Hacker News Reader

Comment by steve_adams_86 | Hacker News Reader

I recently bought a house that has increased in value by around 10% since I bought it. I’d be happy about it, but all I can think about what a struggle it was to find, bid on, and buy a home at the prices the market demanded at the time. Now it’s worse, and I profit from it for doing effectively nothing (assuming I sell when it is still valued higher).

That’s not good. Not like this, at least. Maybe this was more appealing to people in the past because it wasn’t so overtly bad for communities and society.

View on HN

Just 10%? Eight years ago, I bought a house that has increased in value from $120k to $350k (validated both by Zillow and by recent sales in the neighborhood of nearly-identical houses). And for a mortgage whose interest has been less than the price of inflation!

I'd be happy about it too, but am overwhelmed by guilt when talking to my intern, our newly hired engineer, my younger siblings, and many of my friends who rent at ever-increasing rates.

That $230,000 was taken from the pockets of my non-homeowning friends. I don't understand how so many seem to be cheering the rising prices, oblivious to what it's doing to our society.

> That $230,000 was taken from the pockets of my non-homeowning friends.

Nope! First of all, it's come from no one's pockets until you sell. Until then it's just a hypothetical, theoretical gain on paper.

Second of all, when you do sell it, the money will come from the pockets of your willing buyer :-)

Edit: if you still want to feel bad about something, let it be this: that the rise in your home's value represents wealth that has been created "by the community" in the sense that it's only because of many variables of the surrounding community that the land has become more desirable and therefore more expensive; and your ability to capture all of that increase via your untaxed monopoly on the ground rent creates a deadweight loss for the broader economy.

But that's why we created the universal land value tax and used it to replace all other taxes! (Hello from the year 2078!)

If your phone and your laptop were suddenly worth twice as much would you also be celebrating?

I am struggling to find the right words to express how wrong your view is to me. Housing is a basic human need like food and clothing. How can you in good conscience celebrate making a tremendous profits exploiting the fact that people cannot afford a basic need?

> I am struggling to find the right words to express how wrong your view is to me.

Then surely I have failed to convey it!

In any case, my edited point about "deadweight loss" is perfectly consonant with the parent poster's feeling of guilt, and with what I presume is your feeling of disgust; it is in fact the economic term of art for that at which you intuitively recoil.

(Although you're kind of equating a very, very expensive home, in the overall scheme of things, with the minimum requirements of decency, if you really think that he's exploiting someone's inability to afford housing, but w/e.)

Now let's get into the controversial stuff...

> Housing is a basic human need like food and clothing.

Agreed. But it's also an asset, because someone has to build and maintain it and have exclusive use of (at least parts of) it, and being a basic need doesn't automatically create a right to something (for obvious reasons) so that asset is gonna trade hands voluntarily like any other. Its price will fluctuate, sorry.

Now, NIMBYs using government fiat to drive down housing supply in their market is an annoyingly common failure mode of local democracy, maybe that's all you're upset about.

No. It really is that your view is wrong, and not that you simply failed to convey it.

You glimpse the problem at the end, only to dismiss it. Your glimpse is when you say:

> Now, NIMBYs using government fiat to drive down housing supply in their market is an annoyingly common failure mode of local democracy, maybe that's all you're upset about.

The triangle that you're looking at is that NIMBYs lead to lack of construction, lead to undersupply of housing, which is a direct cost of both high housing costs and high homeless populations. The profit that I have as a homeowner comes from somewhere. Where it comes from is artificial scarcity that causes renters to struggle, and over 170,000 Californians to be unhoused.

Looking at that without guilt, is like New Englanders whose families made a fortune investing in the triangle trade, congratulating themselves on not having been those evil slave owners. Sorry, but it is tied together. You cannot both profit from the crime, and disclaim a portion of responsibility for it at the same time.

Ah, the internet. Where homeownership is unironically being compared to slave trading.

> for obvious reasons

What are those obvious reasons?

> Housing is a basic human need like food and clothing.

Yes, food, but I don't see many arguments for bringing down the price of caviar.

IOW, making an argument against high property prices in highly desirable areas is not the same as making an argument for low cost housing.

It doesn't really matter how dense you make housing in highly desirable areas, there'll always be more people who want to live there than houses available.

The solution is more remote working and much faster public transport.

Tax breaks on businesses for each remote worker will be cheaper than building more slums, it will be quicker (demand is affected almost immediately) and it needs no political campaigning against the local NIMBY residents.

Instead of trying to guilt trip people about the paper value increase in their property, just remove that paper value increase altogether.

(I'm not sure how you would solve the slow public transportation problem. Where I am we have 160km/hour trains, but the door-to-door travel time using these trains to travel 20km is still about twice the time it takes to drive)

> It doesn't really matter how dense you make housing in highly desirable areas, there'll always be more people who want to live there than houses available.

A land area with a 40 mile radius and the population density of Manhattan would contain the entire population of the United States.

> Instead of trying to guilt trip people about the paper value increase in their property, just remove that paper value increase altogether.

The only way to do this is to build more housing. You can't fix it with mass transit because the existing housing is low density and mass transit requires high density.

> A land area with a 40 mile radius and the population density of Manhattan would contain the entire population of the United States.

That's a good point you make - even at the extremes of high-density living, high density still doesn't solve affordability!

People can neither walk nor bike 80 miles, and public transport over 80 miles with multiple stops takes hours, so you can reasonably expect that prices would be considerably higher in the center (40 miles to everywhere) where it is more desirable, and people can neither walk nor bike 40 miles for commuting. Public transport infrastructure for a 40 mile journey also makes commuting infeasible.

The problem of not being able to afford living close to where you need to be is still there, even in the hypothetical pathological case.

If it can't solve the problem in the ideal case, it can't solve the problem in any case.

I’m not the GP poster. But I do not think one 80 mile wide city containing every US resident was intended as an example ideal case. It was intended as a demo of how non-dense the US is, on average.

Most “new urbanism” people advocate for medium sized, densely built, 15 minute cities. Not a single megalopolis.

I plan on retiring in an area with hardly any people in it. Even now, living that tightly packed in sounds like a nightmare.

I can drive 30-45 minutes and be sitting on a lake with no one around, when I retire that drive will be 5-10 minutes.

A lot of us don't want to live like that even if we could.

Which is fine -- nobody is asking for a law requiring all housing to be high density. The ask is to remove the laws prohibiting new housing from being high density.

Which should make it even easier to find low density housing, because you won't be competing for it against people who just need a place to live and don't care about having a big yard.

Right. Nobody is trying to force anyone to live densely. The point is: dense housing (e.g., Manhattan) is expensive because of supply/demand. Lots of people do want to live like this. And it's illegal to build this way in most places in the U.S., only perpetuating the affordability problems across the board.

> That's a good point you make - even at the extremes of high-density living, high density still doesn't solve affordability!

Manhattan is <23 square miles, containing ~1.6M people, surrounded by a metropolitan area of ~20M. The surrounding metro area has a much lower population density (less than 3% that of Manhattan itself), implying that it's practical for it to be higher, which would reduce housing costs by supply and demand.

It's not about how much housing you have in absolute, it's about how much you have relative to demand. The demand in NYC is about the highest in the country, so they need more supply than they have even now.

> People can neither walk nor bike 80 miles, and public transport over 80 miles with multiple stops takes hours, so you can reasonably expect that prices would be considerably higher in the center (40 miles to everywhere) where it is more desirable, and people can neither walk nor bike 40 miles for commuting. Public transport infrastructure for a 40 mile journey also makes commuting infeasible.

The average commute is 41 miles as it is. And with that level of density you could justify express trains that travel at highway speeds or more, making that distance a much shorter commute than it is even now.

The area in the center might cost more than the outer ring, but what of it? The point is not to make all housing have the same price, it's to build more housing to lower the price of all housing. It doesn't matter if the center costs more than the outskirts if they each cost <25% of what they do now.

It also goes without saying that you would not actually build this. You neither need nor want the entire US population to live in an area the size of Connecticut which represents less than 1% of its land mass; there are multiple metropolitan areas spread all over. The point is merely that enough housing for the entire population would fit in that area, which serves as an upper limit on how much housing demand you could even have. And even Manhattan has a lower population density than we could build at -- it certainly doesn't consist entirely of 100 story buildings despite them being possible to build. The claim that it isn't possible is clearly false.

> The problem of not being able to afford living close to where you need to be is still there, even in the hypothetical pathological case.

That is the pathological worse case scenario because you would have to provide enough housing for a single city with 340M people in it, and you still end up with a lower average commute than people have today.

If you took an existing metropolitan area and raised the population density to that of Manhattan (i.e. lowered the area with the same population) then the San Francisco metro area with 7.8M people would have a radius of less than 6 miles.

And it would be silly to do even that, because all you need to do is convert existing single story housing into multi-story housing and thereby provide enough housing to satisfy demand. You can increase the density by a factor of >50, it's not a question of whether existing construction technology would allow it to be built, but even increasing it by a factor of only 2 or 3 would significantly lower housing costs.

Because we don't all levitate over open water.

If someone discovers their vintage car is worth more than they paid for it as teenager should they feel guilty over this?

Do you feel guilty when you eat food because someone somewhere isn't?

Shelter is a basic human need, not housing.

Anybody who’s seen a slum would agree that it’s housing that is a basic human need, not shelter.

That's a fine line you're cutting there.

No, the line is clear. Now here's your government issued box and tarp.

> How can you in good conscience celebrate making a tremendous profits exploiting the fact that people cannot afford a basic need?

I'm completely missing your point.

If I buy property in a developing area because I think it's cool, and I live there for years and am part of the community and watch it grow around me, and years later decide to sell - I took an early risk, don't I deserve to recognize the rewards from that risk?

If it was a bad risk and the area went to hell, and I lost money - is that ok?

But making money isn't?

Should home builders not be allowed to make money because housing is a basic human need?

Should we not be allowed to build luxury homes that cost more because we could have built multiple cheaper ones with the same money?

What should the rules be, in your opinion?

> I took an early risk, don't I deserve to recognize the rewards from that risk?

In your mind, how much of the increase in value of housing is due to “early risk” paying off in a valuable community vs an increase in overall demand without an increase in supply?

When the nation sees the housing supply increase slower than the population, that’s not a risky investment. It’s musical chairs where you pay to win.

Are you actually involved with real estate investing?

I'm asking because it really doesn't seem like you have much experience with it based on your comments.

Housing prices go through bubble-burst cycles regularly.

National trends are interesting, vaguely, but local markets are everything, and fluctuate wildly based on many factors.

We get into serious trouble when we have external forces skew the market, like in 2008.

Covid years + essentially free loans (nearly zero interest) are another example.

It caused a bubble that's going to cause a lot of pain as the market corrects.

I'll be part of the solution - I'll buy properties (most likely next year) that are in distress, rehab them, and then sell them later.

According to you, though, that's somehow wrong. I should just let foreclosures happen, let houses rot empty - because profit is wrong?

Hmm don’t think I said profit is wrong. I said owning an asset in limited supply with growing demand and then selling later is not particularly risky. I made no moral claim.

I’ve seen HGTV. I’m familiar with house flipping, I know that the markets are local. I don’t really need an economics lesson to understand that low interest rates spurred buying. Don’t kid yourself into thinking it takes a genius investor to buy something in low supply relative to demand and resell it for more.

> I’ve seen HGTV

Guess I should be learning from you then.

Singapore has a good model that allows most of its citizenry to own homes. Basically, it competes with home builders directly. If they don't want to build, the government will do so.

https://youtu.be/3dBaEo4QplQ?si=r_3FWkZJLBvWAxJ_

The Singapore government won’t build in advance so demand is far higher than supply so there is a lottery. Oh and you have to married. Singles wait until 35 and can only buy a 1 bed.

If you don’t win the lottery you can always buy resale which is close to $1M for a 2 bedroom place.

Oh and it’s a 99 year lease. After 99 years you give it back to the government and get $0.

Oh, folks want to build, that’s for sure. They’ve been prevented, and sometimes still are.

In Singapore, the state has vast eminent domain powers and is exempt from all zoning laws, which is covered in the video. I'm not sure that would ever fly in the US.

Yes, would have to fall on the state, as in US State, not the domain of the Feds.

Being a nationwide problem, they probably wouldn't be able to solve the problem. Because solving the problem means everyone moves to your state.

That "wealth created by the community" is often really "there is high housing demand, but the community of housing owners refuse to allow reasonable increases in density, which has the effect of increasing their home values".

When the people who "generate wealth" are doing so by dictating prices, that seems a bit sketchy to me.

The ironic thing is that housing scarcity often ends up making a place much less desirable -- even for the entrenched homeowners who cause the scarcity problem.

This is a house, presumably close to a job. Not an optional night out. It’s by no means a “willing” buyer. Mostly a “I need this to survive” buyer.

Homeowners with this much gain based on artificial supply constraints should definitely feel bad.

Again, if they sell ... my house has doubled in value ... its still the same house I bought. I would only realize some gain if I put it on the market. What it is now is just another house not for sale and I happen to live in it. This is the same uneducated statement people make about prop 13 in California ... 'oh your house is worth a million so youre a millionaire' ... oh?

Baloney. You have a house with relatively stable monthly payments. You will be able to purchase another hour if and when you need to move. You have a nest egg.

It doesn’t matter when you sell because now you’re floating on the water. As the tide rises, so do you.

The problem is that in California, the owner is still paying taxes on an assessed value only a little bit higher than what they paid for it initially.

If they sell that house, and then buy something new at a similar market rate, their property taxes will balloon overnight, because the assessments "reset" to the purchase price when the property changes hands.

The only way this works out great is if, after selling this house, they move to a new area (possibly new state) with lower cost-of-living, and possibly a more sane property tax regime.

(Not sure the person way upthread is in California, but someone lower down mentioned Prop 13, so I thought I'd bring this up.)

1% property taxes are ~15% of my mortgage payment in CA.

I would pay 50% more if I upgraded with the same debt amount due to interest.

> You will be able to purchase another hour if and when you need to move.

Say you bougt a house for 200K many years ago. Your neighbor bought the slightly larger house next door for 275K back then. Your house is worth 1M now. Can you move?

Sure, you can sell your house at a nice profit (and pay taxes on that!!). The neighbors house is worth maybe 1.2M now. So you can't really afford to move.

Housing gains on paper are not income and you can't cash in on it unless you move out to a much cheaper area. Otherwise whatever gains you had on paper also apply to the nearby houses, so you can't afford them.

> Otherwise whatever gains you had on paper also apply to the nearby houses, so you can't afford them.

Why are you so certain you couldn't you afford them? You were able to purchase a 200K house many years ago. Now you just need another 200K to buy that bigger house — and it's a bigger house! You did it once long ago, you can probably do it again even easier (in addition to everything else, you have a huge downpayment now). And no, you typically don't pay capital gains taxes against your primary residence.

In any case, the point is that you're in a way better place than if you hadn't made that 200K purchase. That's what I mean by "floating on the water" — you have a stake in the market so now as it moves, so does your asset.

> And no, you typically don't pay capital gains taxes against your primary residence.

A married couple can exclude 500K from taxes, but the rest (given example above) is taxable.

> In any case, the point is that you're in a way better place than if you hadn't made that 200K purchase.

For sure. Owning is better than renting.

Not where i live I wont ... there is a bunch of real estate know nothings in here downvoting me cuz they angry. If I sell my house I gotta leave town. I cant afford any of the others. It isnt an investments it is where i live, even if i owe on. A mortgage isnt speculation ... it is debt.

California has a 1% tax rate.

If you can't afford less than $1k per month you could just sell your $1 million house.

Those numbers aren't being dramatic. You need a $1.2 million house to pay $1k a month in property taxes.

> California has a 1% tax rate.

That is technically true, but not really true. The basic tax rate is indeed 1%, but counties and cities are free to add any kind of fees they want (AFAIK there is no limit) to your property tax so in practice you're paying way more than 1% in CA.

Prop 13 says they can't do that. Only the county can charge 1%.

Irvine CA wanted property tax and so they get builders to force you to an extra fee but it isn't technically a property tax.

Not to say there isn't sometimes a fee or two added but it isn't the Wild West at all.

> but it isn't technically a property tax

That is the loophole they use. They add all kinds of fees into the property tax but don't classify them as taxes. Best I know, there is no limit to how many and how much. Twenty years ago my property tax was just a single line item, the property tax. Now it's up to 6-7 (don't have the bill in front of me to check exact count) line items.

So yes, your CA propery tax^H^H^Hfee bill can be way over 1%

> First of all, it's come from no one's pockets until you sell. Until then it's just a hypothetical, theoretical gain on paper.

It comes from their pockets when they pay rent. Meanwhile you, as a property owner, receive thousands of dollars a month in imputed rent by owning a place to live.

You also have the ability to spend the money without selling the property by borrowing against the equity, as many people do.

> Second of all, when you do sell it, the money will come from the pockets of your willing buyer

People "willingly" subscribe to Comcast. Not because they prefer doing business with Comcast or believe themselves to be getting a fair deal.

> if you still want to feel bad about something, let it be this:

The people celebrating the increase in housing costs because they own housing should feel bad about it. Especially the ones who caused it by lobbying for zoning restrictions.

> But that's why we created the universal land value tax and used it to replace all other taxes! (Hello from the year 2078!)

This doesn't actually fix housing shortages created by restrictive zoning -- which you could conceivably still have with a land value tax and a government that keeps the restrictive zoning to maximize land values and therefore tax revenue. (Land is worth a lot more if you need it proportionally to build housing instead of just buying one piece of land to build an arbitrarily large amount of housing by building an arbitrarily tall building.)

> it's come from no one's pockets until you sell

Assuming that property tax has been tracking the current market value of the house then yes.

But in California prop 13 means that isn't the case

The more important point is that you will take that extra money and more and give it to the next willing seller who you are buying from. Rising property prices don’t do much for you at all until you are ready to trade down or leave the market.

Opportunity costs are real.

So is gravity and rainbows. You just gotta get what you can

and taxes ... while prop 13 keeps property taxes reasonably down for legacy home owners there is nothing blocking capital gains

Prop 13 is only in California, and previous poster was talking about sub $350k houses, which makes it very, very unlikely they are in California.

I thought you were joking about sub-350k and looked it up for CA. That is nuts:

In August 2023, home prices in California were up 4.8% compared to last year, selling for a median price of $792,900. On average, the number of homes sold was down 14.0% year over year and there were 25,115 homes sold in August this year, down 29,214 homes sold in August last year.

https://www.redfin.com/state/California/housing-market

Yes, checkout the figures for the US west:

https://cdn.nar.realtor//sites/default/files/documents/ehs-0...

A couple hundred thousand is the price of land, not a home. If it is a home, it’s a teardown.

Fair enough but same idea. Any appreciation on a home you live in is moot. Its a house, its a home ... its not an investment. Anyone that leverages their home is an idiot. ... and capital gains applies anywhere but i guess if they are selling a house not in cali there might not be enough gains to worry about the IRS.

Leveraging homes is almost universal when acquiring property: that's exactly what a mortgage is. Why do you call everyone who has a mortgage an idiot?

Capital gains don't necessarily apply everywhere. In eg Australia your owner occupied house is exempt. And in eg Singapore we don't have capital gains on any asset at all.

A house is both a home and an investment for most people. That's just a description of what's happening. However you could say that a house _should_ not be an investment.

Australia?!? Who gives an f about australia or singapore? What youre saying is your arguments have no merit against mine... Cuz mine operate for the place I live in. I understand your gross under generalization ... but if you are living in a house its only worth is a roof over your head.

You didn't specify which place you live in, nor that you were only interested in your part of your small town or perhaps yourself.

> Anyone that leverages their home is an idiot. ... and capital gains applies anywhere [...]

Anyone, anywhere..

No cap gains on the house you treat as your primary residence for three out of the last five years up to $250,000 ($500,000 if married filing separately).

Less than a quarter of Americans own their own homes. [0]

[0] - https://www.forbes.com/sites/johnwake/2023/03/31/us-has-3rd-...

Take out a HELOC at the now-current interest rates and give the money to your affected friends to pay them back. You'll probably have to sign a letter saying it's a gift, not a loan, if they want to use the money toward a down payment, but if you sincerely feel like you have taken money from their pockets, this is a way you can give it back.

I think he's just doing this ritual cleanse of: I feel bad then I can feel good. It's all happening in his head, meanwhile out there, nothing changed.

I do too. The subtext of this is definitely, "Oh really? Let's see you put your money where your mouth is."

The point is that this is a societal issue. One person paying doing some charity on their own doesn't solve the societal issue.

As analogy: "It sucks that my peers earn less than me because they are part of <X disenfranchised group>"; You: "Why don't you just take your extra income and give it to them?"

Not GP here, but speaking for myself: I bought a house at low interest rates, using tech wages that aren't commensurate at all to the standard wages in my hometown where I bought the house.

What I'm doing now is renting out that house at less than my mortgage whilst living in a different country with higher taxes and which generally takes better care of its people (the blight that is the Tories notwithstanding).

That said, you can't expect people not to play the game if they're forced to play the game. Those of us in the western world pretty much all live in capitalist countries; the best we can do is ensure that we're doing well in our own lives whilst trying to fix the game for those who aren't doing so well. Taking out a HELOC and giving the money to friends is a substantial financial risk that jeopardises our own comfort without having a clear positive impact on those friends and without really fixing the underlying problem. It's like giving cash to a homeless person instead of giving them housing and support -- the cash will be gone soon, and the system that resulted in their homelessness won't be fixed, nor will you have prevented any future homelessness.

tl;dr, you can own a house and live comfortably whilst still lamenting the fact that your friends can't, and this isn't an inherently hypocritical stance. You're just lamenting the fact that the game you're playing necessarily has winners and losers, and wishing that would change.

Oh I actually agree with you. It's the hyperbolic, "That $230,000 was taken from the pockets of my non-homeowning friends," grandstanding that gets under my skin. It's (usually) empty virtue-signalling.

IF someone actually means it, though, (which is a very big IF), taking out a HELOC and giving the money to friends for their own down payments is nothing like giving cash to a stranger with a demonstrated history of ending up without money.

If someone really does think their position is a fortuitous accident, and that their friends are equally deserving, just less lucky, they can settle the score. They can take the fruits of their luck, give it to their friends to afford them the same advantage of home ownership, and place themselves in a financial situation similar to their friends. Similar interest rate. Similar equity in the home. Even things out again.

There might be people who really do believe they should right a wrong, and they have the opportunity.

Realistically, I think it's like the richest people who bemoan the injustice that they don't even pay taxes as high as their hired servants, but wouldn't dream of using the IRS's easily available option to pay more taxes voluntarily.

I don't like it when people get points for pretending they care.

> I'd be happy about it too, but am overwhelmed by guilt when talking to my intern, our newly hired engineer, my younger siblings, and many of my friends who rent at ever-increasing rates.

You bought a house and you live in it. Feeling guilt over something that isn't your fault makes no sense. If it makes you feel _better_ to try to help solve the problem, that's great; but that's totally different than guilt.

Just like it's not right to feel bad that you can't keep up with the Joneses, its not right to feel guilty that the Smiths can't keep up with you.

I agree, and I’m profoundly disappointed that people are celebrating the infliction of such misery on a younger generation.

If the food in your fridge or the clothes in your closet were suddenly drastically more expensive and you could make a profit selling them, would that be a good sign for your society and community? Would you view it as a sign of prosperity that your well stocked pantry was now a source of funds you can tap by selling to starving people?

Housing is a basic human need and it’s all but unaffordable. Even if you personally profit surely you can see that this is corrosive to society as a whole.

It's true that the last 15 years have been a fantastic time to buy a house. And yes, you are better off compared to those who didn't do that because they were too young or didn't have the money. But don't ever feel bad about this because you're basically treading water with inflation:

1. Through the years you own your home, you will pay roughly 1% of the notional value of the property in state and local property taxes EACH YEAR. You already know this.

2. When you sell your house, agents will eat 5% and the state you are in will take another ~3%. Other closing costs, the expense and the hassle to spruce up the house for sale. Round it off to a 10% haircut of the selling price.

3. If you're single the first $250K of capital gains on your primary residence is exempt from federal income tax. Beyond that the IRS will take its cut. Include the Net Investment Income Tax (NIIT) and you're looking at 24% tax on any capital gains, assuming you will be in a high tax bracket when you sell. And depending upon the state you live in, there will be capital gains taxes paid to the state.

Now look around you at the prices of groceries and meals. I have seen these costs roughly double in the last 8 years.

So it's not just that your house has appreciated in value -- it's more that the value of the dollar has gone down. And the plumbers and electricians and construction workers needed to build a new house have also gotten more expensive. By buying real estate you have managed to preserve your buying power somewhat so it's not eaten up by inflation.

You're not as rich as you think, but at least you're better off than the intern and your younger siblings. (edit: formatting)

Perhaps it’s just rapid inflation, goods and services have yet to catch up? Only time will tell. $100 today is most definitely not $100 from 8 years ago.

That 10% appreciate without me setting foot in it over around 18 months. I bought an imaginary home and it was just completed as of the 28th of September. I’m sure that rate of increase won’t continue, but yeah, the builds in the same area are now selling for a bit over 10% more.

Guilt? Then when you’re ready to sell don’t charge market rate, sell for what you bought it for plus some modest gain.

Would that alleviate your guilt?

Don't be too sure about that 10% increase in value. Online estimates are generally not great and may simply be guessing from past momentum.

Even if it really did increase 10%, you'd be giving up a lot of that difference in all of the various costs involved with selling a house and moving, even if you could cut agent costs to $0.

I have some friends who became real estate agents and thought they'd use their position to flip houses while being their own agents to save on costs. They're learning the hard way that even when you're not paying agent fees, buying, selling, and holding homes is expensive.

Most people don't understand opportunity cost or time-value of money.

How good an investment is it after you remove the realtor fees, closing fees, HOA, taxes, repair and compare it to a steady 7% on average on the SP500?

At a minimum your house MUST go up 10% over a couple years to get even.

The key point here is leveraging, given that an average US mortgage is 6.5x to 20x.

And that leverage is broadly available to most people, supported (and funded) by government policies.

And it is a non-callable loan, unlike borrowing $300k from your brokerage to invest in VOO. And many states require it to be a non recourse loan. And due to the backing of the federal government, it offers a 30 year fixed rate. The public subsidies are insane.

The interest is also deducted from the borrower's AGI. USA being nearly the only country that subsidizes loan interest.

https://www.stlouisfed.org/open-vault/2018/may/why-economist...

https://www.economist.com/finance-and-economics/2017/02/02/w...

https://www.economist.com/free-exchange/2010/09/13/dont-defe...

https://www.economist.com/briefing/2015/05/16/a-senseless-su...

https://fivethirtyeight.com/features/the-tax-deductions-econ...

I don't know about you, but I would have to significantly upsize before the mortgage payments exceeded the standard deduction my wife and I receive as a couple. In my market, the mortgage deduction is effectively dead.

It is dead for 90% of American tax filers since 2017 TCJA. But those juicy standard deductions end at the end of 2025 too, so could be only a few more years before the mortgage interest tax deduction is in play again for many.

Interesting. On the one hand I think it would be political suicide for pols to fail to extend the standard deduction, but on the other hand I think we're going to require substantially higher taxes in the near future to avoid financial repression, currency devaluation(no, not Weimar Republic levels...) and inflation. Should be interesting...

The petrodollar and the dollar's globalization seem like the tipping points.

If either of those substantially changes, the US budget to inflation link becomes very different, because there won't be external sinks to soak up extra dollars.

Globalization will change on glacial timescales. And the alternatives don't look great: Euro (economic concerns), yen (economic concerns), yuan (economic and political concerns), ruble (economic and political and sanctions concerns), rupee (maybe if SE Asia gets its economic integration in order), naira (would need scale from other major African economies)

Oil being sunset is going to be fascinating macroeconomically, as a huge part of the US' world economic power flows through Saudi Arabia.

Non-callable, can be refinanced at buyer's discretion, broadly standardized so there's a competitive mortgage originator/refinancing market, and can be borrowed against by using that same market (HELOC or home equity loan)

There's a lot of mortgage features that make it attractive to "I'm not an Accredited Investor" types.

You bring a good point, but leveraging is absolutely required to make housing an even close to acceptable investment.

All the recurring and one time fees take away from the leverage.

Playing with the buy or rent calculator from the NYT shows you how leverage is an absolute necessity:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

Real estate, at least the land aspect of real estate, should never be an investment. It leads to misallocatiom of resources and rentierism.

The only aspect of "investment" should come from proper maintenance of structures, and replacing structures with greater density as soon as the land values justify it.

Home ownership as investment has been a generational disaster

> leverage is an absolute necessity

Yes, in more ways than one. To juice returns, sure. But the main reason people lever into real estate is because they don't have the cash to buy. So most homebuyers enter into a favorable high-leverage asset whose gains are given preferred tax treatment.

Discussing residential RE as if leverage is optional is not useful.

Sure, but discussing it as a "juicy" investment that returns 5x the upside because you are leveraged 5x is also a false narrative that doesn't include all the fees and costs.

Not to mention risks!

On the other hand, if you need housing (and who doesn't!), it's not a bad deal to pay for a house and "only" end up realizing (at a later sale) a couple percent of gains. Frankly I consider that a great deal! I wish I could buy a car and sell it 10 years later for higher than the purchase price. Or furniture. Or computers. Anything non-consumable, really.

Also probably important to consider that most people who buy homes cannot do so without a mortgage. So you're not even really comparing it to whatever else you might do with that money (well, aside from the down payment); it's just a pure expense. Sure, unless you have an interest-only loan, you're also putting principal into it every month (which you could put in the S&P instead), but that's sometimes better than giving a similar amount to a landlord, depending on housing economics in your area.

I don't know of any other consumable where I have to effectively repurchase it every few decades or I lose it.

For instance, looking at buying a typical home in my market, one would have to pay around $2k in taxes and insurance per month. That's 2/3 of my current rent, and doesn't include maintenance. That's after the mortgage is paid off. That's on a $1.5M house. That $1.5M would earn you $82,500/year in risk free interest right now, or $6,875/mo. That's nearly enough to rent an equivalent house even after you've paid the income taxes.

We shouldn't even have to think in terms of "breaking even" because housing should't be an investing tool. It's a shelter and a home.

Unfortunately, making "good investments" is necessary to stay above water in this precarious society, and our society is so fucking heartless that houses are one of the best investments a person can make. It's both bleak and absurd.

Typically there's much less tax involved when investing in real estate. Here (Australia) there's both no tax on the imputed rent or price appreciation if it's your own home.

>Don't be too sure about that 10% increase in value.

Not disagreeing, but zillow and redfin both track their estimate accuracy: https://www.redfin.com/redfin-estimate https://www.zillow.com/z/zestimate/

If Zillow was good enough at estimating home prices, they would not have shuttered their home buying/selling business after experiencing hundreds of millions in losses.

https://www.nytimes.com/2021/11/02/business/zillow-q3-earnin...

>Zillow, facing big losses, quits flipping houses and will lay off a quarter of its staff.

>The real estate website had been relying on its algorithm that estimates home values to buy and resell homes. That part of its business lost about $420 million in three months.

That wasn’t the problem. If Zillow undervalued or correctly valued your house you would never sell to them, and if Zillow overvalued your house you would always sell to them. The valuations could be extremely accurate overall and it would still be a terrible business plan because of adverse selection.

Bad take.

Zillow is great at estimating home values and related figures.

They're NOT great at estimating those values in the future.

That is a good point, but I have seen it play out over the years. When prices were going up, you can see the house price estimates lag as the most recently sold homes would sell for a higher price and all the other ones in the neighborhood take a while to update. This was late 2010s to 2022.

Then once the prices started coming down, the opposite. I am looking at multiple homes right now, with multiple markdowns, and yet all the other homes around them have the same estimated Zillow price as many months ago, which the currently listed for homes obviously did not sell at. This is mid 2022 to now.

They tracked their estimate accuracy all the way to the bank.

I've always found these accuracy claims fascinating. They both claim <5% error in my metro area, yet when I'm house hunting it's rare for me to find listings where both sites agree within 5%.

I always check both sites when I'm looking at houses (basically every day) and the pattern holds: They can't really agree within 5%.

Technically they could both be correct if the sale price lands neatly between the two estimates, but some of these historical estimate graphs are also swinging more than 5% per month, too. I think there might be some fuzzy math going on somewhere.

I’m basing the price off of the sale values of neighbouring builds. I bought mine for 949, the most recent builds sell for around 1.05M, though the most recent was 1.1M. Nothing has changed and they were all built at the same time.

Mine is the only one of 36 with a view of trees rather than road or other homes, so I perceive that as higher value too. That wouldn’t be evident until I sell it of course, but I find recent prices for these homes kind of insane. This change occurred before anyone even set foot in them; I’m just packing to move this week.

> for doing effectively nothing

you're not doing labour. You're injecting capital into the system. The person who sold the house to you, presumably, is using the proceeds of their sale (and profit) to do something else productive.

I don't get why so many people consider taking asset risk as "doing nothing".

You forgot about land. Land is different from capital.

A competition where we all try to outbid each other on land does nothing for the economy.

it does, just more round-a-bout. The land does not have infinite value. If you overpaid for the land, you will have lost that value to the seller.

Therefore, these bidding is really just a price discovery mechanism. Unfortunately, because the transaction costs are high, and land being quite illiquid, the price doesn't rapidly converge to the "correct" one (aka, the true price might've moved faster than the bidding can catches up).

> does nothing for the economy.

Unless if the seller only ever reinvest into more land (and that seller also only reinvest into more land, ad-infinitum), the capital freed up from a sale will lubricate another sector of the economy.

I’m a capitalist but housing, like a place of shelter for you and your family, should be in a separate asset class.

Just lock up housing so that a single individual can’t own more than 3 homes.

Get married you get six houses you can own.

If that’s not enough maybe you need to reassess whether it makes sense to dump money into a house or put it to some actual better use.

Like creating jobs or new products.

That 10% probably barely covers sell/buy commissions, let alone maintenance, inflation, and interest. If you sold now, it would actually be at an effective loss. You don’t need to feel guilty about a 10% increase, you aren’t really profiting at that point.

The thing is, I haven’t even lived in it yet. It’s increasing in value at a rate that doesn’t make sense for the community where it was built. I don’t think I’m getting rich or something, it’s just bizarre to me that a home can increase in value before it’s even built and continue to as it’s built. On paper I bought it for more than 10% less than identical neighbouring builds, but nothing has changed about the homes.

It isn't built yet?

The price of a house is simply a matter of supply and demand. If you buy when supply is more abundant and demand less so, you'll get a better price. Right now, there is a supply crunch in housing (because interest rates are high, the second hand market is really low volume), that means available inventory has a higher price. If you want a year later, the dynamic will be different.

It is unsustainable. Currently housing is priced as if it was going to increase 10% a year forever (and if that is not the case, you are almost always better off renting right now).

There are multiple factors that pushed the prices artificially up since 2020. They will look retrospectively obvious (as the 2008 subprime crisis seem obvious now). I'm usually not in favor of timing the market but I believe we are currently in the single worst time to buy a house in history.

It took several years for the 2007 financial crisis to really have its full effect on housing—prices fell until about 2012. I bet the same thing is happening now but is happening slower due to all the foreclosure and eviction protections and delays in court since the pandemic. Maybe prices will fall for longer or just flatline for a while since there are so few sellers it drives up prices—but interest rates are going to have an impact. If you couldn’t buy at a 3% mortgage, why will you be able to afford a 7.7% mortgage with prices the same? It’s now more expensive to buy a home in third tier cities than to just get a rent controlled apartment in cities with actual job prospects. Prices will adjust because this is surely not sustainable. I think the car market will soften and turn first and be a leading indicator.

I'm currently holding off despite having a baby on the way, a tech job, and 3/4 of the money saved up.

Rates are, barring a crash(which will also hammer home prices) likely staying elevated for another year, possibly more. Those rates also allow me to make thousands per month, risk-free, in interest off my savings. I'm able to rent for $3-4k/month, while mortgage+taxes+insurance+maintenance would set me back around $5k/month. Housing inventory is poor, so if I did buy I'd have to opt for a suboptimal location and/or construction.

The one circumstance I could see that would possibly make me regret holding off is financial repression by the fed where rates are held below inflation and houses keep appreciating, but I don't see a big risk to that over the next year.

I do expect rates to hold, and maybe even rise, since we're running huge deficits(requiring massive treasury issuance) and going into an election year (where no politician will choose austerity). I think it will eventually drop housing prices. Even in the best case for housing, values will likely stay flat in nominal terms.

>Those rates also allow me to make thousands per month, risk-free, in interest off my savings.

If you are in a state with income tax, I would take a minute, even immeasurable, increase in risk by putting it in US Treasuries (like TTTXX at Merrill), resulting in no state income taxes for 95%+ of your return. In case you already are not doing that.

I'm in a mix of paper(6 month US T-Bills), and various UST ETFs with durations anywhere from 0-3 months out to 2Y. US T-Bills(aka shorter duration Treasury bonds) are the place to be right now. We're currently seeing a "bear steepener" where the long end(10Y+) sells off(aka rates go up) so investing further out the curve exposes you to significant duration risk. It's anyone's guess if rates go up or down from here, but with the USG running huge deficits(in a booming economy no less) requiring large treasury issuance in parallel with quantitative tightening and rate hikes by the fed, it's not likely that rates will come down anytime soon.

You just buy TTTXX and it gives the same state tax advantage as buying the treasuries directly?

Yes, same with VUSXX (vanguard), FSIXX (fidelity), and UTIXX. There might be a negligible amount subject to state income tax, but I am not exactly sure why.

Buying gives you stability, you don’t have to worry about double digit rent increases; it also gives you agency to make the home more suited to your needs.

I wouldn’t trust what the government is doing to have any bearing on rates. Lower interest rates actually make it cheaper for the government to borrow as it does for everyone else. Those treasury bonds get expensive when their yields pop above inflation.

I don't have to worry about double digit rent increases. Between rent control and a softening rental market most folks shouldn't be too worried about that right now. If you think burning thousands per month makes you more stable then by all means do it. I think you should check your math and go with the path that increases your net worth but that's just me.

> Lower interest rates actually make it cheaper for the government to borrow as it does for everyone else.

Right, and that's the government's incentive to pursue financial repression as I mentioned. But that also weakens the dollar and allows inflation to rip again so the government is somewhat boxed-in and has some hard choices to make. My guess is that no repression occurs, rates stay positive as they are now, the government continues to run huge deficits until after the election, and then they pay for it with huge tax increases in 2 years. Right now it feels like the boomers are squeezing the wealth out of the country for their final years and will leave us with quite the bill that only AI-driven productivity gains can resolve.

I’m not happy about timing either. I agree with you. I bought because my kids need something stable and home-like; I suspect in the longer term this will hurt me financially compared to other options. But renting here for an entire family is borderline impossible, and the places I might have had a chance at renting were dumps. I could choose between $5k per month to be sure we won’t face renoviction or ending leases (in a brand new home, too), or around $3750/month to live in a poorly maintained, inefficient, unstable rental situation.

I know it’s a huge difference. As a parent I’d almost be willing to pay even more, though. I can’t rely on someone not selling my home from underneath me and then needing to find something else when vacancies are well below 1%.

I’ll probably feel some pain from this purchase eventually, but I’m prepared. I can also keep in mind that the alternative downsides of renting were serious and constantly present, with no real upside. Rates are extremely high here.

Why is it unsustainable? Housing starts are at the lowest since 2019, and people couldn’t afford them if they did build them. People who bought a home before 18mo ago will have very little incentive to sell until interest rates decline, which doesn’t seem to be on the horizon as long as inflation stays higher than 2%.

Multifamily is being built like crazy.

Just got back from Sacramento and they were building units for as far as I could see. Same thing in many markets.

Go back and read articles from 2006. They said housing prices were fine because we were lacking supply and had underbuilt for years. Then suddenly we had too many houses. Affordability matters appreciation expectations matter. Credit matters. Employment matters.

People will always sell. They can only hold off so long.

Multi-family is overbuilt in many markets, including here in Dallas. It’s just not the same market as homes.

I was around in 2006. We didn’t have too many houses then, we had people granted credit on dubious applications, ARMs bundled up as AAA credit. That’s not going to repeat. And if it does, it’ll be nationwide all at once, rather than market-by-market like last time.

Certainly if there is a major jobs crash, then people cannot afford their mortgage. But the government doesn’t like this and they’ll step in again like they always do.

> I was around in 2006. We didn’t have too many houses then

Yes, I was also around in 2006. That seems irrelevant as there is adequate data available regardless of when you were born.

> It’s just not the same market as homes.

No, it is, at least when people have to make hard choices. There is no law that says each family gets a SFH to themselves. Sure, they may want that, but when SFH becomes unobtainable people make those hard choices.

If you have more homes than you have willing and able buyers, you have too many homes. Family formation can be delayed(i.e. live with relatives longer) or families can choose multifamily. I don't recall a mass epidemic of homelessness after 2008 left homes empty, so it seems to me that we have enough places to live, even if those places are not the dwelling of their dreams. I understand there are statistics that say otherwise, and similar statistics were around in 2006 and proved to be wrong, so I have to question the recent statistics.

> That’s not going to repeat.

I didn't say that. We may see a 2008 style financial crash driven by commercial real estate, but I doubt even that will happen. What will likely happen is that the folks who think prices only go up will be surprised as the pool of buyers opts out of the SFH market while attrition slowly lowers prices. This process may even snowball in some markets as people "race for the exits" when they realize home prices are losing support.

Because we got to a point where most people simply cannot afford a house (I have read that the average house on the market cannot be bought by 80% of the households).

People are indeed holding on their low rate mortgage and that is the only reason why the prices are currently so high (artificially low supply). This will eventually end. People need to move for job (return to the office anyone?), retirement or other reasons. Some people will lose their job and simply be unable to afford their mortgage. It is only a matter of time before it starts crumbling and the floodgates open.

The other side of the coin is that in a perfect market, the obvious arbitrage is to simply rent and invest your money in better performing assets. (we could discuss how in America most people buy blindly without any considerations for the underlying numbers).

Finally in every cycle, housing always took multiple months/years to adjust to the conditions. This is due to a slow moving and illiquid market. Owners think they can still get that "pandemic" 1m$ for a fixer upper while the rates went up a couple %. This price anchoring and discovery takes time. You can see this currently happening all over the US. Prices are slowly declining.

Case-Shiller just set an all time high. Prices are not declining.

https://fred.stlouisfed.org/series/CSUSHPINSA

For 1, demographic shift; we're halfway (8 years) through baby boomer retirements and just at the beginning of baby boomers reaching their average life expectancy.

The next 10 years are going to be extremely interesting. Especially if we don't increase immigration, at least for the transition

My house has more than doubled in value, and I'm not at all happy about it, because apart from the moral issues of access to housing, on a purely selfish note, I, as most people, are more interested in trading up than down, and as my house has doubled, so have the more expensive houses I might want to move to.

Effectively, rising house prices harm me too, not just first time buyers

House prices increasing are only a benefit to people treating it as an investment, and if it's your primary home, then that means planning for trading down.

The only way to profit is to sell, if you do that where would you live?

Many people here have sold and moved to one of the many beautiful towns on our island that are closer to nature, cheaper, and easy to “buy up” in terms of lifestyle. In turn, that has dramatically boosted prices in those towns.

Hypothetically (I expect the inverse to happen), if my value increases at this rate until my kids are moved out, I can sell this place for $1.5M. That would get me a LOT of house in one of those towns. But why? Who does that benefit? And does it push locals out of those towns, over time?

I don’t want to maintain some kind of housing homeostasis where values remain the same and no one moves. But the time scale here is ridiculous and it’s dramatically changing my region in bad ways, and I don’t see any net positives outside of very few people’s bank accounts.

Yet like I said, I do expect it to go the other way. I expected to lose 10% by now, not gain it. There should be a correction at some point, or things are going to be radically different where I live very soon. People are really at their limits.

Housing is a necessity. It shouldn’t outpace changes in the price of milk or gasoline. That it does should scare the hell out of us. The fact is we have painted ourselves into a corner by propping up insane housing valuations. I’m not sure what to even do about it at this point. Houses cost an order of magnitude more than they should but any correction will destroy the middle class.

Somewhere where housing is less expensive, perhaps?

Ours has increased by 30% but the thought of selling and then, having to enter this market, is nuts. I won't say it's not tempting to extract some of that value, but not now

Mine has increased in the neighborhood, maybe around 40%. I have no desire to sell until my boys move out in about 6-7 years.

> struggle it was to find, bid on, and buy a home

I would REALLY hate to do this electronically.

We might replace people with something like ticketmaster or the "get a flight/hotel/car" mess.

The sad part is, you didn't really "profit" if the broader area you live in is up 10%.

You’re right, and this is why so many people sold in my area and moved to cheaper areas. That has had a dramatic negative impact on those small towns, and their values (and property taxes) have exploded as a result. It’s a concerning situation.

I don’t plan to sell or leave to another place. I’m just disconcerted by buying a home and having the value increase before I ever set foot in it. That’s not normal, and it signals bad things are coming (to me).

eh... don't pop the Champaign on your 10% value increase just yet

It's only worth 10% more when you sell it for 10% more. Right now home closings (the finalized deals) are 50% lower than before the pandemic and lower than in 2007. So selling your house to get that 10% increase is going to be hard.

But even if you did sell it, then it isn't quite worth celebrating yet, because it is likely that your 10% increase estimate is because the entire market is selling 10% higher.

So the problem with this is that if you sell your house and take your handsome 10% profit, you still can't pop the champaign because as it turns out... having a home is one of those sort of necessary things of survival. So if you want to go out and buy another home that is roughly similar to the one you previously had, then it will cost you 10% more than the last time you bought a house, which just so happens to be roughly the same price that you just sold for, so you end up not really making anything.

But wait, there's more. Because you sold you need to pay closing fees, which includes generally 6% (see article) in agent fees, plus various closing costs which generally come out to around 10-15% of the home price. So you gained 10% in the sale price of your home, but you lose 10% or more when you close the deal, which wipes out your "profits".

Oh, but you only bought a house "recently" which means you probably lost 10-20% in closing fees when you bought it. So your investment is actually more like 110% - 120% of the value of the home. So again, gaining 10% value just brings you up to even. But add the seller closing fees (mentioned above) and it pulls you back down, to losing money.

Oh, and now with the cash in hand you buy the next house which is 10% more than before and interest rates are probably several percentages points higher than before as well. So not only is the house 10% more, plus you lost 10% in your last deal, but now your payment will be higher even on the same loan amount thanks to higher interest rates.

People underestimate interest rates all the time too. Let's say you had a $400k loan before at 4.5% interest. Well the 30yr fixed payment on that is around $2,500 /mo. Now lets say you do all the shenanigans above and end up with another $400k loan again in 2023, but it is 6.5% interest. It is only a 2 point increase in interest, not a big deal right? Wrong. The same loan amount but on 6.5% interest is $3,000 /mo. So you are now paying $500 a month more for the same loan and home value as just 18 months ago and you would pay 20% more over the lifetime of the loan.

Just to instill the shock and awe effectively, I will use the same real numbers as above. Let's say you had a $400k loan at 4.5% interest before (the early 2022 rate). You would have paid $851,626.85 over the lifetime of your loan on that.

Now the same loan ($400k) but at the late 2023 rate of 6.5%, because you wanted to sell your house for that 10% profit, remember? Now the same loan amount will cost you $1,036,344.62 over the lifetime of the loan. The house just got $150k more expensive even though the sticker price on Zillow looks like it has been flat since 2022.

So... still excited about your 10% home value?

The thing about my situation is that the increase happened very rapidly. If it continues at this rate, it will be profitable very quickly. At the moment I don’t think I could make “flipping” it worthwhile, but I don’t want to either.

I’m not excited at all, and I expect the home to be a financial burden for a very long time. I’m more so upset that so many of my friends and family are brutally priced out of having stable housing and it’s only getting worse.

Ideally I’d live here for 20 or 30 years, but we’ll see. Above all I want to be close to my kids, and it doesn’t seem like they’ll afford to live here.

Reply on news.ycombinator.com