patrick.net

GNL says

No one could have foreseen the last 3 years.

Bill Gates did. Event 201. It was all plannned.

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Even CNN is sounding the warning alarm about housing affordability with the +7% rate for the 30 year mortgage (reference: https://www.cnn.com/2023/08/20/homes/mortgage-rates-housing-affordability/index.html).

For every 1% increase in the 30 year rate, there should be a 10% drop in price.

Peak prices were around 4%, so prices would need to drop 30%. They've already dropped 14% (reference: https://fred.stlouisfed.org/series/MSPUS).

A drop of 30% would correspond to prices in quarter 3 of 2020.

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WookieMan says

Rubicon says

EMAN,

“ Now, record low inventory, strict lending requirements for the last 1.5 decades, home builders are not over building, we need massive job losses to create distressed sales.”

Bingo! Until we see significant increases in unemployment we don’t need to worry about skyrocketing inventory.

Agree/disagree. At some point interest rates will make a difference if they get high enough. Historically they're not bad. We just grew up or lived with low interest rates most of our adult lives. Job losses and really high interest rates are the only thing that can bring it down in my opinion. I don't see either getting massively out of line. Flat line, maybe a slight decrease. Housing ain't the issue in this economy. I don't have an answer, but housing isn't gonna be the "thing" this time.

another anecdotal - a neighbor of a friend in south (east) San Jose who is almost free from mortgage living in 3b, found a 4b on sale at down the street and decided to move and pay a 16k/mo! his rational was, 'we both are working' and can afford 4b!
I doubt if average family buy these shakes with some exceptions unless the price get corrected for the raising interest rates.

Rubicon says

There is no rule or law that says that a family with median income is supposed to afford a SFH.

That's right. Let them eat cake. We'll exploit them and they will like it.

ad says

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Even CNN is sounding the warning alarm about housing affordability with the +7% rate for the 30 year mortgage (reference: https://www.cnn.com/2023/08/20/homes/mortgage-rates-housing-affordability/index.html).

For every 1% increase in the 30 year rate, there should be a 10% drop in price.

Peak prices were around 4%, so prices would need to drop 30%. They've already dropped 14% (reference: https://fred.stlouisfed.org/series/MSPUS).

A drop of 30% would correspond to prices in quarter 3 of 2020.

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Interest rates can affect housing sale prices some, but will not adjust down the price below a cost to build and procure land. The fact that the dollar keeps being devalued will bouy the floor. If rates get too bad and prices are too high the volume will just drop until there is enough capital looking to make it work again. You’re not going to be able to buy a livable house for a shit ton less than replacement cost just because interest rates are high. Sure the Foreclosures will probably be cheaper but that is the exception and not the rule.

“This is survival of the fittest.”

@Rubicon,

Did you hear this repeatedly from Robert Campbell? He’s into fitness, and he carried it over to real estate. I’m not a fan of his btw.

When enough people don't have acceptable living arrangements, we might see a new measurement of fitness. And of course, maybe not.

Rubicon says

They projected that significantly increases in rates will crash the market.

Some recent year 20something% of sales were to corporate owners. Blackrock gets their purchase money for virtually free.

ForcedTQ says

Interest rates can affect housing sale prices some, but will not adjust down the price below a cost to build and procure land.

Yes, as there will be a minimal cost to build as labor and material cost are impacted by supply of workers and material (versus demand to build new homes).

I am not sure residential construction labor costs such as per square foot will trend down regardless of home buyer demand. Lumber prices have gone down a lot since 2021.

The fact of the matter is people want to own their own house. Renting is a necessary evil. People want prices to be affordable so they can buy. However, whenever prices are depressed, it’s likely due to bad economic conditions, where they may not have a job, or a stable job to afford to buy. Underwriting standard is also stringent during bad times. It’s a catch 22.

Some people move out of state so they can afford to buy a house. It’s that important to own the American dream. To say anything else is deceiving themselves

Eman says

Some people move out of state so they can afford to buy a house. It’s that important to own the American dream. To say anything else is deceiving themselves

That is your opinion if you were to consider what Patrick wrote about in his book and what he stated on 20/20. That 20/20 episode brought me to this site.

But I understand renting makes you essentially more subservient than owning. The Rent vs Buy calculator on the NY Times website helps a lot with this,

The best time to have bought was between 2011 and 2013 in many zip codes after housing crashed due to the Great Recession.
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ad says

Eman says

Some people move out of state so they can afford to buy a house. It’s that important to own the American dream. To say anything else is deceiving themselves

That is your opinion if you were to consider what Patrick wrote about in his book and what he stated on 20/20. That 20/20 episode brought me to this site.

But I understand renting makes you essentially more subservient than owning. The Rent vs Buy calculator on the NY Times website helps a lot with this,

The best time to have bought was between 2011 and 2013 in many zip codes after housing crashed due to the Great Recession.
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IMO, there are flaws in Patrick’s buy/rent thesis as well as the NYT calculators. We debated on this topic more than a decade ago. This was why the average Joe like myself saw the opportunity in 2009-2012. We dove in head first and bought as many properties as we could borrow and finance. It was a life changing financial decision. Just one right decision can alter the course of our lives and the future generations.

Based on my experience, it’s a matter of time before the kids of Patrick’s current property owner will sell, and Patrick will no longer be shielded from the rent inflation. It’s the cycle of life that I’ve witnessed over and over again in the last decade.

Eman says

Based on my experience, it’s a matter of time before the kids of Patrick’s current property owner will sell, and Patrick will no longer be shielded from the rent inflation. It’s the cycle of life that I’ve witnessed over and over again in the last decade.

Depends what Patrick did with the amount of money saved by renting. Patrick could have invested it and earned 10% a year.

That savings and its capital gains could be used to buy a home in a cheaper real estate market. It is all based on discounting or time value of money, and analysis of alternatives.

I recall Patrick stating he is still there in San Fran Bay Area because of his wife's work (i.e., public school teacher?).

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Eman says

Based on my experience, it’s a matter of time before the kids of Patrick’s current property owner will sell, and Patrick will no longer be shielded from the rent inflation.

If somebody is shielded from rent inflation it means that the owner is not running his rental as a business (or there is rent control in place which is not the case here) . So it's a fluke.

Until globohomo achieves its stated WEF goal of 500,000,000 humans on the planet, housing will be largely unaffordable except for those who can find a stake in east bumblefuck or rural flyover country.

That's the rub - you want "the life," then you have to be financially independent/retired. This is a lot easier with bachelors or empty nest families. For women in general - HAHAHAHAHAHAHAHAH.

Rubicon says

I gave up a long time ago to believe things for the avg joe will get better. They get worse every year instead.

Debt may be becoming more manageable, albeit it seems like the Federal Reserve and federal government are trying to inflate out of a future debt crisis. So the tax we pay is through inflation for this policy.

Granted, Professor Robert Shiller claimed that housing prices increased 4% a year from the early 1950s to 2019. I am not sure if that is true today with the +40% increase in prices over the last few years. Rent has gone up a lot also.

Seems like the ratio is returning to pre pandemic levels.

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Rubicon says

This is survival of the fittest. Brutal reality. It’s still much better here compared to living in any other country though.

Said Marie Antoinette.

B.A.C.A.H. says

Rubicon says

This is survival of the fittest. Brutal reality. It’s still much better here compared to living in any other country though.

Said Marie Antoinette.

Certainly among the better/best countries, and it all depends on where in the country you're at, but certainly not among the top 5 in terms if quality of life on average. That being said, real estate relative to wages has become expensive in most countries worth living, mostly due to unfettered immigration from shitholes

Warren Buffett's $31,500 House Is Now Worth $1.44 Million But He Says He Would Have Made Far More Money By Renting Instead

https://www.benzinga.com/real-estate/23/08/33577953/warren-buffetts-31-500-house-is-now-worth-1-44-million-but-he-says-he-would-have-made-far-more-money

ad says

Warren Buffett's $31,500 House Is Now Worth $1.44 Million But He Says He Would Have Made Far More Money By Renting Instead

https://www.benzinga.com/real-estate/23/08/33577953/warren-buffetts-31-500-house-is-now-worth-1-44-million-but-he-says-he-would-have-made-far-more-money

Keep in mind Buffett is part of the WEF Schwab crew, which means they want to push people to own nothing and you will be happy. I'm not say he's wrong, but there is broader motivation at play IMO.

Buffett continues to live in the same modest home in Omaha that he purchased in 1958 for just $31,500.

Buffet was not a billionaire when he bought that home, he was instead living on the loan from his father-in-law. At the time, that home was in Omaha's most exclusive neighborhood.

Notice how it is fenced off as if it is a museum. Unlikely he really still "lives" there.

HeadSet says

Buffett continues to live in the same modest home in Omaha that he purchased in 1958 for just $31,500.

Buffet was not a billionaire when he bought that home, he was instead living on the loan from his father-in-law. At the time, that home was in Omaha's most exclusive neighborhood.

Notice how it is fenced off as if it is a museum. Unlikely he really still "lives" there.

It's not that modest either. Looks pretty substantial.

ad says

Warren Buffett's $31,500 House Is Now Worth $1.44 Million But He Says He Would Have Made Far More Money By Renting Instead

https://www.benzinga.com/real-estate/23/08/33577953/warren-buffetts-31-500-house-is-now-worth-1-44-million-but-he-says-he-would-have-made-far-more-money

A couple things to keep in mind, Warren Buffett is one of the greatest investors of our time. Not many individuals can generate the same returns as he has been doing for decades. It used to be over 50% return annually when he started his career.

Buffett is frugal. He wanted to save every dollar to invest, not buying stuff. When his wife bought him a brand new Cadillac, she had to buy the cheapest/basic model. 😅

The 3rd best investment was his Laguna Beach vacation house that his wife made him buy it. He paid $150k for it in 1971 and sold it around 2017 for $7.5M.

Buffett married well. His FIL was a doctor, and also his biggest investor when he started his career.

Buffett became a millionaire at the age of 30 so buying a $31.5k house at the age of 28 seemed affordable to him at the time.

Rubicon says

Housing only goes up in the longterm.

So does the stock market, and at a consistently faster rate.

Patrick says

Rubicon says

Housing only goes up in the longterm.

So does the stock market, and at a consistently faster rate.

Leverage helps.

Patrick says

So does the stock market, and at a consistently faster rate.

Large caps such as S&P 500 increase about 10% a year over long run. Robert Shiller stated over long that housing goes up about 4% a year.

That is why I like when you mentioned about putting the savings from rent to work by wisely investing it in stocks.

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"I paid $426k for my house last year, now it's worth $370k"

https://www.youtube.com/watch?v=h6zdBKVzsIU

zzyzzx says

"I paid $426k for my house last year, now it's worth $370k"

https://www.youtube.com/watch?v=h6zdBKVzsIU

Median price for USA home has gone down about 16.5% from its recent peak and all time high.

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Rubicon says

I have nothing against stocks and invest in them myself but I don’t get how you can compare the two as if they were interchangeable. You have to live somewhere. I would never rent and invest in stocks because I think that’s a better investment.

I agree. If rents and mortgages are roughly the same, why rent if you have the down payment?

Rubicon says

I bought a brand new house and my PITI is lower than someone renting a 3B room
House. Imagine how the picture looks like in a decade from now. Rents keep going up while my PITI remains the same.

You'll have repairs and all kinds of other shit, utilities increasing etc. Generally you have more leverage in RE if you are a risk taker, and more safety as you mentioned if you just want to live in your primary home and pay off the mortgage. However that assumes you have stable income, if you can't pay your mortgage, downsizing a rental is easier than your home, and incurs no losses. It's different than stock trading for sure, hard to compare.

mell says

It's different than stock trading for sure, hard to compare.

Its interesting as housing over the last 20 years particularly has been viewed as an investment asset. I wonder if this, combined with zoning policies is what has caused housing to become unaffordable as compared to the 1940's to 1990's.

For me, my home is just a roof over my family's head and a monthly payment of PITI, HOA fee, and maintenance & repair (M & R).

Who on Patrick.net views housing / residential real estate as their only income and retirement savings ? Who views housing equally as stocks as being an asset ?

Eman seems like he is only in housing / residential real estate and knows how to work with banks to maximize leverage.

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ad says

Its interesting as housing over the last 20 years particularly has been viewed as an investment asset. I wonder if this, combined with zoning policies is what has caused housing to become unaffordable

Don't forget the AirBnB effect.

GNL says

Don't forget the AirBnB effect.

Yes, where there is a lot of tourism like Colorado mountains towns, beach towns in the Florida panhandle, etc.

And it has not done anything as far as lower the nightly rates for hotels.

I remember the claim that more AirBnB homes means that people will be able to afford a vacation since the increase in vacation rentals or units will drive down the cost to vacation.

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GNL says

Don't forget the AirBnB effect.

zzyzzx says

GNL says

Don't forget the AirBnB effect.

I'm not buying this one. Sure, it may be true in places like Sedona or South Lake Tahoe, but your average Elko, NV or Boomfuck, AZ? No way, Jose.

Look what just hit my inbox. Looks like CalFHA down payment assistance program was a hit. More money is coming to help buyers with the down payment.

“The average number of occupants in each home fell, while the average size of a new single-family home ballooned - from just 909 square feet in 1949 to 2,480 square feet in 2021. In 1950, 15.7% of U.S. homes were overcrowded; by 2000 that number had fallen to 5.7%.” - Interesting statistics

https://www.ahs.com/home-matters/real-estate/the-2022-american-home-size-index/#

Eman says

“The average number of occupants in each home fell, while the average size of a new single-family home ballooned - from just 909 square feet in 1949 to 2,480 square feet in 2021. In 1950, 15.7% of U.S. homes were overcrowded; by 2000 that number had fallen to 5.7%.” - Interesting statistics

Look at the housing starts and the typical as well as minimum size per square foot. Seems like I've not seen a detached home or a townhome less than 1500 square feet.

If not the developers deciding this, then the local government (i.e., zoning) is the reason for this.

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ad says

Look at the housing starts and the typical as well as minimum size per square foot. Seems like I've not seen a detached home or a townhome less than 1500 square feet.

If not the developers deciding this, then the local government (i.e., zoning) is the reason for this.

There are many places where you cannot build a home, per regulations, smaller than X. I believe it's to keep home prices, and therefore property taxes, high.

GNL says

There are many places where you cannot build a home, per regulations, smaller than X. I believe it's to keep home prices, and therefore property taxes, high.

Yep, which economically forces people to live in rental apartments or if they buy, force them into townhomes or condos.

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