Interesting comments from one of my former students on housing

[JeffKeryk]

By some definitions, investments bring in income. Since house you live in does not typically bring in income, it is not an investment.

It gets down to semantics to some degree but it can be a beneficial way of thinking.

An investment is a capital expenditure with an expected return.
My long term plan was stock, bonds, property, etc. and minimizing recurring costs.
That way, in lean times, even if the markets went south, I could live very cheaply and ride out the inevitable downturns.
When I bought this small, old, beat up house, I could have bought a bigger, much better home in a different area. I believed this town would be safer and hold its value better than others. It has worked out well.
This house would easily run $4,000 per month rent; instead it is paid off. And worth quite a bit more than the purchase price...

The best investment is investing in yourself.

 

[JeffKeryk]

I agree with him. Once it became an asset class was when prices skyrocketed. If you plot the average US home price vs Avg. wages it was linear for like 100 years, until sometime in the 90's. Now we are here.

Ya gotta have a place to live. Having a home free and clear is an incredible feeling; perhaps my most rewarding investment.

Why? I was broke and homeless because of my own making. I never thought I could have a roof over my head for any length of time. Turns out I was wrong, and sometimes being wrong is just about the best thing in the world.

 

[SC Maintenance]

Ya gotta have a place to live. Having a home free and clear is an incredible feeling; perhaps my most rewarding investment.

Why? I was broke and homeless because of my own making. I never thought I could have a roof over my head for any length of time. Turns out I was wrong, and sometimes being wrong is just about the best thing in the world.

Yes, that is exactly what I am saying. Houses used to be a place to live. Their value was based on their utility - you living in it, or you renting it to someone else who paid you to live in it.

Now they are an asset class to be speculated on. Not even individual homes in individual locations. Consolidated homes in REITS and blackrock.

Not complaining, not saying its going to change - just saying it was likely better for society as a whole when housing was something people bought for their utility, not traded consolidators of them on Wal Street.

 

[PandaBear]

Unlike cars, tvs, computers, robots, etc. Home is not something you just take apart and move across the countries. It is easier to move a company and a job elsewhere than to move a house or a building today.

So whenever people says there's a surplus or a shortage of homes and use "national data" to tell you one or the other, pay very close attention to what do the data tells you and where do the data come from. I can assure you data from Atherton means nothing to data in West Virginia. National data may be valuable to bundled investment vehicles sold by Fanny and Freddie and bank stocks, but not whether you should buy a home in your neighborhood more than what your local Redfin and Zillow data.

Bay Area do have a huge shortage of home as there's no virgin lands in easy to commute area. If you want those new virgin homes instead of teardown and rebuild in a good school district you have to take remote or hybrid jobs and likely take a paycut vs someone onsite. You can also choose to live in a "condo / townhouse / apartment" and pay maybe 30-50% less than a single family home if you don't want to commute to your dream job, or you have to be lucky to make those 200-400k income jobs for BOTH you and your spouse, or just decide to not have kids.

I am sure things are different in other areas of the nation, and changing as people start moving for remote jobs after the pandemic. You may see Boseman Montana being super hot now and no stopping due to influx of remote workers making coastal money, or some remote mountain rural area being super desirable now because Starlink lets you work remotely next to a national park, and people leaving NYC because they don't need to live there for Wall Street as everything is running off FPGA and GPU inside a Jersey data center.

Trust your local data only.

 

[PandaBear]

Yes, that is exactly what I am saying. Houses used to be a place to live. Their value was based on their utility - you living in it, or you renting it to someone else who paid you to live in it.

Now they are an asset class to be speculated on. Not even individual homes in individual locations. Consolidated homes in REITS and blackrock.

Not complaining, not saying its going to change - just saying it was likely better for society as a whole when housing was something people bought for their utility, not traded consolidators of them on Wal Street.

House was always a speculation, even back in the Roman days.

Beginning in Ancient Rome: A Brief History of Apartments - Robert Hancock Co.

Apartment living has not always been luxurious. Present-day apartments have ample amenities, friendly staff, and regular maintenance this was not always the case. Apartment living dates back to ancient Rome. Apartments in ancient Rome were called Insula and looked very different to the...

roberthancockco.com

Whoever complains about apartment living, Roman build the biggest empire ancient world had living in apartments, and they are fine with it. It is not the end of the world.

 

[PandaBear]

Do you want a business occupying a space that pays a annual business license, or a business occupying a space that pays and annual business license AND sales tax monthly?

I want a business that doesn't turn my neighborhood into trash. If I have to choose between insurance agent / dentist vs liquor stores / gas station, I would take insurance / dentist any day.

 

[PandaBear]

I’m surprised that this type of housing has not taken off here. Six hours to put up a house.




In this video you see that these homes are not cracker boxes.

It is never the building that's worth the money but the location. Japan has a lot of Danchi rapidly build during the boom days to house people entering the cities to work. They are like the affordable housing your grannies live in but after they pass away, nobody wants them anymore. These "6 hr to put up" house would be the same thing in the future vs a nicer well build home taking the right time for the right location.

The Rise and Fall of Danchi, Japan’s Largest Social Housing Experiment

Japanese mass housing from the 1960s is a cross-cultural experiment that merged Western and Soviet modernist typologies with traditional Japanese elements.

www.archdaily.com

 

[PandaBear]

Yeah, Im lost on this one.
Best advice for anyone. If you want to buy a home, and need a home to live buy it!
Why even question what is the right time? I can answer that, people love to talk, analyze. But that thinking is dead wrong with real estate.
If you want to speculate, instead of speculating on a roof over your head, buy the home and speculate in the stock market.
You will always get the housing market wrong. If you bought a home in 2006 like we did, the value was close to double many years later.
Why would you wait? For what? If you are that good to know the market, buy the home and invest in the stock market, with the profits you can pay off the home. Never happen, EXCEPT like anything in life, roll of the dice, some will win but it's nothing more than speculation.

You need a home, buy a home, it will be worth more in 10 years even if the market crashed. IN the meantime you will have built up equity in your home, reduced your mortgage (if you were smart) and again, if you're that good, put your spare money into the stock market too.
One thing for sure, you will either be right advising someone to buy a home or you will be wrong, flip a coin, see where it lands. It's not rocket science, giving home buying advice is just plain old luck.

Bargain in investment usually only comes when the sellers and buyers are distressed. Back in 2010 it is very hard to borrow money to buy any distressed property, and if you made good money you also may have your hands tied and can't finance. Buying your own home that you can afford is USUALLY a good idea as you need to live anyways, but 2nd home or rental properties should only be done when you are financially stable and can afford to weather financial difficulties.

 

[gfh77665]

You got me here, Dave. It can be and should be both.
Can you explain your reasoning? I'm feeling a little dumbfounded...

You are right Jeff. It can definitely be both. I know numerous long tern owners that have watched their home appreciate in value that now regard their home as "their retirement" when they eventually sell and move.

BTW Warren Buffet was asked several years ago "hypothetically, what is the one thing you would invest in for the future?". Warren said its not feasible for him, but if he could he would invest in single family housing across the nation.

Appearing live on CNBC's Squawk Box, Buffett once told Becky Quick he'd buy up "a couple hundred thousand" single family homes if it were practical to do so.

If held for a long period of time and purchased at low rates, Buffett says houses are even better than stocks. He advises buyers to take out a 30-year mortgage and refinance if rates go down.

 

[bbhero]

I agree with him. Once it became an asset class was when prices skyrocketed. If you plot the average US home price vs Avg. wages it was linear for like 100 years, until sometime in the 90's. Now we are here.

What happened is the Fed keeping interest rates low for a LONG LONG time….

Then the one aspect NO ONE has mentioned in this whole discussion is when the Glass-Stegall Act was done away with by a both parties and signed into LAW by a President.
Why and what long term effects did this have ???

It allowed the wall between commercial banking and INVESTMENT banking to be taken down..

Then in the early 2000s for the FIRST bubble…. With artificial low interest rates and banks started making STUPID loans which… got bundled up into MORTGAGE backed securities…

Viola… eventually that all came crashing down.

I knew something was way, way, way off when real estate went up almost 200 percent in 5 years between 2002-2007…

Yet incomes were rather stagnant… I remember talking with a lawyer friend of mine who did many real estate deals at the gym Bill Johnson and he told me that, “ I don’t understand how people are affording all of this” ?

And by the way… NO law change… it’s the same stupid set up like it has been since the early 2000s.. Many many people thought that the law like the Glass-Stegall act was reinstated… It was not.

No change… This merry go round of nonsense is allowed by law, the Fed and the banks…

 

[PandaBear]

What happened is the Fed keeping interest rates low for a LONG LONG time….

Then the one aspect NO ONE has mentioned in this whole discussion is when the Glass-Stegall Act was done away with by a both parties and signed into LAW by a President.
Why and what long term effects did this have ???

It allowed the wall between commercial banking and INVESTMENT banking to be taken down..

Then in the early 2000s for the FIRST bubble…. With artificial low interest rates and banks started making STUPID loans which… got bundled up into MORTGAGE backed securities…

Viola… eventually that all came crashing down.

I knew something was way, way, way off when real estate went up almost 200 percent in 5 years between 2002-2007…

Yet incomes were rather stagnant… I remember talking with a lawyer friend of mine who did many real estate deals at the gym Bill Johnson and he told me that, “ I don’t understand how people are affording all of this” ?

And by the way… NO law change… it’s the same stupid set up like it has been since the early 2000s.. Many many people thought that the law like the Glass-Stegall act was reinstated… It was not.

No change… This merry go round of nonsense is allowed by law, the Fed and the banks…

I remember early 2000s the interest rate was like, 10% or 12? The whole 80s and 90s had high interest rate and that dampened the home price, as people just want to put money in the bank to collect interest instead of taking risk on buying an investment home. Nobody was throwing money at tech startup like the last several years and sovereign funds were buying US debt. Then after a lot of QE and low interest rate after dot com bust, 08, etc, the only thing investors can do to hedge against inflation is borrowing money to invest in something that goes up in value with inflation, hence the real estate investment boom.


It could have been apartment building too, but they are not easy to sell like SFH, and there are many "laws" like rent control targeting only multi-family units and avoid SFH as it would hit typical people and therefore voters. You can't really blame investors trying to protect themselves by buying the same thing they know would have demands, and avoid those investment vehicles that could be full of frauds, or US debts that could be QE away, or mortgages that could be defaulted on or refinanced away.

You are right Jeff. It can definitely be both. I know numerous long tern owners that have watched their home appreciate in value that now regard their home as "their retirement" when they eventually sell and move.

BTW Warren Buffet was asked several years ago "hypothetically, what is the one thing you would invest in for the future?". Warren said its not feasible for him, but if he could he would invest in single family housing across the nation.

Appearing live on CNBC's Squawk Box, Buffett once told Becky Quick he'd buy up "a couple hundred thousand" single family homes if it were practical to do so.

If held for a long period of time and purchased at low rates, Buffett says houses are even better than stocks. He advises buyers to take out a 30-year mortgage and refinance if rates go down.

The takeaway I read from his statement is, everything else is overprice and not a good investment. Most home owners have a lower than stock risk, have to get it anyways, better than stock for the same risk investment, and should take advantage of it.

 

[bbhero]

I remember early 2000s the interest rate was like, 10% or 12? The whole 80s and 90s had high interest rate and that dampened the home price, as people just want to put money in the bank to collect interest instead of taking risk on buying an investment home. Nobody was throwing money at tech startup like the last several years and sovereign funds were buying US debt. Then after a lot of QE and low interest rate after dot com bust, 08, etc, the only thing investors can do to hedge against inflation is borrowing money to invest in something that goes up in value with inflation, hence the real estate investment boom.


It could have been apartment building too, but they are not easy to sell like SFH, and there are many "laws" like rent control targeting only multi-family units and avoid SFH as it would hit typical people and therefore voters. You can't really blame investors trying to protect themselves by buying the same thing they know would have demands, and avoid those investment vehicles that could be full of frauds, or US debts that could be QE away, or mortgages that could be defaulted on or refinanced away.


The takeaway I read from his statement is, everything else is overprice and not a good investment. Most home owners have a lower than stock risk, have to get it anyways, better than stock for the same risk investment, and should take advantage of it.

Interest rates lower than 10-12 percent in the early 2000s… My father built a home in 1998 and it was maybe 8 percent.

The low rates fueled a massive building boom in the late 1990s… That only continued for the next 8 years.

Ask me how I know… I worked on big big expensive homes in 1998.

 

[ripcord]

Interest rates lower than 10-12 percent in the early 2000s… My father built a home in 1998 and it was maybe 8 percent.

The low rates fueled a massive building boom in the late 1990s… That only continued for the next 8 years.

Ask me how I know… I worked on big big expensive homes in 1998.

Low interest rates helped fuel skyrocketing home prices, too. A $2000 a month house tends to want to stay a $2000 month house. When interest rates drop, the same group of buyers have more dollars available to chase the same group of homes.

 

[Donald]

It is a circular problem. People migrate to where the better paying jobs are which increases housing demand, which forces employers to increase wages.

I am working on an 1100 sq ft, 2/2, small lot home, OK area; asking price $575K. Offered $590K. Crazy.
In Silicon Valley proper, that would be $1.5M easily. In a better area, maybe $2M.

In southern Delaware they are putting up developments left and right. Corn field one day, and 100 houses the next. And the houses are pretty darn close together. But there are no jobs here except for jobs around the summer tourist season. I guess the houses are mainly for people retiring. But the school districts do have a lot students.