purpose entities, and tax them for that). Require the auditors to sign off of on the number. If they lie, everyone's subject to even more onerous civil and criminal penalties (e.g. blow them up like Enron). Large corporations will stretch the law as far as they can, but it's rare for them to deliberately venture into fraud and other kinds of illegality (for the pedants out there, note I said rare not never). The systemic issues can be solved if they're made to comply, even if some relatively small fish still don't

$2.6 billion is chump change to a medium-sized city with a few hundred thousand residents, much less the US at large

We just need to remove zoning restrictions so that market forces can bring houses back down to being an affordable, depreciating asset.

https://www.worksinprogress.co/issue/the-housing-theory-of-e...

This is kinda what happened in the 00's housing bubble. Tech crashed and people looked at housing as the next big investment. It feels like we just have groups of people going from bubble to bubble.

Just like the last bubble.

And they got there by running a sustainable and profitable business? No, they got there because Reddit decided to play their own little game of pump&dump.

Which is yet another blatant example of how decoupled the stock market is from the actual real world economy.

Not everyone can afford a Bentley or a condo in Manhattan. That is not some terrible injustice that needs to be fixed. Living within your means and buying a place where you can afford to live is also an alternate approach. Or you can moan about capitalism and how unfair life is.

So the FED can do all it wants, but ultimately it's the other actors (banks, financial institutions and government in the form of transfers) that will ultimately decide the fate of inflation going forward - right now it's looking like disinflation/deflation after all of the stimulus and supply shortages work their way through the system (can be seen from the long end of the yield curve).

The FED's actions can and will affect the markets however - but that effect is mainly psychological.

https://alhambrapartners.com/2021/10/29/inflation-history-ev...

In a bull market, about 50% of homes sell above list price [1]... It can change quickly.

1. https://magazine.realtor/daily-news/2021/06/01/a-record-shar...

That's hardly the case. Buy a big place, usually costs more than renting one. Or at least that's my experience. If I had to buy the place I rent it will cost me easily $3M to 4M. My rent will only pay for a 2b/1ba. I am talking about major city. Perhaps is different in suburbs, don't know.

>Dealing with terrible neighbors isn’t nearly as bad.

It is way easier to just rent a different place than having to sell your house because of that noise neighbor that likes to throw party every week end.

I rent, but am looking to buy. Rent is about 2200 / mo for me; and buying would be 2700/mo for me... but in 4 years, rent will probably be 2700/mo for me and then buying will begin to make me money.

But one has to convince the residents or other voting population of that.

"it obviously can't apply for everything, and housing is one of the things it shouldn't apply to."

I generally agree that government should take the smallest role possible. It seems that this topic has a long and expansive precedent - code requirements for how structures are built and where they can be, zoning for where structures can be built and their uses, property taxes (and seizure of non-paying), ordinances restricting what people can do on their own property, property state restrictions (disrepair ordinances), etc.

We could do away with basically all these restrictions. The question is where we draw that line, what we consider problem activity, and how we come to those determinations.

"It's also not just about "personal preference" - building more housing in these areas would be societally welfare improving."

What the preference was aimed at is that many people want single homes, garages, yards, etc. If they can't get them, they will end up moving to where they can. If they have them, they (and the other neighbors) will advocate to keep the neighborhood that way.

You can call something societally beneficial, but others might not see it the same way. It seems the boom-bust housing cycle and migrations between various cities or other areas can also provide societal benefit, and may even be self-correcting as we see people and companies select away from the highest COL areas to more attractive areas. This could lead to sufficient remaining voter base to make the building more permissible or eliminate the need by reduction in demand.

You don't have to own a house to vote. This isn't the 18th century where only land owners vote. If you have a sufficient number of renters, they can outweigh the owners.

For example, a municipality in CA decided to raise taxes on land lords of rentals. Land lords didn't want this, the renters did (probably misguided since the cost gets passed on to them).

"Why does this remind me of some other mechanism for opressing undesirables?"

You could tell us instead of being rhetorical. Otherwise the obvious answer is that you are missing details in your comparison and wrongly concluding that it's about oppression.

If you want to invest, put your money in places like Pittsburgh and Buffalo. Some values along the coast in Baltimore and Philly too. Plenty of cheap real estate out and I suspect we’ll see a revitalization of the rust belt as climate change makes other areas untenable.

The history of redlining is incredibly recent (it was in full force well into the 1990s), so it’s not something we can pretend is a historical artifact. Highly recommend The Color of Law for more on this subject, it really opened my eyes on how laws used to encourage homeownership were also used to marginalize black people.

100% agree with you. Which is why we should nationalize it to drive down the cost since there is currently no downward pressure on pricing. It’s not some “radical experiment” — in all honesty our current system is the experiment and it’s going poorly. Nationalized healthcare works, and from what I’ve seen, is usually of higher quality and service than we have here in the US. Turns out you can adequately staff your hospitals when you’re not trying to turn a profit.

And on the subject of nimbyism, you may be right about commercial landlords, but homeowners are very concerned with quality of life — which also raises home values (maybe not as much as increased density would, but enough that most nimbys see it as a worthwhile trade off). Things like schools not being overcrowded, available street parking, well-maintained parks, etc.

Source; I've refinanced three times based on rates going down. I dropped 10 years and 200/mo. off of my mortgage for the low, low price of $750 worth of appraisals.

A $400k home would be quite affordable if each of them were earning an average of $24/hr or more, which isn't too crazy.

$1500/month property taxes would be $18,000 per year. On a $400K home that would be 4.5%, which is significantly more than you'd find anywhere in the United States. The average property tax rate in the US is around 1.1%.

Moreover, most locations have an exclusion for the first $XXX,000 of home value. For example, a city might tax the first $100,000 of home value at 0% and then only apply the 1.1% rate (using the average here) to the remaining $300K.

Assuming a $100K home value exclusion and a 1.1% rate (average national rate), that comes to $275/month, which is about half of the lower end of the range you quoted and nowhere near the $1500/month upper end of your range.

Also, $400/month HOA fees would be several times higher than the average. HOAs aren't actually as common as the internet suggests, but when you get into an HOA in a neighborhood with $400K houses, you're probably going to be paying more like $100-150/month, not $400/month.

> $400k on a house is simply impossible for many millennials

Sure, but so is $2K/month rent. I never suggested that every millennial can afford a $400K house, but rather that it's not an impossible reach for many millennials.

This is especially true for married millennials who haven't had children yet. I think too many people focus on the idea of the single millennial purchasing a home on a single income and living there alone, but in practice it's usually people getting married and settling down somewhere together on two incomes.

Or another way...a rise in house prices means a rise in rents which means rise in renter wages which means rise in prices. Over the course of some time, naturally.