There is always sweat equity. Buy a fixer-upper. People with good income want the perfect home. Working people, who generally know how to do things with their hands ( and tools) should plan on buying an older house and do repairs over the yesrs. Community Colleges ( or Lowes and Home Depot) could have courses on home maintenance. Two strategies, for two different groups. Local laws could make hiring easier for one ot two helpers in repairing a home. During the 70's inflation the farm bureau in Florida had a program where you could save money dedicated to paying your mortgage and earn 1 % less than the mortgage rate. In emergencies, you could skip a few months of payments, if you saved in advance. Otherwise, If you just pay down the principal, you still owe the full monthly payment each month. The spread is less than the bank usually makes between deposits and loans, but defaults are actually very costly and such a program reduces defaults. Some legislation might encourage a program like that.
This "short" position on housing is a REALLY good metaphor, Oren. It takes the investment framework that's frequently (and incorrectly) used to analyze home data and turns it on its head. Buying a home is NOT an investment; it is the paying off of a debt you were born with.
The Senate bill was a reasonable compromise between the two factions of housing affordability. It was co-sponsored by Elizabeth Warren and Tim Scott. It addressed the concerns of both renters and those who aspire to own a single family home.
Well. This started off as another rare case where I have to agree with Oren, always painful. Then, he delivered and let me off the hook. His claim that once you buy a house you no longer care about its value is false. The people who walked away from houses during the financial crises of 2008-2010 proves this. To use Oren’s analogy of the stock market, someone who buys a house with a mortgage (most of us) effectively sets a position on margin. If the value of that position falls, you’re underwater as soon as what you borrowed exceeds the value of the asset. That situation has caused almost all of the stock market crashes in, well, forever. Look what happened to Detroit.
An owner of a home does care about the direction its value is going. But there is a solution. A few years of the housing market moving sideways coupled with nominal inflation (~2%) would make it easier for more buyers.
In the main, however, any solution that doesn’t address both side of that rather nasty coin won’t fly, either economically or politically.
I was a real estate broker during the financial crash you mention. Over those 3 years, I personally handled over 150 sales and counseled exactly 3 people to walk away from their notes. (This is CA, where deficiency judgements are illegal; in 48 other states, this would be a bad strategy.) I agree there are exceptions, but mostly Oren is correct.
Selling a home and buying another one within the same general area is a wash. It only matters if you plan on moving out of a given area, when localized differences in prices can produce either a huge shock (KS to CA) or a windfall (NY to KY). Watching your home value is kind of pointless, like watching the value of a baseball card collection you can't ever sell.
That said, I concur with your idea: stable home prices and nominal inflation which erodes the value of the underlying debt is great policy.
Rather than trying to lower home prices, it makes more sense to make wages catch up to them.
It gets sooo boring listening to Oren lecture the "old" right on how markets and the economy work. It's so much easier to criticize the folks who were excommunicated from his party years ago, people with no actual power, than to defend todays real world performance of the "new" right, led by the founder of Oren's movement-Don. Remember Oren, your bud JD is only the VP because he promised he would have done what Pence refused to do-violate his oath of office when the boss tries to overturn an election. Lovely.
Meanwhile, in the real world, today, right now, DonOrenomics is taking quite a beating, while the "new" right controls the entire federal government. Don's rating on the economy has sunk lower than, gasp, Joepa's. Let that sink in. Somehow, random taco tariffs, massive deficit spending, massive corruption, tax cuts for plutocrats, health care cuts for the working poor, and jettisoning our longtime allies doesn't seem to be the magic elixir promised by the "new" right/MAGA. Time to dredge up a long ago ostracized "market fundamentalist" to change the subject. Snore.
Somewhere we lost the point that buying residential real estate is making a home, not a portfolio.
Agreed. Homeowners should not count on it to be an ATM or a 401K, but a place to live.
There is always sweat equity. Buy a fixer-upper. People with good income want the perfect home. Working people, who generally know how to do things with their hands ( and tools) should plan on buying an older house and do repairs over the yesrs. Community Colleges ( or Lowes and Home Depot) could have courses on home maintenance. Two strategies, for two different groups. Local laws could make hiring easier for one ot two helpers in repairing a home. During the 70's inflation the farm bureau in Florida had a program where you could save money dedicated to paying your mortgage and earn 1 % less than the mortgage rate. In emergencies, you could skip a few months of payments, if you saved in advance. Otherwise, If you just pay down the principal, you still owe the full monthly payment each month. The spread is less than the bank usually makes between deposits and loans, but defaults are actually very costly and such a program reduces defaults. Some legislation might encourage a program like that.
This "short" position on housing is a REALLY good metaphor, Oren. It takes the investment framework that's frequently (and incorrectly) used to analyze home data and turns it on its head. Buying a home is NOT an investment; it is the paying off of a debt you were born with.
The Senate bill was a reasonable compromise between the two factions of housing affordability. It was co-sponsored by Elizabeth Warren and Tim Scott. It addressed the concerns of both renters and those who aspire to own a single family home.
Excellent review and really clarified what is at stake.
Well. This started off as another rare case where I have to agree with Oren, always painful. Then, he delivered and let me off the hook. His claim that once you buy a house you no longer care about its value is false. The people who walked away from houses during the financial crises of 2008-2010 proves this. To use Oren’s analogy of the stock market, someone who buys a house with a mortgage (most of us) effectively sets a position on margin. If the value of that position falls, you’re underwater as soon as what you borrowed exceeds the value of the asset. That situation has caused almost all of the stock market crashes in, well, forever. Look what happened to Detroit.
An owner of a home does care about the direction its value is going. But there is a solution. A few years of the housing market moving sideways coupled with nominal inflation (~2%) would make it easier for more buyers.
In the main, however, any solution that doesn’t address both side of that rather nasty coin won’t fly, either economically or politically.
I was a real estate broker during the financial crash you mention. Over those 3 years, I personally handled over 150 sales and counseled exactly 3 people to walk away from their notes. (This is CA, where deficiency judgements are illegal; in 48 other states, this would be a bad strategy.) I agree there are exceptions, but mostly Oren is correct.
Selling a home and buying another one within the same general area is a wash. It only matters if you plan on moving out of a given area, when localized differences in prices can produce either a huge shock (KS to CA) or a windfall (NY to KY). Watching your home value is kind of pointless, like watching the value of a baseball card collection you can't ever sell.
That said, I concur with your idea: stable home prices and nominal inflation which erodes the value of the underlying debt is great policy.
Rather than trying to lower home prices, it makes more sense to make wages catch up to them.
It gets sooo boring listening to Oren lecture the "old" right on how markets and the economy work. It's so much easier to criticize the folks who were excommunicated from his party years ago, people with no actual power, than to defend todays real world performance of the "new" right, led by the founder of Oren's movement-Don. Remember Oren, your bud JD is only the VP because he promised he would have done what Pence refused to do-violate his oath of office when the boss tries to overturn an election. Lovely.
Meanwhile, in the real world, today, right now, DonOrenomics is taking quite a beating, while the "new" right controls the entire federal government. Don's rating on the economy has sunk lower than, gasp, Joepa's. Let that sink in. Somehow, random taco tariffs, massive deficit spending, massive corruption, tax cuts for plutocrats, health care cuts for the working poor, and jettisoning our longtime allies doesn't seem to be the magic elixir promised by the "new" right/MAGA. Time to dredge up a long ago ostracized "market fundamentalist" to change the subject. Snore.