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Wall Street is Buying Homes - Will Main Street Follow?

12 points by philipdlang 13y ago

pseudometa 13y ago
As with most blog headlines ending in a question mark, the answer is NO.
philipdlang 13y ago
Would love feedback from the HN community on this post!
- jbdeboer 13y ago
  It looks like realtor spam with funky math. I'm not sure why it is on here.
- bcoates 13y ago
  One thing I don't see you accounting for is the increased transaction costs of ownership -- I live in the kind of place you're encouraging people to buy apartments, on a rent-controlled month-to-month lease. If change jobs or have a kid and want to relocate, I can do so with ~45 days notice, a moving truck, and no risk. But if I own I either need to sell or rent out my unit, both of which are expensive up-front and dependent on future market conditions, at a time where I am likely at a cash-flow low point in my personal finances. Even if it's good in the long-run, conditions may not be good at the moment I need to move. It's possible that the upside of ownership is strong enough to be worth it anyway, but the risk and reward would have to be quantified a little better for me to want to take the jump. tl;dr: Just because buying housing is a good investment for Wall Street doesn't mean I should buy myself a place to live in.
makomk 13y ago
One thing you're not considering is that buying a home ties you down to a particular area. With the jobs market the way it is, jobs for life a mythical thing for most people, and major structural shifts in employment, buying a house is not really an option for most people. Also, I'm not sure there's that much credit availability for consumers wanting a mortgage and it'd certainly involve a major upfront deposit.
- philipdlang 13y ago
  That's a valid point and I'll follow up with a future post about the economics of buying, but to realize a return on a home you need a time horizon of 5 years. With the shift to more urban life, I don't think that 5 years is an unrealistic amount of time to live in one place. In major metropolitan areas, there are often plenty of alternative jobs available and people tend to be tied down due to family obligations.
  - makomk 13y ago
    That's all well and good until you lose your job during a dip in the housing market and no-one is buying - for example, due to a major recession.
JustinBlaird 13y ago
Text obscured by annoying overlays.
pseudometa 13y ago
To get to a $3k/month payment on a 500k apartment unit, the author assumes that people have $100,000 in cash to drop on a down payment. People renting often don't have that much cash on hand and are already trying to pay their school loans.
- philipdlang 13y ago
  Yes, that is an assumption I make in the article. A 20% downpayment is going to be the minimum that you would need for any bank to approve you for a mortgage. Many readers either have that cash in their bank account or the ability to get help from (extremely) generous parents.
  - Domenic_S 13y ago
    Eh? There's FHA (2.5% down), I did that myself. Was easy. Messes with your overall purchasing power because your monthly is so high, though. > Many readers either have that cash in their bank account or the ability to get help from (extremely) generous parents. LOL
coder5 13y ago
You have completely ignored the effect falling interest rates have had on buying power and thus nominal home prices. Absent something extraordinary, watch out when rates rise. Affordability will be crushed quickly, and absent rising incomes, prices will have to fall. One could argue we'll see a Japan-style era of low rates, but in your article you're urging folks to "Buy now before it's too late!". If rates spike suddenly, this will be a very, very bad time to be long such a levered investment.
yannisp 13y ago
I have an issue with this article. How many people have $100k available in their bank account? I've never been over $50k of remotely liquid assets. That said, I received helped from my parents for the down payment and couldn't be happier of the move to mortgage over rental.
- bcoates 13y ago
  If you have the income to support a $3k/mo housing cost you should be saving enough to afford a $100k downpayment in a few years. Also, as another poster pointed out, it probably qualifies for an FHA loan with much lower down payment.
jbdeboer 13y ago
The math in this post is funky and one-sided. Is $3k/mo a good price to pay for a place to live? To answer that question you would need to know the alternatives: * how much does it cost to rent the same apartment? * if you have $100,000 on hand, what is the ROI of other investments you could make? Whether buying your home is a good idea is much more involved than a short blog post and always comes down to individual circumstances.

12 points by philipdlang 13y ago

pseudometa 13y ago

As with most blog headlines ending in a question mark, the answer is NO.

philipdlang 13y ago

Would love feedback from the HN community on this post!

jbdeboer 13y ago
It looks like realtor spam with funky math. I'm not sure why it is on here.
bcoates 13y ago
One thing I don't see you accounting for is the increased transaction costs of ownership -- I live in the kind of place you're encouraging people to buy apartments, on a rent-controlled month-to-month lease. If change jobs or have a kid and want to relocate, I can do so with ~45 days notice, a moving truck, and no risk. But if I own I either need to sell or rent out my unit, both of which are expensive up-front and dependent on future market conditions, at a time where I am likely at a cash-flow low point in my personal finances. Even if it's good in the long-run, conditions may not be good at the moment I need to move. It's possible that the upside of ownership is strong enough to be worth it anyway, but the risk and reward would have to be quantified a little better for me to want to take the jump. tl;dr: Just because buying housing is a good investment for Wall Street doesn't mean I should buy myself a place to live in.

makomk 13y ago

One thing you're not considering is that buying a home ties you down to a particular area. With the jobs market the way it is, jobs for life a mythical thing for most people, and major structural shifts in employment, buying a house is not really an option for most people. Also, I'm not sure there's that much credit availability for consumers wanting a mortgage and it'd certainly involve a major upfront deposit.

philipdlang 13y ago
That's a valid point and I'll follow up with a future post about the economics of buying, but to realize a return on a home you need a time horizon of 5 years. With the shift to more urban life, I don't think that 5 years is an unrealistic amount of time to live in one place. In major metropolitan areas, there are often plenty of alternative jobs available and people tend to be tied down due to family obligations.
- makomk 13y ago
  That's all well and good until you lose your job during a dip in the housing market and no-one is buying - for example, due to a major recession.

JustinBlaird 13y ago

Text obscured by annoying overlays.

pseudometa 13y ago

To get to a $3k/month payment on a 500k apartment unit, the author assumes that people have $100,000 in cash to drop on a down payment. People renting often don't have that much cash on hand and are already trying to pay their school loans.

philipdlang 13y ago
Yes, that is an assumption I make in the article. A 20% downpayment is going to be the minimum that you would need for any bank to approve you for a mortgage. Many readers either have that cash in their bank account or the ability to get help from (extremely) generous parents.
- Domenic_S 13y ago
  Eh? There's FHA (2.5% down), I did that myself. Was easy. Messes with your overall purchasing power because your monthly is so high, though. > Many readers either have that cash in their bank account or the ability to get help from (extremely) generous parents. LOL

coder5 13y ago

You have completely ignored the effect falling interest rates have had on buying power and thus nominal home prices. Absent something extraordinary, watch out when rates rise. Affordability will be crushed quickly, and absent rising incomes, prices will have to fall. One could argue we'll see a Japan-style era of low rates, but in your article you're urging folks to "Buy now before it's too late!". If rates spike suddenly, this will be a very, very bad time to be long such a levered investment.

yannisp 13y ago

I have an issue with this article. How many people have $100k available in their bank account? I've never been over $50k of remotely liquid assets. That said, I received helped from my parents for the down payment and couldn't be happier of the move to mortgage over rental.

bcoates 13y ago
If you have the income to support a $3k/mo housing cost you should be saving enough to afford a $100k downpayment in a few years. Also, as another poster pointed out, it probably qualifies for an FHA loan with much lower down payment.

jbdeboer 13y ago

The math in this post is funky and one-sided. Is $3k/mo a good price to pay for a place to live? To answer that question you would need to know the alternatives: * how much does it cost to rent the same apartment? * if you have $100,000 on hand, what is the ROI of other investments you could make? Whether buying your home is a good idea is much more involved than a short blog post and always comes down to individual circumstances.