I imagine that Rocket increased their workforce by more than 8% between spring of 2020 and now. I work for a mortgage company and layoffs have happened multiple times this year. With rates so low for almost two years the volume increased significantly. In order to deal with that volume the company most certainly had to hire many people and quick. The market conditions can't support keeping those individuals (or at least the number of positions that were added) during the pandemic. People who work the operations jobs (who are behind the scenes helping the loan officer close loans) know the market is cyclical and know that layoffs are a part of the business.
How this downsizing looks from a client's point of view:
I have almost finished a 4 months long process of buying a summer house (including one failed deal), and my first financial agent - a very bright and fast girl - was fired right in the middle of my first transaction... and nobody told me a word about it - neither the manager, not the new agent, so I was sitting in the dark for a week or so. The agent that I got instead of a fired girl was very slow and unresponsive, so I've changed the financial company. Guess they will need to continue to "downsize"...
Why would anyone want to fire a nice worker and keep a worse one is beyond my understanding.
I tried using Rocket last year for a mortgage and had a similar experience, aside from starting with a helpful employee. The folks I tried to work with were unresponsive and extremely unhelpful.
One thing that blew my mind was how terrible most mortgage companies I contacted are. I lost count of how many places I contacted that were slow and unhelpful about everything, and it kind of blew my mind. I was reaching out to companies offering them thousands of dollars in business and the usual response was "meh". There must be some pretty large moats in this industry because most shops are clearly not competing on competence or customer service.
I can't speak for the places that you contacted, but I know where I work there was a large amount of work for a staff that hadn't ramped up to meet the demand. There were people who coordinated closings that were working 80+ hours a week for almost a year in order to barely keep up with demand.
"There must be some pretty large moats in this industry because most shops are clearly not competing on competence or customer service."
There is. It is a capital intensive business that has licensing requirements for every state that you do business in. There are mortgage companies that will loan you the money and then turn around and sell that loan to an investor who would then service the loan. There are also mortgage companies that will loan you the money and also service the loan for its entire lifetime. In the case of the former, you can make your money back relatively quickly as you should be trying to sell the loan to an investor around the time of closing but there is risk in doing so. If you haven't done your due diligence about the borrower and something negative about the borrower comes to light (such as borrower lying about income) then the company that is buying the loan can pull out and now you are on the hook for a large loan that you issued to somebody who may not be qualified. With the latter, your income is going to be slow at first since you would only be making money from monthly payments.
I think this is because many mortgage processes are still old timey and rely on manual interactions by telephone and e-mail. So if they are busy and overwhelmed, they can’t respond. Even when people try to dump new business on them.
I refinanced in fall of 2020 and contacted a few companies off bankrate. Some send spam automailers, but better.com had a quick first contact and everything else was automated and quick. The estimates were autogenerated so no waiting on a loan officer to create spreadsheets and fill informs. And all the underwriting was tracked through a web site so no manual emailing or scanning or anything.
It was a pretty efficient process and it was nice to not have to wait on humans. I did have to cal once or twice and they were very responsive.
Pro tip: Ask your realtor who they recommend. Every serious realtor has a small group (1-3 max) mortgage brokers who they they have vetted. They periodically refresh their list if someone isn't getting it done for their clients as expected. There are lots of mortgage brokers out there, the realtors know who is good and who isn't because they work with them every day.
Also FWIW: Even here in small town America, lenders are dealing with tens of millions in volume every day. You will build a relationship with them over time, not on. any single deal.
I didn't read it that way. Is HN a professional context?
In this casual retelling I read it as a neutral noun describing gender.
Substitute the equivalent here with 'guy' and we wouldn't be having this discussion.
Thinking harder, I guess 'gal' would have been more appropriate. But in any case I feel this reveals more about the reader and their proclivity to engage in 'culture-war topics' than anything substantial.
> But in any case I feel this reveals more about the reader and their proclivity to engage in 'culture-war topics' than anything substantial.
You are, of course, free to assign any motivation to me that you like.
However I am on the older side and the only times I ever heard "girl" used were as a pronoun for a younger person or as a diminutive for a person seen as lesser than the speaker.
For example, my older family members would refer to "the typing pool girls" or "the makeup counter girl" or, by comparison, "the woman at the county clerk's office."
So it is a bit astounding to me, especially now, to hear someone casually refer to someone who is providing a professional service to them as a "girl."
I am sorry if my choice of words has caused some misunderstanding, but English is my third language, so I am not able to put too many subtle nuances in my messages or to follow the latest language fashion trends.
Still, there is a definition in Merriam-Webster’s: “girl (1c): young woman” - I wonder - is it outdated?
Upd. Also this: “a person seen as lesser than the speaker” was impossible in the culture I’ve grown up in. So if there is a subtle nuance in my choice of the word “girl” it is “I felt pleasure each time I heard her voice”, not “she was lesser than me”.
Taking the poster's statement in isolation, interpreting it as a younger/diminutive person is a fair reading as well.
In this case, the full context is of a casual/informal retelling here on HN so it changes how it should be interpreted (or at least, put in consideration).
Plus he was complimenting her; makes the diminutive interpretation less likely.
All nitpicks in the end as result of lossy text comms over light, no big deal :)
They have downsized dramatically as well. They used to have permanent offices with seasonal satellites popping up. They have several-weeks' long training courses and began well ahead of tax season.
Now, they are a complete shitshow. I had an unusually complex return and decided to go with them. Big mistake.
While waiting (I had an appointment but that mattered not, I was waiting pver 1.5 hours).
My wait came to an end as I watched a kid, his wife and new daughter ask some questions no one knew how to answer.
His question was why he owed taxes. I, from my chair, knew the answer- he hadn't had anything deducted from his substantial unemployment and thus owed on those as he would have a regular job.
No one at this location, including the 'manager' knew or could find out this information. I watched as they slowly went up the ladder asking while trying not to freak out, and as the poor young couple were in hysetics.
I just left after seeing all of this.
They are reading the same or worse prompts than any free file service and are charging hundreds to thousands of dollars for the privilege and the 'tax experts' are anything but.
Seems like the bubble burst is going to be more sudden than we thought. 30 year mortgages are suddenly at nearly 5.5-6%, listings are sitting on the market for longer, and multiple cities are cracking down on Airbnb.
I mean, it's not really a burst, we're just hearing the hissing noise of the obvious leak.
The true demand from people with the intend to actually live in the estates has been constantly decreasing since around 2000; the real salarys dropped since then, so did the buying power.
The only reasons people found buyers at x3-x10 (!) prices were
a) that there is a class of people wealthy enough to still afford the purchase, even at those completely-out-of-touch prices, and
b) that people were given loans they should either never have gotten (2008) or that they shouldn't have asked for (because it's dumb to buy estates where the price is set by people and institutions that have n times your own income/net worth)
When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population.
I think you have missed a source of demand, and I think it's important.
As housing became more and more expensive to young professionals, some people in this group have worked harder and harder to buy property, even to the point where it no longer seems rational. For example, parents taking a lot of wealth out of their retirement savings or their own homes to assist children in buying. Professionals are working more than otherwise makes sense for their stage in life (young families with two full-time parents). They are committing a large share of their monthly budget, often right until the start of retirement.
They do this because they believe in the importance of owning property - beyond any reasonable narrow economic justification.
Of course, there is an inequality aspect to this - not everyone's parents have capital, not everyone can command a high enough wage.
But crucially, the presence of this group of people arguably turns the bubble into something else. These buyers put a floor on the market. If prices drop even a little, or something else changes to make mortgages slightly more affordable, they rush in and buy the dip. By doing this, they sustain the high prices for everyone else in the market.
This will probably happen now. Higher rates will make current prices unsustainable. As soon as they correct to the point where monthly payments are back to what they were last year, there will be buyers, only too happy to overextend themselves to get out of renting.
It's inaccurate to characterize these people as likely to default. They are actually very good mortgage risks - they have already shown themselves to be very committed to ownership. And the resources which got them into a position to buy mean they will keep on paying short of a disaster. The truly unrealistic borrowers of pre-2008 have never been let back into the market.
I did not miss those people, but my wording was loaded and so the point got lost in translation. I implicitly captured them under b) "[...] it's dumb to buy estates where the price is set by people and institutions that have n times your own income/net worth", where dumb is a loaded term for your >"to the point where it no longer seems rational".
>But crucially, the presence of this group of people arguably turns the bubble into something else.
I agree with this, it's not a bubble in the sense of 2008. I said so in the comment you replied to! We're in the same boat here.
By the way: I'm precicely in that demographic. I just turned 30 and do well for myself as an employed consultant, but I wouldn't consider buying the dip, unless the dip is at least ~100% of the current market prices (which I don't see happening, but who knows). Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move. The counter-argument I hear from people my age group is always the same "but then you'll never own anything!" -- then so be it, whats the point?! Even if someone gave me a million Euros, I wouldn't spend 600k of those on a house and then another 300k on renovations, that seems like a terrible waste of resources. With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc. Buying estate = de facto being in debt for the entire career and then some, plus having to pay all repairs, anything. I don't see how that would ease my life at all. If someone wants to give me a house, nice, but buying a house just for the sake of doing so reminds me of a signature I often read on market-ticker.org -- leave the rats race to the rats.
>Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move.
Buying a house isn't for everyone, sure. But this is a serious misunderstanding of what "going into debt" is. You're not buying a TV you'll throw out in 5 years, you're buying an asset class that has a history of appreciating in value over 100+ years that you can get incredible leverage on. In the US and Canada, at least, buying a house for a decent deal (in "normal" times, not at insane prices) is a no-brainer investment.
You mention buying companies...that's just a different asset class, but the idea is the same. It's not valueless the moment you buy it, you now have an asset.
>Buying estate = de facto being in debt for the entire career and then some, plus having to pay all repairs, anything.
Do you think this is all happening for free as a renter? At what point in your life do you plan on not paying for shelter?
>buying an asset class that has a history of appreciating in value
Correction - over a time period of decreasing interest rates. Housing, on its own, is a depreciating asset. It is a consumable like a TV. It deteriorates with time.
"Housing always goes up", without an understanding of why it has been going up, can be a dangerous belief and could be one of the reasons why housing at the moment is so expensive relative to rents.
Most of the housing bubble is actually a land price bubble. Land is only a long-term depreciating asset in shrinking cities, because demand for the land is decreasing.
Simply put, house price is a function of rents for similar houses and the multiple of annual rent that houses sell for. The multiple is primarily a function of interest rates, and a significant proportion of house price increases in recent decades has been the increase in multiple. It is also a function of expected future house price growth - the higher the expectation, the higher the multiple, which is where psychology and FOMO comes into play.
The interesting thing about these ingredients that decide the multiple, is that they can turn sharply. If interest rates go up, and multiple starts to contract, at some point the belief that house prices always go up will be shaken, and instead of pricing in future house price growth, people will start pricing in future contraction.
Level of rents is a function of the state of local economy (broad salary levels, more or less) and house supply. Can probably broadly be approximated as GDP growth - so fairly low.
So at interest rates at very low levels and arguable on the way up, and growth expectations seemingly very positive, and economic growth looking shaky, it looks as if house prices may have more downside than upside.
Residential real estate valuations haven't been based on the house itself for a while. Prices are based on:
1) the house itself (this generally depreciates)
2) land (this generally appreciates)
3) a retirement account with great tax benefits (this value can fluctuate based on local, state, and federal laws)
4) a ticket into a good school district (this value will fluctuate based on the the performance of local schools)
5) a ticket to partake in a thriving local economy (this value will fluctuate with the local economy, and has recently been shaken up by the rise of remote work)
Any speculation on real estate prices and whether or not we're in a bubble has to take these things into account.
Interest rates for mortgages follow 30 yr treasuries which won't get very high. The Fed will come in with full on yield curve control at some point. 30yr treasuries are at almost 3%, already. I can't imagine they'll get higher than 4 or 5%, at least for not too long. The world is way too addicted to low rates. if interest rates rise for any long period, something will break, really badly, there will be a fear filled crash and the fed WILL come in: you can bet on that.
Is this also true for places like Detroit, small inner towns in the mid ? West... my impression was that once banks got involved lending money the prices took off, I was under the impression that getting a house loan directly contributes to the amount of money in circulation...thereby increasing ? inflation.... another myth?)
I heard was that in China houses are leased for x years (80?) thereby leading to a lot of Chinese buying foreign Real Estate....
if
RE has the reputation of accruing value surely it'd be a good thing to put the brakes on companies from investing in it? I mean seeing endless same housing is kind of mind numbing....
I also have a theory that high RE prices are a perfect vehicule for stashing/laundering large sums of money....
Also to what extent isn't it political cronyism with the construction industry that leads to such shitty urbanistic decisions like we have in Romania where people are pawns to short term greed ...
It's worse. It's the land being leased for 70 years. House usually can't last that long anyway. But not owning the land and no guaranteed usufruct after 70 years is big.
Exactly. I believe interest rates bottomed sometime in 2020-2021. Those rates are not going to be seen for another few decades. It remains to be seen what this will do to house prices. What happened to most speculative tech stocks since 2021 can also happen to other asset classes.
I am absolutely sure. Look at inflation, for one. We haven't seen these inflation numbers since the 1980s, and this is in just 2 years since the biggest central banks opened the money spigots. I'm a millenial so I don't relish it, but "you ain't seen nothin' yet."
>you're buying an asset class that has a history of appreciating in value over 100+ years that you can get incredible leverage on
This is precisely the problem. It's not just companies buying up homes, it's also private individuals buying up housing to relist on AirBnB or other sites in order to further extract value out of their purchase.
If you look at a country like say, Japan they don't have this issue because housing depreciates and is not treated as an investment.
Doesn't the boomer die-off mean that the boomers' children will be inheriting, not just homes, but piles and piles of liquid assets, much of which they will use to get into the housing market?
After all the boomer generation, on average, has over-provisioned for old age, whereas millenials are still underhoused.
>After all the boomer generation, on average, has over-provisioned for old age, whereas millenials are still underhoused.
Have they over-provisioned? Everything I have read indicates meager savings for the vast majority of the population, who will need to rely on Medicaid and Social Security to eek out the remainder of their living costs.
Nursing home care is especially costly in the event one does not die quickly, and the government can and I assume will seek to reimburse itself from the estate once the elder dies.
A large number of poorer elder people will be in dire financial straits, forced to work beyond their ability to do so and unable to pay for health care.
However there are also a smaller number of extremely rich baby boomers and a very large number of comfortable middle-class ones. The former will obviously pass on large amounts of wealth. The latter have been forced to save large amounts for their old age, because they have known since middle age that the state would not provide for them very well.
In some cases they have decent final salary based pensions and other very good retirement benefits, no longer available to younger generations. In other cases, they have invested significant sums over the last decades and also made large investment gains.
This group has tended to save for the 'worst case' scenario - a long retirement of leisure spending, followed by drawn out old age with significant care needs. Most of them will not need all this capital - they'll either die younger than expected, or have better health into their 80s and 90s than they feared. The excess will be handed on to their children - and will be a significant source of intra-generational inequality in the future.
Remember also that middle-class baby boomers remain an electoral 500-lb gorilla. Governments have been very reluctant to claw back their benefits and care provisions as fast as has happened to other groups. In some cases they will be provided for better than expected when they planned for retirement.
> This group has tended to save for the 'worst case' scenario - a long retirement of leisure spending, followed by drawn out old age with significant care needs. Most of them will not need all this capital [...]
Sure sounds like this group would have had happier, more rewarding life experiences, and at a macro level made a more appropriate investment of effort, had they been able to trust a social safety net.
75th percentile gets to only $800k by age 70, and that is including the equity in their home. Maybe the beneficiaries of the 70% to 90% households will end up with real estate worth a few hundred thousand, but I do not see much wealth being passed down beyond that.
Labor is only going to get more expensive as greater proportions of the population age out of the workforce and become labor buyers rather than suppliers. Unless many start dying younger than anticipated without using a lot of medical and nursing home care, I would not expect much if I was their descendant.
A 'few hundred thousand' is a lot of money to inherit, and for lots of middle-aged people and young families it will go straight back into the housing market, typically in areas that are already quite hot.
Note that the upper quartile having $800k includes $500k which isn't in their primary residence. Older people tend to own cheaper houses than you might think, since they are more likely to live in more rural areas.
If you're 70 and have a house you might be able to live quite a few years on half a million. In practice, you have a decent chance of dying before you spend all your capital.
> Going in debt for 30-40 years has zero appeal for me
Going into debt at the lowest interest rate you'll ever be offered to buy a leveraged asset that's likely to increase in price and reduce the overhead you pay on your largest expense, housing, and hedge against the risk of rent increases and security against the whims of landlords?
> Germany
Oh, Germany. Somehow Germany has escaped the constantly increasing house price effect, as has Japan.
If you owned a house in London its annual value increases would almost certainly out-earn your salary. And you don't have to pay tax on that.
>Going into debt at the lowest interest rate you'll ever be offered to buy a leveraged asset that's likely to increase in price and reduce the overhead you pay on your largest expense, housing, and hedge against the risk of rent increases and security against the whims of landlords?
Look, if I had enough money around, I'd maybe consider the gamble. But I don't want to buy property to sell it later, I just want to live somewhere. I'm not interested in placing bets on my salary, and I'm not interested in financial longterm-obligations. Maybe in 10 years I want a year off? What then? Maybe I want to change careers to something less intellectually demanding. Maybe I want to spend 50 hours a week with my kids. None of those are feasible if I need the salary. "No debt" is synonymous to freedom on so many levels in life design. The choice is not even close to me.
I make enough money not to worry about rent, even if it should substantially increase, which I don't see happening anyway, simply because then most people wouldn't be able to afford it and political change would become opportune in election-based systems.
>If you owned a house in London
Whats the point of even thinking about owning a house in London? Seriously. I come from uneducated parents that left me €0 and completely unprepared for life, so in my 20s, I first had to dig myself out of that crap. Now I make a good living, but I'm not rich, or filthy rich, or even wealthy. I have to actually make the money to pay that thing. Look at the development of real estate prices in the last 20 years and tell me that's a reasonable choice if I don't even intend to sell the property later (just to be stuck in the same situation again, with more cash, but in the same dilemma). It's pointless. I don't treat my lifetime-expenses as a game of assets, I opt for quality of life, which I don't achieve by giving it all to some property-owning entity who sells it to me at 3 times the price they paid a couple decades ago. I mean, you can justify doing so, but I don't see me being able to justify it.
That's exactly what you already do if you're renting: you're betting that you will be able to work and earn enough salary to afford the rent, with your adjusted expenses. That's "pfft easy" when you're in 20's, easy in your 30's, okay in your 40's (kids need money, yo), doable in your 50's, oh shit when you're 52 because surprise! economic downturn / medical emergency / anything else that might happen. And now you don't have a place to live in and spending your retirement money to rent one, or take a dip in your quality of life.
If you're not paying for your mortgage, you're likely paying for one of your landlord.
> And now you don't have a place to live in and spending your retirement money to rent one, or take a dip in your quality of life.
As you say, keeping up with rent is easy (not necessarily, but for those in professional careers) early in life, but as your income plateaus later in your career it starts to become harder to keep up with relentless rent increases.
But then it's in retirement that a lifetime of renting really hurts. Suddenly you have no income anymore other than whatever small retirement benefits if any, but rents keep going up.
> But then it's in retirement that a lifetime of renting really hurts.
That assumes that the mortgage (+tax, +maintenance, +etc) is the same cost or less than renting is. That almost certainly isnt the case at first - at least in the area I live, I see houses renting for far less than just the interest on the mortgage would be (if purchased today, presumably the owners bought at lower prices and/or lower interest rates).
Agreed, at first the monthly cost of ownership is likely higher than rent. But my quoted comment was about retirement age, which is at the tail end, not at first.
It doesn't take long for rent to catch up and from there on rent will forever go up while the mortgage will either stay fixed or only go down via refinances. Even if refinancing doesn't work (in a rising rate market like right now) the mortgage is effectively going down via inflation while rents keep up with inflation.
In my case the first year of ownership was fairly painful as the cost was much higher than previous rent (although for a nicer place). By the second year was able to refinance so it wasn't bad anymore. By the third year, with rents rising, my mortgage was already about par with local rents.
Ever since then, rents have gone up massively (about 4x-5x) and my mortgage has only gone down (today about 30% of the inital monthly payment in absolute dollars, or effectively only about 15% considering inflation).
Most importantly, it will be paid off before I retire so once I'm on a limited fixed income that's one monthly cost I won't have to worry about. Having seen some forever-renter extended family reach retirement age with rising rents, it's a sad and painful situation.
My advice to anyone is that unless you hate your future self, buy a house in your 30s if at all possible.
Rent rises, your mortgage doesn't. I have locked in $3500/month current cost to have a home, which is about what rent would be (once you account for gains from investing the down payment to offset the rent).
Since 1980, in the US, rents have increased 9% per year. In 20 years, the rent will be 2-4x, whereas my mortgage will remain the same (modulo a lowered interest deduction).
Even if it's about as financially efficient (which I doubt), it's a very powerful feeling to have locked down a fixed cost of housing for as long as I want to live in California.
Same. Which is exactly why I bought a house in 2011. In hindsight it was the perfect time, but at the time the market was still bumpy. At the end of the day, I had a stable job and needed to live somewhere.
> I make enough money not to worry about rent, even if it should substantially increase
The house next door to me rents for 2.5x my mortgage.
My salary has continued to go up, while my cost to live has continued to go down (I refied at the rate bottom). If I want to take a year off I can either rent out my house or just carry the cost at this point. Buying this house gave my wife and I more flexibility because with some decent certainty (+/- small amounts for taxes/insurance fluctuations) I can tell you what my cost to live will be next month or 24 months from now.
Finally, buying a house with a mortgage is best way for a normal person to protect against inflation. Housing is typically a families #1 or #2 expense, and being able to mostly lock that cost is a huge win 3-5-10 years out.
>Same. Which is exactly why I bought a house in 2011. In hindsight it was the perfect time, but at the time the market was still bumpy. At the end of the day, I had a stable job and needed to live somewhere.
And you were more likely to be able to because it was 2011. Fewer people can do the same today, at least at a similar comfort level of cost of house to income ratio.
Sure, but what about 1-2-3 years ago? The person I responded to said they never saw the point of taking on 30 years of debt, so my response was in more general terms.
Also, 2011 was still very uncertain. Would the market continue to go down, and would I keep my job were all real questions.
Is today a questionable time to buy? Probably, but what type of correction is needed in a ~7% inflationary environment for it to shift into an ok time to buy? 10%? 20%?
The point is there is always uncertainty and only in hindsight did 2011 look like a great time.
I spent most of my 20s thinking, man, fuck home ownership, I'm gonna rent forever (to my knowledge, no-one in my family had ever owned; I grew up in charity housing and inherited nothing at all). Then I got booted out of a place because the landlord wanted to sell. They offered it to me first, but I had no savings for a deposit. The same story played out amongst my friends, repeatedly, and it totally changed my mind. It wasn't rent increases that were worrisome or painful, it was being forced to move. I wanted to find somewhere I liked and bloody stay there, a literal impossibility all the while I rented. But if I could get a deposit together† then ownership would do it - plus it was revelatory to me that my mortgage payments would be less than the rents I'd been paying AND I could have them fixed for 10 whole years.
I didn't buy because it was a step onto the property ladder. I bought because it was less of a gamble than renting. I ended up staying in my first house for 17 years, whereas my record under a single landlord was 3.
> Maybe in 10 years I want a year off? What then? Maybe I want to change careers to something less intellectually demanding. Maybe I want to spend 50 hours a week with my kids. None of those are feasible if I need the salary.
During those 17 years I took at least two pay cuts, and multiple 2-6 month breaks between jobs, all affordable because I owned rather than rented. Lower outgoings made it possible to save more, plus my mortgage provider offers payment holidays. No landlord ever did!
> I opt for quality of life, which I don't achieve by giving it all to some property-owning entity who sells it to me at 3 times the price they paid a couple decades ago.
I mean, isn't "paying rent to a private landlord" doing just that? Except "sells it to me" is actually "allows me to live there, until they decide not to" and all the money you spent is gone.
† I lucked out with a lump sum/windfall through my employer; I'm making no claims that getting a deposit is easy/attainable
> and multiple 2-6 month breaks between jobs, all affordable because I owned rather than rented
Indeed! I've taken a long break from working to be with my child, which I could afford to do only because I'd bought a home years earlier. If I'd been renting with ever-increasing rents I never could have done that.
house ownership is just a legal construct. you don't really own the house, even when it's paid off. even if you own, and pay off the entire house, you'll still have to pay "rent" in the form of property taxes, an unfortunate reality.
In some places that can be a lot of money. Like New York, I hear property taxes are close to half your mortgage. In places like Washington, property taxes amount to a few thousand dollars a year on a modest house. I'll pay that over $2000/mo in rent any time.
Stange argument, all rights are legal contructs - how do I know my employer will pay me for work done, or my neighbour won't rob be in my sleep and slit my neck?
If we don't trust legal constructs, we can't have a civilisation.
You can trust them, that's not the point. the point is, you can keep your pen or your calculator without having to pay rent on them. You can't keep your land/house unless you pay rent on it to the govt. Considering that all humans require shelter to continue living (surprising: the homeless in the US die 30 yrs younger than the average), a case can be made that property taxes for a minimum amount of land necessary to live are unreasonable. otherwise it's a tax on life
That case doesn't work because the property taxes mostly fund essential local services that are also necessary to live and have a functioning society - there are many locales in the US where the property taxes are zero but there are no improvements or people around you.
I'm in the UK. AFAIK we don't have any ongoing property taxes to pay, at least not if I have bought the freehold. Leaseholders may have to pay ground rent, but that's often a peppercorn and anything above that is being legislated into oblivion this year[0].
Regardless, ownership is a useful legal construct the benefits of which seem to outweigh those of being a tenant.
Ah yes, there’s council tax - but tenants pay that too, so it’s not a difference between the scenarios. Also I wouldn’t want or expect to stop contributing to local services just because I don’t have a mortgage!
Tenants in the USA do not pay it directly but do so effectively by proxy, because they pay rent to the landlord and the landlord pays property taxes to local government.
Property taxes in the USA go towards local government services like garbage collection and street maintenance, just like council rates. So I believe property tax and council rates are still analogous.
You seem like an engineer, so you should be able to start up a spreadsheet, put down a bunch of reasonable numbers, and project forward 20-30-40 years and see what makes sense for you. If a loan is involved, read up on the IPMT Excel/Google Sheets function! [1]
I don't know how things work where you are, but here in the US if you are renting, you are essentially helping someone else pay their debt. And they can kick you out when they please. The main benefit is that you can stop paying on a much shorter time scale (1yr lease contract?) or take time off, but if you don't rent you should require a smaller cash flow which should be possible to save up for.
One last thing, don't forget that you can sell the property in the future (or even rent it out, hence letting someone else pay YOUR debt). That should factor in your cost/benefit calculations. Even if it does not appreciate at crazy rates like the current insane market has led us to expect, it will very likely be a lot more than zero.
Around here, monthly rent is as high as or higher than mortgage payments. With mortgage payments, you accrue ownership (for the "standard" mortgages around here). If you expect house prices to remain stable or increase during your residency in a property, ownership financially makes more sense.
Why do people compare monthly mortgage amount and rent? It misses several big elements to housing costs: taxes, maintenance, closing costs, realtor costs, and opportunity cost of the money tied up.
Renting vs buying comparisons need to account for lot more than those two numbers but that's all I see posted most of the time.
It's very hard to compare some of those things as they differ from home to home and country to country. Here in the UK most landlords will do extreme minimal maintenance and taxes on the house are paid directly by the tenant and not included in your rent.
"Realtor costs" are again different some estate agents in the UK charge a % of the sale price others a minimal fixed cost.
I'm sure that these things differ massively in different countries as well so it's hard to put an average number on that.
In terms of opportunity cost of the money again it depends on how you would invest that money you could put it in something very high risk and show a huge imbalance in buying a home vs investing in crypto or something like that. In the UK most low risk savings accounts will track lower than inflation on a property only the stock market will track higher but again that's higher risk and so not comparable. Also most savings accounts in the UK are capped at a max amount that can be saved per year.
As I said though if you try to compare mortgage vs something like stock market it's not really comparable. Also to note the large index funds in the USA track much higher on average than most other countries.
I've seen people use the S&P as an example that house prices don't track to the same amount and that you can compound any gains to make large sums of money. What's interesting about this is that the reason you make so much money with that model is that compound interest is non-linear in growth which means over say 40 years you make most of the growth at the end of the period (Literally in the last 20%). This also means that if the end of your growth curve ends on a bad few years for the S&P you'll do much worse than the average so the risk is still very high on even index funds.
Overall though my current mortgage cost is 2.5 x lower than rent for a comparable property. So you'd have to factor in the opportunity cost of that extra per month I save not paying into rent into your equation as well.
Many banks set up blended payments so your mortgage payments include property tax. Closing costs occur at the time of purchase and are one-time fees, not recurring. As for the opportunity cost, it's only relevant if your mortgage+taxes are higher than what you were paying in rent.
The big unpredictable element is home repair costs.
Most places in the US, a mortgage from 5-10+ years ago will be less than renting an equivalent place, but a recent mortgage will be higher because prices have gone up so much.
This is generally true because prices generally go up. My brother almost bought a $200K condo in SF 30 years ago but it was slightly out of reach on his $60K Sun micro income, and his $500 room for rent was cheaper. The condo has gone up about 8X and rent (assuming market rate, it was under rent control) 5X. So as expensive as it is to rent in SF, it’s relatively more expensive to buy. It’s unknown if that trend will continue. It doesn’t seem rational but the city seems intent on continuing to severely restrict supply.
I think he’s saying that in ten years he can stop renting and shove everything into a storage unit and go travel.
The rent/but dichotomy really comes down to what axis of “freedom” you want to optimize for, and if you want to stay in the house and area more than 10 years.
> "No debt" is synonymous to freedom on so many levels in life design.
No debt is indeed great freedom in general.
But housing is different. Do you plan to live somewhere? You still have to pay for it. For as long as you live you'll need to live somewhere and that means paying for it. Whether you call it rent or mortgage, you're still paying, there's no escape.
So, within those constraints, it is better to invest in a house than to enrich someone else for the rest of your life.
Japan I think is a bit different. Over there, housing is seen as a real commodity. In Tokyo, housing is torn down and replaced with newer stock all the time, often without any additional occupancy. Houses in Japan do not appreciate the way they do in the rest of the Western world.
> Going into debt at the lowest interest rate you'll ever be offered to buy a leveraged asset that's likely to increase in price
To a large extent house prices are sensitive to interest rates. A bank will look to your income and say you can make a monthly payment of $X. At historically low interest rates that’s gonna mean a bigger loan. As everyone’s ability to borrow goes up, so do the prices. As rates rise, for the $X dollar payment, the ability to borrow declines, and that puts a down draft on house prices.
> buy a leveraged asset that's likely to increase in price and reduce the overhead you pay on your largest expense
Oh boi. When you buy this you are giving all this benefit to the seller that takes these into account. You are not making a profit off of it unless the value increases more than the market expectation for it.
So its a leveraged bet that it will be better than expected by the market, and if it goes the other way you are toast.
You bought near the peak of the market then. Definitely been some downward pressure on prices since covid as people sold up in London, took that premium price and moved to larger properties elsewhere. Not saying it was a bad investment, just that the return will take longer than it has in the past.
It doesn't matter where I bought. If I haven't made much money in the last 5 years, nor has anyone else (on average), regardless of how long they've owned their property.
The suggestion that 'the return will take longer than it has in the past' is a prediction with no evidential basis.
Isnt that exactly the scenario that op is describing?
Lack of flexibility at precisely the right time?
Owning in any large city + servicing debt during the pandemic when you must move elsewhwre that is sane (and less risky to your health) would seem to have a premium attached to it
Then I guess your salary is amazing, because many house prices across London have doubled in 5 years.
If you somehow bought a house at a reasonable earnings multiple, say 4x earnings, then your house has appreciated essentially what you earned over the last 5 years. This is just math.
Can you tell me an area where average house prices have doubled in the last 5 years? I can't think of one. Most expensive areas have gone sideways since Brexit, and risen a bit since the pandemic. Most cheap areas have grown slowly since Brexit.
Me and my partner are looking for a house in zone 3-4 right now, and I can tell you that every single home we've looked at is on for an asking price (and they're selling) of between 50-100% more than they last sold for 5 years ago.
We looked at a home that sold for £415K in 2017 for example and we were outbid. It went for 865K
Flats aren't so hot, that's for sure, but there's been masses of price growth over the last 5 years on houses. There's a stunning lack of stock on the market.
London Prime Property: Our forecast for growth of 24% in the five years to 2026 means that by the end of the period, values will return to their previous 2014 peak level for the first time. [0]
> I just turned 30 and do well for myself as an employed consultant, but I wouldn't consider buying the dip, unless the dip is at least ~100% of the current market prices (which I don't see happening, but who knows).
You wouldn't buy a house unless it was essentially free? A dip of ~100% means prices at ~0% their current level.
> Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move.
Debt on its own doesn't matter so much. You already know that you will need to live somewhere for the rest of your life, so that expense is unavoidable. The question is whether you want the amount of that expense to fluctuate according to the market, or if you want to lock in a steadily-decreasing expense with a 30-year fixed rate mortgage (steadily decreasing in real terms, because $100 in 30 years will be worth $50–60; yes, property taxes are likely to increase, and maintenance will move with the market, but mortgage interest and principal will decrease in real terms).
> Even if someone gave me a million Euros, I wouldn't spend 600k of those on a house and then another 300k on renovations, that seems like a terrible waste of resources. With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc.
$1.05 million is hardly enough to live on. That's just $35,000 per annum. It's not nothing, and I surely wouldn't sneer at a gift of $1.05 million, but it wouldn't let me retire today.
This is fair, you didn't miss those people. But I think it was worth me highlighting them because they are, as I argued, very important.
I somewhat agree with your argument. Housing costs more than other assets compared to its economic value, exactly because people have an emotional reaction to the idea of owning it - or the idea of not owning it.
However I have seen middle-class people overextend themselves to 'buy the dip', while their equally wealthy peers sit it out, for over 15 years now. Many of the people who did the former now consider themselves to have got a bargain, while many of the latter changed their minds and ended up buying several years later and at much higher prices.
I'm definitely not arguing that this makes buying right and renting wrong! Just that so far, this is how that choice played out.
A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up.
I am curious what you guys think of this statement. I think the idea is if the potential rent you get out of your investment is too much under one percent, you might be better off investing in something else?
Now imagine a smallish 4 bed, 2 bath, 1,638 sqft built home on a 5,861 sqft lot in Longmont, Colorado (so not exactly a city but my preference because municipal fiber) that has a sticker price of USD 499,900. I can't imagine paying USD 4,999 every month in rent for this house at the moment. What gives? Is rent too low? My instinct is home prices are way too high but it can't just be "dumb money" keeping prices high, right? Eventually, there should be more supply causing prices to drop? Is something preventing this correction? If so, how do we fix it?
An old rule of thumb was 'buy at 10, sell at 20'. That's the ratio of price to annual rent. So if you could get 0.86% of the house price in monthly rent, it was a big bargain. If you couldn't get more than 0.43%, then it wasn't worth owning.
The rule of thumb is now obsolete, and 30-40 times rent is perfectly common in lots of places.
The newsletter is quite a lot more aggressive than even the rule of thumb from the 'good old days' when interest rates were much higher.
I used to pay around 0.2% of the market price of my apartment per month. The landlord was a professional property management company, and this situation persisted through several new contracts.
House prices are kind of attached to rent, but not entirely - especially in areas where there are few rentals, or lots of them.
Actual rental revenue received can be significantly lower than calculated if there are vacancies, etc. It’s much easier to do on an apartment building with many units.
> A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up.
Does this have all taxes(property,rent,etc) included in the cost?
As far as I remember, no. This is just the sticker price. This is a conservative estimate for people who are not real estate professionals, probably looking to buy a house to rent for the first time. Based on the other comment reply, it sounds very conservative to dissuade people from making stupid decisions.
> Going in debt for 30-40 years has zero appeal for me, it just seems like a terrible move.
That's not the best way to look at it.
Unless you plan on being homeless, you're already inevitably committed to a monthly housing payment for most of your life.
So the decision becomes, do you pay someone else to enrich them and commmit to having to pay for the rest of your life? Or do you invest in something where you partly pay yourself and there is an end (even if far) to the payments, so when you're old you no longer have those monthly payments?
> With that kind of money, you can buy three small companies in Germany, or stop worrying about retirement, etc.
What are the closing costs of purchasing a whole company? How much would you pay for an accountant to go over the books and a lawyer to go over the forms?
I don't know how much homes cost in Germany, but surely if people have 600k to spend, they would buy companies too, would they not? Why do they buy homes instead?
Thank you for your comment. I think this is interesting:
"Higher rates will make current prices unsustainable. As soon as they correct to the point where monthly payments are back to what they were last year, there will be buyers, only too happy to overextend themselves to get out of renting."
So, higher rates are effectively a transfer of wealth from homeowners to banks? How does this serve to combat the current inflation issue?
With the housing shortage and unmet demand, we are at the margins whereby the ones buying are well-off.
The question to ask is if the rate of new housing and the rate of capable buyers will diverge.
As long as supply is low enough that the supply of capable buyers keep outbidding each other, housing prices will keep rising or at least plateau.
Higher rates will have an affect on diminishing the rate of capable buyers entering the market, but if supply is still low and the demand for home ownership remains high, I don't foresee anything drastic happening to the housing market.
The real irony is that these people putting a floor on the market are mostly the same demographics screeching about how housing shouldn't be an investment.
Yet another case of how society would be better off if people practiced what they preached.
> The true demand from people with the intend to actually live in the estates has been constantly decreasing since around 2000; the real salarys dropped since then, so did the buying power.
> When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population.
Nonsense. The home ownership rate is 65%, in-line with the long term average and the same as it was in the year 2000
People still talk about millennials as if they are still in their 20s, but the oldest millennials are now 40. I'd guess that age of first home purchase has been trending up for a while.
>Nonsense. The home ownership rate is 65%, in-line with the long term average and the same as it was in the year 2000
The homeownership rate is counted in terms of households, no? So it can be kept artificially high just by having 20-somethings no longer move out of their parents' houses.
The Baby-Boomer generation in the US is increasingly deciding to "age in place" rather than downsize and/or move to assisted living facilities. This is certainly a factor in the ownership figure you are quoting. There has been lots of coverage in this trend the last few years as well. See:
> that people were given loans they should either never have gotten (2008) or that they shouldn't have asked for
I bought my house in early 2007 and mortgages were indeed crazy back then. My analysis said that at the mortgage rates for a 30 year fixed mortgage back then (a tad over 6%) said that my ideal home financially would be around $H or less, that I could go up to 1.25 $H without house payments being high enough to crimp my currently lifestyle, and maybe I could push it to 1.5 $H if the house and location were really great.
When I went to get a mortgage from the now infamous Countrywide Financial they looked at the same data I had and pre approved my for a loan of around 3 $H.
That was an absolutely ridiculous amount. I had the analysis to prove that, so just laughed and went back to looking at homes in the under 1.5 $H range [1].
A lot of people who didn't know how to do their own analysis thought that the mortgage companies would only approve them up to what they could reasonably afford, and so getting a pre approval for much higher made them think they could actually afford way more expensive houses than they actually could.
[1] In case anyone is curious, I found a house that was almost perfect as far as size, layout, and location for 0.9 $H and almost bought it, but then found that its water source was a well owned and shared by a group of 4 houses. I could not get satisfactory information on how maintenance and repair of the well was handled. I ended up with a place a little bigger, in a better location, but without quite as nice a layout for 1.16 $H.
I'd like to provide some context around the approved amount. Countrywide (and other originators) get their rates from Fannie Mae and Freddie Mac. These two have guidelines set to approve X monthly payment based on your income (for instance, you can spend 28% of your income on your primary house).
These guidelines are set for BROAD populations - specifically very poor and "normal" people have the same guidelines. For poor people, a high threshold is important to "get them in a house" - they might genuenly need to spend 30% of their income on rent or mortgage. For "normal" people, that same percent is "way too much money" for "way too much house".
The result is that normal people get approved for a big fat mortgage. But we don't want a big fat house, we try and buy a normal house, but we really want it so we pay "just a little more than it is actually worth" and drive the price up "just a little".
Of note, FNMA and FDMC adjust their guidelines for high COL areas and some other guidelines. And also, their guidelines have moved over time. Also, it is a generally accepted "fact" that home ownership is good, and poor people should be encouraged to buy a house.
> Also, it is a generally accepted "fact" that home ownership is good, and poor people should be encouraged to buy a house.
Which has the undesirable effect that it makes it difficult for workers to move to where the good jobs are, so now you have situations where workers are stuck in place A, doing job 1 for $X even though they should probably go to place B, and do job 2 for $Y -- because to move from A to B they'd have to buy a house in place B, and sell their house in place A, which is both annoying and relatively expensive.
This varies culturally, IIRC Poland and Germany - despite being neighbours - have different cultural assumptions about whether it's "normal" to buy a home rather than renting.
Maybe a shift to more Work From Home reduces the problem by allowing workers to take more jobs in place B despite actually living in place A.
> But we don't want a big fat house, we try and buy a normal house, but we really want it so we pay "just a little more than it is actually worth" and drive the price up "just a little".
The problem here is really with the supply of homes. If there was a good supply, issues like this would never arise, or would rarely arise, because there is always a house just as good down the street that you don't have to overpay for.
Part of the problem is the supply chain but I bet alot can be done by the govt to get out of the way. Of course the other side of the coin is activists that scream both: "We need more housing" and "how dare you build more housing" in the same sentence.
Important to compare like renting a modest Apartment. If that payment that works for you is X, maybe 3X is too much house? Houses also take a lot of repair, and need things like new roofs and HVAC.
Figure a well can be drilled for a few thousand. Depends very much on the area though, some locations you can get plenty of water from a small hole not very deep (you can pound a pipe into the ground - with a hammer, put a pump on top and get plenty of water). Other places you have to go very very deep to get water and even then you have to be careful not to use too much. And there is all kinds of in between. Worse, sometimes one side of the lot will have plenty off water and the other will not. Then you have to watch for local issues, keep the well far from the septic system (including your neighbors).
Good question. It didn't occur to me to check. A bit of Googling suggests that in my state a new well would indeed have been less that 0.26 $H. At the high end of depth for this area maybe 1/3 of that.
I have no idea if it would have actually been possible, though. Wells aren't allowed to be too close to septic tanks and septic drain fields, and there are other spacing constraints too. From what I recall of the way the house was placed on the lot and where the septic tank and drain field were there may not have been anyplace on the lot acceptable for a new well.
> When 90 (?) percent of people simply lack the buying power to participate in the real estate market, but the other 10% happily sell each other estates, that's not a bubble, the real estate market just stopped interfacing with the vast majority of the population.
This. And it was not only happening in the housing market, but also in a few other markets such as arts and certain jewelry.
What happened during the last ~10 years is that the huge loads of money pumped into the financial system by central banks ended up with only a select group of people, who just got richer and richer and were looking for ways to spend or invest their excess money. And that caused an inflation in the markets where they liked to spend it.
I think the bulk of the inflation we’re seeing is from the pandemic where we shut off production by making everyone stay home but then dramatically increased demand by writing everyone checks.
c) private equity firms are buying up insane amounts of real estate, being able to outbid regular home buyers and (don’t quote me on this b/c I’m not 100% sure) pay cash for the properties they buy.
Which they only did because they ran out of stuff to invest in (while still attracting so much other capital to invest at all), and the valuations of everything else was already stretched. not suggesting these firms were trying to do anyone favors by allowing people to afford homes the rest of the time, its more so that the math temporarily made sense with that much liquidity in the market so they jumped into real estate
(And yeah people would rather pay the government than invest in your startup so lets not pretend investing in main street was a real option)
Too much cash chasing too few decent investment opportunities is exactly the problem. The more cautious end of institutional investors have nowhere to go. Blue chip shares are at incredibly high valuations and bonds are returning next to nothing. Interest rates needs to be at about 3 - 4% to make government bonds broadly attractive, which will then make residential property uninteresting to this kind of investor without putting too much strain on the regular home buyer.
There have been a lot of headlines about this, and in the handful of markets I’m sure this has a price effect, but in the us market as a whole, they are $10b-$100b? of a ~25T market, it just doesn’t move the needle
It doesn’t need to be spread out to have an effect. If the investments are concentrated in cities, that raises the price of housing in the surrounding areas as there is more demand for rural properties from city residents trying to escape the higher prices.
Anecdotally, I’m seeing crazy numbers for “average” houses in the small towns surrounding the DFW metroplex. Hell, the house my parents built in 2006 for $140k is now selling for $350k. 1200 sqft mass produced trac home.
But it’s an hour drive to downtown Dallas (less if no traffic) so plenty of people are commuting but making city salaries. It’s the same in every city across America.
There are 950k homes for sale in the us today (down from 1.05m a year ago)…if I sold $50b of homes tomorrow @ $430k median price = 120k that would bring inventory levels back to where they were a year ago and represent 2% increase in annual home sales (on ~5.8m), by your logic national home prices would drop…I don’t think that’s a large enough number for that to happen… maybe if I sold $0.5T?
You're forgetting a.2) the "wealthy" people usually have high incomes, and the x10 houses are usually in high tax states, and housing is a huge tax break.
~20% or my housing "cost" is paid for by a tax break for owning a house. Another ~20% is principal.
When you also factor in that the Fed guarantees to devalue money at AT LEAST ~3% per year, and you have 5x leverage (or more) - that's another ~15% effectively subsidized by the government.
So when you have sufficient cash flow - it's easy to look at your housing "cost" as only ~40% of the actual payment.
With the SALT cap at $10k and the mortgage interest deduction cap limited to $750k property value, the ultra-wealthy are not really benefitting from this as much as you are saying.
Someone with a $750-$1M home is getting roughly the maximum tax break available, and someone with a $5M home is paying for everything above that first $1M themselves* without any extra tax incentives.
*Except in California due to prop 13 many of them are paying a tiny fraction of the property tax they should be paying, but that's a separate issue.
Most "wealthy" people, by definition, are not "ultra wealthy". That's where the majority of the wealth is - but there's far better schemes to avoid taxes for that group.
Home buyers buying these x10 houses are pretty much limited to the top 10% in income - the vast majority of them are not ultra wealthy.
And it will probably stay a leak, even if it grows. People keep expecting another collapse like 2008 but that does not seem likely to me. People need houses to live in, so demand will always be there. And unlike 2008, banks aren't handing out sketchy loans en masse to people who cannot reasonably afford them.
Housing legislation is something that few politicians have been talking about in the last decade. We have spent a lot more time talking about healthcare, and student debt, but not the number one financial factor which is housing. You really can’t leave it alone with legislation every 20 something years, you sort of have to keep evaluating and reevaluating it. Otherwise while we let the current systems in place fester, what you get is side effects that we simply can’t address until decades later (e.g Canada banning foreign buyers, ok great, the damage has already been done).
Many of the investor class had the first mover advantage where they simply bought a house before everyone else and can now leverage those gains into more investment/rental income property. Couple that with foreign investment. Couple that with home equity and margin loans. Couple that with the private sector collecting houses. Couple that with mortgage fraud where people don’t pay investor taxes and continuously buy homes as a first time home owner. Couple that with with all kinds of things. I know a home owner that owns multiple homes, stopped paying taxes on one and had a tax lien discharge. They go on to sell that other home at profit and pay off the IRS. They never took the hit on their first home in any way. Multiple ownership is a problem, period.
We finally end up to where we are today and the only powerful entity that modulates this is the Fed, but not a single politician is taking up the battle over the fact that the multiple home ownership is killing our society at the moment.
And compared to a couple of years ago, that's really expensive.
The mortgage we took out two years ago (2 year fix, ~60% LTV) had a introductory rate of 1.2%.
That falls back to 3.something variable in September. We'll probably look for another fixed but current 2yr fixed rates seem to be around 2.3% (plus a £1k application). That's an uncomfortable increase on a big loan.
What's interesting is the rates on bigger loans (eg 90% LTV) aren't much more (2.4%+application). That's not what I'd expect a bank to offer if they expected a bursting bubble.
That's really interesting. Is it normal in UK (thinking £) to get such an extremely short (introductory) loan and then refinance every few years? In Germany, most people take a 10y fixed rate at least to reduce such risk.
Yes, here 2 and 5 years is the norm. There's talk of longer terms becoming more popular but that's probably just talk due to the current climate of rising rates. I've spoken to a few brokers lately and not one even mentioned anything longer than 5.
It feels like there's a few signs now that the so-called "18-year property cycle" is due to be cut short this time around. I've only recently heard the idea so I'm not sure how it's real it is (outside of their circles that have a vested interested in the timeline it predicts). UK lenders seem to be now toughening lending rules rather than relaxing them as they were "supposed" to. Not sure it's a good time to invest or not!
7 and 10 years are quite widely available now, although they're still not particularly popular.
Not sure why brokers didn't mention them to you. Perhaps they like to show people low headline rates, or perhaps they see longer initial terms as bad for the broking business?
I think it's both of those reasons. Collecting commission on one 10-year mortgage, or five 2-year mortgages... I doubt they get 5x for the longer term, if anything.
I'd like to understand how people think about a longer-term fixed deals. How do you know where you'll be in more than 5 years? If you need to move don't you get hammered by the ERCs? Can you really rely on transferring products?
Habito One is an interesting product, that seems to be a lifetime fix (Which I have personally never seen before the UK but maybe it exists) with no ERC! Obviously the rate is less attractive but rates are still so low and I think you can offset as well.
You will get hammered by the ERCs, but with a few caveats:
1. Often if you move house they will let you transfer your mortgage (actually take out a similar product and avoid the refi costs).
2. If you win the lottery, or otherwise are in a situation to prepay your whole mortgage? Well you might care much less about the 5% early fees in that case.
3. You can prepay usually 10% a year, at their discretion, without any early fees. If you just become a fair bit richer than you expected, prepaying at this level will reduce the mortgage quite quickly.
Not only that, it’s popular to get “tracker” mortgages. It’s the Bank of England base rate plus a fixed rate. So it’s never actually fixed. My “Lifetime Tracker” is BOE+1.29% for 25 years. So it’s varied from 1.39% to 2.04% total charge in the last 10 years. If you bought a lifetime tracker today it would be BOE+2.7%. 20 years ago they were as good as BOE+0.25%
We will drop 0.4% once we get below 66% LTV or so. Also, ours is 20 years fixed. The variable or 5 year fixed was even lower still, around 1.5% at 100% LTV.
It's still ridiculously low, which is why we're happy to pay a bit more to get it fixed for 20 years.
US rates tend to rise more quickly, because the standard US mortgage quoted is fixed for the life of the loan (often 30 years). Whereas a lot of European loans are variable rate, where the interest is only fixed for the first 5 or so years of the loan and then floats based on central bank rates.
So, obviously, US banks have to price more risk into their rates.
Less then a year ago the interest rate in Germany was less than 1%. Now we are over 2%. The most increases are since about February. It is not slowly growing. The speed of growing is increasing right now.
I got mine with about 1% interest two years ago and do almost 5% redemption, fixed almost over the whole time. Just 2 years or so left at the end.
No. That’s not the case. I had a fixed rate mortgage in the UK. Now I have one in Ireland. Two of my colleagues have taken them in the last couple of months. They’re very common. But.. in both countries such terms are for a relatively short period. E.g 5 years fixed changing to SVR for the remainder of the loan. I haven’t heard of loans fixed for the entire duration. I would’ve got one if I had found it.
I can’t speak for the rest of Europe. It’s a big place you know.
That’s not what Americans mean by “fixed rate”. In US, that means 30, or more rarely 15 year mortgage, where the rate is fixed for entire duration. The mortgage where it’s only fixed for some initial period is called “adjustable rate mortgage”. Your comment just supported the person you replied to being correct, that fixed rate (in US sense) mortgage market is nonexistent in most of Europe.
They're often called "lifetime fixes" or "fixed for term" in the UK. You can easily get them. The term customers choose is typically 25 years rather than 30. However they are currently running at an interest rate of a little under 4% which is much higher than the rate offered on a typical 5 year year fix. This makes them unattractive when you can just perpetually keep re-mortgaging on 5 year fixes.
> However they are currently running at an interest rate of a little under 4% which is much higher than the rate offered on a typical 5 year year fix. This makes them unattractive when you can just perpetually keep re-mortgaging on 5 year fixes.
Renewing after 5 years will presumably get you whatever rate is then? Which might be much higher.
It's always better to get a fixed rate (for the life of the loan) mortgage. If rates go up, you're protected. If rates go down, you can refinance to cheaper rates.
Well it's an unknowable gamble. You might also be locking in an excessively high rate. The flexible approach of continuously re-mortgaging would have been the better strategy for the last 10 years with interest rates that went down. In the next 10 years, who knows.
> Well it's an unknowable gamble. You might also be locking in an excessively high rate. The flexible approach of continuously re-mortgaging would have been the better strategy for the last 10 years with interest rates that went down.
There is no gamble, that's why it is almost a free lunch. If rates keep going down as last ~10 years, you're never locked in, you keep refinancing to a lower and lower rate. If rates go up, you stay put with a fixed rate that can't ever go up. You win both ways.
I didn't correctly read your comment sorry. I don't know about the US system, but here the fixes normally do have a lock-in typically on a ratchet system where they are expensive to exit in the early part of the loan and cheaper later. For example one I just checked charges you 5% of the loan to exit any time in the first 5 years and then 3% to exit any time in the next 5 years. There is also a significant discrepancy in the interest rates charged for different term lengths e.g. the offer presented may be 3.7% for a lifetime fix or 2.4% for a 5 year. So you're paying 1.3% extra for the lifetime fix right out of the gate. So the gamble is will 5 year fixes cost more than 3.7% in 5 years time? If not, then you won on the 5 year fix.
I see, interesting! Agreed, on such a system it becomes more of a gamble to pick what might be best long term.
In the USA there is no penalty to pay off a loan and refinance (there might be exceptions but never seen one) so you can do it at any time as frequently as you like and keep ratcheting the rates down.
There's also not such a huge difference. Looking at zillow today, 30-year fixed shows 4.95% and a 7-year adjustable at 4.81%
30 year fixed mortgages in the US typically allow prepayment with no penalty other than some relatively nominal origination costs on the new loan, so you have a free option to lower by taking out a new mortgage when rates drop, while being protected on the other side. That combined with a few other features make them an extraordinarily good deal (especially when they have a strongly negative real rate, like now).
You can absolutely have a 30 year mortgage that is fixed all the way through. It's rare that people take it though, most opt to 5-10 years fixed with variable late afterwards from my own experience (Austria). The standard product used to be fixed rate.
In the US, the standard product for many decades was a 30 year, truly fixed rate mortgage. Any of the adjustable rate products with an initial period of fixed rates are still called adjustable rate mortgages (ARM) and are short-handed as the fixed period stroke the adjustment frequency. A 7/1 is fixed for 7 years, then adjusts every year. (Annoyingly, a 5/6 is 5 years fixed and adjusting every 6 months.)
When people in one market talk about their fixed rate mortgages adjusting rates, it sounds strange to people familiar with other markets, just reinforcing the “real estate is local” adage.
Mine is fixed for 20 on a 30 year mortgage but you can always choose between variable, 10 year fixed, 20 year or 30 year.
Mortgages are (almost) always 30 years duration.
I don't know what country in Europe you can't get fixed rates but it's not the Netherlands, that I know for sure. (Also there really isn't a 'Europe' for these things, every country is different)
In the United States we don't call that "fixed". We call that an adjustable rate mortgage. For example, my mortgage is fixed at 3% for its entire 30 year term and can properly be called "fixed".
People in the United States are leery of ARMs after what happened during the mortgage crisis in 2006-2011 so proper labeling is more important.
I could also have picked 30 years for a 'real' fixed mortgage. It just gets a bit more expensive. But it's definitely possible to get 30 year fixed if you really want to, every bank offers it.
In the Netherlands an 'adjustable rate mortgage' means monthly, quarterly or yearly variable rates.
Canada is similar to the UK - you amortize (pay back) the loan over 25-30 years. However, your mortgage is either variable (interest rate floats over time) or fixed (interest rate does change), but the loans are only for 1 to 5 years. At the end, you either "renew" your mortgage with the same lender or you "refinance" entirely.
So you can have a "fixed" mortgage, but not for the entire amortization period. But you're correct, it's more similar to the ARM mortgages in the US (potentially fixed for 5-10 years, then floating after).
Ah so what I meant is that in Czech Republic I have a 30 year mortgage with a rate that is fixed at 1.99% for 5 years, and is then variable (or more likely renegotiated) after that period. I am sure I could have instead gotten a 30 year mortgage with a single rate for the duration, but I suspect it would've been higher than the rate. But if you're at a 2% for 20 years that is pretty great IMO - given that our rates are currently through the roof.
I personally do not believe they have a shot in hell at making it through 6.I think there is going to be some serious chaos in markets well before then. We haven't seen chaos in markets without immediate fed support for decades. It's going to get bad IMO.
It will be surprising if Powell doesn't do a second pivot and go Dovish well before 6.
Obviously I'm not a fortune teller and many people disagree.
Shop around. Ask about relationship deals for assets under management. Ask about getting closing costs credited towards points. Tell them if you have a better offer and ask if there's any discounts the underwriter can offer
Whole-term-fixed rates are pretty uncommon in Europe. Fixes of 2, 5 sometimes 10 years are products most providers offer, but as the term increases, the rate shoots up, to offset rate uncertainty.
My question is: why would you fix for 30yr when you know you're paying multiple points to offset market uncertainty? Remortgaging every couple of years takes a bit of time, and shopping around, but is much cheaper.
> My question is: why would you fix for 30yr when you know you're paying multiple points to offset market uncertainty?
To fix your monthly payment for the next 30 years.
Furthermore, with a fixed rate mortgage you can benefit from interest rate volatility since you can always buy back the debt at par. In practice this means you can:
1. Take out a fixed rate loan for $n at x%
2. If the rate doubles (to 2x%) you can refinance and you now only owe half ($n/2)
3. If the rate falls to x% again you can refinance again and now you owe the original amount ($n/2) at the original rate (x%)
This ignores the cost of refinancing the loan, so you’ll be paying some fixed sum for that (which is lost), but if rates moves sufficiently this is a huge benefit that you don’t get with a variable rate mortgage loan.
* This is based on how the Danish Realkredit mortgage works. I’m not certain, but I believe fixed rate mortgages work the same way in other countries.
> Why do you refinance if rates go up? Surely the point is that if rates go up you've locked in a better rate
You don't have to, but you can choose to either (a) keep the same rate and owe the same amount, or (b) get the new (higher) rate and owe less.
> How does half your debt disappear if rates go up?
It doesn't exactly. However, the market value of your mortgage loan halves if the rate doubles (roughly). This means you can:
1. Take out a loan for half the original amount, at double the interest rate
2. Buy back your original loan
3. Destroy the original loan (which is fine since you are both creditor and debtor for that loan)
This leaves you with the loan taken in step 1.
To understand why it works this way it's instructive to think of a loan as an exchange of wealth for income. One party has some savings (wealth) and would like to exchange it for an income (e.g. to pay recurring expenses). Another party has an income and would like to trade it for wealth (e.g. to buy a house). Viewing a loan in this way, the interest rate is nothing more than the current price of a certain income stream (measured in percent per year).
For example, let's assume that the current market price for an income of $2 per year is $100. This is equivalent to an interest rate of 2% per year. I have $100 that I'm willing to part with for an income of $2 per year, and you have an income of at least $2 per year that you're willing to sell for $100. We make the deal. Now, the day after we shake hands to make the deal, the current market price for an income of $2 per year falls to $50. This is equivalent to a doubling of the interest rate (from 2% per year to 4% per year). I still have the income of $2 per year that I paid $100 for yesterday, but if I want to sell this to someone else I can only get $50 for it. And if you were to ask me to buy back the loan for $50 I would have nothing against that, since I could go out immediately after and buy the same $2/year income for those $50.
At the start of the post you were the person taking out the loan but by the time you got to the explanation at the bottom of the post you were the bank.
If you've sold your $2/year income for $100 yesterday, why on earth do you want to buy it back and resell it for $50?
e: Oh wait I see. You want to go to the bank and say "I know I owe you $100+interest over the life of the mortgage, but what if I just pay you back $50 right now and we call it even?" Does that actually work?
Yeah, that was my reaction too. But ... why not? It still seems possible. I mean, between banks they definitely have to mark it to market in order to sell the mortgage, so they would take a big hit to sell when interest rates go up.
So, why can't you put on a funny hat and glasses, get a new mortgage at the higher rate, and then go buy your existing one at a discount?
If you’re “trading” the mortgage, you mark to market, but if you hold it for investment then you don’t (this is driven by bank capital requirements - if I need to go raise capital every time interest rates went up that would create huge problems (despite the credit staying the same (if not improving))
The rates usually don't go up because the lender got greedy and felt like screwing you harder. If the mortgage rate doubles, that's because your money is now worth less than it used to be. This also likely means that your income is going to grow soon enough, so you wouldn't have much trouble repaying your loan. While your remaining loan is still nominally $N, if you took a loan today for the remaining part using the paid-off equity as collateral, you could likely get twice as much and the lender would proceed accordingly.
Danish loans are a bit special, though, as in most people don't pay them down, but just use them as a way of having a fixed rent. At least that's my experience, all my danish family own their houses, but have almost done no real payments on the loans. Whenever they've paid down a bit, that is just refinanced to a new loan so they get cash, aggressively promoted by the banks. Or the equity is just based on a hope that the loan will stay the same but the value of the property increase. Which it certainly has not.
I wonder if the way I use "homeowner" differently than the phrase "own their home" is particular to me. I wouldn't say someone with a mostly unpaid mortgage "owns their home" even though they are a homeowner.
It is "their house" and things like that also, but I hesitate to directly say that they own it.
In the US, liens are encumbrances to title but aren't transfers of title. It's a legally important distinction because the law often recognizes that even in a foreclosure, equity belongs to the homeowner ...among all of the other rights that come along with property ownership.
> To fix your monthly payment for the next 30 years.
Sure, but .. nothing else is fixed for those 30 years? Not your salary, the price of fuel, your place of work, life circumstances? And you're paying a premium at the start for this.
It's more apparent in the UK where you can choose how long you want the fix for and see the interest rate you're offered go up.
> you can benefit from interest rate volatility since you can always buy back the debt at par.
Obviously the bank knows this and charges you a small premium over the spot rate so they don't lose money.
> If the rate doubles (to 2x%) you can refinance and you now only owe half ($n/2)
I don't understand this: the amount outstanding - the redemption value - of a fixed rate mortgage is known in advance at every month throughout its term, regardless of what the market interest rate is?
The differences are apparent in the US as well. The bank is making offers to a broad population without knowing their life plans. The borrower has a better idea of their individual life plans. I was buying my “lifetime home” 15 years ago and so took a fixed rate. When I first refinanced, I still had the same plans. When I second refinanced, I still had the same plans.
Even among fixed rate products, there’s an option to buy down the fixed rate. Those usually have a point in the future where all choices are about the same, shorter favoring not paying points and long favoring buying discount points (this crossover point varies over time by current and expected rates, but is in the 4-8 year range typically).
In the US, you can refinance your loans. Essentially taking out a new loan to pay off your old mortgage. The new loan has the new market interest rate. In the US, you’re typically allowed to pay off additional principal without any penalty, so you can end a loan by paying off the outstanding principal without needing the pay the remainder of the interest on the loan.
As I understand it, it's this refinancing that leads US citizens in the UK ending up with a surprising US capital gains bill after they re-mortgage their UK property. And we also (normally) have ERCs in the UK so as usual, the rest is the worst of both worlds.
Ideally one could renounce the citizenship, oh wait...
The IRS does not consider a refinance (even a cash-out refinance) to be a capital gain. The IRS also allows for 250K (500K if married) of tax-free capital gains on the sale of a primary residence. Maybe you misunderstood your friends’ situations.
I just looked this up and you're right. If you're subject to the expatriate tax then you're automatically disqualified from the exemption. From my reading, it seems like there is a small loophole. You can sell a foreign property if you move back to the U.S. and meet all the other primary residence conditions.
Exactly. And what's even more brilliant is that it entirely depends on the exchange rates at the start and end of the period. So a zero gain (or even a loss) over that period in the UK can still result in US tax owed.
> If the rate doubles (to 2x%) you can refinance and you now only owe half ($n/2)
FYI you're describing a bond loan. Most countries, including America, don't really offer these, so most people won't understand what you're talking about.
The 30-year fixed mortgage (the entire amortization period is at one fixed interest rate) is a government created product. It would never be offered by banks, at the low rates they are, if they had to hold them on their books. The "normal" mortgages in the US prior to the FHA were 50% down and 5-year terms.
Fannie and Freddie basically agree to "back" those new mortgages (typically buying them from banks and selling them off later) as long as they conform to certain requirements - 15 or 30 year terms, 10-20% down payments, etc.
It's a massive subsidy for the housing market in the US, but also addresses the social goal of making housing accessible. You can get a mortgage and the monthly payment (interest + principle) never changes over the 30 year life of the loan.
Low rates?! BOA is offering me 4.9% on 400k/800k, fixed for 30yr. But they still want 4% for a 5year ARM. Even after income tax deductions, how the hell do Americans afford houses with this sort of nonsense.
I guess that's what TFA is really driving at. It's getting hard to lend money on housing in the US.
“Remortgaging every couple of years takes a bit of time, and shopping around, but is much cheaper”
This is an incorrect statement. It is true only if short term interest rates (on average) remain flat or decrease over the next 30 years.
Put another way, by getting a fixed rate loan you are paying for insurance against rising interest rates (+inflation), you’re saying it’s ALWAYS cheaper not to buy insurance - but the honest answer thsts probably been true recently, but not always historically, and may not be true in the future.
Well this way of doing things has been a vastly cheaper way of borrowing in the last 50 years, in the UK.
If the interest rates tip up for an extended duration, yes, it's possible that longer term fixed rates could be cheaper, but of course the banks insulate themselves against that possibility with even higher rates if they suspect it's likely.
It's possible they won't insulate enough. IME, betting against banks looking out for #1 is foolish.
If you can afford it then you are likely to continue vs in Europe when rates go up people default. So it should improve default rates. In the US you can refinance when rates go down for free while European fixed rated have early repayment penalties usually. So its a free option. So it has a number of advantages even if rates can be high if long term rates are high.
So I don’t get screwed when the rates go up. My current rate is 2.75% if I had to renew this year it could almost double. That could easily be $400-500+ a month. When the rates are low nothing can stop me from refinancing like I did a year+ ago from nearly 4%.
>Whole-term-fixed rates are pretty uncommon in Europe.
Here in Belgium I think most people got those.
>why would you fix for 30yr when you know you're paying multiple points to offset market uncertainty?
Because my rate was 0,98% fixed for 20 years here in Belgium. I'd have done the same if I needed 30 (which is rare here as 20 or 25 is more common)
The chances of coming out ahead long term starting out with a higher variable rate are rather slim
In Germany, 15 years, 20 years, and up to 30 years is common. I took 20 years.
A close friend of mine working at a bank has an internal benefit, that the 10 year fixed rate applies for her as a fixed rate for however it takes to pay-off.
I was in negotiations with HVB and Commerzbank. I choose Commerzbank, which had a slightly higher interest rate but way much better communication with me. I was communicating with the guy in charge of the wealth management, this may also helped a lot. ;)
Loans lower 400k are easier to issue, I learned in the process. Because >400k has much more requirements for the bank on collateral required by the regulation authorities.
Sure, but there’s still no supply of homes. There are presently 2 houses for sale in my neighborhood of about ~750 homes. I don’t have historical data, but 0.002% seems very low for spring.
My understanding is prices crashed hard in the 70s, there was a slight decline in 1990 and 2008, and other than that they've been going up 5-10% per year.
A refi bubble? Maybe (but that's more of a fad than a bubble)
Real estate bubble? Sort of.
Housing affordability bubble? Not really. Interest rates move profits from home sellers to banks.
Housing affordability is driven by supply+demand. Housing prices are driven by" Affordability minus Interest Rates: Low Rates + High Price = Monthly Payment = High Rates + Lower Price
I don’t know about other places, but Airbnb has been a mixed bag for NYC: I’ve seen it used to keep housing stock off the market, to dodge the obligations associated with keeping a property livable, and to essentially run entire illegal hotel businesses without attracting regulatory (including safety) scrutiny.
So it's ok if someone moves next to you, plays music all hours, leaves rubbish everywhere, and are generally annoying to live next to. And then the next week a whole new group of people move in forgetting any requests you made, but act the same way because they are specifically there for a fun weekend.
Also this stops you getting to know your neighbors and form a community and friends that live around you. Any improvements you make to the local area and street have the owner uninterested or pushing back because they do not want to invest in the area.
AirBnB (and similar) has been really bad for the property market in the Scottish Highlands. Lots of people buying up scarce housing stock to use for holiday lets, means that locals who work in the area (where a lot of local employers can't pay stellar rates) can't afford to buy.
Combine that with the fact that these areas are often in National Parks which have restrictions on new-builds and you'll inevitably reduce the amount of people actually living in the area.
employers could not care less about your housing problems because employers have greater bargaining power than workers. places like CA think they can control where people live by depriving people of housing but it's not true. people just become ever more desperate, paying more and more for shelter. It's employers who decide where people are. this is because we've created a world where people can't live without money. so he who controls wages, controls where people live.
Think about a hypothetical city where 100% of the properties are AirBNBs. There will be no source of employees for any local businesses because there are no long-term residents. There is no vested interest to improve the city via taxes and volunteerism, because no one truly lives there. No one will move to that city because the property rates are so absurdly inflated thanks to AirBNB rates.
It’s an absurd example but cities frequently see these effects when they let AirBNB and rental properties run wild.
Other than perhaps zoning restrictions, how does this differ from traditional hotels/motels in extreme tourist areas, like Niagara Falls. If people don't want to live permanently in a city for whatever reason, of course the city will suffer.
Hotels/motels are dense enough that they don't take usable land away from residential housing while still allowing for short-term residents to enjoy the city.
However, AirBNBs and rental houses suck away the usable land such that you begin to meaningfully remove potential long-term residents from the city. The flipside of this, of course, would be apartments/duplexes, which would add more long-term residents than single-family zoning would allow, even with the problem of AirBNB proliferation.
Mixed bag if you live next door to one. We had one guy wake us up early in the morning on a Sunday because he locked himself out. Another time we were gifted half a cooked spiced lamb from a Saudi Arabian family.
AirBNB, like Uber, lives on sucking externalities. They are the modern Oil that sometimes spill and kill some ecosystem, but because the ecosystem is far away nobody cares.
Like a pimp, AirBNB is the helpfull middleman for the desperate or the sociopaths.
Just closed financing on a home. Rocket had a comparable rate but the real no-go for us was their very-limited rate-lock option. With interest rate trends what they are right now, we really needed a 200 day + rate lock with a float-down in case things changed. Other lenders (builder, ownup options, local banks) offered those and the option to buy points and apply them if we were able to float down. Rocket seemed very slow to adjust to the market forces with competitive options.
I played with Rocket and some other one - maybe "Better"? - but the rates they had were the same as a "full service" lender I've used before once everything was taken into account.
In the end all of these companies resell their mortgages to the big banks and so the amounts are very similar. It's all in how they get their fees: up front or behind or in points.
Could you tell me which other lenders are offering 200 day + lock. With interest rates changing so fast, I get a hard time with lenders letting to lock rates even for 60 days.
Kind of funny that 60 days is too long for a product that lasts 30 years.
My guess is local banks and credit unions are the most likely source. They keep the loans on their portfolio instead of selling them like the mortgage companies.
A 200 day lock is a call option on a loan, the price of the option changes all the time. What you're saying is that local banks/CUs would offer such an option for free. Someone has to pay for the option - in the scenario you describe, the bank/CU would pay for it by losing liquidity of its assets, then having to mark them down.
Rate locks are backed by rate swaps. The cost of purchasing a rate swap ultimately comes out of your pocket in the form of additional rate on the loan (the lender can add overhead of course). The cost of rate swaps has doubled in the past 3 months and quadrupled in the past 18 months. I believe it's currently around 3% on 10 year loans, so a 60 day lock on a $500K 10Y mortgage would cost about $2500 while a 200 day lock would cost over $8000.
Feel free to add an extra percentage point for a 10Y/30Y swap.
One interesting hypothesis is that the focus on fixed-rate 30Y mortgages is fundamentally destabilizing for the US and world economy, because the stability and optionality of 30Y mortgages is paid for by added volatility of the 10Y debt market through those same swaps. Per this theory, US 30Y fixed-rate mortgages are effectively subsidized by the rest of the world. https://byrnehobart.medium.com/the-30-year-mortgage-is-an-in...
Seems like most folks can barely avoid the monthly payment on a 30Y fixed; wouldn't 10Y being the norm just cause a lot of people to be unable to buy at all?
I don't know. The question is whether subsidizing 30Y mortgages (fannie mae/freddie mac/FHA/QE/standard terms enforced by law to enable refinancing, etc.) is the right policy in an open system where it has many major side effects, compared to other ways to adjust housing policy. For reference, Canada has no 30Y fixed mortgages - instead they have 5-10Y fixed terms and distinguish between prepayment for refinancing (exploiting the rate environment) vs. moving (the mortgage can be rolled into the new property). As a policy, this seems less likely to have destabilizing effects than what happens in the US (concentrating volatility by loading up the banks' balance sheets with trillions of refinanced debt at times of low interest rates for folks who happened to have the means and cash flow to refinance at the right time).
Rolling the mortgage into the new property seems interesting. From what I understand, this is very rare in US mortgages, right?
I do wonder, if we just had 10Y mortgages, would home prices just crash? People won't buy what they can't afford (I mean, sure, they do to some extent, but not if their monthly payment would double), so sellers might just be forced to sell for less. The first "generation" of 10Y-only mortgages would be disastrous for current owners, as their existing 30Y mortgages would be underwater. Or maybe people just would stop moving...
I just glanced at the article you linked, and realized I'd read it back when it was posted, and agreed with its conclusions. I just don't know what the solution is.
Going back to the Canadian mortgages, they have terms of 5-10 years but they can be amortized over up to 25 years. So their standard practice is effectively a balloon payment of up to 80% that is expected to be refinanced at rates in effect at the end of the term. This still financializes housing over up to 25 years (similar to the US) but without subsidizing the interest rate optionality.
In the US, balloon payments are heavily discouraged by federal regulation on what kinds of mortgages can be financially supported by the government.
Ah, that makes a lot of sense. So the monthly payments are still affordable, and people mostly avoid the balloon-like payments by refinancing.
The downside (for the borrower, anyway), of course, is that if you do live in the same house long-term, you'll have more-frequent forced refinancing events that might result in an unfavorable interest rate. But that otherwise seems pretty reasonable, and arguably (as the article you linked points out), the ability to "lock" your interest rate for such a long time isn't great for the market.
> I do wonder, if we just had 10Y mortgages, would home prices just crash?
I suspect home prices won't fall by as much as you think they will. I suspect institutional investors will become major buyers and lease out those units; which would crash homeownership - at least in the popular metros
Same. I think the days of 2+ month locks are over. I've talked to half a dozen lenders since the new year and the longest lock they'd give without massive upfront fees was 60 days.
We got a 90 day from Chase in February for nothing, all we had to do was ask for 90 instead of the 60 they wanted to give us, and after about 10 seconds of typing he said that was fine. I think we're a far cry away from "the days of 60+ day rate locks are over"
Interesting. I didn't talk to Chase specifically, because even as one of their better customers, the rate they offered was at least 0.5% higher than every other place, so I didn't even bother.
Not 200 days, but was able to get a 180 day lock in February. Of course, that was before the rates shot up, so my current rate is probably better than those with far better credit can get, just a couple of months later.
Extended rate lock periods don't come for free, though. Lenders aren't really interested in giving away long mortgage locks when everything points to increased rates over the year. You generally pay for it one way or another.
If you're discussing builder financing: New in-progress construction loans are different than traditional mortgages. Not everybody plays in that space.
Yeah, non-bank lenders are generally not going to offer locks nearly that long. It's very costly for the lender or the mortgage investor to hedge against interest rate volatility for that long.
Banks often consider mortgages to be a loss leader to acquire customers for other services. They often don't have the best rates when rates are low, but they might have other perks like custom loan programs and longer locks.
I guess things must have really changed in the last 2 years. Our rate lock was the standard 30 days and once we got close to the deadline I had a new contract drawn up just in case. 60 and 200 days seems so foreign to me. I guess the good times got even better after we closed.
I won't feel one ounce of pity for the "investors" who lose their shirts when this bubble finally pops. We should regulate investors almost entirely out of housing. Yes, there is still a need for people with lots of capital to go in and repair dilapidated homes. But we don't need people hoarding homes and renting them out as AirBnbs.
It's somewhat fashionable for well-off people/families to have a vacation home somewhere vacation-y. Before Airbnb, most of those homes just sat vacant for most of the year[0]. Clearly, that's not a great use of that land. Often these sorts of properties would be in pretty desirable locations, and doing it this way would deprive most people the use of that space.
Certainly there are still some people who are wealthy enough to keep their vacation homes vacant most of the time (and prefer it that way, since doing short-term rentals tends to involve quite a bit of wear-and-tear on a house and its furnishings). But many list on Airbnb now. I consider this a net positive for society.
Of course, Airbnb isn't all roses. In many places, investors buy up housing stock that would otherwise be used for long-term rentals, and deprive locals of much-needed stable housing. My guess would be that this is even -- unfortunately -- the primary use of Airbnb these days (I doubt they are primarily people renting out a room in their already-occupied house anymore). So this does suck.
On the renter side, I've found a lot of great places to stay through Airbnb over the years, experiences hotels just can't provide, and often prices hotels can't match. Should I just not be allowed to have these sorts of experiences? (It's totally fair if the answer to that is "yes", as much as it'd be disappointing.)
Can we find some sort of balance so that we can curb most of the negatives that come with real-estate investing, but keep most of the positives?
[0] Yes, vacation rental companies existed before Airbnb, but Airbnb completely changed this space.
> Certainly there are still some people who are wealthy enough to keep their vacation homes vacant most of the time (and prefer it that way, since doing short-term rentals tends to involve quite a bit of wear-and-tear on a house and its furnishings). But many list on Airbnb now. I consider this a net positive for society.
You are missing a critical issue. Airbnb makes it way more affordable to have this second home, so now many more only-sorta-wealthy people can afford vacation homes while pricing people out of the local housing market.
I'm not missing it so much as I'm ignoring it, I guess.
While this phenomenon is bad for people looking for long-term primary homes, it is nice to be able to afford a vacation home when you couldn't before. Certainly I would prioritize locals over non-locals looking for a second home, but can't we have both? Build more.
I agree, build more - but given that we are not currently doing it, AirBnB is only making this situation worse.
The market doesn't care whether someone is buying a vacation home or buying the only home that lets them stay in the region. It is the responsibility of the state to put its thumb on the scale in favor of positive externalities that the market is agnostic between.
Legitimately not trolling here, trying to understand.
How is it that the high-IQ HN zeitgeist centers on the contradictory positions of "climate change is an existential threat" and "we must expend more resources and build more housing"?
Seems like reducing population in high-carbon-footprint countries is the obvious solution to both problems.
I say we just tax every house you're not living in full-time as if you owned an apartment building or hotel. You wanna run an Airbnb? Sure, go ahead, but pay the same taxes as an actual hotelier.
> Certainly there are still some people who are wealthy enough to keep their vacation homes vacant most of the time (and prefer it that way, since doing short-term rentals tends to involve quite a bit of wear-and-tear on a house and its furnishings). But many list on Airbnb now. I consider this a net positive for society.
why? Do you think the average person is renting out vacation homes for extended stays?
Yes, having cool places to stay is fun but there are better ways to accomplish that then rich people renting out their 2-nth homes.
> Do you think the average person is renting out vacation homes for extended stays?
Why do the stays have to be extended? I consider simply making more nice real estate in desirable locations accessible to more people a good thing. Doesn't matter if it's for a long weekend or several months.
> Yes, having cool places to stay is fun but there are better ways to accomplish that then rich people renting out their 2-nth homes.
Such as? Hotels are the primary existing option, and they're fine, but not always what I'm looking for (especially if I want to cook; hotel rooms with full kitchens are rare and expensive). Hostels are meh; I'm not a broke college student anymore. Actual bed and breakfasts are nice, but aren't for everyone. If I want to stay in something that feels like an actual home for a short duration, is there a better way than something like Airbnb?
To be clear, I agree with the top-level poster's bit about us not needing people hoarding homes just so they can rent them out as Airbnbs. That's exclusionary, (literally) rent-seeking behavior. But is there no middle ground where people like that don't get to satisfy their greed, but we still get to have nice things?
I have seen AirBnB referenced many times in these comments as having something to do with the increase in home prices. From what I can find there are 660,000 AirBnB hosts in the US; this was found under the Airbnb Statistics by Region section from here https://www.stratosjets.com/blog/airbnb-statistics/ seems to also be found here https://ipropertymanagement.com/research/airbnb-statistics. Most likely both of those take their data from some other source which may or not be up to date.
A little bit of Googling around seems to indicate that there are ~95,000,000 single family homes in the US. So all of those AirBnB's represent less than 1% of all homes. If all of those AirBnB's were in a given year they may have an impact on purchase prices. Yet these purchases have been spread out over many years which leads me to believe their impact is negligible as a driving force in price appreciation. Are they a player, sure, are they a big player.....probably not nearly as much as people think.
Just wanted to point out that the article you reference says 660k listings in the US, not hosts. I was initially concerned by your wording that the number of properties for rent on Airbnb was much higher (since often hosts have multiple properties, or the host is listed as a management company), but it does seem that 660k is the number of listings.
And I agree with you that number is much lower than I would have expected, and doesn't seem like enough to meaningfully move housing prices overall. Also consider that some number of those listings are people renting out a spare room in their owner-occupied property, which I don't think is fair to count "against" Airbnb; not sure what that number is, though.
It would be interesting to also see more local numbers. Like what percent of units in each of SF, NYC, downtown LA, Chicago, DC, etc. are listed on Airbnb? There are a lot of housing units in small towns and cities across the US that don't have much tourist appeal, so they likely don't see many Airbnb listings. But they also likely don't have housing-cost issues like some cities that are more attractive to tourists.
I think people try to invent complicated reasons for skyrocketing home prices, when it's fairly simple: we aren't building enough in the places where people want to live. Sure, other things (Airbnb, foreign investment[0], cheap credit, etc.) don't help matters, but I think they're pretty minor factors. If there's demand, and you don't meet it, prices go up. Econ 101.
It's interesting to note that Vancouver and Toronto instituted 20% and 15% (respectively) foreign buyer taxes for home purchases a bunch of years ago. These taxes did actually do their job of deterring foreign buyers, but, sadly, home prices still continued to go up, undeterred. And now Canada overall has barred foreign buyers for two years. I doubt it will help. I expect Airbnb bans would have a similar non-effect.
It's not just building enough homes. The cost of building has gone up a ton as well.
The median age of a home in the US is 37 years, which means 50% of homes were built before 1985. Compare building codes from before 1985 and 2022 and it's a huge difference. Now housing codes are there for our safety, but we also need to recognize that it makes homes much more expensive and complex all while 50% of people are living in homes built under "less safe" code standards and are just fine.
I myself live in a home built in 1967. It's a lovely home and just as livable as a home built today. Only a few select projects were needed to improve safety in places that mattered like replacing the electrical panel and some modifications to my deck.
When going through insurance pricing in the case of catastrophe (fire/earthquake/landslide) with my insurer, they estimated that the cost to rebuild my home today to modern standards is equal to our purchase price for the home and the land, which is crazy and gets even crazier when you consider that the cost of the land is about 2/3 of the value of my property.
Furthermore, the more labor and complexity that goes into building a home, the more homebuilders focus on upscale homes instead of mass market homes because of opportunity cost, especially when the permitting process is also so onerous. The only cheaply built housing options these days are apartments and condos. 40+ years ago we were building full single family homes for the cost of building an apartment today. That's insane.
Did that actually work or did foreign buyers create local LLC’s to purchase property instead and now you just sell the LLC and avoid the property changing ownership
Looking at your link which by the way is from a company that rents jets, I see that the source of the 660K statistic is actually from a site called hostsorter.com
The site hostsorter.com uses a citation from muchneeded.com[2].
When looking at the muchneeded.com link I see:
"11. There are 660,000 listings in the United States."
However he citation for the above statistic is a site called pulse.ng[3].
When I get to the pulse.ng site I finally see the root source of the 660K figure you quoted. I also see that not only is the article from 5 years ago(2017) but there is no citation given at all for the statistic that is regurgitated from the previously 3 links.
95 million homes total, or available homes? Seems like it would make a difference. That said, I suspect you're right that AirBnB is less responsible for driving up housing prices than, say, the fact that the pace of homebuilding hasn't recovered since 2008.
Airbnb is Hacker News' McDonald - an easy target to attack and complain about, kind of symbol of lost 'right for one's house' which never really was but definitely will not be.
I prefer having discussion about the underlying issues causing these emotions though, they keep being mentioned here all the time but I guess its easier to just bash the messenger rather than fight government and selfishness/greed in general population.
>"I prefer having discussion about the underlying issues causing these emotions though, they keep being mentioned here all the time but I guess its easier to just bash the messenger rather than fight government and selfishness/greed in general population."
And this "blame the government" for the the housing shortage is the same old tired trope that's invariably wheeled out when defending Airbnb. The "discussion" never seems have any more depth once that blame is assigned though. The fact is people have fought at the local government level, from Miami, to Berlin to NYC to London. It turns out that legislation itself isn't enough as it is regularly flouted or just plain ignored. Actually enforcing the legislation is difficult. And regular citizens and local governments are simply no match against the mega-Corp. Or is there another pithy and overly reductionist talking point to that complex problem as well?
The key metric is homes where people want to live, not extant homes, which might be in various parts of repair.
Of course, the housing crisis is death by a thousand different cuts, but there are studies out there indicating in many cities AirBnB is responsible for around ~5% of the rental price.
For my apartment, that translates to paying ~$180/mo because of the induced demand from AirBnB.
I think you've got cause and effect backwards. We told people that housing is an investment, and now people fight tooth and nail to protect the value of their "investment". Of course housing availability has fallen precipitously.
Is it a bubble? Where is the irrational exuberance? Lots of people need homes, there aren't enough, prices go up. And investors hoarding equity by forcing people to rent have a captive audience. Both of those aren't really tulip/crypto hysteria. It's just a shitty situation.
I would love to see investors get burned too, but I don't think there's anything to pop. We're just a decade behind Canada.
People are FOMO'ing into buying sight-unseen houses the same day they get listed because they think it will continue doing 20-30% year-over-year with no significant pullback in the near future. Or same FOMO on the interest (mortgage) rate.
I think the irrational exuberance is over. I think the period of exuberance ended when the 30 year fixed mortgages went above 5%. Of course people need homes but I think the interest rates combined with the energy costs to heat and/or cool that home along with the price of gas to get to and from that home have all started to make the purchase less viable for many. There's actually a bit of a rush right now for sellers to sell before rates go up further. See:
The other side is that anyone who sells right now will need to buy at the top of the market, possibly incur the 5%+ interests rates(if they didn't make out extremely well) and afford the increase in taxes on their new home's possibly insane property valuation. This is of course in addition to all the other current inflationary concerns of maintaining a house right now.
I see your point, but I look at the houses going up all around me and their prices, and I wonder where folks are getting this money from. I know what I do for a living and how well it pays, but people who make less than half of my salary are buying homes that are twice as expensive. Also, talking to realtors they mention that homes are sometimes sold before they hit sites like Zillow and such. Sight-unseen, waived inspections, $20K over asking. This can't be sustainable.
It’s more than just salary. Take an elder millennial who has been working in bigtechco for 10 years or so. The RSUs they collected in their early years could be worth >10x today. Same with crypto over an even shorter term.
To be totally honest, it probably isn't the "AirBnB" types, but (at least in the Washington state area) the loosening of rent regulations, which allows single family homes and neighborhoods to be zoned and converted to multiple family units fairly cheaply and easily. Landlords buy these up, do conversions on the cheap (and with minimal knowledge, a lot of the time) and rent them out.
Rents have outpaced mortgage costs and the return on investment has been ridiculous. People all over here have jumped into it. Hell, I've had people tell me I should do it... No F'in way I'm dealing with tenants and house calls in the middle of the night, though. I fix my own house, poorly and struggle to do that. I fix computers and call people to fix the house, usually, so it gets done right. I venture out of my lane every once and again, but I know I'll usually call a professional =)
You're just trying to soften the words here; the result is the same. Higher-income people buy properties that lower-income people would love to own, and then end up paying rent instead. Often to someone else, because many of these homes end up only available as short-term rentals.
"Return on investment" shouldn't be more important than housing people affordably.
How many homes do you need to actually live? Most likely, the answer is one.
Are homes for living in, or for making money? That's the fundamental question we need to resolve. Because if its the former, then we are doing an abysmal job at satisfying that need. If its the latter, then we're doing a bang up job.
This is actually a good thing. House cycles exist and it's better to have smaller, more frequent ones than massive ones like 2008.
Canada never had a 2008 housing crash. Housing has been on a tear since the early 2000's and the average sale price of a home (nationally) is 2x that of the US despite lower salaries, higher taxes and a lack of 30-year fixed rates.
That is a bubble. My opinion is the US market is hot, but not a bubble. It could turn into one, but if this is a real correction, the fear of a bubble is much less.
If you plot Canadian housing supply vs Canadian city population growth, you get another perspective. Houses are incredibly expensive, because there aren't enough of them
Barrie, Ontario is in the middle of nowhere and houses cost $1M. Same with Kelowna, BC and Halifax, NS has doubled in price. That's not population growth, that's speculation.
The Toronto suburbs are already falling in price and Canada is only ~1 month into 4-5 rate hikes this year. And unlike the US: 1) most mortgages need to be renewed in a much higher interest rate environment and 2) a lot of Canada has recourse loans - they can come after your other assets if you sell you house for less than the loan value. No sending the keys to bank and walking away like in the US.
Toronto and Vancouver cores will correct, but rebound. Small towns and suburbs? It's going to be a bloodbath.
"Greater Kelowna is the fastest-growing urban area in the country, Statistics Canada reported Friday. The Central Okanagan's population rose 14% between 2016 and 2021, from 194,892 to 222,162, according to information gathered during last year's census."
"Fastest growing urban area in Canada" is like the "fastest sprinter at the senior center". Sure it's fast relative to other cities, but not in an absolute sense.
Kelowna grew 14% over 5 years? So 2.7% a year? Or 5,500 people per year?
Kelowna is a tiny town in the middle of BC. Jobs are scarce. Vast swaths of undeveloped land surround the town. Wages are pretty typical, yet a modest house is $1,000,000. Does that make any sense?
Your list has Kamloops. Have you been to Kamloops? It's an old saw mill town. Again, lots of room to build. Houses are $800,000 to $1,000,000.
You can buy a small house, within San Francisco city limits for $1.5M. This is where wages are 2x that of Canada. Mortgages are 30-year fixed and there is no room to build any more houses and it's surrounded by water on 3 sides.
So why would Kelowna cost just 33% less than San Francisco? I could see arguing downtown Toronto and Vancouver are "pricey" but not ridiculous, but Kelowna?
And your list has Edmonton! One of the fastest growing cities! But wait, it's actually one of the cheapest too. What's going on?
Kelowna is part of the Okanagan tourist area and on the lake. What happens to the analysis of home prices when you remove the houses within walking distance to the water?
It’s been a few years since I was there but last I was it had the very common tourist pattern of expensive vacation homes near the water for wealthy part time occupants and reasonable housing further away for permanent residents.
Frankly that area was better than many tourist areas where workers have to commute long distances to live in crap apartments or worse dormitories.
Check out home prices there. Yes, the lake side homes are $2M+ and very impressive, but homes smack in the middle of the city are still close to $1M and 2 bed condos in the $500-$600k range.
And of all the tourist spots in the Okanagan, Kelowna is not a top destination - it's the smaller cosy towns with the corner store and 2 acre lots on the hills overlooking the lakes. Those cost $2M+ and seem a bit more justifiable to me at least. It's like comparing Tahoe, CA to say Tracy, CA.
And I have a family member who owns a 2 bed condo in a small town further south and the price has gone from $300k to $500k. For a plain condo built in 90's in a town of 25,000 filled with people over 60 years old.
Non-recourse loans only really exist in California. Most other states are recourse (and even California is on refis) - it's just that it's normally not worth the paperwork for a bank to bother going after you if you key them.
And once it becomes a trend, they all just collectively give up apparently.
No, no. It's the foreigners' fault. Hypocrisy and xenophobia will fix everything without having to create actually livable cities where people aren't slaves to cars.
You're living a very naive reality if you don't think foreign investors buying properties that sit vacant 11 months out of the year contributes to the housing problem.
The US is less concentrated than Canada, which is probably part of it (more than half of Canadians live in a handful of large metros).
Reasonable houses in my small US town are available for ~$100,000 (there's also listings north of $400,000, it isn't just a lack of economic activity).
Probably have to look at the US on a regional basis to do a meaningful analysis.
Isn't that because Canada has much lower property taxes than the US? So you have the same effect that you see in California, where low taxes drive up prices.
The math gets trickier when you consider monthly payments. At very low interest rates an extra 500k borrowed might only increase monthly payment by ~1500 which can be partially offset by $500-1000 less in property taxes per month depending on the municipality in Canada compared to US.
Has anyone actually used Rocket? Every time I (or a friend) have looked at them they have higher closing costs and wanted multiple points to close the mortgage.
I was able to do way, way better by going with a local bank, as did my friends.
The only thing I can figure is they are better for folks with "good" (not "excellent") credit and can maybe close the loan faster.
Something to note about your local bank/CU. They might originate the loan, but as sure as water is wet they’re going to sell it to someone else for service.
If you have a good working relationship that you can used for good terms, then go for it. But don’t go with a local bank because you think you’ll continue to work with them.
Yeah, I could not care less about what they do with the loan. I'm not looking for a relationship, just the best deal I can get. Full stop. Do people still think otherwise on loans?
All that said, our local CU does in fact keep their own mortgage portfolio. This may be rare, I don't know. They're a large CU associated with a government contractor.
When I bought my house they had the best deal (rate + closing costs) hands down. When I refinanced they were no longer offering 30yr loans on their portfolio (and I wasn't interested in 10/15), but still were originating them to sell. Unfortunately the 30yr rates were not as quite good as I could get elsewhere and closing costs were close to a wash so I went another direction.
I didn't even know this was a thing, selling off the servicing of loans. Our first home's mortgage was with HSBC and HSBC did everything, up until we sold that house. Our second (now current) home mortgage was with a local credit union and they did everything, too.
Dealing with the local credit union was super easy for everything. Not that HSBC was bad, but the credit union was always local people to talk to and never any problems.
I prefer that the servicing stay with the CU/bank I was working with, but wouldn't pay "that" much more for that, a couple hundred sure, actual percentage/points difference? nah.
I had a loan that got passed around a number of times back in the day, ending up with Countrywide each time.
The banks are really surprisingly good about forwarding payments, I found that a mortgage had been sold months before but the autopay from my bank kept working; it wasn't until I went to login that I realized it had been sold off.
Exactly. I've had a bunch of different mortgages over the years. Plenty of them have been passed around, but I've never had to sweat the details. I just set up autopay and forget.
So it isn't so much about the mortgage being sold, but whether servicing is transferred. If servicing is kept them the servicing bank forwards your payments onwards.
Exactly what I was thinking. Is this really a trend in the overall market or does Rocket Mortgage just suck?
When I looked into it they wouldn't do jumbo loans (which is just anything slightly above the median home price in the state of California these days) and their rates on traditional loans were worse than the big bank I was comparing it to.
On top of that it's not even an automated tech solution like they pretend it is, it seems to be just a thin veneer of a shiny website that then connects you to a traditional lender. So it's not even really any more convenient in terms of submitting paperwork and stuff, at least for the initial quote that was my experience.
I used them, but only because they have a relationship with my brokerage that allowed me to get preferential terms.
If not for that I'd have preferred someone local, you could tell you were just a number over there, and there were a bunch of communication issues around
scheduling the appraisal that were annoying to sort out.
I refinanced back in November. I'd say the process was very easy, at least compared to getting my original loan in 2015. Went through pre-approval online, talked to someone on the phone for 5 minutes, and was pretty much scheduled. E-signed a few docs and then they sent someone to my home to finalize it. From pre-approval to closing, the whole process took about 3 weeks.
My local rates were over 3% for a 15 year, they got me 2.25% + .25% in points.
I refinanced with them, but mostly because the salesman I talked to were misinformed or intentionally lied about some detail of how they could do FHA refinance which made them sound like a better deal than everyone else I compared against. I don't remember the details (it was a long time ago) and the information they gave had been true at sometime in the past, but had expired. In the end, they had slightly (negligibly) better rates than the rest after factoring in the points, and I had already paid deposit money.
Despite that bad start, I was very happy with how they serviced the loan. They didn't play any games or make things harder than it needed to be. If you sent in extra money they both applied it to the principle immediately, and pushed your next payment date out accordingly (and cumulatively), so you could retroactively treat it as a prepayment if something came up. This was really nice, and none of my other mortgages have done both - the better ones automatically applied it to the principle, and the worse ones treated it as prepayment unless you jumped through hoops to inform them otherwise each payment. I did end up taking advantage of this to help get through some unexpected medical expenses.
Paying off the loan was also trivial - just sent in the last payment and the loan was done and they sent me the necessary documentation. That is how all my car loans have worked, but for some reason previous mortgages have required some extra steps for the final payoff, or the mortgage ends up in some weird purgatory state.
I refinanced with them 2 years ago; they beat my local credit union and several banks at the time. Closing costs were competitive and extremely easy to schedule -- they sent an attorney to my home.
I use to be a shareholder of Rocket. Then I tried to get a mortgage with them.
I'm self-employed. I make about 200k/year. I had 0 debt (I paid off my house the prior year). I had 20% for up to 350k. I had an 812 credit score.
When I applied they asked for my P&R statements for 2 years. The current year showed a $400 deficit (which was due to charitable giving). They said that I was losing money.Therefore I was too great of a risk.
I explained to them why the numbers were $400 lowers. I told them that I already had another $20k in receivables. I told them my present house was on the market. All to no avail. I was too great of a risk.
It was at this point that I knew they had little idea how to work in the industry. If they turned me down, they were turning other stable individuals down. I promptly sold my shares and moved on.
The realtor of the condo I eventually purchased recommended a broker. They looked at the same info and laughed at Rocket. The new broker gladly took the loan.
It’s not rare for large volume companies like this to fail on edge cases. I’m sure they have an algorithm to calculate rates and risk and there was little anyone could do to change the output. I imagine it wasn’t designed with the self employed as a high priority. I’m not convinced any of that means they are destined to fail.
Eh I would agree with OC. If they got flagged up on something as small as that they are going to take a massive hit when the applications really dry up later this year. That means 1 of 2 things will happen. They will decide to massively swing towards the other direction panicking and taking on loans they never should have aka 2008. 2) They keep losing out activity and market share decreasing their stock price to a point well below where she/he bought making it a bad investment currently.
Neither looks great from an investors stand point.
Exactly. If I had a choice to invest at arms-length at a company who had good underwriting standards but loaned only based on liquid assets and W-2 income or in a company who very carefully underwrote loans by looking in careful detail at every applicants’ unique situation, I’m more inclined to invest in the former.
And now your company you invested is worth half because they were too strict on loaning and have entered the death spiral where they aren’t bringing enough new loans in and fold or get bought out for much less then your original stock price.
That requires the profit from the number of loan originations to non-W2 workers to be enough higher than the costs and errors produced by detailed human underwriting (against adversarial applicants, which both W2 and non-W2 applicants are, but W2s are harder to fudge).
It’s surely possible for that assumption to be true, but I start out skeptical.
You are making the assumption that they are also not overly strict for w2. Ive found that if one is not willing to budge on one thing its usually like that across the board
What percentage of mortgages are given to self employed folks? Genuine question, I have no idea. But I wouldn’t assume it’s enough that it could rescue any company from a death spiral.
You are making the assumption that they are also not overly strict for w2. Ive found that if one is not willing to budge on one thing its usually like that across the board
My issue is that they have apparently no wiggle room or advance underwriters for the loan. They have a lot of employees that don't do data entry (because the process does that for you), that don't really think, that do take up money to be paid to be the voice on the other side of the phone. Given this, they could probably reduce staffing by another 10%.
As times get tougher, the edge cases will probably become a lucrative section of market. Rocket's been troublesome before. I doubt they have the capacity to pivot (given, again, their apparent lack of skilled brokers/underwriters).
Rocket mortgage is a Fannie/Freddie mortgage mill. If the mortgage doesn't tick all the conventional mortgage boxes and can't be instantly sold the government, they won't write it. You're much better off working with local banks or credit unions, who may be willing to keep the loan on their books.
Yep. But looking at it as a shareholder, I don't think this should have been a negative.
Spending a lot of time to work with an individual client in order to make $1k-$2k or whatever they make ushering a loan over to fannie or freddie is not good business- especially during the recent market.
They should have been honest with OP about what the limitations are. Conforming loans (i.e. Fannie & Freddie) are notoriously tricky for self-employed borrowers. Salespeople gonna salesperson, though.
I don’t have a good way to reconcile the current hot job market with seemingly increasing reports of mass layoffs, but one wonders if the graph will change directions decisively at some point soon.
I think the mortgage industry is a bit different in that their workload is so closely correlated with interest rates. People were refinancing like crazy 1-2 years ago, but it's slowed down as rates have gone up.
Labour market is tight because after covid people are not willing to work at many jobs at the peanuts they were paid for before nor are they willing to change the work life balance they would need to sacrifice for these jobs.
There are jobs desperate for workers and paying more, and there are workers desperate for jobs applying en masse. They’re often overlapping now. Companies dealing with the consequences of increasing turnover are willing to pay more to avoid that problem and people are willing to quit in hopes of getting something better.
Yea, we are already seeing glimpses of it. The last two years have been an exuberant time for cheap money, i think we will soon see an employer market, which might mean bad things for WFH.
Rocket, like other mortgage firms staffed up the last 3 years on processing roles. Those are the first positions you're seeing let go with refinance volume falling off a cliff due to rising rates.
Also Rocket recently shifted their technology strategy to build fewer point solutions in house where there was an adequate market solution available, focusing more on customer facing technology to build in house.
My wife and I will be moving to Chicago soon and we intend on buying a house when we get there. How screwed are we by the current housing situation and interest rates?
Yep, when I was shopping for a condo 2 years ago, basically every place I looked at was selling for the same price as when they were brand new 10 years ago. Good thing though is it is way more affordable than the west coast.
It can if you count it from a cost-savings viewpoint.
E.g, if buying costs $x, you pay $y a year for loan, insurance, maintenance, etc, and sell for $x later, and $y per year was less than the cost of renting, you win.
But most people would call that a "good deal" vs a "good investment".
I honestly won’t be too upset if that happens especially if it means people aren’t treating housing as high return investment vehicles. Hopefully that means house prices will be more reasonable.
Reasonable prices for you now, sure. But your house is an asset. If you choose to move to Texas, let's say, and the housing asset prices outpaces that of Chicago, you're not going to be happy.
Note - there is a reason housing prices in Chicago are stagnant...people are leaving.
Yeah, commenter definitely conflated Illinois with Chicago.
I would not classify Chicago as anything close to an "affordable" housing market. Probably a toss up whether the least affordable area in the midwest to median income earners is Chicago or Minneapolis? Either area, you will be paying through the nose compared to, say, here in Wisconsin.
Overall, the city’s population grew nearly 2% from 2010 to 2020 — from 2.6 million residents to 2.7 million, according to data released from the 2020 census. That’s a change from the population decline the city had experienced from 2000 to 2010, when the city lost nearly 7% of its population.
But I think its fair to say that growth is generally pretty stagnant especially when you consider there are places across the country that aren't name NY or LA, that are absolutely booming (Denver, Dallas, Houston, Austin, Portland, Miami, Seattle, etc.)
> Probably a toss up whether the least affordable area in the midwest to median income earners is Chicago or Minneapolis? Either area, you will be paying through the nose compared to, say, here in Wisconsin.
This is true, but purchasing property in Chicago is relatively affordable if you compare against other major metros.
The point is this - housing prices in Chicago are somewhat stagnant by simple supply and demand laws, where the demand is not nearly what other major metros are experiencing in the country. This is good for buyers and bad for sellers. If chi/IL gov't stays the same, I don't expect anyone buying now will be in a sellers market anytime soon.
Buying and selling real estate involves high transaction costs - there are closing costs and transfer taxes on the buy side, and 6% commissions and transfer taxes on the sell side - which means in order to break even, you need to have some amount of appreciation.
Then there's the opportunity cost of living in a home that doesn't appreciate while literally everyone else in the country is getting rich merely by owning homes in states that have increasing populations.
And to top it all off, Chicago homes are not cheap and the property taxes are astronomical, so it's not like you're getting an amazing deal to make up for it.
First, you would lose money anyway, because most places have property tax.
Secondly, only the people who can afford to live in those high cost of living areas would get rich off of these increasing property values you're talking about. The worst thing a person can do is move somewhere to live beyond their means because "when I sell I'll be making a killing!" Out here in flyover country, unless you live in Chicago or Minneapolis, you're probably not seeing 30% per annum increases in your property values.
Finally, yeah, we in the midwest already know Chicago is not cheap. You buy there because you're well off, and you're going to make those ridiculous returns you were talking about. But the rest of us just deal with the areas we can afford. Which is probably not Tribune Tower.
Current resident 15+ years on and off, you’re mostly correct as an average but some neighborhoods have appreciated significantly and there’s likely to be a few others doing so in the next decade. But overall I’d agree that it’s not a great market for capital appreciation, and high property taxes don’t make it a great rental income market either.
West Loop is probably the hottest right now. Lincoln Park is traditionally one of the wealthiest along with gold coast, which is full of old people. Pretty much anywhere along the brown line has wealthy families. Wicker park is full of yuppies who wish they were hipsters.
The wealthiest suburbs are on the north shore, the towns directly north of the city starting with evanston going to lake forest. Oak park area is basically the Berkeley of chicago, lots of highly educated, high earning left leaners. Naperville and hinsdale have a lot of money too, never been myself though.
Very anecdotally from my Chicago (close) suburb: a little bit screwed. The available inventory in my neighborhood is the lowest I've ever seen for early spring, there's just very little up for sale.
Generally speaking as interest rates go up peoples purchasing power goes down as they try to keep the monthly payment manageable, which in theory could decrease demand and prices could go down.
Me and my spouse just bought in Chi. There's decent condo inventory in the city proper (West Loop, River North, LP, Lake View, even into Wicker/Logan) but SFHs in the burbs are slim pickins, especially in desirable neighborhoods (North Shore/Evanston, along the BNSF and UPW).
You've got to be ready to overbid (our first SFH got overbid by 70k), "best and last", and deal with 5+ bids per house.
You can find stuff away from public transit/no walkability but then why move to Chicago at that point?
That is a wild revelation to someone comparing greater Denver housing market, where adding 30% is required just to be considered....
I've been watching Zillow pretty consistently over the past few weeks, and have noticed price drops as well as longer days on the market in the Chicago area.
Knowing values don't increase much isn't really a deterrent considering the desirability of the location.
Different areas have vastly different "cultures" around house buying. Some regions they've always gone for "more than asking" for decades, it's just how the game is played.
And other places consistently go for "less than asking" - but the end result is the same, really.
I've heard Denver is extremely popular because you have all the amenities of a big city (They even have a Six Flags!), yet is right next to beautiful mountains and nature. Some parts even still have a small town feel.
Of course, I've also heard that a significant fraction of those moving in are single men, to the point where the city has gotten the nickname "Menver".
We love in Golden. Beautiful small town area. 25-30 from most of down town. 25-30 from myriad nature access. A couple hours gets you almost anywhere. We are in the suburbs so I don’t know about the. Menver meme
Denver has an international airport of some prominence, and since that became "active" it has become a bit of a westish-coast city.
Some areas around it had a very "Portland" or "Seattle" feel a few decades ago, and for a time they were a "well-kept secret". Not so much now, so the next big city may be somewhere else soon.
It's because the refi boom is done. Every time rates hit a new cycle low, people rush to refi and lock in that rate. On the way out of one of those cycles everyone's already locked into low rates. There's nothing left to refi.
The last 3 years have been a gold rush for the refi business.
That and we are probably in a general housing slowdown off the highs which is related to the first point anyway via rates rising.
This is exactly it - house purchases could stay the same or even go up but once rates start climbing, refis almost entirely disappear, so the total number of loans originated slows way down.
Something like 25% of loan holders refinanced during Covid.
I'm kinda surprised to see so much commentary on this. A lot of folks on here deeply misunderstand this industry, which is understandable, but there's a lot of very strident and incorrect opinion.
Simply put, one of the biggest mortgage booms in history just came to an end. Rates were at all-time lows. That meant an unbelievable boom in demand for mortgage refis.
Then when the Fed started taking inflation seriously, mortgage rates (which tend to track 2-3% above 10-year treasury yields) skyrocketed to 10-year highs. This means that very few people are in a position to benefit from a refi, and that business is pretty much dried up. The refi business is the specialty of Rocket Mortgage and other online lenders.
There is tremendous demand for housing right now, due to millenials being homebuying age and housing preferences changing with the pandemic. However, supply is tightly constrained. Boomers are aging in-place, home builders aren't completing homes due to building supply and labor disruption, investors are buying properties (smaller effect than people claim), and sellers don't want to sell without a home to buy. So for-sale inventory is at all time lows. This means less demand for purchase money mortgages, the main other product of a mortgage bank.
Mortgage lending is notoriously labor intensive. Nearly every lender, like Rocket, staffed up huge to meet the demand of the refi boom. Now, nearly every lender finds itself overstaffed for a mortgage market bust. Hence, layoffs. Every lender from the largest (Rocket) to the smallest is impacted.
This is just how the mortgage industry works, though. It is both seasonal and dependent on the economic cycle.
Rocket Mortgage has a pretty modern stack, and they make good use of third party API’s to aid their processing. There’s an entire fintech ecosystem that are providers for mortgage providers like Rocket Mortgage that could be impacted if this turns into a trend.
That ecosystem is already being impacted. Blend is one of the more cutting edge service providers and their stock has been in freefall since IPO in July last year. I believe they bill on a per-loan basis, so they rise and fall with the mortgage industry.
For what it’s worth I used them to refi my house before the rates rose. The banker I got was amazing. She handled everything beautifully. The only thing they weren’t set up to handle was notarizing my loan while I was overseas. But we figured that out.
These are nothing. In 1993 IBM cut 60K jobs and Sears cut 50K. In 2008-2009 Citigroup cut 50K and GM cut 47K. Imagine the effect those layoffs had on cities where they were concentrated. If you want to talk percentages, small to medium companies lose 50-100% all the time. Even in tech we've had bigger job contractions. I was working through the early 90s when companies like Prime and Data General went under, DEC was forced into a merge with Compaq, etc. Then, of course, the dot-com boom and subsequent bust. 8% of 26K is a big deal to the people and areas directly affected, of course, but in the larger scheme of things it's business as usual.
They're not needed, right? Investors buying a larger share of homes, so you wouldn't need as many mortgage brokers, right? Also, some developers are simply building homes to go straight to rental property. They wouldn't need Rocket mortgage to be involved.
I don't think this is a sign of a bubble bursting but more of a sign that unless you currently own and can hang onto it, you'll be a renter soon no matter your status.
Buying a home mortgage is signing yourself over to a lifetime of servitude and uncertainty if you lose your income stream. Buy a property out of pocket to live in and make the most of a DIY life at a fraction of the cost and an odd stress differential, or just keep renting and be agile enough to roll with the punches.
Paying cash in a low interest world is a bad strategy for a number of reasons.
1) The cash is better used to diversify across other investments. These investments will likely out-earn the mortgage interest.
2) The government gives you tax write offs for mortgage interest. Not as beneficial for everyone as it used to be but there’s a good chance you will be able to deduct if your mortgage is in a high cost of living area. Up to $750k in mortgage debt.
3) A home is an illiquid asset. By borrowing the money and keeping your own money in liquid assets you gain flexibility and can jump on good opportunities.
The vast, vast majority of homeowners do not foreclose ever. It’s no more “servitude” than paying the person who holds the note to rent from them instead of holding the note directly.
You’re responsible for maintenance and upgrades. And it’s harder to move to a new place if you own vs rent. These things are true. But “lifetime of servitude” is comically hyperbolic and ignores all the positives of homeownership that historically vastly outweigh those negatives.
Most people don't do the math and realize that over a long enough time horizon a 30 year fixed mortgage will cost you less than purchasing the home outright. This assumes you take the money you would have sunk into the home and instead invest it at a higher rate of return, which is an option available to most home owners.
You don’t actually have to invest at all. Over time inflation makes your payments cheaper and cheaper. By the time you reach the end of your 30 year fixed mortgaged in the year 2052 you’re still paying in 2022 dollars which is probably less than half of what the average mortgage in 2052 is.
If you invest on top of that and get some small decent return you come out even more on top.
But if the situation is that in 2022, you have enough cash to buy a house outright or get a mortgage and invest your cash, you still do have to invest your cash to benefit from the mortgage.
If I have $300k in cash today, and I want to buy a $300k house, then I can get a mortgage and let inflation shrink my mortgage payments, but it's also shrinking the $300k I have in cash.
I don't see how you can profit from the mortgage unless you find an investment for your cash with yields significantly higher than your mortgage interest rate.
This makes a lot of assumptions about interest rates, but it holds up.
Buy a house (with mortgage) for 4%. Inflation is 5% a year. Invest the money in real assets (literally anything diversified).
Your mortgage price goes down in future dollars because of the delta between interest rates and inflation.
Even if inflation isn't happening, mortgage rates tend to be fairly low risk, so any diversified bucket of assets has a historical return greater than the mortgage rate, especially over a 30 year period.
If you bought a 13% mortgage in 1984 (highest), in 30 years, S&P returns 11% by 2014, so even if you never refinance, during the highest interest rates you're only down 2%. If you refinance at basically any time in the 90s/00s you're way ahead.
The real takeaway is that the outside factors are going to weigh much more than interest rates vs buy vs etc.
If you buy during amazingly low rates, you'll feel happy when the rates shoot up (and maybe sad if you look at Zillow, but if you're not moving who cares?) - and if you buy during rising rates you'll be glad you got in when you did, and if you buy at the peak, well, you can refinance later.
You don’t need to really beat your mortgage rate, you just need to beat the inflation rate which is easier. As your income adjusts to inflation overtime, your mortgage becomes easier and easier to pay off and makes up a smaller percent of your expenses.
Some index funds though might beat your mortgage rate anyway, so it’s even better.
If you aren’t going to invest your principal in something that will earn a higher interest rate than the loan interest rate on your house, then taking a loan and giving away more money to your bank is not logical or smart.
A $300,000 home with a 20% down payment and 80% borrowed at 5.0%* will cost you __$523,813.88__ over the 30 year life of the loan.
Logically, cash just sitting in the bank 1% or less in interest should go towards your loan costing more than 1% or towards avoiding $5k-$8k of closing costs on a mortgage.
*Today’s interest rates are 5.125% for a 30 yr fixed rate mortgage.
One way to look at it, assuming you already have the mortgage, is you can now buy a fixed rate bond that lasts the remaining term of the mortgage, at the rate of the mortgage.
Ignoring income taxes, paying $10k down on a 5% mortgage with 25 years remaining is the same as purchasing a $10k bond at 5% that matures in 25 years.
One downside, is that pre-paying your mortgage doesn't change the cash-flow immediately, it just changes the end date of the mortgage.
People who accumulate so much wealth that they are able to purchase a home in cash are very likely to be doing some kind of investing. Be that traditional investing, running a business, or finding careers in sectors which require lots of time & education. It's just not feasible for people to accumulate large amounts of cash otherwise; the people who do are lottery winners or people with large inheritances.
So the invest/pay off home trade-off is there for everyone. Even for people like doctors, whose investments might not necessary be market-based.
You're paying for all those maintenance costs when renting, you're just doing it through a middleman (the property owner) who takes an additional cut so you're paying more.
I started buying a house 15 years ago. I have moved twice since and now live in a nice house that I have paid off fully, I overpaid as much as possible. Maintainance is easy. Now and then something breaks and I pay someone to fix it.
This has given me enormous peace of mind.
First off, it's a deduction, not a credit. You're still spending money.
Second, your mortgage interest (plus other deductions) need to be high enough to warrant itemizing deductions. At the start of 2021, my mortgage balance was $270K with a rate of 2.275%. Even including a $7,000 donation to charity, it wasn't enough for my wife and I to itemize.
That said, it's much better to mortgage than pay cash for reasons outlined already in this thread.
There are 3 good replies to this one giving a decent analysis for why I might want to reconsider my position. It's hard to pick which one to answer to.
Would you say that mortgage is probably driven down 8% because just can't afford the down payment anymore, or people like me who seem to have an irrational aversion to it?
Over the last two or so years, mortgage rates hit historic lows, which meant the demand for cheap mortgages increased significantly, both from people wanting to enter the market and those refinancing. Consider that the $500k mortgage that would have cost $2300/mo in 2019 suddenly costs like $1600/mo in 2021.
Absolutely I jumped on that train, as many others did. Lenders were overwhelmed and had to hire a lot to meet this demand.
If you missed that window, well rates are above what they were pre-pandemic, looking back at least a decade, so refinancing for lower payments no longer makes sense for most borrowers. People still are buying homes, but high prices and that disappeared “once-in-a-lifetime deal” are going to suppress demand.
It wasn't the right time to buy for me, for a handful of reasons, got no resentfulness over it. I don't know what my local market is like, or is going to be like.
The "right time to buy" is way more important based on your personal circumstances than almost any other consideration. Until you're sure you want to be in the same area for 10+ years, I wouldn't even bother considering buying, let alone determining which house you want to live in for 10+ years.
Which is why you often see houses being purchased by new families, the kids are the first thing that really begins to put down roots (as you don't want to move them from their school/friends).
Vast majority being 90% according to IRS statistics. It seems it will take some time for the myth of the effects of the mortgage interest tax deductions to die down.
It is also capped at $750k of mortgage debt, which is not much for the 10% of filers who are itemizing and using the deduction.
How do you avoid the servitude and uncertainty by renting instead? Aren’t you still dependent on an income stream to pay rent without being kicked out?
I disagree completely. You are trading risks and the government protects you in buying. The big problem is that people want to buy a 5 BR / 4 Bath that is the max they can afford so they do get stuck in that cycle. I didn't grow up poor by any means but today's kids need a 12x12 BR and sometimes on suite. We had 2 bunk beds and four teenage boys in a 10x10. People would be better served by buying the cheapest and smallest house that will actually function for them, make small upgrades over time and then play the upgrade game. Doing so by only moving to a bigger and nicer house when they can keep their payment and mortgage end date the same.
You can't control rent prices any more than you can employment. At least with buying, you will likely have some appreciation eventually. The government gives you back the interest you pay. You have an asset you can borrow against in bad times. You are paying the future's housing bill at today's prices. Inflation is your fried after you have bought your house. A house is the best way 90% of Americans have to build equity. Additionally, with all the NIMBYism everywhere, the likelihood of appreciation is almost guaranteed (outside of dead towns)
Compare each strategy for each decade over the past 100 years...
By a substantial margin, having a large home mortgage leaves you in a better financial position the vast majority of the decades, even if you lose your job and are forced to sell mid decade.
