That escalated quickly.
It is incredibly user hostile.
In general the best markets are have low transaction fees, efficient, trustworthy, maintain minimum quality bar, and many balanced players on both ends.
In this scenario NAR has created an inefficient market.
Same with most states having a very hefty permitting processes that takes more than half a year for new construction.
Not saying we abolish permits, but Americas solution to housing crisis is making the permitting process faster and transparent.
We can’t call ourselves capitalists when the markets are rigged.
Gotta let the builders build, the sellers sell and the buyers buy.
do they have processes in place to not just become another NAR?
I'm a Realtor, but I'm not here to turn this into a pissing match - if you believe that representation doesn't benefit you, then don't use a Realtor. In the same way, if you believe you can represent yourself successfully in court don't use a lawyer or if you can adequately assess your financial future, don't use a financial advisor. Expertise exists for a reason - because I can tell you a lot about water rights, land use, zoning, negotiations, market and pricing, and I can connect you with other professionals to meet your needs. Many people find those professional services to be worth their time and money.
All that said - yes, I think we will see changes to the cost (commissions et al) of real estate services. But when I hear people talk about "normal" real estate transactions or comments like "you don't need an agent for residential" I know this person is either very new to real estate or very experienced. The newbie doesn't know what they don't know, and the experienced person likely has sufficient knowledge that they will only bring in an agent to supplement that knowledge. The majority of people do not transact enough real estate such that they may think they know more than they do.
Similarly, how are real estate agents a guard on investing?
I'm not convinced they are bad, mind you. Curious on your angle, though.
Perhaps this statement should be restricted to just say the costs of investing in real estate would be reduced. Small difference I know, but I think it’s an important distinction.
That’s not good. Not like this, at least. Maybe this was more appealing to people in the past because it wasn’t so overtly bad for communities and society.
I'd be happy about it too, but am overwhelmed by guilt when talking to my intern, our newly hired engineer, my younger siblings, and many of my friends who rent at ever-increasing rates.
That $230,000 was taken from the pockets of my non-homeowning friends. I don't understand how so many seem to be cheering the rising prices, oblivious to what it's doing to our society.
Even if it really did increase 10%, you'd be giving up a lot of that difference in all of the various costs involved with selling a house and moving, even if you could cut agent costs to $0.
I have some friends who became real estate agents and thought they'd use their position to flip houses while being their own agents to save on costs. They're learning the hard way that even when you're not paying agent fees, buying, selling, and holding homes is expensive.
you're not doing labour. You're injecting capital into the system. The person who sold the house to you, presumably, is using the proceeds of their sale (and profit) to do something else productive.
I don't get why so many people consider taking asset risk as "doing nothing".
There are multiple factors that pushed the prices artificially up since 2020. They will look retrospectively obvious (as the 2008 subprime crisis seem obvious now). I'm usually not in favor of timing the market but I believe we are currently in the single worst time to buy a house in history.
Effectively, rising house prices harm me too, not just first time buyers
House prices increasing are only a benefit to people treating it as an investment, and if it's your primary home, then that means planning for trading down.
I would REALLY hate to do this electronically.
We might replace people with something like ticketmaster or the "get a flight/hotel/car" mess.
It's only worth 10% more when you sell it for 10% more. Right now home closings (the finalized deals) are 50% lower than before the pandemic and lower than in 2007. So selling your house to get that 10% increase is going to be hard.
But even if you did sell it, then it isn't quite worth celebrating yet, because it is likely that your 10% increase estimate is because the entire market is selling 10% higher.
So the problem with this is that if you sell your house and take your handsome 10% profit, you still can't pop the champaign because as it turns out... having a home is one of those sort of necessary things of survival. So if you want to go out and buy another home that is roughly similar to the one you previously had, then it will cost you 10% more than the last time you bought a house, which just so happens to be roughly the same price that you just sold for, so you end up not really making anything.
But wait, there's more. Because you sold you need to pay closing fees, which includes generally 6% (see article) in agent fees, plus various closing costs which generally come out to around 10-15% of the home price. So you gained 10% in the sale price of your home, but you lose 10% or more when you close the deal, which wipes out your "profits".
Oh, but you only bought a house "recently" which means you probably lost 10-20% in closing fees when you bought it. So your investment is actually more like 110% - 120% of the value of the home. So again, gaining 10% value just brings you up to even. But add the seller closing fees (mentioned above) and it pulls you back down, to losing money.
Oh, and now with the cash in hand you buy the next house which is 10% more than before and interest rates are probably several percentages points higher than before as well. So not only is the house 10% more, plus you lost 10% in your last deal, but now your payment will be higher even on the same loan amount thanks to higher interest rates.
People underestimate interest rates all the time too. Let's say you had a $400k loan before at 4.5% interest. Well the 30yr fixed payment on that is around $2,500 /mo. Now lets say you do all the shenanigans above and end up with another $400k loan again in 2023, but it is 6.5% interest. It is only a 2 point increase in interest, not a big deal right? Wrong. The same loan amount but on 6.5% interest is $3,000 /mo. So you are now paying $500 a month more for the same loan and home value as just 18 months ago and you would pay 20% more over the lifetime of the loan.
Just to instill the shock and awe effectively, I will use the same real numbers as above. Let's say you had a $400k loan at 4.5% interest before (the early 2022 rate). You would have paid $851,626.85 over the lifetime of your loan on that.
Now the same loan ($400k) but at the late 2023 rate of 6.5%, because you wanted to sell your house for that 10% profit, remember? Now the same loan amount will cost you $1,036,344.62 over the lifetime of the loan. The house just got $150k more expensive even though the sticker price on Zillow looks like it has been flat since 2022.
So... still excited about your 10% home value?
For the rest totally agree, disrupt the middle man in real estate is OK++.
I think if you're buying a house for the first time, trying to wing it is probably not the best idea.
I think you might be mixing up hedge funds and market makers (commonly knows as high frequency traders)?
As an outsider we don't want any side to win. If RedFin wins they could become the new NAR.
"Disrupt" doesn't always mean, for the benefit of consumers.
There's a LOT of people buying up multiple properties and then renting them out.
Often these days they're renting them out on the short-term holiday market like AirBNB and Stayz. Ultimately these rentals are often a net-negative on the neighbourhood community they're in. In small amounts that's fine, but in large concentrations it's an unsustainable burden, and the majority of the benefit goes to those not living in that neighbourhood.
Those that don't do short-term rentals are often putting the least amount of effort/investment into the property. Minimal maintenance, often deferring or only doing the minimum required upgrades in terms of energy/water efficiency makes them unpleasant to live in.
That's aside from the often onerous and arbitrary requirements forced on tenants.
Examples include being forced/"strongly encouraged" into payment methods that add costs to your rent. Being required to hand over all sorts of PII to a huge range of platforms. Then there's third party rent management platforms/companies like RealPage that coordinate rent increases to maximise revenue; not because of any underlying cost increase, but because they can force market prices up.
Making it a neutral investment by adjusting real estate taxes based on changing value of the land.
The real problem is a lack of supply which is mostly political (although some areas have geographical constraints that make it harder to build... but that's largely solvable by building vertically)
Sadly, this has been the cornerstone of american culture for the last seventy years. AirBNB & the chase of "passive income" are only exacerbating this.
Now if you want to say that you should buy a house betting on significant capital gains over inflation, that's foolish.
Realtor here - if you believe that, don't use Redfin or Zillow or their competitors, because they are yet another middleman adding friction. I'm not going to go into a monologue here, but both are leeches on the system that add more cost. Yes, it's wonderful that they have made more info available to the public - for that they are to be commended. But if you understand how they actually make money they are adding more friction and contentiousness and I do not believe they are actually saving your, the consumer, money.
>I don’t even think houses should be investments
It's a sensitive and emotional topic certainly, but I would encourage you that if you feel that way, try to imagine what set of laws or social changes would need to happen in order for that to not be the case - like what would that world look like? Because each time I try to do that thought exercise with people, I continue to come back to a belief that the alternatives are not superior to the system we have. Real estate is an asset. Cars, bennie babies, stocks, bonds, gold - there are lots of types of assets in the world, but real estate with its permanence and immovability is a very, very special type of asset. Thus, it is very difficult to separate the asset from its investment potential.
when has silicon valley ever actually disrupted anything, rather than creating a new, well-funded middleman?
Market makers don't charge fees. (I mean, maybe they charge their LPs, but that's a different matter)
> I'd prefer real estate investors drive for their properties to generate regular income, though, rather than the common practice of buying property with the main goal of selling it later at a decent profit.
I'd prefer no real-estate investors other than home owners, honestly. They don't seem to add value to the world.
They take 6% out of most housing transactions and add very little value. They managed to put themselves in the critical path by lobbying and regulatory capture. You don't get access to the listings and MLS open houses unless you go with a realtor. They also made the process artificially complex.
Most other countries seem to rely on direct customer to customer for most transactions, with a notary making sure the contracts are binding. Why can we not do that in the US?
Let me be clear. Redfin is only breaking ties now because the NAR is fatally wounded. Redfin now thinks they can scoop up a lot of market share in the chaos that is going to happen in the next year. They’re not doing this for altruistic reasons.
[1] https://www.housingwire.com/articles/re-max-settles-buyer-br...
This sounds like they're making a case for cartel behavior.
With the general unaffordability of housing, realtors are a good target right now. Not that they have anything to do with interest rates or have more than minimal impact on asking price, most people aren't going to think that far.
That said, if Redfin can open up access better (and still securely!), this could work out in the long term too.
Wow, they’re really pulling out the big guns. I applaud their efforts to decouple MLS access from NAR, that seems to be the biggest hurdle in advancing the industry.
Technologically it's a market that's ripe for disruption, but socially as well: there just isn't enough boom left in the market to fund 1.5MM people working in it full time.
Possibly I’m a cynic but I suspect Redfin’s endgame here is not to reduce transaction costs but to capture those for themselves instead. Perhaps part of my cynicism is looking at transaction expenses in jurisdictions without realtors - usually there’s some middleman who tends to capture a single-digit percentage of transaction value (either a notary or the government or both or others). Funny how that pattern seems to repeat itself.
Houses have a huge transaction cost, unlike say trading cost. Yeah the value goes up and down due to supply and demand but the transaction fees are zero at many internet exchanges now.
That said, I don't think consolidating the fees in a tech company is necessarily a win for the greater society.
I briefly had my license and the entire industry is like a giant pyramid scheme with fees on top of fees on top of fees.
I’m half tempted to reopen my license just to get involved with Redfin because I have no real estate relationships to lose.
All that said - Redfin can also go pound sand. They exploit information asymmetry where the public doesn't understand real estate services and think Redfin et al are somehow standing up to big bad exploitative realtors. Look man - the new boss is the same as the old boss and Redfin et al are not doing you any good. Find a good agent you trust in your local market, or go your own way if you think you can do better.
Still demanded 10% of the yearly rent though :)
I get these aren’t the same brokers, but brokers delenda est
If they pull this off they will crack open innovation and some long overdue lower cost options into the real estate markets.
Read the Redfin post. The rules the REALTOR association imposes to get access to MLS data is monopolistic.
Of course, this probably comes at a cost to realtors who get their margins squeezed even more.
We sold and bought our house in 2021. We bought for $1 million and sold for almost $3 million over 8 years. When it came time to selling the house, my realtor was able to extract an extra $100k from the buyers as well as make it an all-cash offer with no contingencies.
When we bought our new house later that year, the house we were looking at was on the market for about a month. We were going to give an offer at list price, but she could tell the selling agent was a bit desperate, so she was able to get it $100k below list price, something that is unheard of in the SF Bay Area.
Overall she netted us $200k over both transactions, and she was singlehandedly the reason for this. That's what you get when you have a really good agent.
Now you may have been able to do this with a discount broker or not, nobody will know. But they didn't net you $200k.
Particularly, on the sale, we kept hearing "wait, you'll get more offers. wait, you'll get more offers. AirBnB investors are going to love this". No other offers turned up.
The process _could_ be streamlined and made less of a hassle, but since so many take a cut, there are perverse incentives.
I skew progressive/liberal on many policy issues, but on this one, I'm fiercely in favor of the libertarian argumentation. Realtors have an eff-ing insane monopoly / cartel. Sorry, it makes me crazy.
If you go back in time and/or to some markets, 3% of a $100,000 house = $6,000. That makes a bit more sense in terms of hourly compensation.
As a buyer and seller of multiple homes, I've not had success with RedFin and I've had varied success with realtors.
That said, a good realtor is absolutely worth 6%. A bad realtor (of which there are plenty) is actually worse than DIY / RedFin.
I say this because I want everyone with the position that "Realtors are never 6% value" to consider that they may have simply not worked with a good realtor yet.
First home so had no idea how this was supposed to work, but seemed other real estate agents didn't treat Redfin as a "real" realtor in any case.
On one end is a traditional realtor arrangement, with the 5% commission divided between the two agents. On the other end is for sale by owner, with potentially no commissions. Adjacent to that is a flat fee listing service, which costs about 2.5% in buyer's agent commission. If you sell through Redfin, your total commission is reduced to 4% from the industry standard 5%, with 1.5% going to your agent. If you buy through Redfin within twelve months of selling through them, you get an additional 0.5% off the commission for a grand total of 3.5%.
Not bad. It can save you $10k or more at jumbo mortgage house prices. Redfin has already done well by doing good and offering a differentiated product in the middle of two other offerings.
I have sold two properties, one using a flat fee listing service and one using Redfin. The former was a fair amount of work, while the latter was way less, comparable to a traditional realtor in the level of service offered. I would recommend Redfin to anyone.
Redfin offers a 1.5% listing fee, and lowers that to 1% if you buy and sell. However you'll still be expected to pay the typical local buyer's agent commission.
https://www.statista.com/statistics/257344/top-lobbying-spen...
It's a grift.
In at least most places you can submit the paperwork to your county/state recorder & transfer money between each other completely outside of "the system" for a few dollars. And/or hire your own title agent to facilitate and hold the money.
There's also nothing that says you have to pay each agent exactly 3%. Commissions are negotiable on both sides like anything else. Especially in this sort of situation where they're no shopping/showing and you're paying them just to perform the transaction.
2-2.5% each is routine in some markets and price points. I built our last couple houses on empty lots, found the lot on my own, and my agent was happy to shuffle some paper for a couple hours for 1% (several thousand dollars) and give me the other 2% at closing.
…and for the people who end up looking at dozens of houses before deciding, negotiating, losing an offer, rinse repeating, 3%/$hours_spent_on_you could be a pretty low hourly rate for them.
We had negotiated ours down to 1.5%, which I thought was fair, but that was continent on the sellers realtor also accepting a 1.5% fee. The sellers realtor would not accept 1.5%, nor would the sellers reduce the price by 1.5%.
Since someone was going to get that 1.5%, I insisted the commissions be matched to be fair to our agent, and the sellers agreed to pay from their proceeds – after a somewhat heated back and forth.
It was dumb.
Why did you have to do that? is it your state/city law? because I know that's not a general requirement. You can always sell/buy directly.
I feel like these institutions exist to pressure unsure people into making unsure decisions by trying to get them to gloss over details that might not matter.
I don't feel too guilty about taking up her time for 3-4 hours a week for 2 1/2 months.
Even if we assume she did the same amount again, if not double, lets say 10 hours/week for those 10 weeks, her 'hourly rate' (which I figure similar to a contractor, as there are of course other expenses) still comes to $300/hr, which is approaching associate/partner levels at a "reasonable" law firm (not white shoe or corporate).
As a buyer I got an excellent rate from their recommended lender, I got a solid lawyer rec, and I got experienced guidance throughout the whole process. Was it expensive? Yes, but was it worth it? In my case, very much so.
What counts as "guidance" anyway? A realtor can't be relied upon for structural issues, you'll need an inspection. They can't tell you anything about the market that you couldn't dig up yourself in 5 minutes searching Redfin. HOAs, contract language, and other legal matters will need a lawyer. You're basically gonna have to find a dedicated professional for anything that matters.
The limited benefits I can think of are:
- you're buying in a tight market, and they can find some off-market listings through their network
- a reputable buyer's agent might make your offer seem more legit
No you didn’t, they suckered you on a good rate and screwed you with stealth fees on closing costs.
With a few hours of hunting I saved $50k, beating their rate and cash to close. “Preferred lenders” are almost always a scam, but as always DYOR
Realtors are everywhere.
In the Netherlands selling a house is mostly exclusive to realtors, and there are good non-realtor alternatives available at a fixed fee for more than a decade. But the consumer wants a realtor. Note that in NL the realtor agreement is exclusive, meaning you cannot use multiple realtors, contrary to many other countries. The result is a much lower realtor fee or appr. 1.5%.
That said, is this actually going to change how Redfin operates? They used to rebate part of the agent fee in certain markets, but at least in my market, they no longer do. Now they're the same price as everyone else while providing a slightly worse service.
In 2005 NAR got their friends in the TX legislature to pass a law limiting what discount brokers could do - regulatory capture at its finest, and most blatant: https://www.npr.org/templates/story/story.php?storyId=496379.... IIRC the feds actually sued to overturn this law on antitrust grounds. I think they were successful but using Google to search for non-current events can be extremely painful so I gave up.
As some rando, I can't pay for access to the local MLS (or any MLS anywhere else).
I could take some classes and get a Realtor™-brand (don't forget to pronounce it real-tore or they get huffy) License and get access that way, but what the hell?
We ended up going to a local real estate attorney in town, and paid less than $1000 in fees for the whole transaction - didn't even use an escrow company, I handed the seller a personal check in the attorney's office. (biggest check I've ever written, had to write the numbers small to fit in the small box on my check!)
Perhaps Redfin should drop a line to Lina Kahn at the FTC.
I did this years ago, and it all went well. There's a substantial opportunity for Redfin here if they can connect buyers and sellers directly and charge a reasonable fee for all the boilerplate involved. At the time there wasn't an infrastructure to find homes with this selling arrangement so it was literally a "for sale by owner" sign in the yard.
I'm curious about the specific wording here:
> NAR membership is required for agents to access listing databases, lockboxes, and industry-standard contracts
Is it possible even in places with this regulatory capture for them to facilitate direct sales? Is it only NAR "databases" "lockboxes" and "contracts" that are unavailable to them, and if Redfin brings their own for both buyers and sellers they're in the clear?
I think real estate agents do add some value, after all there are things about properties that you won't know just by looking at online listings and having somebody familiar with an area out there doing some legwork for you is indeed a real job, but it's certainly not commensurate with the 3% of the entire transaction they're extracting.
FTFY
And that's before I bring up how everyone, from the titling company, to the attorney, to the inspector, also insisted we "needed" a realtor, with multiple potential vendors refusing to talk to me without one.
It felt, at the time, like a racket, with everyone in on the grift.
----
We bought our current house without an agent. Happens that the seller was an agent, but we worked with them directly.
I don’t plan to sell or leave to another place. I’m just disconcerted by buying a home and having the value increase before I ever set foot in it. That’s not normal, and it signals bad things are coming (to me).
I’m not excited at all, and I expect the home to be a financial burden for a very long time. I’m more so upset that so many of my friends and family are brutally priced out of having stable housing and it’s only getting worse.
Ideally I’d live here for 20 or 30 years, but we’ll see. Above all I want to be close to my kids, and it doesn’t seem like they’ll afford to live here.
The price of a house is simply a matter of supply and demand. If you buy when supply is more abundant and demand less so, you'll get a better price. Right now, there is a supply crunch in housing (because interest rates are high, the second hand market is really low volume), that means available inventory has a higher price. If you want a year later, the dynamic will be different.
Smart, observant, motivated people generally improve outcomes regardless of what they are involved in. There are amazingly good thieves, con artists and pimps, but is that something we want people pursuing professionally?
As an outside observer my impression is that the sell-side realtor provides a lot of value (especially if he/she has a small construction crew on standby) but the buy-side realtor contributes less. Also, the incentives are misaligned for the buy-side realtor - they get paid more the higher price you pay.
Regarding being on sell vs buy side - the buy-side should be helping you make sure you don't use a foot gun. They should be helping identify any material issues with the property and/or sourcing experts who can help with risk mitigation. And, they should have savvy to help negotiate the strongest possible offer to your favor. Because of several national lawsuits, it is very likely that consumers will be negotiating a price for a buyer's agent's services and paying for it directly in the near future. That's a whole other topic and probably requires frosty beverages.
The main reason RE agents play a significant role is the artificial stronghold around the MLS. It's not their Nobel prize winning brains providing irreplaceable services.
The MLSs? Do you have any idea what it was like prior to their existence and how much the public has benefited from the improvement in information asychronicity? Zillow et al stand on their shoulders. You don't like it, you try replicating what the MLSs do.
In any case, I agree that hedge funds are more of a compensation scheme. My opinion of them is relatively low, but that's from the point of that investing in them is a bad idea. I don't think on net they have any bad effects on the rest of the market.
This isn't really an argument against doing it. People also need to eat (more than they need a house, in fact). Farmers still should be able to get paid for helping to meet that need. People need to drink water. If you sell them water, there's nothing wrong with that. Just because something is a basic human need doesn't somehow mean that it's wrong to profit from filling it.
The fundamental error in our understanding of economics is treating non-produced goods like land as if they were "capital." There's nothing wrong with investing in producible goods -- in fact that's ideal. But when people gatekeep nonproduced goods, especially nonproduced goods that everybody needs to live (ie, land) - that's where everything breaks down.
A competition where we all try to outbid each other on land does nothing for the economy.
Therefore, these bidding is really just a price discovery mechanism. Unfortunately, because the transaction costs are high, and land being quite illiquid, the price doesn't rapidly converge to the "correct" one (aka, the true price might've moved faster than the bidding can catches up).
> does nothing for the economy.
Unless if the seller only ever reinvest into more land (and that seller also only reinvest into more land, ad-infinitum), the capital freed up from a sale will lubricate another sector of the economy.
Just lock up housing so that a single individual can’t own more than 3 homes.
Get married you get six houses you can own.
If that’s not enough maybe you need to reassess whether it makes sense to dump money into a house or put it to some actual better use.
Like creating jobs or new products.
Hypothetically (I expect the inverse to happen), if my value increases at this rate until my kids are moved out, I can sell this place for $1.5M. That would get me a LOT of house in one of those towns. But why? Who does that benefit? And does it push locals out of those towns, over time?
I don’t want to maintain some kind of housing homeostasis where values remain the same and no one moves. But the time scale here is ridiculous and it’s dramatically changing my region in bad ways, and I don’t see any net positives outside of very few people’s bank accounts.
Yet like I said, I do expect it to go the other way. I expected to lose 10% by now, not gain it. There should be a correction at some point, or things are going to be radically different where I live very soon. People are really at their limits.
There is no monopoly because there is no single 'MLS'
Most people who've only lived in one region don't realize that the other half of the country does real estate transactions completely differently.
https://www.wsba.org/for-legal-professionals/join-the-legal-...
Because their practice area is so limited they don't have to go to law school, and their "bar" exam is much easier.
The flip side of this is that unlimited practice attorneys (i.e. "real lawyers") are automatically allowed to do everything that real estate agents and escrow agents are allowed to do.
A large fraction of us on Hacker News are in the California Bay Area / Silicon Valley, New York, Seattle, Chicago, Toronto, London, and other major cities where a million dollars gets you a small home, far from the city. In most of those cities, you need to pay well over a million to get an average-sized single family home.
6% of that is 90,000. Buyer and seller agent each take 45,000. That’s about a Tesla for each of them.
Good realtors make a fortune without creating any productive value in economy. The house stays the same, just a big tax on exchange. Add that to lending fees, title fees, escrow fees and you’re easily looking at ~8% of transaction gone poof.
Trust me, I hate the idea of middlemen, and I do hope the system can get more efficient.
But I agree with your overall sentiment that the real estate market is a cartel.
E.g., even in North Korea there are black markets where prices go to the equilibrium value.
Demand creates supply, but not necessarily at the price point you want.
The best housing policies work with the market, and use regulation to keep NIMBYs in check, update zoning as necessary and allow builders to build enough m2 to satisfy demand.
Unless there are cities or counties with weird laws I’m not familiar with, you can always direct sell/buy. Due to where my place is, I get almost a monthly or bimonthly letter from a couple of well known developers in the area that usually highlight “no banks, no realtors” an they are looking to pay cash and handle all paper work themselves.
It seems that the grift in your case was every body’s else’s convenience but yours, and that convenience costed 6%
Grifts all the way down.
Preferred lenders usually are just as good as any other, or said differently, no better than anyone else except maybe for expedited paperwork. The bit about offering lower rates and sucking up more net in assosciated costs, hidden or plain, is not uncommon though.
It's especially important in this case because of the implications: One of the parties who "invest" in real estate is construction companies, who hold the real estate while they're building it. Lowering their costs makes them more profitable, so you get more construction -- which lowers housing costs by removing the realtor's vig and by the increase in the housing supply.
How good an investment is it after you remove the realtor fees, closing fees, HOA, taxes, repair and compare it to a steady 7% on average on the SP500?
At a minimum your house MUST go up 10% over a couple years to get even.
And that leverage is broadly available to most people, supported (and funded) by government policies.
All the recurring and one time fees take away from the leverage.
Playing with the buy or rent calculator from the NYT shows you how leverage is an absolute necessity:
https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Also probably important to consider that most people who buy homes cannot do so without a mortgage. So you're not even really comparing it to whatever else you might do with that money (well, aside from the down payment); it's just a pure expense. Sure, unless you have an interest-only loan, you're also putting principal into it every month (which you could put in the S&P instead), but that's sometimes better than giving a similar amount to a landlord, depending on housing economics in your area.
For instance, looking at buying a typical home in my market, one would have to pay around $2k in taxes and insurance per month. That's 2/3 of my current rent, and doesn't include maintenance. That's after the mortgage is paid off. That's on a $1.5M house. That $1.5M would earn you $82,500/year in risk free interest right now, or $6,875/mo. That's nearly enough to rent an equivalent house even after you've paid the income taxes.
Unfortunately, making "good investments" is necessary to stay above water in this precarious society, and our society is so fucking heartless that houses are one of the best investments a person can make. It's both bleak and absurd.
Not disagreeing, but zillow and redfin both track their estimate accuracy: https://www.redfin.com/redfin-estimate https://www.zillow.com/z/zestimate/
https://www.nytimes.com/2021/11/02/business/zillow-q3-earnin...
>Zillow, facing big losses, quits flipping houses and will lay off a quarter of its staff.
>The real estate website had been relying on its algorithm that estimates home values to buy and resell homes. That part of its business lost about $420 million in three months.
Zillow is great at estimating home values and related figures.
They're NOT great at estimating those values in the future.
I always check both sites when I'm looking at houses (basically every day) and the pattern holds: They can't really agree within 5%.
Technically they could both be correct if the sale price lands neatly between the two estimates, but some of these historical estimate graphs are also swinging more than 5% per month, too. I think there might be some fuzzy math going on somewhere.
Mine is the only one of 36 with a view of trees rather than road or other homes, so I perceive that as higher value too. That wouldn’t be evident until I sell it of course, but I find recent prices for these homes kind of insane. This change occurred before anyone even set foot in them; I’m just packing to move this week.
Then once the prices started coming down, the opposite. I am looking at multiple homes right now, with multiple markdowns, and yet all the other homes around them have the same estimated Zillow price as many months ago, which the currently listed for homes obviously did not sell at. This is mid 2022 to now.
Buyers are free to find & view FSBO homes on their own, they can easily be found on Zillow and any other listing site. MLS even accepts FSBO listings for a flat $300 or so fee, no agent required
I'm talking about BUYERS' agents refusing to show FSOB homes to the buyers they represent because sometimes they are on the sell side so they don't want to encourage FSOB. If they did represent the buyer in buying an FSOB house they'd still get the buy side commission...a short term gain that would piss off all the other agents in town.
In an FSBO there's by definition no seller's commission.
Would be interesting to see data on this. Didn't Redfin have a reduced commission path? Any evidence that led to more speculation?
I buy a house for 100,000, incur about 5k in government, administrative fees. Sell it for 125k, netting 20k - less if you consider insurance and property taxes. So let's say 18k. But I've paid the realtor 6% on 125k. That's 7.5k. That's a whopping 41.67% of profits
Perhaps fractional ownership was used in limited circumstances before, but some tech co thought they can make it mainstream and didn't stop to think if they should. Cue unforeseen consequences.
I've often felt that trading stocks and real estate investing like this is benefiting from other people's debt. which raises the interesting question. If you were to live according to Dave Ramsey's debt is evil philosophy and everybody got rid of debt, where would you put your money to build for the future?
Rates are, barring a crash(which will also hammer home prices) likely staying elevated for another year, possibly more. Those rates also allow me to make thousands per month, risk-free, in interest off my savings. I'm able to rent for $3-4k/month, while mortgage+taxes+insurance+maintenance would set me back around $5k/month. Housing inventory is poor, so if I did buy I'd have to opt for a suboptimal location and/or construction.
The one circumstance I could see that would possibly make me regret holding off is financial repression by the fed where rates are held below inflation and houses keep appreciating, but I don't see a big risk to that over the next year.
I do expect rates to hold, and maybe even rise, since we're running huge deficits(requiring massive treasury issuance) and going into an election year (where no politician will choose austerity). I think it will eventually drop housing prices. Even in the best case for housing, values will likely stay flat in nominal terms.
If you are in a state with income tax, I would take a minute, even immeasurable, increase in risk by putting it in US Treasuries (like TTTXX at Merrill), resulting in no state income taxes for 95%+ of your return. In case you already are not doing that.
I wouldn’t trust what the government is doing to have any bearing on rates. Lower interest rates actually make it cheaper for the government to borrow as it does for everyone else. Those treasury bonds get expensive when their yields pop above inflation.
> Lower interest rates actually make it cheaper for the government to borrow as it does for everyone else.
Right, and that's the government's incentive to pursue financial repression as I mentioned. But that also weakens the dollar and allows inflation to rip again so the government is somewhat boxed-in and has some hard choices to make. My guess is that no repression occurs, rates stay positive as they are now, the government continues to run huge deficits until after the election, and then they pay for it with huge tax increases in 2 years. Right now it feels like the boomers are squeezing the wealth out of the country for their final years and will leave us with quite the bill that only AI-driven productivity gains can resolve.
I know it’s a huge difference. As a parent I’d almost be willing to pay even more, though. I can’t rely on someone not selling my home from underneath me and then needing to find something else when vacancies are well below 1%.
I’ll probably feel some pain from this purchase eventually, but I’m prepared. I can also keep in mind that the alternative downsides of renting were serious and constantly present, with no real upside. Rates are extremely high here.
Just got back from Sacramento and they were building units for as far as I could see. Same thing in many markets.
Go back and read articles from 2006. They said housing prices were fine because we were lacking supply and had underbuilt for years. Then suddenly we had too many houses. Affordability matters appreciation expectations matter. Credit matters. Employment matters.
People will always sell. They can only hold off so long.
I was around in 2006. We didn’t have too many houses then, we had people granted credit on dubious applications, ARMs bundled up as AAA credit. That’s not going to repeat. And if it does, it’ll be nationwide all at once, rather than market-by-market like last time.
Certainly if there is a major jobs crash, then people cannot afford their mortgage. But the government doesn’t like this and they’ll step in again like they always do.
People are indeed holding on their low rate mortgage and that is the only reason why the prices are currently so high (artificially low supply). This will eventually end. People need to move for job (return to the office anyone?), retirement or other reasons. Some people will lose their job and simply be unable to afford their mortgage. It is only a matter of time before it starts crumbling and the floodgates open.
The other side of the coin is that in a perfect market, the obvious arbitrage is to simply rent and invest your money in better performing assets. (we could discuss how in America most people buy blindly without any considerations for the underlying numbers).
Finally in every cycle, housing always took multiple months/years to adjust to the conditions. This is due to a slow moving and illiquid market. Owners think they can still get that "pandemic" 1m$ for a fixer upper while the rates went up a couple %. This price anchoring and discovery takes time. You can see this currently happening all over the US. Prices are slowly declining.
The next 10 years are going to be extremely interesting. Especially if we don't increase immigration, at least for the transition
https://www.stlouisfed.org/open-vault/2018/may/why-economist...
https://www.economist.com/finance-and-economics/2017/02/02/w...
https://www.economist.com/free-exchange/2010/09/13/dont-defe...
https://www.economist.com/briefing/2015/05/16/a-senseless-su...
https://fivethirtyeight.com/features/the-tax-deductions-econ...
There's a lot of mortgage features that make it attractive to "I'm not an Accredited Investor" types.
I’m not really clear on why it’s structured that way in the first place — why doesn’t the buyer pay his own agent directly?
Yes, I was also around in 2006. That seems irrelevant as there is adequate data available regardless of when you were born.
> It’s just not the same market as homes.
No, it is, at least when people have to make hard choices. There is no law that says each family gets a SFH to themselves. Sure, they may want that, but when SFH becomes unobtainable people make those hard choices.
If you have more homes than you have willing and able buyers, you have too many homes. Family formation can be delayed(i.e. live with relatives longer) or families can choose multifamily. I don't recall a mass epidemic of homelessness after 2008 left homes empty, so it seems to me that we have enough places to live, even if those places are not the dwelling of their dreams. I understand there are statistics that say otherwise, and similar statistics were around in 2006 and proved to be wrong, so I have to question the recent statistics.
> That’s not going to repeat.
I didn't say that. We may see a 2008 style financial crash driven by commercial real estate, but I doubt even that will happen. What will likely happen is that the folks who think prices only go up will be surprised as the pool of buyers opts out of the SFH market while attrition slowly lowers prices. This process may even snowball in some markets as people "race for the exits" when they realize home prices are losing support.
The only aspect of "investment" should come from proper maintenance of structures, and replacing structures with greater density as soon as the land values justify it.
Home ownership as investment has been a generational disaster
Yes, in more ways than one. To juice returns, sure. But the main reason people lever into real estate is because they don't have the cash to buy. So most homebuyers enter into a favorable high-leverage asset whose gains are given preferred tax treatment.
Discussing residential RE as if leverage is optional is not useful.
Nope! First of all, it's come from no one's pockets until you sell. Until then it's just a hypothetical, theoretical gain on paper.
Second of all, when you do sell it, the money will come from the pockets of your willing buyer :-)
Edit: if you still want to feel bad about something, let it be this: that the rise in your home's value represents wealth that has been created "by the community" in the sense that it's only because of many variables of the surrounding community that the land has become more desirable and therefore more expensive; and your ability to capture all of that increase via your untaxed monopoly on the ground rent creates a deadweight loss for the broader economy.
But that's why we created the universal land value tax and used it to replace all other taxes! (Hello from the year 2078!)
I am struggling to find the right words to express how wrong your view is to me. Housing is a basic human need like food and clothing. How can you in good conscience celebrate making a tremendous profits exploiting the fact that people cannot afford a basic need?
Then surely I have failed to convey it!
In any case, my edited point about "deadweight loss" is perfectly consonant with the parent poster's feeling of guilt, and with what I presume is your feeling of disgust; it is in fact the economic term of art for that at which you intuitively recoil.
(Although you're kind of equating a very, very expensive home, in the overall scheme of things, with the minimum requirements of decency, if you really think that he's exploiting someone's inability to afford housing, but w/e.)
Now let's get into the controversial stuff...
> Housing is a basic human need like food and clothing.
Agreed. But it's also an asset, because someone has to build and maintain it and have exclusive use of (at least parts of) it, and being a basic need doesn't automatically create a right to something (for obvious reasons) so that asset is gonna trade hands voluntarily like any other. Its price will fluctuate, sorry.
Now, NIMBYs using government fiat to drive down housing supply in their market is an annoyingly common failure mode of local democracy, maybe that's all you're upset about.
Yes, food, but I don't see many arguments for bringing down the price of caviar.
IOW, making an argument against high property prices in highly desirable areas is not the same as making an argument for low cost housing.
It doesn't really matter how dense you make housing in highly desirable areas, there'll always be more people who want to live there than houses available.
The solution is more remote working and much faster public transport.
Tax breaks on businesses for each remote worker will be cheaper than building more slums, it will be quicker (demand is affected almost immediately) and it needs no political campaigning against the local NIMBY residents.
Instead of trying to guilt trip people about the paper value increase in their property, just remove that paper value increase altogether.
(I'm not sure how you would solve the slow public transportation problem. Where I am we have 160km/hour trains, but the door-to-door travel time using these trains to travel 20km is still about twice the time it takes to drive)
If someone discovers their vintage car is worth more than they paid for it as teenager should they feel guilty over this?
Do you feel guilty when you eat food because someone somewhere isn't?
I'm completely missing your point.
If I buy property in a developing area because I think it's cool, and I live there for years and am part of the community and watch it grow around me, and years later decide to sell - I took an early risk, don't I deserve to recognize the rewards from that risk?
If it was a bad risk and the area went to hell, and I lost money - is that ok?
But making money isn't?
Should home builders not be allowed to make money because housing is a basic human need?
Should we not be allowed to build luxury homes that cost more because we could have built multiple cheaper ones with the same money?
What should the rules be, in your opinion?
When the people who "generate wealth" are doing so by dictating prices, that seems a bit sketchy to me.
The ironic thing is that housing scarcity often ends up making a place much less desirable -- even for the entrenched homeowners who cause the scarcity problem.
Homeowners with this much gain based on artificial supply constraints should definitely feel bad.
It comes from their pockets when they pay rent. Meanwhile you, as a property owner, receive thousands of dollars a month in imputed rent by owning a place to live.
You also have the ability to spend the money without selling the property by borrowing against the equity, as many people do.
> Second of all, when you do sell it, the money will come from the pockets of your willing buyer
People "willingly" subscribe to Comcast. Not because they prefer doing business with Comcast or believe themselves to be getting a fair deal.
> if you still want to feel bad about something, let it be this:
The people celebrating the increase in housing costs because they own housing should feel bad about it. Especially the ones who caused it by lobbying for zoning restrictions.
> But that's why we created the universal land value tax and used it to replace all other taxes! (Hello from the year 2078!)
This doesn't actually fix housing shortages created by restrictive zoning -- which you could conceivably still have with a land value tax and a government that keeps the restrictive zoning to maximize land values and therefore tax revenue. (Land is worth a lot more if you need it proportionally to build housing instead of just buying one piece of land to build an arbitrarily large amount of housing by building an arbitrarily tall building.)
Assuming that property tax has been tracking the current market value of the house then yes.
But in California prop 13 means that isn't the case
You bought a house and you live in it. Feeling guilt over something that isn't your fault makes no sense. If it makes you feel _better_ to try to help solve the problem, that's great; but that's totally different than guilt.
Just like it's not right to feel bad that you can't keep up with the Joneses, its not right to feel guilty that the Smiths can't keep up with you.
If the food in your fridge or the clothes in your closet were suddenly drastically more expensive and you could make a profit selling them, would that be a good sign for your society and community? Would you view it as a sign of prosperity that your well stocked pantry was now a source of funds you can tap by selling to starving people?
Housing is a basic human need and it’s all but unaffordable. Even if you personally profit surely you can see that this is corrosive to society as a whole.
1. Through the years you own your home, you will pay roughly 1% of the notional value of the property in state and local property taxes EACH YEAR. You already know this.
2. When you sell your house, agents will eat 5% and the state you are in will take another ~3%. Other closing costs, the expense and the hassle to spruce up the house for sale. Round it off to a 10% haircut of the selling price.
3. If you're single the first $250K of capital gains on your primary residence is exempt from federal income tax. Beyond that the IRS will take its cut. Include the Net Investment Income Tax (NIIT) and you're looking at 24% tax on any capital gains, assuming you will be in a high tax bracket when you sell. And depending upon the state you live in, there will be capital gains taxes paid to the state.
Now look around you at the prices of groceries and meals. I have seen these costs roughly double in the last 8 years.
So it's not just that your house has appreciated in value -- it's more that the value of the dollar has gone down. And the plumbers and electricians and construction workers needed to build a new house have also gotten more expensive. By buying real estate you have managed to preserve your buying power somewhat so it's not eaten up by inflation.
You're not as rich as you think, but at least you're better off than the intern and your younger siblings. (edit: formatting)
Would that alleviate your guilt?
As analogy: "It sucks that my peers earn less than me because they are part of <X disenfranchised group>"; You: "Why don't you just take your extra income and give it to them?"
What I'm doing now is renting out that house at less than my mortgage whilst living in a different country with higher taxes and which generally takes better care of its people (the blight that is the Tories notwithstanding).
That said, you can't expect people not to play the game if they're forced to play the game. Those of us in the western world pretty much all live in capitalist countries; the best we can do is ensure that we're doing well in our own lives whilst trying to fix the game for those who aren't doing so well. Taking out a HELOC and giving the money to friends is a substantial financial risk that jeopardises our own comfort without having a clear positive impact on those friends and without really fixing the underlying problem. It's like giving cash to a homeless person instead of giving them housing and support -- the cash will be gone soon, and the system that resulted in their homelessness won't be fixed, nor will you have prevented any future homelessness.
tl;dr, you can own a house and live comfortably whilst still lamenting the fact that your friends can't, and this isn't an inherently hypocritical stance. You're just lamenting the fact that the game you're playing necessarily has winners and losers, and wishing that would change.
IF someone actually means it, though, (which is a very big IF), taking out a HELOC and giving the money to friends for their own down payments is nothing like giving cash to a stranger with a demonstrated history of ending up without money.
If someone really does think their position is a fortuitous accident, and that their friends are equally deserving, just less lucky, they can settle the score. They can take the fruits of their luck, give it to their friends to afford them the same advantage of home ownership, and place themselves in a financial situation similar to their friends. Similar interest rate. Similar equity in the home. Even things out again.
There might be people who really do believe they should right a wrong, and they have the opportunity.
Realistically, I think it's like the richest people who bemoan the injustice that they don't even pay taxes as high as their hired servants, but wouldn't dream of using the IRS's easily available option to pay more taxes voluntarily.
I don't like it when people get points for pretending they care.
If either of those substantially changes, the US budget to inflation link becomes very different, because there won't be external sinks to soak up extra dollars.
Globalization will change on glacial timescales. And the alternatives don't look great: Euro (economic concerns), yen (economic concerns), yuan (economic and political concerns), ruble (economic and political and sanctions concerns), rupee (maybe if SE Asia gets its economic integration in order), naira (would need scale from other major African economies)
Oil being sunset is going to be fascinating macroeconomically, as a huge part of the US' world economic power flows through Saudi Arabia.
You glimpse the problem at the end, only to dismiss it. Your glimpse is when you say:
> Now, NIMBYs using government fiat to drive down housing supply in their market is an annoyingly common failure mode of local democracy, maybe that's all you're upset about.
The triangle that you're looking at is that NIMBYs lead to lack of construction, lead to undersupply of housing, which is a direct cost of both high housing costs and high homeless populations. The profit that I have as a homeowner comes from somewhere. Where it comes from is artificial scarcity that causes renters to struggle, and over 170,000 Californians to be unhoused.
Looking at that without guilt, is like New Englanders whose families made a fortune investing in the triangle trade, congratulating themselves on not having been those evil slave owners. Sorry, but it is tied together. You cannot both profit from the crime, and disclaim a portion of responsibility for it at the same time.
What are those obvious reasons?
A land area with a 40 mile radius and the population density of Manhattan would contain the entire population of the United States.
> Instead of trying to guilt trip people about the paper value increase in their property, just remove that paper value increase altogether.
The only way to do this is to build more housing. You can't fix it with mass transit because the existing housing is low density and mass transit requires high density.
That's a good point you make - even at the extremes of high-density living, high density still doesn't solve affordability!
People can neither walk nor bike 80 miles, and public transport over 80 miles with multiple stops takes hours, so you can reasonably expect that prices would be considerably higher in the center (40 miles to everywhere) where it is more desirable, and people can neither walk nor bike 40 miles for commuting. Public transport infrastructure for a 40 mile journey also makes commuting infeasible.
The problem of not being able to afford living close to where you need to be is still there, even in the hypothetical pathological case.
If it can't solve the problem in the ideal case, it can't solve the problem in any case.
Most “new urbanism” people advocate for medium sized, densely built, 15 minute cities. Not a single megalopolis.
Manhattan is <23 square miles, containing ~1.6M people, surrounded by a metropolitan area of ~20M. The surrounding metro area has a much lower population density (less than 3% that of Manhattan itself), implying that it's practical for it to be higher, which would reduce housing costs by supply and demand.
It's not about how much housing you have in absolute, it's about how much you have relative to demand. The demand in NYC is about the highest in the country, so they need more supply than they have even now.
> People can neither walk nor bike 80 miles, and public transport over 80 miles with multiple stops takes hours, so you can reasonably expect that prices would be considerably higher in the center (40 miles to everywhere) where it is more desirable, and people can neither walk nor bike 40 miles for commuting. Public transport infrastructure for a 40 mile journey also makes commuting infeasible.
The average commute is 41 miles as it is. And with that level of density you could justify express trains that travel at highway speeds or more, making that distance a much shorter commute than it is even now.
The area in the center might cost more than the outer ring, but what of it? The point is not to make all housing have the same price, it's to build more housing to lower the price of all housing. It doesn't matter if the center costs more than the outskirts if they each cost <25% of what they do now.
It also goes without saying that you would not actually build this. You neither need nor want the entire US population to live in an area the size of Connecticut which represents less than 1% of its land mass; there are multiple metropolitan areas spread all over. The point is merely that enough housing for the entire population would fit in that area, which serves as an upper limit on how much housing demand you could even have. And even Manhattan has a lower population density than we could build at -- it certainly doesn't consist entirely of 100 story buildings despite them being possible to build. The claim that it isn't possible is clearly false.
> The problem of not being able to afford living close to where you need to be is still there, even in the hypothetical pathological case.
That is the pathological worse case scenario because you would have to provide enough housing for a single city with 340M people in it, and you still end up with a lower average commute than people have today.
If you took an existing metropolitan area and raised the population density to that of Manhattan (i.e. lowered the area with the same population) then the San Francisco metro area with 7.8M people would have a radius of less than 6 miles.
And it would be silly to do even that, because all you need to do is convert existing single story housing into multi-story housing and thereby provide enough housing to satisfy demand. You can increase the density by a factor of >50, it's not a question of whether existing construction technology would allow it to be built, but even increasing it by a factor of only 2 or 3 would significantly lower housing costs.
Neglecting the fees, commissions, insurance, loan points, repairs, time, taxes, the cost of the house sitting there vacant, etc.
Houses are historically lousy investments.
Not saying this makes houses good investments, but it is something to consider. I think that this is the cheapest leverage a typically person in the US could obtain.
> Houses are historically lousy investments.
Specifically, my intuition is that most people don't speculate in housing because they don't have the capital to do so. More, most of the people I have known that had the capital to do so, did, in fact, speculate in real estate. Similarly, most people I know that have purchased homes could only do so on highly leveraged loans. Again, they didn't have the capital to do speculation. They still stretched for as large of a loan as they could, at large. Which is its own form of speculation.
I'd be curious to know how much the fee for day trading can be. I know it isn't directly comparable, due to volume differences, but I'm assuming you weren't thinking real estate would get to day trader levels of speculation?
Every transaction has overheads. But I'm just talking about house flipping, or even when upgrading from one house to another, 41% of any money I, as an individual could use towards the new house, kids education or whatever, going as a transaction overhead is simply crazy, and almost extortionist given how monopolistic this is in the US
Re: Day trading - That would be REIT and related instruments.
Realtor here - if you are house flipping, you are in a unique category and not really a member of the general public. You should either get your real estate license (if you believe you are able and willing to market property yourself) or you should find a dedicated agent partner with whom you have a negotiated rate. But also consider that as an agent, my out of pocket costs to market your example property could easily be $1000, plus my brokerage (assuming I'm affiliated and it isn't my own brokerage) also is taking their 40%+ cut of my commission, so I'm not making nearly as much as you think -- which is why especially on a house priced at the lower end of the spectrum I need to keep my commission % higher.
Upgrading a house is another odd one. Most of the upgrades you would do that go with "get a new house" are all size and location related. You might give some pause to the fees involved, but probably not much.
My point on day trading is that transaction fees don't seem to stop people with excess cash to go off and speculate in the market. They won't be as high as realtor fees, of course, but the overall stakes are also not nearly as high.
That said HELOC and similar tools also really highlight just how bad most people's financial considerations are with home values. Refinancing to get a lower rate is a laughable idea when you consider the fees that went into that effort. And that doesn't stop many people at all from doing it. (Not to mention the ones that reset their timelines...)
All of that is to say, I still have my doubts that any of the myriad of fees involved in the process are what stops speculation.
Transaction costs for diversification. The same reason it makes sense to buy ETFs versus directly balance your own portfolio for anything below your first million.
In general, asking “why not X instead of Y” without giving reasons why X is preferable over Y is just a waste of everyone’s time.
There are some ways we could avoid some or all of it, but I was not considering a situation where you and I shared a primary residence, because we’d spend too much time arguing about taxation basics.
On the other hand, a REIT with more than the required number of members that distributes the required share of profits will pay no income taxes. Investors in the REIT, on the other hand, pay taxes on the dividends.
Fannie Mae has a short history page here for those interested: https://www.fanniemae.com/about-us/who-we-are/history
In August 2023, home prices in California were up 4.8% compared to last year, selling for a median price of $792,900. On average, the number of homes sold was down 14.0% year over year and there were 25,115 homes sold in August this year, down 29,214 homes sold in August last year.
https://cdn.nar.realtor//sites/default/files/documents/ehs-0...
A couple hundred thousand is the price of land, not a home. If it is a home, it’s a teardown.
Capital gains don't necessarily apply everywhere. In eg Australia your owner occupied house is exempt. And in eg Singapore we don't have capital gains on any asset at all.
A house is both a home and an investment for most people. That's just a description of what's happening. However you could say that a house _should_ not be an investment.
Less than a quarter of Americans own their own homes. [0]
[0] - https://www.forbes.com/sites/johnwake/2023/03/31/us-has-3rd-...
In your mind, how much of the increase in value of housing is due to “early risk” paying off in a valuable community vs an increase in overall demand without an increase in supply?
When the nation sees the housing supply increase slower than the population, that’s not a risky investment. It’s musical chairs where you pay to win.
I'm asking because it really doesn't seem like you have much experience with it based on your comments.
Housing prices go through bubble-burst cycles regularly.
National trends are interesting, vaguely, but local markets are everything, and fluctuate wildly based on many factors.
We get into serious trouble when we have external forces skew the market, like in 2008.
Covid years + essentially free loans (nearly zero interest) are another example.
It caused a bubble that's going to cause a lot of pain as the market corrects.
I'll be part of the solution - I'll buy properties (most likely next year) that are in distress, rehab them, and then sell them later.
According to you, though, that's somehow wrong. I should just let foreclosures happen, let houses rot empty - because profit is wrong?
I’ve seen HGTV. I’m familiar with house flipping, I know that the markets are local. I don’t really need an economics lesson to understand that low interest rates spurred buying. Don’t kid yourself into thinking it takes a genius investor to buy something in low supply relative to demand and resell it for more.
If you don’t win the lottery you can always buy resale which is close to $1M for a 2 bedroom place.
Oh and it’s a 99 year lease. After 99 years you give it back to the government and get $0.
I can drive 30-45 minutes and be sitting on a lake with no one around, when I retire that drive will be 5-10 minutes.
A lot of us don't want to live like that even if we could.
Which should make it even easier to find low density housing, because you won't be competing for it against people who just need a place to live and don't care about having a big yard.
> Anyone that leverages their home is an idiot. ... and capital gains applies anywhere [...]
Anyone, anywhere..
Guess I should be learning from you then.
Being a nationwide problem, they probably wouldn't be able to solve the problem. Because solving the problem means everyone moves to your state.
It doesn’t matter when you sell because now you’re floating on the water. As the tide rises, so do you.
If they sell that house, and then buy something new at a similar market rate, their property taxes will balloon overnight, because the assessments "reset" to the purchase price when the property changes hands.
The only way this works out great is if, after selling this house, they move to a new area (possibly new state) with lower cost-of-living, and possibly a more sane property tax regime.
(Not sure the person way upthread is in California, but someone lower down mentioned Prop 13, so I thought I'd bring this up.)
I would pay 50% more if I upgraded with the same debt amount due to interest.
Say you bougt a house for 200K many years ago. Your neighbor bought the slightly larger house next door for 275K back then. Your house is worth 1M now. Can you move?
Sure, you can sell your house at a nice profit (and pay taxes on that!!). The neighbors house is worth maybe 1.2M now. So you can't really afford to move.
Housing gains on paper are not income and you can't cash in on it unless you move out to a much cheaper area. Otherwise whatever gains you had on paper also apply to the nearby houses, so you can't afford them.
Why are you so certain you couldn't you afford them? You were able to purchase a 200K house many years ago. Now you just need another 200K to buy that bigger house — and it's a bigger house! You did it once long ago, you can probably do it again even easier (in addition to everything else, you have a huge downpayment now). And no, you typically don't pay capital gains taxes against your primary residence.
In any case, the point is that you're in a way better place than if you hadn't made that 200K purchase. That's what I mean by "floating on the water" — you have a stake in the market so now as it moves, so does your asset.
If you can't afford less than $1k per month you could just sell your $1 million house.
Those numbers aren't being dramatic. You need a $1.2 million house to pay $1k a month in property taxes.
That is technically true, but not really true. The basic tax rate is indeed 1%, but counties and cities are free to add any kind of fees they want (AFAIK there is no limit) to your property tax so in practice you're paying way more than 1% in CA.
Irvine CA wanted property tax and so they get builders to force you to an extra fee but it isn't technically a property tax.
Not to say there isn't sometimes a fee or two added but it isn't the Wild West at all.
Investing in a REIT is just investing in a company that happens to derive cash flows from real estate. You’re not buying fractional ownership of real estate when investing in a REIT. You’re investing in a management team and a capital allocation strategy. It’s much more similar to a mutual fund or PE fund. The only difference between a normal business and a REIT is that you have to pay income tax on your dividends. Owning a fractional share of a property is taking an ownership stake in a real asset. The two aren’t related at all.
A married couple can exclude 500K from taxes, but the rest (given example above) is taxable.
> In any case, the point is that you're in a way better place than if you hadn't made that 200K purchase.
For sure. Owning is better than renting.
That is the loophole they use. They add all kinds of fees into the property tax but don't classify them as taxes. Best I know, there is no limit to how many and how much. Twenty years ago my property tax was just a single line item, the property tax. Now it's up to 6-7 (don't have the bill in front of me to check exact count) line items.
So yes, your CA propery tax^H^H^Hfee bill can be way over 1%