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Comment by h2odragon | Hacker News Reader

Where I'm at, there's still a lot of houses around that have not been occupied since 2008. Not for sale, not maintained, not recoverable. I have this feeling that somebody somewhere is sitting on those places (and paying the property taxes!) and valuing them much higher than the true worth.

If so, there's probably still holdover from the last crash to cause splash in the next one.

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This "formula" was what big banks used to solidify their mortgage backed securities 12 years ago. Instead of letting houses default, they would buy them up.

So imagine you're BoA and in one town you back 5000 mortgages. Let's say 500 of those are about to default. You've already sold "paper" that includes all 500 of those loans, some of which may have been in the AAA tranche. In order to keep your AAA tranche from collapsing, you buy those 500 houses outright and sit on them, providing the illusion that your securities are healthy. It's cheaper and simpler.

The downside is, when the market collapses, BoA is still stuck with 500 houses and will have to sell them eventually. They don't care. They're just trying to hold on to them until the securities they sold mature. Once that happens, all bets are off and they dump the houses into a depressed housing market.

Housing prices are going to collapse. Badly. You can bet on it.

> They're just trying to hold on to them until the securities they sold mature.

So if those were 30 years mortgages the collapse should be fairly far away?

No. The securities aren't necessarily the length of the mortgages. Traders will offer to buy AAA tranches for 5 years or 2 years. There is no set length. A lot of times these are used to back municipal bonds which get setup for 5 to 10 years to help small cities borrow and build infrastructure. It's all intermingled and why our financial system did not learn any lessons from 2008.

I'll add this little bit of advice.

Sell every bit of real estate you own. Now. If you can.

Rent for a year or two. Then jump back in when it hits bottom. You'll pocket a ton of cash and then have the same or better property at a significantly lower cost.

>"Rent for a year or two. Then jump back in when it hits bottom. You'll pocket a ton of cash and then have the same or better property at a significantly lower cost."

It's my understanding that this is what a lot of people who sold their homes recently at the top of the market are doing exactly this. And this is one of the things that is driving up the prices of rents. If you pocketed a substantial windfall you are probably fine with paying an inflated rental price while you wait out the market. It's hard for me to imagine anything will be different in two years if all of these same people waiting out the market plus first time home owners all attempt to get back in to the market at the same time. Isn't it just the pandemic housing rush all over again?

Maybe good advice if you are a house flipper sitting on inventory, not that useful for the typical home owner with a family.

If your house is currently worth $200+k over what you owe?

I say cash in and buy something later. A lot of people will lean towards stability, but a savvy financial person would sell sell sell.

It can be (mildly) emotionally scaring for young children to move houses. I mean, they'll get over it, but it can be a lot of crying in the short term. And that's not even getting into the costs associated with moving out and moving back in, and probably taking your vacation time for the year to do so instead of going somewhere fun.

It's not just a dollars and cents issue when it's your actual home.

100% agree. If you're a settled family with a 2% APR 30yr fixed, don't do anything. I'm more talking about people that are flexible.

Well that is one of the many arguments of why turning people housing/"homes" to investment is a terrible idea.

Where does the 1-2 year time horizon come from? What did you analyze to arrive at that?

Did you consider those that got 30 year 2.5% mortgages that will need to take out 6-6.5% mortgages currently & possibly higher in 1-2 years?

every bit of housing *

Land is a totally different market and hardly affected at all by interest rates since almost nobody will give you a mortgage for vacant land.

The way to get mortgage on vacant land is to buy some with a house on it (bank often won’t care if you’ve combined parcel, etc) - then they consider it a house.

Even if the house is on a hunner acre wood.

I suspect that the “institutional investors in single family homes” are going to get caught out bad.

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