pheller said:If investors want to make money their going to need to buy new cars.
...or substitute pretty much any commodity or product you want. Can you see how that will never work?
I'm trying to help you here, but you don't seem to be able to shake the idea of penalizing people for wanting to make money.
People will always seek the easiest way to make a profit. If you make it more difficult to make a profit, they'll find other ways of doing so.
How do we make buying existing housing less "easy profit" than building new housing?
Again, I think jacking up rates, increasing risk, and putting more money into the hands of competitors (owner-occupants) might be one solution.
In reply to pheller :
Raise the price of existing houses.
Of course, that creates a different problem. 
pheller said:STM317 said: pheller seems to be in favor of policy change to influence housing prices, so if the Fed is correct then policy change to raising interest rates closer to historical norms may be more influential than policy change that results in added supply. Although more supply would probably be welcomed in many places as well. But I also think it's important to admit that lower prices with higher rates may not improve affordability.I just don't see how raising rates benefits the majority of people who need A) higher wages and B) cheaper housing.
It seems to me that if you wanted to raise wages and produce more workforce housing, you'd make it less profitable for those who need it the least. You'd figure out some way of shifting the tax code to make it more profitable for businesses to pay their people more money.
Anyone who is flush with cash right now isn't going to build new apartments or new housing, they are going to search for deals among stuff that is already built. How do we convince them it's in their better interest to build a new home (housing ladder) or invest in an apartment building instead of scooping up cheap already built homes that normal buyers can't afford due to interest rates?
The Fed is concerned about selling prices and rents because they drive a decent chunk of inflation and they're pretty rate sensitive unlike energy, food prices or consumer goods. They don't really care about affordability per se. So by raising rates they drive prices and inflation down (fulfilling one of their two objectives) even if homes remain unaffordable due to paying a bunch of interest each month.
Honestly, I think it might be worth asking how many homes should be built. Demographically, it might be tight for the next few years, but as Boomers age out of home ownership there should be less demand. If you build enough housing to meet current needs, you'd probably have a glut in 10-20 years and that's not good either.
And then you get to the question about where those homes should be built. The American West is super popular these days, and suffers a lot from lack of affordable housing. But it's also probably going to be the first region affected by climate change. They're running out of water, fires are becoming more common, etc. Does it make sense to encourage lots of building there over the next few years if the area might see tons of environmental change and potential exodus over the coming decades just as population starts to shrink? Honestly, mobile homes may be a more ideal solution if you can sell the idea to people. Maybe call it "van life" or something.
In reply to pheller :
Why should investors EVER have to build anything at all??
As a builder, that's a really discouraging perspective. Honestly, investors would suck at building houses, and the product they built would be terrible. Every possible corner would be cut. Housing inventory quality would deteriorate rapidly.
Why would an investor know anything about building?
We could do that if wages specifically kept up with housing costs, but my guess is that rental owners would just jack up leasing rates to take whatever money tenants had extra, still removing the ability of people to make down payments.
I still think we're going to need some way of "selecting" first time home buyers and owner-occupants.
In reply to STM317 :
There are more Millenials than Boomers.
In reply to STM317 :
Can't get traditional financing for mobile homes.
Boomers moving out of homes might create a surplus, but who will be best poised to capitalize on the surplus?
Robbie (Forum Supporter) said:STM317 said:SV reX said:In reply to STM317 :
The Federal Reserve just figured out that housing demand fluctuates with interest rates??
Seems ridiculously obvious.
Sure glad our tax dollars are so good at producing useful studies.
I don't think they just figured out that rates impact pricing. The take away for me was that they have data to support the idea that low rates have influenced rising prices more than lack of supply may have. pheller seems to be in favor of policy change to influence housing prices, so if the Fed is correct then policy change to raising interest rates closer to historical norms may be more influential than policy change that results in added supply. Although more supply would probably be welcomed in many places as well.
But I also think it's important to admit that lower prices with higher rates may not improve affordability. That wasn't discussed in the paper.
The "secret" that always seems to surprise but shouldn't is that most people buy based on cash flow, yet we talk about house prices.
House price (divided by 360) + interest + taxes + insurance and other financing fees = monthly payment
People buy houses based on monthly payment, but we all seem to think about house prices, and then we are surprised when the other factors become major players.
If Netflix was $4500 and you got access for the next 30 years, ain't no one subscribing.
You're just explaining the process backwards.
Most people go "I can afford X month payment" you plug in everything else, and see what house price you can afford. Interest rate goes up, the house price that you can afford goes down. Interest rate does down? House price that you can afford goes up. Move to a school district/state with higher property taxes? House price that you can afford goes down. Move to an area with higher insurance costs? House price that you can afford goes down.
I'm not sure why this keeps getting revisited.
I thought it was pretty obvious.
During an interview in the early '90's, Habitat for Humanity founder Millard Fuller was asked "What's the goal of HfH?" He responded "To eliminate poverty housing worldwide"
Those of us who were there at the time were stunned. We'd never heard that before. Many of us spent more than a decade after that wrestling with the meaning of those words.
What about rentals? Slumlords? Mobile homes? What defines "poverty housing"? What is "affordable"? What is the threshold? Etc, etc.
We learned a lot. The bottom line is that HfH is NOT primarily a builder. They are primarily a LENDER, making financing available for people who can't afford it otherwise.
We also learned that at the core, HfH is a home OWNERSHIP program, and that not everyone can ever be a homeowner. Under a certain level, there are other approaches more suited.
Poverty housing can ONLY be defined at the local level. It's not possible to approach this with any top-down method. The 600 SF masonry block homes I built in the Dominican Republic (with no electric, or running water, or glass windows, or insulation, or paint) were exotic CASTLES to them, and would be inadequate tool sheds to many of us.
You are gonna have to wrestle a lot of these issues locally (community by community) before you can ever begin to come up with solutions.
pheller said:I wish the Biden Administration would give us a first time home buyers, or even a "primary home buyer credit" to offset the increase in interest rates.
Any form of credit will directly transfer the burden from the person getting a home to the general pool of tax payers that aren't getting a home; Oh, I see.
SV reX said:In reply to pheller :
Why should investors EVER have to build anything at all??
As a builder, that's a really discouraging perspective. Honestly, investors would suck at building houses, and the product they built would be terrible. Every possible corner would be cut. Housing inventory quality would deteriorate rapidly.
Why would an investor know anything about building?
A lot of those cookie-cutter neighborhoods that were flying up in SATX the last 5 years. The materials were cheap, a step above RV's. They are just trying to build as many homes as possible because people would buy them no matter what.
In reply to pheller :
I just don't see how raising rates benefits the majority of people who need A) higher wages and B) cheaper housing.
It seems to me that if you wanted to raise wages and produce more workforce housing, you'd make it less profitable for those who need it the least. You'd figure out some way of shifting the tax code to make it more profitable for businesses to pay their people more money.
Anyone who is flush with cash right now isn't going to build new apartments or new housing, they are going to search for deals among stuff that is already built. How do we convince them it's in their better interest to build a new home (housing ladder) or invest in an apartment building instead of scooping up cheap already built homes that normal buyers can't afford due to interest rates?
What is a "normal" buyer? I think that is the heart of this discussion. 2/3rds of homes are owned by the resident. I keep hearing that homes aren't affordable, but they keep selling. The fact that they are bought pretty much affirms that they are affordable. That was different pre-2008 when people were actually buying unaffordable homes (and further driving up prices.) If you want affordable to everyone- that just isn't realistic. In the same sentence you said raise wages and increase housing. So the people building the houses don't get raises? How about the material producers and suppliers? If so, how do we get cheaper housing when it costs more to build? What you are proposing is a dog chasing it's tail. The baseline for housing cost in an area is set by...
1) How much more housing is being built/can be built.
2) How much it costs to build.
3) How much people in the area are willing/able to pay for it.
A few pages back, someone- I'm sorry, I forget who and couldn't find it- had a great explanation on the extra costs of building a home today Vs. 50 years ago. I looked into building a new home a few years ago Vs. buying existing. In my area, it was prohibitively expensive. Just the cost of building the house- not including land or utilities- was the same price as an existing house. So they weren't building many houses. As housing prices climbed, more houses started being built. As prices drop, that will slow down and stop. None of that helps houses become more affordable to those that cannot afford them. Affordability is relative. Houses in desirable areas cost more, but those areas also usually support higher wages. Houses in less desirable areas are less expensive, but wages are usually lower. Aside from timing- which is very important, contrary to what others stated earlier- the greatest influence a person has on whether housing is affordable is on their income side, not on the housing cost side. That is the only way to move oneself above the feedback loop of average cost Vs. average wage.
SV reX said:During an interview in the early '90's, Habitat for Humanity founder Millard Fuller was asked "What's the goal of HfH?" He responded "To eliminate poverty housing worldwide"
Those of us who were there at the time were stunned. We'd never heard that before. Many of us spent more than a decade after that wrestling with the meaning of those words.
What about rentals? Slumlords? Mobile homes? What defines "poverty housing"? What is "affordable"? What is the threshold? Etc, etc.
We learned a lot. The bottom line is that HfH is NOT primarily a builder. They are primarily a LENDER, making financing available for people who can't afford it otherwise.
We also learned that at the core, HfH is a home OWNERSHIP program, and that not everyone can ever be a homeowner. Under a certain level, there are other approaches more suited.
Poverty housing can ONLY be defined at the local level. It's not possible to approach this with any top-down method. The 600 SF masonry block homes I built in the Dominican Republic (with no electric, or running water, or glass windows, or insulation, or paint) were exotic CASTLES to them, and would be inadequate tool sheds to many of us.
You are gonna have to wrestle a lot of these issues locally (community by community) before you can ever begin to come up with solutions.
Well said and explained.
When I helped HTH in the past I didn't really see it that way. I thought I was just building homes for people.
I know the guidance they given and the work they personally put into the house. I just thought that was to lower the costs to make it affordable. Now I understand it was to give them ownership in a way they've likely never felt before.
Side topic:
In urban areas, the only thing that can meet demand in a growing area is housing density.
The paradigm of tons of people living in detached single family homes with large yards in or near an urban area was largely a 20th century invention. I think some localities are slowly trying to move away from that and back into condos/apartments/mixed use development.
Here's an example. On the right, we have single family homes. On the left, new development that includes housing (apartments and condos), a grocery store, restaurants and so on.
RX Reven' said:pheller said:I wish the Biden Administration would give us a first time home buyers, or even a "primary home buyer credit" to offset the increase in interest rates.
Any form of credit will directly transfer the burden from the person getting a home to the general pool of tax payers that aren't getting a home; Oh, I see.
So give them a Fed loan with a low interest rate and minimal down payment requirements.
Something does sound familiar about that though...
To give it credit, the ADDI and FHA, Freddie and Fannie loans did help lots of people buy homes, unfortunately, many of those folks who bought homes couldn't afford to keep them. Would more restrictive loans and policies aimed at keeping people in their homes despite financial hardship allow the goals of those programs without such a bubble?
In reply to Brett_Murphy (Agent of Chaos) :
I would say that's a good thing, with one caveat - most new multi-family residential projects are not - at least initially - designed for owner-occupancy.
You're still liable to ever increasing leasing rates throughout your occupancy of those rentals. Any wage increase you might see will get sucked up by those increasing leasing rates.
It'd be nice to see more projects like those designed for ownership.
In reply to pheller :
Federally sponsored first time buyer loans are not new. My mother was able to get one back in 1992 at the "super low rate" of 7.25%. One of the requirements of the loan was she had to stay in the house for a certain number of years. She ended up remarrying and moving out a couple of years later and had to refinance the house, but by that point rates had dropped into the 6% range.
In reply to pheller :
So give them a Fed loan with a low interest rate and minimal down payment requirements.
Something does sound familiar about that though...
To give it credit, the ADDI and FHA, Freddie and Fannie loans did help lots of people buy homes, unfortunately, many of those folks who bought homes couldn't afford to keep them. Would more restrictive loans and policies aimed at keeping people in their homes despite financial hardship allow the goals of those programs without such a bubble?
Let's pretend we did this and walk it through. We open up the housing market to people who would otherwise not be able to afford to be in it. Housing prices would go- up. And we will be back to where we started, except with another bubble.
pheller said:People will always seek the easiest way to make a profit. If you make it more difficult to make a profit, they'll find other ways of doing so.
How do we make buying existing housing less "easy profit" than building new housing?
Again, I think jacking up rates, increasing risk, and putting more money into the hands of competitors (owner-occupants) might be one solution.
I'm afraid I've got to disagree with you there. Most investors care more about return more than ease.
Easy is sit back and have others with proven track records earn for you.
Guys like Bezo's and Musk. Saw a way to get wealthy but clearly understood it would entail risk and hard work.
Yes I wish they paid taxes on their earnings but that's the rules. Change the tax code to fix that.
In my experience, trying to fatten a companies bottom line so they can pay their employees more never works. The executive team makes more money but the employees don't.
I don't see rates ever going back down to 3%. That was an unprecedented low, and the 6-7% level is really the norm. It's just that rates have been so abnormally low for so long people thought that was normal. It's not.
STM317 said:pheller said:STM317 said: pheller seems to be in favor of policy change to influence housing prices, so if the Fed is correct then policy change to raising interest rates closer to historical norms may be more influential than policy change that results in added supply. Although more supply would probably be welcomed in many places as well. But I also think it's important to admit that lower prices with higher rates may not improve affordability.I just don't see how raising rates benefits the majority of people who need A) higher wages and B) cheaper housing.
It seems to me that if you wanted to raise wages and produce more workforce housing, you'd make it less profitable for those who need it the least. You'd figure out some way of shifting the tax code to make it more profitable for businesses to pay their people more money.
Anyone who is flush with cash right now isn't going to build new apartments or new housing, they are going to search for deals among stuff that is already built. How do we convince them it's in their better interest to build a new home (housing ladder) or invest in an apartment building instead of scooping up cheap already built homes that normal buyers can't afford due to interest rates?
The Fed is concerned about selling prices and rents because they drive a decent chunk of inflation and they're pretty rate sensitive unlike energy, food prices or consumer goods. They don't really care about affordability per se. So by raising rates they drive prices and inflation down (fulfilling one of their two objectives) even if homes remain unaffordable due to paying a bunch of interest each month.
Honestly, I think it might be worth asking how many homes should be built. Demographically, it might be tight for the next few years, but as Boomers age out of home ownership there should be less demand. If you build enough housing to meet current needs, you'd probably have a glut in 10-20 years and that's not good either.
And then you get to the question about where those homes should be built. The American West is super popular these days, and suffers a lot from lack of affordable housing. But it's also probably going to be the first region affected by climate change. They're running out of water, fires are becoming more common, etc. Does it make sense to encourage lots of building there over the next few years if the area might see tons of environmental change and potential exodus over the coming decades just as population starts to shrink? Honestly, mobile homes may be a more ideal solution if you can sell the idea to people. Maybe call it "van life" or something.
Moble homes are a losing proposition. The appreciation in a home is not the building but the land it's built on.
The building will need maintenance, and change to stay in style. The land will become more valuable because more people will want a place to call home.
Water front will always be more valuable than homes away from the water. Good schools will make land in that district more valuable. Views and features such as parks and recreation make that land more valuable than plain suburbs.
In reply to docwyte :
On the money. People should buy homes now rather than wait. If rates do go down refinance rather than sit on the sidelines and watch inflation raise the costs beyond affordability.
frenchyd said:pheller said:People will always seek the easiest way to make a profit. If you make it more difficult to make a profit, they'll find other ways of doing so.
How do we make buying existing housing less "easy profit" than building new housing?
Again, I think jacking up rates, increasing risk, and putting more money into the hands of competitors (owner-occupants) might be one solution.
I'm afraid I've got to disagree with you there. Most investors care more about return more than ease.
Easy is sit back and have others with proven track records earn for you.
Guys like Bezo's and Musk. Saw a way to get wealthy but clearly understood it would entail risk and hard work.
Yes I wish they paid taxes on their earnings but that's the rules. Change the tax code to fix that.
Bezos paid almost a billion in taxes last year.
Elon claimed $11B, but I thought he doesnt take a directly taxable income.
Boost_Crazy said:In reply to pheller :
So give them a Fed loan with a low interest rate and minimal down payment requirements.
Something does sound familiar about that though...
To give it credit, the ADDI and FHA, Freddie and Fannie loans did help lots of people buy homes, unfortunately, many of those folks who bought homes couldn't afford to keep them. Would more restrictive loans and policies aimed at keeping people in their homes despite financial hardship allow the goals of those programs without such a bubble?
Let's pretend we did this and walk it through. We open up the housing market to people who would otherwise not be able to afford to be in it. Housing prices would go- up. And we will be back to where we started, except with another bubble.
Zero down is not wrong!! The banks made it wrong.
The GI. Bill allows vets to buy a house with nothing down. Vets had a lower foreclosure rate than those with conventional down payments.
What the banks did in 2008 was fail to ensure the borrowers had the income to make the payments. ( well that and got the appraisers to approve all loans. Regardless of condition or real value)
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