Ethics of Real Estate Investment, NIMYism and the Housing Crisis

In reply to Steve_Jones :

I clearly do not understand all elements of the argument, and those which I do it's hard to understand what is a good fit for my community. If I was a politician who could make decisions Id still be in the due diligence stages of my knowledge gathering.
 

I know I like the idea of a vacancy tax and those appear to be having the desired impact in the places they are utilized. I advocate for them with folks I know on our city council and city housing board. Unfortunately our city is limited by many state laws preventing us from trying anything. 
 

The best luck we've had is being more YIMBY about density and apartments, and in my town, you're in the minority if you're in favor of a 4-5 story apartment building.
 

aside from that, I vote for people at the state level who will hopefully allow our cities and towns more autonomy in making decisions about housing strategies.

I'd love to get involved in politics but far too busy with home life. 
 

Like I've mentioned before, having had conversations with Habitat for Humanity in town, they make practically no impact on overall issues of housing affordability. Their goal is merely to try things within the narrow framework that we can work with, the rest is begging for bucks. They are building some 1000sqft tiny home workforce type places downtown they hope will serve as a no-profit ownership scenario. All 7 units. I donate to them regularly.

Boost_Crazy said:

In reply to frenchyd :

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. 
 

So that they can pay a high price AND get a high interest rate? Maybe waiting a bit for the cooling market to drop first would be a better strategy? Especially if you agree with docwyte that current rates are the norm- meaning no refinance to the rescue any time soon? 

Are we comparing a couple people to be renters or to be home owners?   
     Me? I'd tell them to buy now! The chances of things getting cheaper in the future rarely ever pays off when we are talking about real estate.  It needs massive unemployment and a long down turn in the economy.

    If you believe that's what's going to happen, OK, that's your bet.  But how do you know you won't be one of the ones unemployed?   You could be stuck paying raising rents for the rest of your life.  

SV reX said:

Of course zero down is wrong. You literally have zero risk, and the lender has ALL the risk. If the property portfolio of the lender drops by 2%, they are suddenly upside down, unable to lend to other buyers, and in violation of banking regulations. 
 

The only reason the GI bill works is because the loans are guaranteed by the credit of the US government. 

That is exactly what the zero down program was designed to do.* *( home ownership lowers crime , , stabilizes the economy, promotes growth.)  
get home ownership in more peoples hands.  

  The banks ruined it. They have no one to blame but themselves. 
 First they forced inspection agency's to approve any loan. 
Then they failed to do their due diligence as to the credit worthiness of the individuals.  
   With the GI bill the house has to pass inspection and be worth what the vet is paying for it.  
  Second the income of the vet is verified six ways from Sunday. 
  That's what the Banks were supposed to do with zero down.  
  Instead they saw it as a quick profit.   Write the loan. Force  it's approval. Get  the signatures and then sell the loan.  They cleaned up on the loan origination fees and marketing of the loan bundle. 

frenchyd said:

Boost_Crazy said:

In reply to frenchyd :

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. 
 

So that they can pay a high price AND get a high interest rate? Maybe waiting a bit for the cooling market to drop first would be a better strategy? Especially if you agree with docwyte that current rates are the norm- meaning no refinance to the rescue any time soon? 

Are we comparing a couple people to be renters or to be home owners?   
     Me? I'd tell them to buy now! The chances of things getting cheaper in the future rarely ever pays off when we are talking about real estate.  It needs massive unemployment and a long down turn in the economy.

    If you believe that's what's going to happen, OK, that's your bet.  But how do you know you won't be one of the ones unemployed?   You could be stuck paying raising rents for the rest of your life.  

Stuck paying raising rents or a house that you cant afford because you're unemployed it's no longer worth what you owe? I'll take the rent, at least the rent won't go up mid-lease and getting out of that rental is easier. 

In reply to frenchyd :

I didn't say banks shouldn't do their due diligence. I said they shouldn't write zero down loans. 
 

BOTH are a problem. 

In reply to pheller :

I disagree with your base premise.  It's not up to society to level the playing field.  The rest of us shouldn't have to pay to give everyone an opportunity to own a house, or go to Harvard or whatever.  It's up to the individual to work for that, themselves. 

Egalitarianism sounds great until you try to actually make it happen.  Then you get kids going to school on the other side of the city, which is impossible for a double income family to do, like in San Francisco.  They have a school lottery system there, you can literally end up going to school anywhere in the city vs neighborhood schools. 

docwyte said:

Egalitarianism sounds great until you try to actually make it happen.  Then you get kids going to school on the other side of the city, which is impossible for a double income family to do, like in San Francisco.  They have a school lottery system there, you can literally end up going to school anywhere in the city vs neighborhood schools. 

Its funny, because here we have kids going to school on the other side of the city for exactly the opposite reasons, and its really only feasible for higher income/higher flexibility families.

That said, I also recall reading that in terms of upward mobility, this area is the worst in the U.S. that isn't on a reservation.

yupididit said:

frenchyd said:

Boost_Crazy said:

In reply to frenchyd :

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. 
 

So that they can pay a high price AND get a high interest rate? Maybe waiting a bit for the cooling market to drop first would be a better strategy? Especially if you agree with docwyte that current rates are the norm- meaning no refinance to the rescue any time soon? 

Are we comparing a couple people to be renters or to be home owners?   
     Me? I'd tell them to buy now! The chances of things getting cheaper in the future rarely ever pays off when we are talking about real estate.  It needs massive unemployment and a long down turn in the economy.

    If you believe that's what's going to happen, OK, that's your bet.  But how do you know you won't be one of the ones unemployed?   You could be stuck paying raising rents for the rest of your life.  

Stuck paying raising rents or a house that you cant afford because you're unemployed it's no longer worth what you owe? I'll take the rent, at least the rent won't go up mid-lease and getting out of that rental is easier. 

Owning a home is the only way to actually get ahead.  Rent can and typically does go up every year.  Where the payments of a house are fixed. 
If things are bad you can sell it. Or find someone to rent it.  Payments are typically cheaper than rent.  
But even if you lose it to foreclosure . That process requires that you are a minimum of 3 months behind in payments. Then there is the actual process of foreclosing which can take several months to happen.  Then  You have 6 months after the foreclosure to live payment free before you are evicted. 
  So pretty close to a year before you can be evicted. A lot can happen in a year.  We made payments on my unemployment check.  For almost 2 years then we started draining down my IRA, and 401 K  which carried me for another few years. 
  Towards the end I took my Social security  at 62 and that carried me the rest of the way.   

      Talk to the bank, ask to make interest only payments. Banks lose on foreclosures.  So it's in their interest to work with you.  
         

docwyte said:

In reply to pheller :

Egalitarianism sounds great until you try to actually make it happen.  

Should we stop trying or shoot for like 80% Egalitarian efficiency? 

I thought America was a classless egalitarian society. Or trying to be lol

In reply to frenchyd :

Thanks for the explanation, I didn't even know what a foreclosure was! 

Remember your comment about the reasons why people rent?

SV reX said:

In reply to frenchyd :

I didn't say banks shouldn't do their due diligence. I said they shouldn't write zero down loans. 
 

BOTH are a problem. 

Zero down homes should be the norm. GI's returning home post war with zero down had fewer foreclosures than people who put down the standard 20%. 
That continues to this day.  Vets with zero down are good credit risks. 
It also solves the housing problem.  
  Prudent people like me make the mortgage payment first and Even though I was unemployed from 2008  to the fall of 2013 five years. I kept the payments up.    
  

I don't know what will solve/correct the problem/perceived problem, but I would hope whatever it is, it results in people buying houses A) that aren't ridiculous excess and B) are more owner-friendly.

I sure as hell dont think zero down is what will solve the problem though lol.

Relevant article hot off the presses:

https://www.cnn.com/2022/11/03/homes/first-time-homebuyers-hit-record-low-nar-report/index.html

z31maniac said:

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. 

That's an interesting thought process, but I'm not convinced that's how it actually plays out. The fed is actively raising the fed funds rate which is helping raise mortgage rates. They are jawboning about how they are trying to lower asset values and the mainstream media is telling people that housing prices are going to cool. If someone is in the market for a house and sees that housing payments are almost double now than what they used to be due to interest rates what do you expect them to do? People can only stretch so much. Let's say you live and work in a major city and try to buy a home, but realize you can't make the payments? Are you gonna wait it out to see if prices come to a more affordable level and do what you can now like rent, or live with roommates, family, etc. or are you gonna quit your job and move to WV because that's the only affordable place for you to live?  When people sit out on homes. Builders and investors are the first to lower their prices. They have no choice. They need to get homes off their books or they'll lose money being leveraged on a depreciating asset. They'll be the first to sell at lower prices, which will help lower comps. It'll take time but values will come down. It took 4 years for values to bottom out in the GFC.

In reply to e30saam :

Remember the Fed is run by Bankers who understand exactly how money works.  Plus the way they are appointed makes them not obligated to either political party.  
   It's pretty easy to twist things around and make any point you want about money policy. 
   But people are emotional creatures.  They buy when they feel good and hoard when they feel bad. Logic and policy have little to do with it in spite of all the pontification going on here. 
      So the Fed needs to make people change their behavior.  It's not like a light switch.  Grind into them rising rates and they act out of fear.  
 It was barely 3 years before the value of my home went back to original. After dropping 50%.   Look at stock values post 2008.  
   This is inflation is actually well handled. All home owners need to do is hang onto the property for even less time than they did during the 2008 Great Recession. Plus they have full employment to help rather than 25% unemployment. 
     The idea that somehow prices will drop to new lows?   That's pure fear mongering. 
  You have nothing to fear, except fear itself.  

Depending on what Fred chart you look at it took between 6-8 years for the average person to get their home value back to 06/07 all time highs.

As far has house prices dropping, its pretty easy. People can only afford a certain payment. Interest+ principle make a payment. Either the interest rate needs to drop or the home value needs to drop. That's it. 

In reply to frenchyd :

Potential homebuyers may be emotional, but the banks that would lend to them are not. If they determine a person can afford $1500/mo for a mortgage that would be a 264k loan with 20% down @ 3% interest. The same monthly payment at 7.4% interest where we currently are would only get a 176k loan (again with 20% down). This hypothetical home buyer would need prices to drop 33% to afford the same house they could have bought a year ago with lower rates.

To me it seems one of the biggest issues is that not enough starter homes are being built which I would assume is largely due to lower possible profit for builders on more up market homes. Am I wrong here?

Some would argue that there are no problems and everything is perfect.

93EXCivic said:

To me it seems one of the biggest issues is that not enough starter homes are being built which I would assume is largely due to lower possible profit for builders on more up market homes. Am I wrong here?

Lower profit is a factor but probably not as much as zoning laws keeping anything that might be classified as a starter home (townhouse/non-luxury apartments etc) from being built. Driven by the same NIMBYism intended to make a home appreciate as an investment that created this problem in the first place.

In reply to e30saam :

Yes I agree. Home prices are not driven just by supply and demand forces like everyone tends to assume. They are driven by supply and demand, interest rates, and local property taxes. Have a big change in any of those 3 and you get a resulting change in home prices.

pheller said:

Some would argue that there are no problems and everything is perfect.

I don't think many of us are arguing that in any way.

On the other hand, some would argue that most attempts at central planning and market manipulation by the government wind up with the Law Of Unintended Consequences coming into full power.  Often the side effects from the "cure" are as bad or worse than the disease.

GameboyRMH said:

93EXCivic said:

To me it seems one of the biggest issues is that not enough starter homes are being built which I would assume is largely due to lower possible profit for builders on more up market homes. Am I wrong here?

Lower profit is a factor but probably not as much as zoning laws keeping anything that might be classified as a starter home (townhouse/non-luxury apartments etc) from being built. Driven by the same NIMBYism intended to make a home appreciate as an investment that created this problem in the first place.

Yeah am sure it is part of it but even small single family homes aren't built in nearly a high enough number

In reply to STM317 :

No argument.  Timing does matter and things constantly change.  The points I made earlier about real estate rarely stays down for long is certainly true.  More and more people want homes. 
They aren't making any more land. ( well Holland is ••••) more people want? Same amount of land?  Prices do go up.  

93EXCivic said:

To me it seems one of the biggest issues is that not enough starter homes are being built which I would assume is largely due to lower possible profit for builders on more up market homes. Am I wrong here?

You are wrong if you think of a starter home as a nice ranch house with a picket fence and 2 car garage. 
    Todays starter homes are fixer uppers in the wrong neighborhood  too far from work.  
  Everyone looks at the house.  Look at the land. Nice Homes cost too much When the land is the important thing.  Always buy the  worst house in the best neighborhood you can get.