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America Should Become a Nation of Renters (1 Viewer)

Max Power

Max Power

Footballguy
https://www.bloomberg.com/opinion/articles/2021-06-17/america-should-become-a-nation-of-renters

The very features that made houses an affordable and stable investment are coming to an end. 

Rising real-estate prices are stoking fears that homeownership, long considered a core component of the American dream, is slipping out of reach for low- and moderate-income Americans. That may be so — but a nation of renters is not something to fear. In fact, it’s the opposite.

The numbers paint a stark picture. After peaking at 69% in 2004, the homeownership rate fell every year until 2016, when it was 64.3% — its lowest level since the Census Bureau started keeping track in 1984. The rate rebounded in Donald Trump’s presidency, hitting 66% in 2020, but that trend is likely to be arrested by a housing market that is desperately short on supply and seeing month-over-month price increases greater than they were in the frenzied market of 2006.

is this really the best direction for our kids?

 
Max Power said:
I wish the article didnt mention Trump, but are you satisfied with the direction on real estate in America right now and for the future?
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The prices seem unsustainable to me so a correction seems likely. There will be some losers for sure. But there will always be a value on owning a home and it is a finite resource in many areas that are desirable so ultimately they’ll keep going up in value.

Some people will be priced out or will have to move. Don’t see that changing ever.

I didn’t take this as an overly political issue and is an interesting topic.

 
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The General said:
The prices seem unsustainable to me so a correction seems likely. There will be some losers for sure. But there will always be a value on owning a home and it is a finite resource in many areas that are desirable so ultimately they’ll keep going up in value.

Some people will be priced out or will have to move. Don’t see that changing ever.

I didn’t take this as an overly political issue and is an interesting topic.
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So I think it becomes entirely political when we start saying people who work minimum wage jobs cant afford to be home owners.

And that tends to turn racial as a follow on. 

The next democratic candidate runs on a platform to make home ownership more affordable to minorities, but never really outlined a sustainable plan. 

This article was Bloomberg, which is a left leaning publisher. So to see it advocate renting to me shows a desire for government dependence. 

 
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Max Power said:
is this really the best direction for our kids?
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Absolutely, utterly, ####### not.

Look at the trends lately - subscription software, subscription clothes, car leases, subscription makeup(!) for crying out loud.  Why is this?  Because it's extractionary from the populace.  

How does one get rich (or comfortable) in America?  Become an owner.  Period.  I don't care if I have to work every weekend for a year to help my kid refurb a house to acquire and build equity in a place.  That's what I'll encourage.  Become an owner.  Build equity.

Want to stay poor?   Rent everything.

 
There’s no doubt been a huge runup in housing prices. As someone who invests in real estate I’d say who knows short term, moderate term I’m more bearish. I think rising interest rates due to inflationary factors are going to be a strong headwind to home prices. However, I rely on the passive income and as a self employed person those rental streams are my retirement plans. I’m not so bearish I see reasons to exit the market.
 

I do think materials costs have peaked due to the supply chain issues. I’m working on a development project in NV where we’ve seen such good demand that we’ve been able to outpace all the building costs increases with price increases for single family units. I don’t know how sustainable it is long term but the project wraps in about a year so fingers crossed there. 
 

If we are talking first time home buyers it’s so hard to predict short term fluctuations. Rates are so low that I think it’s still a good investment if you plan on being somewhere awhile, keeping in mind that we’ve had a large run up in price, but that’s offset by historically low rates at which you can currently borrow. 

 
Max Power said:
So I think it becomes entirely political when we start saying people who work minimum wage jobs cant afford to be home owners.

And that tends to turn racial as a follow on. 

The next democratic candidate runs on a platform to make home ownership more affordable to minorities, but never really outlined a sustainable plan. 

This article was Bloomberg, which is a left leaning publisher. So to see it advocate renting to me shows a desire for government dependence. 
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I think home ownership is a non-partisan issue. Both want this. Tons of incentives to get people in homes. Perhaps there is some disagreement on who should be getting more of the handouts.

There will always be a desire to own a home though. Property will always have value, people will always figure out ways to make money off of the process - sellers, lenders, agents, etc.

I think this article is interesting but it’s just an opinion piece. 

 
The General said:
The prices seem unsustainable to me so a correction seems likely. There will be some losers for sure. But there will always be a value on owning a home and it is a finite resource in many areas that are desirable so ultimately they’ll keep going up in value.

Some people will be priced out or will have to move. Don’t see that changing ever.

I didn’t take this as an overly political issue and is an interesting topic.
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I thought there would have been a crash last year with the airBNB’s. I agree that there will be a correction of some sort, but when?

 
I'm more worried about the cost of cars

I need a truck - you can't touch a good double cab 4x4 nicely equipped for $40,000

A person I know bought one that cost $90,000 the other day, 2500 fully loaded. A good truck well equipped is $50,000 or more ( think Tundra etc ) and used cars are ridiculous

Cost of groceries too and increases in taxation. Nobody has to buy a house - but cars, food, gas ... we gotta have those

 
I think the biggest issue with falling ownership rates is that real estate asset appreciation makes up (somewhat) for the paltry retirement savings rate in the country. 

Second biggest issue is that less home ownership by the lower middle class and middle class allows for less generational wealth transfer in those classes.  It will still exist for the upper middle class and the wealthy, so the gap will grow between the ownership class and the non-owners.

 
Max Power said:
https://www.bloomberg.com/opinion/articles/2021-06-17/america-should-become-a-nation-of-renters

The very features that made houses an affordable and stable investment are coming to an end. 

Rising real-estate prices are stoking fears that homeownership, long considered a core component of the American dream, is slipping out of reach for low- and moderate-income Americans. That may be so — but a nation of renters is not something to fear. In fact, it’s the opposite.

The numbers paint a stark picture. After peaking at 69% in 2004, the homeownership rate fell every year until 2016, when it was 64.3% — its lowest level since the Census Bureau started keeping track in 1984. The rate rebounded in Donald Trump’s presidency, hitting 66% in 2020, but that trend is likely to be arrested by a housing market that is desperately short on supply and seeing month-over-month price increases greater than they were in the frenzied market of 2006.

is this really the best direction for our kids?
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Think about it like new vehicles that most can`t afford.   Around 35% of all new vehicle sales are now leases, That is basically renting for 2-3-4 years or whatever the terms are.  With new vehicles prices getting higher and higher the number is expected to grow.

Housing looks like it could be headed in same direction.

 
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Da Guru said:
Think about it like new vehicles that most can`t afford.   Around 35% of all new vehicle sales are now leases, That is basically renting for 2-3-4 years or whatever the terms are.  With new vehicles prices getting higher and higher the number is expected to grow.

Housing looks like it could be headed in same direction.
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Autos value depreciate over time.   Leasing is a smart option in some cases.   Homes generally appreciate.   Different types of assets.

 
FairWarning said:
I thought there would have been a crash last year with the airBNB’s. I agree that there will be a correction of some sort, but when?
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When interest, and thus mortgage rates, spike.  If I knew when I'd direct you to my newsletter...

 
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There are two issues.

1. Should more people have enough money to buy their own home if they want to?

2. Once someone has enough money, should he use it to buy a home or to invest in GameStop or Bitcoin or something instead?

The answer to the first question is yes.

The answer to the second question is who knows, that's for individuals to decide based on market conditions and whatnot.

In terms of government policy, I'd say that all of the effort should be spent on #1 and none on #2. Tax policies favoring home ownership over stock ownership, etc., are ill-conceived, IMO.

 
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From a national (rather than individual) perspective, I believe thinking of housing as an investment is bad.

We want the value of investments to go up. But we should want housing prices to come down. The problem with housing right now is not that it's overly affordable.

 
MTskibum said:
Home ownership is not necessarily a good thing.

There are multiple studies that show the downside, mostly as it relates to the labor market.

Switzerland has a low home ownership, but Spain has a high home ownership.

In the US, New York has a lowest home ownership, West Virginia has the highest home ownership.

https://www.nber.org/papers/w19079
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It's a different angle for sure. The report is from 2013 and I think we've made progress in job mobility with the rise in telework work. 

We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses.

I still liked Andrew Yang's idea of offering all Americans a free one time job relocation move. An idea where a family in an economically depressed area can move to a location that has a sustainable future. 

 
Maurile Tremblay said:
There are two issues.

1. Should more people have enough money to buy their own home if they want to?

2. Once someone has enough money, should he use it to buy a home or to invest in GameStop or Bitcoin or something instead?

The answer to the first question is yes.

The answer to the second question is who knows, that's for individuals to decide based on market conditions and whatnot.

In terms of government policy, I'd say that all of the effort should be spent on #1 and none on #2. Tax policies favoring home ownership over stock ownership, etc., are ill-conceived, IMO.
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Do you subscribe to the theory that the homeownership gap between whites and minorities is increasing the wealth gap?

Homeownership provides multigenerational wealth, so if we become a nation of renters and reverse mortgages we're only increasing the gap.

 
Max Power said:
Do you subscribe to the theory that the homeownership gap between whites and minorities is increasing the wealth gap?

Homeownership provides multigenerational wealth, so if we become a nation of renters and reverse mortgages we're only increasing the gap.
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No opinion on the first part.

On the second part, I don't see anything special about home ownership. Ownership of Amazon stock can also provide multigenerational wealth. If there is something special about homeownership in this regard -- special tax treatment or something -- we should get rid of that.

 
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Maurile Tremblay said:
No opinion on the first part.

On the second part, I don't see anything special about home ownership. Ownership of Amazon stock can also provide multigenerational wealth. If there is something special about homeownership in this regard -- special tax treatment or something -- we should get rid of that.
Click to expand...
Right, this is why it might be good if we became a nation of renters - so that it will be politically feasible to get rid of stuff like the home mortgage tax deduction and other laws that favor homeowners over renters.

 
MTskibum said:
Home ownership is not necessarily a good thing.

There are multiple studies that show the downside, mostly as it relates to the labor market.

Switzerland has a low home ownership, but Spain has a high home ownership.

In the US, New York has a lowest home ownership, West Virginia has the highest home ownership.

https://www.nber.org/papers/w19079
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Homeowners also like to collude via restrictive zoning to prop up the value of their investments. Not that Blackrock will be any different.

 
Maurile Tremblay said:
No opinion on the first part.

On the second part, I don't see anything special about home ownership. Ownership of Amazon stock can also provide multigenerational wealth. If there is something special about homeownership in this regard -- special tax treatment or something -- we should get rid of that.
Click to expand...
Why no opinion on the first part? It's a researched topic and pointed to often.

I believe stock ownership also increases the wealth gap. Lower income families and especially minorities are not as heavily invested in the stock markets as whites and asians. Do you think people who aren't putting money to an asset (a house in this case) will instead be putting that money to other investments?

 
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The housing bubble will burst within the next decade, I think. Prices are going to drop, things will balance out. Even if it doesn’t, I have a house, and moving is a giant PITA anyway.

 
For higher income folks I agree that building wealth though stock rather than homeownership makes sense (or is at least a discussion worth having). But you have to live somewhere. And if you don't make much money but some of your housing budget is also going into an asset that will appreciate that makes it a lot easer to build wealth when you may not have much left over afterwards for stonks.

 
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I'll be encouraging my daughter to max out her savings in her Roth before down payment money for a house.  

Mobility to me, especially at a young age, is more important than home ownership.  

We lost $86K on the sale of our house in Phoenix after 6 years, before I account for the costs of maintenance, the mortgage, the higher utility bills.  And I was stuck in Phoenix.  We rented in Southern California for $2800 month next, and left after 18 months.  We could have bought the house for $700K, but I would have been stuck with at least $45K in transaction fees to leave.  Buying a house in Kansas was easy, as we decided to be here for at least 10 years.

I'll encourage my kids to do the math, but I don't want to add pressure by telling them they are throwing away money on rent.  

 
Maurile Tremblay said:
From a national (rather than individual) perspective, I believe thinking of housing as an investment is bad.

We want the value of investments to go up. But we should want housing prices to come down. The problem with housing right now is not that it's overly affordable.
Click to expand...
The problem in trying to bring down prices is a lot of this most recent runup in housing is being supported by the stimulus we've already had.  Covid constrained the mill capacity for lumber for instance, building materials have surged.  Obviously now new construction costs are up dramatically. 

But even if that levels off, addressing your earlier point of wanting more people to be able to afford housing, that goal is most achievable through wage growth.  That leads to more demand, higher prices.  Of course the wage costs of building new capacity would then also increase.  I don't think you're going to find a way to thread the needle of driving up wages for working class people and lowering or stagnating housing costs.  They will be directly correlated IMO.

 
fatguyinalittlecoat said:
Right, this is why it might be good if we became a nation of renters - so that it will be politically feasible to get rid of stuff like the home mortgage tax deduction and other laws that favor homeowners over renters.
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I think our current tax law encourages people to buy more than they can truly afford and when we inevitably have those market downturns it leads to more foreclosures and people losing their homes.  

 
Also, to address wealth creation, you can do so through property even beyond your own home ownership.  I've got a small portfolio of properties that return nice cash flows to me each month.  Granted, this is small scale.  But I have a friend who has built eight figures of net worth largely through targeting properties in depressed markets or downturns and calculating the IRR's and turning them into rentals.  He also participates in land development when these opportunities arise.  You just have to be very disciplined and make sure you know your numbers to do it. 

There's a lot of difference between a primary residence and a separate investment property, but it's advisable to use some of those same principles when you go to buy your home.  You're much more likely to come out ahead in the end if you buy for those reasons rather than the latest design trend or trendy area.

 
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The reason home ownership works as an investment is because of three things: 1) the forced nature of the investing. A portion goes to the principle every month.  This cannot be turned off, it cannot be reduced.  2) Primary residences are illiquid and indivisible.  These facts force people to accumulate wealth.  The savings rate would likely be lower if everyone was a renter every even with tax incentives.  3) Real estate prices are less volatile than equities.  There are many people that don't like to see paper losses.  It's scary to see "your value" decrease.  With real estate, the values aren't published, so even if you have a paper loss on your hands it takes effort to assess that loss. 

I'm not saying that primary residence as an investment vehicle is a good thing, but it plays into the psychology of people and that's not even talking about the (psychological) security of home ownership and the attendant stability that brings. 

 
fatguyinalittlecoat said:
Right, this is why it might be good if we became a nation of renters - so that it will be politically feasible to get rid of stuff like the home mortgage tax deduction and other laws that favor homeowners over renters.
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Id be interested in seeing the numbers on who takes advantage of that tax deduction these days.  Once the standard deduction went up after one of the latest tax code changes...I would wonder how many have gone away from itemizing.  We did here as we just did not have much outside of mortgage interest and charitable contributions.

 
supermike80 said:
Mortgages are financial prisons.  
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I don’t believe that people who are in real prisons would appreciate this analogy, But hey, next time you visit one of them, you can try it out. Tell them that at least their stay is a tax write off. See how that goes. 

 
timschochet said:
I don’t believe that people who are in real prisons would appreciate this analogy, But hey, next time you visit one of them, you can try it out. Tell them that at least their stay is a tax write off. See how that goes. 
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I'm sorry what?   A financial prison?   And you are actually comparing it with real prisons?   I'm assuming this post is some sort of a joke?  Least I am going with that. Otherwise it's just flat out bizarrre.

 
supermike80 said:
I'm sorry what?   A financial prison?   And you are actually comparing it with real prisons?   I'm assuming this post is some sort of a joke?  Least I am going with that. Otherwise it's just flat out bizarrre.
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You’re the one that used the word “prison”. It was a joke, but with a real point: it’s silly to use such a word. A mortgage is not any kind of prison. It’s a reasonable, voluntary loan of money with advantages to both sides. 

 
timschochet said:
You’re the one that used the word “prison”. It was a joke, but with a real point: it’s silly to use such a word. A mortgage is not any kind of prison. It’s a reasonable, voluntary loan of money with advantages to both sides. 
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Well I disagree.  Not nearly the first time someone has used that term for a mortgage.    Good to see you care about a prisoner's feelings though.  I generally don't, they're in prison for a reason and belong there.  

 
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