Ethics of Real Estate Investment, NIMYism and the Housing Crisis

z31maniac said:

frenchyd said:

In reply to z31maniac :

I think people are missing the point.  I made less than the median income right after Vietnam.   So I bought a house I could afford.   I didn't sit on the sidelines .  
 Inflation raised my net worth.   It will do the same for everybody who gets on the home ownership elevator. 
   Oh you can ruin it yourself.  Get a divorce, overspend and go bankrupt or have to borrow against the house to pay your debts.  Or make a foolish purchase in the wrong neighborhood. My late wife would have had me do just that. She liked the wallpaper in one, and a few other cosmetic things.  But it was a tiny lot in a not great neighborhood.   Poorly constructed but very "cute". 

Did I really just read you say "inflation raised my net worth?"

Net worth; Selling everything you own for market value, paying off any debts ( mortgage)  adding cash on hand = Net worth. 

frenchyd said:

<snip>
West Virginia for example

</snip>

Nobody moves to WV willingly. On top of that, you can't build "anywhere" you like. Those damn pesky mountains. Which then makes utilities uber expensive. There just isn't housing demand vs existing housing.

docwyte said:

I'd love to get a place in Vail and they're insanely over priced right now...

I'd love to get a Porsche 911 but they're insanely over priced relative to some generic $hitbox so I'm waiting for their prices to come down...

 = No snark intended

frenchyd said:

z31maniac said:

frenchyd said:

In reply to z31maniac :

I think people are missing the point.  I made less than the median income right after Vietnam.   So I bought a house I could afford.   I didn't sit on the sidelines .  
 Inflation raised my net worth.   It will do the same for everybody who gets on the home ownership elevator. 
   Oh you can ruin it yourself.  Get a divorce, overspend and go bankrupt or have to borrow against the house to pay your debts.  Or make a foolish purchase in the wrong neighborhood. My late wife would have had me do just that. She liked the wallpaper in one, and a few other cosmetic things.  But it was a tiny lot in a not great neighborhood.   Poorly constructed but very "cute". 

Did I really just read you say "inflation raised my net worth?"

Net worth; Selling everything you own for market value, paying off any debts ( mortgage)  adding cash on hand = Net worth. 

Yes, frenchy, I know what net worth is. 

In reply to yupididit :

I'm not sure that'll happen, as people aren't as leveraged as they were in 2008.  Unless there's a lot of unemployment I don't think the primary housing market will come down a lot.  Prices will likely come down a bit because of the higher interest rates pricing mortgage payments so much higher.

The mtn properties might come down more as those are people's secondary properties and are much more likely to be sold if there's any financial uncertainty.

In reply to frenchyd :

This will sound callous but honestly that doesn't really matter to me.  My business (thankfully) did just fine during the 2008-2010 crisis and that was with me buying a building and re-equiping my practice in 2010, so financially I wasn't nearly as strong as I am now.

In reply to RX Reven' :

LOL.  There are still good deals on 911's out there.  Maybe not a long nose air cooled, but you can still get a nice 996 for a decent price and I've seen some 911 SC's for not unreasonable money either...

docwyte said:

In reply to yupididit :

I'm not sure that'll happen, as people aren't as leveraged as they were in 2008.  Unless there's a lot of unemployment I don't think the primary housing market will come down a lot.  Prices will likely come down a bit because of the higher interest rates pricing mortgage payments so much higher.

The mtn properties might come down more as those are people's secondary properties and are much more likely to be sold if there's any financial uncertainty.

In reply to frenchyd :

This will sound callous but honestly that doesn't really matter to me.  My business (thankfully) did just fine during the 2008-2010 crisis and that was with me buying a building and re-equiping my practice in 2010, so financially I wasn't nearly as strong as I am now.

I survived by the skin of my teeth.   At the Credit Union  suggestion's I tore down my old house and built a new double timber frame. Then the Credit Union was sold  and the new management did every thing legal or not to repossess my home.  
     Say what you want about politicians, they used their power and clout to save me.  
     But I doubt that would happen this time around.  Unemployment is not an issue.  Most people are not over extended  like they were in 2008. Finical   businesses have to have more cash on hand than they did back in 2008.  
  Yes a few homes will be foreclosed on. But nowhere  like 2008. I wouldn't expect much if any correction.  Oh, some wildly optimistic sellers will come back to earth. But Banks are still writing mortgages. They wouldn't be doing that if they didn't see a reasonable chance for profit. 
  Personally I'm covered for the rest of my life. Between my Social security and the retirement. I will even have enough left to buy groceries. Anything I bring in from this bus job is gravy. 

Ranger50 said: Nobody moves to WV willingly. On top of that, you can't build "anywhere" you like. Those damn pesky mountains. Which then makes utilities uber expensive. There just isn't housing demand vs existing housing.

Part of why I don't like this suggestion that people complaining about housing prices just move someplace cheaper. 

Many places with very low housing prices also lack good job market. Same goes for places with low cost of living - terrible wages. 

Utah, surprisingly, has many places that top lists of Lowest Cost Of Living per Average Wage. 

The cheapest state-wide average housing market was Iowa, at $147k. Looking at the major job market averages for 2022:

"The median home price in Des Moines recently hit a new high of $265,000 and the market shows no sign of slowing down. Prices are rising and inventory is low.Jun 21, 2022". 2020 Median Household Income: $54k.

The median home price in Iowa City for the week end on October 21st 2022 was $202,200 compared to $924, the median rent.2020 Median Household Income: $48k

The median home price in Cedar Rapids for the week end on October 21st 2022 was $138,500 compared to $729, the median rent. 2020 Median Household Income: $60k.

That's the most affordable state in the USA. If you made the median household income in Cedar Rapids $60k, had no othe debts, and bought a home at the median price, you'd still pay 20% of your income towards housing. There are, thankfully, tons of homes for sale for less than $138k in Cedar Rapids. 

I suppose that's better than say, San Francisco, where the median home price is $1.3mil and the median household income is just $120k as of 2020. At 20% income towards housing ($287k) there is nothing in SF for sale that isn't a Studio apartment. 

Is it better, financially, to work an entire lifetime at 150% of the national poverty level, but have cheap housing large enough to fit a family, or to have a household income twice or three times poverty level ($100k+) but always be cramped in terms of housing? 

Furthermore, I would imagine that healthcare, car insurance, car prices, food prices, and bills as whole would be relatively stable nationwide, so consumer good and bills would likely make up a far larger portion of someone's income in Cedar Rapids vs someplace with better cost of living, like say, Salt Lake. 

A family member of mine had an interesting opinion, he said "you're far better to work someplace unstable, expensive, but with great wages and lots of high-paying opportunities than you are someplace stable, cheap, where you make pennies. A small portion of savings from a high paying job is likely more than the total net worth of folks working for pennies in the mid-west. I would never suggest my kids move to the mid-west for a lower paying job unless it was 3x the median wage."

You are  spot on with  your assessment. But most of the upper Midwest is very solid. If you can get over the cold weather MINNESOTA WISCONSIN and IOWA. Offer very decent wages with modest house prices  and modest cost of living.  
   Utilities in  IOWA are 50% powered by wind and MINNESOTA is nearly there between wind and solar.   I think Iowa is one of the lowest in the nation for electricity and in the bottom 20 for gasoline prices.  Minnesota and Wisconsin are also modest utility costs  only Washington State with the massive hydroelectric power is the lowest.  
  That said my wife is well into 6 figures and if I were still in sales I'd earn more than she does.   
    There are various sources to check on the internet per capita  wages for each state.  The Upper Midwest is doing very well. 
      Southern States like Mississippi, Louisiana, Arkansas. New Mexico all are at the bottom. Only Texas recently has started to climb out of that basement.  
    California  for all the bad things said about it still has the highest wages  and a high opportunity score.   Yes a lot of people are leaving California  but a lot are flooding in too.  However for the first time since the 1940's California doesn't have double digit growth   it's down to about 2%  growth.  

     I notice the states with the lowest per capita income also tend to be the ones without state income tax. Plus the lowest house prices   
 

You are exactly right work where you earn the most because even after taxes you come out  ahead.  

 But if you want your children to have the same opportunity make sure the schools excel too.  You don't have to move to Massachusetts just because it has the best K-12 schools in the nation. It's also among the most expensive To live in.  
  Wisconsin, Minnesota, and Iowa have excellent schools. 

In reply to docwyte :

I'm not sure I'd be able to afford the mountains but somewhere around 5 acres would be nice.

pheller said:

Ranger50 said: Nobody moves to WV willingly. On top of that, you can't build "anywhere" you like. Those damn pesky mountains. Which then makes utilities uber expensive. There just isn't housing demand vs existing housing.

Part of why I don't like this suggestion that people complaining about housing prices just move someplace cheaper. 

Many places with very low housing prices also lack good job market. Same goes for places with low cost of living - terrible wages. 

Utah, surprisingly, has many places that top lists of Lowest Cost Of Living per Average Wage. 

The cheapest state-wide average housing market was Iowa, at $147k. Looking at the major job market averages for 2022:

"The median home price in Des Moines recently hit a new high of $265,000 and the market shows no sign of slowing down. Prices are rising and inventory is low.Jun 21, 2022". 2020 Median Household Income: $54k.

The median home price in Iowa City for the week end on October 21st 2022 was $202,200 compared to $924, the median rent.2020 Median Household Income: $48k

The median home price in Cedar Rapids for the week end on October 21st 2022 was $138,500 compared to $729, the median rent. 2020 Median Household Income: $60k.

That's the most affordable state in the USA. If you made the median household income in Cedar Rapids $60k, had no othe debts, and bought a home at the median price, you'd still pay 20% of your income towards housing. There are, thankfully, tons of homes for sale for less than $138k in Cedar Rapids. 

I suppose that's better than say, San Francisco, where the median home price is $1.3mil and the median household income is just $120k as of 2020. At 20% income towards housing ($287k) there is nothing in SF for sale that isn't a Studio apartment. 

Is it better, financially, to work an entire lifetime at 150% of the national poverty level, but have cheap housing large enough to fit a family, or to have a household income twice or three times poverty level ($100k+) but always be cramped in terms of housing? 

Furthermore, I would imagine that healthcare, car insurance, car prices, food prices, and bills as whole would be relatively stable nationwide, so consumer good and bills would likely make up a far larger portion of someone's income in Cedar Rapids vs someplace with better cost of living, like say, Salt Lake. 

A family member of mine had an interesting opinion, he said "you're far better to work someplace unstable, expensive, but with great wages and lots of high-paying opportunities than you are someplace stable, cheap, where you make pennies. A small portion of savings from a high paying job is likely more than the total net worth of folks working for pennies in the mid-west. I would never suggest my kids move to the mid-west for a lower paying job unless it was 3x the median wage."

There is a guy named Briggs ( World According to Briggs) who just does exactly this on the internet.  No political bias. He reads and condenses numbers from standard credible sources. 

pheller said:

A family member of mine had an interesting opinion, he said "you're far better to work someplace unstable, expensive, but with great wages and lots of high-paying opportunities than you are someplace stable, cheap, where you make pennies. A small portion of savings from a high paying job is likely more than the total net worth of folks working for pennies in the mid-west. I would never suggest my kids move to the mid-west for a lower paying job unless it was 3x the median wage."

Also remember that in the high demand mega metropolis areas, home appreciation is actually a significant contributor to net worth.

Here in NC, my house has appreciated ~$130k in the past 9 years.  I'm not complaining, but when I compare it to where I used to live in the DC area, a house may have gone up $400k in that period.  Even if both areas leave the exact same (relative) cash for groceries, healthcare, other bills, etc.  financially you are way better owning the more expensive property.

pheller said:

Ranger50 said: Nobody moves to WV willingly. On top of that, you can't build "anywhere" you like. Those damn pesky mountains. Which then makes utilities uber expensive. There just isn't housing demand vs existing housing.

Part of why I don't like this suggestion that people complaining about housing prices just move someplace cheaper. 

Many places with very low housing prices also lack good job market. Same goes for places with low cost of living - terrible wages. 

Utah, surprisingly, has many places that top lists of Lowest Cost Of Living per Average Wage. 

The cheapest state-wide average housing market was Iowa, at $147k. Looking at the major job market averages for 2022:

"The median home price in Des Moines recently hit a new high of $265,000 and the market shows no sign of slowing down. Prices are rising and inventory is low.Jun 21, 2022". 2020 Median Household Income: $54k.

The median home price in Iowa City for the week end on October 21st 2022 was $202,200 compared to $924, the median rent.2020 Median Household Income: $48k

The median home price in Cedar Rapids for the week end on October 21st 2022 was $138,500 compared to $729, the median rent. 2020 Median Household Income: $60k.

That's the most affordable state in the USA. If you made the median household income in Cedar Rapids $60k, had no othe debts, and bought a home at the median price, you'd still pay 20% of your income towards housing. There are, thankfully, tons of homes for sale for less than $138k in Cedar Rapids. 

I suppose that's better than say, San Francisco, where the median home price is $1.3mil and the median household income is just $120k as of 2020. At 20% income towards housing ($287k) there is nothing in SF for sale that isn't a Studio apartment. 

Is it better, financially, to work an entire lifetime at 150% of the national poverty level, but have cheap housing large enough to fit a family, or to have a household income twice or three times poverty level ($100k+) but always be cramped in terms of housing? 

Furthermore, I would imagine that healthcare, car insurance, car prices, food prices, and bills as whole would be relatively stable nationwide, so consumer good and bills would likely make up a far larger portion of someone's income in Cedar Rapids vs someplace with better cost of living, like say, Salt Lake. 

A family member of mine had an interesting opinion, he said "you're far better to work someplace unstable, expensive, but with great wages and lots of high-paying opportunities than you are someplace stable, cheap, where you make pennies. A small portion of savings from a high paying job is likely more than the total net worth of folks working for pennies in the mid-west. I would never suggest my kids move to the mid-west for a lower paying job unless it was 3x the median wage."

Where do those numbers come from? Zillow shows median home price in Des Moines is $193k (3.5 x local median household income), while Salt Lake City has a median home price of $594k (9.4 x local median household income). Salt Lake may be more desirable to some, but I'm pretty skeptical that it's more affordable.

In reply to yupididit :

You're not gonna find that in the Denver area for less than 2.5 million.  The lack of land around here shocked me when I first moved here from Cape Cod.  I had a home in a starter neighborhood there that was on 0.6 acres, backing to conservation land.  I moved to Loveland, which is just south of Ft Collins and thought finding a lot that size or 1 acre would be easy.  Nope!

Then when I moved to Denver most of the suburban homes are on 0.2-0.3 acre lots.  Finding a lot that's around 1 acre is difficult and expensive.  5 acres for less than several million would mean living quite a bit east of even the outer ring of "Denver"...

STM317 said:

Where do those numbers come from? Zillow shows median home price in Des Moines is $193k (3.5 x local median household income), while Salt Lake City has a median home price of $594k (9.4 x local median household income). Salt Lake may be more desirable to some, but I'm pretty skeptical that it's more affordable.

These were just quick google searches. They might not be the most accurate. 

frenchyd said:

 I notice the states with the lowest per capita income also tend to be the ones without state income tax. Plus the lowest house prices   
 

Texas, Washington, Tennessee, Florida? 

Literally none of the 8 states with no state income tax are in the bottom ten of Per Capita Income. And Washington and Wyoming are in the top ten.  

I really, really wish you would start producing sources, or stop just making up stuff and asserting it as true. 

https://worldpopulationreview.com/state-rankings/per-capita-income-by-state

SV reX said:

I agree. The playbook on both real estate growth and income levels has changed. 
 

Expenses have also changed. We all have expenses now we consider priorities that didn't even exist 20 years ago. 
 

I believe the net result of the digital age (and expenses related) are a net loss (financially) for the average person. 
 

The combined cost of hardware, software, cell phones, data plans, apps, upgrades, security, training, hardware and software replacement, games,  streaming services, etc, etc, etc is HUGE.  We've convinced ourselves we have to have it, and that it's not very expensive. But when expressed as a percentage of gross income, I'm confident that most people spend more on digital media, hardware, and software than I spent as a percentage of my income on my first house. 
 

The house grew in value exponentially. The digital tools and media need to be replaced every few years. 
 

It's a black hole.

 Well said.   I could justify much of the cost as needed for my wife's income since she works from home. The truth is I enjoy the big screen TV and this cell phone connection to the sports car hobby.  

In reply to docwyte :

I was thinking east of Aurora, it seems flat though. I'm not sure if that considered outer ring of Denver though. Of course all of this is just a "what if" for me

yupididit said:

In reply to docwyte :

I was thinking east of Aurora, it seems flat though. I'm not sure if that considered outer ring of Denver though. Of course all of this is just a "what if" for me.  
 

 My experiance has been if you want affordable,  look where others don't. 
     Lots just off the freeway are listed and sell for big money.  But the undeveloped acreage back behind those prime sites. That's where the bargains are.  That unused weed patch the widow owns with the little creek flowing through it might be affordable.   Let her tell you about it.   Ask if she'd like it turned into a homestead. Explain what you can afford, and who knows?  

Ranger50 said:

frenchyd said:

<snip>
West Virginia for example

</snip>

Nobody moves to WV willingly. On top of that, you can't build "anywhere" you like. Those damn pesky mountains. Which then makes utilities uber expensive. There just isn't housing demand vs existing housing.

Well a fairly decent percentage of people don't agree with you.   West Virginia is slowly putting away the drug and opioid addiction and moving beyond the closed coal mines  to see the good stuff in West Virginia. 
  Here's a brief list. 
         Housing.  The median price of a house in West Virginia is $123,000. 
compare that with Hawaii at $636,000 and California at $538,000 

    In addition some cities will pay you as much as $20,000 to move there. 
 It's become a haven for remote workers  and retires for that reason as well as the lower cost of living. 
   The Music isn't all  hillbilly and country.  In fact it's a very diverse group.   I listen to various groups on NPR and while you might hear a hint. What they perform is beautiful and clear. 
  With the mountain's   fall is as beautiful and colorful as Vermont  if not more so only a fraction of the cost. 
    The stereotype of a toothless hillbilly is something you need to search hard for to find.  Most people are very friendly and nice.  
Finically the cities of West Virginia will surprise you. Interesting history and tend to be well kept.  Low crime.  

In reply to frenchyd :

Wonder why the huge difference between West Va and Hawaii? There's gotta be a reason the houses in Hawaii are so much more expensive. Any idea?

In reply to frenchyd :

$636k and $538k seems low to me. My wife owns a condo in Hawaii that's worth in the 800s without any upgrades. 

frenchyd said:

Ranger50 said:

frenchyd said:

<snip>
West Virginia for example

</snip>

Nobody moves to WV willingly. On top of that, you can't build "anywhere" you like. Those damn pesky mountains. Which then makes utilities uber expensive. There just isn't housing demand vs existing housing.

Well a fairly decent percentage of people don't agree with you.   West Virginia is slowly putting away the drug and opioid addiction and moving beyond the closed coal mines  to see the good stuff in West Virginia. 
  Here's a brief list. 
         Housing.  The median price of a house in West Virginia is $123,000. 
compare that with Hawaii at $636,000 and California at $538,000 

    In addition some cities will pay you as much as $20,000 to move there. 
 It's become a haven for remote workers  and retires for that reason as well as the lower cost of living. 
   The Music isn't all  hillbilly and country.  In fact it's a very diverse group.   I listen to various groups on NPR and while you might hear a hint. What they perform is beautiful and clear. 
  With the mountain's   fall is as beautiful and colorful as Vermont  if not more so only a fraction of the cost. 
    The stereotype of a toothless hillbilly is something you need to search hard for to find.  Most people are very friendly and nice.  
Finically the cities of West Virginia will surprise you. Interesting history and tend to be well kept.  Low crime.  

Median home prices:

West Virginia - $137,286
Hawaii - $1,038,544
California - $816,804

https://www.fool.com/the-ascent/research/average-house-price-state/

Relocation for remote workers in West Virginia, is for one of 3 cities:
$10k for the 1st year, $2k for the 2nd year, plus $8k in "vouchers for outdoor activities from state parks to ski resorts"..........that last $8k is not the same as cash to move there.

If you don't care about the national parks or skiing, that's almost 50% of the compensation. When you ignore the vouchers for WV, money for remote workers comes in at 12k for two years or buying a home. 53 applicants were approved, the other 7447 were offered $2500 off their closing costs if they bought a home. Most young tech workers aren't looking to buy a home and be tied to a specific ZIP code or city. And $2500 on a minimum 150k purchase isn't enough to make most move. 

https://www.wusa9.com/article/news/local/west-virginia-will-pay-you-to-move-and-work-there-remote-working/65-13ec3d20-7d99-4794-9d63-c2e344cf93d4#:~:text=Those%20remote%20workers%20would%20initially,part%20of%20the%20incentive%20package.

https://www.businessinsider.in/thelife/news/west-virginia-offered-12000-to-remote-workers-looking-to-relocate-there-were-so-many-applicants-that-the-state-is-giving-them-all-2500-off-their-mortgage/articleshow/85870164.cms

West Virginia is the least diverse state in the country. 
https://worldpopulationreview.com/state-rankings/most-diverse-states

Please stop making things up. This isn't 1981 when you're trying to sell us something we can't fact check.

In reply to frenchyd :

Love the logic that tech workers should go to the state rankled 50th in broadband speed and coverage because houses are cheap. 

Broadband now's 2022 internet access survey

It's cheap for a reason. 

pheller said:

STM317 said:

Houses were also cheaper relative to median incomes in 1975 than they are now.

So the median home price in 1975 was 3.00 times the median family income, and the median house in 2021 cost 4.78 times the median family income. The only way any of this works out to be "affordable" for normal people is if the ratio between prices and incomes shrinks.

It seems like I'm interested in trying to figure out the supply side reason why houses are more expensive today than years ago.

Going back to the supply/demand influences on housing prices, I just learned of this paper from the Federal Reserve over the summer. It indicates that demand seemingly plays a larger part of price increases than supply. It also acknowledges that it's much faster and easier for governments to influence that demand via interest rate changes than it is for them to influence supply. So that's probably why we're seeing the Fed approach that we are.

This line in particular stood out to me:

"Second, we show that our estimate of housing demand is very mortgage rate elastic. We estimate that a one percentage point increase in the mortgage rate lowers housing demand by 10.4 percent".

If their estimate is accurate, and 30 year mortgage rates are currently up ~4%,  we should be seeing about 45% decline in housing demand right now. But that data won't be available for a couple more months. If mortgage rates continue to climb as the Fed rate does in coming months, that dropoff could be even larger.