I wonder how much of this is related to the eviction moratorium. Anecdotally, my wife has a house that had a tenant in it. She was planning on selling it last year, but she had a hard time getting the tenant out. His lease had expired, and he also hadn't paid rent. He thought that the moratorium should cover him even though his lease had expired for several months. She only recently got him to move out, and she put the house up for sale right away. I bet there are more sellers than her in this situation.
I suspect that once the moratorium is up, there will be a lot of landlords looking to sell. They've been not getting rent for a long time, and they may have to sell in order to get out of the hole they're in. Many still have mortgages, but they will have a hard time collecting a year worth of rent. But the bank won't have the same problem foreclosing.
I've been migrating my vacant rentals to Airbnbs during the moratorium for this very reason. I may not rent them out again to long-term tenants for quite some time.
Local governments should consider all of the perverse incentives they create when making these sorts of changes.
(If you do this, note that if you let someone stay in your Airbnb for a month, they also cannot be evicted in some jurisdictions.)
Also, people generally dislike having short term rentals as neighbors, because the people in them don’t stick around long enough to care for the community, or for punishment/warnings to work if they end up causing a mess.
General rule of thumb: rent if strongly believe you'll be in a place for less than three years, and consider buying if staying longer.
Say a potential buyer has a mountain of cash. They can scoop up a property with no issue. Financially, owning makes sense to them (no interest payments due to a mortgage), especially if they pick location correctly and see a property value increase.
Next, say a potential buyer has a small pile of cash. A mortgage will almost certainly be needed to finance property, though this buyer should be able to cover the down payment. If location is right, it should work out well for this person, but it will take decades to see a positive return.
Finally, say a potential buyer has little-to-no cash, living month-to-month on rent. They simply cannot afford to purchase a property and/or get approved for a mortgage.
Let's consider each of these three categories of buyer in your scenario, where a local government makes it more difficult to seek rent. The wealthy buyer doesn't care, unless they own many rental properties, in which case they'll possibly have a harder time filling their units. The second buyer will benefit the most, potentially allowing more of this class to purchase properties (theoretically, more properties will be on the market). However, the third buyer is out-of-luck because they simply don't have the financial resources to outright purchase a property. Decrease the number of rental properties, and rents will increase, unless the number of new buyers balances existing renters.
In summary, in your scenario, I would bet the wealthy will sell some properties and cash out, while the middle class will scoop up more properties and be able to pay for higher rents. The poorest, however, will likely need to settle for a lower overall standard of living.
Just to note - that last class of buyer has no financial motivation to remain a renter. They are stuck in a situation they can't get out of easily where a larger portion of their paycheck goes to housing and decreases the rate at which they accrue value.
This is why home buying assistance exists and is a very very good program for the government to subsidize, renting should, ideally, be a tool for those just starting life and those with the means to indulge in luxury - most people should own their homes since most people are living in the same place for extended periods of time. The exceptions to that are rare and need consideration, but the majority of renters today are people who are stuck in the rent cycle or don't know any better.
> most people should own their homes since most people are living in the same place for extended periods of time. The exceptions to that are rare and need consideration
I'd be very curious to know what kind of exceptions you mean.
I've owned where I live a few times, each time it ended poorly. Now, I rent. The problem is, I can't buy what I want to live in even if I wanted to buy. Here's what I want to buy:
- Inside the city limits of Seattle; location is not fungible, I can't substitute a property in Spokane or Atlanta for one in Seattle.
- Within a 10-minute walk to a train station or rapid bus route.
- An outdoor space of my own, not a shared garden but a balcony or private garden of some sort.
That's it. That's the Tweet.
You'd think that would be trivially easy, but the exactly two places I've seen where property can be owned (one is a townhouse development in Rainier Valley with an astoundingly expensive HOA, yet still sold out and the other is a condominium development near the stadiums but the handful of units with a balcony sold out immediately) are unavailable.
There's nowhere else. No condos, no townhouses, no rowhouses, not even any detached houses. It's all rented apartments. No one is building ownable properties, because of a combination of striving for rental returns, zoning, and Washington's condo liability law.
Well yea - that's a poor market for ownership and Seattle has one due to the recent (in terms of housing price response) appearance of two insanely large tech giants in the area - that causes a lot of market distortion that you're sadly on the receiving end of today.
It is financially advantageous to own a property, it is usually financially advantageous to own a property if you purely want to rent it out - renting is a profitable business that's why there are a lot of really large companies holding insane amounts of property in the US. If the city/region has some guaranteed demand for rental numbers (like uni stundents and young people working their first job) then the math changes to make it even more advantageous to rent - what you're essentially seeing is that owning property is the correct decision, it's so correct that the market for property is being soaked up by landlords that can make a tidy profit on the margin and are more reliable load recipients than individuals.
I'm sorry you're in the housing situation you're in because it sucks but, if you did see two identical places you liked and one was available for sale and the other for rent then it'd be the correct financial decision (really correct in fact) to buy the property.
Various regions within the US have toyed with ideas around taxing property ownership for investment more heavily but there is a lot of lobbying money pushing back on that. A lot of places (including BC where I'm at) actually have a primary residence tax credit for owners - if you own your property and use it as your primary residence you get a bit off your taxes to help swing the balance back toward individual owners.
Depends on opportunity cost. You might consider reaching out to trusted family for short-term financial assistance (loan interest is the problem, not the loan itself). You may be able to get a bank loan to cover the down payment, but is that worth it?
Depending on the real estate market and your specific property, a monthly mortgage payment has a good chance at being lower than comparable monthly rental payments. Bear in mind: every dollar paid for rental is burned, whereas every dollar paid to a mortgage has at least some potential to be recovered in the future. And think a few years out: say you pay $800/month for rent. Over three years, that adds up to $28,800. If you live in a hot area, your rent will likely increase, so you'll pay more in the long run. A mortgage payment, however, will not, and you might get that $28,800 back through renting it and/or selling.
I see renting vs ownership as "XaaS" vs in-house. Renting is essentially Housing as a Service. There's a use case for XaaS, but at a certain point, owning critical infrastructure just makes sense.
I agree that buying is preferable to renting (and better for your finances). But you underestimate the difficulty of doing that if you are poor. There are many folks who do not have any family or friends who are well enough off to be able to part with the money for your down payment. And no, you cannot get a bank loan to cover the down. The down payment exists because the bank wants to be sure that you have some skin in the game. In fact, a big part of the process of getting a mortgage loan approved is the bank digging into your financial records to confirm that the down payment is really your money, not a loan (from a bank or even trusted family). If they are not convinced it's your money -- no loan for you!
I suspected a loan wouldn't work for the down payment, but I wasn't 100% sure. Thanks for clarifying.
Oh, I know it's very difficult for poorer people to buy property. Are you familiar with land contracts (also called contract-for-deed)? In certain scenarios, they provide a path to ownership for poorer people, but they're also offered in a predatory manner.
I'll add that a poorer person seeking to buy might consider moving out of a big city to a smaller town. Obviously, this approach isn't for everyone. However, if home ownership is that important, you can find nice homes for sub-$150k in many smaller towns. At that price, a 30-year mortgage is under <$1000 a month. Considering how much a two- or three-bedroom apartment may cost in a big city, financially, it works out.
> "General rule of thumb: rent if strongly believe you'll be in a place for less than three years, and consider buying if staying longer."
This is a valid rule of thumb only because transaction costs are generally much higher when buying a home than when renting. Typically 6% of the cost is siphoned off by brokers (3% to each side) and the fees people pay to take out a mortgage loan are significant. Fees you pay to start a lease generally amount to only a small fraction of these.
It's also valid because the real-returns of investments typically exceed the gains on housing[1] and you tie up a minimum of 20% of the value of your home when you buy.
1: This gets complicated because (at least in the US) most people don't leverage their investments at a 5:1 ratio, but do leverage their home value by that much.
> real-returns of investments typically exceed the gains on housing[1]
In markets where people want to live. Owning a couple acres around the far-flung suburbs of Seattle or DC will net you some good money.
No one is buying housing in Gary, Indiana. Floods have annihilated many towns around the Mississippi River, and there is plenty of real estate in Detroit and New Orleans that sure as hell ain't gonna exceed the S&P 500 anytime soon.
I think you read my comment backwards? I was trying to say that you get more reliable returns if you invest your down payment in a diversified fund than if you use it to purchase a house.
As far as "markets where people want to live" goes: yes, in any market, you can outperform the average if you can predict the future better than other investors. Some of the places around the Mississippi River probably used to be considered good investments; now they aren't. If this whole full-time remote thing catches on, it's possible that the bay-area will drop in prices. It's also possible that only part-time remote catches on, and interviews resume in person so people want to stay in the Bay Area. Heck, it's unlikely, but possible, that Cupertino or Saratoga decides to rezone large swaths of the town for more density and the increase in supply drops prices.
A good rule of thumb for selling costs is around 10% of the selling price. And when buying, factor it around 3% just for closing costs (or more if you're paying points), but then add-in more for funding reserves.
You should only ever rent if you intend to live in a property an amount of time so small that the rent you're paying out doesn't cover the exchange cost. And that assumes that property prices aren't increasing which they almost always are and generally at a pretty firm pace.
Basically - you're trying to avoid the scenario where you live in a place so short that the exchange cost you pay to flip it on the far side exceeds the amount of rent you'd pay to reside in it.
Determining the exchange cost isn't always straight forward - the 6% given above may or may not be realistic for you, there are some brokers that will take a 1% cut and those folks are more common in hot markets, and there may also be taxes you need to take into consideration.
Also, there is a risk of getting stuck with a lemon - if you purchase a house which seems fine but actually has extensive water damage and mold you could lose a portion of the value, this is a really significant consideration in quiet housing markets (like the midwest) and less important in areas like SF where most of the property's value is likely the land itself - in either case you're taking a big chunk of the value of the structure out of the equation when reselling the property but in the later case the value of the structure is rather minimal while in the former case the land is essentially free.
Basically you almost always want to buy if you are able to. The money you're spending on housing when you own a property is accruing as equity instead of being siphoned off by a landlord.
> The money you're spending on housing when you own a property is accruing as equity instead of being siphoned off by a landlord
In principle, the principal payments are doing that (interest payments are being siphoned off by a bank, instead of a landlord), as is any delta in the property value (but if that's negative, that's anti-equity).
I'm in LA and it's not extremely uncommon. I'm also seeing it in a few other Southern California areas.
Also there are tons of options to flip if you want to put in some work and have the funds. Not that hard when the price per square foot grossly exceeds the cost to build.
Or just put those 100k into a margin trading account with 1:10 leverage in a "west coast real estate index". No commissions, no agents, no property taxes, no leaking roofs.
Regular people do not get 1:10 leverage in a margin account. Furthermore if you lever yourself up to 10x with options or exotic ETFs or whatever, and the market goes down by 10%, you don't have any money left. If you put 10% down on a house and the value goes down by 10%, you still have a house to live in even if you don't have any equity. You can choose to just sit and wait for the market to recover. There's no recovery from getting margin-called on your 10x leveraged account.
Still doesn't offer that tax advantage (either in capital gains or the numerous deductions). And if you have to live somewhere like the parent comment, this doesn't help you.
You will have a commission in the expense ratio indefinitely.
But yes, definitely a decent option if you want to put your money in real estate with less headache.
The tax advantage is up to comical 250k that will be promptly eaten away by brokerage fees, transfer fees and other god knows what fees, on top of all the house maintanence costs over those years.
Those who have a million or two but a house not because it's good for financials, but because they can't stand cranny rentals. Those with bare minimum money jump into a mortgage because for them it's the only efficient financial instrument available (a margin trading account essentially). If they tried to open such an account with a brokerage, they would be told no after looking at their net worth.
I'd rather pay capital gains tax on a 250k stock appreciation, than have my house appreciate by the same amount. It's just ordinary people don't have brokerage accounts that can appreciate by so much.
As a slight diversion, this thread danced around a pretty interesting point in my eyes - why are ordinary people denied access to brokerage accounts with advantageous rates - it's not likely that the money actions will be nearly as dynamic or require nearly as much oversight as folks with a lot of money and the minimum investment bars seem unreasonably high before you start dodging the heavy fees. Isn't that system just furthering wealth inequality?
If it's just about money then you should diversify - but owning your own home is a self-securing investment, it means you can't go broke no matter how bad fate treats you - with the exception of going underwater on your property value which is only ever actually a problem since banks can effectively margin-call their mortgaged properties.
> owning your own home is a self-securing investment, it means you can't go broke no matter how bad fate treats you
lol what? Trees fall on houses all the time. Pipes break and water damage can seriously impact structure & foundation. Dumb-ass kids accidently drive their mom's car through the veranda. Houses burn down and kill people. A factory shuts down and now there are no more jobs so everyone leaves, driving your house price down.
Assuming a home is a secure investment -- even in a hot market like SF or DC -- is foolish.
> More than one-quarter (27%) of reported fires in 2014-2018 occurred in homes. Even worse, more than three-quarters (77%) of civilian fire deaths and almost three-quarters (73%) of all reported injuries were caused by home fires.
> During this five-year period, US fire departments responded to an estimated average of 353,100 home structure fires per year. These fires caused an annual average of 2,620 civilian deaths; 11,030 civilian fire injuries; and $7.2 billion in direct property damage.
No, because if you're investing on a 1-5 margin, the market dropping by 20% in two weeks, and then going up by 80% over the next five will leave you flat out broke.
Meanwhile, someone not investing on margin will be up 60%.
Only if there were margin calls on real estate loans (there aren’t) of if there were no margin calls or forced selling on brokerage accounts (there are) this would be good advice.
There are margin calls on real estate loans - they aren't nearly as capricious but when mortgages are renegotiated banks will usually refuse to offer a new mortgage if the property is underwater - in that case the bank will generally try to foreclose on the property and recoup the lost mortgage balance through debt collection. This happened all over the place in 2006 and led to the housing bubble.
If you can afford a 20% or so downpayment (big if, I know), the two options might work out to fairly comparable (after-tax) monthly payments right now. In the longer run, buying will leave you potentially with equity and with a fixed rate mortgage will assure fixed payments.
Even in a mildly inflationary economy, making fixed nominal payments on a salary rising more in line with inflation for an asset valued more in line line with inflation can be a fairly attractive deal.
But none of the above is meant to be investment advice. Homeownership has its risks and certainly loses flexibility.
Just checked Redfin, a condo in SF for $1M with a 30 year mortgage at a nice 3% interest rate and 20% downpayment would be:
- $3300 in principal + interest
- $1000 property tax
- $500+ HOA
- $200 homeowners insurance
That is $5000+ monthly and requires $200k upfront (and significant upfront cost as the brokers are paid off). How is that comparable in after-tax payments to renting a $3000 apartment?
The math might be a bit different for SF - there are a lot of local factors to keep in mind (like that 500 HOA + Homeowners seems steep to me for a property that isn't near EOL) - but the biggest different at the end of the day is that the 3300 you're paying into principal + interest is still your money (well minus the interest) when you rent all 3000 you're paying is essentially throwing money into the void.
5-10 years later you have equity, a portion of value of the home not tied up by a mortgage. You can refinance or sell and extract this money. You can then use this money to move into the $2M house you had your eye on.
The difference is appreciation. Otherwise owning is probably 150% the cost of renting in SF. And with rent control you don’t have the issue of rent going up.
I've never owned a house in the US, but my understanding is that the interest portion is tax deductible (whereas rent is not), which at the kind of salaries necessary for this housing is likely to make a sizable dent in this payment.
I must admit that I had forgotten how high property taxes in the US can be, though. HOA surely depends a lot on what exactly you'd be buying.
Not only that, a 5% return on that down payment is a $833/month opportunity cost.
Owning in SF is generally more expensive than renting. Why? Because house prices have appreciation assumptions already priced in. Plenty of people lose money every month versus rent but appreciation more than covers it.
I faced that choice years ago, and chose to rent. It was a $500k mistake (over ~5 years). The condo was near Google, and it was a bit after 2008; your results will probably vary.
In a supply-limited housing market, landlords are competing with owner-occupiers for the same units, so you end up housing the same number of people either way. More investor money just means that purchase prices are higher, and rental supply is greater vs. owner-occupied. In that case, the government making it hard to be a landlord will be good for marginal home buyers, but bad for marginal renters.
In a market where housing development is less restricted and construction occurs to meet demand, the addition of more investor capital means that more houses will get built. This is a good thing! It means that renters who don’t have enough wealth to build a house still get a place to live. In that case, you want to make it easy to be a landlord to encourage more capital to be in the landlord business and building homes.
If you pull out investor money, prices drop, and new landlords will be able to charge lower rent at current returns.
I’m not convinced higher prices means more supply for housing. Building a house is labor intensive, and labor costs increase with housing costs. As stupid high as Bay Area housing prices are, new construction costs are even worse. It’s literally cheaper to build houses elsewhere and ship them in. However, in SF, at least, the construction worker unions are trying their best to block such projects: https://news.ycombinator.com/item?id=26526455
It doesn't always work that well in practice as investor demand can drive housing stock that is a poor match for housing demand. In theory this should all wash out in a free enough market, but no guarantee that won't take many decades - so it's not much help to people needing housing now.
The structure of investment vehicles for this makes a big difference in what is actually built too, and how the development companies are funded.
You have to flip that around. It has to be easier and dearer to own than rent. Seeking rents is already hard. If you follow all the rules and regulations it takes decades to profit when renting out homes. We need tax relief and incentives to build affordable housing...bad.
Yeah, but rent is covering that too, in addition to the equity. You've also got the inherent equity of the house itself being an appreciating asset.
Point is, when renting out an appropriating asset for the same as the monthly payments on your loan, defining "making a profit" as "completely paid off my loans on the appreciating asset that I can sell at any time" is a bit disingenuous.
Let's say you do eek out some amount that could be called profit. You get taxed on it according to your highest rate bracket. Then you have maintenance costs. These can be substantial and come as a surprise. If you get good renters and they pay for ten years you might get to a point where the whole deal was worth your time. You can always skim a little but it's really a long term prospect. Maybe you get lucky and are building significant equity each month as well. I don't really count that. Maybe a tennant implodes and you are stuck with a huge repair bill for some fucked up reason. It is perilous and fraught with inconvenience...not easy money. Forgot to mention insurance.
Oh yeah, one of the towns where I have property just pulled a new rental regulation out of thin air requiring a notification filing and fee for each rental property per year or on each new tennant lease. This country is turning into regulation hell.
It sounds like you've never been a landlord. For small-timers at any rate, the main attraction is asset appreciation, and the second is tax subsidies. Excess rent is usually the least important factor, and is often around zero, and can even be negative.
My parents bought a house when I was a kid. They struggled through bad tenants but were able to stay afloat when rent was not coming in. Fast forward 30 years, the house is literally free money for my semi-retired mom. The house rent pays for taxes and repairs and gives my mum excess money for the month.
> You get taxed on it according to your highest rate bracket.
Why would you personally own the property as opposed to putting it under an LLC or Corp? You would still have to pay taxes on personal income but it offers a lot more options on how to recieve the income and handle expenses.
And you open up your personal assets to liabilities from the property. Not saying it’s not possible, the additional insurance costs usually even out that difference
In Australia people rarely expect to profit when renting out. It's all about negative gearing to offset your income tax and sell the property for a profit later and move up the ladder.
So on one hand you could say the renters get a good deal but in the long run the upward price pressure makes it tougher for everyone.
That's just messing up with the market. You need to make both easy, so that people who want to settle and buy can do that; and people who want to be mobile and rent can do that.
I think the issue is that in the US the pendulum has swung so far in favor of landlords that the government needs to adjust things just to realign it so that both buying and renting are easy. Both should be options - I absolutely agree - but buying is quite difficult right now and a lot of folks are forced into renting for financial reason. That's pretty bass ackwards - a lot of folks aren't paying extra to be mobile - they're paying extra to be static and the additional costs they're forking over are deferring the time when they'd be able to afford purchasing.
Many buildings where I live are explicitly rental buildings ... so I guess you would be meaning co ops and condos but they are surprisingly expensive conversions.
I’m trying to move to a family to a new area. The only Rental homes available are through a mega corp. Apartments are all 2 bedroom. Don’t want an apartment anyway.
Airbnb are insane once you add fees.
Too move we’re left with living in a hotel until something opens up.
> I suspect that once the moratorium is up, there will be a lot of landlords looking to sell. They've been not getting rent for a long time, and they may have to sell in order to get out of the hole they're in. Many still have mortgages, but they will have a hard time collecting a year worth of rent. But the bank won't have the same problem foreclosing.
My mother-in-law has 2 properties in SoCal and is dealing with this exact situation. She is speaking with a lawyer this week, in fact. I won't get into all of the details but will say that she owns these properties outright but has not collected rent on either since April and May of last year...
Sorry, just saw your reply. Like I said before, I'm not willing to get into all of the details. In this specific case, however, the eviction moratoriums do not cover the shenanigans that my MIL is dealing with.
This is weird to me - the renter wouldn't get an extension on remaining in their domicile if they payed for ten years straight and then hit financial hardships - if the renter is going to be bankrupted by Covid then they're better off hording as much as possible until that point.
Also, you need to remember that, during this pandemic, people are feeling real financial pain. There is a possibility this renter is trying to stretch their budget to afford food and power as-is, the landlord is, at worst, going to lose some value out of their held properties which may hurt their long term financial health but won't threaten them with immediate homelessness unless they're extremely overleveraged.
This isn't to dismiss the pain and stress of being a landlord - but there is a lot of pain going around right now and if your representative in congress or senators aren't fighting to distribute some relief for it then it'd be better to take that up with them. The economy is under heavy stress.
How are people feeling such financial pain? In the US we gave every adult over $3,000 in direct cash, and radically expanded unemployment benefits. In many states the unemployment checks were over $1,000/week for six months, then reduced to mere $500 to $700 per week. We also expanded health care access, froze evictions, expanded food programs, and more.
I fail to see how people could be struggling so when the US treasury has gifted people with tens of thousands of dollars.
Loss of work, loss of child supervision (in-person schooling and childcare closures), at times sharply restricted number allowed in stores (meaning parents have neither time without children to shop nor practically the ability to take children to shop) => increases reliance on delivery services for essential shopping with extra charges and higher losses; extra unemployment at its highest level (which wasn't maintained) was calculated to be approximately full-income replacement, so with the lower boosts, it still wasn’t full income reimbursement and large areas of the economy either haven't fully reopened or haven't fully rebounded., and for those who have been out of work the $3000 (+some for children) only compensates for a few weeks of the gap that hasn't been filled by the partially-boosted unemployment.
> froze evictions
Freezing evictions doesn't reduce the financial hardship of renters (who still owe the debt, they just aren't evicted for owing it), but does increase the hardship of landlords. It's not the same thing as covering rent.
> I fail to see how people could be struggling so when the US treasury has gifted people with tens of thousands of dollars. Because people have faced more tens of thousands of lost income or added expenses.
Ten thousand dollars isn't a huge grant when stacked up against the cost of living in America - there is a decent portion of the population that has been unable to work during the past year and forced to rely on a lot of programs they never had to in the past including SNAP(food stamps), medicaid and the extended unemployment benefit. The direct cash payments are extremely good because they're so unqualified, but in a lot of states intent to work requirements remain in place to collect unemployment benefits and while the payment amount has been increased the duration of payment hasn't gone up across the board. People can try and hoard the money they're getting out of unemployment but they'd be dealing with a lot of uncertainty. Maybe this will be over in four months - I sure hope so - but there is a chance a new vaccine resistant strain will emerge from spring break or states opening up prematurely and throw us back into full quarantine.
The US government acts slowly to provide relief and the last bill passed purely on a party line (even with one person celebrating the bill while voting against it for political reasons) - if people are facing financial uncertainty I'd definitely understand if they're counting every dollar that comes in and hording it due to the uncertainty of when this will actually end.
Exactly. The renters are in a really bad situation as well. There's no way most of the people who couldn't or didn't pay rent for a year are going to have $20,000 to pay back rent, even if there's a judgement against them.
There's longstanding societal relief for debt - it's called bankruptcy. Economically, the right answer to unsustainable debt levels is repudiation. Put the next apartment in your significant other's name, sublet from a friend, etc.
Relying on charity to make up for a lack of proper tax collection is a terrible thing for society in the long term. It's unsustainable and will just further wealth inequality.
Also, most people, even most people on here, don't have 20k to throw around willy-nilly even if they have assets exceeding that amount.
I believe the point is that the OP is asking for everyone else to pay money for a cause they think is worthy, the comment you are responding to is that if they are that commit to the idea they can always pony up their own money.
I think that's a slight misreading, if we as a society, through our government, offer blanket loan forgiveness then the benefit and cost of that action can be appropriately distributed. The comment is asking for people to take the burden onto themselves and pay out to solve the crisis unilaterally which is an unproductive action at best.
Maybe Bill Gates and Bezos could execute a one time rent forgiveness program from their personal values - that might even work out pretty well in the short term, but it'd be placing too high of a burden on those two in particular.
no one on earth has that much cash. 20K * 1M people is $20B.
All the billionaires in America do not just have that much money just laying around. This would be a budgetary concern of the federal government. No citizens could individually pay everyone's rents.
Well, to that I'd say, if my money had anywhere near the impact of everyone's money pooled together I'd do it. Until then I'll keep advocating for public funds to be spent this way, and I assume OP would as well.
If you lend each completely broke person $100 they are still about to be completely broke and your investment will be wiped out after a brief respite. But if you hand each bankrupt person $X,000 then many might be able to dig themselves out of the hole and remain productive members of society.
In this context, the argument that my position is invalid unless I’m willing to pay out of pocket to enact it in whole (20k$) acts like the barrier to file a lawsuit under a minimal amount of damage. Like flipping that argument around to be used against one another. Not what I’d call a worthwhile contribution to discussion.
You can stress about this and spend a lot of your time chasing down someone for repayment. This is the wrong approach IMHO.
Instead just sure in small claims court (limited to $5,000). This is done without lawyers. You simply present your lease agreement, bank statement and any relevant
communications.
Once you get that judgment give it to a collections agency and forget about it. The agency will take a percentage of anything they collect.
Then just look at anything you get back as a bonus.
I tried suing a landlord in small claims court. Their lawyer just had the court move the case to civil court so they could bring representation. It's a broken system imo.
Unless you need that money to pay the mortgage on the property. If so, then "oh well, I get what I get get and I don't get upset" isn't really where most people are going to land.
In coastal cities, sure. But in a lot of parts of the country it’s not.
Also, as others have noted, different jurisdictions may have higher limits.
But to go to civil court to recover $20,000 just isn’t worth it. Your legal expenses will be significant and you face the prospect of losing or being unable to collect.
So by limiting your potential damages you don’t incur litigation expenses, spend less time and stress on it and your net return may be similar.
What’s better? $5,000 it costs you nothing to get a judgement for (other than a nominal filing fee) minus 10-20% for the collection agency or $20,000 you may need to spend $10-20K to litigate?
Everyone has a credit score that can go down. (Is there a floor?) A record of a rent lawsuit is no good for anyone. I often wonder how people on the verge of eviction think about this kind of thing — whether it is salient or even understandable.
There is an entire segment of the population that will never have good credit and probably never will. Punishing them via credit score isn't going to do anything. It won't get you your money back, and it'll just ensure we have a perpetual underclass to keep this cycle going.
> I often wonder how people on the verge of eviction think about this kind of thing — whether it is salient or even understandable.
If they're on the verge of eviction they're probably more worried about keeping heat, water, or food going. Landlords are an abstraction if your kid hasn't eaten in 2 days.
Sure, but the issue is that the suing party isn't getting anything out of it. You sue for damages, the defendant has nothing, so their credit score goes down.
That's fine, they get punished+the credit score decrease helps future landlords avoid the same situation with that tenant. But as a suing party, you get literally nothing out of it. The defendant's credit score going down doesn't help you personally one bit, you get no restitution or compensation.
They will just pass a law that allows it to be removed or excluded from credit reports. Or the banks+credit agencies will collude to do it when it starts dipping too hard into credit card applications. #medicalbills
I've lived most of my life without a credit card, never leased a car, never gave owning property much thought. Got some student loans when I was young, but that's about it for my credit history. This is all a result of me living responsibly within my means. Rental referrals are just about the only leverage that an ex-landlord would really have over me. You can duck collections pretty much forever if you don't need credit
People who aren’t paying rent after the pandemic started likely aren’t doing it for fun. Most likely they are underemployed, hence collections will stack up. “Living within your means” assumes it is even possible to find employment and a handful of life/medical/mental/family stability that not everyone has.
You seem to underestimate how much of modern life in the USA depends on credit. Electric, water, telephone, internet service require credit or suffer the costs and inconveniences of prepayment. Rental housing almost always requires credit checks in any desirable market.
You also seem to assume that collections can never be converted into a lean on your assets or garnishment of your wages. And that doesn’t even begin to crack the strange and painful tactics debt collectors use on your family, employment, friends, and other social pressures.
> I've lived most of my life without a credit card
> This is all a result of me living responsibly within my means.
Implying that not using credit cards is how one lives responsibly within their means is kinda weird and wrong. Yes, you can live irresponsibly with a credit card. You can also live responsibly with it too. And it will give you extra consumer purchase protection (in case of a fraud or a bad fair vendor), as well as 1-5% return on purchases.
Some would argue that missing out on that 1-5% return and extra consumer protections is the irresponsible move. But either way, the whole "using credit cards means living irresponsibly and outside of their means" is absolutely nothing but a complete lack of understanding of how credit works.
Yep, children of poverty are less fiscally literate and exhibit different cost-benefit analysis than folks raised in relative privilege. In my brief experience with credit cards, whatever 1-5% opportunity cost you think I'm paying is overwhelmed by the 20% interest rate if I forget to pay the bill.
The preceeding is a statement about most of my life. I've gotten better at such stuff and my lifestyle has changed after grad school -- and since I didn't have credit cards while living below the poverty line and generally being a schlub, I didn't fuck up my credit, so a few months of having a credit card as a de facto adult earned me a near-perfect credit score when I needed it.
I get that financial literacy is an issue in underprivileged and low-income groups. But it doesn't take much brainpower or financial knowledge to treat your credit card like your debit card and not spend more than you have in your checking account.
Functionally, a credit card would work exactly like your debit card or cash, except you would also be reaping all the benefits of credit cards and improved credit scores.
But overall, I agree with your point about cost-benefit analysis and impulse control being difficult to overcome.
> I often wonder how people on the verge of eviction think about this kind of thing — whether it is salient or even understandable
My answer is that people in those situations think about these things very differently than people who have never encountered them. Or, flip it -- if dings on your credit score are the worst speedbump that society has thrown in your path, you probably don't have the skills necessary to live broke.
There's going to be predatory companies popping up who buy up rights to collect on these lawsuits for pennies on the dollar and proceed to <vulgar transitive verb> the tenants.
This situation is going to play out over the next decade at least and it will be terrible for (almost) everyone involved.
If you're renting and can afford to: pay your damn rent! In five years, you don't want to be staring down a judgement for a year of rent, plus interest, plus "collection" fees.
I find it strange that for one of the largest transactions most people will ever make, they choose to use an advisor with little or no real education in the subject, with whom they have a relationship that's steeped in moral hazard.
I second this. Recently purchased a property, and skipped a buyers agent. That usually lets gets you a 1-3% discount on the price. You can find standard contracts and offer letters for free online.
Or, in today’s market helps get you to the front of the line in a multi-offer situation. Since the sellers agent automatically becomes the buying agent, the listing realtor is highly incentived to push your offer to the seller. In a standard 3/3% commission, even if you negotiate a 2% discount, the listing agent nets 33% higher commission if your offer wins.
But generally (in the US) the seller's commission of 6% (or whatever) is a contractual agreement between the seller and their agent, and then the seller's agent pays out the commission to the buyer's agent (as specified in the purchase contract, which is a different contract than the one between the seller and their agent).
If you go in without an agent, you must write into the sale contract that you want part of the seller's commission taken off the price, otherwise the seller's agent gets the whole 6% for herself. But in my experience, most buyers are clueless about how all this works and would never know to do that, and would not get a discount, regardless what the seller's agent might say.
(Of course actually it's a bit more complicated, the 6% actually goes to the seller's broker, who pays out both the seller's agent and also the buyer's broker, who then pays out the buyer's agent.)
I did the same thing. The relator told us that she stopped taking calls after our offer. If this isn't a sign that you shouldn't trust realtors I don't know what is.
It's absolutely built into the business model unfortunately -- a done deal is worth 1-3% of the current deal price.
But getting 1-3% of the delta on a higher offer that doesn't exist yet is not only a meaningless money difference, if it slows the deal down it costs them money.
Well if the parent used the listing agent for the buy side, then they stopped taking calls because they didn't want a higher offer to beat them from representing both sides. THAT is extremely meaningful for them.
Now if they could get a stronger offer by still keeping it on market, and they're only the listing agent, then yes a new offer of like 50k more isn't going to mean that much for them. They'd rather get it sold. That is messed up too because that delta is meaningful for the owner.
From what the parent said, they stopped taking calls because they wanted to represent both sides. It's fucked up.
I don’t know what market you’re in, but that’s not how it works in any market I’ve bought.
The seller signs an agreement with their agent, and that agreement dictates the commission and fee structure. You, the buyer, don’t pay the commission, and you don’t negotiate the commission with the buyers agent.
And in my experience, a buyer without an agent is just treated as an amateur. The offer is weighed against the headache of dealing with an amateur. It would be an extraordinary conflict of interest, and potentially illegal in some markets, for the listing agent to negotiate a reduced fee structure with the buyer.
When I purchased my place, I used the seller's agent. My offer was about 1% lower than someone else and I still got the place. I only assume he made up the difference.
Or they just pitched you harder over other offers because they stood to make more. They love nothing more than representing both sides, which should be illegal.
"This buyer has a higher down payment". "They have more reserves if it under appraises". etc.
Price doesn't always win. And it shouldn't. But there are a lot of shady agents that do shady things.
With good realtors you sign a document that states that they work for only you.
Of course there can be other issues, like the realtor "helpfully" setting up the appraisal with their own company, the one that just happens not to notice any major issues with the sale.
I also think that the convention of the the realtor taking a percentage of the sale as their commission is problematic as it incentivizes them to show you the most expensive houses instead of the ones that are best for you. I'd be happier if they charged a flat fee or a flat hourly rate.
True, they always say to hire your own inspector. But finding one who isn't a charalatan is a coin toss. You might be able to hire them independently, but recommendations from agents who are "working for you" is still a large part of their business. And they're not liable for anything they fail to notice. That entire industry favors people who are deal makers, not deal breakers.
The inspector is working for the sale, but indirectly.
One house that my family sold, the inspector showed up at the appointed time, and mentioned that he was the buyer broker's brother. He didn't find any problems with the house.
Usually their liability is limited at most to the cost of the inspection. Basically nothing in the grand scheme if they miss something big.
I had a friend who had a house with termite issues that 2 inspectors missed. He tried to get lawyers involved and they all told him he had absolutely no resource besides the inspection fees, which would have been swamped by lawyer fees anyways.
He ended up ripping out all the drywall to repair the termite damage bit by bit.
If you find and pay. Once they inspect and approve a place they are out of work. So they are more likely to make a bigger deal out of the smllest things.
Not following. The inspector is generally out of the picture after the inspection, however it goes. If they identify problems, specialized contractors (e.g., plumber, electrician, carpenter) will be contacted to get more detail on the problem. Besides which, inspectors rely on word-of-mouth referrals from real estate agents even if they're always employed directly by buyers. If an inspector frequently blows up deals with overly critical inspections, their referrals will dry up.
Even within the confines of that contract, any realtor will have their limits due to the commission-based structure. If they spend 50 hours working to get you 90% of your theoretical maximum selling price and it would take 50 more to get the last 10%, they may end up pushing you to accept the 90% offer because the next 50 hours is best used selling another property.
When I was looking I picked out the houses I wanted to look at. Then got my friend the real estate agent to get disclosures and and show me the house during the week day.
I don't think that the incentive to show you more expensive homes is that strong. Impression from a friend of mine is a real estate agent wants to close as many deals a year as possible. Closing houses a year, more money. Being known as someone that closes fast and often means hopefully being poached by more upscale agencies.
Buyers agent though has an incentive to soft bully the buyer into over bidding.
I did the same approach. We used someone a family member used and recommended. We would send her houses we liked, and she would setup the appointments. She would offer her advice when asked, and did a great job handling the various offers we put in. I honestly never felt pressured at any point during the home buying process.
>commission is problematic as it incentivizes them to show you the most expensive houses
Don't know everyone's experience but Realtors show whatever house the client wants to visit and clients can and do find houses for them selves.
>flat fee or a flat hourly rate
Does the client still pay this flat fee/hourly rate if they don't buy or sell the home? I'm sure a realtor would have no problem showing you up to X homes for $Y,000 paid upfront.
I have found that they want the sale as quick as possible. No matter what side of the table they are on they will never tell you to offer lower nor will they bring up anything that will slow the sale. It is a perverse relationship indeed. They only do the things they need to do to be in compliance with all the regulation that was enacted after people were swindled by realtors enmass.
It is an outdated monopoly that preserves itself by laws they have lobbied for and by bullying people with lawyers. They used to offer an advantageous network effect that we needed before we had stuff like zillow.
There's a rare exception when a real estate attorney with a reputation is also a part time agent. Finding one is a challenge. They give a lot of valuable advice, but it's only actionable when you have choice and the money, i.e. the buyers market of the expensive houses.
> I'd be happier if they charged a flat fee or a flat hourly rate.
You can always try to negotiate the agent’s price. I know a few sellers that had agents agree to 3% commission recently. It’s all about supply and demand, and if agents get desperate, they’ll agree to lower prices.
I just (this weekend) negotiated a 4% commission with a realtor for a property I’m selling. The deal is that they’ll keep it in the brokerage and not have to split the fee with another brokerage (which is the usual arrangement; 6% split half and half between brokerages, with the realtors on both sides getting half of that split). Market is hot enough I’m satisfied I’ll get top dollar even with a smaller pool of potential buyers (cash deals over list market).
With that said, my realtor in this market has been doing RE for decades and has a proven record of delivering.
You'll miss the wealthy out of towner with a different brokerage, more likely to be the top bidder.
Most listing brokers will accept a 1% discount, and many buyers will use a discount (refund) broker on their side, so 4% "in house" isn't a substantial discount to miss the one buyer who might go higher.
This is a condo on the lower end of the price spectrum in a large complex, so not a property a wealthy out of towner would be shopping for. If fair market value was >$300k, I wouldn't consider such an arrangement as I might miss the whale.
How does that work? Doesn't that mean they're filling the role of both buyer's and seller's agents? Ignoring the moral complexities there (hint: don't), it means they're doing more work to get the money; presumably up to twice as much work. It doesn't see like they're getting a good deal.
Yes, your example is how it works. Arguably, they're seeing more of the profit under the assumption that there will be almost no work to sell my property (which is the case; it's been completely renovated, and inventory is extremely limited, I would be shocked if it took more than 72 hours to sell), so they're capturing a bit more rev than if there was another broker's office involved in the transaction.
Our realtor was great... because he wasn't really a realtor. His fulltime job was as a DA, he just did the realty stuff on the side, so he didn't really need the commission. It seemed like he was showing us houses just because that's what realtors are supposed to do, but he was great when we found our house looking on our own.
The realtor isn’t really incentivized to try and make the largest deal, they’re incentivized to bring forward the deal which has the highest degree of successfully closing as quickly as possible.
Once you realize that the word "realtor" is a contrived cover for "used house salesman", you suddenly have a much better understanding of how things work in the housing market.
I'm currently running a FSBO in a Denver suburb. Listed this past Thursday and with high likelihood I'll be under contract this evening. I can offer a couple interesting stories on how I continue to see the perverse incentives for real estate agents.
If you’re only going to do something once in your life then it’s probably not going to be something you execute with the same calculation and expertise that you’d something more common like tying your shoe laces up. So people who live in the market get to do all sorts of middleman things.
It’s very easy to sell or purchase a home without an agent. You can contact the owner, and get all the paperwork done with a lawyer who deals in real estate transactions. There are usually signs that say “For Sale By Owner”.
No, I don’t see where you’re going with this. Sounds like a group of people created a product that helps facilitate real estate transactions, and they want to get paid for it:
If you don’t want to pay the real estate agent organizations, you can put your real estate listing on Craigslist, buy online ads, stick a sign on your yard, go door to door to various real estate agent offices, etc.
Zillow lists homes for sale by owner. Last time we bought a house, we almost exclusively used Zillow to search for them because all the Realtor-branded MLS access systems sucked. In the end, the house we bought was found on Zillow.
Our real estate agent worked pretty hard for us buying and selling and we were glad to have him. When we found our new house, it was on Zillow for only 8 minutes and he got us in first during a peak market. It was his tip that "sellers will often stick with the first buyer who offers selling price instead of waiting for better offers" that allowed us to beat everyone else, even though our sellers had actually gotten a higher offer because it made us give them an offer immediately after our first tour. This was after we had basically lost out on three other sales for houses that we wanted (not his fault - we weren't first or highest on those).
I think parent comment meant you can view MLS listings for free (not understanding that the question was about having to pay to get listed on MLS). Redfin does charge lower listing fees than average though.
That's news to me. My last two real estate agents didn't send me a single house to consider. They haven't helped me determine a reasonable offer. I've been looking for 9 months and have only been to 3 properties. Thinking of just firing my realtor and doing it myself.
Very easy might be overstating it. Arranging tours with the homeowner individually is a hassle. The reason you hire a realtor is because they have access to the key boxes. A home is a huge purchase, I don't know how many houses a typical person looks at before deciding, but for me it was over a dozen.
It's also easy to forget that first-time buyers won't have any sense for what's normal, expected, or required during the process. Obviously, you can research this yourself, but 1) there's no substitute for experience; and 2) you're paying a professional because they already know this stuff and you presumably have other things to do.
I meant easy as in there’s no artificial hurdle. The example of arranging tours displays that agents do provide some value. People like to complain about agents, but they’re free to stick a sign on their yard, purchase online ads, and otherwise do the leg work.
Before the zillow/redfin days the only way to see houses for sale was to physically observe the for sale sign or look in the newspaper. The NAR keeps a tight fist around the MLS where for-sale homes appear. Even with all the online information there's plenty of "secret" info in the Realtors-Only MLS notes. The information asymmetry is absolutely bonkers in real estate.
I fully support more transparency and accessibility of information. I think governments should make the details of real estate transactions easily searchable, and most do in the US!
But if a group of people want to organize and maintain that info in a certain way, and have their notes, and get paid for doing that, is that not their right?
Is it their right to restrict info by leveraging IP law on other people? They use that IP law to grant themselves information asymmetry to gain 6% commissions whereas many countries have commissions half that. IP law is not a natural right but is instead granted by the government to try to enhance the common good. So therefore whether it is their “right” is somewhat contingent on their use of IP law actually benefitting the nation. If it’s not beneficial and is just increasing fees, then it should be curtailed.
> Is it their right to restrict info by leveraging IP law on other people?
Did they create/curate the info? If so, then yes, just like anyone else is able to use IP laws.
> They use that IP law to grant themselves information asymmetry to gain 6% commissions whereas many countries have commissions half that.
No, they use supply and demand for their services to collect 6% commission. And it’s very negotiable, also showing that the amount a real estate agent charges is due to supply and demand.
I’m only familiar with the way real estate agents work in the US, so I can’t comment on how it works in other countries. But all I can say is, in my experience, the sales history data is all available on the government website, and otherwise, you’re paying for the marketing and whatnot. If you don’t like the price, then negotiate lower, and if that fails, don’t pay it and do the work yourself.
They use a cartel/trust to collect 6%, which is only legal because it is possible to negotiate a discount and it's hard to prove that the cartel is freezing out discount agents.
> No, they use supply and demand for their services to collect 6% commission. And it’s very negotiable, also showing that the amount a real estate agent charges is due to supply and demand.
Actually, no. There is extensive evidence that real estate commissions are not tied to supply & demand due to collusion in the marketplace.
I think it probably is their right, yes. I was responding to "nobody's forcing you to use an agent" which is technically true, but functionally you're operating at a substantial disadvantage if you do (don't).
This, I hired a buyer's agent simply because even sites like Zillow had huge gaps when trying to put together comparable houses on an offer. The information alone was nearly worth the entire commission for me.
If you're a buyer, no agent is going to refuse you since they're getting paid by the seller.
If you're a seller, you might very well get fewer agents bringing their clients to you. You're free to advertise that you will pay a commission to entice agents though. And the buyer is also free to side step the real estate agent or tell their agent they will make up for commissions from non agent represented sellers.
It's 2021, using Redfin/Zillow/Trulia/Craigslist/Realtor.com is trivial.
I foresee less and less opportunity for collusion as information becomes more and more accessible to everyone.
There is all kinds of bullying and strong arming and threatening going on. I have gotten it from many different realtors. They are worse than dentists and lawyers.
For years, a Broker’s license could be obtained by 8 courses, An easy test, and a four year degree.
The Realator's Lobby decided their were too many Brokers.
They introduced a bill (A bill requiring years of training under a broker in order to get the license) to Arnold Schwarzenegger. Arnold said he didn’t see the need, and didn’t want to stifle competition.
Governor Brown signed the bill though. (I stopped judging a politician by there party that day. Both sides take a lot of money.)
I would love to see the entire real estate industry decimated. We have given a very few of these people so much money for what? In the mean time, I would like to see more Brokers. More competition for the popular cheerleaders, handholding, and Omission and error insurance?
Sorry about the tone. Realator’s have always irritated me, and most people pick them out by a personality contest?
None of what you said is true. I have multiple friends that became brokers on the last year or two, and none of them trained under a broker. They simply took classes and passed a test.
Makes sense when a large chunk of the country is unemployed and you can get a real estate license online relatively painlessly. Filter down to agents who actually have a client and/or have bought or sold a single home and the number will be very different.
Where we live the market is especially tight. We ended up selling our home by saying we would not sell if you have a realtor and this is the price you will pay and you will not have an appraisal contingency. The very first people to come and look at it bought it. The market is very much a seller's market right now.
We also purchased a new home without having a realtor involved. These days, the Internet makes things so easy that there isn't a need for a realtor like there used to be.
The housing crash in 2008 was caused by many people getting kicked out of their homes. It was too easy to get a mortgage that was too big, so lots of families were one hardship away from being unable to pay their mortgage (economic calamity). Also because it was so easy to get big mortgages, housing prices were higher than they would have been otherwise (bubble). So after the crash started, there were a lot of big empty homes and few people could afford them since lots of people were getting kicked out. So sellers and banks had to lower their asking prices until someone could afford them. There are more requirements for getting a mortgage now after 2008 so that should hopefully help to make the next crash not as bad.
Basically, if a lot of people buy houses they can't really afford, a crash will happen soon: when all those people get foreclosed on in large numbers because they can't pay the mortgage.
The housing market is bonkers in Minneapolis. This Saturday we put an offer in on home that went on the market Thursday. There were 31 other offers. We offered 20% over asking, but didn't get it. That was our fourth unsuccessful offer so far. Three of the winners for the other offers supposedly had both appraisal gaps and waived inspections.
I think the seemingly high prices are simply where inflation is showing up first. Or at least partially. Pent up demand and Covid throwing a wrench in everyone's lifestyles also likely messed with supply/demand.
It's almost that bad in suburban New Jersey. Not so bad as waiving inspections necessarily but covering appraisal gaps is pretty much required because of how hot it is. Same for 10-20% over ask on the offers.
When we were buying about 8 years ago in the Bay area, we probably wrote 50 offers, all above asking, and finally got one home. It was a total nightmare as a buyer. One home got 40 written offers, according to the listing agent, and sold for 2X its asking price--all cash, no contingencies.
Sell, then what? Another mortgage if they want to live in the area, or uprooting entirely. That 2 million dollar bay area house might have been a 20k house among 10-40k houses in the 1970s; today it's a 2 million dollar house among 2-10 million dollar houses, so at best you'd be doing a lateral move or downsizing into something grossly overpriced, or line up to become one of the 40 people trying to throw a cash offer somewhere in the stratosphere above list on some midwestern home.
It's a zero sum game unless you upzone and build more housing to meet the demand, because the population of this country has only gone up.
If you're willing to move to a new area, you can always find certain areas where the housing market is different in regards to supply/demand. You could also plan to rent for a few years to see if the purchase market cools off in the meantime. Rents don't increase proportionally to sudden housing market volatility.
This fact, and the OP title, are confusing the snapshot of minimum inventory with "homes for sale". Since there were over 5.4 million sales in 2019, there were way more listings during the year than agents.
This matches my anecdotal experience. Last week my parents, who live outside a big US city, got a letter out of the blue from a buyer’s agent asking if they’d want to sell their home. They don’t; it wasn’t and isn’t listed for sale. They’ve lived in the home for decades, and never before received this type of solicitation. I see it as a marker of a tapped-out housing market.
A lot of these letters are also from real estate "investors". Their tactic is to go after properties before they are on the market and use the seller's lack of pricing information to score a substantial discount.
Yeah, you can thank the modern versions of Carlton Sheets peddling their "courses" on BiggerPockets, YouTube, etc. It's the same as it ever was: desperate people wanting desperately to get rich and going after anything that seems like it might help.
This is essentially a scam and you'll find it anywhere that housing prices are on the rise. These people are looking for older / less clued in owners who are easily confused and in need of cash. They can trick these people into selling well below market rate by going directly to them.
Sadly it works. If you have an older relative who may be in cognitive decline try to make them aware of this trick!
This isn't always a scam. I'm not saying one way or another what this was, but I have been solicited for a purchase on my home as well and I'm not old and certainly not in cognitive decline.
That's been fairly common for decades, some are genuinely looking for a specific neighborhood/house for a client. Some are looking for a deal, some are looking to find sellers to represent. You'll also see realtors blanket mail recent sales in the area, implying that it is a good market and what you might be able to get. Some of the tactics get very greedy/nasty, especially when someone, who was an owner of desirable property, passes.
My parents live in rural Indiana and get people asking if they want to sell or if they want to sell part of their land once every couple of years.
Two years ago my cousin sold his house even though it wasn't up for sale(in a small town in Indiana) because someone liked it so much that they kept offering them more and more money.
I get a few of those every month for years. It's not a sign of much. I hang out in real estate investing circles and this is purely marketing. The majority of times, they're looking for people who have a lot of equity in the house and are in trouble financially - so they'll sell at a discount. Maybe only 1% of people who get such mailings fall in this category, but they are the ones who will pick up the phone and call, so the money to mail was well spent (if the mailer did some market analysis).
I get those letters all the time, and have lived in my house for quite awhile. Thing is though, I consider my house always for sale for the right price. One RE agent I know came close to my price, but her buyers were a bit crazy and ended up moving to a completely different state.
Slightly off topic but... as someone that is moving out of the city and even a few states over does anyone have any advice on home buying? Would it be better to buy now or rent for a bit and then buy? Is that like asking what stocks to invest in or is it more predictable than that? I have zero experience with this sort of thing.
Yes it is. Watch "The Big Short" if you think the housing market might be less crazy. So take my advice with the appropriate skepticism:
With the lock downs and rise in remote work there has been upward pressure on rural and low density housing prices, same as toilet paper and weightlifting equipment. That makes it a seller's market. I have rural neighbors moving forward their plans to sell for that reason. As a buyer I might be inclined to wait for the pandemic to pass and for prices to revert somewhat to the mean.
This advice is brought to you by someone who managed to buy at the very top of the real estate market. I think the crash happened when I signed my purchase agreement.
>The opposite force (motivating you to buy now) is that interest rates are very low, and that will probably change in the future.
It's low for you, but also low for everyone else. Low interest rates push purchase prices higher because people care about monthly payments, not the final price. Overall it's a wash and you don't gain/lose for buying in a low/high interest rate environment.
Low interest rates means house prices are high now, and they will fall when interest rates climb, giving you capital losses. Much better to buy when interest rates are high, as rates will fall in the future and house prices will increase, giving you capital gains.
In both cases, you will pay the same amount for the same house in terms of monthly payments, as households are payment constrained, and they don't particularly care what percentage of their monthly payment goes to pay for principle and what percentage pays for interest. They max out what they can afford in terms of the total monthly payment, and thus houses prices go up and down in the opposite direction of interest rates.
But be careful, even though it is much better to buy when rates are high, that doesn't mean that waiting for rates to go up is a good strategy, as rates may not go up for twenty years, or even a hundred years - you don't know. But certainly a low interest rate environment is a terrible time to buy a house, even if you have to suck it up and buy anyway.
But when will rates be high? Rates have been consistently falling since 1981...for the last 40 years! They have been under 5% for the last 10 years. No sign of any upward pressure at all.
I would answer that question by asking how much lower do you think rates will go? And how long do you think the current IR will last? Rates were rising from about 1951 (when the Fed first gained independence) to about 1980. The've been falling from the mid 80s until the present. Whatever happens, everything comes to an end, and the current regime is a bit long in the tooth already.
Bottom line, rates will change when there is a financial regime change due to the current system no longer working. I think it's obvious that what we are doing now is unsustainable: running massive deficits, enormous capital account inflows, and dollar appreciation. In terms of what would be the breaking point, one can only speculate as to whether it is too much inflation, or too many defaults, etc. At some point, the snowballing side effects of our current policies will just stop working, at which point a new regime will be needed. I don't know when.
For a big picture view, I recommend Sydney Homer's A History of Interest Rates. It's a great read and discusses long term interest rate regimes as well as various triggers that changed them.
In terms of trying to time these regime changes, I wouldn't bother. What you can do is hedge a bit so that you are not financially ruined in case there is a regime change. I would not use the low IR regime we have now to massively go into long term variable rate debt, for example, or massively go into long term fixed rate debt if you can't handle a rate increase. So just be aware that rates will go up at some point, and make sure you can handle that before taking on a lot of leverage.
> Overall it's a wash and you don't gain/lose for buying in a low/high interest rate environment.
You can't paint with such a broad stroke without crunching numbers - I think the better, but less satisfying answer is "it depends". It depends on the specific market and pricing dynamics (past and future), as well as on the length of the mortgage term and how high interest will go in the future - which is hard to know beforehand. Further complicating this are objective factors such as flexibility (of renting), and how much you're willing to pay for it. Buying a house is huge time-sink: expect to screen hundreds of houses and actually viewing dozens of them. Then you have to put together an offer quickly. If you're unlucky, your offer may be tied to some other buyer and the seller may ask you to write a motivating essay on why they should sell you their house - which I find insulting and time-wasting.
To GP: you need to write down actual figures and work it all out for best & worst cases - estimates are fine. When you are done, pick a path you are comfortable with.
With the market prices being as high as they are now and low inventory I would recommend you rent for now and get to know the new area/city first. It's a seller's market right now and there's a higher chance of you over-paying for a property right now.
I keep telling friends that i would rather buy a home with a lower price but higher rate/apr than vice-versa. You can always refinance, but you'll never be able to change the price you've paid.
Edit: Also worth noting that real estate markets are more local, so there exists the chance that you might still be able to find some affordable houses but depends on the area.
> I keep telling friends that i would rather buy a home with a lower price but higher rate/apr than vice-versa. You can always refinance, but you'll never be able to change the price you've paid.
This is true, but assumes that prices drop significantly rather than merely stop rising like crazy and also doesn't include that if you're renting, you never get that rent back from the period of time you were waiting.
That specific point was more related to the market i'm in right now, so it's pretty much market/area depended and yes as you point out your mileage might vary as i've never taken rent into consideration for this use case.
Yes, pretty much. We are definitely in an asset price bubble but "the [housing] market can remain irrational longer than you can remain solvent" (with apologies to Keynes).
The strategy I have successfully pursued in two cross-USA moves: find a not-too-expensive house in a neighborhood that has some kind of long term value, whatever that means (good schools? close to nature? cultural opportunities?). Remote work is great, but try to be within commutable distance of non remote opportunities in your field as a hedge against future change.
That way, even if the market plunges in absolute terms by the time you need to move again, relative value should hold up? Hopefully?
Depends a lot on the city where you want to buy but more generally I think the current frenzy will ease out a bit once covid restrictions are done with, interest rates go slightly higher and there is more inventory in the market. I dont have any data suggesting this but I feel a lot of home owners are not selling at the moment because they would too need to pay a much higher price for their next home. But there is some contrary evidence too where some owners who want to downsize or move away from an urban area are looking to cash out big.
We moved countries, France -> US. Rented for a year and used that time to search for something we liked. Avoided a lot of pigs with lipstick as home flippers in a hot market tend to slap on new paint and do shoddy, minimal repairs. I personally wouldn't buy until I'm absolutely ready to. And yes, we did miss a few opportunities since we weren't ready.
Unlike my experience buying in France, the US does not do bridge loans. You are a) lucky and close as a seller and buyer, b) take on 2 mortgages hoping the old house sells, c) are temporarily homeless, d) or temporarily renting.
Housing is super emotional and I hate having to make emotional decisions. You have to make a lifelong decision based on a 30 minute tour. And buying in a hot market just makes everything more stressful. I'm not surprised people are making lightning quick decisions because hesitating is not an option.
- Do you have confidence that you'll be able to continue working from wherever you move to?
- Are you looking at a house or a condo? (It's generally easier to rent an apartment than a house.)
- What are your motivations to buy? There's plenty out there on the financial side. Some of it is even reasonably accurate. However, IMO you should probably be thinking more about whether you want stability and the ability to customize a home or are you wanting to maintain a degree of flexibility if you decide to move somewhere else in a few years?
- Do you know the area(s) you're thinking of moving to? If not, it may make sense to rent for a while while you decide if that's where you really want to be.
It's enough of a seller's market that OP will almost certainly have to rent at/near their destination while house hunting. Last time I moved, it was 6 months of rental while going to open houses every weekend.
Even with regards to maintaining a degree of flexibility, it might be worth considering if you actually do lose money on closing costs + taxes + value loss than you will on rent, even for a short term. Half or more of every mortgage payment is invested in an asset, 0% of every rent payment is.
On the other hand you're foregoing any further returns on the money you take out of savings to pay the down payment and closing costs. It's definitely not as simple as rent is throwing money away compared to buying.
For a $200,000 down payment on a $2500 a month mortgage (with 50% going to principal) versus $2000 a month rent, you'd need ten months to get past the $10,000 closing costs even assuming 10% return on next-best option and that the value of your home remains flat. Owning the place you live is probably the best investment you can make.
The median household income was $68K in 2019, the highest it's ever been. That's $55K a year after tax. Now you're paying $2,000 in rent. Even if you don't spend a single cent of income on anything else besides a house, you'd still be looking at seven years to come up with that downpayment. Realistically, more like 15 years with expenses, at a minimum. i.e. "Don't buy a house until you're about 40 years old".
> The usual rule of thumb is that you can afford a mortgage two to 2.5 times your annual income.
So for the median family, $140K-$170K.
I'm not sure where the median family lives that they're buying $170K homes that they were previously renting for $2K/month, but it sure ain't anywhere near here.
Not to mention appraisal discrepancies, which require you to have the funds for the downpayment, for the closing, and to cover the appraisal discrepancy dollar for dollar.
But generally, I'm just trying to figure out how we come to the conclusion that the average family is putting anything close to a fraction of $200K to a downpayment.
Usually inheritance and gifts from wealthy relatives. If you don't have that, you won't be buying a house and will forever be renting save the rare outliers with $200k/year jobs. It still doesn't make renting a good idea.
So we just bought a house in the same zip code we currently own in. You are right, it is a bit like picking stocks, but there are some general rules you can follow that might help.
House prices are ballooning for two reasons right now- COVID and interest rates. COVID means you are going to pay premium regardless rightn now, interest rates are more interesting. Interest rates are up a bit from their bottom at the beginning of 2021, but are still historically low. Because so much of a house price is financed, if your time frame is long enough paying a premium on a house right now might be worth it now if you expect interest rates to rise. Using some VERY bad financial math, a $500,000 house financed at 3% for 30 years is "cheaper" than a $400,000 house financed at 5% on a cash flow basis.
Transaction costs for houses are high- expect to pay 8-10% of the price of the house to get is sold (this goes to real estate agents fees, taxes, prep work, etc.) If you aren't sure you are going to stay in the area for a long time than definitely don't buy- think of it as your house immediately depreciating by 10% when you buy it.
Traditionally, housing prices has also been considered a good inflation hedge, if you want to factor that into your calculations. However, that has been way less true post 2000 (where there hasn't been much inflation and housing prices have been way over the map.)
Finally though, housing isn't just a investment, it is also a consumption good. In my case that was probably the deciding factor for us- we choose to increase the amount of money we are spending on housing because that is what we wanted to buy.
Some more insight into our thought process:
1) We knew we wanted to buy a house in one of three neighborhoods and had always planned to move within within the 2022-2024 timeframe. We moved up our time frame by the year, but this was always happening for us.
3) We are already bought into the area, so we had already benefited from the overheated market.
4) We timed our interest rate lock just about perfectly- interest rates are now 0.5% higher.
5) The house that came on the market is across the street from friends of ours, we were willing to pay a premium to be near our social circle.
In the end, we bought a house I fully believe will be worth less next year than today, but will be OK (althought not great) as an investment in 20 years (which is our time horizon.) In your case, if you aren't super familiar with the area or aren't sure you have a 10+ year time horizon you might want to rent just to give you time to understand the new city your are moving to- the type of mistakes you can make in buying a primary residence aren't just that you lose money on the asset, but that you don't like where you live for years.
People are moving out of cities (where they were often renting) and into suburban/rural houses. People are moving into bigger houses. On the wealthy end of the spectrum people have even bought second homes outside the city.
Pretty much. Some additional insight I've heard is that COVID has restricted peoples ability to consume things other than housing, so people have the ability to consume more housing. If a family normally spent $7k on housing every year but didn't because of COVID, that is $7k more they have for a down payment, which means they can buy $35k more house.
One interesting question is how much of this is pulling in activity that would have played out in a similar way over the next few years. For example, it's not uncommon for young people who get married, maybe have kids, to move out of a city to the suburbs for more space and better schools.
To the degree it's actions that would have happened anyway, it probably implies there will be something of a dip after the current spike.
I'm not so sure we'd see a dip in housing, although we see the dip in luxury rental prices. The reasons for this is due to supply, or a lack thereof. There are new generations looking to settle down and do the above every single year. Every year more than the last are doing this, this is an expanding world. Yet, these areas where these people are moving to are not building the corresponding amount of housing required to meet demand. With not enough new housing built, prices rise, and people 'drive to where they qualify,' stretch out their car based commute, and we all deal with those externalities from the increased congestion and pollution no matter where we live in the city. It's a lose lose unless the US finally bends and start building housing, but they haven't done this in earnest since the boom after WWII (where we are still bidding on that hastily constructed housing stock today, because that's legally all there is in some neighborhoods).
The Orange County, California, rental market has seen a huge surge in demand. I listed a rental property, and after two days, I had to cut off listings and applications. I had over 40 inquiries. I have never seen anything like this. I have talked to other realtors and the consensus is that people are moving from LA because the density of LA is causing a Covid fear, people can work remotely now and choose to live better in Orange County, and last year's riots caused people to be fed up with urban areas.
What sort of rental property are we talking about? Single family home rentals I can see as getting more popular, but I wouldn't think a 200 unit apartment in OC to be much different than one in LA in terms of demand these days. IMO it's in OC, ventura, and san bernardino county that I see way more lax mask usage than in LA county, as well as more crowded restaurants due to a less strict health department.
As long as you don't put more than ~30% of your money into a single asset (e.g. a house), then you're pretty certain to always make money in the long-term.
That wasn't what I was referring to. Net worth is (assets - debts), so the money for a down payment is largely the only part of a house that contributes to net worth at purchase time.
In other words, your down payment should be less than 30% of your net worth. Still hard to do in many places.
One thing, I’d at least consider, is buying vacant land and building. Normally you pay a premium for a new build relative to an existing house. But in this market houses are regularly getting bid 20% over list. To be fair, materials costs and certain subcontractor labor costs are also up, but the overall price tag, nowhere near as much.
This is probably one of the few times when building new is cheaper than buying old. New builds with modern finishes are more likely to hold value if/when there’s a downturn.
Unless you know people in the construction industry, and/or are familiar with construction yourself and evaluating whether or not the job is being done right, I would not recommend building yourself, especially in hot markets.
If you're small fry, you're not going to be able to secure the best workers, and you can easily get taken advantage of because you have no idea what shortcuts people are taking if you're not checking up on things.
Also, materials costs are insane right now, if you can even get them in a timely fashion. I know someone who took out a construction loan early 2020 based on estimates pre pandemic. They started building recently, and blew threw their budget on lumber alone and had to draw from retirement accounts to keep going.
It is a great learning exercise, but not one many can afford on their primary residence.
This. Don't build unless you you already know what you are doing. I know what I'm doing and it is an absolute bitch and I am finding I have to do most of my own work.
This. Not just materials but parts because of supply chain backups. Oh, and general worker rates. I just had to replace a hot water heater. Big box stores had prices listed (~$1300 but no stock). Plumber wanted to charge $4k for the equipment and installation. Luckily I knew someone who had wholesale accounts, called all over the state, and found one. Then I did the install in ~2 hours. Dealing with that for an entire house, sounds like a terrible experience.
I would rent for a bit just to get your bearings in the new place. It's hard to know what part of town you really want to live in, until you experience it for a bit.
In the next few years inflation is expected to be high ie dollar value is going to go down so house prices could go up as well as interest rates are also expected to go up. So if you are interested in buying in the current situation I would advise buying as soon as you can and if going to mortgage lock down a lower interest rate.
It makes sense because houses don’t stay on the market very long.
What matters for average real estate agent wages is average price of real estate time number of houses that sell per month. If the number of houses on the market is small because they sell immediately, that’s it necessarily a problem for them.
Why don't we just simply tell people straight up "If you don't have capital at this moment, you most likely never will" because that is the way things seem to be going.
Housing is a decent hedge against inflation but not the great investment make it out to be unless you’re a landlord. The truth is there is a lot of upkeep and if housing prices rise you will have to pay the same as your sale when you sell. It’s great if you’re downsizing, or moving from an expensive city to a rural spot, but if you’re just changing locales you have to eat the transaction cost.
I can't read the full article, but I did just buy a house in the greater boston area. The housing market is very tight now. Very small number of houses available relative to the historical seasonal norm. Part of that was driven by a very hot market in the previous months which are normally empty. The number of buyers is very very high. Most properties are going as soon as they hit the market, for a fair chunk over list.
1) Average homes sold per real estate agent, per year: 2.8 [0]
It means that on average, on a given month, only 1/2.8 = 35.7% of active real estate agents will be listing a home for sale.
2) Homes for sale per year: 6,220,000 [1], however it seems that January 2021 saw that number go to an annualized of 6.69M. [2]
3) To say that in January there were "more real estate agents than homes for sale", would mean that there are at least 6.69M / 2.8 = 2,389,000 active real estate agents in the US.
I don't have a WSJ membership, and therefore can't read in the article what this number is. I can only try to guess that it's either the total number of real estate agents (2M in 2019), or realtors (1.3M in 2019) [3].
The title seems clickbaity. The essence, I guess, should be that realtors are competing against each other more than before?
Averages are not a good metric for this field. NAR itself uses median to make it look more balanced than it is [1], but in reality - 80% of the transactions goes to 20% of the agents.
It's a sign of a frothy housing market when there gets to be a bubble in buying real estate agents. But be careful, in California if you even just rent someone your real estate agent for more than 30 days, it becomes very hard to get your real estate agent back.
Wouldn't the natural solution to this be real-estate agents accepting lower commissions? Or transition to a non-commissioned pay rate?
RE agents historically provided massive value because they were the market-makers. Nowadays, they are glorified paper pushers and it's baffling they're still demanding a percentage of a massive purchase.
I used to sell real estate during the last bull cycle of '03-'07. People got the same attitude towards agents then, when the supply is so low and buyers are high, it's relatively easy to sell on your own.
But during a bull market being a buyer's agent is more work. People have full time jobs and can't spend all their time researching or managing multiple offers. Buyer's agents put in dozens to hundreds of hours of work per client and get no guarantee of a return (if your client goes to another agent, you have no recourse and you get no income from that transaction).
If you're getting 20 offers on your house, then 19 of those buyers are gonna be disappointed and gonna have to regroup and find something else.
During a bear market, the opposite is true. Being a listing agent now takes better marketing, networking, presentation and sales skills and it is easier to be a buyer's agent.
At any rate, there are countless numbers of obstacles that can cause a deal to fall through, from financing, inspections, FHA approvals, title issues, personal issues, etc that skilled agents can much more easily navigate and close a deal much more reliably. For me, no two deals were the same, and it was always interesting to try to thread the needle when it at first seemed hopeless.
The only reason I wouldn't 100% agree with you, is that I recall thinking this about real estate agents several times in the last 13 years, and it hasn't apparently ever been true yet.
I have a vague impression that there is generally a low barrier to calling yourself a salesperson. Like, if you are going to make your money on commission, there's no need for gatekeeping as is expected for a salaried job.
When I've been unemployed, I've gotten solicitations that are crafted to sound like a "real" job, but are actually sales, and it doesn't appear they care about qualifications at all. I assume you sell stuff or you don't.
And real estate agents I've met are very...variable.
If they were for sale, they weren't homes. They were houses.
Seriously. It creeps me out that RE people call things nobody has even lived in "homes". Places somebody else lived in are even worse. How do they know it was a home? It might have been crack house. "Crack home"? Anyway what you can buy is just the house part. It becomes home after you make it that, if you succeed.
The idea that you can buy a home emphasizes the worst of American capitalism.
Obviously that is what Real Estate agents have lately got people used to. But that is recent.
There is intrinsic value in different words having different meanings. There are reasons why we had two words. Those reasons were inconvenient to RE agents, so they fixed it. Everybody downvoting me has swallowed it whole.
I suspect that once the moratorium is up, there will be a lot of landlords looking to sell. They've been not getting rent for a long time, and they may have to sell in order to get out of the hole they're in. Many still have mortgages, but they will have a hard time collecting a year worth of rent. But the bank won't have the same problem foreclosing.