Homes 'Earn' Minimum Wage or More in Half the Nation's Largest Cities
April 9, 2018 2:55 PM Subscribe
From Zillow Research: Overall, owners of the median-valued home in 24 of the nation’s 50 largest cities earned more in equity per hour over the past year than their local minimum wage. But homeowners in a handful of U.S. cities made out a lot better than that – in some cases much, much better.
More from the article:
More from the article:
The median U.S. household earned roughly $60,000 in 2017 ($58,978 to be exact),[3] or a little more than $28 per hour. But in six U.S. cities – New York, San Diego, San Jose, San Francisco, Seattle and Oakland – owners of the median-valued local home gained more than that in home equity alone. And if earning a six-figure annual salary represents a certain amount of privilege, homeowners in San Francisco, San Jose and Seattle all made comfortably more than that simply by virtue of owning a local home.Charles Mudede, writing for The Stranger:
In San Jose, the heart of Silicon Valley where the median home value has soared above $1 million over the past year, owners of the typical local home earned more than $200,000 in equity last year – almost $100 for every hour spent at the office last year.
The unrestrained inflation of home values has the further political advantage for the right of locking a class of wage-earning property owners with the interests of those who are not dependent on wages or earn far more than the equity of their homes. This process only worsens the housing crisis—and forces the poor (many of whom are people of color) to the edges of the city—by depriving a huge part of the city's mostly white middle-class population of the political freedom they would have gained if wages were linked to productivity. With so many chained to their homes, a conservatism hardens at the core of the "progressive" city. A drop in value would mean financial ruin for many heavily indebted homeowners, many of whom earn $50,000 a year.Is investment in social housing the answer?
A cosmologist once described gravity as the celestial sculptor. It shaped galaxies, clusters of galaxies, and super-clusters into the image of the universe. Property value inflation is also sculpting our city. It's actively shaping it into the political image of the super-rich.
I've seen this with friends who own in San Francisco, often inherited houses in what were once relatively cheap neighborhoods. It's a weird dynamic -- they are sitting on a ton of wealth on paper, but to realize it they would have to move, possibly out of the area entirely. And in many cases what they own isn't great for living, but trading up to a bigger place becomes hard/impossible. (You can take the money out of equity in various ways but folks got so burned by that in the 2008 crash that everyone I know is understandably cautious about that.)
And then you have people living next to them who make WAY more in salary and actually have cash for things like vacations -- but put the majority of their salary into rent, and have no way of buying a home without moving out of the area.
(And of course the above two groups are the "lucky" ones as they're holding on. Other folks get forced out.)
Social housing would be a great answer, if we built tens of thousands of new units. Affordable housing would help, if we built tens of thousands of new units. I think even market rate housing could help, if we built tens of thousands of new units. It's almost like the problem is we haven't built enough housing to support a massive influx of new jobs & new residents over the past 20+ years.
The housing debate in SF is getting super bitter as we head into a mayoral race, where the candidates basically all have the same positions on everything except housing and homelessness. (Which, to be fair, are the crisis issues.) On those issues their positions are -- still mostly the same! -- but the nuances have become super loaded.
And I'm worried that the social housing vs. mixed market / affordable rate housing debate I'm seeing is a distraction from what I see as the core build tens of thousands of new units problem. Like, if we build that many units, we can have both! Both is good!
Which is where Scott Weiner dropped his Transit Density Bill proposal for the whole state. I am very much in favor of this bill, but man, the outcry. People might build apartment buildings! Near transit! Judging from some of the commentary, allowing apartment building to be built near transit is basically fascism.
posted by feckless at 3:19 PM on April 9, 2018 [50 favorites]
And then you have people living next to them who make WAY more in salary and actually have cash for things like vacations -- but put the majority of their salary into rent, and have no way of buying a home without moving out of the area.
(And of course the above two groups are the "lucky" ones as they're holding on. Other folks get forced out.)
Social housing would be a great answer, if we built tens of thousands of new units. Affordable housing would help, if we built tens of thousands of new units. I think even market rate housing could help, if we built tens of thousands of new units. It's almost like the problem is we haven't built enough housing to support a massive influx of new jobs & new residents over the past 20+ years.
The housing debate in SF is getting super bitter as we head into a mayoral race, where the candidates basically all have the same positions on everything except housing and homelessness. (Which, to be fair, are the crisis issues.) On those issues their positions are -- still mostly the same! -- but the nuances have become super loaded.
And I'm worried that the social housing vs. mixed market / affordable rate housing debate I'm seeing is a distraction from what I see as the core build tens of thousands of new units problem. Like, if we build that many units, we can have both! Both is good!
Which is where Scott Weiner dropped his Transit Density Bill proposal for the whole state. I am very much in favor of this bill, but man, the outcry. People might build apartment buildings! Near transit! Judging from some of the commentary, allowing apartment building to be built near transit is basically fascism.
posted by feckless at 3:19 PM on April 9, 2018 [50 favorites]
As one of the lucky ones in San Jose where the majority of my salary goes into home payment every month until I die, it is so obvious that all that "earned" value is going to go right in the toilet when this bubble implodes.
posted by Abehammerb Lincoln at 3:31 PM on April 9, 2018 [4 favorites]
posted by Abehammerb Lincoln at 3:31 PM on April 9, 2018 [4 favorites]
I read an article bemoaning the alleged plight of NYC homeowners in flood zones. The article was excoriating the city because the grants it provided these homeowners to protect their properties were considered insufficient (the renting majority, of course, get no grants at all). The article described these homeowners as "working class." The homes in question were easily worth well over a million dollars. If you own a capital asset worth more than the average worker will make in their lifetime that is throwing off more capital gains each year than most people make selling their labor, I don't care what you do during the day, like hell you're working class.
posted by enn at 3:35 PM on April 9, 2018 [13 favorites]
posted by enn at 3:35 PM on April 9, 2018 [13 favorites]
I'm not sure how building more/slightly taller apartment buildings is supposed to threaten the value of single family homes? Is the issue that people won't be able to charge exorbitant rent for them if people have other options?
posted by wierdo at 3:35 PM on April 9, 2018
posted by wierdo at 3:35 PM on April 9, 2018
Yeah, the anti-density people in Seattle make me crazy. You literally see houses with the “In this house we believe black lives matter, etc” signs planted right next to “NO HALA” (Housing Affordability and Livability Agenda, the city’s proposed rezoning plan to increase density). Yeah I don’t like looking for street parking either, but making it possible for non-millionaires to accumulate home equity and wealth is literally the most egalitarian thing you could do in our fair city. You can’t rail against the people pitching tents along the freeway and simultaneously keep people in rent/eviction-slavery. A person who has home equity and loses their service industry job is in a very different place than a renter who loses the same job. I’m not saying homelessness is caused by the frozen real estate market, but the cascading effect of completely unaffordable real estate is completely unaffordable rent and a huge underclass that will never accumulate wealth or savings. Which I guess would be ok if there was a robust social safety net, but this is America and it’s your fault you didn’t save up for a rainy day.
Capitalism!
posted by Slarty Bartfast at 3:39 PM on April 9, 2018 [50 favorites]
Capitalism!
posted by Slarty Bartfast at 3:39 PM on April 9, 2018 [50 favorites]
I'm not sure how building more/slightly taller apartment buildings is supposed to threaten the value of single family homes?
A lot of the value of single family homes seems to be not just the house itself but the amenities of the area - for example, the houses in my neighborhood, some houses are across the street from each other, but one has a 'good' school district, whereas the other does not. If those districts were equal, but one suddenly put a bunch of apartments in, one school district would increase in students without necessarily increasing enough tax money to absorb those students, for example.
The other thing is things like traffic and parking radically impact the value as well - so if you have an apartment complex on the size of let's say three lots, that means you're adding dozens of cars to the neighborhood rather than, say, six.
And that's just the things I intuitively know or have seen. When looking at how banks value houses, house value depends largely on other sale price value, which is how much other people want to buy similar houses. So if you get a house appraisal, one of the things they look at is the market conditions in the neighborhood. Are other people buying single family houses? What are they paying for them? How long are they on the market? Are the houses keeping value? How do they look? How nice is the landscaping of other houses? Is there an HOA? And absolutely on a home appraisal is 'are there apartment buildings in the neighborhood, if so how many?'
posted by corb at 3:44 PM on April 9, 2018 [4 favorites]
A lot of the value of single family homes seems to be not just the house itself but the amenities of the area - for example, the houses in my neighborhood, some houses are across the street from each other, but one has a 'good' school district, whereas the other does not. If those districts were equal, but one suddenly put a bunch of apartments in, one school district would increase in students without necessarily increasing enough tax money to absorb those students, for example.
The other thing is things like traffic and parking radically impact the value as well - so if you have an apartment complex on the size of let's say three lots, that means you're adding dozens of cars to the neighborhood rather than, say, six.
And that's just the things I intuitively know or have seen. When looking at how banks value houses, house value depends largely on other sale price value, which is how much other people want to buy similar houses. So if you get a house appraisal, one of the things they look at is the market conditions in the neighborhood. Are other people buying single family houses? What are they paying for them? How long are they on the market? Are the houses keeping value? How do they look? How nice is the landscaping of other houses? Is there an HOA? And absolutely on a home appraisal is 'are there apartment buildings in the neighborhood, if so how many?'
posted by corb at 3:44 PM on April 9, 2018 [4 favorites]
As one of the lucky ones in San Jose where the majority of my salary goes into home payment every month until I die, it is so obvious that all that "earned" value is going to go right in the toilet when this bubble implodes.
How much did it lose in the last bubble crash? I was under the impression that Bay Area properties didn't fare as poorly as the rest of California did (the house I was living in at the time in the Sacramento metro area lost about two thirds of its value during the last crash, from $425k at its highest in the mid-aughts to a low of $155k in December 2011. It recovered by about $115k by the time I sold it last October; Zillow now estimates it's going to be back up near $425k in the next couple of years, but I doubt that will actually be the case. In addition to my personal financial difficulties, I wanted to sell it before Trump tanked the economy. I wish the new owners the best of luck.
posted by elsietheeel at 3:50 PM on April 9, 2018 [1 favorite]
How much did it lose in the last bubble crash? I was under the impression that Bay Area properties didn't fare as poorly as the rest of California did (the house I was living in at the time in the Sacramento metro area lost about two thirds of its value during the last crash, from $425k at its highest in the mid-aughts to a low of $155k in December 2011. It recovered by about $115k by the time I sold it last October; Zillow now estimates it's going to be back up near $425k in the next couple of years, but I doubt that will actually be the case. In addition to my personal financial difficulties, I wanted to sell it before Trump tanked the economy. I wish the new owners the best of luck.
posted by elsietheeel at 3:50 PM on April 9, 2018 [1 favorite]
If you own a capital asset worth more than the average worker will make in their lifetime that is throwing off more capital gains each year than most people make selling their labor, I don't care what you do during the day, like hell you're working class.
I don't know about the specific NYC situation, but I would disagree with you on the SF version. Try thinking about it this way. You live in a (traditionally) working class neighborhood in a house your immigrant parents bought 30 years ago for very little money. You're a family of four AND your parents live with you, in what is officially a junior two bedroom, which you have "adjusted" to add an unofficial in-law. So you're all cheek by jowl, and your living situation is extremely not fancy. You and your spouse both have working class jobs and in basically every way you are just barely getting by -- you have to be super frugal about food, clothing, car, etc.
BUT you have a Magic Ticket! It's worth a $1,000,000. You can cash it in at any time. The catch is, to cash it in, you have to move at least 20 miles away (probably more), far from the family, schools, jobs & etc. you've always known and loved. You can only do it once, and there's no backsies. OH! And at any moment, the Magic Ticket might go *poof* and suddenly be worth 1/10th as much.
So yeah, that person is better off than the working class person next to them with no Magic Ticket, for sure. But they're also not in anywhere near as great shape as a middle class person in a place that's not having a housing crisis with "normal" equity and total assets that look the same on paper.
posted by feckless at 3:59 PM on April 9, 2018 [44 favorites]
I don't know about the specific NYC situation, but I would disagree with you on the SF version. Try thinking about it this way. You live in a (traditionally) working class neighborhood in a house your immigrant parents bought 30 years ago for very little money. You're a family of four AND your parents live with you, in what is officially a junior two bedroom, which you have "adjusted" to add an unofficial in-law. So you're all cheek by jowl, and your living situation is extremely not fancy. You and your spouse both have working class jobs and in basically every way you are just barely getting by -- you have to be super frugal about food, clothing, car, etc.
BUT you have a Magic Ticket! It's worth a $1,000,000. You can cash it in at any time. The catch is, to cash it in, you have to move at least 20 miles away (probably more), far from the family, schools, jobs & etc. you've always known and loved. You can only do it once, and there's no backsies. OH! And at any moment, the Magic Ticket might go *poof* and suddenly be worth 1/10th as much.
So yeah, that person is better off than the working class person next to them with no Magic Ticket, for sure. But they're also not in anywhere near as great shape as a middle class person in a place that's not having a housing crisis with "normal" equity and total assets that look the same on paper.
posted by feckless at 3:59 PM on April 9, 2018 [44 favorites]
I'm not sure how building more/slightly taller apartment buildings is supposed to threaten the value of single family homes?
Two ways (one real, one maybe perceived):
1. In housing scarce cities, price is basically 90% about the scarcity. So if we actually built enough to relieve the scarcity, in theory, folks prices would go down (or at least stop going up as much). One apartment building won't do that, but 1,000 apartment buildings might.
2. "Those" people live in apartment buildings. You know, [poor / brown / black / immigrant / rowdy student] people.
posted by feckless at 4:02 PM on April 9, 2018 [8 favorites]
Two ways (one real, one maybe perceived):
1. In housing scarce cities, price is basically 90% about the scarcity. So if we actually built enough to relieve the scarcity, in theory, folks prices would go down (or at least stop going up as much). One apartment building won't do that, but 1,000 apartment buildings might.
2. "Those" people live in apartment buildings. You know, [poor / brown / black / immigrant / rowdy student] people.
posted by feckless at 4:02 PM on April 9, 2018 [8 favorites]
Whether or not to vote on density resolutions is always so fraught for me. I want more density, but the specific proposals are always heavily influenced by realtors and usually include the type of units that are good for them and not for renters, the type that is already standing unoccupied all over the city because of exorbitant rent. Or light rail that goes only to the newest shopping center they want to build. I am a bus commuter renting an apartment and I can never tell if these specific resolutions will mean making my neighborhood more liveable or pricing me out of it.
posted by tofu_crouton at 4:09 PM on April 9, 2018 [10 favorites]
posted by tofu_crouton at 4:09 PM on April 9, 2018 [10 favorites]
I can never tell if these specific resolutions will mean making my neighborhood more liveable or pricing me out of it.
One important question is, "what is this development replacing?" Like, what will be in that very spot in, say, 3 years if this development is not approved. Where I live, almost no new high-density developments replace affordable housing. Almost every time, they replace warehouse space, disused storefronts, buildings in bad shape, etc.
The more important question, in my mind, is "where would the new residents live if they did not move into the new expensive rentals". Where I live, the answer is usually "into historically poorer areas, where they would bid up the rent." In the East Bay, we have plenty of older housing which is now 3x or 4x what it cost 20 years ago, so we know that it can be leased out profitably for a rent we could call affordable. It isn't, because people who could afford to live in shiny new construction don't have enough shiny new construction to move into. This is not generally true of new high density construction, which is extremely expensive to build and cannot in most cases be rented out much cheaper than it is.
While new rentals sometimes sit vacant, they rarely do so long term. I mean, the developer wants to make money, and they don't make money on vacant apartments. I get that it's nauseating to see vacant units in a city where housing is unaffordable, but new rentals generally approach full occupancy within a year or two of construction.
Certainly some new dense developments are bad, but barring specific and credible analysis that says a given dense development is evil, it is a good rule of thumb to presume that more density is good.
posted by andrewpcone at 4:25 PM on April 9, 2018 [15 favorites]
One important question is, "what is this development replacing?" Like, what will be in that very spot in, say, 3 years if this development is not approved. Where I live, almost no new high-density developments replace affordable housing. Almost every time, they replace warehouse space, disused storefronts, buildings in bad shape, etc.
The more important question, in my mind, is "where would the new residents live if they did not move into the new expensive rentals". Where I live, the answer is usually "into historically poorer areas, where they would bid up the rent." In the East Bay, we have plenty of older housing which is now 3x or 4x what it cost 20 years ago, so we know that it can be leased out profitably for a rent we could call affordable. It isn't, because people who could afford to live in shiny new construction don't have enough shiny new construction to move into. This is not generally true of new high density construction, which is extremely expensive to build and cannot in most cases be rented out much cheaper than it is.
While new rentals sometimes sit vacant, they rarely do so long term. I mean, the developer wants to make money, and they don't make money on vacant apartments. I get that it's nauseating to see vacant units in a city where housing is unaffordable, but new rentals generally approach full occupancy within a year or two of construction.
Certainly some new dense developments are bad, but barring specific and credible analysis that says a given dense development is evil, it is a good rule of thumb to presume that more density is good.
posted by andrewpcone at 4:25 PM on April 9, 2018 [15 favorites]
> Where I live, almost no new high-density developments replace affordable housing. Almost every time, they replace warehouse space, disused storefronts, buildings in bad shape, etc.
Or the post office and the Y, in my neighborhood.
I am in favor of density over sprawl, most of the new buildings in my neighborhood are replacing run-down single-family houses, and I want affordable housing in the area so my kids can live here when they're adults. But the post office? Why did it have to be the post office?
posted by The corpse in the library at 4:33 PM on April 9, 2018 [6 favorites]
Or the post office and the Y, in my neighborhood.
I am in favor of density over sprawl, most of the new buildings in my neighborhood are replacing run-down single-family houses, and I want affordable housing in the area so my kids can live here when they're adults. But the post office? Why did it have to be the post office?
posted by The corpse in the library at 4:33 PM on April 9, 2018 [6 favorites]
It's such a weird situation. I've pointed this out before, but in most major cities you can actually rent a house for substantially less than it would cost to "rent" the money to buy the house (that is, rent doesn't even cover mortgage interest on the same property). The only way a property owner can win in that situation is if prices continue to spiral up and up forever. Fortunately the rapid run-up in prices is relatively recent, so a lot of the prices are still just fictional home equity values. But if people start getting locked into mortgages at the current insanely inflated prices in large numbers, we'll be set up perfectly for another housing-based recession.
posted by miyabo at 4:35 PM on April 9, 2018 [1 favorite]
posted by miyabo at 4:35 PM on April 9, 2018 [1 favorite]
feckless - as to your magic ticket analogy, you raise good points. but it seems to me that those families should prefer to support more construction and more development, because although that might diminish the value of their ticket, it would also give them some alternative options, i.e., cash it out and rent in a newly built, affordable building. so if there are truly a lot of homeowner families in this golden ticket situation, why dont they lobby their representatives in favor of more density? or do they? i'm honestly asking. because it seems like the only people who make noise and are heard during density debates are the *truly well off* homeowners who are happy to keep benefiting from this tragedy of the commons as their equity continues to increase. is it mainly a racial issue, maybe?
posted by wibari at 4:38 PM on April 9, 2018
posted by wibari at 4:38 PM on April 9, 2018
> if there are truly a lot of homeowner families in this golden ticket situation, why dont they lobby their representatives in favor of more density?
Partly because regardless of their sympathies, their ticket only remains golden as long as bigger apartment buildings don't go up near their house.
posted by ardgedee at 4:45 PM on April 9, 2018 [1 favorite]
Partly because regardless of their sympathies, their ticket only remains golden as long as bigger apartment buildings don't go up near their house.
posted by ardgedee at 4:45 PM on April 9, 2018 [1 favorite]
Fortunately the rapid run-up in prices is relatively recent, so a lot of the prices are still just fictional home equity values. But if people start getting locked into mortgages at the current insanely inflated prices in large numbers, we'll be set up perfectly for another housing-based recession.
The risk is actually even worse. While nominal home prices have been going up, rent inflation has been muted so you are looking at rental yields <4% in most of the cities named here. Basically it’s a high duration levered asset, so when rates go up monthly payments for the marginal levered buyer stay flat while home equity gets destroyed. This is mostly a cost of financing phenomenon.
posted by JPD at 4:49 PM on April 9, 2018 [1 favorite]
The risk is actually even worse. While nominal home prices have been going up, rent inflation has been muted so you are looking at rental yields <4% in most of the cities named here. Basically it’s a high duration levered asset, so when rates go up monthly payments for the marginal levered buyer stay flat while home equity gets destroyed. This is mostly a cost of financing phenomenon.
posted by JPD at 4:49 PM on April 9, 2018 [1 favorite]
California also has the distorting effect of Prop 13 as a disincentive to cash out the magic ticket. Sure you might get a million bucks, but then you have to move somewhere else and pay much higher property taxes if you buy. I imagine many people have done this, but I can understand why some wouldn't.
posted by ghharr at 4:51 PM on April 9, 2018 [10 favorites]
posted by ghharr at 4:51 PM on April 9, 2018 [10 favorites]
California also has the distorting effect of Prop 13 as a disincentive to cash out the magic ticket. Sure you might get a million bucks, but then you have to move somewhere else and pay much higher property taxes if you buy.
In my experience, people with a "magical ticket" in the California housing market do not move somewhere else in California, they move to a neighboring state and proceed to fuck that housing market up as badly as they fucked up California.
Me, bitter? Nah, not at all.
posted by madajb at 4:59 PM on April 9, 2018 [6 favorites]
In my experience, people with a "magical ticket" in the California housing market do not move somewhere else in California, they move to a neighboring state and proceed to fuck that housing market up as badly as they fucked up California.
Me, bitter? Nah, not at all.
posted by madajb at 4:59 PM on April 9, 2018 [6 favorites]
wibari -- I think folks in the specific situation I mentioned probably would be OK with more density, at least some of them. The anti-density folks in SF seem to be a weird mix of middle class / affluent folks whose houses have also appreciated (and who started from a more comfortable base), and renters who associate new development with gentrification and displacement.
I think folks in the latter group are wrong, and blocking development will make their situation worse rather than better, but the situation is so dire that I understand their reaction. It's hard to tell someone who is terrified of eviction and who sees fancy-looking condos going up around them that they could never afford that more development is the solution. I mean, I think it is (part of) the solution, but I get the pushback.
posted by feckless at 5:05 PM on April 9, 2018 [8 favorites]
I think folks in the latter group are wrong, and blocking development will make their situation worse rather than better, but the situation is so dire that I understand their reaction. It's hard to tell someone who is terrified of eviction and who sees fancy-looking condos going up around them that they could never afford that more development is the solution. I mean, I think it is (part of) the solution, but I get the pushback.
posted by feckless at 5:05 PM on April 9, 2018 [8 favorites]
they move to a neighboring state and proceed to fuck that housing market up as badly as they fucked up California.
Hah, I almost included "*Like Austin, Portland, Seattle, Denver, or Nashville" with "somewhere else".
posted by ghharr at 5:08 PM on April 9, 2018
Hah, I almost included "*Like Austin, Portland, Seattle, Denver, or Nashville" with "somewhere else".
posted by ghharr at 5:08 PM on April 9, 2018
The other thing is things like traffic and parking radically impact the value as well - so if you have an apartment complex on the size of let's say three lots, that means you're adding dozens of cars to the neighborhood rather than, say, six.
Motor traffic and car parking are absolutely the biggest issues that get people to show up and complain about new multifamily housing in my area. The most frustrating thing about it to me is that those same people often refuse to listen to ways to mitigate those effects, both on the individual development level and the regional transportation planning level.
And yeah, people's ability to store their personal property in the public right of way at all times is probably an area of least concern for me, but there are predictable ways to encourage people not to add even more cars to the mix. They work better when they're not half-assed because people demanded more parking for their potential new neighbors.
posted by asperity at 5:38 PM on April 9, 2018 [12 favorites]
Motor traffic and car parking are absolutely the biggest issues that get people to show up and complain about new multifamily housing in my area. The most frustrating thing about it to me is that those same people often refuse to listen to ways to mitigate those effects, both on the individual development level and the regional transportation planning level.
And yeah, people's ability to store their personal property in the public right of way at all times is probably an area of least concern for me, but there are predictable ways to encourage people not to add even more cars to the mix. They work better when they're not half-assed because people demanded more parking for their potential new neighbors.
posted by asperity at 5:38 PM on April 9, 2018 [12 favorites]
My husband sort of knee-jerk scoffs at all the new hipster rental buildings and condos being built (super high rents, lots of Brooklyn-lite gimmicks, very clearly targeted at a very specific demographic). They almost always are replacing warehouses, or brownfield lots, not pre-existing housing (there are some notable and notably fucked-up exceptions). I can't scoff at most of them because people who can afford $2000/month rents (and there are for sure such people here) should be living in these places, not in subdivided old houses that shouldn't be renting for a penny over $600. Give these folks the granite counters they desire, charge them for it, and hopefully keep the rents down everywhere else.
posted by soren_lorensen at 5:48 PM on April 9, 2018 [10 favorites]
posted by soren_lorensen at 5:48 PM on April 9, 2018 [10 favorites]
BTW starting at 6:30 p.m. PT today the San Francisco mayoral debate is live streaming at the Chronicle.
posted by rogerrogerwhatsyourrvectorvicto at 6:54 PM on April 9, 2018 [1 favorite]
posted by rogerrogerwhatsyourrvectorvicto at 6:54 PM on April 9, 2018 [1 favorite]
Please forgive my ignorance about the housing market. If homeowners have a large amount of wealth tied up in home equity, can they find someone else like a bank to buy the equity from them so that they can switch to being renters? (Perhaps with a contract that says they get right of first refusal to continue renting there for N years.) If this arrangement doesn't exist, why not?
posted by value of information at 6:56 PM on April 9, 2018
posted by value of information at 6:56 PM on April 9, 2018
It's called a "sale and leaseback" and it's super common for commercial buildings, and for houses in other countries. In these overheated markets I doubt any investor would be willing to pay the anywhere near the properties are supposedly "worth" though.
posted by miyabo at 7:05 PM on April 9, 2018 [3 favorites]
posted by miyabo at 7:05 PM on April 9, 2018 [3 favorites]
people's ability to store their personal property in the public right of way at all times
I have literally never thought of on-street parking this way before. Mind blown.
posted by Literaryhero at 8:04 PM on April 9, 2018 [15 favorites]
I have literally never thought of on-street parking this way before. Mind blown.
posted by Literaryhero at 8:04 PM on April 9, 2018 [15 favorites]
Partly because regardless of their sympathies, their ticket only remains golden as long as bigger apartment buildings don't go up near their house.
There is a medium sized apartment building next to our house and it doesn’t seem to be hurting our house value relative to other houses. All those renters are supporting the same bars and restaurants that are making the neighborhood a popular place to live.
Color me dubious on this. (Meaning, I agree this is what drives NIMBYism, but I’m less convinced that it is true.)
posted by Dip Flash at 10:57 PM on April 9, 2018 [1 favorite]
There is a medium sized apartment building next to our house and it doesn’t seem to be hurting our house value relative to other houses. All those renters are supporting the same bars and restaurants that are making the neighborhood a popular place to live.
Color me dubious on this. (Meaning, I agree this is what drives NIMBYism, but I’m less convinced that it is true.)
posted by Dip Flash at 10:57 PM on April 9, 2018 [1 favorite]
If the housing bubble we bought into in Sydney had held for a little longer (instead of starting to deflate exactly when we purchased), our house would have been "earning" more than twice as much as our dual household incomes, which were already well above the median salary here. It's really ridiculous.
posted by lollusc at 12:15 AM on April 10, 2018 [1 favorite]
posted by lollusc at 12:15 AM on April 10, 2018 [1 favorite]
I have literally never thought of on-street parking this way before. Mind blown.
An ex of mine used to work in urban planning in San Francisco and was at one point working on a project to turn around a dead end street in one of the western neighborhoods on the Pacific coast.
This particular street ended in a dark nothing and was used for drug dealing / peeing / other nuisances. The plan was to build a giant park, playground, light the shit out of it, and take down a bunch of overgrown weeds to open up a view to the ocean.
Every single person who came to the public comment meetings only had one question: would parking be affected by these improvements?
Literally everything - everything - that has to do with planning public space in cities revolves almost 100% around parking. It is totally insane.
posted by bradbane at 1:23 AM on April 10, 2018 [24 favorites]
An ex of mine used to work in urban planning in San Francisco and was at one point working on a project to turn around a dead end street in one of the western neighborhoods on the Pacific coast.
This particular street ended in a dark nothing and was used for drug dealing / peeing / other nuisances. The plan was to build a giant park, playground, light the shit out of it, and take down a bunch of overgrown weeds to open up a view to the ocean.
Every single person who came to the public comment meetings only had one question: would parking be affected by these improvements?
Literally everything - everything - that has to do with planning public space in cities revolves almost 100% around parking. It is totally insane.
posted by bradbane at 1:23 AM on April 10, 2018 [24 favorites]
Hey, it's my life again.
So per a lot of other commenters, this is mostly unrealizable equity in that you can get a loan against it, but without the cash flow to pay that loan off it's all paper wealth.
If homeowners have a large amount of wealth tied up in home equity, can they find someone else like a bank to buy the equity from them so that they can switch to being renters? (Perhaps with a contract that says they get right of first refusal to continue renting there for N years.) If this arrangement doesn't exist, why not?
Good question. As far as I can tell local rents are even higher than bank payments so simply moving out, renting your house and renting a different home for yourself is mostly a wash. You'd have to go rent something that goes for less than the original house to pocket any money.
The anti-development NIMBYs in the south SF Bay Area are a strange bunch. They like suburbia, that's why they moved out here before it became all-tech. And it's somewhat economically rational for them to try to protect their investments, although I think building more high density housing would actually increase demand for SFHs in the area. I think the last time this got discussed I noted that there is a legitimate issue around infrastructure - adding higher density apartment buildings isn't going to create more roads or schools. And transit funding is a shitshow hereabouts so people are going to need to drive.
Another weird angle on this which is most Palo Alto-centric is the fact that many houses (and nearly all of them in Palo Alto) are single-storey houses. And these people object to even building a two-storey SFH beside there because it will ruin the privacy of their backyard! It's not even an actual increase in housing density, it's just about trying to add living space to your 1200 sf $5M house. But nope. Can't have someone being able to see into your backyard or through all those windows at the back of your Eichler.
And the root of all these problems is that these suburban cities have no qualms zoning a lot of new commercial office space but don't zone new residential land at nearly the same rate. It doesn't take an urban planning major to figure out that that isn't sustainable.
posted by GuyZero at 2:04 AM on April 10, 2018 [4 favorites]
So per a lot of other commenters, this is mostly unrealizable equity in that you can get a loan against it, but without the cash flow to pay that loan off it's all paper wealth.
If homeowners have a large amount of wealth tied up in home equity, can they find someone else like a bank to buy the equity from them so that they can switch to being renters? (Perhaps with a contract that says they get right of first refusal to continue renting there for N years.) If this arrangement doesn't exist, why not?
Good question. As far as I can tell local rents are even higher than bank payments so simply moving out, renting your house and renting a different home for yourself is mostly a wash. You'd have to go rent something that goes for less than the original house to pocket any money.
The anti-development NIMBYs in the south SF Bay Area are a strange bunch. They like suburbia, that's why they moved out here before it became all-tech. And it's somewhat economically rational for them to try to protect their investments, although I think building more high density housing would actually increase demand for SFHs in the area. I think the last time this got discussed I noted that there is a legitimate issue around infrastructure - adding higher density apartment buildings isn't going to create more roads or schools. And transit funding is a shitshow hereabouts so people are going to need to drive.
Another weird angle on this which is most Palo Alto-centric is the fact that many houses (and nearly all of them in Palo Alto) are single-storey houses. And these people object to even building a two-storey SFH beside there because it will ruin the privacy of their backyard! It's not even an actual increase in housing density, it's just about trying to add living space to your 1200 sf $5M house. But nope. Can't have someone being able to see into your backyard or through all those windows at the back of your Eichler.
And the root of all these problems is that these suburban cities have no qualms zoning a lot of new commercial office space but don't zone new residential land at nearly the same rate. It doesn't take an urban planning major to figure out that that isn't sustainable.
posted by GuyZero at 2:04 AM on April 10, 2018 [4 favorites]
Gross rental yields in SV are less than 4%, so your return as a buyer is >100% from appreciation as you have a negative net yield. And rental yields are really a spread, where the base rate is going up these days. So even if you get rent growth there could be pain.
posted by JPD at 2:20 AM on April 10, 2018
posted by JPD at 2:20 AM on April 10, 2018
The inflated real estate market is driving up rents, too, as speculators buy condos and then try to recoup their mortgage payment and expenses by having someone else pay them. This then affects "market rent" and all the other landlords jack up their expectations to match.
posted by sevenyearlurk at 4:27 AM on April 10, 2018
posted by sevenyearlurk at 4:27 AM on April 10, 2018
A drop in value would mean financial ruin for many heavily indebted homeowners, many of whom earn $50,000 a year.
I don't understand this - if they're keeping their heads above water and affording their repayments, how is that in any way affected by the supposed nominal value of their house? It could drop to a dollar in resale value, and they'd still have a place to live under exactly the same conditions as before. Houses are homes, not investments.
posted by Dysk at 4:35 AM on April 10, 2018 [1 favorite]
I don't understand this - if they're keeping their heads above water and affording their repayments, how is that in any way affected by the supposed nominal value of their house? It could drop to a dollar in resale value, and they'd still have a place to live under exactly the same conditions as before. Houses are homes, not investments.
posted by Dysk at 4:35 AM on April 10, 2018 [1 favorite]
Houses are homes, not investments.
Weirdly, they're both, depending on your situation. F'rex, I consider my house--the only house I've ever owned and am ever likely to--as a home, but then I have no plans to move anywhere for a very very long period of time. For people whose families grow or shrink, it's both, I think.
posted by Kitteh at 4:52 AM on April 10, 2018 [1 favorite]
Weirdly, they're both, depending on your situation. F'rex, I consider my house--the only house I've ever owned and am ever likely to--as a home, but then I have no plans to move anywhere for a very very long period of time. For people whose families grow or shrink, it's both, I think.
posted by Kitteh at 4:52 AM on April 10, 2018 [1 favorite]
Right, but if house prices in general fall, then yes your house is worth less, but then so is the one you were looking to move to? Unless we're talking like a 50% drop or something (which would leave significant negative equity) the fall in the value of the place you're selling is offset by the fall in value of the place you're buying, right?
posted by Dysk at 4:58 AM on April 10, 2018
posted by Dysk at 4:58 AM on April 10, 2018
Right, but if house prices in general fall, then yes your house is worth less, but then so is the one you were looking to move to?
True story, during the housing recession my brother was looking to move into a bigger place, but ultimately decided on a costly addition specifically because his ego wouldn't allow him to sell he house for less than he paid for it, even though all things being equal the bigger houses were also cheaper, and so it didn't actually matter. People are weird, I guess, is what I am saying.
posted by Literaryhero at 5:21 AM on April 10, 2018 [1 favorite]
True story, during the housing recession my brother was looking to move into a bigger place, but ultimately decided on a costly addition specifically because his ego wouldn't allow him to sell he house for less than he paid for it, even though all things being equal the bigger houses were also cheaper, and so it didn't actually matter. People are weird, I guess, is what I am saying.
posted by Literaryhero at 5:21 AM on April 10, 2018 [1 favorite]
I not sure we should be seeing appeasing homeowner ego weirdness as a policy goal, mind...
posted by Dysk at 5:26 AM on April 10, 2018 [2 favorites]
posted by Dysk at 5:26 AM on April 10, 2018 [2 favorites]
The inflated real estate market is driving up rents, too, as speculators buy condos and then try to recoup their mortgage payment and expenses by having someone else pay them. This then affects "market rent" and all the other landlords jack up their expectations to match.
if this were actually true (rents chasing home prices) rental yields wouldn't be falling. Which isn't to say rents can't be increasing and yields dropping, it just means home price inflation>wage growth, even if wage growth is strong.
posted by JPD at 7:03 AM on April 10, 2018
if this were actually true (rents chasing home prices) rental yields wouldn't be falling. Which isn't to say rents can't be increasing and yields dropping, it just means home price inflation>wage growth, even if wage growth is strong.
posted by JPD at 7:03 AM on April 10, 2018
Don't forget that a large part of the crisis in California is due to the horrible property tax structure there.
Property values started skyrocketing because of successful anti-density movements and tight restrictions on new construction. Which made the people who had won the generational jackpot and bought housing when it was cheap very happy.
But, sad time, that skyrocketing property value came with a skyrocketing property tax. How could they enjoy the benefits of getting rich by locking younger people out of housing if they had to pay taxes on that massive increase in property value?
The solution was simple: change how property taxes are assessed so that existing property owners don't have to pay taxes on the actual bank value of their homes but instead have the tax they pay increase by an absolute maximum of 1% per year regardless of actual property value.
Naturally this boon is not extended to younger people. If you buy a home valued at $2,000,000 from someone who was paying taxes on it as if it were worth only $200,000 then it sucks to be you, because you'll be paying taxes on the full $2,000,000. That way even young people who manage to scrape together enough to buy a house still get a worse deal than the older people who bought their houses decades ago.
We can solve a lot of California's housing shortage and NIMBYism and all the other problems really easily by insisting homeowners pay taxes on the actual list value of the home instead of the super discounted deal they cut themselves.
They wanted the home value to explode, so they basically made building new housing impossible. Normally the sudden increase in property taxes would have forced that bullshit to end. The horribly restrictive laws on construction would be loosened so the extant property owners didn't have to pay such a high tax bill.
But in California they figured out a way to have their crazy high property values without having to pay the tax bill that comes along with pricing everyone else out of the market.
Now the only question is how bad it's going to have to get before those very bad laws are repealed.
And historically, the answer to that question has been "vastly worse than anyone wants to ever consider".
posted by sotonohito at 7:06 AM on April 10, 2018 [11 favorites]
Property values started skyrocketing because of successful anti-density movements and tight restrictions on new construction. Which made the people who had won the generational jackpot and bought housing when it was cheap very happy.
But, sad time, that skyrocketing property value came with a skyrocketing property tax. How could they enjoy the benefits of getting rich by locking younger people out of housing if they had to pay taxes on that massive increase in property value?
The solution was simple: change how property taxes are assessed so that existing property owners don't have to pay taxes on the actual bank value of their homes but instead have the tax they pay increase by an absolute maximum of 1% per year regardless of actual property value.
Naturally this boon is not extended to younger people. If you buy a home valued at $2,000,000 from someone who was paying taxes on it as if it were worth only $200,000 then it sucks to be you, because you'll be paying taxes on the full $2,000,000. That way even young people who manage to scrape together enough to buy a house still get a worse deal than the older people who bought their houses decades ago.
We can solve a lot of California's housing shortage and NIMBYism and all the other problems really easily by insisting homeowners pay taxes on the actual list value of the home instead of the super discounted deal they cut themselves.
They wanted the home value to explode, so they basically made building new housing impossible. Normally the sudden increase in property taxes would have forced that bullshit to end. The horribly restrictive laws on construction would be loosened so the extant property owners didn't have to pay such a high tax bill.
But in California they figured out a way to have their crazy high property values without having to pay the tax bill that comes along with pricing everyone else out of the market.
Now the only question is how bad it's going to have to get before those very bad laws are repealed.
And historically, the answer to that question has been "vastly worse than anyone wants to ever consider".
posted by sotonohito at 7:06 AM on April 10, 2018 [11 favorites]
Right, but if house prices in general fall, then yes your house is worth less, but then so is the one you were looking to move to? Unless we're talking like a 50% drop or something (which would leave significant negative equity) the fall in the value of the place you're selling is offset by the fall in value of the place you're buying, right?
Except your equity in home one is levered, so you don't need a 50% decline to blow that up.
posted by JPD at 7:09 AM on April 10, 2018
Except your equity in home one is levered, so you don't need a 50% decline to blow that up.
posted by JPD at 7:09 AM on April 10, 2018
There's a few things that would, I feel, give politicians a whole lot more leeway with regards to housing policy which could potentially affect price:
It makes me angry that although the whole ostensible purpose of the finance industry is to make sure that money is as fungible and liquid as possible, it seems to do so little for liquidity where residential property's concerned. Obviously it's clear to me why. It just feels like the biggest contributor to growing inequality.
In particular, it bothers me that the comparator for rental yields that everyone uses is the mortgage borrowing rate. It should surely (with 70% of renters in the UK renting from a landlord who owns only 1 or 2 rental properties) be compared to the retail savings rate. Very little financial risk is borne by a landlord in this situation, as well as it involving very little work, assuming the rental is managed by a letting agent.
posted by ambrosen at 7:17 AM on April 10, 2018
- Making negative equity insurance compulsory for residential mortgages. This would include guaranteed buyback by the mortgagee after a reasonable period on the market.
- Making insurance against price-drop available to all owner-occupiers.
- Targeting house price inflation as part of the normal inflation targets, in particular, aiming to ensure that house price inflation is proportional to (but obviously higher than) the interest earned on bank deposits.
It makes me angry that although the whole ostensible purpose of the finance industry is to make sure that money is as fungible and liquid as possible, it seems to do so little for liquidity where residential property's concerned. Obviously it's clear to me why. It just feels like the biggest contributor to growing inequality.
In particular, it bothers me that the comparator for rental yields that everyone uses is the mortgage borrowing rate. It should surely (with 70% of renters in the UK renting from a landlord who owns only 1 or 2 rental properties) be compared to the retail savings rate. Very little financial risk is borne by a landlord in this situation, as well as it involving very little work, assuming the rental is managed by a letting agent.
posted by ambrosen at 7:17 AM on April 10, 2018
There's a few things that would, I feel, give politicians a whole lot more leeway with regards to housing policy which could potentially affect price:
Making negative equity insurance compulsory for residential mortgages. This would include guaranteed buyback by the mortgagee after a reasonable period on the market.
Making insurance against price-drop available to all owner-occupiers.
Targeting house price inflation as part of the normal inflation targets, in particular, aiming to ensure that house price inflation is proportional to (but obviously higher than) the interest earned on bank deposits..
this is not a great idea, unless you are going to raise LTVs very high (and even that doesn't work - see HK which is just insane and LTV there >50%). It basically creates a one way speculative market.
And the government does include a measure of home prices in the CPI - Owners Equivalent Rent, because nominal home price changes are hugely a function of financing costs.
The real issue is that somehow we've stigmatized renting. At a sub 4% gross rental yield, renting is a great decision.
posted by JPD at 7:28 AM on April 10, 2018 [1 favorite]
Making negative equity insurance compulsory for residential mortgages. This would include guaranteed buyback by the mortgagee after a reasonable period on the market.
Making insurance against price-drop available to all owner-occupiers.
Targeting house price inflation as part of the normal inflation targets, in particular, aiming to ensure that house price inflation is proportional to (but obviously higher than) the interest earned on bank deposits..
this is not a great idea, unless you are going to raise LTVs very high (and even that doesn't work - see HK which is just insane and LTV there >50%). It basically creates a one way speculative market.
And the government does include a measure of home prices in the CPI - Owners Equivalent Rent, because nominal home price changes are hugely a function of financing costs.
The real issue is that somehow we've stigmatized renting. At a sub 4% gross rental yield, renting is a great decision.
posted by JPD at 7:28 AM on April 10, 2018 [1 favorite]
don't understand this - if they're keeping their heads above water and affording their repayments, how is that in any way affected by the supposed nominal value of their house?
Because banks hold the mortgages, and their patience ebbs as the home value does.
If houses are selling way over the amount of the loan, the bank doesn’t worry if you miss a payment or two - they are still going to get paid whether you catch up or they foreclose. If you catch up and continue paying interest, they make more money, so it’s in their interest to be slow, to a point. I’ve seen people in homes valued over the loan take two or three years to be ultimately evicted.
If your house is selling for closer to the loan amount and values are dropping, they will want you out fast so they can recoup their money.
posted by corb at 7:28 AM on April 10, 2018
Because banks hold the mortgages, and their patience ebbs as the home value does.
If houses are selling way over the amount of the loan, the bank doesn’t worry if you miss a payment or two - they are still going to get paid whether you catch up or they foreclose. If you catch up and continue paying interest, they make more money, so it’s in their interest to be slow, to a point. I’ve seen people in homes valued over the loan take two or three years to be ultimately evicted.
If your house is selling for closer to the loan amount and values are dropping, they will want you out fast so they can recoup their money.
posted by corb at 7:28 AM on April 10, 2018
But a loan contract specifies a period of repayment, etc, right? Like, you get thirty years to repay a thirty year mortgage even if the bank gets antsy.
And yes, it could give less space for missing repayments, I suppose.
posted by Dysk at 7:31 AM on April 10, 2018
And yes, it could give less space for missing repayments, I suppose.
posted by Dysk at 7:31 AM on April 10, 2018
a mortgage is non-callable by the bank. And foreclosure is expensive.
posted by JPD at 7:31 AM on April 10, 2018 [1 favorite]
posted by JPD at 7:31 AM on April 10, 2018 [1 favorite]
But a loan contract specifies a period of repayment, etc, right?
Yes, all the replies to you so far have been nonsense. The real problem is that falling house prices are commiserate with job losses, so falling home prices mean heavy regional job loss so the ability to repay your mortgage is very much dependent upon you personally continuing to have a job.
But then job losses are variable across industry and race (of course) even within a region.
posted by The_Vegetables at 7:38 AM on April 10, 2018
Yes, all the replies to you so far have been nonsense. The real problem is that falling house prices are commiserate with job losses, so falling home prices mean heavy regional job loss so the ability to repay your mortgage is very much dependent upon you personally continuing to have a job.
But then job losses are variable across industry and race (of course) even within a region.
posted by The_Vegetables at 7:38 AM on April 10, 2018
The real problem is that falling house prices are commiserate with job losses, so falling home prices mean heavy regional job loss so the ability to repay your mortgage is very much dependent upon you personally continuing to have a job.
Home price declines historically lead economic slowdowns. And you do have economic slowdowns that don't feature large changes in nominal home prices.
posted by JPD at 7:50 AM on April 10, 2018
Home price declines historically lead economic slowdowns. And you do have economic slowdowns that don't feature large changes in nominal home prices.
posted by JPD at 7:50 AM on April 10, 2018
The real problem is that falling house prices are commiserate with job losses, so falling home prices mean heavy regional job loss
I get that this is often the case, but it seems to get the causality a bit backwards, perhaps? If you were to increase property taxes (especially on empty or even rented properties) that would likely cause a fall in property prices, but it's hard to see a mechanism by which it would also cause job losses (indeed, increased tax revenue could be used to create more jobs)...
posted by Dysk at 7:51 AM on April 10, 2018
I get that this is often the case, but it seems to get the causality a bit backwards, perhaps? If you were to increase property taxes (especially on empty or even rented properties) that would likely cause a fall in property prices, but it's hard to see a mechanism by which it would also cause job losses (indeed, increased tax revenue could be used to create more jobs)...
posted by Dysk at 7:51 AM on April 10, 2018
Well, to the extent that consumption still relates to housing prices, declining value does affect the job market even if the notional losses are never realized and assuming nobody is using their equity as a credit card of sorts.
Fundamentals don't have to change to make people less likely to spend money. The sad thing is that right wing economists will happily make this money multiplier argument as it relates to the unwashed masses, but refuse to see the exact same thing at work with income and wealth inequality. The multiplier goes to shit when rich assholes let large sums sit mostly idle, same as it does when housing prices take a dump.
posted by wierdo at 7:58 AM on April 10, 2018
Fundamentals don't have to change to make people less likely to spend money. The sad thing is that right wing economists will happily make this money multiplier argument as it relates to the unwashed masses, but refuse to see the exact same thing at work with income and wealth inequality. The multiplier goes to shit when rich assholes let large sums sit mostly idle, same as it does when housing prices take a dump.
posted by wierdo at 7:58 AM on April 10, 2018
this is not a great idea, unless you are going to raise LTVs very high (and even that doesn't work - see HK which is just insane and LTV there >50%). It basically creates a one way speculative market.
I'm not clear which part of the 3 policies I suggested that applies to. It certainly doesn't apply to negative equity insurance: negative equity only occurs when LTV's high (over 100% at the time of sale, by definition), and presumably as it's insurance, it's priced according to risk. Likewise, value drop insurance would also be market priced. These are regulatory interventions that I'm proposing, not (direct) taxpayer funded interventions.
Having rental prices (which as you say, are insufficiently correlated with actual house prices) as part of CPI doesn't appear to link them strongly enough to monetary policy, so probably you do need the central bank to have a separate house price:wages target, so I guess that part of my spitballing is hereby revised.
As for 4% being a bad yield for rentals: that's assuming buy-to-let mortgages. I feel pretty sure that small landlords should be assumed to be cash buyers, and the yield they'd otherwise be getting is the tiny amount that retail savings accounts offer.
posted by ambrosen at 8:00 AM on April 10, 2018
I'm not clear which part of the 3 policies I suggested that applies to. It certainly doesn't apply to negative equity insurance: negative equity only occurs when LTV's high (over 100% at the time of sale, by definition), and presumably as it's insurance, it's priced according to risk. Likewise, value drop insurance would also be market priced. These are regulatory interventions that I'm proposing, not (direct) taxpayer funded interventions.
Having rental prices (which as you say, are insufficiently correlated with actual house prices) as part of CPI doesn't appear to link them strongly enough to monetary policy, so probably you do need the central bank to have a separate house price:wages target, so I guess that part of my spitballing is hereby revised.
As for 4% being a bad yield for rentals: that's assuming buy-to-let mortgages. I feel pretty sure that small landlords should be assumed to be cash buyers, and the yield they'd otherwise be getting is the tiny amount that retail savings accounts offer.
posted by ambrosen at 8:00 AM on April 10, 2018
Like, you get thirty years to repay a thirty year mortgage even if the bank gets antsy.
No, this is incorrect. They can’t call the whole note due early, but if you stop making payments, they can absolutely foreclose on you. They don’t have to wait 30 years and then see if you can pay it all back.
posted by corb at 8:02 AM on April 10, 2018 [2 favorites]
No, this is incorrect. They can’t call the whole note due early, but if you stop making payments, they can absolutely foreclose on you. They don’t have to wait 30 years and then see if you can pay it all back.
posted by corb at 8:02 AM on April 10, 2018 [2 favorites]
It certainly doesn't apply to negative equity insurance: The US basically already has negative equity insurance for the bank - PMI, which you must pay until you have 20% equity.
posted by The_Vegetables at 8:04 AM on April 10, 2018 [1 favorite]
posted by The_Vegetables at 8:04 AM on April 10, 2018 [1 favorite]
Home price declines historically lead economic slowdowns. And you do have economic slowdowns that don't feature large changes in nominal home prices.
Nice of you to throw that 'large' modifier in there.
posted by The_Vegetables at 8:12 AM on April 10, 2018
Nice of you to throw that 'large' modifier in there.
posted by The_Vegetables at 8:12 AM on April 10, 2018
These are regulatory interventions that I'm proposing, not (direct) taxpayer funded interventions.
No reasonable entity would underwrite this risk, because even dumb-ass banks could recognize that the risk on each individual policy is strongly correlated (as home prices tend to move in sync) and so, in a period like 2007, you would get wiped out completely. The only real similar product I can think of is catastrophe bonds, and those are a very specialized and expensive market.
No, it would have to be government-provided insurance, and my interest as a renter in subsidizing the kind of speculation that would result from making it impossible to lose money in residential real estate is zero.
They can’t call the whole note due early, but if you stop making payments, they can absolutely foreclose on you.
If you are unable to make your housing payments as a matter of course, you're in a different category than the homeowner who is sitting on a highly appreciated property the market-rate mortgage payment for which they couldn't pay if they had to. (You've also purchased a house which is too expensive for you and should be getting out of it.) As long as you can make your monthly payment, it doesn't matter how antsy the bank may get. The situation only turns into a problem because housing price crashes tend to occur in tandem with other economic disruptions that may produce high unemployment and render you unable to service the debt.
posted by praemunire at 8:37 AM on April 10, 2018 [1 favorite]
No reasonable entity would underwrite this risk, because even dumb-ass banks could recognize that the risk on each individual policy is strongly correlated (as home prices tend to move in sync) and so, in a period like 2007, you would get wiped out completely. The only real similar product I can think of is catastrophe bonds, and those are a very specialized and expensive market.
No, it would have to be government-provided insurance, and my interest as a renter in subsidizing the kind of speculation that would result from making it impossible to lose money in residential real estate is zero.
They can’t call the whole note due early, but if you stop making payments, they can absolutely foreclose on you.
If you are unable to make your housing payments as a matter of course, you're in a different category than the homeowner who is sitting on a highly appreciated property the market-rate mortgage payment for which they couldn't pay if they had to. (You've also purchased a house which is too expensive for you and should be getting out of it.) As long as you can make your monthly payment, it doesn't matter how antsy the bank may get. The situation only turns into a problem because housing price crashes tend to occur in tandem with other economic disruptions that may produce high unemployment and render you unable to service the debt.
posted by praemunire at 8:37 AM on April 10, 2018 [1 favorite]
even dumb-ass banks could recognize that the risk on each individual policy
Well, yeah, one would have hoped they'd learned that lesson. But government underwritten insurance, much like bank deposits. Because the big reason I'm suggesting them is to try to make sure that house prices correlate more strongly with the fundamentals of the value that the house brings, and that things get decoupled from market confidence. i.e. as a fuse that stops house price collapses, just like deposit insurance stops bank runs.
posted by ambrosen at 8:52 AM on April 10, 2018
Well, yeah, one would have hoped they'd learned that lesson. But government underwritten insurance, much like bank deposits. Because the big reason I'm suggesting them is to try to make sure that house prices correlate more strongly with the fundamentals of the value that the house brings, and that things get decoupled from market confidence. i.e. as a fuse that stops house price collapses, just like deposit insurance stops bank runs.
posted by ambrosen at 8:52 AM on April 10, 2018
As for 4% being a bad yield for rentals: that's assuming buy-to-let mortgages. I feel pretty sure that small landlords should be assumed to be cash buyers, and the yield they'd otherwise be getting is the tiny amount that retail savings accounts offer.
Why on earth would you accept 4% on a long-term extremely illiquid investment? And that's gross yield so before non-financing carrying costs? And you have to pay a few percent to trade out of it.
separate house price:wages target, so I guess that part of my spitballing is hereby revised.
again - doesn't make sense. Wages: Rent tend to be mean reverting for an area given no change to land use rules, while home prices are a function of rates and rents.
posted by JPD at 9:00 AM on April 10, 2018 [1 favorite]
Why on earth would you accept 4% on a long-term extremely illiquid investment? And that's gross yield so before non-financing carrying costs? And you have to pay a few percent to trade out of it.
separate house price:wages target, so I guess that part of my spitballing is hereby revised.
again - doesn't make sense. Wages: Rent tend to be mean reverting for an area given no change to land use rules, while home prices are a function of rates and rents.
posted by JPD at 9:00 AM on April 10, 2018 [1 favorite]
Because the big reason I'm suggesting them is to try to make sure that house prices correlate more strongly with the fundamentals of the value that the house brings, and that things get decoupled from market confidence. i.e. as a fuse that stops house price collapse
What matters is that rents correlate, not nominal home prices.
posted by JPD at 9:04 AM on April 10, 2018
What matters is that rents correlate, not nominal home prices.
posted by JPD at 9:04 AM on April 10, 2018
I have friends who have plugged a wage vs. lifestyle gap with the equity in their Toronto homes. It gets pretty scary to watch. If the bottom falls out I worry for them, and I worry for people who have not contributed as much to retirement savings on the bet that their houses are their retirement funds.
I'm somewhat convinced that it's impacted the whole city -- that salaries have stagnated in part because of WASP trickle-down wealth (Greatest Generation -> Boomer -> young families), plus the use of home equity for the things like vacations and renovations -- especially renovations where the belief is that the end result contributes to the home equity. And even if not, I think it's contributed to a sense of affluence where the norm is a little bit nuts, like loads of expensive activities (guilty!) and aforementioned vacations.
On the up side, I've seen people retire early and cash out and they are having a blast with their lives.
I totally benefit from the rise in housing prices in Toronto, but my kitchen is crap because we aren't willing to dip back into the equity.
posted by warriorqueen at 9:35 AM on April 10, 2018 [1 favorite]
I'm somewhat convinced that it's impacted the whole city -- that salaries have stagnated in part because of WASP trickle-down wealth (Greatest Generation -> Boomer -> young families), plus the use of home equity for the things like vacations and renovations -- especially renovations where the belief is that the end result contributes to the home equity. And even if not, I think it's contributed to a sense of affluence where the norm is a little bit nuts, like loads of expensive activities (guilty!) and aforementioned vacations.
On the up side, I've seen people retire early and cash out and they are having a blast with their lives.
I totally benefit from the rise in housing prices in Toronto, but my kitchen is crap because we aren't willing to dip back into the equity.
posted by warriorqueen at 9:35 AM on April 10, 2018 [1 favorite]
No, this is incorrect. They can’t call the whole note due early, but if you stop making payments, they can absolutely foreclose on you. They don’t have to wait 30 years and then see if you can pay it all back.
I did make it clear that I was predicating all of this on keeping up with repayments. So yes, it is correct.
posted by Dysk at 9:51 AM on April 10, 2018 [2 favorites]
I did make it clear that I was predicating all of this on keeping up with repayments. So yes, it is correct.
posted by Dysk at 9:51 AM on April 10, 2018 [2 favorites]
government underwritten insurance, much like bank deposits.
Again, you are advocating subsidization of house prices by non-homeowners. No thanks! We do that enough already with the mortgage-interest deduction, even within the new limits.
Because the big reason I'm suggesting them is to try to make sure that house prices correlate more strongly with the fundamentals of the value that the house brings
I don't think you've fully thought through the implications of these policies. They would serve to create a one-way ratchet to prices, fuelling further speculation. By reducing the odds of disciplining losses, they would decrease the correlation (to the extent it's meaningful to speak of the "fundamentals" of house value, which is actually considerably harder to determine than you seem to be thinking).
a fuse that stops house price collapses, just like deposit insurance stops bank runs.
So, in a bank run, you have an actual, existing asset (from the point of view of the depositor) which has simply vanished through the mishandling of its custodian. The possibility of this outcome is bad because it deters people from saving and thus putting their money into circulation, which was, and to a certain degree still is, the fundamental basis of the banking system. Deposit insurance is one of the deepest backstops of the entire structure of fractional reserves.
What you are suggesting is simply favoritism and artificial support to the price of a particular asset because a market has malfunctioned so long that corrections to the price are painful. To a certain degree, we have been doing this since 2007-08, just through other mechanisms, and, while some such action was probably necessary in the depths of the financial crisis, the medium-term results have been...well, look around you.
In the retail banking context, the equivalent would not be deposit insurance, it would be some kind of insurance against inflation, where everyone could claim extra money if their savings devalued. There's a reason that the government doesn't offer that.
I worry very much for people for whom their house represents most of their retirement savings. There's going to be a mass kneecapping one of these days. But we can't just keeping perpetuating this system.
posted by praemunire at 2:56 PM on April 10, 2018 [2 favorites]
Again, you are advocating subsidization of house prices by non-homeowners. No thanks! We do that enough already with the mortgage-interest deduction, even within the new limits.
Because the big reason I'm suggesting them is to try to make sure that house prices correlate more strongly with the fundamentals of the value that the house brings
I don't think you've fully thought through the implications of these policies. They would serve to create a one-way ratchet to prices, fuelling further speculation. By reducing the odds of disciplining losses, they would decrease the correlation (to the extent it's meaningful to speak of the "fundamentals" of house value, which is actually considerably harder to determine than you seem to be thinking).
a fuse that stops house price collapses, just like deposit insurance stops bank runs.
So, in a bank run, you have an actual, existing asset (from the point of view of the depositor) which has simply vanished through the mishandling of its custodian. The possibility of this outcome is bad because it deters people from saving and thus putting their money into circulation, which was, and to a certain degree still is, the fundamental basis of the banking system. Deposit insurance is one of the deepest backstops of the entire structure of fractional reserves.
What you are suggesting is simply favoritism and artificial support to the price of a particular asset because a market has malfunctioned so long that corrections to the price are painful. To a certain degree, we have been doing this since 2007-08, just through other mechanisms, and, while some such action was probably necessary in the depths of the financial crisis, the medium-term results have been...well, look around you.
In the retail banking context, the equivalent would not be deposit insurance, it would be some kind of insurance against inflation, where everyone could claim extra money if their savings devalued. There's a reason that the government doesn't offer that.
I worry very much for people for whom their house represents most of their retirement savings. There's going to be a mass kneecapping one of these days. But we can't just keeping perpetuating this system.
posted by praemunire at 2:56 PM on April 10, 2018 [2 favorites]
And foreclosure is expensive.
This varies by state. In non-judicial foreclosure states, like California, it is a routine matter. It takes a couple of months, a total of 4 recorded documents (sub trustee, notice of default, notice of trustee's sale, trustee's deed), plus the cost of posting newspaper notices and paying an auctioneer. This is typically a few thousand bucks.
If no one bids at the foreclosure auction, ownership reverts to the lender. If the property isn't underwater, the lender gets a bunch of free equity. If anyone bids more than the lender's reserve, which may include all costs associated with foreclosure, then the lender loses nothing.
I know a guy in northern CA who seller-finances non-FHA eligible homes to underqualified buyers, such that they have a balloon payment after a few years. They can't refinance, and they don't have the balance, so he takes the house back. Lather, rinse, repeat. This is legal in California, even with Dodd-Frank. In theory you are supposed to verify capacity to repay; in practice this is easy to fudge.
The system so heavily favors lenders that people often just deed their houses to the bank ("deed in lieu") rather than wait for a foreclosure they have no meaningful way to contest.
Personally, I have no problem with people losing their houses if they do not make their payments. My main gripe is that the foreclosure auction process does not provide an ironclad guarantee of clear title, so banks won't lend for foreclosure auctions, so only cash buyers bid, so the houses are systematically undervalued. This often hurts the borrower more than the lender.
posted by andrewpcone at 4:06 PM on April 10, 2018 [1 favorite]
This varies by state. In non-judicial foreclosure states, like California, it is a routine matter. It takes a couple of months, a total of 4 recorded documents (sub trustee, notice of default, notice of trustee's sale, trustee's deed), plus the cost of posting newspaper notices and paying an auctioneer. This is typically a few thousand bucks.
If no one bids at the foreclosure auction, ownership reverts to the lender. If the property isn't underwater, the lender gets a bunch of free equity. If anyone bids more than the lender's reserve, which may include all costs associated with foreclosure, then the lender loses nothing.
I know a guy in northern CA who seller-finances non-FHA eligible homes to underqualified buyers, such that they have a balloon payment after a few years. They can't refinance, and they don't have the balance, so he takes the house back. Lather, rinse, repeat. This is legal in California, even with Dodd-Frank. In theory you are supposed to verify capacity to repay; in practice this is easy to fudge.
The system so heavily favors lenders that people often just deed their houses to the bank ("deed in lieu") rather than wait for a foreclosure they have no meaningful way to contest.
Personally, I have no problem with people losing their houses if they do not make their payments. My main gripe is that the foreclosure auction process does not provide an ironclad guarantee of clear title, so banks won't lend for foreclosure auctions, so only cash buyers bid, so the houses are systematically undervalued. This often hurts the borrower more than the lender.
posted by andrewpcone at 4:06 PM on April 10, 2018 [1 favorite]
This varies by state. In non-judicial foreclosure states, like California, it is a routine matter. It takes a couple of months, a total of 4 recorded documents (sub trustee, notice of default, notice of trustee's sale, trustee's deed), plus the cost of posting newspaper notices and paying an auctioneer. This is typically a few thousand bucks.
You're right that it is cheaper than in some states than others, but you're underestimating the costs by focusing solely on the explicit fees charged during the process. Banks have to feed a whole infrastructure to support their foreclosure efforts. Many corners are cut, but it's still not inexpensive. And REO languishing on the balance sheet is a misery. (Also, as you note, houses tend to be undervalued at auction.)
I know a guy in northern CA who seller-finances non-FHA eligible homes to underqualified buyers, such that they have a balloon payment after a few years. They can't refinance, and they don't have the balance, so he takes the house back. Lather, rinse, repeat.
This seems like a weird model to me...he gets, what, 4-5% annual return, minus the costs of foreclosure, for tying up his money in an illiquid asset worth $100K or more? Running both prepay risk and the risk of rising rates? But maybe I'm missing something.
posted by praemunire at 6:42 PM on April 10, 2018 [1 favorite]
You're right that it is cheaper than in some states than others, but you're underestimating the costs by focusing solely on the explicit fees charged during the process. Banks have to feed a whole infrastructure to support their foreclosure efforts. Many corners are cut, but it's still not inexpensive. And REO languishing on the balance sheet is a misery. (Also, as you note, houses tend to be undervalued at auction.)
I know a guy in northern CA who seller-finances non-FHA eligible homes to underqualified buyers, such that they have a balloon payment after a few years. They can't refinance, and they don't have the balance, so he takes the house back. Lather, rinse, repeat.
This seems like a weird model to me...he gets, what, 4-5% annual return, minus the costs of foreclosure, for tying up his money in an illiquid asset worth $100K or more? Running both prepay risk and the risk of rising rates? But maybe I'm missing something.
posted by praemunire at 6:42 PM on April 10, 2018 [1 favorite]
This seems like a weird model to me...he gets, what, 4-5% annual return, minus the costs of foreclosure, for tying up his money in an illiquid asset worth $100K or more? Running both prepay risk and the risk of rising rates? But maybe I'm missing something.
He sells a house for something like $100k with $30k down, carrying the rest with something like 30 year amortization, 2 year term, 8% interest. That is, after 2 years, a balloon payment is due. Inevitably, at the end of that period, the homeowner can't come up with the $65k or whatever still due. Because the house is not FHA eligible (no permanent foundation, etc, etc), and the buyers have bad credit, they cannot refinance the loan. He then goes through the foreclosure process, which takes a few months. If no one bids his minimum at the auction (= balance+fees+foreclosure costs), ownership reverts to him. He gets to keep the downpayment, plus any payments made in the prior two years. He can then re-sell the house. (I guess the IRS treats the equity gained in foreclosure as ordinary income? Not sure.). If someone does bid at the auction, then he has made 8% interest for 2 years, which isn't terrible.
In rural northern CA, there are homes that are hard to buy with a loan, and because of non-judicial foreclosure, sellers are often willing to carry the note. Dodd-Frank theoretically regulates seller-financing to discourage predatory lending, but people still make money with questionable-faith seller financing.
I know very little about how banks handle foreclosures. In the case of seller financing, it is pretty easy. You pay someone to deal with it and wait 6 months. There are companies that will do it for a flat fee of a few thousand.
posted by andrewpcone at 10:47 AM on April 11, 2018
He sells a house for something like $100k with $30k down, carrying the rest with something like 30 year amortization, 2 year term, 8% interest. That is, after 2 years, a balloon payment is due. Inevitably, at the end of that period, the homeowner can't come up with the $65k or whatever still due. Because the house is not FHA eligible (no permanent foundation, etc, etc), and the buyers have bad credit, they cannot refinance the loan. He then goes through the foreclosure process, which takes a few months. If no one bids his minimum at the auction (= balance+fees+foreclosure costs), ownership reverts to him. He gets to keep the downpayment, plus any payments made in the prior two years. He can then re-sell the house. (I guess the IRS treats the equity gained in foreclosure as ordinary income? Not sure.). If someone does bid at the auction, then he has made 8% interest for 2 years, which isn't terrible.
In rural northern CA, there are homes that are hard to buy with a loan, and because of non-judicial foreclosure, sellers are often willing to carry the note. Dodd-Frank theoretically regulates seller-financing to discourage predatory lending, but people still make money with questionable-faith seller financing.
I know very little about how banks handle foreclosures. In the case of seller financing, it is pretty easy. You pay someone to deal with it and wait 6 months. There are companies that will do it for a flat fee of a few thousand.
posted by andrewpcone at 10:47 AM on April 11, 2018
Wow, that's exactly how buy here pay here lots work. If someone actually makes the payments as agreed you make half decent money. If they don't, you make out like a bandit since the first person paid you enough to cover whatever you paid for the asset plus the cost involved in their own transaction.
I didn't realize people were doing it with houses, but it makes sense that it could work in a state that has nonjudicial foreclosure or that allows rent to own contracts on real estate with few protections. (Some states allow RTO but wrote their laws such that the lender/seller will usually only break even on a failed sale)
posted by wierdo at 12:22 PM on April 11, 2018
I didn't realize people were doing it with houses, but it makes sense that it could work in a state that has nonjudicial foreclosure or that allows rent to own contracts on real estate with few protections. (Some states allow RTO but wrote their laws such that the lender/seller will usually only break even on a failed sale)
posted by wierdo at 12:22 PM on April 11, 2018
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