I don’t know what sort or homes Zillow buys, but I know locally a lot of flippers purchase homes that most banks wouldn’t lend to a regular consumer. Then they fix them up. These are hoarder homes, abandoned buildings, condemned housing, etc. In so far as they’re making homes more accessible to folks without contracting skills I don’t see a problem.
"The real problem is people that prevent additional housing from being built."
If you go deeper, it's about personal preferences and distribution of jobs. There are plenty of areas that allow houses to be built and have affordable houses. Many of those places may have limited job choices, although remote is becoming bigger. If companies didn't cluster as much, then overpopulation or constrained resources in specific areas wouldn't be as much of problem. But there's also the side of people wanting single family homes instead of apartments - both existing owners and many prospective buyers.
It seems some companies and individuals are realizing this and moving to areas with lower density and lower cost of living (or cost of business).
Sure, you could take the other way of removing many zoning regulations, but the regulations are the product of democracy. Nothing wrong with people in a community wanting to set standards for their area.
It's pretty obvious that there are large returns to density. This has been repeatedly studied.
This is why people move to cities and why employers move to cities.
As more people are brought into the world, those cities will get larger. Effectively prohibiting construction is a ridiculously stupid policy
> Nothing wrong with people in a community wanting to set standards for their area.
There certainly can be. I don't buy this perspective of extreme local control - it obviously can't apply for everything, and housing is one of the things it shouldn't apply to.
It's also not just about "personal preference" - building more housing in these areas would be societally welfare improving. That is more than just my preference.
"Effectively prohibiting construction is a ridiculously stupid policy"
But one has to convince the residents or other voting population of that.
"it obviously can't apply for everything, and housing is one of the things it shouldn't apply to."
I generally agree that government should take the smallest role possible. It seems that this topic has a long and expansive precedent - code requirements for how structures are built and where they can be, zoning for where structures can be built and their uses, property taxes (and seizure of non-paying), ordinances restricting what people can do on their own property, property state restrictions (disrepair ordinances), etc.
We could do away with basically all these restrictions. The question is where we draw that line, what we consider problem activity, and how we come to those determinations.
"It's also not just about "personal preference" - building more housing in these areas would be societally welfare improving."
What the preference was aimed at is that many people want single homes, garages, yards, etc. If they can't get them, they will end up moving to where they can. If they have them, they (and the other neighbors) will advocate to keep the neighborhood that way.
You can call something societally beneficial, but others might not see it the same way. It seems the boom-bust housing cycle and migrations between various cities or other areas can also provide societal benefit, and may even be self-correcting as we see people and companies select away from the highest COL areas to more attractive areas. This could lead to sufficient remaining voter base to make the building more permissible or eliminate the need by reduction in demand.
> But one has to convince the residents or other voting population of that.
There's plenty of other things that that has obviously not been true for, I don't see why we should default to this extreme localism you seem to be advocating.
We didn't let local voters decide to continue imposing testing requirements to vote, we didn't let them allow businesses to continue to determine patrons based on race, we don't allow local jurisdictions to unilaterally confiscate land/property from private owners.
Given that this is a large problem, I don't see why non-local governmental action should be given an effective veto power by residents who don't want to see anyone new in their neighborhood. The burden is on you to justify that, given extensive evidence on how this would be welfare & growth enhancing.
> What the preference was aimed at is that many people want single homes, garages, yards, etc. If they can't get them, they will end up moving to where they can. If they have them, they (and the other neighbors) will advocate to keep the neighborhood that way.
Yes, plenty of people advocate for things that are in their self-interest yet bad for society. Your point?
> You can call something societally beneficial, but others might not see it the same way.
Sure. By beneficial, I mean net welfare enhancing for society. It's obviously not beneficial if your criteria is "increasing the price of my home by constricting supply."
"Given that this is a large problem, I don't see why non-local governmental action should be given an effective veto power by residents who don't want to see anyone new in their neighborhood."
So my question still stands and just moves up to the next level. Now you have to convince the majority of the state or country to support that sort of law. At the federal level, the 10th ammendment might even prevent this type of law.
The second half of that sentence is pretty inflammatory. There are many people who don't want new houses constructed and changing the density of their neighborhood but would welcome someone new if they're moving into an existing house.
"Yes, plenty of people advocate for things that are in their self-interest yet bad for society. Your point?"
My point is that people want single homes with these amenities and in that sort of setting. Why shouldn't they have that? You're implying that this is bad for society, yet I see no support for this. I see nothing that prevents the free market from addressing or self correcting housing issues. Vaguely claiming that your position is beneficial and others are not is unproven. Even if it would be beneficial, you still have to convince the voters to support it.
"Sure. By beneficial, I mean net welfare enhancing for society. It's obviously not beneficial if your criteria is "increasing the price of my home by constricting supply.""
We would have to prove the net benefit part. Nobody said it was about home values. Some people support many restrictions for reasons other than property value, like quality of life, infrastructure issues, etc.
"But there's also the side of people wanting single family homes instead of apartment'
Most people who can't afford a home would not reject a decent apartment, they just want somewhere to live.
Also those are not the only two choices, there are duplex and triplex homes, illegal in most of us, and other variations
"Nothing wrong with people in a community wanting to set standards for their area."
So in this "democracy" people who don't own a house have no voice and no right? Why does this remind me of some other mechanism for opressing undesirables?
"So in this "democracy" people who don't own a house have no voice and no right?"
You don't have to own a house to vote. This isn't the 18th century where only land owners vote. If you have a sufficient number of renters, they can outweigh the owners.
For example, a municipality in CA decided to raise taxes on land lords of rentals. Land lords didn't want this, the renters did (probably misguided since the cost gets passed on to them).
"Why does this remind me of some other mechanism for opressing undesirables?"
You could tell us instead of being rhetorical. Otherwise the obvious answer is that you are missing details in your comparison and wrongly concluding that it's about oppression.
Remote does resolve some of the advantages to clustering. Other factors connecting transaction costs and physical distance may prove harder to overcome, but here is hoping.
I can't read the original article, but this appears to be an identical article at least from the start: https://www.eastbaytimes.com/2021/11/02/zillow-to-sell-7000-... I don't know which is the original and which is the copy. Edit: It seems like they are both sites owned by the same company? But one has a more aggressive paywall? I don't know.
The schadenfreude is real for me seeing this. A company like Zillow getting into flipping seems questionable to me. The customers are no longer aligned with the company on goals with something like this. It's like when the realtor offers to buy your house... they obviously feel like they can make more than you, when they're supposed to represent you!
Edit 2: What I'm surprised at as well is how short-term their forecasting seemed to be. They just started doing this and the market cooled a tiny bit (also, what? where?) and they're selling everything off? Were they incapable of sustaining anything but massive constant growth?
> Zillow getting into flipping seems questionable to me. The customers are no longer aligned with the company on goals with something like this
I'm currently looking to buy a house. Having a Zillow in between the seller and myself (as a dealer, not a broker) wouldn't be a slam dunk, but it would be worth some non-zero premium to me. (Just offering a counterpoint to the "uselessly driving up prices" narrative.)
Not only that (it's true though) but what if they committed to a certain $ figure of upgrades/renovations for the house in question? Seems valuable in terms of property values even if it costs the seller/buyer some additional premium up front
As someone selling to Zillow, they do retain a certain amount ($x thousands) from the seller for repairs and cleaning, at least for relatively new construction. I imagine it's a larger number depending on how old the house is and how much repair they think they need based on their appraisal/final walkthrough.
Can I ask why? I'm also looking to buy a house and the Zillow offerings, from what I've seen, are not particularly competitive. They don't seem to care much about the quality of their housing stock. I'd also be leery of dealing with someone removed from the initial seller. It sounds like a great way to "launder" issues with the home where Zillow can say "eh, we didn't know about that."
> Can I ask why? I'm also looking to buy a house and the Zillow offerings, from what I've seen, are not particularly competitive.
I agree. (I'm not buying from them.) I am having to deal with sellers who change their ask at the last minute, have past financial issues (if something goes wrong and I have to sue, will they have assets?), want to stay through the winter, et cetera. In most home purchases, expedience isn't the most important thing for the buyer. For some, it is, and in those cases something like Zillow's offer in theory makes sense. (Counterpoint: homes aren't fungible.)
I'm looking to do this- I'm going to move out of state, and having a counter-party buying my house that is likely to offer maximum flexibility as I'm looking for another house elsewhere is valuable.
> The schadenfreude is real for me seeing this. A company like Zillow getting into flipping seems questionable to me. The customers are no longer aligned with the company on goals with something like this. It's like when the realtor offers to buy your house... they obviously feel like they can make more than you, when they're supposed to represent you!
I've personally dealt with selling real estate within the past calendar year. Having someone willing to offer me an option highly likely to close quickly at a small discount to the prospective market rate would have been a pretty attractive option. Otherwise it can take months upon months to close a sale. Months in which I'd really like to have that money and perhaps be thousands of miles away.
Do they think they can make more money than me? I have no doubt. Am I as patient or able to invest as a business much larger than me? Probably not. The real estate market is not always a particularly liquid or quick one to operate in.
Where do you live that it takes "months upon months" to close a sale? Usually the complaint is that the market moves so fast people have to make risky snap purchasing decisions.
A national average is about two months, from what I can find, depending greatly on where you are and what you're selling. That standard deviation can be quite a pain. It's certainly challenging to plan around an unknown and potentially unbounded number of months. The ability to make that into a known number might thus be valuable to some people in some situations.
You're absolutely right, of course. There's no shortage of stories about markets moving fast! That said, it's been my personal experience that people don't generally share their stories about a house or condo moving slow. Perhaps complaints and stories might not be an ideal guide to reality in this instance?
> Where do you live that it takes "months upon months" to close a sale? Usually the complaint is that the market moves so fast people have to make risky snap purchasing decisions.
IIRC, when I bought my home, the closing date was about two months after we'd made the deal with the seller.
But that's not as long as it seems: there's stuff you have to do in that time, like getting the inspection done, haggling over any issues found, and getting ready to move in/moving out.
Buyers frequently waive the inspection contingency in hot markets with limited supply. Sellers are more likely to accept offers with fewer contingencies.
You're not wrong. However, even if you make an all-cash offer and remove every single contingency, you're still looking at roughly 2 weeks minimum to close. You're making the assumption that title companies are competent (they are not) and move quickly (they do not). Wire transfer takes a few days, need to find a notary to sign all of the closing docs, and title companies are slammed with all of the other home purchases happening as well.
In the very hot markets only. Anecdote that matches your experience: I sold a house at the beginning of this year (sf east bay), and it was on the market for a few days and closed ~30 days later. More than a dozen offers, most with no contingencies. Top offer was more than 120k over ask.
I bought in Northern Virginia this year, and lost 3 or 4 offers to competitors that were 15-20% over asking. Standard was always no contingencies (no inspection, no financing, nothing) and settle as fast as the mortgage company could underwrite you. You had to really trust your mortgage broker and your agent to pull through. Probably saw 50 houses before getting lucky on an offer because our agent had a connection. It was a pretty awful experience and you were forced to make a terrifying decision very quickly. I still remember the surreal experiencing of clicking the DocuSign button that evening that would result in me being on the hook for multiple hundreds of thousands of dollars...
I have felt for awhile that the USA should limit the number of homes a company, person, or foreigner can buy, especially in tight areas of the country--for instance the Bay Area.
1. No more wealthy foreigners buying our homes with an email.
2. No one person can own more than 5 homes.
3. Eliminate buying up swaths of realestate by companies period.
My reasoning is obvious. Try it for a few years, and see what happens. Yes--realestate speculators will be crying in their Laginitas Pale Ale. Gorgon Gekko will have to liquidate his Realestate Speculation portfolio. Yes--those parasites with We buy Your Home within 24 hours will be crying in their whatever. Yes--those non citizens who want buy a vacant house in our country will be crying.
It might make buying a home for Joe Six Pack something he might be able to work towards?
$400k seems very affordable. I could easily buy a house today if that’s what FHA-grade (i.e. something more than a burned out shack) housing went for. In my county the median house goes for over $1 million.
According to Zillow the median price is $1.018 million in Alameda County. I probably should’ve been more specific in my post since “my county” could be anywhere.
Affordable for you (and any US-based millennial with a strong education & job in the tech sector or other high skilled labor) is very different than affordable for the typical millennial, especially ones born in the last 1/3 of that generation that haven't had as much time to work up the salary scale a bit.
Assuming 20% down and good credit, the bank will make a loan to someone earning $61,000 a year for that. This is hardly “tech sector” level income, but yeah it also isn’t affordable to the bottom third of millennials either.
Not really. Mortgage rates are so low that even with only 5% down the monthly mortgage payments on a $400K house are similar to what someone would be paying for monthly rent in these cities.
Mortgage rates are incredibly low and there are a number of options to reduce down payment requirements right now. Meanwhile, wages are up and better paying jobs are more common for young people. $400K isn’t out of reach at all for a lot of first-time home buyers in this economy.
Sure, I suppose someone earning a normal wage could scrounge together 20k in, let's say, 5-10 years, but then they would use *ALL* of their savings and have no emergency fund anymore, to use that 20k. Further, then you look at all the costs you get hit by when buying a house such as closing, etc, and that 20k turns out to be 28k, so they'll need to save for even more years.
And now the house isn't 400k, it's 450 or 500, so instead of 20k, they instead need 25k, and with closing costs, now it's 35k because those went up proportionally, as well.
At current minimum wage, saving 20k will take years and years. Most non-tech folks just do not earn enough to save. It's not that they don't want to, or choose not to. It's that they don't have disposible income.
5% is certainly better than 20%, but when you don't have the money, even 1% deposit is too much.
But will they stay low for the next 30 years? Probably not. It's not a good idea to justify ones house buying decision with an all time low interest rate.
In the US, fixed interest mortgage rates are sort of the standard. So, the decision to buy now based on interest rates is a keen driver of many buyers.
Source; I've refinanced three times based on rates going down. I dropped 10 years and 200/mo. off of my mortgage for the low, low price of $750 worth of appraisals.
Roughly the same here, and I had a very low mortgage from a small line of credit.
Between sticker price on a house and interest rates, prices tend to equalize-- people can always only afford $X/month, regardless of the proportion going to interest. This means that, all else being equal. the most fortunate time to buy is when slightly higher % rates have kept sticker prices down a bit. That way when rates inevitably go down at some point in the future you can refi at a lower rate, getting the benefit of having purchased a lower price and then dropping down to a lower interest rate as well. Certainly not something you can choose to do, given that trends often measure by a decade or two, so this is just an observation, not advice to wait for higher interest rates to suppress sticker prices.
That is 100% my experience. We bought when interest was still relatively high compared to today (5-7% I think). Prices for homes were still being suppressed by the crash of 2008. Then the whole world went to pot and interest bottomed out for a decade. It just kept going down.
I realize how fortunate we are. Timing is literally everything.
Just off the shelf, in the US, you tend to have access to 10, 15, 20, and 30 year fixed rate mortgage. Variable rate mortgages used to be pretty common, but they're nearly non-existent anymore.
When we shopped to refinance, there were no adjustable rate mortgages to be found, only fixed rate.
Anyway, what we saw was that, depending on who you finance through, you can get a term anywhere from 5-50 years.
I'm not so sure: At current rates, assuming excellent credit, that's about $1700/month. If you're anywhere near the suburbs of a city, you can add another $500 to $1500/month in property taxes, and sometimes another $100 to $400/month in HOA fees. on that for a total pre-utility rate of ~$2400-$3600/month or roughly $30k to $43/ year.
I live in the higher end of that range even though I'm in a modest home in a lower-middle class town, in an area where the median household income is about $50k. before taxes.
$400k on a house is simply impossible for many millennials, especially those born towards the end of the millennial generation that haven't had more time to establish themselves and work up the salary scale a bit.
I think you're overlooking married millennials, many of whom are in their late 20's-late 30's and many of whom have no children, and many of whom are two-income families.
A $400k home would be quite affordable if each of them were earning an average of $24/hr or more, which isn't too crazy.
I, singularly, make far more than $48/hour ( which is 96k / year ); and, a 400k home is barely in _my_ price range, with the HOA and property taxes included.
What the sibling comment said, but also, the minimum wage is still $7.25, with some companies only now pushing this up to ~$15. For many, including married couples, $24 an hour is a pipedream.
> If you're anywhere near the suburbs of a city, you can add another $500 to $1500/month in property taxes,
$1500/month property taxes would be $18,000 per year. On a $400K home that would be 4.5%, which is significantly more than you'd find anywhere in the United States. The average property tax rate in the US is around 1.1%.
Moreover, most locations have an exclusion for the first $XXX,000 of home value. For example, a city might tax the first $100,000 of home value at 0% and then only apply the 1.1% rate (using the average here) to the remaining $300K.
Assuming a $100K home value exclusion and a 1.1% rate (average national rate), that comes to $275/month, which is about half of the lower end of the range you quoted and nowhere near the $1500/month upper end of your range.
Also, $400/month HOA fees would be several times higher than the average. HOAs aren't actually as common as the internet suggests, but when you get into an HOA in a neighborhood with $400K houses, you're probably going to be paying more like $100-150/month, not $400/month.
> $400k on a house is simply impossible for many millennials
Sure, but so is $2K/month rent. I never suggested that every millennial can afford a $400K house, but rather that it's not an impossible reach for many millennials.
This is especially true for married millennials who haven't had children yet. I think too many people focus on the idea of the single millennial purchasing a home on a single income and living there alone, but in practice it's usually people getting married and settling down somewhere together on two incomes.
There is plenty of idle money in the investment world that needs places to go, unfortunately. Homebuyers are still being priced out by institutional investors looking to be long-term landlords. The market consensus right now is that inflation is here to stay for the next decade and bond prices aren’t adjusting accordingly, so there’s a flood of cash into all asset classes to try to hedge.
> Homebuyers are still being priced out by institutional investors looking to be long-term landlords.
There’s really no evidence that this is the cause of any of the housing bubble. Sure, it makes a good twitter thread, but institutional investors make up a tiny percentage (1%ish) of single family rentals…
As percentage of the entire market, 1% is small. But prices are set on the margin: the currently active buyers and sellers. Only a small fraction of the entire housing stock churns over each year. So if institutional investors want to buy a few thousand homes, it's absolutely substantial on its impact to prices. Only 40,000 homes are sold annually in San Diego county, despite there being 1.4 million residents.
Actually, yes there is. My brother has a senior position at HUD, they've been very concerned about this the last few years.
You won't hear this at the cabinet level, because those are all political appointees, but when you get down to the career people, they have grave concern over institutional buyers.
The cause of the problem is that companies are claiming an outsized share of productivity growth such that the house is simply worth more to them. There’s more money in the investment class than there is among homebuyers, and the investment class needs somewhere to put their money that won’t depreciate.
This is what happens when real wages stagnate for 20 years but the economy keeps growing and consolidating. Eventually it catches up to you and you end up with a decade of stagflation while the imbalance corrects itself and a competitive market is re-established. Unchecked free-market capitalism has its drawbacks in the long term; we fucked around and we’re about to find out.
The two are often intrinsically linked, especially in the case of housing. It's not that one sees house prices rising and says 'inflation!', but more where it would naturally lead.
Or another way...a rise in house prices means a rise in rents which means rise in renter wages which means rise in prices. Over the course of some time, naturally.
They are often linked, but they are not intrinsically linked. I'd argue that "often intrinsically" is oxymoronic anyways.
A rise in the specific asset class of housing lowers the dollars ability to purchase housing, I'll give you that. But asset prices hiking in general are not inflationary. It could be because people are chasing yields (probably inflationary) or it could be that there is new information/discoveries making it so that the expected productivity of these assets is going to be much greater, which is not inflationary.
sure, and that would be great, but unfortunately it's more likely this is going to be sold to Invitation Homes Inc or a similar company that will just turn them into rentals and they'll never enter the housing market for sale.
Invitation Homes was created after the last crash and currently owns ~80k [1] homes, so an additional 7k would represent ~10% more, and if the discount is right from Zillow they will do it. I'm speculating but I bet that's why Zillow is trying to do this in a bigger deal, they don't want to crash the housing market by actually selling these houses to individuals.
Turns out that mass flipping houses doesn’t work when you can’t hire contractors to do the work for a price that makes your budget assumptions hold.
I am disappointed that they’re looking to offload them to institutional investors rather than individuals. Housing should probably not be an investment vehicle, but here we are.
Real-dollar home prices plunged continuously from 1950 to 1970 while the US population increased by one third. Home price inflation is a policy choice, not a law of physics.
Exactly, and in that era the federal government financed massive amounts of new housing (for white people), with the intent of homeownership for nearly all white people.
And once homeownership became the norm, those same people started massive downzoning projects to prevent new homes from being built. And shortly after that, funding for public housing was gutted.
Which leaves us with the massive shortage we have now. We have plenty of money that is allowed to chase a smaller supply, as long as you can leverage your existing housing asset for a larger down payment. But all those people who didn't buy in the 1980s or earlier are at a massive disadvantage.
Assuming that the additional 128m people need about 50m - 70m new homes it would make sense that there's going to be a boom in supply of homes in the near future. Without the ability to control or limit that growth it could easily result in an oversupply, especially in any given geographic region, which would lead to a contraction in prices. Unless you're also able to predict where these new citizens will live I'd suggest real estate investing could be quite risky.
Climate change will drive a lot of people to the northeast and Midwest in our lifetimes. Much of the Deep South will become unlivably hot and humid, and much of the west will become dry enough that water rationing makes life in the sun not so much fun anymore.
If you want to invest, put your money in places like Pittsburgh and Buffalo. Some values along the coast in Baltimore and Philly too. Plenty of cheap real estate out and I suspect we’ll see a revitalization of the rust belt as climate change makes other areas untenable.
We have run out of "zoned capacity" in the areas that people want to live.
Fortunately, this is an infinite resource, and we could flip simple governmental switches to allow more housing, which generates more property tax to grow the infrastructure.
However, existing homeowners are a political bloc that mightily resists flipping that switch, both because they don't like to see change, and also because they benefit financially from a housing shortage.
The institutions investors name these exact dynamics in their SEC filings: they know it's a good investment because local politicians listen to homeowners, and the homeowners will guarantee the shortage.
So in all honesty, I welcome institutional investors, and lots of them, because one their are more renters, the politics can be flipped. The renters, if they show up as a voting bloc, can finally open up the zoning to allow more housing.
Resident homeowners and institutional investors are no different here, they are both greedy investors, except the homeowners are even more greedy (they don't want new people in their city), and rhe homeowners have far more political control.
Agreed about individual homeowners; which is why the use of homes as an investment vehicle is intimately tied with institutionalized racism and redlining. You could not “invest” in redlined areas as banks would not issue mortgages on those properties. So those houses never appreciated in value the same as houses in non-redlined areas, and the generational wealth created by owning your own home was only available to those homeowners in non-redlined areas.
The history of redlining is incredibly recent (it was in full force well into the 1990s), so it’s not something we can pretend is a historical artifact. Highly recommend The Color of Law for more on this subject, it really opened my eyes on how laws used to encourage homeownership were also used to marginalize black people.
We're on the tail end of 50 years of policy to make single family homes into a perpetually growing investment vehicle to finance baby boomer's retirements.
I hope you're right, but what signs do you see that it's at the tail end? Home ownership rate is at 65%. They want their home value to keep increasing and I don't see evidence of millennials being any less self interested when the rubber meets the road.
Housing is an investment in the sense that you need a certain amount of capital to create one, and in that sense you want to allocate it the best way possible: the best value at the best prices.
There's no better way to do that than with markets.
Housing will always be expensive in one way or the other, but you can make it cheaper and more plentiful. And that should be the goal.
> Housing will always be expensive in one way or the other, but you can make it cheaper and more plentiful. And that should be the goal.
When housing becomes an investment, the goal is to get that sweet ROI which generally means working to restrict the supply of housing to make prices rise. Lobbying is a high-ROI activity.
And housing doesn’t need to be expensive. Japan is a good example. It’s only expensive because we instituted policies that make it an effective investment vehicle when it’s a necessity in life. Many cities outside the US have policies in place making property taxes very expensive for an investor who doesn’t live in the house. In particular many countries prohibit foreign investors from purchasing real estate without a local intermediary who is legally responsible for any shenanigans.
The free market works well for many things, but there are areas where the motive to create artificial scarcity create some dystopian outcomes (see also healthcare). We have to ask ourselves as a society if our belief in the free market is strong enough to accept the societal issues (crime, mental health, etc) that have been proven to come along with unstable housing.
> When housing becomes an investment, the goal is to get that sweet ROI which generally means working to restrict the supply of housing to make prices rise. Lobbying is a high-ROI activity.
There are many ways to lobby that increase both the value of real estate and make the system better. For example, you could lobby for a visa for immigrant construction workers, which will reduce the cost to build.
> And housing doesn’t need to be expensive.
Definitions matter, but that's my original point. Construction companies in JApan also have a sweet ROI or they wouldn't build at all, you can achieve multiple goals. The current market structure is in good part a result of regulatory capture, but housing will remain profitable in multiple other structures. If it stopped being profitable, it would be impossible to build, and you wouldnt be able to improve or create new supply which is definitely the worst result long term.
> dystopian outcomes (see also healthcare
Healthcare is the **show it is precisely because it is NOT a free market by any practical or theoretical definition.
I want to mention one more thing about the narrative that Nimbyism is an investment topic. It really isn't: it is in the landlords interest to get more construction going, because more people increase the value of land, it doesn't decrease it. That is why land in a city is worth more than in a rural town. A SFH owner turned into the low owner of an 8 appt complex is way richer, as in 10X. At the tokyo example, it is close to 10k per square meter of land! https://www.statista.com/statistics/875736/japan-average-lan...
> Healthcare is the *show it is precisely because it is NOT a free market by any practical or theoretical definition.
100% agree with you. Which is why we should nationalize it to drive down the cost since there is currently no downward pressure on pricing. It’s not some “radical experiment” — in all honesty our current system is the experiment and it’s going poorly. Nationalized healthcare works, and from what I’ve seen, is usually of higher quality and service than we have here in the US. Turns out you can adequately staff your hospitals when you’re not trying to turn a profit.
And on the subject of nimbyism, you may be right about commercial landlords, but homeowners are very concerned with quality of life — which also raises home values (maybe not as much as increased density would, but enough that most nimbys see it as a worthwhile trade off). Things like schools not being overcrowded, available street parking, well-maintained parks, etc.
> Which is why we should nationalize it to drive down the cost since there is currently no downward pressure on pricing.
Strongly disagree. The state is already in the market with Medicare and it is not significantly cheaper. It has shown that as a player it doesn't not know how to deliver care cost-effectively.
The reasons why health is expensive is reg capture on many layers: too few doctors because of licensing and immigration restrictions, pharma restrictions on importation, tax incentives to bundle insurance with employer, the high cost of medical malpractice lawsuits and insurance, hospital incumbent regulation like fed funding or CONS, etc.
None of those things are solved with a government program that maintains those restrictions. The only thing necessary is to literally do less. Cap malpractice, remove immigration and licensing restrictions for physicians, remove FDA limitations on imports, remove federal funding from colleges and hospitals, etc. That will drive price enormously in a short span of 5 years, while also reducing the amount of admin and funding cost in government.
At the current market structure the only way I see a revolution in healthcare is with the Uberification of health: something that really spits in the eye of all regulation and gets things done anyway at cheap rates. Think telemedicine from 3rd world countries, generic drug imports through retail contraband, etc.
I worked in the industry, i'm 100% sure that dereg is the way to go.
> but homeowners are very concerned with quality of life —
That's my original point. When an argument is made that nimby are doing this for money, I think its off-target.
This is a good example of the fallacy of youth: buying too far into hype and being all "the sky is falling" with negative news.
It wasn't long ago that we were reading how Zillow et al were going to buy up all the housing stock and keep millenials and Zoomers homeless forever.
The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this.
History is littered with the corpses of those who tried and failed to corner a market. Real estate is no different. That's not to say we can't make the system better. We can and we need to. But serfdom isn't imminent either.
Zillow shouldn't be taking real estate positions as it's going to end badly and will likely hurt their core business (ie transactions). I'd love to know who signed off on this idea. They need to be fired.
> The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this.
I once heard someone who ran an investment floor say, paraphrased: During a bull market, I want my floor staffed with people too young to have lived the last bull market.
They didn't want the risk aversion - drilled into people by the last bust cycle - on their trading floor.
The cycle will repeat itself, folks will go from being unbelievably wealthy to bankrupt overnight (overnight as a figure of speech speaking, the crash will come but might drag out). Folks who bet it all will have their lives ruined. We will have another generation of market participants who are risk averse from hard earned lessons.
The flip side of this is that _everything will go on sale_ for those who had stable investments and those who are income rich.
If everything doesn't go on sale soon (soon might mean many years) it'll be the first time in history we broke out of the boom/bust cycle.
For me, personally, I track my net worth and check in monthly. For the past year I've excluded my home's valuation from my net worth, it's monopoly money; by the time I'm willing to liquidate my house we will be on the other side of a bust cycle. I'm mentally prepared for my home to lose 50% of its value "overnight."
> the rapid reversal of white flight to the suburbs among young people in the last 10-15 years
The massive buy-ups in West & Central FL have led to an unprecedented shortage in housing. Rentals get 400 applicants each day and people with money in the bank are facing homelessness. People without have little hope.
Another solution would be encouraging economic development in other areas instead of cramming increasing numbers of people into a small number of geographically constrained cities.
Do you have numbers to back that up? If anything, underbuilding came from a moribund housing market after 2008, as many left the industry and it took way too long to ramp up on talent when housing began to boom again (a lack of people skilled in building houses is still a problem).
But I doubt this is an under building problem at all. Look at Seattle and the area, and there isn’t a shortage of new housing projects at all. They are mostly all luxury, which is the only way builders can make a profit on high land prices, and they sell very quickly regardless.
The U.S. built on average 276,000 fewer homes per year between 2001 and 2020 compared to the period between 1968 and 2000, according to the report which was covered earlier by the Wall Street Journal.
Had building continued at the same pace, there would be 5.5 million more units of housing, the report estimated.
To make up the shortage, the NAR report says the U.S. would have to build 2.1 million homes each year for a decade—more than it built each year during the housing boom of the mid-2000s.
Why are you comparing a 19 year period to a 32 year period? Ah, I see it is a per year measure.
Well, it isn’t weird that land runs out for new subdivisions. What is left is to build more dense (replace single family housing with apartments or town homes). Still, why is it zoning per se that is the problem rather than just the market? They have the same pricing problems elsewhere in countries with building booms (eg China).
> dense housing is frequently not permitted by zoning. sometimes housing itself isn't permitted.
But where they are permitted, housing prices are still high. Higher even, like NYC and much of New Jersey near NYC. Is there a good example where increased density has led to lower prices, not higher ones?
Most of the area in those places still has significant zoning restrictions on density--the cap is higher than other places, but there's still a cap. That's why there are still brownstones in Brooklyn.
Second, the economics of building dictate that skyscraper-level density will only happen in places where housing is relatively expensive. But there are plenty of examples of density leading to lower prices, in the suburbs.
> But there are plenty of examples of density leading to lower prices, in the suburbs.
Do you have specific examples? The only places I can think of are economically depressed (e.g. in the midwest, or in Florida swampland) and aren't particularly dense.
Maybe Houston? Houston is famous for having almost no zoning, but even Houston seems to be heating up these days.
So you compared a 32-year period with a couple of technical recessions and one relatively brief stagflation period averaged over huge growth with an 18-year period dominated by the Great Recession?
Would it be interesting to point out that the US population growth also was much higher in the 1968-2000 period compared to 2001-2020 period on an annual basis?
I found the section "New Evidence on the Effects
of Land-Use Regulation" to be quite interesting in past reads (and discussions) and probably relevant.
You can make a rough comparison by looking at housing starts in Japan[1] vs USA[2] housing starts. Housing cost in Japan has been flat even in major metros like Tokyo. They also build 2-3x as many houses over the long term according to the data cited.
Seattle is a weird example for me (anecdotally). When I lived there in 2017-18 I found the rental market to be great. The city had incentivized building rental units and as a result there were great deals to be had. I was able to negotiate a 15% discount and dictate the length of my lease on Capitol Hill. I don't know what it looks like now, but it was great at the time.
Japan builds a lot of houses because they tear them down after 20 or 30 years. What is Japan's net gain (housing starts - housing ends) per year, not just the number of units started?
> When I lived there in 2017-18 I found the rental market to be great.
The market was weaker in 2017 because of all the new rental capacity that came online. That capacity has long been filled and rents are skyrocketing ATM.
>>We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by 36 percent from 1964 to 2009.
Many cheap places have other problems that are reflected in the price of the property (ie. There is a cost to living in a town full of anti-vaxxers/religious nutjobs/etc.)
If you look at California exodus data, its mainly people making less than 100K, population is increasing for people making more than 100K.
Despite this, property prices are still increasing elsewhere. This is a worst of all worlds scenario.
I’ve got friends in Kansas City whose 100k house is now worth 300k. Friends in Omaha buying new construction for 400k. Housing shortages in Grand Rapids, Michigan where I am from. If you’re immune to all of this, you must be in either a very magical, or very undesirable place. It must not be California, that’s for sure.
And continuously rising construction costs. Parking minimums are under-discussed here, as the apartment block I used to live in in Los Angeles was probably more underground car park than apartment if you looked at the balance sheet. And yet the parking lot was never more than 20% full.
Is there a dearth of skilled labor for building houses?
As a "youth", I don't have any insight into this as I'm a renter for the foreseeable future, but my parents' and their friends complain about how difficult it is to get anybody to do any sort of construction / home upgrades, e.g. my parents putting in a heat pump.
Given how much the "you're a loser if you don't go to college" narrative has propelled people who may have been happy and skilled at carpentry, plumbing, electrical work, etc, into soulless corporate jobs, this seems like something that the US could take a page out of Germany or Switzerland's book, i.e. much more emphasis on non-uni career tracks starting in high school.
Restrictive zoning is a consequence of scarcity seeking incentives.
Housing can't be both Affordable and a good Investment. Therefore the only proper value for a home is the price that it costs to build it. The way to do that is a 100% Land Value Tax.
Maybe I dont understand (which I am open too) but it does not seem to make sense unless we transition to a centrally managed economy. Supply and demand drive the price of housing. Whether a house is purchased as an investment or not, it will appreciate based on a variety of factors, including quality of schools, proximity to jobs, etc. If the price of housing did not fluctuate based on demand, and everyone could afford a house anywhere they wanted, who determines who gets the house? House A is on sale and 15 families can afford it. In the current situation, the highest offer takes it. If all offers were forced to be the same, who gets the house? How do you account for bias in the decision process?
I think the way this looks in GP’s proposal is “he who can afford to pay the most rent (taxes) gets the home”, which is a lot like the current system you describe except the rent (taxes) goes toward funding the city and improving such public goods as the schools and roads you mention, instead of rewarding speculators.
Yes, exactly. I go into a bit more in how I envision the plan in a previous post[0]. A much better introduction to the LVT is this book review[1].
People would still bid for the home. You might get one offer for $190k, another offer for $200k. But if enough homes got bid up in the area, taxes would rise and those high bidders would probably lose a small amount.
You know what else will do that? A general sense among the population that certain real estate is a “cant lose” investment and a general shift in desirability from suburbs to urban housing.
While I don't disagree, there have to be multiple forces at play here. Take a town like Boise. They have very lenient zoning / building req's. If it was just zoning, their property market wouldn't be so out of whack. In addition to zoning, speculative investing, low interest rates, housing authorities, rent control, the list goes on and on.
IMO, CA prop 13 is just as guilty as restrictive zoning.
We'll never get to see the other side of the experiment, the people of CA would never vote to remove it. Prop 13 interrupts the natural cycle of housing.
eh - I think short term housing fluctuations are different from long term underbuilding. My understanding was Boise was due to demand shocks that supply hadn't had a chance to respond to.
I don't disagree that there are other factors at play.
The last part about Prop 13 seems like a bit of a cheap shot. CA is anything but a natural market.
CA government set that poison pill to ensure it must listen to its constituents and remain as "natural" as possible. Now we find they can't enact meaningful reform around zoning, building requirements, parking, or making the city more welcoming to trades, etc.
Why should old taxpayers carry the water for ineffectual govt ?
CA: "We refuse to make the changes needed to let more people in at a reasonable cost. We will instead take more money from one group, so that they leave and we can fleecce someone else ! "
I think this is a fallacy perpetuated by unrealistic ideals. I bought a house for 175K at 24. I only make 50K a year. I don't have a college degree.
Lot of people saying buying houses is hard, unrealistic, or impractical want to buy mansions with a 10 second commute to their workplace in silicon valley but the reality is most people are not living like that.
Wage workers are still buying houses no problem in what are considered "low income" areas as they have been and interest rates are better than ever.
My ideal is for real housing prices to remain somewhat steady - ie. I don't like that I have to pay much more than inflation to get a house compared to what my parents pay.
It'd be nice to be able to afford a house where I grew up without having to tie a ridiculous amount of my net worth up in this one very pricey illiquid asset, even if I could get the mortgage.
If you can accept technology changes over time (goodbye horse and carriage), and that society changes over time (hello LGBTQI rights), why is it unreasonable to accept the price you pay for goods will change? Naturally, its a given that's not the only change. The materials to build have changed, transporting them has changed, wages have changed. Prices are not going to be the same.
These are policy decisions being made that make it so it is harder to purchase housing near my job or where I grew up, as well as being net detrimental to economic growth (and the growth of wages and output which lowers prices).
This is backwards. If society gets more expensive because we no longer oppress certain groups in the same ways, then it should have been the case that people from these groups were the ones getting cheap housing in the past since they were “buying” a shitty social experience.
But that’s not the case. It was straight white families who got cheap housing while at the same time holding minorities back.
I presented a broad example that society is changing. I did not associate a variation in pricing due to the oppression or lack thereof of certain groups.
We have 1) inflation and 2) population growth. Given the limited amount of resources, land, and labor, why on earth would house prices remain steady?
You'd need at least one of these factors to be reversed, or demand for standalone housing to go down for cultural or economic reasons, before you see long term downward trends.
In general though I agree with the poster above that the affordability "crisis" is really an expectations crisis. Everyone wants to live in a nice neighborhood with great schools that is close to the top employers, but there's simply not enough space, so this results in high competition and therefore prices. For some reason nobody wants to move to the rust belt where houses are nice and cheap. People don't want houses, they want the BEST houses.
I don't know where it's being blocked in your view but to use my earlier example of silicon valley, maybe there is a limitation of geographic space, resources in relation to population, and zoning considerations. Maybe silicon valley workers could sponsor the building of a floating land mass to add additional residential space unbound by traditional limitations.
Or we could just not zone as heavily? A recent building near me got blocked because it would add 0.001% (I know it sounds like hyperbole, but I promise I'm being dead serious that was the number) shadow to a nearby park. That is absurd and to pin it on "silicon valley workers" is nativist and dumb.
I know people who live where there is no zoning and went from having nothing but empty land next to their house, to a car mechanic, loud gym, fireworks stand, and many other undesirable businesses (to be living beside) in their backyard. You definitely will want some zoning. I am not familiar with zoning laws in your area and know you are not advocating for no zoning at all, but just food for thought.
Houses don’t go up in value. It’s the land. What makes a piece of land valuable is it proximity to work and leisure. Land in growing cities and towns should go up in value. The only way to make housing price constant is to give people the ability to tear down an old building and built something higher. That’s how cities like Tokyo have more stable housing prices compared to western cities.
Houses have labour and material components. The materials have a labour component too. It's now more expensive to build a house (per square foot) than it was 30 years ago because of wage inflation.
This is one reason why real estate is viewed as a good hedge against inflation.
Three years ago, I could've bought a house at 60% of current market rate now in my town of 700K. I wasn't in a position to buy that house (under median) then, and I don't want to buy it now given market conditions. The other issue is that the median housing price in my city is now above the FHA limit for this area... so no 10% down mortgages. Again, that wasn't the case 3 years ago.
I also need to replace my lease vehicle next year, so there are two challenging life purchase decisions pending at the moment, and market/global conditions are putting pressure on both.
Well, if Nashville is like Tucson... or any other similarly sized city, those houses are likely not in a great part of town. We have 203 houses and condos under $175k in Tucson right now. I wouldn't live in any of them for their location(s) alone. Suckers from out of state have been buying... and I am sure regret the decision when they have homeless, tweakers and other ne'er-do-well's sleeping in the back yard or stealing anything that isn't bolted down.
Zillow has been buying in my neighborhood, and they overpaid... plain and simple. The offers my neighbors received were too good to be true. I mean, $50k to $150k over the z-estimate. Everyone in Tucson is laughing at Zillow all the way to the bank. Prices are going to crash here and its going to be brutal.
Ahh, you see, I have an ex-wife and a child I share custody with. I'm in the place that I'm in. Others are probably similarly constrained geographically.
I do WFH -- someday, I may head away from my current place, but I'm not that flexible yet.
Be very careful over-extrapolating based on known variables. That's my point.
For decades we've have the concentration of populations in a few urban centers because of employment opportunities and other factors. Two years ago, you wouldn't have even thought about that trend ending anytime soon.
Yet here we are with what seems to be the beginning of a structural change to the employment market to remote work for a significant number of potential jobs. We're not there yet of course. But this seems to have already been a boon to medium-sized regional cities (eg Boise).
This was all possible two years ago but it didn't happen. Covid was a big catalyst. No one predicted that.
Likewise, you see young people rejecting the 30 year mortgage, have kids then retire model that was the norm for Baby Boomers. Living remote, tiny homes, van life, etc.
I fully support residential real estate not being used for money laundering, hiding assets from governments and an exchange-traded asset class, to be clear. The focus there should be on the governments who create the rules that allow this to happen and not the players however.
I don't have numbers but I think that remote working is tech-centric and not available for the majority of workers. Also we'll see if it sticks. In any case, I doubt it will have a big impact on home prices.
I don't read it that way. My guess is that they 1) didn't believe that prices would level off a bit, as they have in the last couple of months 2) didn't factor in significant delays & increased costs for even minor refurbs and 3) as a result realized that any profits would be eaten by carrying costs (property taxes, maintenance, opportunity cost of having capital stagnate).
I wouldn't be too quick to claim that the myth of institutional house buying has been dispelled. Zillow isn't the only company out there buying real estate, and they are planning to sell most of the properties to other institutions and landlords, not the open market of owner occupiers.
It appears they made some errors in their calculations and temporarily bought too many houses at too high a price but the article says they are only pausing purchasing for the rest of the year and there's no mention of if they are revising their plan to purchase up to 5,000 homes a month by 2024.
So, looks like without evidence of a market wide cessation or significant long term reduction, significant institutional real estate actors remain a factor in the market.
I would guess supply chain costs and delays reduced their speed of renovation unexpectedly and they can’t carry the cost of sitting on the property during that wait time. So to your point, it’s likely temporary based on unexpected renovation constraints.
Agreed. One thing this article doesn't point out that was a bigger topic a couple of weeks prior is that Zillow had to halt purchases due to lack of workers to help flip the homes [1]. The iBuying revenue model depends on the ability to flip a home quickly so that market fluctuations do not have enough time to pose as a risk, which Zillow was willing to take.
I've never seen any good data that supported the myth of institutional house buying being a big enough phenomenon to affect homeowners.
It was never apparent in the homeownership rate (https://fred.stlouisfed.org/series/RHORUSQ156N) which has been broadly stable for decades, and the jumps over the last few years are, if anything, towards increased homeownership, not less.
It is apparent in the rental listings for single family homes in decent neighborhoods though. A large percentage of listings are from landlords like Invitation Homes, Key Homes, etc.
As I understand things, Zillow's approach wasn't a corner, but rather an attempt at arbitrage/value-creation. They were pretty sure they had an edge at price-estimation and had enough capital to be able to simultaneously offer sellers execution speed and offer buyers a price they would accept. It is a market-making play.
My impression here is that Zillow has re-evaluated some part of that calculus and decided to pull back. I hope that they'll be able to retool and revisit the approach after learning expensive lessons, as it is my impression that there should be real value here for all concerned.
I'm pretty sure that their internal dataset is far more rich/detailed than the public-facing "Zestimate".
Traffic-data alone, segmenting the buyers clicking on each listing and their expressions of intent, would give them an incredibly-actionable trading/training signal.
Zillow might see, nationally, the nationwide (and regional) direction of buyer and seller sentiment 2-4 weeks ahead of all but the largest regional brokerages.
I disagree strongly with this sentiment. Clearly Zillow is not going to buy all the houses in America and turn us into serfs overnight - that is an absurd strawman. What? Zillow is far from the only actor here trying to enter this space. It's quite ridiculous to claim, as you are, that industrial-scale home speculation is doomed to fail since there are boom and bust cycles and therefore we don't need to worry. That's ridiculous. We really don't have any direct, past precedent for this type of situation. It is rational to be concerned here. The fact that Zillow failed on their initial attempt does not imply that this can't work - it just means they're one of the first making a serious attempt and, unsurprisingly, they got overzealous and it didn't work on the first try! Quant firms for the stock market in the early 90s did not work overnight even though the market was much more inefficient than it is now. It takes time for groups of highly qualified and very smart people to figure this stuff out - but, they will.
I suppose it could mean voting in people to write a law that makes it exceedingly unattractive for institutional investors to buy single family homes. You could probably even do such a thing "neutrally" since people really only need one home and if you own more than two you're almost certainly investing in some way. Apply some onerous tax on each unit owned above 100, and all these investors will flee the market.
Edit: IIRC, the companies that buy up all these single family homes are large corporations. I'm pretty sure you could write a law like I described that they wouldn't try to use some cheeky corporate shell game to try to bypass (e.g. in their tax filings require them to declare how many single family homes they're the beneficiary owner of, regardless of any intermediary shell companies/special purpose entities, and tax them for that). Require the auditors to sign off of on the number. If they lie, everyone's subject to even more onerous civil and criminal penalties (e.g. blow them up like Enron). Large corporations will stretch the law as far as they can, but it's rare for them to deliberately venture into fraud and other kinds of illegality (for the pedants out there, note I said rare not never). The systemic issues can be solved if they're made to comply, even if some relatively small fish still don't
"we'll take the ... back by force"
Why are so many people so quick to suggest that a nationwide situation will be resolved by force. No one is going to take back hundreds of homes by force. That amount of force would be absolutely crushed by state sanctioned violence. Even if you could, what are you going to do with the thousands of homes you have now claimed? Who decides who gets to live there? What about the renters already living there? America is in an awkward position right now and the constant larping of using force to resolve issues is not helping.
> We really don't have any direct, past precedent for this type of situation
Yeah, we do. Massive housing speculation in the mid-2000s.
> The fact that Zillow failed on their initial attempt does not imply that this can't work
I'm reminded of Gamestop here. Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold. What this ignored is that someone would be left holding the bag and the long interest holders knew it so it was a question of not being left holding the bag.
This is classic Prisoner's Dilemma, basic human nature (ie to act in self interest) and exactly why markets work long term.
The boom and bust cycle reflects basic human psychology of fear and greed.
Asset bubbles aren't new. Attempting to corner or even just manipulating markets isn't new. Ultimately these things always revert to mean. Sometimes you can predict the reason. Often you can't.
I personally favour fairly radical and progressive real estate reform. This includes (much) higher property taxes for non-resident owners, treating owners as tax residents and thus taxing their income, ending special treatment for real estate assets in asset reporting and withholding taxes at source on real estate income.
Cities should be for those that live in them, first and foremost. Having landlords is fine as long as those landlords themselves are residents of the same city. Residential property shouldn't be for investment funds or oligarchs hiding money from governments.
Concentrating on the likes of Zillow however is largely unnecessary and a diversion. The focus should be on the game not the players.
But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.
Real estate speculation has likely been around for thousands of years; it’s certainly not new. But, do you see any difference between A. individuals in the mid-2000s speculating on real estate based on individual whims and taking out mortgages they should not and B. large corporations with access to massive datasets previously unavailable, teams of PhDs trained to work on this, equipped with game-changing modeling capabilities that were computationally infeasible until the past decade, along with access to massive amounts of capital? In my opinion, the former case seems less of a concern than the latter.
Also, maybe I’m dense but I’m not able to see any relevancy to GME at all.
A sounds like it would lead to increased chances of people overpaying and overextending themselves, and B sounds like it would lead to more accurate pricing.
I agree B) isn't being employed by only malicious companies. We're talking about a huge market and tons of competition. It would take a lot of effort to keep honest companies from making money also bringing prices down if there was artificial price inflation.
I've definitely not studied the market extensively, but it seems rather intuitive to me that if you artificially give everyone access to the best loans in any market, you'll see prices continue to inflate until everyone in the housing market is educated and capable on benefiting from the subsidized loans.
That’s one of the talking points parroted by HFT firm representatives defending their business. There’s a lot of research on it as well. I bet successful real estate firms will use that same argument. I personally have a hard time believing this will benefit the average consumer buying a home.
You are right that the pricing is more accurate. But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates). The calculations used are entirely different and so is the capital available. In the world without this type of behavior, that pricing difference could be captured by an actual homeowner over the life of their mortgage.
It's another thing we are seeing "optimized" right in front of us. Meanwhile, housing, education, and healthcare get more expensive for actual humans.
> But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates).
Also for the house seller (prior to the company), who is getting paid a more accurate, higher price.
And a price is accurate all the same for buyer and seller, since there exists a range with the minimum price the seller wants to receive and a maximum price the buyer wants to pay. The smaller this range, the more accurate the price.
With more data and more accurate projections, it may be possible for current owners to capture more of the gain that may have happened down the road.
For the entire US yes. For new york city, that's just under ~3% of total sales. Given how fundamentally illiquid residential housing market is, thats more than enough to push prices up/down as the player sees fit.
I bet it's even an even bigger part of the pie if you exclude $10m+ homes. My hunch is that the middle and low end of the market is more attractive because they are easier to rent.
Someone in a related thread here on HN yesterday said that at some recent point in time, US$200M would have bought every piece of residential real estate for sale in Boston (proper). Didn't try to verify if that was true.
I agree that 2.6b is chump change relative to the US housing market. In fact, it’s not a large hedge fund, regardless of what they’re trading. I think the real concern here is if this model proves to be profitable and that 3b increases by several orders of magnitude across a much larger set of firms and funds. I’m not saying that will happen, but that is an alarming potentiality.
Scenario B and A are more similar than you acknowledge. Both are fueled by low cost capital driving prices to unsustainable levels. Scenario B will be a problem too if/when interest rates rise and companies have insufficient cash flow from rents to pay the new debt service. In fact, scenario B may result in a deeper crash, since selling will be swift and by many actors at the same time since they are using similar valuation models. Scenario A was predominately driven by actual homeowners whom are more reluctant to sell in a down market.
> companies have insufficient cash flow from rents to pay the new debt service.
If they are pouring their own capital into purchases, why would there be any debt? Are the entities (companies) in scenario B actually borrowing money?
Given the current interest rate market, I think it's safe to assume they are borrowing money to purchase homes. They aren't taking out individual mortgages but I would be shocked to learn that they aren't borrowing millions through other forms of financing and then paying "cash" for homes.
I had the impression that this was happening because they had excess cash and nowhere particularly interesting to put it. Why would you borrow if you have cash sitting around and expectations of a good-to-crazy rate of return?
Why use your own money when you can use other people's money? Apple, MSFT, Google, etc. All these companies have massive piles of cash on hand yet continue to finance operations.
Irrespective of that, I agree that even if Zillow fails here, it doesn't bode well for the future of the RE market.
Also not leveraging purchases would be considered financial management malpractice unfortunately and likely result in a hostile takeover of the company or at the least a change in management. This is a major reason companies get into trouble with debt during times of increased interest rates; proper unwinding of debt and sale of assets near the top is key when playing with leverage.
> But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.
Possibly. Real estate is different than most other markets for a few reasons. Favorable tax treatment, sheer market size, high barriers to entry, and being at the bottom of the hierarchy of needs.
I'm worried if this isn't the inevitable path of concentrated wealth accumulation. Stocks have grown too over-valued? Move to housing, a gigantic market that people require to survive.
> Stocks have grown too over-valued? Move to housing, a gigantic market that people require to survive.
This is kinda what happened in the 00's housing bubble. Tech crashed and people looked at housing as the next big investment. It feels like we just have groups of people going from bubble to bubble.
Like the other responder, I don't think the 00s and this cycle have much to do with each other. 00s was lots of people who couldn't afford a home being provided mortgages by banks, and it falling.
This is presumably a number of well-financed institutions buying up property to hold or rent.
Now, perhaps you're correct that it isn't as bad as it seemed, since Zillow is selling the homes rather than getting into the rental business, but even the header of the article says they are seeking "institutional investors".
I also agree that cities should be for those who live in them, and that land is a different type of asset from most others (again, like another responder mentioned).
The more I type the more I think we're on the same page, but you seem to think everyone is focused "just on Zillow" while I am thinking more about the long-term opportunities for trillion-dollar megafunds to gain a monopoly on living space and destroying the ability of families to own property in America's cities.
Nobody is saying (I think!) that the fundamentals are strong, or that old rules don't apply.
What's being suggested is that the influx of large scale corporate purchasing in the residential real estate market is different, and that because of the old rules, this could be a problem.
> also GME is over $200 currently, when it was $10 a year ago
And they got there by running a sustainable and profitable business? No, they got there because Reddit decided to play their own little game of pump&dump.
Which is yet another blatant example of how decoupled the stock market is from the actual real world economy.
Actually the game was buy and hold ( diamond hands ), and only because they saw an enormous amount of shorts outstanding, so much so that a squeeze was all but guaranteed.
> Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold.
Everyone who got into $GME after the first spike knows that the value will tank some time, they are in it simply for the lulz - to this day, short sellers are accumulating losses, and given how long the price has stood up way over anything supported by fundamentals there must have been dozens of billions of dollars in value lost for them.
Obviously some are in $GME in the vain-ish hope of a second short squeeze event... but that's just gambling.
> Having landlords is fine as long as those landlords themselves are residents of the same city.
I suspect this would simply lead to property owners having a nominal “registered agent” in the city as the “owner” but all control and profit flows to the real owners.
Moreover, think about blighted cities. If a company is willing to come in to such a city and build some really nice affordable apartments that would improve the city for everyone, it seems like an undue burden to force them to live in that city as well. Your proposal could lead to shitty places to live staying shitty for a long time.
> Quant firms for the stock market in the early 90s
False equivalence. The real estate business which Zillow failed is massively capital intensive, whereas figuring out a quant strategy is not necessarily so. In other words, it is very possible to go out of business before a business model is worked out (assuming there is an undiscovered, workable business model).
Investors will not endlessly fund money losers, and Zillow is a huge money loser from both a income and cash flow perspective–a trend that predated their entry into the iBuyer space. Now you might say, the investor appetite for money losing Zillow is bottomless, just look at asset class X, which is totally unproven and yet has insane valuations. To which I would reply, "That is true until it isn't." One common characteristic of all financial bubbles is that its participants claim "this time is different."
Supposing iBuyers do become a significant force in the SFH market, so what? Large companies already participate directly in housing in a massive way. Who do you think built all of these apartments? Also, don't YIMBY's want to eliminate SFH anyway?
But then that's just saying you'll find more affordable housing in cities that people don't want to live in, which would then go along with your point.
> Not to say that it's necessarily a model to follow: there's a lot of sprawl involved. Just saying that "abundant housing has some real benefits".
I've heard it isn't a nice place, but I've never been before so can't judge.
Everywhere is struggling with housing right now, because nowhere has built enough since the great recession - and some places like California have probably been underbuilding for decades.
It does not strike me as a particularly attractive place to live - but I'm not a big city person, and prefer more mountains/nature. Its population has sure been growing, though, indicating that someone wants to live there.
> Everywhere is struggling with housing right now, because nowhere has built enough since the great recession
That was my original point in another thread (under building during the great recession + an exodus of building talent).
> It does not strike me as a particularly attractive place to live - but I'm not a big city person, and prefer more mountains/nature. Its population has sure been growing, though, indicating that someone wants to live there.
Houston is growing at half the rate of Seattle, at least in the last 10 years (10% vs. 20% growth). Those cities growing the fastest seem to have the most pressure put on their housing markets, which makes sense.
Demand certainly contributes to rising prices if supply lags. Houston does a much better job than other places of adding supply, and part of that is their 'zoning-lite' approach.
I don't know. If Houston is the poster child for the zoning-lite approach, a lot of people won't be interested in going in that direction. Or to say, if zoning creates a problem with affordability and the lack of zoning creates a problem quality of life, it doesn't sound like getting rid of zoning is a no brainer.
I'm not really sure where that article gets its data, but the actual price of homes in Houston is low despite a lot of people moving there and the economy thriving. Seems relevant.
> Quant firms for the stock market in the early 90s did not work overnight even though the market was much more inefficient than it is now. It takes time for groups of highly qualified and very smart people to figure this stuff out - but, they will.
This example works against you. Quant firms did succeed but they did not corner the stock market nor are they cause for concern. There is a long history of firms that failed to corner a market or become a monopoly. True natural monopolies are extremely rare and don't typically last very long.
> We really don't have any direct, past precedent for this type of situation.
Unfortunately we do have precedent. Through all of history almost no one owed their own home. It was by extraordinary government intervention in the 20th century through loan programs, incentives and building, and impediments to speculation, that made it uniquely happen in our era.
As the government steps back from continuous intervention favoring individual home ownership and low to nonprofit housing, the more profitable rental economy will re assert itself: it is always more profitable to own a property to rent out then to live in it and the market will reflect that if left to itself.
Price fluctuations (eg 2008) do not change the fact that land price increases have far outpaced wages for decades. So yes, it is rational to be very concerned.
And note that Zillow is not selling these 7k properties to would be homeowners but to investors.
You can't squeeze more money than the market is willing to pay. If private equity tries to corner the housing market, more people would decide to live with their roommates and family while developers will happily sell them overpriced homes and they pay property taxes.
more people would decide to live with their roommates and family
And we made fun of Soviet Russia, where people would live with roommates and family because their government was so dysfunctional that it couldn't even arrange shelter for its citizens, a basic necessity for life.
Not everyone can afford a Bentley or a condo in Manhattan. That is not some terrible injustice that needs to be fixed. Living within your means and buying a place where you can afford to live is also an alternate approach. Or you can moan about capitalism and how unfair life is.
The price for housing has gone up substantially in the last 20 years, housing takes up a greater share of peoples incomes than it did in the past, and there is no reason for it.
We wouldn't tolerate the price of food going up by the same percentage.
We tolerate it in housing because the asset appreciates.
If food costs went up substantially, but you could eat the food and then resell it for more than you paid for it (and sometimes a lot more than just inflation-linked increases), I suspect we'd tolerate that too.
Now we are getting somewhere. The owner class tolerates housing price increases because they think they are getting a good deal (but it's just inflation, if the price of necessary goods goes up, that's inflation), and the renter class gets fleeced. It's not a recipe for long-term stability when 2/3 of the population band together to oppress the remaining 1/3, all this with government support.
It's also concerning that housing is a government-supported investment, it's an unproductive asset. That's not how you encourage progress and development. Even if you just have a field you can grow crops but no such luck with housing.
(Maybe there's change on the horizon, a collegue who lives somewhere in the Rust Belt complained that her 25-year old daughter can't move out. She has a regular job, but the rents have become so high that she cannot afford an apartment on her salary. So there's hope that civil unrest will be averted.)
> The price for housing has gone up substantially in the last 20 years
This is the result of supply and demand. How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans. That increases demand.
And housing is also larger than 20 years ago.
> We wouldn't tolerate the price of food going up by the same percentage.
This is just silly. It is not something you "tolerate" it's something you cause.
Food prices also rise when demand increases.
The public has 100% control over demand as they are the ones bidding up the house prices! Now they do not have 100% control over supply. But house prices have not risen because of a decline in supply.
How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans.
Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price.
And housing is also larger than 20 years ago.
That's a problem right there. Everyone needs a roof over the head. Some people would like a palace. There is not enough entry-level housing being built to keep up with demand, meanwhile the existing stock has reached the end of its serviceable life. There's a good chunk of 70's construction which has deteriorated to a point that it needs rebuilding. The shortage at the low end causes high rents for those who can least afford it.
Food prices also rise when demand increases.
Food prices mostly rise in response to missing supply, either because the harvest fails and the government can't secure imports or because of political upheavals. Either way, it's a political problem, food riots are what starts revolutions. and food price instability is a hallmark of banana republics.
> Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price.
Right, when there is a disruption. Say there is an increase in jobs in city A and wages rise by 10%. Say there is a decrease in jobs in city B and wages decrease by 10%.
Now what must happen is some kind of population transfer from B to A. We also know that rents will rise in A and fall in B.
But how does this happen? Via evictions in B as people can no longer afford the existing rents and move out. That adds to the rental supply in B as landlords struggle to find tenants, which causes rents to fall. Similarly in A, there is a bidding war for apartments and rents rise. This is how the market adjusts to the new reality of jobs and wages in both cities.
Now covid had lots of these disruptions. Entire job markets were shutdown, others thrived.
So what happens when the government puts a freeze on evictions in both A and B. Then everything is frozen except for the handful of new construction in A and B, so you get massive price spikes and rent too high in city A as well as rents being too high by not adjusting downward in city B.
The effect of this is that prices are always much higher than the market clearing price, which is what this paper demonstrates.
This is also what happens when you try to make economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off" -- often the exact opposite of what you want ends up happening, as housing becomes too expensive for everyone. What has to happen is that people must live in the housing they can afford. Attempting to live in housing that they can't afford always causes excessively high prices for the majority.
economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off"
We pay people unemployment compensation because the knock-on effects from someone taking the next-best job are serious, and it's immensely difficult to recover from an eviction. There's volumes of research on that. The "sentimentality" has vast economic benefits.
> We pay people unemployment compensation because the knock-on effects from someone taking the next-best job are serious
We have unemployment insurance not because of sentimentality, but because insurance is economically useful. A person cannot insure themselves from loss of wage income, so paying some overhead to have the government do it makes sense.
Freezing evictions does not make sense. We do not freeze layoffs, for example, in our unemployment insurance program. We let employers make the layoffs they need and then have an insurance pool that the laid off can draw from.
A proposal to have rental insurance that you contribute to and can then draw from for temporary eviction assitance might be a good idea -- it depends very much on how it's implemented.
One of these has economic benefits but the other does not. Both are sentimental in nature, but that is not a sufficient condition to adopt a policy -- actual economic outcomes has to be the deciding factor.
You're right, but the difference these days is the Fed putting the pedal to the metal even when fiscal spending and economic data at all time records.
We haven't seen this phenomena since the 70s when inflation was running hot and the Fed did nothing for many years. Back then, prices continued to rise nominally for many years.
I suspect the Fed will tighten somewhat (taper should be announced tomorrow), but they keep stating that inflation is transitory.
So clearly their intention is to kick the can as far down the road as possible. If inflation does start to inflect downward, they have the perfect excuse to do nothing until it levels off at an elevated level many months later. Rents alone will drive elevated inflation for years to come. However, used car prices will certainly tank at some point which will mask the effect.
By moving so slowly, they seem to be facilitating the development of a new epic bubble, except it's a bubble in most asset classes. Stocks generally aren't too over valued, but hypergrowth is for sure. E.g. NET at 100x sales.
Compare to Cisco in the dotcom bubble, which peaked at something like 200 PE and much smaller sales multiple. The PEs back then are now the PSs. Kind of insane, even accounting for the greater legitimacy of the businesses today.
In the past the Fed used to preempt excesses and inflation. Anytime they haven't, has been a disaster in the long run, historically.
Unfortunately I think a lot of their action is motivated by Powell trying to retain his seat. They really need to either renominate him or put somebody else up for vote so he stops optimizing for the job. His term ends in Feb 22.
>I suspect the Fed will tighten somewhat (taper should be announced tomorrow), but they keep stating that inflation is transitory.
I hope so, but keep in mind, the Fed has lacked the will to tighten even in the most favorable conditions -- strong market, no covid -- merely because banks screamed bloody murder about having to pay slivers of a basis point more on overnight loans or (heaven forbid) stay more liquid so they don't need to get as many loans.
Yeah, I don't have my hopes up, particularly. Things are so good right now on pretty much every metric, they have to at least taper, though. I suspect they will use overly dovish language at the announcement though, which will spur even further speculation.
But the unfortunate aspect of the current fed is that they care way too much about the markets. And they are very short term oriented. They're pulling the good times of the future into the now, at potentially major costs later.
I think Powell is just too focused on being liked and retaining his job, at the root of it. That's the only explanation that makes all the pieces fit.
Everyone looks at the FED, but there's an interesting counterintuitive hypothesis out there that it's not actually the FED that has anything to do with inflation. In the 1970s, it was international credit creation by banks that was not tracked by the FED that caused persistent inflation (and their attempts to control it were futile since they were not tracking it), and now it's actually the government stimulus combined with the supply shortages that caused the inflation (like the pre-1955 era) - and the inflation will not last beyond this spike since it's not the FED that actually controls it, it's the intermediaries in the financial systems and the banks and their propensity to lend (which is still low relative to pre-GFC).
So the FED can do all it wants, but ultimately it's the other actors (banks, financial institutions and government in the form of transfers) that will ultimately decide the fate of inflation going forward - right now it's looking like disinflation/deflation after all of the stimulus and supply shortages work their way through the system (can be seen from the long end of the yield curve).
The FED's actions can and will affect the markets however - but that effect is mainly psychological.
> History is littered with the corpses of those who tried and failed to corner a market.
History is also filled with the bloated corpses of those who did successfully corner a market. Or, in modern times, those who participated in a synergistic duopoly to skirt anti-trust laws.
> The people saying this have obviously never gone through a "bust" cycle.
Yes, indeed. What's more, those people have a large, receptive audience: An entire generation that has never gone through a "bust" cycle. We're talking about nearly everyone in their early 20's to their mid-30's who joined the workforce after the global financial crisis. They have zero personal experience as to what it's like to be an asset owner in a prolonged bust or bear market.
It's ridiculous to suggest young people don't know anything about downturns. People who are now in their early-mid-30's were some of the biggest victims of the 2008 GFC because they bore the brunt of unemployment and delayed entry into careers (and other life milestones) as a result. If you're an employer, why would you hire a new grad when you could fill all your hiring needs with experienced hands? You wouldn't, and that was the reality in many industries back then. New grad unemployment reached nearly 15% in the period from 2008-2012, significantly higher than the overall unemployment rate. Then there was something like 20+% underemployment, with college grads working as baristas just to have some money coming in while they waited for the economy to thaw so they could start their lives.
Many young people had no opportunity to pursue a real career after taking on four years of educational debt through no fault of their own. "Go to college and get a good job" was revealed to be a complete farce. A few years later as things picked up, there was a fresh crop of new grads behind them without any awkward employment gap or strange jobs to explain. Even those who managed to make their way into solid careers missed out on the stock market and housing asset boom of the last decade because they did not have the deposits and credit history needed to contemplate buying a home until fairly recently when prices went vertical.
I don't know about your assessment, Zillow in my opinion is just a third party here. Sure we can agree Zillow bought too much for probably too high of a price but I think there is a larger discussion about the significant move of institutional money into real estate. I have not seen that slow down and I have been amazed with how entire new developments are being bought up by institutions to be rental home communities. That I think is a new change that we have not seen at this volume before.
> It wasn't long ago that we were reading how Zillow et al were going to buy up all the housing stock and keep millenials and Zoomers homeless forever.
I think you're making a significant error there: the narrative you're criticizing wasn't focused exclusively on Zillow, but rather "big investors" buying up single family homes and pushing actual single families out of that market. This news does nothing to repudiate that narrative, from the OP:
> The company is seeking roughly $2.8 billion for the houses, which are being pitched to institutional investors, according to people familiar with the matter. Zillow will likely sell the properties to a multitude of buyers rather than packaging them in a single transaction, said the people, who asked not to be named because the matter is private.
Yup. As someone who was in the real estate market in 2007 it’s pretty amazing how quickly we went from “be careful with housing” to “housing only goes up, it’s now or never”. I’d say it took about 5 years.
Human recency bias is very strong. Whatever trend has happened in the last 6-12 months is assumed to continue ad infinitum. And that’s true on both sides. When the market crashed everyone assumed it was forever.
They just need to hold all that inventory long enough for it to go black. But of course the market can remain irrational longer than they can remain solvent so that's not how it will play out.
Also good luck convincing the sociopaths of VC to get rich slow here: they want their capital back so they can throw it at more promising get-rich-quick schemes.
Responding here given that you are calling out the 'fallacy' of others.
You seem to be making quite declarative statements here that are false:
-Buying real estate does not always end badly
-Zillow's core business is not transactions
Zillow's issue was not that they attempted to buy houses, it was that they didn't operate with enough fiscal discipline in doing so. They got too far out over their skis, as the saying goes.
Given your suggestion that someone who signed off on the idea should be fired, is there any record of you stating publicly that the person should be fired for the idea when they first started this endeavor (or at least when you first heard of it)? If not, it seems like you are operating with the fallacy of hindsight bias.
> History is littered with the corpses of those who tried and failed to corner a market. Real estate is no different. That's not to say we can't make the system better. We can and we need to. But serfdom isn't imminent either.
Zillow is just a piece of the puzzle. I don't want to go down the 'collapse-porn' hole but with Zillow (and many others) doing this and pushing/pricing out family buyers + my city's new buildings being 99% rentals owned by financial corporations, I don't see a bright home ownership future. I'm driving around and all I see are 'vibrant' cities that look like https://archive.curbed.com/2018/12/4/18125536/real-estate-mo.... I find that super depressing. Whenever I see cranes going up I get excited there's going to be a new condo building. NOPE. It's yet another 6 story matchbox owned by some no name shell in Delaware which ends up in 2 years under Berkshire Hathaway.
Look at how short the last recession was in the US. It was 2 quarters, meeting the bare minimum definition of a recession. Since 2008 policy makers have shown a broad willingness to stimulate the economy at all costs. Barring a USA debt crisis or a change in the political climate, I’m skeptical the US will see a major recession any time soon.
I think I agree with your ultimate conclusion, but that's not a fallacy it's an ageist trope, and also you're mistaking whoever generates oversimplified clickbait for the youth. I want to emphasize this: the youth do not control what the real estate media is urging various news outlets to say.
New monetary policy is designed to prevent any kind of bust from happening. It is only boom from here on out. 2009 was the last chance to get on the train.
Like, in my filter bubble, I never saw any of that hype/doom. I saw Zillow and a few others making home buying and selling attractive and more efficient because it made the assets much more liquid. One of the most unattractive things to me about real estate was how long it takes to convert it back to cash, compared to other kinds of assets.
The second is that Zillow's $2.8bn position isn't a problem even for Zillow or for the real estate market. There is simply not enough information to suggest its a bust or about the folly of trying to corner a market and there is more information to say that its just reached their corporate risk tolerance. For example, the article doesn't mention anything about the delta between buying price and price they are trying to sell at. Is it 2% off, 5%, 20%? And secondly does it matter? Zillow issued $4bn in corporate bonds at like 2% interest rate to do whatever they want. They've spent half of it on houses and still make revenue. That's nooooooothing like someone overleveraged on a mortgage 20:1. This isn't even 1:1 leverage, its way less. This is a complete nothingburger and that's before we even know the difference in value of their purchase price and new listing price.
$2.8bn or 7,000 homes, is barely a dent in this several dozen trillion market.
"The youth" is still not going to be able to afford anything, no matter if some institutional investors buy this bit, or if there was a fire sale.
Fired? Zillow has explored the market and is making an operating profit on these "losses". They charge exorbitant fees to sellers, effectively buying properties at a decent market discount, while publicly showing a sale price above market so as to inflate the price.
Even though the first go at it may have failed due to whatever reason (stated or otherwise), whoever signed off on this should be promoted.
There was a lot of fear a few months ago that Zillow was manipulating the housing market to make a profit using all their data and cash. Guess they had the will, but not the capability.
I think the simplest way to put it is they FOMOed into a very illiquid asset class in a very high risk market and now need to close the position quickly, which is going to cost them. I’m guessing they see a residential collapse on the near horizon.
Seriously, that is the real question. Considering almost every other recent buyer in the U.S. has made money (on paper) on their property without having done any analysis.
Particularly if your time horizon is like 3 months. Seems like they’re making two huge mistakes now by selling. Home values will almost certainly rise from here over the next 10+ years, and even the most casual market watcher/Zillow user knows that their “zestimates” are crap, they weren’t going to nail it that precisely. Literally everyone intuitively knows that it was a bad time to buy and now an even worse time to sell… except for the analytics company with all of the data. They should just hold and rent the properties via their app, if they can’t make the math work otherwise.
Certainly rise? IF the market keeps going up nobody will ever be able to afford a home.
Zillow is in the market of fast turn arounds, not holding. The market is already starting to go down. Were in a bubble.
Market has slowed a bit in the last few months. Not "prices are dropping" but not "prices will be 10% higher in 6 months" anymore. The margin for error has narrowed.
But selling for more than they paid isn't the idea. The goal is to capture the ~10% of purchase price that is paid out in fees for a real estate transaction.
I'd like to point out that this article neither claims nor provides evidence that Zillow has lost money.
For one thing, as discussed previously[1], Zillow earns commissions and fees when both buying and selling houses, so they may be making money even when the prices nominally show a loss.
For another, even if the majority of the houses were sold at a loss, that statistic by itself tells you nothing about Zillow's overall profit or loss. For example, they might have sold most of the houses for a very small loss, but earned large enough profits on the others to balance those losses out. There simply isn't enough information to say.
They are losing money hand over fist in Tucson. I have several zillow signs in my neighborhood right now. Priced at ridiculous levels and Zillow paid an even more ridiculousness(fitting word play) price to "acquire" the home. Its laughable.
Boots on the ground here telling you the market in the Southwest is jacked up... again. I bought my house in 2009 as a foreclosure and I see the same signs I saw in 2007 all over again. I can't speak for the rest of the country, but Phoenix and Tucson are going to be real estate nightmares in 2022.
When I heard that Zillow was buying in the middle of an extremely exuberant residential market, it surprised me and I thought they must know something I don’t. Surely they aren’t stupid enough buy and hold a fairly illiquid asset class during market all time highs. Guess I was wrong.
Yes-- Also unless you're buying some type of financial vehicle, "buy & hold" doesn't encompass the full picture since they are physical assets with IRL needs. Unlike a security/stock/bond etc., in real estate unless you have tenants paying rent then even if the asset value remains the same, you're losing money due to costs like property taxes.
I find that every time I catch myself thinking this way I’m typically wrong- nobody knows anything, big orgs in particular are dumb, and a little common sense usually wins out.
Sounds like they got in too close to the peak (not to mention delays & increased costs in refurb) and didn't factor increased carrying costs on the potential that these would sit on the market a bit longer if they wanted to sell at a higher premium.
A hard lesson for them that listing aggregation & analysis of the market is far different than direct investments & flipping. Flippers take a big risk and offset inevitable losses on some homes with the profits on others. And generally if they do well it has a lot to due with deeper knowledge of the subtleties in the local housing market & partnerships with realtors that have customers in the pipeline already. There's a lot more to it than what might appear on the outside to "tech disruptors", or anyone else who thinks it looks easy from the outside.
Maybe on paper it costs 10k to do cosmetic fixes on a house that will now sell for 80k more. But there is no guarantee that workers will be available and interested in doing that small budget work. More importantly to your point the local realtors and other people in the area are likely to pick up any really good deals before Zillow gets to them.
I think there's more going on here than simply RE speculation. Most importantly, Zillow is building capability. Capability to buy & sell quickly through processes, tooling, networking, and brand recognition. There is a long play here. Zillow's goal has always been to fully disrupt the real estate market. Why should this stop with brokerages and agents? Shouldn't investors also be on the list?
Sure, medium/large flippers may have investors putting up the money.
And I agree that Zillow is not likely backing out of the game all together. They just had an expensive lesson learning what they don't know about how to go about this. But their current strategy was also only viable during rapid price increases. A completely different one is needed in other market condition.
Making money flipping in a flat market is even harder: It takes more work to find depressed homes at below-market prices. There's no good algorithm that will do that without boots on the ground looking at the property in person, not to mention the surprises you get when you open up the walls or floors to start a refurb. That doesn't mean Zillow can't do it: what I'm saying is that it's very much not in the realm of their core competencies. Building out large scale logistics networks for this IRL is much different than their current line of business. I'm sure they'll try again, but I'm also almost as sure that they'll have a few more significant stumbles along the way.
Since when has SV startup culture relied on the whims of the market to generate their profit? I believe Zillows end game is to become the market. Once the scale is large enough, it's no longer an issue. hey just mistimed it or had some other unforeseen issues in this case.
They simply overpaid. My neighbor received an offer of $150k over the z-estimate in Tucson. He felt that it would be stupid not to sell and wasn't even thinking about selling before the offer came in, so he sold. He paid a slight premium to buy his new house out in the boonies, but the gain offset the rise in price. They are currently listing his old house at the zestimate... I doubt they find a buyer even at that price unless its someone from out of state that has no clue.
I don't think it takes a rocket scientist to see the hockey stick graph on Zillow's price div to see this isn't a great time buy. It makes me giggle to think about what they were thinking. Some houses have tripled in "value" in a year. It's artificial and it will revert to the mean. Income in this city simply doesn't support the price level we are at for renting or buying. People are moving into apartments or out into the sticks to wait it out.
I think you highlighted an important concept. Rather than overpay, people can look further out from a city center and get cheaper housing. Sure the commute may be longer but there has been a lot of remote working over the last year or so, many companies going fully remote.
Home buyers have many choices and at a certain price, its simply too much and they go elsewhere.
I think zillow is trying to unload their mistake onto some entity they can convince it is still worth it.
This is what has driven up housing prices where I live. It's having a ripple effect as those with more flexible WFH schedules decide they can now afford to buy a home outside of the city, and those outside the city realize they can get a significant upgrade in home quality for no extra cost by moving still further away.
As people begin to make choices like this at a systemic level, I really think the WFH genie is well & truly out of the bottle for good: When people can get a significant boost in quality of life & w/l balance with nicer living quarters & more flexible schedule, we simply won't be willing to take a job that doesn't allow for this. Especially once we've made the move away from central business hubs already and would otherwise have to move back.
What would be really nice to see is some of the nearly vacant small rural towns see a resurgence of some kind. Grant programs by the government to spark a movement to these areas would be interesting.
>as of October 27. Out of 224 homes, 208 — or 92.9% — were priced below what Zillow paid.
>36.5% were listed for less than the company first paid for them from the outset.
So these are ZillowBots numbers in Phoenix. They start off with a third going for less than they payed. The rest "hold on for a bit" and slowly the price keeps dropping
Eventually there are so many price drops where 93% of the homes are on the market (so, even now, not even sold) for less than what ZillowBot thought was a good idea
so 2/3 of these houses go with the "hold on for a bit" strategy then fail
I don't live there, but from the outside it seems like the Phoenix market is on a downwards trend, and they chose horrible timing, or really bad algorithm coding
They hit the wall that most people are hitting. There are just not enough people out there to meet the demand right now for residential construction and remodeling. More people want work done, and fewer people are getting into the industry, so the calendars are booked and costs are going up.
On one hand I’m relieved to see that this business model isn’t working out. I didn’t want to see institutional players start putting even more upward pressure on home prices.
On the other hand, this highlights just how insignificant their purchasing was. 7000 homes is nothing relative to the 1,200,000 homes they have listed for sale right now.
Classic example of not understanding the gap between theory and application. If your home is overvalued by Zillow, you’re much more likely to sell than if it’s valued correctly or undervalued. E.g. Zillow overvalues my house because it’s algorithm can’t factor in our weird parking situation. I’m much more likely to want to sell for a high valuation than someone whose house is valued correctly by the algorithm.
The business of iBuying is destined for the trash heap, its future so seemingly inevitable that I'm shocked anyone alive considers this a viable business with a real terminal value. Did we not learn real fast back in 08 that the financialization of people's homes is basically a non-starter? Being a glorified payday lender with people's homes is never going anywhere. It's one big Catch 22, if these companies ever even figure out how to make money from this (and so far they can't) they will inevitably just get shut down by local governments, which has already begun in Europe.
i think it can work , but you need to expect pretty slim margins. You basically need to offer a very fair price on very safe houses and make your margins by cutting out the realtors fees.
This is something like running a high end restaurant that is not easy to do or benefits from scale. You need a proprietor interested in it. Most people that "flip" homes successfully are personally involved in the projects. They have relationships with local subcontractors, know the area, and often professionally work in one of the trades or related fields such as law.
The world is awash with cheap money now, so simply having deep pockets is not going to get you what you want. You can't just buy people that have the skill to manage the people involved and the projects at a large scale.
The analogous restaurant situation is if you have a great chef that can run a location, why are they going to work for you? They will just open their own restaurant. Businesses where the only thing you can offer at scale is money don't work.
Early on in our home search we found a house that we loved, but was extremely overpriced—even in a hot market. The house was not owned by Zillow, but a similar company. When we asked for disclosures we did not receive them for almost a week.
My agent warned me that there were going to be things wrong with the house and that they probably would not be disclosed. I found a thread on reddit about making purchases from this company, and one user who was an agent said that they always asks for the previous seller's disclosures—that's how they know where to look with the inspectors. Apparently the company frequently hired handymen to do specialized work. They did the bare minimum to make sure the house passed inspection.
Anyways, we made what I thought was a reasonable offer, even though it was for about 10% less than the list price. It was rejected.
Three months later it sold for almost the same price as our offer. We probably dodged a bullet though.
Wow I just had the exact same thing happen to me. Problem was they tried to wait me out through inspections to avoid agreeing to concessions. The place was nice but turned out to need a full roof and hvac replacement immediately.
I think Zillow is facing a big potential loss on these properties. The homes that I've seen on the market in my area through Zillow/OpenDoor have been exceptionally poor quality and grossly overpriced. They've been steadily marking them down week after week and they're still not selling. Some are now more than $100k below what Zillow paid for them back in Aug/Sept (on a $600-700k home). Even with their fees, Zillow has to be taking a big hit on these properties.
The end of this cycle is definitely going to scare a lot of companies and investors out of real estate for quite a long time. If you're looking to buy a house right now, make sure you're somewhere you want to live for a while. You're probably buying close to (if not at) the top.
AT the end of the day even if a home is an asset, it is fundamentally a place to live for a lot of people, a lot of people would much rather rent than put all their savings into an over priced dump.
>Not to mention the absurd qualifications one needs to rent.
This was probably prompted by the Covid rent restrictions. Landlords (especially smaller ones) don't want to rent to someone who can avoid paying rent due to government decrees.
Ya, you can’t restrict the market and still keep it capitalist. In Seattle, new regulations on price increases along with an indeterminate moratorium on evictions is definitely going to make landlords really careful on credit checks. I also wouldn’t be surprised if the low end rental markets disappear completely as they become too risky to operate in as landlords.
Ya, but it is going to suck for those who don't qualify for section 8 yet can't afford high end rents. Probably the government will come in fill those gaps long term.
Having rented in Seattle for 6+ years at essentially the lowest non-subsidized price point, these existed before, along with a variety of other problems.
> In less than 3 years the rent in our working class city went up 45%.
I sympathize with that but I want to make sure people understand the dynamics. Prices are driven by supply and demand. If there's only one empty apartment in the city and you're willing to pay $2000/month, I am gonna have to pay $2100 month if I want to live there instead of you. That's sort of separate (though related to) prices of houses.
What will make rents go down? Only two things: demand goes down, meaning people aren't looking to move into / are moving out of the city. This happened in NYC rents in early covid as everyone bailed out. So one way to drive prices in your city down is to have some even that renders it undesirable (COVID, defund the police, rising crime, suburbs more attractive with work from home, etc.) The other way is to increase supply - that is to build more housing. Counterintuitively, this happens more when prices are high because it compels builders to create more housing stock.
People in NYC love to complain about all the new construction going on (or at least that was going on in the last few decades) but imagine what rents would have been without that.
This is true, but it's important to consider also things which might artificially constrain supply, such as laws that make it harder to build housing or policy which incentivizes buying homes as an investment. A commonly repeated statistic, there are more empty homes than there are homeless persons in the US (around 17 million empty homes vs. around 600,000 homeless).
> one way to drive prices in your city down is to have some even that renders it undesirable (..., defund the police ...)
there are so many problems with your post but the assumption that defunding the police is necessarily going to cause prices to collapse is probably the most obviously biased one.
the idea that you should view housing as simply a matter of supply and demand and not consider any externalities is an abominable position. All people need shelter, it's not something that people opt into for the enjoyment of it alone. By the logic you have presented, the top 1% of people banding together and buying up all of the housing and squeezing everyone else is perfectly fine if it makes the numbers look nice, regardless of how it affects people's lives. The way you have framed the problem is inhumane.
Another way to make rent more affordable is to raise the tax rate on income generated from residential rentals to the point that people are not buying up all of the housing stock for the sake of investment alone. Income from residential rentals is taxed at the same rate as ordinary income, the kind you get from actually doing something. Why would anyone work if they can just own someone else's house instead?
All people need shelter but people are not entitled to shelter in any place of their choosing. Your proposed solution will increase rent prices for people who can't afford to buy a house while pushing the housing prices down
and making them more affordable to middle class. So essentially you are making house purchasing more affordable to middle class at the expense of the poor and investors.
> people are not entitled to shelter in any place of their choosing
I don't think that's a useful framing, because it's again putting the framing in terms of market dynamics in a vacuum. People don't pick where they're born, they don't pick who their parents are, and they don't pick the socioeconomic status that they're born into or have as children. The majority of people are born somewhere and cannot really afford to leave. For example, 72% of Americans live in or near the city where they were raised (https://www.northamerican.com/infographics/where-they-grew-u...). Most people don't have the agency to pick where they live based on price alone, because other non-market factors become comparatively larger when you have less money. If you can pick where you live based on price and how interesting it sounds, congratulations, that is privileged position. That's not to shame that position or anything, I'm just saying that the problem has to be viewed from the standpoint that most people aren't in that position. People are interdependent with their relatives, their friends, and their neighbors. Moving costs more than simply the price sticker of your new home minus the price sticker of your old home: the social costs are enormous. I think that a basic right of modern societies should be that people should not be priced out of their homes because of the whims of investors. So again, I think the idea that these things should be viewed through the lens of market dynamics alone is inhumane.
> Your proposed solution will increase rent prices for people who can't afford to buy a house while pushing the housing prices down and making them more affordable to middle class.
ok maybe. My point isn't that I have the perfect solution, my point is that there are far more levers to pull than what was being suggested, and that I do not want to live in a society that considers the problem by only looking at markets and pricing.
I hold the opposite view it should be purely viewed through market dynamics in terms of solutions to societal problems we are trying to solve. As soon as you try to come up with the solution that ignores them you immediately get 2nd order effects that might be directly undermining your original goals. If there is lack of housing any solution that does not meaningfully increase the supply of houses will fail. (I am an immigrant so have pretty decent grasp on sacrifices one makes to move to get access to better opportunities).
You can't solve a housing shortage by charging landlords more taxes any more than you can solve a famine by charging farmers more taxes. If there aren't enough homes for everyone who wants to live in a city, then part of the solution has to be building more homes.
> the idea that you should view housing as simply a matter of supply and demand and not consider any externalities is an abominable position
Comrade, I am speaking about "how it works" not "what would be really nice if..."
> Income from residential rentals is taxed at the same rate as ordinary income, the kind you get from actually doing something.
I can tell you have never owned an apartment or a house. The amount of money and time that goes into maintaining a property, managing risk of bad tenants, etc is really high. Not to mention property taxes which is likely something you've not heard about (or, at least you don't mention that in your post when talking about the tax burden.)
> I can tell you have never owned an apartment or a house.
I own my home and I pay property taxes, nice try though.
> Comrade, I am speaking about "how it works" not "what would be really nice if..."
faced with "the rent going up is a problem for working class people" you're instantly taking the side of investors and positioning it through this lens:
> I want to make sure people understand the dynamics.
the problem is not that people don't UnDeRsTaNd ThE dYnAmIcS, the problem is that the dynamics actively incentivize the creation of an investor and speculator class that owns a substantial portion of the housing stock and drives price up based on speculation and not based on any actual need to use the product. The supply is artificially held low by the investor and speculator class, my argument is that this is actively harmful and that the idea that the only way to raise supply is to build more houses is wrong, because your framing assumes a vacancy rate of zero, which no major city has.
They're specifically framing it as understanding the dynamics and answering the question "What will make rents go down? Only two things". There's very little sympathy or opinion in their post.
> Another way to make rent more affordable is to raise the tax rate on income generated from residential rentals to the point that people are not buying up all of the housing stock for the sake of investment alone.
Wouldn’t that just mean there would less rental opportunities because people wouldn’t rent out properties due to the increased tax burden?
Not really seeing how such a plan would work out since it would increase rents across the board from lack of supply and the higher taxes being passed along to renters.
sure, jack up property taxes instead of rental income taxes. The point is not the specific mechanic, the point is the desired outcome should be to reduce the number of residential properties purchased for investment and speculation. Zillow owning 7k houses doesn't actually do anything good for society; that's 7k houses that people aren't living in. People buying houses shouldn't be forced to compete with the search engine that they're using to buy houses.
You're omitting a major component of the demand side: investors and speculators. If the market was just made up of the people who are looking to live in those homes, the market would be reasonable for those people. But we have a massive amount of investment funds looking for returns in an uncertain market, plus near zero interest rates for the near future. The number of investors who are buying houses they have no intention to live in is skyrocketing, either to rent out, to flip, or just to hold vacant in the hope values keep rising.
One way to look at this is that a house on a piece of property can be treated as a fungible product for two different markets: it can be an investment vehicle for investors, or a place to live for homeowners.
As its value to one of those markets increases, buyers on that side suck supply out of the other market. You can get a sense of how much this is happening by looking at the vacancy rate: higher vacancy rates implies that houses are worth relatively more to investors than homeowners.
Investors and speculators don't live in houses, renters do. If there isn't renting demand, than it doesn't matter how much speculation there is, prices will fall. Blaming investors is directing the anger at the wrong place. Blame regulations and building restrictions that prevent housing supply being built where people want it.
Did you see the last part of parent post? Corporate speculators actually gain even more by taking the property off the market and letting the fallow property increase prices for the rest of their herd of properties.
> COVID, defund the police, rising crime, suburbs more attractive with work from home, etc.
If there are any cities for which this is true, it’s cities like Seattle and Portland. Theoretically, they are not desirable to live in because of COVID, very high crime rates, not idea for working from home, huge public safety problems, etc.
Again, that's supply and demand. In NYC there was a demand hit when COVID started and there were great deals on rent. That's gone away because people have sort of come back.
My point is purely logical - the way to get rent down is to either increase supply or decrease demand. If crime, etc gets bad enough, demand will drop and rent with it. The argument you're making (implicitly) is that things haven't yet gotten bad enough for people to move out.
Yes, they are very not desirable, so much crime, poor working from home experience, poor public safety, everything else the MSM wants you to believe, etc. Definitely don't come here....
Or maybe your sources are more interested in selling fear than accuracy.
Exactly this. If these places are so terrible, at least according to uh, fox news, then why are they still so desirable?
One thing to remember is that sqft != quality of life. I know where to get tons of sqft, but I will be driving an hour every day to even find food. Quality of life... maybe if you never leave the house? ha!
San Francisco, Seattle and Portland are great cities. Austin is a great city. Don't believe what the conservative media wants you to believe about SF or what the liberal media wants to make you believe about Austin. Those cities are used as an "example" of what the democrats/republicans "will do with the country" if they win national elections. It's been going on for like 30 years and if like 1% of what they said was true San Francisco would now be a pile of shit and homeless people and to live in Austin you would need to have your own army to defend against the evil corporations that are coming for your land.
The main problem with all those cities is public transportation sucks.
Except the reason people in my social circle would never move to Austin isn’t about guns, it’s about women’s access to quality reproductive care, including abortion.
And I don’t think the democrats are exaggerating the extent to which that is not an option in Texas.
Yeah of course every once in a while you'll get something that's both real and both sucks about Austin and about San Francisco. That's how you get fuel to be able to exaggerate about everything else for a couple more years.
It's mostly driven by real demand. I just bought a house and the market was absolutely insane. It seems like everyone is trying to buy right now. Every house I looked at had multiple offers the day of the listing. I'm sure speculators have an impact in some markets but that's not what I saw here.
Until supply increases or demand drops these prices aren't going anywhere but up.
It's worse in some areas. I was trying to rent a place in Denver, it was a 1bd going for $1,300 but the landlord wanted someone with 5X net earnings. I told the landlord he was delusional. 5X net earnings to qualify for that place would be close to $160k pre-tax and anyone earning that much isn't looking at a place like this.
It's not a bubble. New housing construction fell by ~30% when the pandemic hit and still hasn't yet recovered to fill the deficit. At the same time, the US has been printing money like crazy and keeping interest rates at zero, which makes housing prices rise. This is why Blackrock and other PE funds have starting buying housing. They know that, in this market, it's a great bet to make. It unfortunately means your rent isn't going to come down or even stop going up anytime soon.
A big part of why Los Angeles is a living hell for most people is due to rapid recent increases in rent.
LA is this disgusting place where a very very small number of people are doing exceptionally well, and almost everyone is either homeless or half a paycheck away from that.
The only saving grace is these obscene rent increases appear to be isolated to a few select markets. In most of America you haven’t seen anything like the rent inflation normal in Los Angeles. If possible, consider moving. These issues have come about over the last 30 years, they won’t be fixed in the next three.
I moved out of LA my cost of living dropped by about 30% overnight, and it was much easier to meet nice people. I’ve long considered writing a book about just how much moving to a different city can fix your life. Most behavior is ultimately economic, if you and no one you know can get their lives together and move out, none well.
In LA this spirals into a nasty entitlement complex, leading to various yucky situations better avoided.
very tough to build a model like this to purchase homes cause you hit a really rough adverse selection problem
even if your model is 99% great , the 1% that you overvalue are going to be the sellers that come to you and agree to sell you their homes because your offer is too good to be true
They seem to be flipping the houses fast and hard around my neighborhood. One of my favorite things to do is walk around with the dog and see houses go up for sale. Lately, I noticed houses sold only to be relisted by Zillow like 30 days later at $50k+ the original price. And they actually seem to be able to sell them that high. My house is currently worth 3x what I paid for it back in summer of 2013.
I can't help but feel this is another bubble. I'm paid very well, in a not well paying region. So I'm wondering where all these folks are getting their money from. Even those new Ryan Homes which are cookie cutter and made out of pure vinyl are going for $250K. Maybe my doom-ish outlook is because I'm a millenial so I'm used to everything being bad.
same. even though I make good living, buying house seems difficult - it's a lot of money for many years. add closing costs and misc repairs, and owning appears to be quite expensive. I wouldn't know what to do if at any point within next 10 years I lost the job.
Are there not any alternative employers where you live (including remote)? Do you have an emergency fund to cover living expenses if you lose your job? The reason I pry is 10 years is a long time to not be able to get together a 3-6 month emergency fund (if you don’t already have one).
cheap loans for some, and inflated asset prices for those who own assets. Most people don't think "can i afford this house", they think "can i pay the monthly payment". Add to this the frenzy of asset prices increasing and FOMO, you get a real situation where people who were waiting to buy, buy now because they think they will miss out on cheap loans and increasing asset prices.
I found it the opposite. Zillow and OpenDoor bought really weird houses that were either unsightly or had issues and they were unable to sell them. They probably flipped a lot but most of the ones I noticed sat for almost a year unsold. I was shocked at how they would be able to pay mortgages for 10-12 months and sell below what they bought it for.
I have nothing of substance to add to the comments others have made, but would like to compliment whoever thought of the phrase "flipping flop" to describe Zillow's misstep here; Bloomberg should be kicking themselves for not using that as their headline.
Did Zillow factor themselves into their algorithm telling them to buy/sell? We had the same thing in our ML trading system. The first few iterations worked well because the system was set to run on small positions and volumes, and then we increased that, the PnL in the market was completely different to our models. As soon as we added ourselves into the model, we ended up trading more much like our original predictions.
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[ 3.4 ms ] story [ 361 ms ] threadThe trend of big companies buying single family homes and attempting to flip them is demonstrably bad for individuals trying to purchase a home.
If you go deeper, it's about personal preferences and distribution of jobs. There are plenty of areas that allow houses to be built and have affordable houses. Many of those places may have limited job choices, although remote is becoming bigger. If companies didn't cluster as much, then overpopulation or constrained resources in specific areas wouldn't be as much of problem. But there's also the side of people wanting single family homes instead of apartments - both existing owners and many prospective buyers.
It seems some companies and individuals are realizing this and moving to areas with lower density and lower cost of living (or cost of business).
Sure, you could take the other way of removing many zoning regulations, but the regulations are the product of democracy. Nothing wrong with people in a community wanting to set standards for their area.
This is why people move to cities and why employers move to cities.
As more people are brought into the world, those cities will get larger. Effectively prohibiting construction is a ridiculously stupid policy
> Nothing wrong with people in a community wanting to set standards for their area.
There certainly can be. I don't buy this perspective of extreme local control - it obviously can't apply for everything, and housing is one of the things it shouldn't apply to.
It's also not just about "personal preference" - building more housing in these areas would be societally welfare improving. That is more than just my preference.
But one has to convince the residents or other voting population of that.
"it obviously can't apply for everything, and housing is one of the things it shouldn't apply to."
I generally agree that government should take the smallest role possible. It seems that this topic has a long and expansive precedent - code requirements for how structures are built and where they can be, zoning for where structures can be built and their uses, property taxes (and seizure of non-paying), ordinances restricting what people can do on their own property, property state restrictions (disrepair ordinances), etc.
We could do away with basically all these restrictions. The question is where we draw that line, what we consider problem activity, and how we come to those determinations.
"It's also not just about "personal preference" - building more housing in these areas would be societally welfare improving."
What the preference was aimed at is that many people want single homes, garages, yards, etc. If they can't get them, they will end up moving to where they can. If they have them, they (and the other neighbors) will advocate to keep the neighborhood that way.
You can call something societally beneficial, but others might not see it the same way. It seems the boom-bust housing cycle and migrations between various cities or other areas can also provide societal benefit, and may even be self-correcting as we see people and companies select away from the highest COL areas to more attractive areas. This could lead to sufficient remaining voter base to make the building more permissible or eliminate the need by reduction in demand.
There's plenty of other things that that has obviously not been true for, I don't see why we should default to this extreme localism you seem to be advocating.
We didn't let local voters decide to continue imposing testing requirements to vote, we didn't let them allow businesses to continue to determine patrons based on race, we don't allow local jurisdictions to unilaterally confiscate land/property from private owners.
Given that this is a large problem, I don't see why non-local governmental action should be given an effective veto power by residents who don't want to see anyone new in their neighborhood. The burden is on you to justify that, given extensive evidence on how this would be welfare & growth enhancing.
> What the preference was aimed at is that many people want single homes, garages, yards, etc. If they can't get them, they will end up moving to where they can. If they have them, they (and the other neighbors) will advocate to keep the neighborhood that way.
Yes, plenty of people advocate for things that are in their self-interest yet bad for society. Your point?
> You can call something societally beneficial, but others might not see it the same way.
Sure. By beneficial, I mean net welfare enhancing for society. It's obviously not beneficial if your criteria is "increasing the price of my home by constricting supply."
So my question still stands and just moves up to the next level. Now you have to convince the majority of the state or country to support that sort of law. At the federal level, the 10th ammendment might even prevent this type of law.
The second half of that sentence is pretty inflammatory. There are many people who don't want new houses constructed and changing the density of their neighborhood but would welcome someone new if they're moving into an existing house.
"Yes, plenty of people advocate for things that are in their self-interest yet bad for society. Your point?"
My point is that people want single homes with these amenities and in that sort of setting. Why shouldn't they have that? You're implying that this is bad for society, yet I see no support for this. I see nothing that prevents the free market from addressing or self correcting housing issues. Vaguely claiming that your position is beneficial and others are not is unproven. Even if it would be beneficial, you still have to convince the voters to support it.
"Sure. By beneficial, I mean net welfare enhancing for society. It's obviously not beneficial if your criteria is "increasing the price of my home by constricting supply.""
We would have to prove the net benefit part. Nobody said it was about home values. Some people support many restrictions for reasons other than property value, like quality of life, infrastructure issues, etc.
Most people who can't afford a home would not reject a decent apartment, they just want somewhere to live. Also those are not the only two choices, there are duplex and triplex homes, illegal in most of us, and other variations
https://youtu.be/CCOdQsZa15o
"Nothing wrong with people in a community wanting to set standards for their area."
So in this "democracy" people who don't own a house have no voice and no right? Why does this remind me of some other mechanism for opressing undesirables?
You don't have to own a house to vote. This isn't the 18th century where only land owners vote. If you have a sufficient number of renters, they can outweigh the owners.
For example, a municipality in CA decided to raise taxes on land lords of rentals. Land lords didn't want this, the renters did (probably misguided since the cost gets passed on to them).
"Why does this remind me of some other mechanism for opressing undesirables?"
You could tell us instead of being rhetorical. Otherwise the obvious answer is that you are missing details in your comparison and wrongly concluding that it's about oppression.
The schadenfreude is real for me seeing this. A company like Zillow getting into flipping seems questionable to me. The customers are no longer aligned with the company on goals with something like this. It's like when the realtor offers to buy your house... they obviously feel like they can make more than you, when they're supposed to represent you!
Edit 2: What I'm surprised at as well is how short-term their forecasting seemed to be. They just started doing this and the market cooled a tiny bit (also, what? where?) and they're selling everything off? Were they incapable of sustaining anything but massive constant growth?
I'm currently looking to buy a house. Having a Zillow in between the seller and myself (as a dealer, not a broker) wouldn't be a slam dunk, but it would be worth some non-zero premium to me. (Just offering a counterpoint to the "uselessly driving up prices" narrative.)
I agree. (I'm not buying from them.) I am having to deal with sellers who change their ask at the last minute, have past financial issues (if something goes wrong and I have to sue, will they have assets?), want to stay through the winter, et cetera. In most home purchases, expedience isn't the most important thing for the buyer. For some, it is, and in those cases something like Zillow's offer in theory makes sense. (Counterpoint: homes aren't fungible.)
john q homeowner (probably) generates significantly more counterparty risk in transactions than giant corporation's house flipping algorithm.
no shortage of stories of home sellers doing all sorts of weird shit, that zillow et al just wouldn't have time/energy to engage in.
I've personally dealt with selling real estate within the past calendar year. Having someone willing to offer me an option highly likely to close quickly at a small discount to the prospective market rate would have been a pretty attractive option. Otherwise it can take months upon months to close a sale. Months in which I'd really like to have that money and perhaps be thousands of miles away.
Do they think they can make more money than me? I have no doubt. Am I as patient or able to invest as a business much larger than me? Probably not. The real estate market is not always a particularly liquid or quick one to operate in.
You're absolutely right, of course. There's no shortage of stories about markets moving fast! That said, it's been my personal experience that people don't generally share their stories about a house or condo moving slow. Perhaps complaints and stories might not be an ideal guide to reality in this instance?
IIRC, when I bought my home, the closing date was about two months after we'd made the deal with the seller.
But that's not as long as it seems: there's stuff you have to do in that time, like getting the inspection done, haggling over any issues found, and getting ready to move in/moving out.
Check the authorship: "Bloomberg." This is a syndicated article, you can find the original here: https://archive.md/gND5q
After getting purchased by Condé Nast, ArsTechnica similarly began reprinting articles from sister publication Wired: https://arstechnica.com/author/wired-com/
1. No more wealthy foreigners buying our homes with an email.
2. No one person can own more than 5 homes.
3. Eliminate buying up swaths of realestate by companies period.
My reasoning is obvious. Try it for a few years, and see what happens. Yes--realestate speculators will be crying in their Laginitas Pale Ale. Gorgon Gekko will have to liquidate his Realestate Speculation portfolio. Yes--those parasites with We buy Your Home within 24 hours will be crying in their whatever. Yes--those non citizens who want buy a vacant house in our country will be crying.
It might make buying a home for Joe Six Pack something he might be able to work towards?
That is shockingly high, but definitely not close to the 1 million figure.
Mortgage rates are incredibly low and there are a number of options to reduce down payment requirements right now. Meanwhile, wages are up and better paying jobs are more common for young people. $400K isn’t out of reach at all for a lot of first-time home buyers in this economy.
Sure, I suppose someone earning a normal wage could scrounge together 20k in, let's say, 5-10 years, but then they would use *ALL* of their savings and have no emergency fund anymore, to use that 20k. Further, then you look at all the costs you get hit by when buying a house such as closing, etc, and that 20k turns out to be 28k, so they'll need to save for even more years.
And now the house isn't 400k, it's 450 or 500, so instead of 20k, they instead need 25k, and with closing costs, now it's 35k because those went up proportionally, as well.
5% is certainly better than 20%, but when you don't have the money, even 1% deposit is too much.
Source; I've refinanced three times based on rates going down. I dropped 10 years and 200/mo. off of my mortgage for the low, low price of $750 worth of appraisals.
Roughly the same here, and I had a very low mortgage from a small line of credit.
Between sticker price on a house and interest rates, prices tend to equalize-- people can always only afford $X/month, regardless of the proportion going to interest. This means that, all else being equal. the most fortunate time to buy is when slightly higher % rates have kept sticker prices down a bit. That way when rates inevitably go down at some point in the future you can refi at a lower rate, getting the benefit of having purchased a lower price and then dropping down to a lower interest rate as well. Certainly not something you can choose to do, given that trends often measure by a decade or two, so this is just an observation, not advice to wait for higher interest rates to suppress sticker prices.
I realize how fortunate we are. Timing is literally everything.
When we shopped to refinance, there were no adjustable rate mortgages to be found, only fixed rate.
Anyway, what we saw was that, depending on who you finance through, you can get a term anywhere from 5-50 years.
I live in the higher end of that range even though I'm in a modest home in a lower-middle class town, in an area where the median household income is about $50k. before taxes.
$400k on a house is simply impossible for many millennials, especially those born towards the end of the millennial generation that haven't had more time to establish themselves and work up the salary scale a bit.
A $400k home would be quite affordable if each of them were earning an average of $24/hr or more, which isn't too crazy.
$1500/month property taxes would be $18,000 per year. On a $400K home that would be 4.5%, which is significantly more than you'd find anywhere in the United States. The average property tax rate in the US is around 1.1%.
Moreover, most locations have an exclusion for the first $XXX,000 of home value. For example, a city might tax the first $100,000 of home value at 0% and then only apply the 1.1% rate (using the average here) to the remaining $300K.
Assuming a $100K home value exclusion and a 1.1% rate (average national rate), that comes to $275/month, which is about half of the lower end of the range you quoted and nowhere near the $1500/month upper end of your range.
Also, $400/month HOA fees would be several times higher than the average. HOAs aren't actually as common as the internet suggests, but when you get into an HOA in a neighborhood with $400K houses, you're probably going to be paying more like $100-150/month, not $400/month.
> $400k on a house is simply impossible for many millennials
Sure, but so is $2K/month rent. I never suggested that every millennial can afford a $400K house, but rather that it's not an impossible reach for many millennials.
This is especially true for married millennials who haven't had children yet. I think too many people focus on the idea of the single millennial purchasing a home on a single income and living there alone, but in practice it's usually people getting married and settling down somewhere together on two incomes.
There’s really no evidence that this is the cause of any of the housing bubble. Sure, it makes a good twitter thread, but institutional investors make up a tiny percentage (1%ish) of single family rentals…
[1] https://www.vox.com/22524829/wall-street-housing-market-blac...
You won't hear this at the cabinet level, because those are all political appointees, but when you get down to the career people, they have grave concern over institutional buyers.
This is what happens when real wages stagnate for 20 years but the economy keeps growing and consolidating. Eventually it catches up to you and you end up with a decade of stagflation while the imbalance corrects itself and a competitive market is re-established. Unchecked free-market capitalism has its drawbacks in the long term; we fucked around and we’re about to find out.
Or another way...a rise in house prices means a rise in rents which means rise in renter wages which means rise in prices. Over the course of some time, naturally.
A rise in the specific asset class of housing lowers the dollars ability to purchase housing, I'll give you that. But asset prices hiking in general are not inflationary. It could be because people are chasing yields (probably inflationary) or it could be that there is new information/discoveries making it so that the expected productivity of these assets is going to be much greater, which is not inflationary.
Invitation Homes was created after the last crash and currently owns ~80k [1] homes, so an additional 7k would represent ~10% more, and if the discount is right from Zillow they will do it. I'm speculating but I bet that's why Zillow is trying to do this in a bigger deal, they don't want to crash the housing market by actually selling these houses to individuals.
[1] - https://en.wikipedia.org/wiki/Invitation_Homes
I am disappointed that they’re looking to offload them to institutional investors rather than individuals. Housing should probably not be an investment vehicle, but here we are.
And once homeownership became the norm, those same people started massive downzoning projects to prevent new homes from being built. And shortly after that, funding for public housing was gutted.
Which leaves us with the massive shortage we have now. We have plenty of money that is allowed to chase a smaller supply, as long as you can leverage your existing housing asset for a larger down payment. But all those people who didn't buy in the 1980s or earlier are at a massive disadvantage.
Larger cities, especially those in warmer regions, is a very good bet.
If you want to invest, put your money in places like Pittsburgh and Buffalo. Some values along the coast in Baltimore and Philly too. Plenty of cheap real estate out and I suspect we’ll see a revitalization of the rust belt as climate change makes other areas untenable.
Is USA running out of land, or Timber, or unemployed people that could be employed to build a house?
We need to get institutional 'investment' out if house flipping and fix zoning.
https://youtu.be/CCOdQsZa15o
Fortunately, this is an infinite resource, and we could flip simple governmental switches to allow more housing, which generates more property tax to grow the infrastructure.
However, existing homeowners are a political bloc that mightily resists flipping that switch, both because they don't like to see change, and also because they benefit financially from a housing shortage.
The institutions investors name these exact dynamics in their SEC filings: they know it's a good investment because local politicians listen to homeowners, and the homeowners will guarantee the shortage.
So in all honesty, I welcome institutional investors, and lots of them, because one their are more renters, the politics can be flipped. The renters, if they show up as a voting bloc, can finally open up the zoning to allow more housing.
Resident homeowners and institutional investors are no different here, they are both greedy investors, except the homeowners are even more greedy (they don't want new people in their city), and rhe homeowners have far more political control.
The history of redlining is incredibly recent (it was in full force well into the 1990s), so it’s not something we can pretend is a historical artifact. Highly recommend The Color of Law for more on this subject, it really opened my eyes on how laws used to encourage homeownership were also used to marginalize black people.
https://www.statista.com/statistics/184902/homeownership-rat...
Housing will always be expensive in one way or the other, but you can make it cheaper and more plentiful. And that should be the goal.
When housing becomes an investment, the goal is to get that sweet ROI which generally means working to restrict the supply of housing to make prices rise. Lobbying is a high-ROI activity.
And housing doesn’t need to be expensive. Japan is a good example. It’s only expensive because we instituted policies that make it an effective investment vehicle when it’s a necessity in life. Many cities outside the US have policies in place making property taxes very expensive for an investor who doesn’t live in the house. In particular many countries prohibit foreign investors from purchasing real estate without a local intermediary who is legally responsible for any shenanigans.
The free market works well for many things, but there are areas where the motive to create artificial scarcity create some dystopian outcomes (see also healthcare). We have to ask ourselves as a society if our belief in the free market is strong enough to accept the societal issues (crime, mental health, etc) that have been proven to come along with unstable housing.
There are many ways to lobby that increase both the value of real estate and make the system better. For example, you could lobby for a visa for immigrant construction workers, which will reduce the cost to build.
> And housing doesn’t need to be expensive.
Definitions matter, but that's my original point. Construction companies in JApan also have a sweet ROI or they wouldn't build at all, you can achieve multiple goals. The current market structure is in good part a result of regulatory capture, but housing will remain profitable in multiple other structures. If it stopped being profitable, it would be impossible to build, and you wouldnt be able to improve or create new supply which is definitely the worst result long term.
> dystopian outcomes (see also healthcare
Healthcare is the **show it is precisely because it is NOT a free market by any practical or theoretical definition.
I want to mention one more thing about the narrative that Nimbyism is an investment topic. It really isn't: it is in the landlords interest to get more construction going, because more people increase the value of land, it doesn't decrease it. That is why land in a city is worth more than in a rural town. A SFH owner turned into the low owner of an 8 appt complex is way richer, as in 10X. At the tokyo example, it is close to 10k per square meter of land! https://www.statista.com/statistics/875736/japan-average-lan...
100% agree with you. Which is why we should nationalize it to drive down the cost since there is currently no downward pressure on pricing. It’s not some “radical experiment” — in all honesty our current system is the experiment and it’s going poorly. Nationalized healthcare works, and from what I’ve seen, is usually of higher quality and service than we have here in the US. Turns out you can adequately staff your hospitals when you’re not trying to turn a profit.
And on the subject of nimbyism, you may be right about commercial landlords, but homeowners are very concerned with quality of life — which also raises home values (maybe not as much as increased density would, but enough that most nimbys see it as a worthwhile trade off). Things like schools not being overcrowded, available street parking, well-maintained parks, etc.
Strongly disagree. The state is already in the market with Medicare and it is not significantly cheaper. It has shown that as a player it doesn't not know how to deliver care cost-effectively.
The reasons why health is expensive is reg capture on many layers: too few doctors because of licensing and immigration restrictions, pharma restrictions on importation, tax incentives to bundle insurance with employer, the high cost of medical malpractice lawsuits and insurance, hospital incumbent regulation like fed funding or CONS, etc.
None of those things are solved with a government program that maintains those restrictions. The only thing necessary is to literally do less. Cap malpractice, remove immigration and licensing restrictions for physicians, remove FDA limitations on imports, remove federal funding from colleges and hospitals, etc. That will drive price enormously in a short span of 5 years, while also reducing the amount of admin and funding cost in government.
At the current market structure the only way I see a revolution in healthcare is with the Uberification of health: something that really spits in the eye of all regulation and gets things done anyway at cheap rates. Think telemedicine from 3rd world countries, generic drug imports through retail contraband, etc.
I worked in the industry, i'm 100% sure that dereg is the way to go.
> but homeowners are very concerned with quality of life —
That's my original point. When an argument is made that nimby are doing this for money, I think its off-target.
It wasn't long ago that we were reading how Zillow et al were going to buy up all the housing stock and keep millenials and Zoomers homeless forever.
The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this.
History is littered with the corpses of those who tried and failed to corner a market. Real estate is no different. That's not to say we can't make the system better. We can and we need to. But serfdom isn't imminent either.
Zillow shouldn't be taking real estate positions as it's going to end badly and will likely hurt their core business (ie transactions). I'd love to know who signed off on this idea. They need to be fired.
I'm not sure how this helps the youth or those otherwise disillusioned with the current housing market as that housing is still unavailable to them.
> The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this.
I once heard someone who ran an investment floor say, paraphrased: During a bull market, I want my floor staffed with people too young to have lived the last bull market.
They didn't want the risk aversion - drilled into people by the last bust cycle - on their trading floor.
The cycle will repeat itself, folks will go from being unbelievably wealthy to bankrupt overnight (overnight as a figure of speech speaking, the crash will come but might drag out). Folks who bet it all will have their lives ruined. We will have another generation of market participants who are risk averse from hard earned lessons.
The flip side of this is that _everything will go on sale_ for those who had stable investments and those who are income rich.
If everything doesn't go on sale soon (soon might mean many years) it'll be the first time in history we broke out of the boom/bust cycle.
For me, personally, I track my net worth and check in monthly. For the past year I've excluded my home's valuation from my net worth, it's monopoly money; by the time I'm willing to liquidate my house we will be on the other side of a bust cycle. I'm mentally prepared for my home to lose 50% of its value "overnight."
It is both a demand and supply problem, but short of creating a Hukou system I don't see any solution but building.
The massive buy-ups in West & Central FL have led to an unprecedented shortage in housing. Rentals get 400 applicants each day and people with money in the bank are facing homelessness. People without have little hope.
But I doubt this is an under building problem at all. Look at Seattle and the area, and there isn’t a shortage of new housing projects at all. They are mostly all luxury, which is the only way builders can make a profit on high land prices, and they sell very quickly regardless.
The U.S. built on average 276,000 fewer homes per year between 2001 and 2020 compared to the period between 1968 and 2000, according to the report which was covered earlier by the Wall Street Journal.
Had building continued at the same pace, there would be 5.5 million more units of housing, the report estimated.
To make up the shortage, the NAR report says the U.S. would have to build 2.1 million homes each year for a decade—more than it built each year during the housing boom of the mid-2000s.
Well, it isn’t weird that land runs out for new subdivisions. What is left is to build more dense (replace single family housing with apartments or town homes). Still, why is it zoning per se that is the problem rather than just the market? They have the same pricing problems elsewhere in countries with building booms (eg China).
dense housing is frequently not permitted by zoning. sometimes housing itself isn't permitted.
> What is left is to build more dense (replace single family housing with apartments or town homes).
yeah, that's exactly the thing that's banned in very many places where it would be most useful.
But where they are permitted, housing prices are still high. Higher even, like NYC and much of New Jersey near NYC. Is there a good example where increased density has led to lower prices, not higher ones?
Second, the economics of building dictate that skyscraper-level density will only happen in places where housing is relatively expensive. But there are plenty of examples of density leading to lower prices, in the suburbs.
Do you have specific examples? The only places I can think of are economically depressed (e.g. in the midwest, or in Florida swampland) and aren't particularly dense.
Maybe Houston? Houston is famous for having almost no zoning, but even Houston seems to be heating up these days.
Would it be interesting to point out that the US population growth also was much higher in the 1968-2000 period compared to 2001-2020 period on an annual basis?
https://www.cato.org/sites/cato.org/files/pubs/pdf/pa-823.pd...
I found the section "New Evidence on the Effects of Land-Use Regulation" to be quite interesting in past reads (and discussions) and probably relevant.
Seattle is a weird example for me (anecdotally). When I lived there in 2017-18 I found the rental market to be great. The city had incentivized building rental units and as a result there were great deals to be had. I was able to negotiate a 15% discount and dictate the length of my lease on Capitol Hill. I don't know what it looks like now, but it was great at the time.
1. https://fred.stlouisfed.org/series/WSCNDW01JPA489S
2. https://fred.stlouisfed.org/series/WSCNDW01USA470S
> When I lived there in 2017-18 I found the rental market to be great.
The market was weaker in 2017 because of all the new rental capacity that came online. That capacity has long been filled and rents are skyrocketing ATM.
https://www.aeaweb.org/articles?id=10.1257/mac.20170388
>>We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by 36 percent from 1964 to 2009.
If you look at California exodus data, its mainly people making less than 100K, population is increasing for people making more than 100K.
Despite this, property prices are still increasing elsewhere. This is a worst of all worlds scenario.
I’ve got friends in Kansas City whose 100k house is now worth 300k. Friends in Omaha buying new construction for 400k. Housing shortages in Grand Rapids, Michigan where I am from. If you’re immune to all of this, you must be in either a very magical, or very undesirable place. It must not be California, that’s for sure.
Fixed the language for you.
As a "youth", I don't have any insight into this as I'm a renter for the foreseeable future, but my parents' and their friends complain about how difficult it is to get anybody to do any sort of construction / home upgrades, e.g. my parents putting in a heat pump.
Given how much the "you're a loser if you don't go to college" narrative has propelled people who may have been happy and skilled at carpentry, plumbing, electrical work, etc, into soulless corporate jobs, this seems like something that the US could take a page out of Germany or Switzerland's book, i.e. much more emphasis on non-uni career tracks starting in high school.
Yes - https://www.npr.org/2021/07/30/1022642064/planet-money-why-a...
In summary, the US has been underbuilding ever since the housing crisis, and this makes people avoid construction trades. Fixing it will take years.
Housing can't be both Affordable and a good Investment. Therefore the only proper value for a home is the price that it costs to build it. The way to do that is a 100% Land Value Tax.
People would still bid for the home. You might get one offer for $190k, another offer for $200k. But if enough homes got bid up in the area, taxes would rise and those high bidders would probably lose a small amount.
[0]: https://news.ycombinator.com/item?id=28525712
[1]: https://astralcodexten.substack.com/p/your-book-review-progr...
IMO, CA prop 13 is just as guilty as restrictive zoning. We'll never get to see the other side of the experiment, the people of CA would never vote to remove it. Prop 13 interrupts the natural cycle of housing.
The last part about Prop 13 seems like a bit of a cheap shot. CA is anything but a natural market.
CA government set that poison pill to ensure it must listen to its constituents and remain as "natural" as possible. Now we find they can't enact meaningful reform around zoning, building requirements, parking, or making the city more welcoming to trades, etc.
Why should old taxpayers carry the water for ineffectual govt ?
CA: "We refuse to make the changes needed to let more people in at a reasonable cost. We will instead take more money from one group, so that they leave and we can fleecce someone else ! "
Lot of people saying buying houses is hard, unrealistic, or impractical want to buy mansions with a 10 second commute to their workplace in silicon valley but the reality is most people are not living like that.
Wage workers are still buying houses no problem in what are considered "low income" areas as they have been and interest rates are better than ever.
It'd be nice to be able to afford a house where I grew up without having to tie a ridiculous amount of my net worth up in this one very pricey illiquid asset, even if I could get the mortgage.
But that’s not the case. It was straight white families who got cheap housing while at the same time holding minorities back.
You'd need at least one of these factors to be reversed, or demand for standalone housing to go down for cultural or economic reasons, before you see long term downward trends.
In general though I agree with the poster above that the affordability "crisis" is really an expectations crisis. Everyone wants to live in a nice neighborhood with great schools that is close to the top employers, but there's simply not enough space, so this results in high competition and therefore prices. For some reason nobody wants to move to the rust belt where houses are nice and cheap. People don't want houses, they want the BEST houses.
Sorry, my criteria for discussing economics is that someone knows what the term "real" means in that context.
Most local community colleges offer economic courses for not too much.
> For some reason nobody wants to move to the rust belt where houses are nice and cheap. People don't want houses, they want the BEST houses.
I would just like to live in the same neighborhood that I grew up in.
This pricing out hasn't always been the case and it's not like these "best" houses became considerably better - it's been the last 10-15 years.
Houses have labour and material components. The materials have a labour component too. It's now more expensive to build a house (per square foot) than it was 30 years ago because of wage inflation.
This is one reason why real estate is viewed as a good hedge against inflation.
The monthly cost to own a home is the same as it ever was, inflation adjusted. It's interest rates that have changed.
Three years ago, I could've bought a house at 60% of current market rate now in my town of 700K. I wasn't in a position to buy that house (under median) then, and I don't want to buy it now given market conditions. The other issue is that the median housing price in my city is now above the FHA limit for this area... so no 10% down mortgages. Again, that wasn't the case 3 years ago.
I also need to replace my lease vehicle next year, so there are two challenging life purchase decisions pending at the moment, and market/global conditions are putting pressure on both.
There are currently 71 homes for sale in Nashville, TN at or under $175K.
[1]https://tinyurl.com/t27bjyej
Zillow has been buying in my neighborhood, and they overpaid... plain and simple. The offers my neighbors received were too good to be true. I mean, $50k to $150k over the z-estimate. Everyone in Tucson is laughing at Zillow all the way to the bank. Prices are going to crash here and its going to be brutal.
I do WFH -- someday, I may head away from my current place, but I'm not that flexible yet.
Be very careful over-extrapolating based on known variables. That's my point.
For decades we've have the concentration of populations in a few urban centers because of employment opportunities and other factors. Two years ago, you wouldn't have even thought about that trend ending anytime soon.
Yet here we are with what seems to be the beginning of a structural change to the employment market to remote work for a significant number of potential jobs. We're not there yet of course. But this seems to have already been a boon to medium-sized regional cities (eg Boise).
This was all possible two years ago but it didn't happen. Covid was a big catalyst. No one predicted that.
Likewise, you see young people rejecting the 30 year mortgage, have kids then retire model that was the norm for Baby Boomers. Living remote, tiny homes, van life, etc.
I fully support residential real estate not being used for money laundering, hiding assets from governments and an exchange-traded asset class, to be clear. The focus there should be on the governments who create the rules that allow this to happen and not the players however.
I don't read it that way. My guess is that they 1) didn't believe that prices would level off a bit, as they have in the last couple of months 2) didn't factor in significant delays & increased costs for even minor refurbs and 3) as a result realized that any profits would be eaten by carrying costs (property taxes, maintenance, opportunity cost of having capital stagnate).
It appears they made some errors in their calculations and temporarily bought too many houses at too high a price but the article says they are only pausing purchasing for the rest of the year and there's no mention of if they are revising their plan to purchase up to 5,000 homes a month by 2024.
So, looks like without evidence of a market wide cessation or significant long term reduction, significant institutional real estate actors remain a factor in the market.
1 - https://archive.md/tNaDt
It was never apparent in the homeownership rate (https://fred.stlouisfed.org/series/RHORUSQ156N) which has been broadly stable for decades, and the jumps over the last few years are, if anything, towards increased homeownership, not less.
They need to at least have a home inspection and a report for tenants. Would have saved us from permanent injuries.
My impression here is that Zillow has re-evaluated some part of that calculus and decided to pull back. I hope that they'll be able to retool and revisit the approach after learning expensive lessons, as it is my impression that there should be real value here for all concerned.
If they actually thought that they must have been high af
Their tool is absolutely terrible
Traffic-data alone, segmenting the buyers clicking on each listing and their expressions of intent, would give them an incredibly-actionable trading/training signal.
Zillow might see, nationally, the nationwide (and regional) direction of buyer and seller sentiment 2-4 weeks ahead of all but the largest regional brokerages.
You don't need to be a good stock picker if you know that someone sent a buy out, and you can get there first, buy it and then sell it to them.
You don't need to find good domain names, just wait for someone to search if one is available and then buy it.
Or when you Google for Verizon and the first thing you see is an ad for verizon.com. Most people will click the ad instead of the first listing.
Everything is a balance and the only way to make money long term is to be undeniably useful to a majority of people.
Anything below that bar will die down in shame, infamy or violence.
I suppose it could mean voting in people to write a law that makes it exceedingly unattractive for institutional investors to buy single family homes. You could probably even do such a thing "neutrally" since people really only need one home and if you own more than two you're almost certainly investing in some way. Apply some onerous tax on each unit owned above 100, and all these investors will flee the market.
Edit: IIRC, the companies that buy up all these single family homes are large corporations. I'm pretty sure you could write a law like I described that they wouldn't try to use some cheeky corporate shell game to try to bypass (e.g. in their tax filings require them to declare how many single family homes they're the beneficiary owner of, regardless of any intermediary shell companies/special purpose entities, and tax them for that). Require the auditors to sign off of on the number. If they lie, everyone's subject to even more onerous civil and criminal penalties (e.g. blow them up like Enron). Large corporations will stretch the law as far as they can, but it's rare for them to deliberately venture into fraud and other kinds of illegality (for the pedants out there, note I said rare not never). The systemic issues can be solved if they're made to comply, even if some relatively small fish still don't
Yeah, we do. Massive housing speculation in the mid-2000s.
> The fact that Zillow failed on their initial attempt does not imply that this can't work
I'm reminded of Gamestop here. Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold. What this ignored is that someone would be left holding the bag and the long interest holders knew it so it was a question of not being left holding the bag.
This is classic Prisoner's Dilemma, basic human nature (ie to act in self interest) and exactly why markets work long term.
The boom and bust cycle reflects basic human psychology of fear and greed.
Asset bubbles aren't new. Attempting to corner or even just manipulating markets isn't new. Ultimately these things always revert to mean. Sometimes you can predict the reason. Often you can't.
I personally favour fairly radical and progressive real estate reform. This includes (much) higher property taxes for non-resident owners, treating owners as tax residents and thus taxing their income, ending special treatment for real estate assets in asset reporting and withholding taxes at source on real estate income.
Cities should be for those that live in them, first and foremost. Having landlords is fine as long as those landlords themselves are residents of the same city. Residential property shouldn't be for investment funds or oligarchs hiding money from governments.
Concentrating on the likes of Zillow however is largely unnecessary and a diversion. The focus should be on the game not the players.
But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.
Also, maybe I’m dense but I’m not able to see any relevancy to GME at all.
I've definitely not studied the market extensively, but it seems rather intuitive to me that if you artificially give everyone access to the best loans in any market, you'll see prices continue to inflate until everyone in the housing market is educated and capable on benefiting from the subsidized loans.
It's another thing we are seeing "optimized" right in front of us. Meanwhile, housing, education, and healthcare get more expensive for actual humans.
Also for the house seller (prior to the company), who is getting paid a more accurate, higher price.
And a price is accurate all the same for buyer and seller, since there exists a range with the minimum price the seller wants to receive and a maximum price the buyer wants to pay. The smaller this range, the more accurate the price.
With more data and more accurate projections, it may be possible for current owners to capture more of the gain that may have happened down the road.
$2.6 billion is chump change to a medium-sized city with a few hundred thousand residents, much less the US at large
We just need to remove zoning restrictions so that market forces can bring houses back down to being an affordable, depreciating asset.
https://www.worksinprogress.co/issue/the-housing-theory-of-e...
For the entire US yes. For new york city, that's just under ~3% of total sales. Given how fundamentally illiquid residential housing market is, thats more than enough to push prices up/down as the player sees fit.
If they are pouring their own capital into purchases, why would there be any debt? Are the entities (companies) in scenario B actually borrowing money?
Irrespective of that, I agree that even if Zillow fails here, it doesn't bode well for the future of the RE market.
Possibly. Real estate is different than most other markets for a few reasons. Favorable tax treatment, sheer market size, high barriers to entry, and being at the bottom of the hierarchy of needs.
I'm worried if this isn't the inevitable path of concentrated wealth accumulation. Stocks have grown too over-valued? Move to housing, a gigantic market that people require to survive.
This is kinda what happened in the 00's housing bubble. Tech crashed and people looked at housing as the next big investment. It feels like we just have groups of people going from bubble to bubble.
This is presumably a number of well-financed institutions buying up property to hold or rent.
Now, perhaps you're correct that it isn't as bad as it seemed, since Zillow is selling the homes rather than getting into the rental business, but even the header of the article says they are seeking "institutional investors".
I also agree that cities should be for those who live in them, and that land is a different type of asset from most others (again, like another responder mentioned).
The more I type the more I think we're on the same page, but you seem to think everyone is focused "just on Zillow" while I am thinking more about the long-term opportunities for trillion-dollar megafunds to gain a monopoly on living space and destroying the ability of families to own property in America's cities.
Just like the last bubble.
What's being suggested is that the influx of large scale corporate purchasing in the residential real estate market is different, and that because of the old rules, this could be a problem.
also GME is over $200 currently, when it was $10 a year ago
And they got there by running a sustainable and profitable business? No, they got there because Reddit decided to play their own little game of pump&dump.
Which is yet another blatant example of how decoupled the stock market is from the actual real world economy.
Actually the game was buy and hold ( diamond hands ), and only because they saw an enormous amount of shorts outstanding, so much so that a squeeze was all but guaranteed.
Everyone who got into $GME after the first spike knows that the value will tank some time, they are in it simply for the lulz - to this day, short sellers are accumulating losses, and given how long the price has stood up way over anything supported by fundamentals there must have been dozens of billions of dollars in value lost for them.
Obviously some are in $GME in the vain-ish hope of a second short squeeze event... but that's just gambling.
I suspect this would simply lead to property owners having a nominal “registered agent” in the city as the “owner” but all control and profit flows to the real owners.
Moreover, think about blighted cities. If a company is willing to come in to such a city and build some really nice affordable apartments that would improve the city for everyone, it seems like an undue burden to force them to live in that city as well. Your proposal could lead to shitty places to live staying shitty for a long time.
Yeah, until they don't...
Zillow is far from they only one. PE emerged as one of the largest buyers of foreclosed houses and distressed sales.
False equivalence. The real estate business which Zillow failed is massively capital intensive, whereas figuring out a quant strategy is not necessarily so. In other words, it is very possible to go out of business before a business model is worked out (assuming there is an undiscovered, workable business model).
Investors will not endlessly fund money losers, and Zillow is a huge money loser from both a income and cash flow perspective–a trend that predated their entry into the iBuyer space. Now you might say, the investor appetite for money losing Zillow is bottomless, just look at asset class X, which is totally unproven and yet has insane valuations. To which I would reply, "That is true until it isn't." One common characteristic of all financial bubbles is that its participants claim "this time is different."
Supposing iBuyers do become a significant force in the SFH market, so what? Large companies already participate directly in housing in a massive way. Who do you think built all of these apartments? Also, don't YIMBY's want to eliminate SFH anyway?
No, only the zoning designation, meaning that if you want, you can build a SFH. Or a 4-plex. Or maybe a corner store.
Not to say that it's necessarily a model to follow: there's a lot of sprawl involved. Just saying that "abundant housing has some real benefits".
Compared to NYC and SF? Sure. Compared to everywhere else, no:
https://kinder.rice.edu/urbanedge/2020/06/23/rents-and-home-...
https://www.houstonchronicle.com/news/houston-texas/houston/...
But then that's just saying you'll find more affordable housing in cities that people don't want to live in, which would then go along with your point.
> Not to say that it's necessarily a model to follow: there's a lot of sprawl involved. Just saying that "abundant housing has some real benefits".
I've heard it isn't a nice place, but I've never been before so can't judge.
Median prices are still pretty low there, though: https://www.realtor.com/realestateandhomes-search/Houston_TX...
It does not strike me as a particularly attractive place to live - but I'm not a big city person, and prefer more mountains/nature. Its population has sure been growing, though, indicating that someone wants to live there.
That was my original point in another thread (under building during the great recession + an exodus of building talent).
> It does not strike me as a particularly attractive place to live - but I'm not a big city person, and prefer more mountains/nature. Its population has sure been growing, though, indicating that someone wants to live there.
Houston is growing at half the rate of Seattle, at least in the last 10 years (10% vs. 20% growth). Those cities growing the fastest seem to have the most pressure put on their housing markets, which makes sense.
This example works against you. Quant firms did succeed but they did not corner the stock market nor are they cause for concern. There is a long history of firms that failed to corner a market or become a monopoly. True natural monopolies are extremely rare and don't typically last very long.
Unfortunately we do have precedent. Through all of history almost no one owed their own home. It was by extraordinary government intervention in the 20th century through loan programs, incentives and building, and impediments to speculation, that made it uniquely happen in our era.
As the government steps back from continuous intervention favoring individual home ownership and low to nonprofit housing, the more profitable rental economy will re assert itself: it is always more profitable to own a property to rent out then to live in it and the market will reflect that if left to itself.
Price fluctuations (eg 2008) do not change the fact that land price increases have far outpaced wages for decades. So yes, it is rational to be very concerned.
And note that Zillow is not selling these 7k properties to would be homeowners but to investors.
And we made fun of Soviet Russia, where people would live with roommates and family because their government was so dysfunctional that it couldn't even arrange shelter for its citizens, a basic necessity for life.
Not everyone can afford a Bentley or a condo in Manhattan. That is not some terrible injustice that needs to be fixed. Living within your means and buying a place where you can afford to live is also an alternate approach. Or you can moan about capitalism and how unfair life is.
We wouldn't tolerate the price of food going up by the same percentage.
If food costs went up substantially, but you could eat the food and then resell it for more than you paid for it (and sometimes a lot more than just inflation-linked increases), I suspect we'd tolerate that too.
It's also concerning that housing is a government-supported investment, it's an unproductive asset. That's not how you encourage progress and development. Even if you just have a field you can grow crops but no such luck with housing.
(Maybe there's change on the horizon, a collegue who lives somewhere in the Rust Belt complained that her 25-year old daughter can't move out. She has a regular job, but the rents have become so high that she cannot afford an apartment on her salary. So there's hope that civil unrest will be averted.)
This is the result of supply and demand. How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans. That increases demand.
And housing is also larger than 20 years ago.
> We wouldn't tolerate the price of food going up by the same percentage.
This is just silly. It is not something you "tolerate" it's something you cause.
Food prices also rise when demand increases.
The public has 100% control over demand as they are the ones bidding up the house prices! Now they do not have 100% control over supply. But house prices have not risen because of a decline in supply.
Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price.
And housing is also larger than 20 years ago.
That's a problem right there. Everyone needs a roof over the head. Some people would like a palace. There is not enough entry-level housing being built to keep up with demand, meanwhile the existing stock has reached the end of its serviceable life. There's a good chunk of 70's construction which has deteriorated to a point that it needs rebuilding. The shortage at the low end causes high rents for those who can least afford it.
Food prices also rise when demand increases.
Food prices mostly rise in response to missing supply, either because the harvest fails and the government can't secure imports or because of political upheavals. Either way, it's a political problem, food riots are what starts revolutions. and food price instability is a hallmark of banana republics.
Right, when there is a disruption. Say there is an increase in jobs in city A and wages rise by 10%. Say there is a decrease in jobs in city B and wages decrease by 10%.
Now what must happen is some kind of population transfer from B to A. We also know that rents will rise in A and fall in B.
But how does this happen? Via evictions in B as people can no longer afford the existing rents and move out. That adds to the rental supply in B as landlords struggle to find tenants, which causes rents to fall. Similarly in A, there is a bidding war for apartments and rents rise. This is how the market adjusts to the new reality of jobs and wages in both cities.
Now covid had lots of these disruptions. Entire job markets were shutdown, others thrived.
So what happens when the government puts a freeze on evictions in both A and B. Then everything is frozen except for the handful of new construction in A and B, so you get massive price spikes and rent too high in city A as well as rents being too high by not adjusting downward in city B.
The effect of this is that prices are always much higher than the market clearing price, which is what this paper demonstrates.
This is also what happens when you try to make economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off" -- often the exact opposite of what you want ends up happening, as housing becomes too expensive for everyone. What has to happen is that people must live in the housing they can afford. Attempting to live in housing that they can't afford always causes excessively high prices for the majority.
We pay people unemployment compensation because the knock-on effects from someone taking the next-best job are serious, and it's immensely difficult to recover from an eviction. There's volumes of research on that. The "sentimentality" has vast economic benefits.
We have unemployment insurance not because of sentimentality, but because insurance is economically useful. A person cannot insure themselves from loss of wage income, so paying some overhead to have the government do it makes sense.
Freezing evictions does not make sense. We do not freeze layoffs, for example, in our unemployment insurance program. We let employers make the layoffs they need and then have an insurance pool that the laid off can draw from.
A proposal to have rental insurance that you contribute to and can then draw from for temporary eviction assitance might be a good idea -- it depends very much on how it's implemented.
One of these has economic benefits but the other does not. Both are sentimental in nature, but that is not a sufficient condition to adopt a policy -- actual economic outcomes has to be the deciding factor.
We haven't seen this phenomena since the 70s when inflation was running hot and the Fed did nothing for many years. Back then, prices continued to rise nominally for many years.
I suspect the Fed will tighten somewhat (taper should be announced tomorrow), but they keep stating that inflation is transitory.
So clearly their intention is to kick the can as far down the road as possible. If inflation does start to inflect downward, they have the perfect excuse to do nothing until it levels off at an elevated level many months later. Rents alone will drive elevated inflation for years to come. However, used car prices will certainly tank at some point which will mask the effect.
By moving so slowly, they seem to be facilitating the development of a new epic bubble, except it's a bubble in most asset classes. Stocks generally aren't too over valued, but hypergrowth is for sure. E.g. NET at 100x sales.
Compare to Cisco in the dotcom bubble, which peaked at something like 200 PE and much smaller sales multiple. The PEs back then are now the PSs. Kind of insane, even accounting for the greater legitimacy of the businesses today.
In the past the Fed used to preempt excesses and inflation. Anytime they haven't, has been a disaster in the long run, historically.
Unfortunately I think a lot of their action is motivated by Powell trying to retain his seat. They really need to either renominate him or put somebody else up for vote so he stops optimizing for the job. His term ends in Feb 22.
I hope so, but keep in mind, the Fed has lacked the will to tighten even in the most favorable conditions -- strong market, no covid -- merely because banks screamed bloody murder about having to pay slivers of a basis point more on overnight loans or (heaven forbid) stay more liquid so they don't need to get as many loans.
HN stories about "liquidity injections":
https://news.ycombinator.com/item?id=22559175
https://news.ycombinator.com/item?id=21731848
https://news.ycombinator.com/item?id=21477855
But the unfortunate aspect of the current fed is that they care way too much about the markets. And they are very short term oriented. They're pulling the good times of the future into the now, at potentially major costs later.
I think Powell is just too focused on being liked and retaining his job, at the root of it. That's the only explanation that makes all the pieces fit.
So the FED can do all it wants, but ultimately it's the other actors (banks, financial institutions and government in the form of transfers) that will ultimately decide the fate of inflation going forward - right now it's looking like disinflation/deflation after all of the stimulus and supply shortages work their way through the system (can be seen from the long end of the yield curve).
The FED's actions can and will affect the markets however - but that effect is mainly psychological.
https://alhambrapartners.com/2021/10/29/inflation-history-ev...
True for everywhere I've ever worked.
Imagine how much better everything would be if we prioritized this problem before all the tech orgasms.
History is also filled with the bloated corpses of those who did successfully corner a market. Or, in modern times, those who participated in a synergistic duopoly to skirt anti-trust laws.
Yes, indeed. What's more, those people have a large, receptive audience: An entire generation that has never gone through a "bust" cycle. We're talking about nearly everyone in their early 20's to their mid-30's who joined the workforce after the global financial crisis. They have zero personal experience as to what it's like to be an asset owner in a prolonged bust or bear market.
Many young people had no opportunity to pursue a real career after taking on four years of educational debt through no fault of their own. "Go to college and get a good job" was revealed to be a complete farce. A few years later as things picked up, there was a fresh crop of new grads behind them without any awkward employment gap or strange jobs to explain. Even those who managed to make their way into solid careers missed out on the stock market and housing asset boom of the last decade because they did not have the deposits and credit history needed to contemplate buying a home until fairly recently when prices went vertical.
I think you're making a significant error there: the narrative you're criticizing wasn't focused exclusively on Zillow, but rather "big investors" buying up single family homes and pushing actual single families out of that market. This news does nothing to repudiate that narrative, from the OP:
> The company is seeking roughly $2.8 billion for the houses, which are being pitched to institutional investors, according to people familiar with the matter. Zillow will likely sell the properties to a multitude of buyers rather than packaging them in a single transaction, said the people, who asked not to be named because the matter is private.
Human recency bias is very strong. Whatever trend has happened in the last 6-12 months is assumed to continue ad infinitum. And that’s true on both sides. When the market crashed everyone assumed it was forever.
Also good luck convincing the sociopaths of VC to get rich slow here: they want their capital back so they can throw it at more promising get-rich-quick schemes.
This deserves to be stated on its own.
You seem to be making quite declarative statements here that are false:
-Buying real estate does not always end badly
-Zillow's core business is not transactions
Zillow's issue was not that they attempted to buy houses, it was that they didn't operate with enough fiscal discipline in doing so. They got too far out over their skis, as the saying goes.
Given your suggestion that someone who signed off on the idea should be fired, is there any record of you stating publicly that the person should be fired for the idea when they first started this endeavor (or at least when you first heard of it)? If not, it seems like you are operating with the fallacy of hindsight bias.
Zillow is just a piece of the puzzle. I don't want to go down the 'collapse-porn' hole but with Zillow (and many others) doing this and pushing/pricing out family buyers + my city's new buildings being 99% rentals owned by financial corporations, I don't see a bright home ownership future. I'm driving around and all I see are 'vibrant' cities that look like https://archive.curbed.com/2018/12/4/18125536/real-estate-mo.... I find that super depressing. Whenever I see cranes going up I get excited there's going to be a new condo building. NOPE. It's yet another 6 story matchbox owned by some no name shell in Delaware which ends up in 2 years under Berkshire Hathaway.
Like, in my filter bubble, I never saw any of that hype/doom. I saw Zillow and a few others making home buying and selling attractive and more efficient because it made the assets much more liquid. One of the most unattractive things to me about real estate was how long it takes to convert it back to cash, compared to other kinds of assets.
The second is that Zillow's $2.8bn position isn't a problem even for Zillow or for the real estate market. There is simply not enough information to suggest its a bust or about the folly of trying to corner a market and there is more information to say that its just reached their corporate risk tolerance. For example, the article doesn't mention anything about the delta between buying price and price they are trying to sell at. Is it 2% off, 5%, 20%? And secondly does it matter? Zillow issued $4bn in corporate bonds at like 2% interest rate to do whatever they want. They've spent half of it on houses and still make revenue. That's nooooooothing like someone overleveraged on a mortgage 20:1. This isn't even 1:1 leverage, its way less. This is a complete nothingburger and that's before we even know the difference in value of their purchase price and new listing price.
$2.8bn or 7,000 homes, is barely a dent in this several dozen trillion market.
"The youth" is still not going to be able to afford anything, no matter if some institutional investors buy this bit, or if there was a fire sale.
Even though the first go at it may have failed due to whatever reason (stated or otherwise), whoever signed off on this should be promoted.
But selling for more than they paid isn't the idea. The goal is to capture the ~10% of purchase price that is paid out in fees for a real estate transaction.
For one thing, as discussed previously[1], Zillow earns commissions and fees when both buying and selling houses, so they may be making money even when the prices nominally show a loss.
For another, even if the majority of the houses were sold at a loss, that statistic by itself tells you nothing about Zillow's overall profit or loss. For example, they might have sold most of the houses for a very small loss, but earned large enough profits on the others to balance those losses out. There simply isn't enough information to say.
[1]: https://news.ycombinator.com/item?id=29060092
1. https://www.businessinsider.com/zillow-offers-ibuyer-sell-ph...
In a bull market, about 50% of homes sell above list price [1]... It can change quickly.
1. https://magazine.realtor/daily-news/2021/06/01/a-record-shar...
Boots on the ground here telling you the market in the Southwest is jacked up... again. I bought my house in 2009 as a foreclosure and I see the same signs I saw in 2007 all over again. I can't speak for the rest of the country, but Phoenix and Tucson are going to be real estate nightmares in 2022.
1. Invest heavily in real estate, prices keep going up, company gets rich, you get a huge bonus and buy a yacht bigger than Cleveland.
2. Invest heavily in real estate, prices drop, company stock plummets, you're still rich and still have your football-field-sized yacht.
3. Don't invest heavily in real estate, prices keep going up, company misses out, you're still rich and still have your football-field-sized yacht.
4. Don't invest heavily in real estate, prices drop, company doesn't get hurt, you're still rich and still have your football-field-sized yacht.
There's one clearly winning strategy.
A hard lesson for them that listing aggregation & analysis of the market is far different than direct investments & flipping. Flippers take a big risk and offset inevitable losses on some homes with the profits on others. And generally if they do well it has a lot to due with deeper knowledge of the subtleties in the local housing market & partnerships with realtors that have customers in the pipeline already. There's a lot more to it than what might appear on the outside to "tech disruptors", or anyone else who thinks it looks easy from the outside.
Sure, medium/large flippers may have investors putting up the money.
And I agree that Zillow is not likely backing out of the game all together. They just had an expensive lesson learning what they don't know about how to go about this. But their current strategy was also only viable during rapid price increases. A completely different one is needed in other market condition.
Making money flipping in a flat market is even harder: It takes more work to find depressed homes at below-market prices. There's no good algorithm that will do that without boots on the ground looking at the property in person, not to mention the surprises you get when you open up the walls or floors to start a refurb. That doesn't mean Zillow can't do it: what I'm saying is that it's very much not in the realm of their core competencies. Building out large scale logistics networks for this IRL is much different than their current line of business. I'm sure they'll try again, but I'm also almost as sure that they'll have a few more significant stumbles along the way.
I don't think it takes a rocket scientist to see the hockey stick graph on Zillow's price div to see this isn't a great time buy. It makes me giggle to think about what they were thinking. Some houses have tripled in "value" in a year. It's artificial and it will revert to the mean. Income in this city simply doesn't support the price level we are at for renting or buying. People are moving into apartments or out into the sticks to wait it out.
Home buyers have many choices and at a certain price, its simply too much and they go elsewhere.
I think zillow is trying to unload their mistake onto some entity they can convince it is still worth it.
This is what has driven up housing prices where I live. It's having a ripple effect as those with more flexible WFH schedules decide they can now afford to buy a home outside of the city, and those outside the city realize they can get a significant upgrade in home quality for no extra cost by moving still further away.
As people begin to make choices like this at a systemic level, I really think the WFH genie is well & truly out of the bottle for good: When people can get a significant boost in quality of life & w/l balance with nicer living quarters & more flexible schedule, we simply won't be willing to take a job that doesn't allow for this. Especially once we've made the move away from central business hubs already and would otherwise have to move back.
Because if they're just off a few percent, I don't know why Zillow wouldn't just hold on for a bit.
>36.5% were listed for less than the company first paid for them from the outset.
So these are ZillowBots numbers in Phoenix. They start off with a third going for less than they payed. The rest "hold on for a bit" and slowly the price keeps dropping
Eventually there are so many price drops where 93% of the homes are on the market (so, even now, not even sold) for less than what ZillowBot thought was a good idea
source: https://www.businessinsider.com/zillow-offers-ibuyer-sell-ph...
so 2/3 of these houses go with the "hold on for a bit" strategy then fail
I don't live there, but from the outside it seems like the Phoenix market is on a downwards trend, and they chose horrible timing, or really bad algorithm coding
On the other hand, this highlights just how insignificant their purchasing was. 7000 homes is nothing relative to the 1,200,000 homes they have listed for sale right now.
The world is awash with cheap money now, so simply having deep pockets is not going to get you what you want. You can't just buy people that have the skill to manage the people involved and the projects at a large scale.
The analogous restaurant situation is if you have a great chef that can run a location, why are they going to work for you? They will just open their own restaurant. Businesses where the only thing you can offer at scale is money don't work.
Except for banks and VC's I guess.
Early on in our home search we found a house that we loved, but was extremely overpriced—even in a hot market. The house was not owned by Zillow, but a similar company. When we asked for disclosures we did not receive them for almost a week.
My agent warned me that there were going to be things wrong with the house and that they probably would not be disclosed. I found a thread on reddit about making purchases from this company, and one user who was an agent said that they always asks for the previous seller's disclosures—that's how they know where to look with the inspectors. Apparently the company frequently hired handymen to do specialized work. They did the bare minimum to make sure the house passed inspection.
Anyways, we made what I thought was a reasonable offer, even though it was for about 10% less than the list price. It was rejected.
Three months later it sold for almost the same price as our offer. We probably dodged a bullet though.
I wonder if we're at a tipping point.
The end of this cycle is definitely going to scare a lot of companies and investors out of real estate for quite a long time. If you're looking to buy a house right now, make sure you're somewhere you want to live for a while. You're probably buying close to (if not at) the top.
In less than 3 years the rent in our working class city went up 45%.
Not to mention the absurd qualifications one needs to rent.
4 times the income to rent, very good credit and background checks.
This is not sustainable for working class people.
This was probably prompted by the Covid rent restrictions. Landlords (especially smaller ones) don't want to rent to someone who can avoid paying rent due to government decrees.
I sympathize with that but I want to make sure people understand the dynamics. Prices are driven by supply and demand. If there's only one empty apartment in the city and you're willing to pay $2000/month, I am gonna have to pay $2100 month if I want to live there instead of you. That's sort of separate (though related to) prices of houses.
What will make rents go down? Only two things: demand goes down, meaning people aren't looking to move into / are moving out of the city. This happened in NYC rents in early covid as everyone bailed out. So one way to drive prices in your city down is to have some even that renders it undesirable (COVID, defund the police, rising crime, suburbs more attractive with work from home, etc.) The other way is to increase supply - that is to build more housing. Counterintuitively, this happens more when prices are high because it compels builders to create more housing stock.
People in NYC love to complain about all the new construction going on (or at least that was going on in the last few decades) but imagine what rents would have been without that.
there are so many problems with your post but the assumption that defunding the police is necessarily going to cause prices to collapse is probably the most obviously biased one.
the idea that you should view housing as simply a matter of supply and demand and not consider any externalities is an abominable position. All people need shelter, it's not something that people opt into for the enjoyment of it alone. By the logic you have presented, the top 1% of people banding together and buying up all of the housing and squeezing everyone else is perfectly fine if it makes the numbers look nice, regardless of how it affects people's lives. The way you have framed the problem is inhumane.
Another way to make rent more affordable is to raise the tax rate on income generated from residential rentals to the point that people are not buying up all of the housing stock for the sake of investment alone. Income from residential rentals is taxed at the same rate as ordinary income, the kind you get from actually doing something. Why would anyone work if they can just own someone else's house instead?
I don't think that's a useful framing, because it's again putting the framing in terms of market dynamics in a vacuum. People don't pick where they're born, they don't pick who their parents are, and they don't pick the socioeconomic status that they're born into or have as children. The majority of people are born somewhere and cannot really afford to leave. For example, 72% of Americans live in or near the city where they were raised (https://www.northamerican.com/infographics/where-they-grew-u...). Most people don't have the agency to pick where they live based on price alone, because other non-market factors become comparatively larger when you have less money. If you can pick where you live based on price and how interesting it sounds, congratulations, that is privileged position. That's not to shame that position or anything, I'm just saying that the problem has to be viewed from the standpoint that most people aren't in that position. People are interdependent with their relatives, their friends, and their neighbors. Moving costs more than simply the price sticker of your new home minus the price sticker of your old home: the social costs are enormous. I think that a basic right of modern societies should be that people should not be priced out of their homes because of the whims of investors. So again, I think the idea that these things should be viewed through the lens of market dynamics alone is inhumane.
> Your proposed solution will increase rent prices for people who can't afford to buy a house while pushing the housing prices down and making them more affordable to middle class.
ok maybe. My point isn't that I have the perfect solution, my point is that there are far more levers to pull than what was being suggested, and that I do not want to live in a society that considers the problem by only looking at markets and pricing.
Comrade, I am speaking about "how it works" not "what would be really nice if..."
> Income from residential rentals is taxed at the same rate as ordinary income, the kind you get from actually doing something.
I can tell you have never owned an apartment or a house. The amount of money and time that goes into maintaining a property, managing risk of bad tenants, etc is really high. Not to mention property taxes which is likely something you've not heard about (or, at least you don't mention that in your post when talking about the tax burden.)
I own my home and I pay property taxes, nice try though.
> Comrade, I am speaking about "how it works" not "what would be really nice if..."
faced with "the rent going up is a problem for working class people" you're instantly taking the side of investors and positioning it through this lens:
> I want to make sure people understand the dynamics.
the problem is not that people don't UnDeRsTaNd ThE dYnAmIcS, the problem is that the dynamics actively incentivize the creation of an investor and speculator class that owns a substantial portion of the housing stock and drives price up based on speculation and not based on any actual need to use the product. The supply is artificially held low by the investor and speculator class, my argument is that this is actively harmful and that the idea that the only way to raise supply is to build more houses is wrong, because your framing assumes a vacancy rate of zero, which no major city has.
Wouldn’t that just mean there would less rental opportunities because people wouldn’t rent out properties due to the increased tax burden?
Not really seeing how such a plan would work out since it would increase rents across the board from lack of supply and the higher taxes being passed along to renters.
One way to look at this is that a house on a piece of property can be treated as a fungible product for two different markets: it can be an investment vehicle for investors, or a place to live for homeowners.
As its value to one of those markets increases, buyers on that side suck supply out of the other market. You can get a sense of how much this is happening by looking at the vacancy rate: higher vacancy rates implies that houses are worth relatively more to investors than homeowners.
If there are any cities for which this is true, it’s cities like Seattle and Portland. Theoretically, they are not desirable to live in because of COVID, very high crime rates, not idea for working from home, huge public safety problems, etc.
But rent is higher than it has ever been.
My point is purely logical - the way to get rent down is to either increase supply or decrease demand. If crime, etc gets bad enough, demand will drop and rent with it. The argument you're making (implicitly) is that things haven't yet gotten bad enough for people to move out.
Or maybe your sources are more interested in selling fear than accuracy.
One thing to remember is that sqft != quality of life. I know where to get tons of sqft, but I will be driving an hour every day to even find food. Quality of life... maybe if you never leave the house? ha!
The main problem with all those cities is public transportation sucks.
Except the reason people in my social circle would never move to Austin isn’t about guns, it’s about women’s access to quality reproductive care, including abortion.
And I don’t think the democrats are exaggerating the extent to which that is not an option in Texas.
Until supply increases or demand drops these prices aren't going anywhere but up.
A big part of why Los Angeles is a living hell for most people is due to rapid recent increases in rent.
LA is this disgusting place where a very very small number of people are doing exceptionally well, and almost everyone is either homeless or half a paycheck away from that.
The only saving grace is these obscene rent increases appear to be isolated to a few select markets. In most of America you haven’t seen anything like the rent inflation normal in Los Angeles. If possible, consider moving. These issues have come about over the last 30 years, they won’t be fixed in the next three.
I moved out of LA my cost of living dropped by about 30% overnight, and it was much easier to meet nice people. I’ve long considered writing a book about just how much moving to a different city can fix your life. Most behavior is ultimately economic, if you and no one you know can get their lives together and move out, none well.
In LA this spirals into a nasty entitlement complex, leading to various yucky situations better avoided.
even if your model is 99% great , the 1% that you overvalue are going to be the sellers that come to you and agree to sell you their homes because your offer is too good to be true
No one else was willing to offer a better deal to the seller
https://news.ycombinator.com/item?id=29059785
"Zillow has listed 93% of the hundreds of Phoenix homes it owns at a loss" (229 comments)