Home Buying / Housing Market Griefing Thread - You're going to rent until you die.

[Never Scored]

I just want people to think about that decision. Do the numbers. The Bank of Cleveland has a good calculation. I linked it before and I will link it again:

Buy a Home or Rent: A Better Way to Choose

Knowing whether buying a home is a better financial move for a family than renting requires a consideration of costs and options that people often neglect to factor in.

www.clevelandfed.org

Sorry to go back to this, but it's just such a head scratcher. This article assumes an increase of 2% a year in rent which is asinine.

Rent in the US has grown an average of 8.86% per year since 1980. There are a couple years in there where it grows 2% or less, but they are far from the norm. I only skimmed the article, but as far as I can see they provide no justification for the 2% rent inflation number.

From 2000-2020 When adjusting for inflation median rent in Ohio rose at 2.5%, it was close to 3% when unadjusted. Why are they using 2% in an article written by the Bank of Cleveland? Why not the 2.5% or 3%? It seems a bit random to pick a number a fraction of national rent inflation and a third below rent inflation in the actual state they are based out of, doesn't it?

Remember how I was saying people in power benefit if you keep renting earlier?

Yeah.

 

[Quindoll]

Then after 15-25-years you're going to own a house. You're going own an asset you can sell or leave to your kids, you could rent out a room of if you need money. The renter needs to continue to pay rent after those 25-years. Even if housing totally tanks, you can always live in your house because it has intrinsic value as a thing you can live in. If the stock market tanks and your ETFs decrease in value, you cannot eat them or live in them. They have no intrinsic value. They are abstract and do not physically exist.

Maybe I get you wrong. For me intrinsic value is cashflow. What does the company get in form of cashflow itself and what do I get out of it in form of dividends. Yes that fluctuates, but does also increase in the long-term. You save the typical capital cost of the rent, since you own the house. I pay a higher rent, but would have capital in the stock market, which generate cashflow.

We could now go into an autistic number game of what would perform better. Housing or the performance of companies. I think it will be roughly the same when savings are done properly.

When it comes to the abstract thing. Again, not that I get you wrong. But those companies of which I would have ownership do exist in reality. They have real tangible assets. Diversified across countries, branches, business models, sizes, currencies, you name it.
Just one question. Would you recommend owning a house without properly insuring it against fire and so on? After all what is an insurance contract? Merely an abstract form of rights and obligations for the parties involved.

I understand what you're trying to say, but it is incorrect and flies in the face of 100+-years of data. In every housing crash that has happened for the last century in the western world, housing has recovered long-term. Shelter is a basic need, so there is an automatic floor for how far rent and house prices can drop. Rent always always goes up long term. It is not possible for it to collapse without a precipitous population decline. Likewise, housing is not going to collapse and not recover unless society collapses and does not recover and at that point the money does not mean anything anyway.

The narrative you're spouting has been fed to you by billionaires, corporations and government entities who are trying to turn you into a neo-surf.

You have to explain to me one thing though. These very same governments usually uphold and finance programs to encourage people to get house ownership, right? I mean here in Germany alone we have:

- Bausparprämie
- KFW Kredite (cheaper credits)
- Wohnkindergeld
- Wohn-Riester

At this is just at the top of my head. There are state funded programs as well. And that goes so far that there are dedicated websites that show you which program you could take.
And I think it is true as well for the United States. Wasn't president Bush a large advocate for home ownership?
The same applies to a good chunk of companies. Since home ownership means at the beginning: Consumption.

Of course they are voice that proclaim what you say. But they seem to be the rather impotent power in those institutions since they seem to have a hard time to even remove the most basic encouragements for home ownership.

Also I am just curious since housing returns are always such a hassle to get accurate long term results. What is your data for those? I usually stick with the paper with the somewhat silly name of "The Rate of Return on Everything".

Sorry to go back to this, but it's just such a head scratcher. This article assumes an increase of 2% a year in rent which is asinine.

Rent in the US has grown an average of 8.86% per year since 1980. There are a couple years in there where it grows 2% or less, but they are far from the norm. I only skimmed the article, but as far as I can see they provide no justification for the 2% rent inflation number.

When adjusting for inflation median rent in Ohio rose at 2.5%, it was close to 3% when unadjusted. Why are they using 2% in an article written by the Bank of Cleveland?

Ya, ya it's fine. I think they just went back further in time by the logic that a tracking record of 100 + years is a better estimate as a tracking record of 40 years. The article is also from 2011, but way of the calculation is still correct. But please do not get me wrong. I explicitly mentioned that people use the numbers they think are likely.

 

[MarkofdaBOOG]

just get a house

 

[Blobby's Murder Knife]

You have to explain to me one thing though. These very same governments usually uphold and finance programs to encourage people to get house ownership, right? I mean here in Germany alone we have:

- Bausparprämie
- KFW Kredite (cheaper credits)
- Wohnkindergeld
- Wohn-Riester

At this is just at the top of my head. There are state funded programs as well. And that goes so far that there are dedicated websites that show you which program you could take.
And I think it is true as well for the United States. Wasn't president Bush a large advocate for home ownership?
The same applies to a good chunk of companies. Since home ownership means at the beginning: Consumption.

Important difference though is in Germany if you have a house, you have to sell it to get on most forms of government assistance, AFAIK. The US requires no such thing, though you generally cannot have any investments, besides retirement, there is a limit on how much your cars can be worth, etc. Let me know if I am wrong, that was just my general understanding back 15 years ago or so.

 

[Quindoll]

Important difference though is in Germany if you have a house, you have to sell it to get on most forms of government assistance, AFAIK. The US requires no such thing, though you generally cannot have any investments, besides retirement, there is a limit on how much your cars can be worth, etc. Let me know if I am wrong, that was just my general understanding back 15 years ago or so.

It's complicated. Your own (only your own - important) housing is okay within certain means. The 1500 m² house for a single person must be sold before you can get any welfare.

For a single person up to two people you can have a own used single family home with max. 90 m² or an apartment with max. 80 m². This is a rough estimate. It depends on a few more factors like the average rent where you live and or the price per m² for the house.

The general rule is that you have to consume your own means first (to an certain extend) before you can rely on the welfare provided by the society. You have to fill out the application for welfare and then the government drone will decide if you are within the means in a similar way like the US is determining the "accepted" value of your car. You can, of course, always fight the decision by objection and latter by going towards the courts.

 

[Blobby's Murder Knife]

It's complicated. Your own (only your own - important) housing is okay within certain means. The 1500 m² house for a single person must be sold before you can get any welfare.

For a single person up to two people you can have a own used single family home with max. 90 m² or an apartment with max. 80 m². This is a rough estimate. It depends on a few more factors like the average rent where you live and or the price per m² for the house.

The general rule is that you have to consume your own means first (to an certain extend) before you can rely on the welfare provided by the society. You have to fill out the application for welfare and then the government drone will decide if you are within the means in a similar way like the US is determining the "accepted" value of your car. You can, of course, always fight the decision by objection and latter by going towards the courts.

Ah that makes sense. Here it is just based on easily liquidated assets. Your primary dwelling is your own business, but they would not look favorably on vacation or investment homes (in which case, why are you trying to apply for standard poor welfare anyway?).

Here we have a lot of government support for homes - USDA loans, Veterans Affairs loans, programs through Fannie Mae, state and local down payment programs, some very rare weird ones where a few very sparsely towns or counties will pay you or suspend property tax for awhile just to move there.

I'd be interested in knowing what Canada offers for fun.

 

[Never Scored]

Maybe I get you wrong. For me intrinsic value is cashflow. What does the company get in form of cashflow itself and what do I get out of it in form of dividends. Yes that fluctuates, but does also increase in the long-term. You save the typical capital cost of the rent, since you own the house. I pay a higher rent, but would have capital in the stock market, which generate cashflow.

We could now go into an autistic number game of what would perform better. Housing or the performance of companies. I think it will be roughly the same when savings are done properly.

When it comes to the abstract thing. Again, not that I get you wrong. But those companies of which I would have ownership do exist in reality. They have real tangible assets. Diversified across countries, branches, business models, sizes, currencies, you name it.
Just one question. Would you recommend owning a house without properly insuring it against fire and so on? After all what is an insurance contract? Merely an abstract form of rights and obligations for the parties involved.

A wooden structure you live inside and the land under it is not abstract by any metric. You're overthinking it. A ham sandwich is real. If I have a coupon to get a ham sandwich in the future, that ham sandwich is abstract and may never materialize. For example, the company who promised the ham sandwich could go under. It's kind of like of the old idiom "A bird in the hand is worth two in the bush."

You have to explain to me one thing though. These very same governments usually uphold and finance programs to encourage people to get house ownership, right?

It's completely serendipitous as opposed to being purposely done. Those programs are in place because they get votes. However, the system we currently have is only possible with a financially insecure working class. Property is a hedge against that insecurity. Why would anyone ever clean other people's toilets if there was no financial insecurity? As we migrate to an increasingly service based economy, we need a greater lower class doing menial service jobs.

Also I am just curious since housing returns are always such a hassle to get accurate long term results. What is your data for those? I usually stick with the paper with the somewhat silly name of "The Rate of Return on Everything".

We're thinking of it entirely differently, probably because our brains work differently. You are thinking of home ownership as, "What is my rate of return on this investment?" I'm thinking of home ownership through a more practical lens of "What volatile market forces will owning a house protect me from?"

Think of it this way. Let's say I am buying a chicken to get eggs because I need to eat. You are buying a rock instead of a chicken because you think the rock will give you a better rate of return. You are telling me, "If you look at historical data, I will be able to sell this rock for more than you will be able to sell that chicken for. I can just buy eggs."

However there are historical price shocks in the egg market and as a non-chicken owner, you are still going to need to buy eggs during these times because you still need to eat. As a chicken owner I am generally going to be protected from such price shocks. You are telling me over-and-over that you don't think I'm going to be able to sell the chicken for as much as you are going to sell your rock for, but I didn't buy a chicken to sell it. I bought a chicken so I wouldn't have to ever buy eggs again. The value in the chicken is not in how much value it accumulates on paper, but in the supply of eggs it provides. Really the monetary value of the chicken itself is irrelevant once I own it outright as long as it meets my need for eggs. Likewise, the price of eggs becomes irrelevant once I own the chicken. Are they $4? $10? It doesn't matter! I have a chicken.

If I bought my chicken for $4 and it's worth $6 on paper now while you bought your rock for $3 and sold it for $8, your monetary gains are higher than mine on paper. However, if you have to turn around and spend $10 on eggs to eat, who's farther ahead?

This is an oversimplified analogy and it's not perfect, but I think it illustrates the point well. Similarly to how I will always need to eat in that analogy, I will also always need a place to live.

 

[Darkholme's Dungeon]

Important difference though is in Germany if you have a house, you have to sell it to get on most forms of government assistance, AFAIK. The US requires no such thing, though you generally cannot have any investments, besides retirement, there is a limit on how much your cars can be worth, etc. Let me know if I am wrong, that was just my general understanding back 15 years ago or so.

In the US, it depends on state, generally the US is a fan of "based off adjusted gross income". You don't have to be living in a dirt shack to need welfare. I know people who live in Mansions who have had to ask for help for a month or two in 2008 before (whether that is because of poor choices or bad luck, I leave to you).

Question. How are assets protected in Germany?
Generally most states protect a degree of your assets from bankruptcy. There's a wide degree of latitude, from almost nothing in some states (Georgia, Kentucky, Delaware, Utah) where they can also seize tools for your employment.
On the other end they can protect your main residence (10-100 acres dept on zoning) no more than 1million, a car for each license driver, two firearms, tools of your trade, 2 horses, and up to twelve cattle in Texas. Ironically, Texas is "better" in this regard than California since most people who founded the nation (and then state) were debtors. Lol.
Edit: Should mention this is for consumer bankrupties and legal judgements. Family court can and will take everything and send you to a modern era debtors prison.

 

[Blobby's Murder Knife]

In the US, it depends on state, generally the US is a fan of "based off adjusted gross income". You don't have to be living in a dirt shack to need welfare. I know people who live in Mansions who have had to ask for help for a month or two in 2008 before (whether that is because of poor choices or bad luck, I leave to you).

Question. How are assets protected in Germany?
Generally most states protect a degree of your assets from bankruptcy. There's a wide degree of latitude, from almost nothing in some states (Georgia, Kentucky, Delaware, Utah) where they can also seize tools for your employment.
On the other end they can protect your main residence (10-100 acres dept on zoning) no more than 1million, a car for each license driver, two firearms, tools of your trade, 2 horses, and up to twelve cattle in Texas. Ironically, Texas is "better" in this regard than California since most people who founded the nation (and then state) were debtors. Lol.
Edit: Should mention this is for consumer bankrupties and legal judgements. Family court can and will take everything and send you to a modern era debtors prison.

I personally think the whole child support punishment is retarded. Yeah, take away their passports, but I just don't get the logic of throwing deadbeats in jail. They can't make any money inside and severely hinders their ability to make money on the outside. There has to be a better way than this.

 

[eternal dog mongler]

I personally think the whole child support punishment is retarded. Yeah, take away their passports, but I just don't get the logic of throwing deadbeats in jail. They can't make any money inside and severely hinders their ability to make money on the outside. There has to be a better way than this.

Private prison system gotta get its workforce somehow.

Don't forget jails can charge you for every night you spend there too! 'cause you know what really helps people stop stealing and settle down and re-integrate into society? Crippling fucking debt and an inability to find employment.

 

[Blobby's Murder Knife]

Private prison system gotta get its workforce somehow.

Don't forget jails can charge you for every night you spend there too! 'cause you know what really helps people stop stealing and settle down and re-integrate into society? Crippling fucking debt and an inability to find employment.

I worked on the admin side of a state run prison labor system for a summer. It was absolutely disgusting. I had no idea so much industry was run through prisons paying them .30 cents an hour. I don't have a problem with them learning a skill and having a job, but they should be paid the federal minimum wage, most of which should go to repriations to victims, but the point is, they could make a more meaningful dent in the debt with that over .30. It really turned my stomach against the idea of criminal rehabilitation because that is clearly not what they want.

 

[Darkholme's Dungeon]

I personally think the whole child support punishment is retarded. Yeah, take away their passports, but I just don't get the logic of throwing deadbeats in jail. They can't make any money inside and severely hinders their ability to make money on the outside. There has to be a better way than this.

The idea was that it would "motivate" the father to ... Get a job. Well, there's a little problem that throwing a person in jail for six months, and then forcing them to make up the original balance + 6 months isn't really possible.

Literally a violation of the 4th, 5th, 6th,7th,8th amendments and it stays because single mothers would reee if it was even remotely touched. It is the modern day equivalent of a debtor's prison.

 

[Kernel32 Sanders]

Long time lurker here and figured I’d chime in.

Reading this thread is a great reminder that “hindsight is 20/20” but it seems many forget how darn precarious things were when the lockdowns started in early 2020 and the economy started to blip downwards at an exponential rate (prior to the free government money).

I considered buying a house in early 2020, but my job situation was exceptionally precarious due to the environment at the time and I don’t exactly come from money, so at the time I made the snap decision to rent for a year or so, then re-evaluate. Looking back on it, maybe I should have fought harder to purchase when I had the chance, but once again, hindsight comes into play. I had no idea that the super low interest rates, stimmy checks, and sweeping forgiveness on PPP loans would have caused the conditions we see today.

There seems to be an air of smugness around here with homebuyers who lucked out. To them, I do say congrats for having the foresight to buy when you did, but have some grace and understanding for those who didn’t manage to buy before the massive inflationary period we are in now. It kind of reeks of an attitude of “fuck you, I’ve gotten mine” which is getting kind of old. The cryptocurrency cohort, particularly on Reddit, acted very similarly during the last bullrun.

For someone like myself, and countless others I’m sure, renting will be the only reasonable option until the mortgage rate hikes apply more downward pressure on housing prices. Since real estate is slow, and some house flippers are in denial about the whole mortgage rate affecting buying power thing at the moment, it probably won’t be for another year or so until I can even begin to look. I’m utterly priced out at the current rates… full stop.

In the meantime, I’ll continue to build a nest egg on which to use towards a down payment. Hoping for the best, but frankly anything is bound to happen. I’ll hedge my bets in the meantime with my IRA, index funds, emergency food supplies, etc.

 

[Samson Pumpkin Jr.]

Sorry to go back to this, but it's just such a head scratcher. This article assumes an increase of 2% a year in rent which is asinine.

Rent in the US has grown an average of 8.86% per year since 1980. There are a couple years in there where it grows 2% or less, but they are far from the norm. I only skimmed the article, but as far as I can see they provide no justification for the 2% rent inflation number.

From 2000-2020 When adjusting for inflation median rent in Ohio rose at 2.5%, it was close to 3% when unadjusted. Why are they using 2% in an article written by the Bank of Cleveland? Why not the 2.5% or 3%? It seems a bit random to pick a number a fraction of national rent inflation and a third below rent inflation in the actual state they are based out of, doesn't it?

Remember how I was saying people in power benefit if you keep renting earlier?

Yeah.

It is possible that the author used 2% as a conservative estimate, assuming that rent prices would not continue to increase at the rate they have been. However, it is also possible that the author was unaware of the actual rate of rent inflation in the US and used 2% as a mistake. Either way, it does seem like an odd choice of number to use in an article about rent prices.

 

[Least Concern]

I had a thought. When you buy a house, you pay maybe up to 20% of the cost of the house up front, but the bank covers the other 80% and effectively "owns" the house until you pay them back. So they might as well pay 100% and just rent the house to you, right? Wouldn't they make more money in the long run? What's stopping just all the banks from owning all the houses?

This seems like such an obvious idea that I'm sure I'm missing something simple.

 

[Hippopatumus]

I had a thought. When you buy a house, you pay maybe up to 20% of the cost of the house up front, but the bank covers the other 80% and effectively "owns" the house until you pay them back. So they might as well pay 100% and just rent the house to you, right? Wouldn't they make more money in the long run? What's stopping just all the banks from owning all the houses?

This seems like such an obvious idea that I'm sure I'm missing something simple.

Well, they sort of are starting to do that. Something like 10% of home purchases are institutional investors like Blackrock right now.

But in general a bank will finance mortgages and then sell them into a market of buyers that include government, pension funds, foreign and domestic institutional investors, where they make money up front and have no long-term risks of holding the paper. A 30 year T-bill pays 3.2% and is essentially risk-free, so why bother holding a 5% mortgage when those funds could be utilized in other ways.

 

[Samson Pumpkin Jr.]

I had a thought. When you buy a house, you pay maybe up to 20% of the cost of the house up front, but the bank covers the other 80% and effectively "owns" the house until you pay them back. So they might as well pay 100% and just rent the house to you, right? Wouldn't they make more money in the long run? What's stopping just all the banks from owning all the houses?

This seems like such an obvious idea that I'm sure I'm missing something simple.

It seems like the logical next step for banks would be to own all the houses and rent them out, since they are already covering most of the cost anyway. I'm not sure what is stopping them from doing this, but it could be that they don't want to deal with maintenance and repairs or that they think it would be too much of a hassle to manage so many properties.

 

[tehpope]

https://www.zerohedge.com/personal-finance/mortgage-rates-crash-most-lehman-loan-demand-collapses

The average rate for a 30-year loan plunged to 5.3%, the lowest in a month and down from 5.7% last week. That is the largest weekly drop (40bps) since the Lehman collapse in 2008.

https://www.zerohedge.com/markets/david-stockman-why-great-reckoning-has-begun

 

[PipTheAlchemist]

I'm homophobic

 

[Elbow Greased Strength]

Well, they sort of are starting to do that. Something like 10% of home purchases are institutional investors like Blackrock right now.

But in general a bank will finance mortgages and then sell them into a market of buyers that include government, pension funds, foreign and domestic institutional investors, where they make money up front and have no long-term risks of holding the paper. A 30 year T-bill pays 3.2% and is essentially risk-free, so why bother holding a 5% mortgage when those funds could be utilized in other ways.

There are also a lot more costs if you own and rent a property. In comparison all a mortgage lender has to do is originate the loan and then package it and sell it to other investors as a debt-backed security; while there are costs if they foreclose and have to hold the property, that's nowhere near as involved as managing a portfolio of rental property.

Another advantage is the only real recourse for a renter who doesn't pay is eviction, good luck ever collecting on unpaid rent from a deadbeat tenant.

I worked with a client for a few years back whose entire business model was originate-to-sell, they did a ton of FHA lending which meant high-quality paper. If I am remembering correctly, I think they sold 100% of their loans to Fannie Mae/Freddie Mac.