18 thoughts on “Housing”

  1. Probably, especially since in terms of demographics the baby boomers are starting to downsize their housing to preparation for their senior years.

  2. I don’t think this is correct. People have been saying housing is a bad investment for years, but, it’s essentially everyone’s ambition to own one or more homes, and I don’t see that changing. There will certainly be parts of the country that will suffer a demographic housing decline, but that will depend very much on the location. Last but not least … when the currency can’t be trusted then people want to own hard assets. Gold is a choice, but so is housing. Buying a house is a hedge against inflation, especially if you get a good interest rate now. I could list more reasons why I disagree, but I’ll settle for just one more: people have short memories. In ten years time the housing bubble will be forgotten, and we’ll see the start of another boom-bust cycle. The advice against buying houses is based (in part) on the assumption that we’re a rational bunch, and we patently are not!

    1. I think part of the problem lies in looking at a house as an investment. It isn’t, really. It’s a place to live. In some areas, a house will go up in value but that doesn’t happen everywhere or every time. If you add up all of the costs associated with buying and owning a house, not very many really make money. Don’t forget to include the money you paid in mortgage interest and property tax into the computation as well as adjust for inflation. In the end, I’d wager that most people don’t profit from home ownership.

      That said, you have to live somewhere. You either pay for a house or you pay rent. If you live in a house for years, you’ve gotten some real value from your purchase even if you don’t really profit from ownership.

  3. Right now, the rental market is booming – which suggests a way to make money for those who already have a fair amount. I don’t have any, unfortunately – but while I’m out of work I’ve discovered a TV programme about property developing. A simple sort, usually, which involves buying a wreck, doing it up and either selling at a profit or renting it out. Yield on the money invested is usually at least 6% – a hell of a lot better than most bank accounts. 12% or more is sometimes possible.

    In the UK at least, the property rental market is booming. I just wish I could get hold of enough cash to join the rush.

    So – buying houses to live in may be a bad idea right now, but an investment buy might be a good decision.

    1. With the number of empty houses out there right now, the cr@ppy economy, and the way post Boomers think about living for this very second with no thought about tomorrow (much less 1, 10 or 30 yrs from now) I don’t see how it won’t stay bad.

      There are empty houses and no buyers. It’s not a great situation. And if The One gets re-elected, we’ll all be moved to Agrarian Re-education Camps away from the houses we own now anyway.
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      I’m agreeing with FC for this topic. I think owning and renting houses is a great investment and also a good way to get steady income over anumber of years.

      We’re thinking about moving from NC to southern IN, across from Louisville. My better half was lamenting selling our current house for about what we paid for it just two years ago. The local housing market is soft at best.

      I told her we should just keep it and rent it. At our current mortgage payment, we can add $200 to $300 per month, make some money and undercut the price for a house this size in our area.

      (I’m thinking of doing a refi to buy the lot next to me, I can do it by dropping my interest rate, get the same monthly payment and own another acre. As Cartman would say…sweeeet…)

      We can use this property as collateral for another property in IN. It was a HUD house, so we ‘bought’ almost $60K of equity.

      Renting a house can be a PITA too, I know that, but my real estate guy does rental management for 15% per month. It’s a win/ win to me.

      (and I get to move OUT of an area I hate for one I love! )

      1. My wife and I owned a rental house for 4 years. It turned out that in our market, we couldn’t charge a rent high enough to cover the mortgage so we had to kick in an extra $100 a month out of pocket. Your mileage may vary.

        Part of the problem is that we told the truth – we weren’t going to live in the house. You have to state that on your mortgage application. As a result, the interest rate we were charged was higher than if the house was owner-occupied. You might want to factor that into your calculations (or wait until after you’ve completed the refinance to move). You also need to factor in certain tax advantages for rental property like depreciation.

        We sold that house last August and are happy we did. We had a rental agent (who charged 10% of the rent) but we still had issues with some tenants. It was more bother than it was worth, at least for us. You should also make sure that you can afford to have the house sit empty for some time between tenants. Can you afford to pay the mortgage on an empty rental property and the home where you live? I’ve known people who got into trouble that way. Again, your mileage may vary.

        1. Larry,
          we already own it, we bought it with NO idea or plan that we’d ever sell or move. Of course we thought Mrs. Schteveo’s job was secure too. It’s just worked out that we’re (maybe) better off elsewhere because of that. It’s just a plus that elsewhere is where I’D like to be anyway.

          1. If you do a refi, they’re going to ask you if you’re going to live in the house. If not, you’ll likely have to pay a higher interest rate.

  4. Can someone answer this for me…what in the hecking heckity heck possessed top economists to think that the housing boom was a good thing?

    Yeah, they missed the signs that the boom was a bubble waiting to burst – but that’s not what freaks me out the most. the boom meant that housing prices were rising faster than incomes were rising.

    A chief characteristic of a genuine economic boom is that its driving commodity (textiles in the Industrial Revolution, home computers and other electronic appliances in the post-Carter era, etc.) become increasingly more affordable.

    Housing is very different in that even if it became radically dirt cheap scarcely anyone would buy more than one. But it is very much the same in one other aspect: if its price tag goes down, disposable income goes up, and living standards improve.

    The housing boom meant the opposite – increasing home prices mean less money to spend on other goods and services.

    1. My youngest son lives in San Diego with his family. In the early 2000s, he told me that housing prices were going up 25% a year. That means the price of a home doubles every 3 years – clearly an unsustainable rate.

      The stock market wasn’t doing much following the Internet Dot-Bomb Bubble, so everyone wanted to get into real estate. People sold their perfectly adequate homes to buy more expensive ones – after all, 25% of a million is a lot more than 25% of $500,000. The demand for houses spurred new home construction and created jobs. It also spurred house flipping – buying a house on speculation, doing a few cosmetic upgrades and selling for a quick profit. Flipping artificially drove up the price of houses even more.

      Low interest rates and easy loans (many not even requiring you to prove you had a job) weren’t enough. My son told me that over 90% of all mortgages were Interest Only Adjustable Rate Mortgages. People looked at the rising value (on paper) of their homes and started treating them as ATMs, sometimes taking out loans at up to 125% loan to value. They blew the money. What could possibly go wrong?

    2. Housing is very different in that even if it became radically dirt cheap scarcely anyone would buy more than one.

      Sorry I have to disagree with you here Alan. My ex was actually working as a loan processor just before the bubble burst (yeah guys, this whole depression thing is actually my fault.) My wife bought two houses and put renters in them.

      She was getting a little behind so I sent her $2k. Two months later she gave up on one of the houses and moved into the other. (Making me think about how much money, at what rate, for how long, it would take to recoup my $2k. Oh, well.)

  5. I figure that absent market manipulation or insanity, real estate should roughly hold it’s value over time. Similar to gold as an investment.

    1. There are also other factors that can impact the value of housing over time, such as the local unemployment rate. If one of more major employers closes, then a lot of houses are going to turn up empty (e.g. Detroit). Natural disasters can also give an area a bad reputation. Smaller towns and cities are especially vulnerable to employment opportunities. I know of towns where most young people move away after high school graduation because there are few or no employment opportunies (I’ve lived in some of those towns). In some towns, you can buy a house for the price of a good new car.

  6. Looks like an over analysis to me, long term (“a generation”) it’ll come down to the overall state of the economy and demand (population growth).

  7. Any ideas on bringing down construction costs? Nobody builds (non-mobile) homes for the less-than-upper-middle-class anymore. Normal folks have to do like me and buy a house built during the Gemini program.

    1. Labor and materials drive construction costs. In conventional construction (stick built), about 30% of the materials are wasted. Modular or prefab can greatly reduce the waste and actually increase quality but it still carries a stigma.

      One big thing that can help reduce costs is to have realistic expectations for what you want and need in a house. Home improvement porn (my wife watches a lot of that) drives up expectations that everyone needs granite countertops, stainless steel appliances, and 4000 square feet of living space. No, most people don’t need any of that stuff.

      My wife recently retired and we’ve been thinking about what we’d like to have in a retirement home when I finally retire. My job involves determining requirements so we used that approach to define an operational architecture for the house. What we did is look at how we’ll use different parts of the house and what things we don’t need at all. For example, we seldom entertain formally so we don’t need a separate dining room. We don’t need a formal living room, either. As we get older, mobility issues may come into play so wide (30-36″) doors are a priority. Construction cost is proportional to square footage (typically $150-200 per square foot) plus a bigger house is harder to clean, heat/cool and maintain. We’re looking at something on the order of 1000 square feet (or less), two bedrooms (one doubling as an office), two bathrooms, kitchen with dining area and entertainment area. The exterior will be designed for low maintenance. We study RVs to get ideas for built-ins and efficient use of space. It’s a fun process.

  8. In the late 60s my folks living in Tacoma would move into a house, we’d fix it up, then resell it a month later. We did more than a dozen houses that way which paid for a nice restaurant. I pealed a lot of wallpaper and painted a lot of walls when I was ten years old.

    Looking at houses in Tacoma a few years ago I noticed that many of them look the same on the outside, but inside the rooms are tiny (almost to the point where only tiny people – or New Yorkers – could live in them.)

    Boom and bust is always going to happen because that’s the nature of people. The nature of govt. is to make it much worse.

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