patrick.net

Sounds like Adam Smith you are talking about GNL. Karl Marx ironically espoused Smith's ideas in his writings.

NuttBoxer says

Interest rates will continue to rise, which means housing prices will continue to fall. Contrary to all the bullshit people peddled before '08, and some still peddle now, basic economics dictates you cannot charge more than what someone is willing to pay. But housing is collateral damage. The real bloodbath will be the US dollar, bonds, and everyone who's net worth is tied entirely to paper.

I see one more rate rise of 0.25% and the Fed Funds rate will peak at 5.5%.

I don't see them rising it again as long as 12 month CPI remains below 4%.

Let's see how CPI (and PCE) does in next few months as far as monthly changes.

I am seeing here in the Florida panhandle how vacation rental prices are dropping for beach condos.

Also more people shopping food at Walmart and eating out less.

Look at Disney ticket sales. They are down a lot. They coming to Florida panhandle for better value vacation. Roll Tide.

And all that tells me less inflationary conditions.

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@ad,

Well said. Shelter is about 40% of the CPI.

Housing/rent goes up = higher inflation
Higher inflation = higher rates to tame inflation

Housing/rent goes down = lower inflation
Lower inflation = lower rates

Housing goes down is deflationary.
Deflationary = lower rates

Why housing goes down? Excess supply. Excess supply = either due to overbuilding, or recession where people lose their house to foreclosure. More distress sales = lower prices. Lower prices = deflationary. Deflationary = lower rates.

This was why I said lower housing prices tend to go with lower rates while higher housing prices tend to go with higher rates. The Fed fund rate is a lagging indicator. Wall Street also predicts one more 0.25% rate hike, and that’s it. It’s just a matter of time before housing cools off, then drops. Then the Fed will cut rates. Housing drops some more. The Fed will cut rates some more. That’s how economic works. The Fed is reactive, not proactive.

I saw this economic cycle a couple times in history. First was in the 1990’s (S&L crisis). Then after 9/11/2001 when the Fed cut rates to 1% and left it there for years.

When the GFC hit, all stars lined up including the HAI (Housing Affordability Index). I said to my wife "Let me quit engineering and try real estate for 3-5 years. If I don't make it, I can always get my job back. If it works out, we'll be set for life." It took 3.5 years to hit my goal. The rest is history.

Saw this article on Quora, and there are some interesting truth about being a real estate investor and the real estate industry.

https://www.quora.com/What-is-the-darkest-secret-in-the-residential-real-estate-industry/answer/Nicholas-Maslaney?ch=15&oid=187582363&share=e1113d2f&srid=hK5Qu5&target_type=answer

Eman says

Higher inflation = higher rates to tame inflation

Housing/rent goes down = lower inflation
Lower inflation = lower rates

Housing goes down is deflationary.
Deflationary = lower rates

Why housing goes down? Excess supply. Excess supply = either due to overbuilding, or recession where people lose their house to foreclosure. More distress sales = lower prices. Lower prices = deflationary. Deflationary = lower rates.

This outlook completely ignores the purpose of a central bank. Central banks exist to inflate the money supply, that's the only thing they will ever do. As mentioned, every dollar in circulation represents a debt. For this reason central bankers will never risk deflation as more debt = more power for them as the ultimate lender. By creating speculative bubbles in various areas of the economy, housing, stocks, commodities, etc, the central bank is able to leverage greed to get people to over-commit to an investment scheme, the object of which is highly inflated. Eventually the scheme is recognized, people rush to get out, and the asset collapses. At this point the central bankers and their buddies can come in and scoop up the assets at pennies on the dollar because they run the scheme, and print the money. Their ultimate goal is to inflate everyone into the poor-house but themselves, take control of all assets, the most valuable of which is you. Slavery ended in most of the world hundreds of years ago because it was unprofitable. With the controls in place now, that problem is solved.

There are so many people on patnet who would greatly benefit from reading Mises or Rothbard. Or if you have the time Griffin.

NuttBoxer says

Their ultimate goal is to inflate everyone into the poor-house but themselves, take control of all assets, the most valuable of which is you.

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.... I believe that banking institutions are more dangerous to our liberties than standing armies.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

In the long term, I beleive our only way out is to not borrow. Ha

That's what I strongly believed during my formative years, and it seems wiser every year that passes.

If you expect a period of hyper-inflation, it makes sense to go into as much fixed rate debt as possible.

A friend bought a home in 2009 for 280k and recently sold it at 550k. Relocated to Dallas from Columbus. Buying that home for 550k makes no sense to me but selling does. I have a couple of dollars saved up but this economy and the future worries me and I guess that's their goal. It seems to me that a lot of folks are in distress, it doesn't have to be this way but this is what they want. I will do what I can, live below my means..

gabbar says

I have a couple of dollars saved up but this economy and the future worries me and I guess that's their goal. It seems to me that a lot of folks are in distress, it doesn't have to be this way but this is what they want. I will do what I can, live below my means..

Live frugally even if you do have wealth. You sleep, bath and cook in your house. That's literally what it is. If you have kids you're never there once they're out of school. Basically you're not at your house. Even though my current home is nice, I don't want to be in it. Always looking for somewhere else to go or something to do.

I think everyone should own, but not 4k Sq. Ft. houses or bigger with a family of 4. We need to get back to the 60-70's style. 1,200-1,800 sq ft ranches. Larger lots. I hate the generational arguments, but Boomers 1,000% fucked up housing on so many level it's scary. I hope when a new wave of construction starts in mass it's 2,000 sf or less ranches. 3/2.1, maybe sneak some stuff in a basement if that's protocol for your area. We don't need huge houses.

WookieMan says

We don't need huge houses.

Correct. What we do need is a building boom like happened in the 60s. I forget the name of it but, there were a few programs(?) that allowed very quick built homes in very large numbers. I think it was the start of the VA loan program for returning soldiers or something. No, what we have now is no bueno. What I see is condos and tear downs to put up McMansions and new neighborhoods with McMansions. That's all that's being built around here.

GNL says

What we do need is a building boom like happened in the 60s. I forget the name of it but, there were a few programs(?) that allowed very quick built homes in very large numbers. I think it was the start of the VA loan program for returning soldiers or something.

You may be referring to the GI Bill that caused a building boom in the 1950s. WWII vets found they could buy instead of rent. A documentary by PBS referred to how Levittown went from a planned community of rentals to selling the homes to GIs instead. Most were 2 bedroom.

Yes, I think that's it...Levittown. Does anyone doubt 2/1 homes on zero lots could be sold like hotcakes?

It was also the start of the 15 year mortgage. Before that people bought their houses outright, or a lot quicker than 15 years. But with more aid, prices go up, wages stay the same, and everyone becomes a debt slave...

NuttBoxer says

It was also the start of the 15 year mortgage. Before that people bought their houses outright, or a lot quicker than 15 years. But with more aid, prices go up, wages stay the same, and everyone becomes a debt slave...

Interesting tidbit.

gabbar says

A friend bought a home in 2009 for 280k and recently sold it at 550k. Relocated to Dallas from Columbus. Buying that home for 550k makes no sense to me but selling does. I have a couple of dollars saved up but this economy and the future worries me and I guess that's their goal. It seems to me that a lot of folks are in distress, it doesn't have to be this way but this is what they want. I will do what I can, live below my means..

So you can see Bay Area appreciation for comparison purposes. Bought this house in 2009 for $215k. It’s now worth $930k.

This house bought in 2013 for $440k. It’s now worth $1.4M. I wanted to sell them in 2018 to buy more apartments, but my wife wouldn’t let me.

WookieMan says

We don't need huge houses.

Small homes are not profitable or less profitable to the home builder, this is the reason why larger and taller square footage on small lots is built, so that the builder can make more money, is this correct?

In Portland, Maine this program is voluntary. In Portland, Oregon --- well we will see.

https://www.msn.com/en-us/money/realestate/portland-launches-home-share-program-for-asylum-seekers-amid-looming-expo-shelter-deadline/ar-AA1e2vEB?ocid=hpmsn&cvid=63ef403b075d49168221f9e1fda6e46c&ei=213

Misc says

In Portland, Maine this program is voluntary. In Portland, Oregon --- well we will see.

https://www.msn.com/en-us/money/realestate/portland-launches-home-share-program-for-asylum-seekers-amid-looming-expo-shelter-deadline/ar-AA1e2vEB?ocid=hpmsn&cvid=63ef403b075d49168221f9e1fda6e46c&ei=213

Isn't NYC also trying a similar approach? That is, the city will pay homeowners to lease out spare rooms to illegals.

HeadSet says

Isn't NYC also trying a similar approach? That is, the city will pay homeowners to lease out spare rooms to illegals.

yeah, the good ole boarding house route ... i know AirBnB allows to rent out part of your home ...

i lived in a boarding house back in Manassas, VA around 2011...paid $700 (included utilities and cable) for my own bedroom and bathroom...

cheaper to do that than to rent my own $1200 a month apartment... saved about $650 a month which I put into buying index funds...

.

gabbar says

WookieMan says

We don't need huge houses.

Small homes are not profitable or less profitable to the home builder, this is the reason why larger and taller square footage on small lots is built, so that the builder can make more money, is this correct?

gabbar says

WookieMan says

We don't need huge houses.

Small homes are not profitable or less profitable to the home builder, this is the reason why larger and taller square footage on small lots is built, so that the builder can make more money, is this correct?

The other is with construction cost escalation due to building codes incrementally doing away with simple construction. In CA specifically, there has been about $50,000 to $75,000 added to the base cost of building a home no matter the square footage. It’s to the point of making “affordable” homes of yesteryear an impossibility to construct under a building permit. All of the Title 24 energy code stuff, fire sprinklers, municipal building permit costs. The builders make the homes large enough to burry the costs and dilute them on a /sf basis to make the home appear to have enough value to buy.

ForcedTQ says

In CA specifically, there has been about $50,000 to $75,000 added to the base cost of building a home no matter the square footage

Yeah, not just the international building code changes like arc fault circuit interrupters but I suspect also California-code related such as in regards to green or eco friendly building, etc.

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ad says

ForcedTQ says

In CA specifically, there has been about $50,000 to $75,000 added to the base cost of building a home no matter the square footage

Yeah, not just the international building code changes like arc fault circuit interrupters but I suspect also California-code related such as in regards to green or eco friendly building, etc.

.

That $50-75k is just for the permits. Other stuff like :

When did sprinkler systems become mandatory in California?
2011
Since the California law was instituted in 2011, builders have installed fire sprinklers in more than 70,000 homes. Many municipalities and states – including Orange County and California – now have ordinances and laws for fire sprinklers in place.

Add to the expense.

Rubicon says

No distressed (forced selling) = low inventory remains = no price crash.

In my hood several houses sold at top dollars. It’s all about location. You sell a house in a great location someone will buy your overpriced house. It’s that simple and just a matter of time.

Agreed. Unless we have a massive recession with epic job losses, prices will not crash in desirable areas. There are too many rich people and house-hungry buyers who will pay cash or sell their souls to own. Additionally, so many more people with money (i.e., information workers) can work remotely, so they're less likely to be forced to sell and move if they lose their job.

Rubicon says

DTI for recent buyers is obviously pretty high. If that trend continues and the job market turns a significant number of recent home owners are in trouble.

Simply amazing the DTI of borrowers in 2021 is equivalent to 2011.

The DTI was 34% at the bottom of the last housing downturn vs. 36% during the pandemic? This explains why the housing market was so hot. A combination of low inventory and cheap debt made it affordable so buyers drove housing prices to the stratosphere.

I believe something has to give. I just don’t know which one will give first.

Rubicon says

Point is, new construction- historically speaking- has always had a premium. Not in todays market.

I have noticed that builders seem more reluctant to build spec houses. I guess they do not want a house they have to discount to sell.

This is why I don't gamble. Markets and wishful thinking, seldom the twain shall meet. That's why the criminal rich's Prime Directive is: "First, control the market."

Builders have decreased the size of the houses they build, have less upgrades than existing homes and are generally further away from attractions.

For the '08ers who think nothing every goes down:

NuttBoxer says

For the '08ers who think nothing every goes down:

Look at the chart. Being a renter sucks. Rent goes up practically every year except 2008 and 2009, where it went down at most 2-6% while it went up as high as 6-14% in the remaining 16 years, and the rate of rent increase compounds each year.

Misc says

Builders have decreased the size of the houses they build, have less upgrades than existing homes and are generally further away from attractions.

My biggest issue with new houses is the lot size and they go for the minimum space requirements between houses.

RC2006 says

Misc says

Builders have decreased the size of the houses they build, have less upgrades than existing homes and are generally further away from attractions.

My biggest issue with new houses is the lot size and they go for the minimum space requirements between houses.

That is the new normal. Only old homes/tear downs will have yards. Or new construction for the truly wealthy.

RC2006 says

Misc says

Builders have decreased the size of the houses they build, have less upgrades than existing homes and are generally further away from attractions.

My biggest issue with new houses is the lot size and they go for the minimum space requirements between houses.

I agree. It’s the location, and the value is in the land. Land value in Palo Alto goes for $600/sqft.

Eman says

RC2006 says

Misc says

Builders have decreased the size of the houses they build, have less upgrades than existing homes and are generally further away from attractions.

My biggest issue with new houses is the lot size and they go for the minimum space requirements between houses.

I agree. It’s the location, and the value is in the land. Land value in Palo Alto goes for $600/sqft.

I definitely don't like being close enough to piss on the neighbors house out of my master bedroom window. We'll have 3/4's of an acre and our one neighbor bought another lot and won't build. It will feel like we have about in acre in a small town with sewer and water. We might buy the last corner lot and basically our friend/neighbor and us will own the South side of the block. It will be expensive for IL standards where I'm at, but not for CA peeps. $600-800k. Forever house. We'll probably never get rid of it. It's just a bitch of a process, building custom.

Eman says

Look at the chart. Being a renter sucks. Rent goes up practically every year except 2008 and 2009, where it went down at most 2-6% while it went up as high as 6-14% in the remaining 16 years, and the rate of rent increase compounds each year.

Riddle me this, what's your maintenance costs over the same period? My friend in the Bay Area tells me his costs have gone up 50%. I don't see a 50% rise on that chart.

Further if you look at the increase just before the last crash(housing, economic, don't care what you want to call the crash), and the subsequent plunge(but rents NEVER go down!!), it's about a third greater than the rise. So looks like we should expect a 24% decline in rents sometime soon.

Beyond that during that period I've paid as little as $1,350 for a 3/1 house with a yard in SoCal. I've paid as little as $1,550 for a 3/2 house with a pool in Phoenix. I've only had the rent raised on me three times, and two of those were at the current place. I've had multiple roof leaks fixed, electrical work, two water heaters replaced, and had countless other small repairs made without lifting a finger, spending one minute of my own time, or one dime of my own money. My wife has never had to work, we've sent our daughter to private school, always lived in good family neighborhoods, taken many trips and vacations. And have had no interest bearing debt for at least half of those years, no debt at all for five.

I might be an exception, but only because more people don't take the path less traveled when it comes to debt and investing.

NuttBoxer,

Would you please share how you derived 24% decline in rents from the chart you shared above? I would love to learn how to read it correctly.

This year isn’t over so I don’t have the numbers to compare to last year to know the maintenance costs. I doubt it’s anywhere close to 50%, but I don’t have to numbers to share at the moment.

Do what works for you and your family. Your chart suggests being a renter sucks, but I might have interpreted it wrong. Hopefully, you can share how to interpret it correctly.

I don’t share the same sentiment about private schools. We send our daughter to public schools. Do what works for you and your family. That’s all there is to it.