patrick.net

Onvacation says

If we lose the middle class there is no one to protect the wealthy from the poor that have nothing to lose.

Big Brother and the "outer party" will protect the "inner party" from the "proles" if any "prole" get unruly.

That is if by then any "prole" is capable of effective resistance.

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Bitcoiner says

It wouldn’t make sense to pay off my primary with a rate of 2.75%. If the money would sit in my bank account to pay off the house I would rather buy another house on debt. You are rewarded for accumulating housing debt. There is bad debt like credit card debt (unless you pay it off right away) and then there is good debt (housing).

Of course, inflation is outpacing income. You are making my point. You need to own assets otherwise you lose. Someone who rents out houses gets a tailwind on the appreciation of the asset plus ever increasing rents.

I don't like owing anyone, so I pay things off early, but I don't know your financial situation, so will defer to you. YES you are incentivized to accumulate debt. Makes it easier to track and control you. Your time and labor is the only thing of value in our system. The people at the top never have to pay back their bad decisions, so they can keep taking what you put into the system, leveraging it even more, and win they gain, lose you pay.

My friend has owned his rentals in the Bay Area for at least 10 years. He has to raise rent due to his expenses going up 50%, but he's capped by state law at 10% a year for rent increases. Your scenario is very limited in perspective, not realistic for everyone. In contrast, all I have to do to offset inflation is move somewhere cheaper. California can't do shit about that.

Bitcoiner says

Your income is increasing but it doesn’t keep pace with inflation. You lose.

You seem to live in a simplistic nominal world. If wages do not keep up with inflation, real income is falling. This is the case currently.

just_passing_through says

For my 3 SFRs inflation sucks. First, I had to raise rents more than normal and I hate that. But also my insurance, property taxes and maintenance costs are way up as well. I don't think I covered it with the rent increase. Giant pain in the ass is what it is.

How much did this stuff go up for you?? My insurance has been the same for 9 years. Property taxes up $400/yr over 9 years. $2,800 to $3,200/yr. I rehabbed the house so little maintenance besides what anyone would need to do.

Are you talking a $2-4k increase in expenses a year or something?

Raising rent sucks, but it is what it is. Be glad you're not in Chicago. Rent increase in Chicago are capped at 5% annually by the city. So a $1k/mo studio you could only do $50/mo more. A studio would likely be in a condo development so a special assessment and you're fucked. Unless it's the steal of the century NEVER EVER buy rental real estate in Chicago. You can make money, but the exodus is still occurring in Chicago, just not a much as 8-10 years ago.

Bitcoiner says

Yikes. Good to know.
AZ (phoenix) has been good for my rentals. My PM says judges are sometimes ruling in favor of renters……they have no idea how bad other places like CA are for landlords.

From back in the day when I'd attend RE conferences with Keller Williams, other brokers would laugh. They're like bull shit. I'm like no, it's flipping real.

I should clarify a bit as well. I'd never buy a condo as an investment in Chicago unless it was a commuter crash pad if you had to work downtown. You can make solid money on multi-units and be protected from HOA's. The problem with Chicago is they artificially kept property taxes low and have now been raising them. So a 4 unit building could see a $3k/yr rise in property taxes. If it's a low income area it might take 2-3 years to break even on the increase of taxes because rents are lower hit that 5% cap. Plus people are moving out.

There will be a point in the future where it's a good idea to pounce on Chicago. I'd avoid it for now if one wants to be a remote landlord.

WookieMan says

Are you talking a $2-4k increase in expenses a year or something?

Yeah, that's a great guess, about 2.5-3.2 maybe depending on the property. But that's only because I paid hefty escrow catchups ~1600 each this year to keep my mortgage payments as small as possible. Never had that before. Other things I'm not entirely sure but things like tile have doubled in a decade, same with rain gutters I'd like, carpet I'm not sure, paint 60%.

These were ~200-230K properties and in the past 2 years are suddenly 300-330K. Nice nearly new when I bought them. San Antonio is just inexpensive like that.

Onvacation says

Yeah, fuck those poor people. They should have bought at the bottom.

^-- This! A $200 rent increase here in San Antonio sucks for my renters. In CA that would seem like nothing but there is much less $ sloshing around here.

On that note I'm in the county so no restrictions of raising rent in the most landlord friendly state. I still don't like it and so far in 10 years have only gained large increases in between tenants. Even then I didn't raise $200 or I would have sat on the market and eventually learned I needed to drop the prices.

https://finance.yahoo.com/news/mortgage-rates-hit-the-highest-point-of-the-year-160015951.html

Mortgage rates hit the highest point of the year

Why not say..."the highest in X number of years"?

Been tracking Yuma rental market for months, and things are definitely nose-diving hard there. Out of all the rentals we've looked at, only two have rented. Most of them have dropped their price, some significantly($400 or more). More than one is asking less than what they got from their last tenant.

What's weird is agencies there are slow as fuck to lock people in. We were willing to sign lease at several places, but they took a week to get us anything, and by that time, we saw something better, so we passed. Every time we've ever rented in the past, turn around is usually 24 hours from receiving the application, 48 tops. But in Yuma a week seems to be standard.

Beware home owners, I know of two properties we would have taken at the price they were asking if they had been faster on the lease. But because the managers were so slow, we moved on and both had to drop $100 of their rent, and still without tenants. I might be ok letting these places collect rent and do maintenance, but I wouldn't trust them to handle applications.

NuttBoxer says

I might be ok letting these places collect rent and do maintenance, but I wouldn't trust them to handle applications.

80/20 rule. Property managers are largely scum. There are some good ones, but you need to kind of get lucky as an owner. Once you have a good one don't let them go. It's a shitty job either way. But handling applications is literally the easiest part. You can sit at a desk and do that. You don't even need to go to the property.

Booger says

They are counting on being able to refinance once rates go down.

Booger says

The first 50 years are all interest.

For those Canadian mortgages, it don't really matter much how far they can extend out the loan. Only the US has 30 year FIXED rate mortgages. Sure the repayment terms can go to 60, 70, even 90 years, but the Canadians are still sucky variable rate mortgages. Yep, the kind that the Banksters can shoot up the payments on by fucking with interest rates.

Our forefathers didn't trust the banksters so we get long term fixed rate mortgages.

Rubicon says

Inventory continues to decline. Now negative YoY.

I have yet to hear an explanation for why I have been able to rent hundreds of dollars under market, and move countless times in Southern California that lines up with there being a shortage of housing.

Or explain all the rentals that have sat all summer in Yuma, and owners having to drop rents below what they got from previous tenants.

The simplest explanation for the lack of listings is the rise of interest rates, and people who bought at the top being unable to sell without losing money. As I've mentioned here I know of two owners in Yuma who opted to rent after initially trying to sell, likely because they would lose money.

NuttBoxer says

Rubicon says

Inventory continues to decline. Now negative YoY.

I have yet to hear an explanation for why I have been able to rent hundreds of dollars under market, and move countless times in Southern California that lines up with there being a shortage of housing.

Or explain all the rentals that have sat all summer in Yuma, and owners having to drop rents below what they got from previous tenants.

The simplest explanation for the lack of listings is the rise of interest rates, and people who bought at the top being unable to sell without losing money. As I've mentioned here I know of two owners in Yuma who opted to rent after initially trying to sell, likely because they would lose money.

Also in CA people are married to their low property tax so most prefer not to sell. Several people I know moved to TX, FL and NC and they all rented out their shacks instead of selling.

Rubicon says

If more people sell you think inventory rises, which is actually not correct. A seller is usually a buyer. You sell one +1 and you buy another -1 = 0. Your net inventory doesn’t increase.
Inventory rises when you add more supply to the market (building new construction).

That's overly simplistic. You may be aware some people own more than one property. On the construction front it's the same story as everything else, inflation, and STILL interest rates. Because most people are mortgage owners, not home owners. So they have to take out a higher interest loan, but if inflation means the builder can't adjust the selling price to make it affordable, they can't sell. And no one builds houses to sit empty...

Rubicon says

You moving countless times has absolutely nothing to do with explaining an overage or shortage of homes.

Yeah, bullshit on that and here's why. If there's no extra homes, I shouldn't be able to move whenever I want, because there's no extra homes. And to your reference to markets, what happens when the supply is limited but the demand is high? Well, people don't consistently find places way under market because demand drives up the price everywhere.

On the move question I don't even wanna calculate, but probably close to ever two years. When we were younger, it was almost like changing sneakers. Not that way anymore though. Been at the current place over three years, and really hoping the next place will be at least four years. My dream would have been to live in the same place 20 years. Not sure if you've ever seen The Burbs, that's pretty much it.

Rubicon says

Your net inventory doesn’t increase.
Inventory rises when you add more supply to the market (building new construction).

Or if the pop-n-drop picks up considerable speed.

NuttBoxer says

Rubicon says

If more people sell you think inventory rises, which is actually not correct. A seller is usually a buyer. You sell one +1 and you buy another -1 = 0. Your net inventory doesn’t increase.
Inventory rises when you add more supply to the market (building new construction).

That's overly simplistic. You may be aware some people own more than one property. On the construction front it's the same story as everything else, inflation, and STILL interest rates.

It is correct though. There are layers to it. I'm dealing with it now. We lost a generation of what would be quality tradesmen during the housing bust. Framers, concrete, HVAC, plumbing, etc. It's takes 1 month to get bids from builders on our house. We're not in a rush, but no one has any contractors they can rely on. If they do they're constantly booked.

Outside of hipster areas no one is building. If you move and buy an existing home in the new location and rent the old, that will saturate the rental market. In Rubicons example it would actually be -1. If you have a 3-4% rates why not just keep the place, rent it? Depreciate it, save on taxes and likely cash flow. People under 40 are more savvy with RE than people expect. That's why rental rates are facing downward pressure. It has to do with LOW interest rates, not high. Those with high rates are likely in the 5-10 year cycle. They wouldn't move anyway. Hope the rates come down and refi.

And anyone that HAS to move within 5 years is probably a corporate relocation. You're talking less than 5% of the market in housing. So it's not about high interest rates. People are just keeping their homes as a tax and appreciation benefit. You benefit from lower rents, but I can bet that 95% of landlord are still cash flowing and getting the tax benefits even in a high(er) interest rate environment.

WookieMan says

It is correct though. There are layers to it. I'm dealing with it now. We lost a generation of what would be quality tradesmen during the housing bust. Framers, concrete, HVAC, plumbing, etc. It's takes 1 month to get bids from builders on our house. We're not in a rush, but no one has any contractors they can rely on. If they do they're constantly booked.

Which is why it's going to cost WAY more than you originally anticipated... You forgot to mention that.

zzyzzx says

WookieMan says

It is correct though. There are layers to it. I'm dealing with it now. We lost a generation of what would be quality tradesmen during the housing bust. Framers, concrete, HVAC, plumbing, etc. It's takes 1 month to get bids from builders on our house. We're not in a rush, but no one has any contractors they can rely on. If they do they're constantly booked.

Which is why it's going to cost WAY more than you originally anticipated... You forgot to mention that.

Where do you live? Texas it's easy to get bids generally.

Rubicon says

If more people sell you think inventory rises, which is actually not correct. A seller is usually a buyer. You sell one +1 and you buy another -1 = 0. Your net inventory doesn’t increase.
Inventory rises when you add more supply to the market (building new construction).

yes as far as net housing available for long term rent or purchase

hopefully areas of population AND housing growth that has some tourism do not see where new housing starts are eventually made into vacation or short term rentals

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1337irr says

Where do you live? Texas it's easy to get bids generally.

No one builds in IL. They move out. That includes contractors. There's not work, so they go where it is. Texas or Florida is probably a good guess.

zzyzzx says

Which is why it's going to cost WAY more than you originally anticipated... You forgot to mention that.

I honestly don't care about the cost. We do very well. We won't be house poor that's for sure. That would take $2-3M and that ain't happening where we live. $600-700k on the high end. 2x's income. We just can't live in this current house with 3 boys that are nearing teenage years. There's zero inventory. So we have to build. Rates will come down. Centrally located for the wife's work and I'm 14 minutes away from mine. My mom wants the house and has cash to give us. Knock on wood, life has worked out for me. My dad was a fucking ass hole, but he did teach me a lot.

Freakin' housing market is crazy here in San Jose, July 7,2023.

I thought Trailer Homes were difficult to sell. Silly me. Our Friday Senior Fitness Instructor at the gym told us her Trailer Home will be "shown" tomorrow.

Jeez.

We like her a lot. We wish her the Best.

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https://www.cnn.com/2023/07/08/business/mortgage-rates-home-prices/index.html

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Higher mortgage rates have reduced home inventory
In theory, when mortgage rates go up, home prices should fall since it raises the cost of homeownership, thereby reducing demand. But that’s not happening.

That’s partly because the higher mortgage rates that came after the Fed hiked rates created a major lock-in effect, said Kiefer.

At the start of the pandemic, the Fed slashed rates to near-zero levels in hopes of stimulating the US economy as businesses closed and workers stayed home to avoid catching or spreading Covid. With such low rates, homeowners and homebuyers were then able to refinance or buy with rates as low as 2%.

With mortgages now approaching 7%, all that has changed. Selling could mean forfeiting a low mortgage rate for one that’s potentially double.

“Many existing homeowners find it difficult to give up a mortgage under 4% to trade for one over 6%,” Kiefer said. That has contributed to a decline in housing inventory.

And since many homes are still listed above where they were before the pandemic, homeowners have little incentive to sell.

“It seems to be that supply will be stuck for the foreseeable future,” said Dougherty.

Housing inventory, or the number of active home listings, is down by a third from before the pandemic. As of June, there were nearly 614,000 existing homes listed compared to almost 928,000 in February 2020, according to data from Realtor.com.

In many ways, the housing market is still playing catch-up from the Great Recession, which induced nearly a decade of sluggish new home construction, Divounguy said. When mortgages fell below 3% in 2020, home builders started to pick up — but not fast enough to meet the pandemic surge in demand.

Home inventory is likely to drop even lower due to the “low flow of listings paired with the demand for homebuying in the spring,” Zillow’s Divounguy told CNN. On top of that, housing demands remain high because the labor market is still so strong and workers continue to earn more than they had before the pandemic, he added.

“That tells the crux of the story for why the housing market seems a bit odd right now,” Divounguy said.

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The author of the article made some great points. In theory, people expect home prices to fall when mortgage rates go up. Unfortunately, this has been proven wrong time and time again. If this were true, how would the author explain what happened in the 1970’s and 1980’s when mortgage rate went as high as 18% and home prices tripled? Reality and theory are 2 different things

ad says

“It seems to be that supply will be stuck for the foreseeable future,” said Dougherty.

i rarely agree with CNN but this is pretty much spot on for anything outside the major cities. My tenants are pretty much stuck being renters unless rates crash so sucks for them, but I only raised the rent 4% for the good ones. Feeling pretty good as a landlord right now. My brother has been telling me housing will crash for the last 5 years. I just don't see it anywhere outside the big cities.

Eman says

Reality and theory are 2 different things

I'm not sure as far as the number of housing sales in this market of +6% rate. The number of sales has significantly dropped off recently; please check this chart. Hence, less liquidity. Look at the drop off in home sales in 1980 when interest rates increased significantly.

Like Patrick said when he was on 20/20 and/or in his book, you are buying a house payment (mortgage, property tax, property insurance, and HOA fee); so a higher interest rate means higher house payment. That prices people out of buying a home they could barely afford at a lower interest rate.

What I want to see is more new housing construction starts to increase to increase supply and drop prices.
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RedStar says

ad says

“It seems to be that supply will be stuck for the foreseeable future,” said Dougherty.

i rarely agree with CNN but this is pretty much spot on for anything outside the major cities. My tenants are pretty much stuck being renters unless rates crash so sucks for them, but I only raised the rent 4% for the good ones. Feeling pretty good as a landlord right now. My brother has been telling me housing will crash for the last 5 years. I just don't see it anywhere outside the big cities.

I remember buying a 12-unit building in summer 2018. I told myself it was the top of the housing market while I’m going all out, but the deal was too good to pass up.

Then in the fall 2018, another 10-unit came up, I told my partner it’s a no go for me. He said let’s raise money to buy it, and we did. Both buildings are doing super well and we’ve been getting record rents on turnovers. More people are being forced to rent due to the higher mortgage rates. The Fed did it again…

ad says

Eman says

Reality and theory are 2 different things

I'm not sure as far as the number of housing sales in this market of +6% rate. The number of sales has significantly dropped off recently; please check this chart. Hence, less liquidity. Look at the drop off in home sales in 1980 when interest rates increased significantly.

Like Patrick said when he was on 20/20 and/or in his book, you are buying a house payment (mortgage, property tax, property insurance, and HOA fee); so a higher interest rate means higher house payment. That prices people out of buying a home they could barely afford at a lower interest rate.

What I want to see is more new housing construction starts to increase to increase supply and drop prices.
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How do you expect sales not to decline when there are less homes for sale? How did Patrick explain the housing phenomenon in the 1970’s and 1980’s on 20/20?

I’m shocked that people are still buying in the current market. As I’m clueless, I’m observing and learning. I’m not going to call anyone stupid or an idiot. They must be doing something right to be buying in the current market environment.

With respect to new construction, it’s around 10% compared to existing home sales if my memory is correct. It’s not significant. I haven’t been tracking housing data for years since I switched to buying apartments so you may want to look it up and prove me wrong.

Rubicon says

Lol, I got people like that in my circle of friends and relatives. Since 2016 I hear the RE market is going to crash. I just keep buying houses is my response to that.

This couple in our social circle sold their home in 2020 for maybe 300k in profit and I was the only one telling them not to do it. The guy wont even show his face to me anymore as if it's my fault.

Eman says

I’m shocked that people are still buying in the current market. As I’m clueless, I’m observing and learning. I’m not going to call anyone stupid or an idiot. They must be doing something right to be buying in the current market environment.

Yeah right now just doesn't make sense. The fortress areas in Placer County (loomis, lincoln, newcastle) where I'd like to upgrade to haven't dropped at all.And everything still sells. I'm guessing its the bay area people.

RedStar says

Eman says

I’m shocked that people are still buying in the current market. As I’m clueless, I’m observing and learning. I’m not going to call anyone stupid or an idiot. They must be doing something right to be buying in the current market environment.

Yeah right now just doesn't make sense. The fortress areas in Placer County (loomis, lincoln, newcastle) where I'd like to upgrade to haven't dropped at all.And everything still sells. I'm guessing its the bay area people.

Bay Areans bring their housing market mindset to other markets and F everything and everyone up. It’s a disease IMO. I don’t share their value and their politics.

Commercial loan mortgage rates were kind of high in 2018. We borrowed at 4.6% and 4.4% on the 2 buildings. Rates dropped in 2019. We asked our lender if they could do something for us. The modified our loans and lowered our rates to 4.25% and 4%, respectively. We had to pay $1k or so for the fees and recording new loan docs.

In 2021, rates dropped even lower. We refinanced both buildings to 3.5% on another 5/1 ARM so they’re good till 2026. Both buildings have been performing exceptionally well since. Hopefully, we’ll be alright when it’s time to refinance in 2026.🤞

Higher mortgage rates have reduced home inventory

That's just lazy. Mortgage rates are historically normal to low :

https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart


The inventory problem is a demographic problem. There are more millennials, and right on the heels of that more Z'er's, than boomers.

https://www.statista.com/statistics/797321/us-population-by-generation/

I highly recommend going to housingwire.com and listening to any and all podcasts with analyst Logan Mitsubishi (not even attempting to spell his name right). : https://www.housingwire.com/shows/housingwire-daily/ Agree or disagree, he's been proven right over time.

stfu says

That's just lazy. Mortgage rates are historically normal to low :

https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart

That's lying by omission because if peak prices were set around a locked-in 30 year mortgage rate of 4% and if the rate increases to 6%, then it would be harder to sell a home without dropping it every 10% for a 1% increase in the rate.

Remember what Patrick said that you are buying a monthly home payment not a home, unless you are buying with cash and are presumably Eman-like.

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Rubicon says

Rates fuel the market or put pressure on prices but the notion that higher rates mean lower prices have been proven wrong for decades.

We haven't had high rates for decades so how can you say that? But yes, home prices are set by more than 1 factor.