patrick.net

That's something I can't quite figure out.

It's stupid to buy US bonds which pay 2% when inflation is 4%.

But maybe the Fed won't have to raise rates to encourage people to buy US bonds because it can simply keep printing cash and buying US bonds itself. Maybe we don't care if no one else buys US bonds anymore.

So then we could have high inflation and yet still have low interest rates.

In that case, if you can borrow at 2% and buy land which goes up at 4% with inflation, you win from inflation.

That's theoretically true for a period of time but then foreign governments will sell their holdings putting downward pressure on bond prices, in addition to more countries ditching the dollar as the reserve currency. Then you're just left with the US monetizing its own debt which turns into the Weimar disaster.

Patrick says

In that case, if you can borrow at 2% and buy land which goes up at 4% with inflation, you win from inflation.

Blasphemer.

Do not forget that real estate loans involve origination fees and closing costs. Also real estate has yearly taxes and maintenance. And then costs when you selI. It ain't like buying stock and waiting for capital appreciation.

I think that we need to see the foreclosure and eviction moratoriums lifted before we will see real estate correct. It's almost the same in the auto market, except the chip shortage needs to end, and probably will at around the same time repossession moratoriums are lifted ( because that's how things seem to work).

I use to think a huge crash was coming but now I think inflation will counter it.

The large and prolonged ramp following the 2008 recession is gone and the covid ramp will lessen but I still expect on avg. 5%-10% appreciation for CA real estate until there is significantly more inventory. Builders will build less due to much higher costs caused by inflation, so the current shacks will remain attractive.

Housing is absolutely not softening today.

We are in full explosive ramp.

I’m shocked daily at the selling prices I see in the Tri Valley and Silicon Valley

Sooo, maybe I was wrong. The homes that went up in my area all sold within 1-2 days.

joshuatrio says

Sooo, maybe I was wrong. The homes that went up in my area all sold within 1-2 days.

Give it time as people churn through their stimulus. Have to remember that yes, there were job losses. The people that can buy houses though likely still got stimulus and held a job for the most part. Could be $20k and up to $160k (FHA) of additional purchasing power for a family of 4 that got stimulus. Higher with more kids. So prices will be up for a while still.

My concern would be once extra UE benefits go away, is the employment market flooded and drives wages downward with all the people not working currently. Too many people wanting a limited job will drive wages down. So do these newer stimulus home purchasers default is the question because their line of work has been overwhelmed and wages are way lower before covid. Companies likely won't reduce their prices, so lower wages, higher prices = default.

I feel like we're playing economic roulette with this stimulus. People that are buying houses right now might not be able to afford it long term is all I'll say. The banks learned from last time though, so any downside I think it pretty limited as far as prices dropping. They won't foreclose everyone like last time, as they have much better data now from the crash.

BayArea says

I’m shocked daily at the selling prices I see in the Tri Valley and Silicon Valley

most of the suburbs went up even some more than 100% during the last year!

Blue says

BayArea says

I’m shocked daily at the selling prices I see in the Tri Valley and Silicon Valley

most of the suburbs went up even some more than 100% during the last year!

Suburbs will continue to do well. I think rural areas even better, 5k or less population. Houses in my rural town last days, not even weeks. I got a deal, but could sell my house for 3x's the price I bought it for 7 years ago. Did a lot of updating, so the net is probably double if I sold it tomorrow. Mind you this is IL where we've had a decade of exodus. The market it funky, but this stimulus has made it really hard to read or make any prediction.

We're getting there.

On Sunday I walked on the paved walk from the Boardwalk at Santa Cruz to the Lighthouse and back. Lots of folks were doing the same.

Three different groups passed by talking about Real Estate. It felt like 2006.

BayArea says

I’m shocked daily at the selling prices I see in the Tri Valley and Silicon Valley

It's hilarious, they're signing up for a massive annual property tax bill. All those monies pissed away for the public employee benefits won't be available for stuff like childcare, tuition, new cars, home repairs, investing-on-the-side, max'ing out retirement plans, fancy-schmancy jet-setting vacations, expensive hobbies, etc. Instead pissed away on those massive property tax bills, and if they borrowed, on the mortgage payments.

And because of the recent Republican authored changes to the income tax law, the entire amount of those property taxes can no longer be deducted from the (required) super high incomes to service the property tax bill.

HeadSet says

Do not forget that real estate loans involve origination fees and closing costs. Also real estate has yearly taxes and maintenance. And then costs when you selI. It ain't like buying stock and waiting for capital appreciation.

True. One thing I really love about stock is that it doesn't have any property tax.

Patrick says

True. One thing I really love about stock is that it doesn't have any property tax.

Another thing about the stocks that I love, is that if you need a bit of cash, you can sell a bit of stock. (Long term capital gain rates apply, and tax losses can be harvested).

If you need a bit of cash for any of those I mentioned above, (childcare, tuition, new cars, home repairs, investing-on-the-side, max'ing out retirement plans, fancy-schmancy jet-setting vacations, expensive hobbies), you cannot "sell" a bit of your home equity. You can only use it to borrow against, ie, go deeper into debt.

B.A.C.A.H. says

True. One thing I really love about stock is that it doesn't have any property tax.

Well, not yet at least. Give it time... People are looking hard at general asset taxes. When you need to even further distribute wealth...

I'm a real estate photographer in Northern Virginia. An agent told me, just today, that prices are leveling off here

You can't live in a stock (but you can sell some and live in a motor home). That is all.. Oh, and this -- yikes!

EBGuy says

You can't live in a stock (but you can sell some and live in a motor home).

or rent, or not overpay every year in property taxes to live in the SF Bay Area. Yikes!

Interesting take on inflation from Bill Gross and the Wolf:
https://wolfstreet.com/2021/06/01/cash-has-been-trash-for-years-but-soon-it-may-be-the-only-haven-for-investors-bill-gross-is-at-it-again/

The Fed’s asset purchases have already created so much liquidity, causing bank reserves to more than double in a year to $3.8 trillion, that liquidity is now going haywire, and the Fed is feverishly engaged trying to control it by selling Treasury securities and for cash via overnight reverse repos, thus draining liquidity from the market.

Just this morning, the Fed sold $448 billion in Treasury securities via overnight reverse repos, as Friday’s overnight reverse repos of $478 billion matured and unwound. This is down a tad from the record of $485 billion in reverse repos last Thursday that matured and unwound on Friday.

So the Fed cannot continue its current zero-interest rate policy and its asset purchases that create more bank reserves, Gross says. When the Fed starts dialing back its policies, assets that have been supported by low yields, such as the 10-year Treasury and stocks – “no matter the growth potential for 2021 and 2022,” Gross says – are in for a reckoning when they lose that support:

“Cash has been trash for years but soon it may be the only haven for investors sated beyond reasonable expectations of perpetually low yields and supportive bond kings and queens,” Gross concludes.

EBGuy says

You can't live in a stock (but you can sell some and live in a motor home). That is all..

That's silly: you can rent a real home with your stock riches.

krc says

Well, not yet at least. Give it time... People are looking hard at general asset taxes. When you need to even further distribute wealth...

Sad.

I just heard Biden making a top priority to "narrow the racial wealth gap".

FuckCCP89 says

EBGuy says

You can't live in a stock (but you can sell some and live in a motor home). That is all..

That's silly: you can rent a real home with your stock riches.

FuckCCP89:

Do you live here in the SF Bay Area? Just asking. It's the only place I've lived. Many (but not all) people here have this petty bourgeois zeitgeist that one must own their home to live here. Of those, some (many?) are smug, and have only snark for others who don't share their view. Misery loves company. Defending their position by going on the attack. Like some of the shrill lefties on social matters.

B.A.C.A.H. says

FuckCCP89:

Do you live here in the SF Bay Area? Just asking. It's the only place I've lived. Many (but not all) people here have this petty bourgeois zeitgeist that one must own their home to live here.

I do.

BTW, isn't rent/own ratio in SFBA higher than country average? I think it is. Not anywhere near NYC level but still.

Patrick says

HeadSet says

Do not forget that real estate loans involve origination fees and closing costs. Also real estate has yearly taxes and maintenance. And then costs when you selI. It ain't like buying stock and waiting for capital appreciation.

True. One thing I really love about stock is that it doesn't have any property tax.

Not if your own NNN commercial property.
The renter pay property taxes, maintenance and insurance premiums.

FuckCCP89 says

That's silly: you can rent a real home with your stock riches.

By my calculations you need almost $2 million to "rent" a modest 1,000 sq.ft. apartment @ $3/sq.ft./month in perpetuity.

EBGuy says

By my calculations you need almost $2 million to "rent" a modest 1,000 sq.ft. apartment @ $3/sq.ft./month in perpetuity.

So what?

There's a whole world outside of the SF Bay Area.

EBGuy says

FuckCCP89 says

That's silly: you can rent a real home with your stock riches.

By my calculations you need almost $2 million to "rent" a modest 1,000 sq.ft. apartment @ $3/sq.ft./month in perpetuity.

Huh? If we are to follow "safe withdrawal ratio" of 4%, $2M gives us $80K per year. Which rents you a nice McMansion even in fucking SFBA. Definitely not a fucking 1,000 sq.f. apartment.

PS. For instance: https://www.zillow.com/homedetails/7667-Pineville-Cir-Castro-Valley-CA-94552/69226818_zpid/

FuckCCP89 says

EBGuy says

FuckCCP89 says

That's silly: you can rent a real home with your stock riches.

By my calculations you need almost $2 million to "rent" a modest 1,000 sq.ft. apartment @ $3/sq.ft./month in perpetuity.

Huh? If we are to follow "safe withdrawal ratio" of 4%, $2M gives us $80K per year. Which rents you a nice McMansion even in fucking SFBA. Definitely not a fucking 1,000 sq.f. apartment.

PS. For instance: https://www.zillow.com/homedetails/7667-Pineville-Cir-Castro-Valley-CA-94552/69226818_zpid/

Yes. Rental yields have no relation to price.
Typical reason people don;t cell bay area real estate:
1) capital gains tax. Large number of families have $500k+ gains.
2) Fear of never been able to return to bay area if sell their house and priced out in future. So willing to get shitty yields.
3) House prices always go up and govt insures that they do.
If a $2M home have $72k rental and house appreciate 5% .. Rental yield becomes meaningless and it is happening for long time.
4) Prop 13 locks your property tax.
Bay area have the mix of all ingredients to keep house prices high.

https://propertyindustryeye.com/around-400000-renters-told-to-expect-eviction-notices/

Around 400,000 renters told to expect eviction notices

Farmer,

How many local homeowners told you this?

farmer2021 says

Typical reason people don;t cell bay area real estate:
1) capital gains tax. Large number of families have $500k+ gains.
2) Fear of never been able to return to bay area if sell their house and priced out in future. So willing to get shitty yields.
3) House prices always go up and govt insures that they do.
If a $2M home have $72k rental and house appreciate 5% .. Rental yield becomes meaningless and it is happening for long time.
4) Prop 13 locks your property tax.
Bay area have the mix of all ingredients to keep house prices high.

Booger says

Around 400,000 renters told to expect eviction notices

From the article:
The cost of boosting support to tackle rent arrears is a fraction of the cost of the stamp duty holiday.
We're not in Kansas any more. Help me Auntie Em.

farmer2021 says

NNN commercial property

Thanks @farmer2021 I didn't know this term.

https://www.investopedia.com/terms/t/triple-net-lease-nnn.asp

Depends on what changes Biden can push through to make the RE market "fairer" to minorites as per today's announcement. If they lower lending standards prices will continue to climb. Clinton had the same MO and that ultimately led to the real estate bubble. Been almost 20 years since the hosuing market went haywire. How quickly people forget.

B.A.C.A.H. says

Farmer,

How many local homeowners told you this?

farmer2021 says

Typical reason people don;t cell bay area real estate:
1) capital gains tax. Large number of families have $500k+ gains.
2) Fear of never been able to return to bay area if sell their house and priced out in future. So willing to get shitty yields.
3) House prices always go up and govt insures that they do.
If a $2M home have $72k rental and house appreciate 5% .. Rental yield becomes meaningless and it is happening for long time.
4) Prop 13 locks your property tax.
Bay area have the mix of all ingredients to keep house prices high.

Many. Upper class(Not ultra wealthy) asians typically have this thinking.

EBGuy says

From the article:
The cost of boosting support to tackle rent arrears is a fraction of the cost of the stamp duty holiday.
We're not in Kansas any more. Help me Auntie Em.

Article is for the UK, but the same conditions exist elsewhere.

farmer2021 says

B.A.C.A.H. says

Farmer,

How many local homeowners told you this?

farmer2021 says

Typical reason people don;t cell bay area real estate:
1) capital gains tax. Large number of families have $500k+ gains.
2) Fear of never been able to return to bay area if sell their house and priced out in future. So willing to get shitty yields.
3) House prices always go up and govt insures that they do.
If a $2M home have $72k rental and house appreciate 5% .. Rental yield becomes meaningless and it is happening for long time.
4) Prop 13 locks your property tax.
Bay area have the mix of all ingredients to keep house prices high.

Many. Upper class(Not ultra wealthy) asians typically have this thinking.

I've also heard some of these sentiments from a few asian coworkers (both chinese and indian). Most of them bought bay area homes in the past few years.

There's no "top" probably.
There may be a dip soon when people start getting foreclosed on and evicted.
I'm probably going to buy something in the town which I like.
I'm thinking of it for intangible reasons, avoiding rules is a main reason.
Houses are not a great investment in states like California; they are a tax trap.
It's like marriage; guys will still do it although it makes no sense on several levels.

Hircus says

the past few years.

Yeah. Been here the past few years and know it all, already. Know-It-Alls.

B.A.C.A.H. says

Farmer,

How many local homeowners told you this?

farmer2021 says

Typical reason people don;t cell bay area real estate:
1) capital gains tax. Large number of families have $500k+ gains.
2) Fear of never been able to return to bay area if sell their house and priced out in future. So willing to get shitty yields.
3) House prices always go up and govt insures that they do.
If a $2M home have $72k rental and house appreciate 5% .. Rental yield becomes meaningless and it is happening for long time.
4) Prop 13 locks your property tax.
Bay area have the mix of all ingredients to keep house prices high.

I'm in the exact same boat. I've also been wondering why homeowners turn their shacks into rental properties. When I flee I'll definitely be selling because I'd rather take the massive tax hit and be done with it. Maybe there will be lots of selling before the end of the tax year, since people are likely to believe federal long term capital gains tax rates will be going up.