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Comment by itsoktocry | Hacker News Reader

>Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move.

Buying a house isn't for everyone, sure. But this is a serious misunderstanding of what "going into debt" is. You're not buying a TV you'll throw out in 5 years, you're buying an asset class that has a history of appreciating in value over 100+ years that you can get incredible leverage on. In the US and Canada, at least, buying a house for a decent deal (in "normal" times, not at insane prices) is a no-brainer investment.

You mention buying companies...that's just a different asset class, but the idea is the same. It's not valueless the moment you buy it, you now have an asset.

>Buying estate = de facto being in debt for the entire career and then some, plus having to pay all repairs, anything.

Do you think this is all happening for free as a renter? At what point in your life do you plan on not paying for shelter?

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>buying an asset class that has a history of appreciating in value

Correction - over a time period of decreasing interest rates. Housing, on its own, is a depreciating asset. It is a consumable like a TV. It deteriorates with time.

"Housing always goes up", without an understanding of why it has been going up, can be a dangerous belief and could be one of the reasons why housing at the moment is so expensive relative to rents.

housing might depreciate, but the same is not generally true for the real estate it sits on

Land values can turn around, especially if desirability of the area changes.

Is this also true for places like Detroit, small inner towns in the mid ? West... my impression was that once banks got involved lending money the prices took off, I was under the impression that getting a house loan directly contributes to the amount of money in circulation...thereby increasing ? inflation.... another myth?) I heard was that in China houses are leased for x years (80?) thereby leading to a lot of Chinese buying foreign Real Estate.... if RE has the reputation of accruing value surely it'd be a good thing to put the brakes on companies from investing in it? I mean seeing endless same housing is kind of mind numbing....

I also have a theory that high RE prices are a perfect vehicule for stashing/laundering large sums of money....

Also to what extent isn't it political cronyism with the construction industry that leads to such shitty urbanistic decisions like we have in Romania where people are pawns to short term greed ...

> in China houses are leased for x years (80?)

It's worse. It's the land being leased for 70 years. House usually can't last that long anyway. But not owning the land and no guaranteed usufruct after 70 years is big.

Thank you for teaching me a new word, "usufruct": https://en.wikipedia.org/wiki/Usufruct

Exactly. I believe interest rates bottomed sometime in 2020-2021. Those rates are not going to be seen for another few decades. It remains to be seen what this will do to house prices. What happened to most speculative tech stocks since 2021 can also happen to other asset classes.

It seems pretty premature to say that mortgage interest rates that happened barely over a year ago won't happen for a few decades.

You could have looked at interest rates below 3.5% in 2013 and said the exact same thing; that was the lowest interest rate in over 40 years!

I am absolutely sure. Look at inflation, for one. We haven't seen these inflation numbers since the 1980s, and this is in just 2 years since the biggest central banks opened the money spigots. I'm a millenial so I don't relish it, but "you ain't seen nothin' yet."

Most of the housing bubble is actually a land price bubble. Land is only a long-term depreciating asset in shrinking cities, because demand for the land is decreasing.

Simply put, house price is a function of rents for similar houses and the multiple of annual rent that houses sell for. The multiple is primarily a function of interest rates, and a significant proportion of house price increases in recent decades has been the increase in multiple. It is also a function of expected future house price growth - the higher the expectation, the higher the multiple, which is where psychology and FOMO comes into play.

The interesting thing about these ingredients that decide the multiple, is that they can turn sharply. If interest rates go up, and multiple starts to contract, at some point the belief that house prices always go up will be shaken, and instead of pricing in future house price growth, people will start pricing in future contraction.

Level of rents is a function of the state of local economy (broad salary levels, more or less) and house supply. Can probably broadly be approximated as GDP growth - so fairly low.

So at interest rates at very low levels and arguable on the way up, and growth expectations seemingly very positive, and economic growth looking shaky, it looks as if house prices may have more downside than upside.

Housing [land] prices have been grinding higher long before the Great Decline in interest rates

https://fred.stlouisfed.org/graph/?g=kYEb

That chart seems to only go back to 1987, which is after the decline in interest rates started: https://fred.stlouisfed.org/series/REAINTRATREARAT10Y

Here you go https://observationsandnotes.blogspot.com/2011/07/housing-pr...

According to this, home prices were mostly flat from 1900 up until the 1970s. The proves the opposite of the point you are trying to make.

This is adjusted for inflation

Residential real estate valuations haven't been based on the house itself for a while. Prices are based on:

1) the house itself (this generally depreciates)

2) land (this generally appreciates)

3) a retirement account with great tax benefits (this value can fluctuate based on local, state, and federal laws)

4) a ticket into a good school district (this value will fluctuate based on the the performance of local schools)

5) a ticket to partake in a thriving local economy (this value will fluctuate with the local economy, and has recently been shaken up by the rise of remote work)

Any speculation on real estate prices and whether or not we're in a bubble has to take these things into account.

Interest rates for mortgages follow 30 yr treasuries which won't get very high. The Fed will come in with full on yield curve control at some point. 30yr treasuries are at almost 3%, already. I can't imagine they'll get higher than 4 or 5%, at least for not too long. The world is way too addicted to low rates. if interest rates rise for any long period, something will break, really badly, there will be a fear filled crash and the fed WILL come in: you can bet on that.

>you're buying an asset class that has a history of appreciating in value over 100+ years that you can get incredible leverage on

This is precisely the problem. It's not just companies buying up homes, it's also private individuals buying up housing to relist on AirBnB or other sites in order to further extract value out of their purchase.

If you look at a country like say, Japan they don't have this issue because housing depreciates and is not treated as an investment.

Not sure I want to leverage up on housing through the boomer die-off. Plus, there are way better investments.

Doesn't the boomer die-off mean that the boomers' children will be inheriting, not just homes, but piles and piles of liquid assets, much of which they will use to get into the housing market?

After all the boomer generation, on average, has over-provisioned for old age, whereas millenials are still underhoused.

>After all the boomer generation, on average, has over-provisioned for old age, whereas millenials are still underhoused.

Have they over-provisioned? Everything I have read indicates meager savings for the vast majority of the population, who will need to rely on Medicaid and Social Security to eek out the remainder of their living costs.

Nursing home care is especially costly in the event one does not die quickly, and the government can and I assume will seek to reimburse itself from the estate once the elder dies.

I think the reality is more subtle.

A large number of poorer elder people will be in dire financial straits, forced to work beyond their ability to do so and unable to pay for health care.

However there are also a smaller number of extremely rich baby boomers and a very large number of comfortable middle-class ones. The former will obviously pass on large amounts of wealth. The latter have been forced to save large amounts for their old age, because they have known since middle age that the state would not provide for them very well.

In some cases they have decent final salary based pensions and other very good retirement benefits, no longer available to younger generations. In other cases, they have invested significant sums over the last decades and also made large investment gains.

This group has tended to save for the 'worst case' scenario - a long retirement of leisure spending, followed by drawn out old age with significant care needs. Most of them will not need all this capital - they'll either die younger than expected, or have better health into their 80s and 90s than they feared. The excess will be handed on to their children - and will be a significant source of intra-generational inequality in the future.

Remember also that middle-class baby boomers remain an electoral 500-lb gorilla. Governments have been very reluctant to claw back their benefits and care provisions as fast as has happened to other groups. In some cases they will be provided for better than expected when they planned for retirement.

I think you might be referring to top 10% of households.

https://dqydj.com/net-worth-by-age-calculator-united-states/

75th percentile gets to only $800k by age 70, and that is including the equity in their home. Maybe the beneficiaries of the 70% to 90% households will end up with real estate worth a few hundred thousand, but I do not see much wealth being passed down beyond that.

Labor is only going to get more expensive as greater proportions of the population age out of the workforce and become labor buyers rather than suppliers. Unless many start dying younger than anticipated without using a lot of medical and nursing home care, I would not expect much if I was their descendant.

A 'few hundred thousand' is a lot of money to inherit, and for lots of middle-aged people and young families it will go straight back into the housing market, typically in areas that are already quite hot.

Note that the upper quartile having $800k includes $500k which isn't in their primary residence. Older people tend to own cheaper houses than you might think, since they are more likely to live in more rural areas.

If you're 70 and have a house you might be able to live quite a few years on half a million. In practice, you have a decent chance of dying before you spend all your capital.

> This group has tended to save for the 'worst case' scenario - a long retirement of leisure spending, followed by drawn out old age with significant care needs. Most of them will not need all this capital [...]

Sure sounds like this group would have had happier, more rewarding life experiences, and at a macro level made a more appropriate investment of effort, had they been able to trust a social safety net.

I believe the Boomer generation overspent. It's their parents that over saved (habits learned during the depression).

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