[HN Gopher] Zillow has listed 93% of the hundreds of Phoenix hom...
___________________________________________________________________
Zillow has listed 93% of the hundreds of Phoenix homes it owns at a
loss
Author : pezzana
Score : 107 points
Date : 2021-10-31 19:46 UTC (3 hours ago)
(HTM) web link (www.businessinsider.com)
(TXT) w3m dump (www.businessinsider.com)
| short12 wrote:
| Maybe they relied on their own piece of shit Zestimate tool
|
| They would have been better off pricing based on a dartboard
| villasv wrote:
| https://archive.md/dylwy
| jollybean wrote:
| Homes that are not bought to live in should be taxed in a
| fundamentally different manner.
| bink wrote:
| They are, in a sense. You do not receive the capital gains tax
| exemption if you do not reside in the house for something like
| 2 of the last 5 years before the sale. You also pay a different
| tax level if the sale occurs within a year.
|
| I'm not sure how a 1031 exchange impacts these companies
| though. They're probably reinvesting the money in other real
| estate.
| djrogers wrote:
| In most markets (ie. not right now in a huge run-up), house
| flippers are generally good for a neighborhood. They buy run
| down, neglected, and under-market houses, fix them up to at-
| market condition, then sell them.
|
| Oh, and they pay taxes on the profits.
|
| If you choose to penalize this behavior, not only will it not
| occur in average and down markets, you'd lose out on the
| capital gains tax revenue that's currently collected.
| mgkimsal wrote:
| "Oh, and they pay taxes on the profits."
|
| do they? or do they just keep doing 1031 exchanges, and doing
| cash-out refinances now and then to use the money?
| sakopov wrote:
| According to IRS 1031(a)(1) a property that isn't held for
| investment does not qualify for 1031 exchange. A pure flip
| on real estate is held for sale and therefore does not
| qualify for 1031 exchange.
| alexashka wrote:
| > They buy run down, neglected, and under-market houses, fix
| them up to at-market condition, then sell them.
|
| How is that better than fixing it up _without_ the buying and
| selling in-between?
|
| These people fix up houses to _look_ good, while using the
| cheapest labor and materials possible to maximize profit -
| taking advantage of the fact that most people don 't know
| that the shitty 'fix-up' will fall apart 3 years later.
|
| That's not good for _anyone_ except the people engaging in
| this dirty business.
|
| It's like arguing that the good old buy failing business, cut
| expenses, do some short-term shenanigans to appear/be
| profitable at the expense of longterm sustainability and re-
| sell is good. It isn't good, it's short term profiteering at
| the cost of long term disaster someone else has to clean up.
| toast0 wrote:
| > How is that better than fixing it up without the buying
| and selling in-between?
|
| The previous owner that neglected it obviously isn't going
| to fix it. The prospective owner that may buy it it it's
| fixed likely can't manage a mortgage on a property they're
| fixing, the costs to fix it, and the cost of living
| somewhere else. But it's often easier to make major changes
| if the building isn't occupied during the process.
|
| You certainly have a point with respect to some/many of the
| changes being superficial, but even with superficial
| changes, that can be hard to manage with an occupied home.
| Iefthandrule wrote:
| House flippers are notorious for cosmetic upgrades that
| maximize their profit, not upgrades that maximize quality.
| rsj_hn wrote:
| They already are. Mortgage interest deduction is only for the
| home you live in. Rental properties deduct depreciation, and
| there are huge differences in treatment of capital gains when
| you sell the property.
|
| See
|
| * https://www.irs.gov/newsroom/know-the-tax-facts-about-
| rentin...
|
| * https://www.millionacres.com/taxes/capital-gains/how-
| capital...
|
| Tax treatment is completely different for rental and owner-
| occupied properties -- you really need to get an accountant if
| you own rental property because it's quite complex. Most
| homeowners don't need an accountant if they are just wage
| earners who own their own home.
| swiley wrote:
| Here we go.
| vmception wrote:
| Not really if there isn't a ton of unsecured leverage.
|
| Assuming that's what you mean, In 2008 Morgan Stanley was
| leveraged 46:1, meaning for every million dollars they had,
| they were speculating with $46,000,000 they didnt have. All on
| the price of CDOs, which nobody knew were based on the
| continued payments of individual mortgage holders who were
| barely making the payments introductory rates. Actually most
| were even the subprime borrowers, the system was so fragile
| that it imploded by a mere 7% of them not paying.
|
| Remains to be seen where the hidden leverage is this time. Its
| always hidden leverage, but rarely the same hidden leverage.
|
| So "this time is always different" in the sense that there's a
| different reason for the crash.
|
| If Zillow is not overleveraged and is instead just burning
| treasury dollars, they just have a portfolio that declines 20%,
| which isnt a big deal if you arent leveraged.
| scottjg wrote:
| given interest rates are at a historic low, i would be
| shocked if they are using actual cash to buy these houses.
| presumably they are buying with mortgages?
| djrogers wrote:
| FTA:
|
| "If the company were to sell all of its Phoenix homes right now
| at their list prices, it would lose $6.3 million dollars."
|
| Over 224 homes, we're not exactly talking about a huge loss here.
| Sure, profit is better than loss, but 6mil to learn some lessons
| in building out a new division in a company isn't all that bad in
| the grand scheme of things.
| refulgentis wrote:
| I don't think people are worried about the corporation's loss,
| much the opposite, they're worried that its a big fish that
| creates inflated pricing, ex. given the data you shared, it
| overshot $30,000/house.
| dopamean wrote:
| It's interesting to me how often Zillow gets mentioned for their
| ibuying business when iirc they are like the 4th largest ibuyer
| and way way behind #1 and #2.
| ConcernedCoder wrote:
| ..which are?
| wffurr wrote:
| "the three biggest iBuyers -- Opendoor, Offerpad and Zillow
| Offers"
|
| From a bit of research.
| DaveExeter wrote:
| Sometimes you're up, sometimes you're down!
| lumost wrote:
| I suspect that the problem boils down to the following:
|
| 1) Zillow made a financial/ML model which would predict the sell
| price of a home in N months.
|
| 2) Zillow leveraged dirt cheap mortgage rates + VC money to
| outbid other sellers to be able to sell the home in N months
|
| 3) Zillow drove property developers and house flippers out of the
| market.
|
| 4) The homes Zillow is looking to sell within N months don't have
| the "improvements" to justify the increased price.
|
| 5) The Zillow financial model turns out to have been biased on
| historic trends.
|
| As others have noted Zillow makes money on more than just the
| price delta, they are also deploying capital to acquire more of
| the market to collect fees from. They are also theoretically able
| to benefit from appreciating prices being much much higher than
| interest costs in 2021.
|
| The con of all of this is that it's a rent seeking business model
| entering markets that are already full to the brim with rent
| seekers. If Zillow acquires enough of the "float" in the market
| they can effectively set prices to be whatever the demand will
| bear. Surprisingly housing is so constrained at this point that
| in a major city like Boston you could purchase all outstanding
| homes for <200 Million dollars.
| aeternum wrote:
| If the goal is to acquire a sufficient percentage of the float,
| why is Zillow unloading these houses at a loss?
| jdross wrote:
| This isn't really how this business works, nor why Zillow
| failed operationally to price correctly. To everyone at
| Opendoor when Zillow started to scale, this was a long time
| coming
| throwawaysea wrote:
| I hesitate to use such a negative word like "con" to describe
| what also seems like a potentially smart investment. At the
| individual level, many people buy assets with the intent to get
| something back from it - either use of that asset or
| appreciation in its value or whatever else. Whether it is
| Zillow buying up houses or a large number of individuals, isn't
| the impact roughly the same because it creates equivalent
| scarcity? I get that Zillow can make unilateral decisions on
| pricing but I'm asking if there is some theoretical support for
| the notion that even a decentralized buying spree will lead to
| the same outcomes, but on a different time scale.
|
| Another question that comes to mind is whether there should be
| some threshold (percentage) of ownership in a given area
| subjects a given organization to anti-trust regulation. This
| isn't a present reality of anti-trust laws but I wonder if such
| a framework will limit larger, more powerful organizations
| while still giving individuals the freedom to transact.
|
| A final thought that crosses my mind is whether this is an
| actual problem. If the price goes up too high, then buyers
| shouldn't buy them. There are numerous cities and towns across
| the country with cheap housing and cheap land. No one is
| entitled to buy housing at a given price point at whatever
| location they want. People need to respond to the pricing
| signal and look elsewhere if some place like Phoenix is too
| expensive. Otherwise, their continued purchasing simply
| suggests that the price is not too high.
| lotsofpulp wrote:
| > Surprisingly housing is so constrained at this point that in
| a major city like Boston you could purchase all outstanding
| homes for <200 Million dollars.
|
| And then do what?
| Phlarp wrote:
| Raise the rent
| WalterBright wrote:
| If someone's business plan was to buy _all_ the houses,
| then my business plan would be to aquire /build houses, and
| sell to that person at enormous markups.
| rsj_hn wrote:
| Yup. Buying all the houses is possible in a constrained
| market, but Phoenix is unconstrained, and transportation
| allows us to substitute constrained for unconstrained
| locations.
| brendoelfrendo wrote:
| That would be, more or less, exactly what they want,
| because the artificial scarcity begins dictating prices.
| You might _try_ to sell to them, but they 're not
| obligated to _buy_ from you; they could simply point to
| the properties you 're offering at enormous markup to
| unload some of the property they own at an enormous
| markup. And if they _did_ buy from you at an enormous
| markup, they can point to those purchases as "comps" for
| the purposes of valuing their portfolio.
|
| This actually happens in the art world; there's a guy who
| goes out of his way to overpay for Warhol paintings,
| because a) he can corner a finite market and b) when a
| Warhol painting sells for a record amount, the value of
| his entire collection goes up _even if he 's the buyer._
| lotsofpulp wrote:
| Until no one wants to buy a Warhol at the price he is
| seeking. There is no guarantee that this will work
| indefinitely, just like houses in Boston becoming
| undesirable at a certain price point.
|
| It is possible that Boston houses are underpriced, but it
| is also possible people will start looking elsewhere.
| Probably have to dig into income trends and more data
| rather than just "Boston has limited housing, so it will
| always be rentable/sellable at a higher price".
| brendoelfrendo wrote:
| Well, the other side of the financial engineering project
| is that he can donate a Warhol to a museum and get a tax
| write-off for the value of the painting--a value that is
| likely set primarily by his actions.
|
| Not something you can do with a house, I grant you. You'd
| more likely end up in a bubble situation where property
| just churns through the hands of investors until the
| bubble pops and someone is left holding the bag.
| JKCalhoun wrote:
| Why not both? That's the f'ed up future that's already
| begun: the builders are also the landlords.
| taneq wrote:
| Sell them again now that you've pumped the market?
| lotsofpulp wrote:
| If it was that easy, what is stopping other cash rich
| entities? There are clearly large risks and liabilities
| associated with this maneuver.
| taneq wrote:
| What makes you think they're stopped? This is why Zillow
| doesn't have to buy the whole market, all they need to do
| is buy enough for other investors to start piling on.
| jjcon wrote:
| >The Zillow financial model turns out to have been biased on
| historic trends.
|
| Accordingly and importantly I suspect it didn't take into
| account its own impact on the market
| dboreham wrote:
| No far end echo canceling.
| JKCalhoun wrote:
| Ah, so the Hunt brothers and their wild silver ride in the
| 1980's.
| kevindong wrote:
| > VC money
|
| Zillow is a publicly traded company and has been since July
| 2011. I don't know how they raised capital before then, but
| regardless they're well past the VC stage.
| scotuswroteus wrote:
| "The con of all of this . . . " - I see what you did there
| diob wrote:
| We recently worked with our past realtor and she confirmed that
| Opendoor and the like have stopped actually fixing homes. Just
| buy and flip as is.
| bane wrote:
| There's not really much reason to put anything into them. The
| market moved so incredibly fast this past year there wasn't
| any motivation to do so.
|
| We have a property that three years ago was worth no more
| than $550k, we managed to sell it recently (get it under
| contract) in 2 days for nearly $900k with a few obvious fix-
| em-up issues -- including all cash offers. If the house had
| been in great shape our realtor believes we could have moved
| it for around a million easily.
|
| The jump in price occurred almost entirely in the past year.
| diob wrote:
| Yeah, it's just dumb. Only winners in this market will be
| those who own property as an investment. First time home
| buying is quickly becoming a pipe dream.
| RustyConsul wrote:
| The supply and demand chart of real estate has gotten weird
| lately.
|
| Tech has generated unbelievable wealth, government is racking up
| debt to perpetuate this endless cycle of asset inflation, while
| Airbnb further defined rent-seeking all leading to rapid asset
| consolidation of 'real-world assets'.
|
| I don't have any idea what the answer is, but some of the asset
| classes are really stressing the idea of how a market can
| function with constrained liquidity and unlimited appetite. One
| non-obvious example but tangentially demonstrative to my point is
| Shibu Inu coin. With 80% of the 'Coin' being either burned or
| controled by insiders, and use of highly leveraged
| instruments(100-1000x) has lead to constrained liquidity and have
| sent it on an absolute surge. Granted, this example falls flat
| because as soon as the insiders attempt to cash out on their
| scheme, it all comes crashing down. But the real estate market is
| different because we are talking about a necessity, not some
| autistic cybernaught dystopia coin. Constrained liquidity on a
| necessity that also has very long lead times and regulatory
| bottle necks is going to lead to a revolution.
|
| With 20% APR's on house prices, my generation will never be able
| to own a home in a city. Every metric imaginable seems to point
| to some asymptote in the late 2040's. Every generation seems to
| be living in the most interesting of times, but I truly believe
| my generation is going to be facing something bigger.
| sp332 wrote:
| Their stated reason for not buying more houses for the rest of
| this year is that they ran out of people who can fix the houses
| up before flipping them.
| https://slate.com/technology/2021/10/ibuying-zillow-purchase...
| So maybe they could sell these houses for more money if they just
| had the workers available to increase the value of the houses.
| sgpl wrote:
| While this behaviour by corporations (eg: Zillow buying and
| flipping, or Blackstone buying and renting out houses [0]) is
| inflating housing prices across the country, I don't see them
| stopping anytime soon even in the face of temporary losses (in
| the case of Zillow here). As a corporation they can withstand
| this, triage the situation internally and get smarter about
| flipping in the future.
|
| Personally I feel that this only makes housing more unaffordable
| in the long run for most people and only policy level
| intervention by the government is going to stem such actions in
| the future.
|
| Obviously real estate/housing is seen as a good investment
| because it's one of the few asset classes available to
| average/retail investors where they can access leverage in a
| massive way to build up a portfolio of housing assets over time
| so if any legislation about this is even considered, it'll
| probably face a lot of opposition even from people it won't
| possibly affect (because that's what happens these days + FUD).
|
| I guess I don't really see any meaningful changes in the near
| future that'll make housing affordable for the masses (at least
| in some of the most desirable real estate markets, can't talk
| about rural markets as I don't know enough). For more context, I
| live in Toronto and unless I settle for owning a condo or housing
| in the suburbs, owning a house in the city is pretty much a no go
| for me and most of my peers.
|
| [0] https://www.wsj.com/articles/blackstone-bets-6-billion-on-
| bu...
| rahimnathwani wrote:
| "Personally I feel that this only makes housing more
| unaffordable in the long run for most people"
|
| In the long run, housing prices are determined by supply and
| demand. Supply (housing stock) is increased when prices are
| high (as developers can make money). And supply stays flat when
| prices are low (but developers don't destroy the existing
| homes).
|
| If this short term trading by Zillow etc. is causing market
| prices to be high at the moment, you'd expect that to
| _increase_ long term supply. So future prices would be lower
| than they would be without Zillow.
| space_fountain wrote:
| I think the danger is when they assume that making money will
| only require some simple tweaks, happy to sell at a loss in the
| meantime and then at some point in the future realize that
| actually the whole things was a capital fueled house of cards.
| I think one could argue that something like this has happened
| with Uber and Lyft (though perhaps covid + inflation has more
| to do with those price increases)
| unreal37 wrote:
| I've seen Zillow in interviews claim that they are actually
| physically improving the homes before selling. And they sell
| for basically what they bought for it intentionally, so they're
| not actually inflating prices.
|
| They're improving homes, helping sellers get out of homes
| faster, and not raising the prices.
|
| This isn't like those home flippers on TV who buy a house for
| $70K, put $20K into it, and sell it for $200K. The story you're
| commenting on says they sell 90%+ for less than they paid.
|
| This isn't a simple "Zillow buying homes must be bad". More
| analysis required.
| [deleted]
| ajsnigrutin wrote:
| I'm generally against taxes on stuff that is not vastly limited
| (buildable area in a good location is very limited compared to
| other stuff), but progressive tax here would solve a lot of
| problems (eg, 0% on your first property and primary residence,
| 1% yearly on your second one, 2% on third, ...). This would
| basically make owning more than two or three properties very
| expensive, and owning hundreds or thousands of properties
| impossible.
| jdross wrote:
| How do you suggest multi-family housing or single family
| suburban infill housing gets built affordably?
| ajsnigrutin wrote:
| You can never go below cost... that's a nonissue. But we
| have shitty houses, worth $100k in labour and materials
| going for millions+, due to sheer unavailability of
| housing.
|
| Housing is something people need to live, not an investment
| option.
|
| Also, USA has a problem with building large apartment
| buildings, where even overcrowded places like san francisco
| still build single family houses, instead of 5, 10+ story
| apartment buildings everywhere.
| JKCalhoun wrote:
| Progressive tax applies only to single-family homes.
| xputer wrote:
| The Netherlands just implemented an 8% property transfer tax
| for investors in the housing market. This seems to have
| discouraged a lot of investors from buying up homes in the
| past year compared to previous years. Still there are massive
| shortages on the housing market though.
| latchkey wrote:
| Listing != Sale price
|
| Couldn't this also be a ploy to drive demand? "Look at all those
| in-expensive houses on the market!"
| victor22 wrote:
| This really sounds like a PR piece for Zillow
| dralley wrote:
| The "disrupt" mantra endorsed by Softbank et. al. has grown
| extremely old. Housing prices in my area have inflated 25% in the
| past _year_ - one year - and real estate companies like Zillow
| immediately buying up everything on the market is a primary
| contributor.
|
| This isn't disrupting an industry, this is disrupting _people 's
| lives_, and for what? What good is supposed to come from Zillow
| (et. al.) oligopolizing the housing market, and driving up prices
| like this?
| tacon wrote:
| A lot of supply is off the market because people do not want
| strangers traipsing through their house during a pandemic.
| Also, there have been eviction and foreclosure moratoriums that
| have restricted supply. These factors will all ease over the
| coming year.
| inter_netuser wrote:
| The good? Shareholder profits, what else?
| throwaway_Aef8 wrote:
| seems to make sense. Power and money consolidates to the top.
| silisili wrote:
| Agree 100%. My opinion on this president, congress, governor,
| and local government(so, not partisan) hinges completely on
| whether they do anything to curb this. I don't care if it
| started under X, they inherited the problem and have done
| nothing to even attempt to fix it, which is maddening.
|
| Prices in my area are up 75ish % since 2018. Rent prices about
| 50.
| esoterica wrote:
| Home prices and rents are up because of low interest rates
| and nimbys who block new construction. Corporations buying
| homes have literally nothing to do with it. If they buy homes
| to flip they have no net impact on home prices (because they
| buy and sell in equal quantities). If they buy homes to rent
| out they exert downward pressure on rents, so they are not
| responsible for rising rents.
|
| The reason why the government has done nothing to fix it is
| because
|
| 1. The median voter is a homeowner and WANTS homes to be
| unaffordable so their investment goes up.
|
| 2. The median non-homeowner does not understand basic supply
| and demand and does not understand that the lack of housing
| is the main driver of high home prices, so they complain
| about red herrings like Zillow buying up houses instead of
| pushing the government loosen zoning restrictions on
| multifamily housing.
|
| You fall into the latter category, which means YOU are part
| of the problem. You complain about the government not doing
| anything to fix the housing problem but people like you are
| literally the reason why it doesn't get fixed.
| ljm wrote:
| The person who doesn't own a home is hardly at fault for
| being frustrated that the prices of homes are increasing to
| an absurd degree.
|
| In fact, that sounds like misplaced blame when in the exact
| same post you mention these things:
|
| 1. The median voter is a homeowner
|
| 2. The homeowner wants the price of their house to increase
|
| 3. Therefore it is in their interest to keep housing
| unaffordable
|
| 4. Therefore they continue voting for the people who
| facilitate it, and don't vote for the people who want to
| change it.
|
| 5. All because their house is not a home, but an
| _investment_
|
| In your mind, a person who is fed up of being priced out of
| a place to live is part of the problem? It doesn't stack
| up.
| bumby wrote:
| > _All because their house is not a home, but an
| investment_
|
| At least in the US, home equity is the largest single
| asset class for most people.[1] I agree with most is what
| you said, but it seems fairly predictable that people
| would try to protect the biggest egg inn their nest.
| Whether or not it's good policy to combine supporting
| that is another matter.
|
| [1] https://www.census.gov/library/stories/2020/11/gaps-
| in-wealt...
| unethical_ban wrote:
| Personal attacks and accusations of ignorance are not
| welcome here. The average renter doesn't understand supply
| and demand? Really?
|
| Zillow isn't the only big buyer of homes, and not all
| buyers are doing it to flip. The problem is renting in
| general. I would welcome regulations that bar any
| institution or individual from owning more than a handful
| of rental properties, and some kind of incentive for
| mortgage lenders to de-emphasize down-payments in lending.
|
| Hell, I'd like to hear a great debate on the ethics of
| renting-without-equity, period. Perhaps all residential
| units should offer equity in the living space over time,
| even apartments. Eliminate the renter class altogether by
| bringing everyone into the ownership class.
| RhysU wrote:
| > Hell, I'd like to hear a great debate on the ethics of
| renting-without-equity, period.
|
| My niece, at 18, was thrilled to move into her own place.
| She prioritized having her own space as a mark of
| independence and adulthood despite it being more
| economical to live at home. Renting-without-equity let
| her do this because she did not have to pay to build
| equity in a space. Instead, she could build "equity" in
| herself as an adult.
|
| Every regulation, restriction, and string-attached pushes
| out someone at the margin. So, yeah, while some
| approaches look ethical what is not seen is those people
| on the fringe who lose something as a consequence of
| those "ethics".
| esoterica wrote:
| > The average renter doesn't understand supply and
| demand?
|
| You don't understand that making operating rentals harder
| and more expensive will cause rents to go up. So yes,
| there is a very large group of people who don't
| understand supply and demand and you are part of that
| group.
|
| > Hell, I'd like to hear a great debate on the ethics of
| renting-without-equity, period.
|
| If you force people to receive $500 in equity for every
| moment they rent, then rents will go up by $500 / month.
| This is bad for the people who cannot afford to pay that
| $500, or for people who would rather invest that $500 in
| the stock market or whatever. If you wave the regulatory
| wand and demand that X must happen, then what you are
| really demanding is that everyone must pay for X, whether
| or not they want to. Not that everybody will magically
| get X for free.
| sokoloff wrote:
| > The average renter doesn't understand supply and
| demand?
|
| Given the quality of debate and/or fantastical thinking
| that I see in a lot of online forums, I'd be forced to
| wager that a pretty wide swath of people who debate rent
| (or other economic) topics online appear to not
| understand supply and demand. Whether or not renters on
| average do or do not, I can't say.
| GDC7 wrote:
| They might not understand supply&demand and economics but
| they understand violence and that's all they need to.
|
| The burden of the proof is on Zillow, they are the
| multibillion behemoth
| sokoloff wrote:
| The burden of proof for what? That they're the
| highest/best bidder for a house (or are the bidder that
| gives the most certainty or otherwise most appealing to
| the seller)? I trust the seller to make that
| determination.
| GDC7 wrote:
| Highest bid means nothing, moratoriums on institutional
| ownership of housing units are not a new concept.
|
| If enough angry people are energized then the highest bid
| from Zillow or BlackRock or BlackStone...won't mean
| anything.
|
| Matter of fact it can be reversed.
|
| Public opinion is the ultimate free market and it works
| via the allocation of love and hatred by the populace.
|
| Landlords gets a lot of hate as it is, think when the
| landlord is a multi-billion dollar company.
| WalterBright wrote:
| I enjoy all the comments that are so positive that
| housing prices only go up. Clearly, they didn't own a
| home in 2008 :-)
|
| For all those who want the government to step in and
| reduce housing prices via regulation, consider that same
| government has interfered with the health care industry
| and the education industry for the last 50 years
| attempting to lower prices. The consequences are the
| opposite.
| bumby wrote:
| Here's a different take that's trying to be a bit more
| generous to the OP.
|
| The goal isn't necessarily about reducing home prices,
| it's about increasing home ownership. Those shouldn't be
| conflated.
|
| So if that same context was applied to evaluating
| education, it has worked as the overall educational
| attainment has increased. Whether the cost is worth that
| increase can certainly be debated.
| space_fountain wrote:
| I'm not an economist but it feels to me like more most be
| going on. Capital is flowing into real estate because the
| people investing feel that they don't have better places to
| put it. The fed is struggling to get capital into the
| places that would lift employment, like new buildings,
| infrastructure, new business formation, and instead a lot
| of that money is going to bid things up
| esoterica wrote:
| That just falls under interest rates. Yields are down in
| every asset class because of the low rate environment.
| PaulDavisThe1st wrote:
| I still am not seeing enough commentary about how we are
| currently at more-or-less peak Boomer retirement. There
| are a metric shit-ton(ne) of people who owned a "family
| home" for long enough to own it outright, have the seen
| the price climb, and are selling out and moving on.
|
| But Paul Davis, First of His Name, you cry, that means
| someone is still buying those ex-Boomer family homes!
|
| Why yes, yes it does. But those retiring boomers, in
| great numbers and armed with (relative) boatloads of
| cash, are moving to places that they would not have
| settled in before reaching this stage of life. 20-30
| years ago, their money would have sloshed around inside
| the places they already lived, as they perhaps needed 1
| more or 1 less bedroom. [0]
|
| But now, they are on the move. Bend, Santa Fe,
| Bellingham, Ithaca ... many, many communities seeing huge
| influxes of cash buyers that would not have happened
| before.
|
| I'm sure there are many other forces at work in today's
| crazy residential real estate market, some of them
| possibly larger/more important. But I think that this
| time period, right in the middle of the Boomer retirement
| wave, is also affected by this too.
|
| Disclaimer: I resemble the above remarks.
|
| [0] EDIT: also, as noted by others here, some of the
| buyers of those homes are not in any way "other people
| buying family homes" but investment/financial service
| corporations.
| jim-jim-jim wrote:
| Imagine being on a sinking life raft, pointing out where
| the hole is, and then getting told "it's okay, we just need
| more buckets to bail the water."
|
| The whole world isn't San Francisco. Where I live in
| Australia, there is no physical lack of roofs to house
| everybody who wants one. Our "shortage" is entirely
| political and can be legislated away overnight if the will
| were there. The problem is and always has been rooted in
| the words "investment property."
| taneq wrote:
| Yeah, every measure brought in here to ostensibly "make
| housing more affordable" has, surprise surprise, done the
| exact opposite. Its almost like the people introducing
| these measures all own a lot of investment properties.
| jlawer wrote:
| I agree the cause can be made to go away overnight.
| However the impact of doing the wrong thing could be
| disastrous.
|
| In Australia we have a housing bubble, but the problem is
| woven very deep. Our tax system favours property
| investments. Our top tax rate (45%) kicks in at extremely
| low levels of income compared to globally ($180,000 AUD
| which is around $135,000 USD). The system provides all
| kinds of tax deductions to investment property owners,
| and ways of making paper losses to offset income tax.
|
| Much of our economic activity is banking, retail and
| construction. Much of which is fuelled by the churn in
| property with ever increasing prices. This economic cycle
| kept Australia out of recession until Covid hit. Now that
| the average house is over $500,000 AUD, we have large
| swaths of the younger population leveraged to their
| eyeballs in debt at a 2% interest rate. If housing prices
| fall or interest rates rise there will be a collapse, and
| a good chance of an extended recession we have avoided.
|
| The best case is they slowly the market down, we have a
| moderate rate of inflation which allows the real value of
| houses to drop. At the same time reduce the tax benefits
| to property investment.
|
| Unfortunately this won't happen. The political class
| knows that the median voter is a home owner, and its in
| their interests for housing prices to keep rising. They
| are just hoping that it can keep going until after they
| are finished. Totally not jaded about not being able to
| afford a house in my late 30s due to being wiped out in
| the 2008 GFC and then starting a family.
| silisili wrote:
| Speak for yourself, please.
|
| I sold my home in 2019. At the time there was already a
| frenzy, multiple bidders, buying on day one. Just like
| today. The guy who bought my house went 30% over asking. I
| wasn't willing to be rushed, so just sold and didn't buy.
| I'm in no hurry to buy - I've been enjoying traveling the
| country. But I don't enjoy the gouging I've been taking on
| rent, admittedly.
|
| Secondly, there are no zoning problems where I live. The
| problem is exactly Blackrock buying tens of homes per week.
| That and migration.
|
| A progressive property tax, or other limits on investment
| homes would alleviate the problems I've seen firsthand.
| esoterica wrote:
| > I sold my home in 2019. At the time there was already a
| frenzy, multiple bidders, buying on day one. Just like
| today. The guy who bought my house went 30% over asking.
| I wasn't willing to be rushed, so just sold and didn't
| buy.
|
| Cool story, but what does that have to do the root causes
| of rising home prices? What exactly are you trying to
| argue here?
|
| > or other limits on investment homes
|
| Limits on investment homes makes renting more expensive,
| the same way limiting the production of cars would make
| cars more expensive. You are literally advocating
| shifting the supply curve further to the right. Every
| post you make further proves my point about people not
| understanding basic supply and demand.
| silisili wrote:
| Why is this so hard to understand?
|
| Let's try a small example.
|
| In a city there are ten houses. Five are vacant, let's
| call them new construction.
|
| Five people are moving to the area.
|
| Everything sounds good, right?
|
| Blackrock buys 3 of the homes. Now 5 people have to fight
| over 2 houses. This drives housing price up as they bid
| with each other.
|
| The remaining 3 losers are forced to rent. Blackrock can
| now charge more money because a) house prices went up,
| and b) there are no other places to live.
|
| To be clear, this is talking about what's happening in
| -my- area. And based off your Nimbyism comments, I can
| assure you that it's not the same as your area.
| throwaway6734 wrote:
| Blackrock isn't the only player in the market. If their
| rental prices are "too high" other rental properties will
| be listed for less.
| brendoelfrendo wrote:
| The problem is single-family homes being bought by
| investors to rent in the first place. People _want_ to
| buy, but even low interest rates allowing my bank to
| offer me cheap money can 't out-compete a large investor
| that has more more assets that allow them access to _even
| more_ cheap money.
|
| I get that no one has a God given right to home
| ownership, but we've made a deal with the devil where
| home equity and housing appreciation are major stores of
| wealth for the middle class. Letting the investor class
| corner this market feels like kicking out the ladder for
| anyone not already on it.
| WalterBright wrote:
| Lots of people prefer renting. They may be in the area
| for only a short term. They may be unwilling to make the
| financial commitment necessary. They may be uninterested
| in the work and hassle of owning (like mowing the lawn,
| cleaning the roof, etc.). They may not want to deal with
| all the hassles and stress when selling.
| brendoelfrendo wrote:
| Yeah, that's great and all, but there aren't enough
| houses for the people who want to buy. The fact that some
| people like to rent doesn't change anything about what I
| said.
| WalterBright wrote:
| Your scenario is that of a monopoly. Monopolies don't
| happen in a free market. They happen when the government
| outlaws competition.
|
| The usual way the government accomplishes this in the
| housing market is by making it difficult or impossible to
| build more housing.
| bumby wrote:
| > _Monopolies don 't happen in a free market. They happen
| when the government outlaws competition._
|
| This is true for a subset of regulated monopolies, but
| there is also the concept of a natural monopoly which
| does not require any governmental intervention
| WalterBright wrote:
| Name one!
| bumby wrote:
| The most obvious historical example is Standard Oil, but
| many would consider social media companies to be natural
| monopolies in the current context. Here, read up for
| yourself.
|
| https://www.investopedia.com/terms/n/natural_monopoly.asp
| lostdog wrote:
| Blackrock bought the 3 houses because they believe they
| will make money on them. If that's true, then even if you
| remove Blackrock, then someone will fight to buy the
| house because of the positive return on investment.
|
| Any solution requires that buying an existing house is no
| longer directly profitable. However, as originally
| posted, that goes against the goal of having houses
| increase in value, a goal which too many voters share.
|
| Put simply, to make houses affordable, you have to drop
| (or stabilize) prices. If prices are now stable, then
| your Blackrock problem just goes away.
|
| There are a few ideas that preference individuals over
| Blackrock (rules about how many houses you can own, tax
| rules that preference primary residences, etc...). Some
| of these can help, but still, if prices keep going up,
| then new residents won't be able to buy, and you still
| have the same disaster.
|
| EDIT: I am partial to a ludicrous capital gains tax on
| property (like 70%). However, it's possible that will
| harm liquidity, so who knows!
| ldbooth wrote:
| I think Blackrock and other asset owners buy the houses and
| rent them out through management companies. Thru which they
| can materially impact rent costs in a given area.
| naasking wrote:
| > Home prices and rents are up because of low interest
| rates and nimbys who block new construction. Corporations
| buying homes have literally nothing to do with it.
|
| TIL that pouring a truckload of gasoline on a brushfire has
| nothing to do with why the forest is currently burning out
| of control.
| rsj_hn wrote:
| TIL that the ownership structure of an asset purchaser is
| responsible for controlling asset prices rather than
| fundamentals like interest rates and rates of return. I
| guess Blackrock is responsible for high stock prices,
| too.
| throwaway6734 wrote:
| Iirc the reconciliation bill getting worked out right now has
| a good chunk of money to develop more housing
| Gibbon1 wrote:
| I being a prat and suggest all this can be fixed by old
| fashioned wage inflation and the government underwriting a
| buttload of multifamily construction.
|
| It's been dropped down the memory hole but that's what the
| Truman Administration did after WWII. But with single
| family homes.
| b9a2cab5 wrote:
| It's not money that's the problem, otherwise San Francisco
| would've solved everything by now. It's NIMBY legislation
| that limits buildings to 4-6 floors instead of 50. We could
| literally have 10x density if zoning laws allowed for it.
| thatfrenchguy wrote:
| To be fair, housing in places without institutional investors
| have also shot up a lot, so it's hard to know whether that's
| their effect of just the pent-up demand due to the pandemic
| linked to people having more money to throw on housing after a
| year or not going/vacationing out.
| inter_netuser wrote:
| Rural places shot up? Where? I haven't seen it.
| brendoelfrendo wrote:
| Just piling in with the other examples, North Carolina has
| seen a huge surge.
| MattGaiser wrote:
| All of the southern half of Ontario has shot up
| dramatically.
| dboreham wrote:
| In southwest Montana where I live. Neighbors sold their
| house to move into a camper parked on a relative's land
| where they plan to ride out the construction material
| supply chain restrictions then build another house. This is
| one of four similar stories from people I know directly.
| sokoloff wrote:
| All over southern/central NH and VT definitely shot up in
| the last 1.5 years.
| ldbooth wrote:
| To couch this for the US assets, 2020 M2 money supply
| shot up 30%, a historically significant amount. I'm still
| waiting to see if the "gains" in stocks/housing since
| 2020 is really a gain or the immediate result of price
| inflation due to money printing. Or "quantitative
| easing".
| sokoloff wrote:
| The M2 inclusions changed in May 2020:
| https://gonzoecon.com/2021/04/m1-and-m2-have-changed/
| davidandgoliath wrote:
| Your definition of rural may not meet the official one.
| We're up 20% here in a rural area of TN.
| pedalpete wrote:
| All along the east coast of Australia as well.
| esoterica wrote:
| > Housing prices in my area have inflated 25% in the past year
| - one year - and real estate companies like Zillow immediately
| buying up everything on the market is a primary contributor.
|
| No it isn't. Real estate companies buying up homes literally
| rounds to 0% of the market. Reflexively blaming everything on
| evil big corporations is an intellectually lazy copout.
|
| Housing prices are up because of nimby politics that prevent
| new construction and collapsing interest rates. Zillow is a
| trivial insignificant minnow has absolutely no impact on
| broader market.
|
| Even if Zillow were large enough to move the market, all they
| are doing is flipping houses, not hoarding them, so they have
| zero net impact on supply and demand (every buy is paired with
| a sell).
| bink wrote:
| IMHO blaming the price increases in nimbyism is equally lazy.
| There are plenty of places in the US with no shortage of land
| and no harsh zoning restrictions that are still seeing huge
| increases in housing prices. I think your second factor plays
| a much larger role. Interest rates are well below where they
| should be and the government will buy up just about any
| conforming mortgage. The cost of raw materials plays a role
| as well, but smaller.
| AlexandrB wrote:
| Every HN discussion about home prices attracts a vocal
| group of people blaming everything on NIMBYism (regardless
| of jurisdiction) and lecturing about supply and demand. It
| seems inconceivable to them that converting single-family
| homes to long-term rentals or AirBnB pads _also_ reduces
| supply and pushes home values up.
| gzer0 wrote:
| A large portion of homes are being bought and listed as
| rental properties. And whilst the overwhelming majority are
| purchased by individual investors, a non-negligible amount is
| via LLCs, LLPs, and corporations.
|
| This has the same effect of complete removal from the supply-
| side as the home is no longer considered part of the 'for-
| sale' pool.
|
| This leads to artificially inflated prices for homes that are
| actually for sale, since rental properties are removed from
| that pool.
| indymike wrote:
| >And whilst the overwhelming majority are purchased by
| individual investors, a non-negligible amount is via LLCs,
| LLPs, and corporations.
|
| Most of those LLCs and LLPs will be smaller investors. I
| would not think of buying a rental an not using an LLC -
| even if it would be for just one rental. I'm not sure the
| kind of entity that owns a property matters all that much.
| For $150 plus a little extra paperwork, a LLC really does
| de-risk the rental business.
| firstplacelast wrote:
| The quicker we can reach the tipping point of inequality, the
| better. I have no faith that anything will fundamentally change
| until things get bad enough that it explodes.
|
| I hope we get to the point where the top 10% of individuals own
| 95% of wealth/assets in the next decade.
| matt123456789 wrote:
| Why do you think that will be a tipping point? What do you
| think will happen once the purported "explosion" happens? And
| why do you think it will be better than the status quo?
| PeterisP wrote:
| I presume the sellers are happy that they have been paid the
| inflated prices; and if Zillow eventually lists the houses at a
| loss then it comes out as effectively as paying a subsidy to
| local homeowners.
| pxeboot wrote:
| > real estate companies like Zillow immediately buying up
| everything on the market is a primary contributor.
|
| No such corporate buyers exist in my market, but prices have
| gone up a similar amount. The cause of recent price increases
| is likely far more complicated.
|
| If Zillow or a similar company is able to disrupt the realtor
| and mortgage industry, there is potential for massive savings
| for both buyers and sellers. Right now middle men skim close to
| 10% off each transaction.
| jeffbee wrote:
| > far more complicated.
|
| Or far simpler: not enough homes to satisfy demand.
| djrogers wrote:
| > Right now middle men skim close to 10% off each
| transaction.
|
| It's 5% at the most in most markets right now, with lost of
| options for even lower commission or flat rate listings.
| pxeboot wrote:
| That only covers the agent commissions. The mortgage
| industry also charges substantial fees with little to no
| benefit for the buyer. Origination fees, lenders title
| insurance, appraisals, etc...
| Permit wrote:
| > Housing prices in my area have inflated 25% in the past year
| - one year - and real estate companies like Zillow immediately
| buying up everything on the market is a primary contributor.
|
| Did anything else notable happen in the last year that could
| have contributed? What city is this?
| djrogers wrote:
| > real estate companies like Zillow immediately buying up
| everything on the market is a primary contributor
|
| I'm not at all sure that Zillow buying a few hundred homes out
| of the many thousands of listings was a _primary_ contributor.
|
| Phoenix has historically had huge booms when people start to
| leave California, and many other markets without any Zillow
| purchases at all are experiencing huge growth.
| asdff wrote:
| "You will own nothing and you'll be happy"
| dreyfan wrote:
| Zillow is the brokerage and they take fees when they buy the home
| from their users and depending on how they sell it they often
| take fees on that side of the transaction too. So when you see
| that Zillow "bought" a home at $500,000, the seller actually gets
| closer to $450,000 on average. They of course want the $500k
| price tag to hit the MLS records though, since it supports the
| endlessly appreciating housing market narrative.
|
| It's not as simple as a buy-low sell-high home flipping strategy.
|
| > "Altogether, Zillow Offers fees can add up to as much as 22% of
| your home's sale price -- much more than you'd pay while selling
| on the open market."
|
| [1] https://www.realestatewitch.com/zillow-instant-offers/
| zdragnar wrote:
| That's basically all real estate agents, and if someone selling
| their home to zillow only pays 10% total (since sellers
| typically pay agents for both sides of the transaction) that
| isn't a bad deal for the home seller at all.
|
| Edit: I misremembered commission costs. 10% on the sale of a
| house is rather high unless the seller is covering additional
| costs as well.
| dreyfan wrote:
| I understand that, I'm not suggesting it's a scam or anything
| (though typically in the US a home seller pays 3% to the
| buyers agent and 3% to the sellers agent). I'm saying when
| Bloomberg exclaims "Zillow is selling homes at a loss!"
| they're missing the point of the strategy. As long as the
| price they sell for still exceeds the fees they take, it's a
| profitable move.
|
| Also many of these transactions do not involve traditional
| brokerages whatsoever. People sell their homes directly to
| Zillow and other people buy the homes directly from Zillow.
| midasuni wrote:
| 3%? 6%?
|
| My last house sale in the U.K. was 0.5% of the sale price
| to the estate agent (the buyer doesn't pay anything). Legal
| fees on my side for selling and buying were another 0.5%,
| and a little for a survey. Total cost to sell and buy well
| under 1.5%.
|
| Why do you get for that 6%?
| zdragnar wrote:
| At a minimum, the real estate agent manages coordination.
| Good agents are familiar with the local ordinances and
| can save you time and hassle (a city I once lived in
| insisted that homes had to have a city inspector go
| through prior to listing, and neither I nor my agent knew
| until we found out from a buyer's agent).
|
| Great agents will organize staging, professional photos
| (some companies put up "3d" walkthroughs on their
| websites), open houses, advertising, recommend investing
| in remodelling to list at higher prices (or when to pass
| on those things depending on the local market).
|
| Sometimes, paying an agent more than makes up for the
| cost by getting a better sale price. Other times, it is
| kinda pointless.
|
| (If you didnt know, seller customarily pays for both
| agents as well in the US).
| notjesse wrote:
| 6% has been the norm in the US for a long time. It is
| absurdly high and is why opportunities like iBuying
| exist.
|
| In the UK, there is no wiggle room for such ventures, but
| as the transactional costs in the US is steep, the market
| was ripe for disruption. You can usually expect your
| total transaction costs to be 8-10%, so there is a lot of
| margin in there for Zillow/Opendoor to operate as the
| only intermediary (buyer & seller agent, lender, stager,
| etc).
| short12 wrote:
| 10 percent is insane, most sellers with an agent pay 4-6
| percent
|
| And honestly the cheapest way to get it done is a sign in
| your yard, a flat fee broker to get it on the MLS and a
| lawyer to finalize the sale
|
| Zillow and agents are not doing Jack shit to earn the
| commission they get
| weeblewobble wrote:
| Things my agent did:
|
| * hire and manage a staging company
|
| * hire and manage a photographer
|
| * print and distribute printouts
|
| * hire and manage cleaner, landscaper, other various people
| to get the house ready and appealing
|
| * use personal network to get the word out to other agents
|
| I could have done most of this on my own, but I'd be cold
| calling random contracters. My agent had relationships, got
| the work done fast and at good price. Also I'm convinced
| all their work added at least 20% to final selling price.
| Maybe more.
| [deleted]
| 13of40 wrote:
| When I sold my last house, about seven years ago, we got
| a free consultation from Redfin. "Should we fix anything
| or stage it?" we asked. "Meh, don't bother, just put it
| up for $250K and we can sell it."
|
| Just to be sure, we consulted the realtor who had helped
| us buy our new house, and she convinced us to do maybe
| $15K of remodels on the kitchen and bathroom (for which
| she sourced the contractors) then told us how to stage it
| and put some little shrubberies up front, etc. Final
| selling price was $350K.
|
| To me, that's the difference between places like Redfin
| or Zillow vs. an agent.
| short12 wrote:
| Staging is actually counterproductive
|
| Anyone can take pictures
|
| Most people already have the printout via some website
|
| The network connections is a myth. If it's on MLS
| everyone that counts is already seeing it
| nradov wrote:
| Anyone can push a shutter button. Very few people can
| take pictures that really _sell_ a unique property. If
| you 're listing a cookie-cutter 2 bedroom urban condo
| then pictures don't matter much because buyers pretty
| much already know what they're getting. If you're listing
| a rural luxury property with acreage and a view then good
| pictures matter a lot.
|
| Same thing with staging. It's counterproductive for some
| properties and almost essential for others. You have to
| know the local market and target buyers.
| short12 wrote:
| If you actually paid 20 percent for that I have a bridge
| to sell you
| tasty_freeze wrote:
| They are not saying they paid 20% fees for that. They are
| saying the agent boosted the sale price by 20%, more than
| paying for the agent's fee.
| mistrial9 wrote:
| after obtaining a junior real estate credential in
| California, my irreverent twenty-something colleague told
| me with no equivocation "a trained monkey could sell these
| houses"
| zdragnar wrote:
| In a hot market, totally. Get out in the sticks or a
| smaller town in normal or slow days, and good agents will
| do a fair bit of legwork to sell a house.
| bink wrote:
| It's been so long since we've had a real down market.
| People are going to be shocked when it happens again.
| mensetmanusman wrote:
| Down markets are all over in more rural places.
| tata71 wrote:
| For about ten more minutes.
| hellbannedguy wrote:
| I am shocked Realtors are not obsolete by now.
|
| 8 courses and a simple test, and if you're lucky they
| purchase Omissions & Error insurance.
|
| I would like to see commissions capped at 1% nationwide.
|
| (Oh yea, in CA you used to only need a 4 year degree in
| anything along with the 8 courses in order to get your
| Broker's license. Lobbiest from The Realtor's syndicate
| drew up a bill stating all brokers need to 4 years of
| work experience as a Salesman before sitting for the
| test. This durning Arnold's governorship. There was not
| one instance of a new Broker who got the license with the
| education exemption screwing up a sale. Arnold vetoed the
| bill. He said, "Since there are 0 problems, why make it
| more difficult to get a license. Gov. Brown ended up
| signing the bill though.)
| zdragnar wrote:
| In a hot market, selling without an agent is easy. In a
| normal market, they can help quite a bit.
|
| On the flip side, buying with an agent is handy in a hot
| market, because they can help you get bids in by having
| access to sellers realtors and knowing in advance when a
| home is coming on the market.
|
| That said, my last purchase definitely didn't need the
| involvement of a realtor at all.
|
| (You're totally right that I misremembered the 10% number,
| btw).
| ssharp wrote:
| I've sold two houses in normal markets without an agent
| doing what the above poster mentioned. I talked to a
| handful of seller agents and none could articulate any
| value over just doing a flat-fee MLS listing. Some were
| completely unwilling to come down to 4 or 5% commission
| and typically the ones who insisted on 6% also insisted
| on listing the house below market value.
|
| I was more than happy to plop down a couple hundred to
| list on MLS and pay the buyer agent a 2% commission. We
| had a pretty boilerplate purchase agreement and then the
| title company handled the rest.
| throwaway803453 wrote:
| Personal story, I sold my home in Austin in July of this
| year. I was going to sell it myself but instead found a
| 1% broker. It was listed at $525k and I would have taken
| $495k. Because I don't negotiate for a living and because
| $495k is a lot in comparison to what I paid, _anyone_
| could have easily talked me down from $525k. But because
| they called the broker instead of me the property sold
| for $547k. The broker also encouraged me to offer only
| 2.5% to the buyer agent instead of the 3% that is
| typical.
|
| So yes, if you can keep your cool, keep your mouth shut,
| forget how much you already profited, and have a bit of
| greed in you, then sell it yourself. Otherwise outsource
| this job and pay as little as you can for it.
| short12 wrote:
| Its not just in hot markets. That is myth
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