When the forces that cause the market to crash are the feds monetary policy it’s a tough sell that it’s actually a free market. To first order individuals should be able to purchase shelter assured that it’s fairly priced. The concerns should be like “the foundation is cracked” not “JP Morgan is pumping house prices.”
Of course it's not a free market. Has America ever had a free market? When is the last time that the real estate market hasn't been manipulated in some way?
Land is a zero sum game, you can't pretend same laws apply to it and iPhones
i still don't understand what these distortions being claimed are. "artificially low" interest rates isn't a distortion - it affects everything, and the rates may not be that low, compared to the growth. As for taxation, real estate isn't treated too differently from any other forms of investment.
It needs utilities, shopping centre, major metro line, highway, arts, jobs, good schools, and general 'nice area' vibes created by artists on the verge of bankruptcy. None of those things area created by the construction company.
In fact randomly building houses leads to congestion, lack of places in schools and other facilities, and miserable living conditions.
What have you measured to determine that these markets 'work fine'? These are terrible markets, speculation is higher than productivity, fraud is endemic, prices are volatile and liquidity is low. Antiques and arts are infamous for fraud and enabling tax evasion.
People don't need limited edition shoes to survive, so we can just ignore the problem.
Bob's N+1th house is an investment.
When buying a house, bob becomes heavily invested.
At the same time some of us salaried folks have gotten small windfalls this year, but most jobs haven't seen a comparable rise in salaries.
All of this leads me to be on team taxation.
I’ve recently seen in a youtube video by the NYT that there are actual lobbies against changing low density housing zones to high density housing zones: https://youtu.be/hNDgcjVGHIw?t=253
I’d recommend to give it a watch :)
Imo the soviet apartment complexes are a good idea. I live in one as well (Germany), and I can afford rent without hassle.
Now you're paying a form of interest to borrow someone else's house on a floating rate. The price of the underlying asset continues to increase, which applies upward pressure on the cost to borrow the asset.
I use the yield to determine if a given property market is speculative or not because rent represents real utility (“yes I would like to live there at that price”)
https://www.commonfloor.com/guide/price-rent-ratio-grows-in-...
China and India probably share similar low rent yields in cities with more speculative real estate markets.
Now we're talking. Related: how do you feel about shorting TSLA? Or GOOG? If you think its appropriate to do so, what fraction of your net income or worth are you willing to place on that bet? I'm pretty sure they're overpriced, but I'm not kilobucks/month sure.
Now the real crux of it is that I do not have unlimited cash flow to pay peak rent. The previous rental I moved out of has somehow gone up by 85%, a number which would push me into savings or have me calling my boss for a raise.
Shorting housing by renting risks you burning savings or moving to stay out of the bubble. Buying when the market is high is a hedge against the market going higher.
Yeah. But you only look at it from the perspective at staying at one place. What if you want or have to move somewhere else, but in the meantime your house lost its value ("marked crashed"). Now you have to pay both rent in the new place as well as your mortgage (that his now way to high for what you have).
In other words: you can't afford to move anywhere anymore, because of your high mortagage. If you had just rented, you would still be flexible and could move whereever your current pay allows.
Don't fall for survivorship bias. Prices rise for a longer time, but in the short times when they fall, they fall much faster.
and then the landlord can increase the rent by any amount and then Bob has to look for a house again.
10 years ago my first real job was a research assistant position in Copenhagen. Housing was very reasonably priced, and I could buy an apartment in the suburbs with just 3 years of salary. I rented a nice place with 1/4 of my salary. It was great.
I then moved to Cambridge, and while the university is cool, real estate took most of my free income. It was a nightmare. More than 1/2 of my salary went to renting a small flat in the middle of nowhere. During the course of several years, my I had to move houses six times because landlords wanted more money, or because agents wanted to generate fees and the house actually sat empty without a tenant for pretty long.
Now, looking back at Copenhagen, and mostly anywhere else in the EU, is a nightmare. Salaries paid by the government have barely increased because inflation is said to have been really low. But buying or renting is easily 2.5x more money. If you live alone, it's hard to make both ends meet.
these numbers aren't directly comparable.
The rent should be compared with the interest cost of the mortgage plus the capital cost of the deposit (which at minimum is the risk-free rate).
So if you paid 1/4th of your salary as rent, but the apartment costs 3x of your salary, this means you're paying 1/12th of the cost of the apartment as rent, aka, an 8% rental yield. This is an amazingly good yield - greater than the stock market expected yield (of 7%-ish). No wonder investors would want to buy.
The general consensus is that if the rental cost is greater than 5% of the property, you're better off paying the mortgage (and conversely, if the rental cost is less than 5%, then rent is cheaper, and invest the difference would yield more financial returns).
That's a form of participating "in an inflated housing market". There us no difference, you just introduced landlord as a middlemab.
the only way to opt out is living in a cave
Landlords provide flexibility to the market. They take on the risks of owning. In a fully healthy system, it would still be very good to have landlords and rental properties, people would just pick them because they are the best option, rather than the only option.
Why do you think people need to own everything they use, lest they be short?
Or are you saying that he should become homeless?
I hope you don't want to claim here that buying a house means that you cannot ever "lose a house over your head"? Because that would be plain wrong. And if you just wanted to say that it reduces the chance, then you should have some good arguments.
Also, some of your points are strange:
> 4. if he gets a girlfriend or boyfriend and they want a bigger place
Well then it's much easier to move to a different place, rather than buying a new house and selling the current one, don't you agree?
But he _is_ forced to participate in that market, even if he doesn't know it; whether that's by renting or buying is another question. Renting is less risky but it's still a bet, no?
I'm not sure.
Bob's risks shouldn't negatively influence people who have more risk aversion to the point where it's less risky to take risks like Bob because then we'll all take risks like Bob and then end up in the situation where we are now.
We’re at a point where we’d rather Bob secure his “investment” while younger generations can’t afford a home to live in.
> We all need a place to live but we all didn't take a risk in taking out a mortgage like Bob did.
My point is it wasn't necessarily a risk Bob has voluntarily taken. I'm not saying that we shouldn't do something to fix this but we shouldn't cause Bob to go bankrupt while trying to help younger generations as Bob may not be the opportunist here.
To my point of view, I see exactly where the haircut makes the most sense.
This is the part most people don't know or understand. We should fix the banking system first. Only one entity should be able to print money, not all banks.
Without refusal to participate, there is no braking effect on Asset inflation. Someone quite literally has to lose their ass for things to correct so that the next generation has a sane foundation to build from, and Lord only knows, the centralization hacks pulled off by the last handful of folks have been so stupidly effective, we're even having this conversation. So, who is in the best spot to take haircuts? I assure you, it isn't the people on the lower side of the income/wealth curve.
renting is actually more risky, because you are left exposed to interest rate risk, and housing market risk, etc in form of ever increasing rent prices.
in my opinion the proper solution would be increasing property taxes across the board and spending that money locally on schools and other community reinvestments, applying them on market prices and heavily taxing investment properties in single family homes (second and third house, house in title of LLC/S-corp, etc).
also tax heavily houses located in restricted zoning areas, like Palo Alto, CA. If NIMBYs don't want to see new housing in their backyard, they gotta pay up even more on market prices of their homes. provide tax incentives for YIMBYs
If you take a variable interest rate mortgage, as many people do, there is a risk of increased interest payments.
If you buy to live, and something changes in your life that requires you to move, you may be forced to sell in unfavorable market conditions. This is another risk of ownership.
The situation is quite involved.
So? The house is as livable the day before the mortgage went underwater as the day after mortgage went underwater. It only matters if Bob care about selling the house. If Bob's primary intent is to live in the house as opposed to selling it, it wouldn't be a problem.
But also it significantly limits Bob’s options in life. They can no longer refinance to repair the roof, they can’t move to a different city for a better job, etc.
Yes, that's the point...
>But also it significantly limits Bob’s options in life. They can no longer refinance to repair the roof, they can’t move to a different city for a better job, etc.
Bob knew the risks.
Within the legal system remedies Bobs everywhere are going to bankrupt. Banks can arrest the bankruptcy by changing the legal system, and Bobs everywhere can change the legal system to make bankruptcy more lenient.
At the end of the day a large portion of the population is not going to simply accept that they need to shoulder the losses for a bubble they didn’t make and had no perceived choice but to participate in. Particularly not when it occurs twice in two decades.
They (you?) don't have to accept it. That's not a factor at all. Your acceptance is not required.
If Bob was a first-time homebuyers, then he just got royally screwed because of all the speculation propped up by nigh interest-free lending, which was absorbed via inflated ask prices. There really is nothing natural about the economy of the last 15 years. At all.