Ethics of Real Estate Investment, NIMYism and the Housing Crisis

e30saam said:

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. 

Yep!   Truth!   
   But starter  homes are never again going to be the ranch house in the suburbs. Just a short drive to work.  
     Start looking at condo's.  There will  be some office buildings converted soonish. 

Duke said:

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.

I really don't want to get into patio territory, but you've gotta admit that the state of the US economy, the global economy, until now, is the result of some amount of central planning, state market manipulations, and yes, a certain amount of unintended consequences as well policies are that rock solid and have proven over decades their value to economic stability and growth. You can't (or maybe you can) say "everything would've been better if just had been AnCap from the beginning." 

The internet and speed of financial markets, the shifting national job market, and other big changes in our daily lives have also revealed cracks in policies we previously believed were bedrock to American financial security. The bedrock you and I both likely agree is a good thing. 

You might say "the housing market is doing exactly what it needs to do, and we need less government intervention. Look at all these other awesome nations who serve as great examples of where we'll be if just follow their lead, suffer the hardship just as they did, and get out the other end a better nation."

Or you might say "our housing markets, especially in high growth, high demand regions, exhibit troubling similarities to those in other nations in the past, and we should mirror their solutions to those problems as soon as possible, or else we end up like examples that have turned out terribly." 

I could understand either of those opinions. Germany has some effed up housing markets, but they also have super high wages, great labor relations, and a booming economy with increasingly high levels of "happiness per capita". Many of the Scandinavian states also rank high in well-being, despite high cost of living and expensive housing. But neither has ended up where they are today without some manipulations in the past, and I'm not sure either example would consider itself as being perfect. 

Or perhaps you might say "America is unique and we can't compare ourself to any other nation, and therefore we should not use the successes or failures of any other nation to guide our decisions." - I have a harder time agreeing with this concept, but to each their own. 

In reply to yupididit :

It's never been egalitarian and we've never tried to make it so.  It's a capitalistic republic, that has had so equal opportunity/civil rights laws passed to force things to get done the way they should've been from the get go if people weren't pigs.

In reply to frenchyd :

You got any data on any of those claims or is that just fear mongering? 

In reply to frenchyd :

Boost crazy, 

 More than a few renters can't buy.  They've got bad credit, judgements, no down payment, not going to remain in the area long enough .  Maybe they are a contractor employee  or temporary hire.  
     Maybe they are commitment phobic and the idea of signing papers for over an hour not really knowing or understanding what you are signing  terrifies them.  
    Whatever.  Others are focused on the short term.  This apartment is stylish and in the happening part of town.  
       But whatever the reason they rent.  
 

I literally said "income alone isn't the primary reason many people don't buy homes." Thanks for providing examples of what I just said? 
 

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.  

The fact that you would buy now is probably the best evidence of why it's a bad idea. If you were 20, I'd forgive you. But you have been around for many cycles of up and down home prices. Most people can see that we are just past the peak of a hot market, and interest rates are going to drive prices down. You just said that your last home related financial decision led you to foreclosure, and only a bail out saved you. That's not a good plan. Someone else recently posted that first time home buyers were down. That's great, and gives me some hope. This is a horrible time to buy your first home, those numbers should be down. The only people who should be buying houses right now are existing owners looking to change homes before interest rates go up further. You spoke of a home ownership ladder. Buying at the wrong time still puts you on the ladder, but it makes the ladder a lot longer and you need it climb much further for the same progress. 
 

I don't know that I won't be one of the unemployed. The numbers are on my side, as even at it's worst, most people don't lose their jobs. I've also acquired skills that not only make me valuable to my company, but to many prospective employers. That said, I've also taken steps to protect myself. I bought a home well under my means. If my income dropped to zero, I could still pay my mortgage for a very long time. I've taken control of my own trajectory, I'm not looking to others to do it for me. 

e30saam said:

In reply to frenchyd :

You got any data on any of those claims or is that just fear mongering? 

Don't hold your breath. He never does. 

In reply to pheller :

I would agree. Not everyone is able to be a homeowner. 

Does that mean that people should then be at the mercy of rental agencies who squeeze them for every spare cent? 

The role of Habitat is to be a non-profit competitor. But even Habitat can't make a dent in rental prices in some cities. They just can't acquire enough land to create enough units to being a competitor. 

Does the government need to get back in the business of creating projects as a means of producing adequate competition for the private sector to reduce rents? 
 

Can you explain what you mean by "at the mercy of rental agencies?" While this definitely changes from area to area, locally it seems that they are more at the mercy of the renters. They have to cross their fingers and hope that they pay the rent and don't trash their property. When they do, those costs get passed on to other renters. Just like all shoppers pay for shop lifters. 
 

On paper, owning rental property is very appealing. When I bought my current home and sold my last home, I was tempted to keep the old one as a rental. We could easily have afforded to, as the rent would have been nearly twice what we payed in mortgage. But the market was cooling slightly at the time (2019, before the recent surge) and I hate debt and I'm pretty risk adverse. A bad tenant could easily wipe out any possible gains. We decided to pass. Now we are back in the position of aquiring a rental property. Going to look seriously into it as prices drop, but it will be tough getting past the risk hurdle. You really need multiple properties to mitigate risk. Small time wanna be property owners like me can get crushed if things go sideways. Which is reflected in the rental price that I would need to charge. I'm not going to take the risk just to break even. 

Boost_Crazy said:

Going to look seriously into it as prices drop, but it will be tough getting past the risk hurdle. You really need multiple properties to mitigate risk. Small time wanna be property owners like me can get crushed if things go sideways. Which is reflected in the rental price that I would need to charge. I'm not going to take the risk just to break even. 

Exactly!

The measures that "help" renters ultimately drive up rental rates because landlords aren't stupid.

Want me to risk rent forbearance, rent control, renter eviction protections, zoning code changes that decrease my property value, tax code changes that reduce my profits, etc....you will be fully compensating me for taking every one of those risks.

You, as a renter, are competing against stocks, bonds, etc. for my capital...increase my risks and I'll either charge you an appropriate amount more or I'll take my money elsewhere.

In reply to Boost_Crazy :

I dont doubt landlords take on a fair amount of risk. I know many landlords, have quite a few in the extended family, my BIL now has 4 units, and quite a few are friends. Almost all of them are risk averse when it comes to tenants. Most do not advertise on the open market - they do so via word of mouth. My BIL advertises on Craigslist, but I'm not sure his properties can get much worse...

But it sucks as a tenant to have you rent go up because your landlord has decided that vacancy is better than lowering rates, because he got burned by the last tenant at a lesser rate, and then had to put $20k into flipping the unit. Now he'd rather have a vacant unit than a cheap unit. See also.

As a tenant - my neighbor going nuts shouldn't increase my rent - but it does. 

Ironically, when I own a house, if my neighbor goes nuts, my value goes down. 

Robbie (Forum Supporter) said:

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.

Plus one other thing.  Confidence. 
It takes real courage of your convictions  to buy the most expensive thing people ever own in a scary market.  

In reply to Boost_Crazy :

I don't disagree with most of what you said . I do need to clarify some of the things you said.   
 First I'm not in the market to buy.  I was talking about young renters looking to get into the housing market.  
  Second timing the housing market makes as much sense as trying to time the stock market.  
    Rent gets you no equity and an almost sure regular increase in the cost of shelter.  ( something you will need all of your life). While mortgage payments are fixed, and past a certain point tax deductible. While riding the appreciation ladder. Realize the house itself is a losing proposition.   The appreciation is the land the house is on. 
   I must take an exception to your statement about unemployment.  As you approach retirement age, even though like me, you are at the peak of your skills and top of your field.  You are also more expensive then younger people. 
      The recession of 2008 actually started in 2007 with slow downs and layoffs happening.   I was the last commission/salary salesman fired in my company. Joining the 22 million unemployed. 
      I don't know what bail out you're talking about.  Please elaborate.  
    Mind you I was unemployed for 5 years when I and most of those 22 million unemployed Americans. Only expected a brief down turn in the economy.  I not only made regular house payments at no time was I ever more than 30 days late.  

pheller said:

In reply to Boost_Crazy :

I dont doubt landlords take on a fair amount of risk. I know many landlords, have quite a few in the extended family, my BIL now has 4 units, and quite a few are friends. Almost all of them are risk averse when it comes to tenants. Most do not advertise on the open market - they do so via word of mouth. My BIL advertises on Craigslist, but I'm not sure his properties can get much worse...

But it sucks as a tenant to have you rent go up because your landlord has decided that vacancy is better than lowering rates, because he got burned by the last tenant at a lesser rate, and then had to put $20k into flipping the unit. Now he'd rather have a vacant unit than a cheap unit. See also.

As a tenant - my neighbor going nuts shouldn't increase my rent - but it does. 

Ironically, when I own a house, if my neighbor goes nuts, my value goes down. 

 

I've never understood the connection between income and the assumption of destructive behavior.   Yes if you have nothing to lose it's hard to respect the things others have.  However if you respect nothing you can't have anyone respect you. 

pheller said:

In reply to Boost_Crazy :

I dont doubt landlords take on a fair amount of risk. I know many landlords, have quite a few in the extended family, my BIL now has 4 units, and quite a few are friends. Almost all of them are risk averse when it comes to tenants. Most do not advertise on the open market - they do so via word of mouth. My BIL advertises on Craigslist, but I'm not sure his properties can get much worse...

But it sucks as a tenant to have you rent go up because your landlord has decided that vacancy is better than lowering rates, because he got burned by the last tenant at a lesser rate, and then had to put $20k into flipping the unit. Now he'd rather have a vacant unit than a cheap unit. See also.

As a tenant - my neighbor going nuts shouldn't increase my rent - but it does. 

Ironically, when I own a house, if my neighbor goes nuts, my value goes down. 

 

Yes. It sucks. 
 

But the same thing happens with everything we buy. When people steal from retail, the good customers pay. When people take advantage of insurance, the good customers pay. Etc etc. 
 

The only fix would be to have stiff penalties for the perpetrators. And that's not gonna happen as long as there any any kind of tenant protections in place

I'm a big fan of the idea of something like AirBNB for Long Term Rentals. It probably would go against fair housing laws, but basically, a system where an applicant can apply for an apartment and when they do, their name, picture, race, etc is all removed. 

The landlord can review the users past reviews, both STR and LTR. 

When they accept the potential tenant, they can then view their name, race, age, sex, whatever. 

Perhaps the system has real "mediators" - people who can confirm complaints about proprieties or complaints about tenants. 

The downside of course would be that if a system like this was successful, eventually all those who didn't use it would either pay higher rents or struggle to find housing, but for those in the system, it might give tenants and owners better ability to lower prices. 

In reply to pheller :

It would be hard to do a credit or background check without a name. I've never seen race on a lease application or on a lease...And I think its fair if a home owner didn't want to rent their house to a 19 year old kid. My ideal tenant has no kids or pets but that's just me.

SV reX said:

But the same thing happens with everything we buy. When people steal from retail, the good customers pay. When people take advantage of insurance, the good customers pay. Etc etc. 
 

The only fix would be to have stiff penalties for the perpetrators. And that's not gonna happen as long as there any any kind of tenant protections in place

The flip side is also true. The reason there are tentant protections is because that are a lot of E36 M3 landlords out there.

In reply to frenchyd...

n reply to Boost_Crazy :

I don't disagree with most of what you said . I do need to clarify some of the things you said.   
 First I'm not in the market to buy.  I was talking about young renters looking to get into the housing market.  
  Second timing the housing market makes as much sense as trying to time the stock market.  
    Rent gets you no equity and an almost sure regular increase in the cost of shelter.  ( something you will need all of your life). While mortgage payments are fixed, and past a certain point tax deductible. While riding the appreciation ladder. Realize the house itself is a losing proposition.   The appreciation is the land the house is on. 
   I must take an exception to your statement about unemployment.  As you approach retirement age, even though like me, you are at the peak of your skills and top of your field.  You are also more expensive then younger people. 
      The recession of 2008 actually started in 2007 with slow downs and layoffs happening.   I was the last commission/salary salesman fired in my company. Joining the 22 million unemployed. 
      I don't know what bail out you're talking about.  Please elaborate.  
    Mind you I was unemployed for 5 years when I and most of those 22 million unemployed Americans. Only expected a brief down turn in the economy.  I not only made regular house payments at no time was I ever more than 30 days late.  

Your words from a couple pages back...

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 you have also said many times that it's never a good idea to tear down a house and build a new one because houses are depreciating assets while the land grows in value. So you are kind of all over the map. 

I was also (and still am) a full commissioned sales person for construction sales during the recession. I don't know the specifics of your market, but mine was one of the hardest hit in the country. I took a hit, but since I lived well within my means, it didn't affect my ability to pay my bills. Despite being new to the industry at the time, I knew the job had booms and busts, and my lifestyle needed to be somewhere in the middle. There were years of boom before 2008. If you lived like that was normal, that's on you. Just like now. We've had years of boom. I'm ready if things drop off. More than ready. My biggest regret during the last drop was that I was only prepared enough to ride it out. I missed out on much of the opportunity. Houses had dropped tremendously, but I was not quite in the position to upgrade my house/ acquire a rental property despite the great deals out there. I've vowed to not make the same mistake twice, I'm ready for the next slump. You have been through more of these cycles than I have, how do you not see it? And yes, you very well can time the housing market. You may not be able to time the bottom, but you sure can avoid buying near the peak- especially when we are clearly on the down slope.
 

Let's throw out some numbers. These are very conservative numbers for my area. Say a new home buyer buys right now, $500k. That house will likely drop to $400k over the next year or two, if not much more quickly. Call it two years. Rent for the same house is about $2600 per month, or $62k for 2 years. So not only would they be plus $38k by waiting two years, but they would need 20% less down payment and would be paying interest on 20% less borrowed. I used 2 years and $100k as a best case scenario (worst case for the would be buyer.) I expect a much bigger drop more quickly. While I don't expect 2008 drops- houses lost half their value- we also have the interest rates pushing down on values. 
 

In reply to Boost_Crazy :

Yes I barely survived but what the politicians did for me was notify the Credit  Union that they were expected to follow the law and not use their legal power  to force me out.  
    Without politicians  putting that in writing. I have no doubt their lawyers would have simply drowned me in legal paperwork resulting in the loss  of the home I built with my own hands. That was the opinion of two different attorneys I hired.  
    Regarding the tear down and building of this house.  As I was getting close to pay off, The credit Union rep we had been using for decades explained the benefits of a home equity loan. ( tax deduction) interest rates were low at the time. So it made sense to me then.  
      Even though I have 31,000 hours of my own work building this place and nearly $300, 000 in costs.  The market bases its value primarily on the land. Lakeshore here is a multi million dollar cost.  2 houses north spent 2.5 million and the piece on the end was 5 million. 
 A house needs maintenance, and periodic updating.  Without those costs spent the building is simply torn down.  
   Finally, while a few homes will have to be sold because of owners dying and divorce etc. most homeowners will simply take their homes off the market and wait out the down turn.  Not take your $100,000 loss in 2 years. 
  To be fair neither of us are fortune tellers. So your guess is as valid as mine. Let's see what the future brings shall we?  

frenchyd said:

In reply to Boost_Crazy :

Yes I barely survived but what the politicians did for me was notify the Credit  Union that they were expected to follow the law and not use their legal power  to force me out.  
    Without politicians  putting that in writing. I have no doubt their lawyers would have simply drowned me in legal paperwork resulting in the loss  of the home I built with my own hands. That was the opinion of two different attorneys I hired.  
    Regarding the tear down and building of this house.  As I was getting close to pay off, The credit Union rep we had been using for decades explained the benefits of a home equity loan. ( tax deduction) interest rates were low at the time. So it made sense to me then.  
      Even though I have 31,000 hours of my own work building this place and nearly $300, 000 in costs.  The market bases its value primarily on the land. Lakeshore here is a multi million dollar cost.  2 houses north spent 2.5 million and the piece on the end was 5 million. 
 A house needs maintenance, and periodic updating.  Without those costs spent the building is simply torn down.  
   Finally, while a few homes will have to be sold because of owners dying and divorce etc. most homeowners will simply take their homes off the market and wait out the down turn.  Not take your $100,000 loss in 2 years. 
  To be fair neither of us are fortune tellers. So your guess is as valid as mine. Let's see what the future brings shall we?  

Yes and maintenance and periodic updates are FAR CHEAPER than tearing down a house and rebuilding it. 

In reply to frenchyd :

I'm not going to comment on you personal situation anymore. I'm glad it worked out for you, but I would not recommend that path to others. 
 

  Finally, while a few homes will have to be sold because of owners dying and divorce etc. most homeowners will simply take their homes off the market and wait out the down turn.  Not take your $100,000 loss in 2 years. 
  To be fair neither of us are fortune tellers. So your guess is as valid as mine. Let's see what the future brings shall we?  

Homes will still sell. You are assuming every home owner paid top dollar and would take a loss. People will still move. They may follow a job or family. They may see the lower housing prices as a good time to upgrade from their entry level home. You probably won't see many people downsizing with the higher interest rates. But the housing market won't just freeze and wait for house prices to go back up. I wouldn't call my prediction a guess, as the data is already out there and the process is happening as we speak. The cycle has repeated itself many times over the last few decades. But I like your proposal. Let's pick entry level homes in our area that sold this month. We can check in later and see how we did. We will have to take into account interest rates, which should be in your favor. House prices need to drop enough to offset any further increases in interest rates. Lets's figure 20% down, and ignore that 20% down becomes easier for first time buyers as prices drop. 

I found one, just sold last month...

Zillow entry level house

It looks like it is already on the downward slope, it sold for quite a bit less than they were expecting when it was listed in July. Let's see how this house does. 

I'm not sure what entry level is anymore. So I searched for the smallest and lowest priced recently sold home near where I work. The key in my area you want to live as close to work as you can reasonably afford. 

Not in the greatest school zone. House

Then I looked for the nearest schools that were rated 8+ (I'm not convinced of these Great Schools scores) and this was the cheapest home I recently found House

I could find residential lots selling for $400k and more in the area with "good" schools. The DC metro area is not starter home friendly. Most young families get apartments close to their job. 2 bedrooms are easily $2k or more in rent lol

For my family, I cant or don't want to afford the houses that I need near my job. We need lots of space. The house we just bought is about 30 miles from work which is an hr+ commute. And even that far out the house was still almost $1mil with an unfinished basement crying. We're only in our lower 30s with a dual income + rental income (yes we're evil landlords) and my wife also own a small business on-top of being in the military. Luckily the house we sold in Texas pocket us 6 figures which we put into this house to buy mortgage points etc. Took all of that to buy a house that we would actually want to live in near good schools.  

yupididit said:

I'm not sure what entry level is anymore. So I searched for the smallest and lowest priced recently sold home near where I work. The key in my area you want to live as close to work as you can reasonably afford. 

Not in the greatest school zone. House

Then I looked for the nearest schools that were rated 8+ (I'm not convinced of these Great Schools scores) and this was the cheapest home I recently found House

I could find residential lots selling for $400k and more in the area with "good" schools. The DC metro area is not starter home friendly. Most young families get apartments close to their job. 2 bedrooms are easily $2k or more in rent lol

Yeah, Alexandria is where my mentee lives. He said shares a 2 bed, 1100sq ft apartment with a roommate, $2400/month in just rent, which is crazy to me. 

2 bedroom apartment rents for more than that here in Denver