Don't forget the tax incentives (at least from a US centric view). There aren't many investments where you can depreciate the basis for tax write-off, while also realizing gains in tangible value.
> In any other market, unsophisticated investors would have been margin called overnight. Instead they get to sit for years on slowly moving prices, and use those years to continue boosting their collateral as if nothing happened.
This is a really interesting point. I've never thought of it this way.
Aka: shenanigans of the financial industry
Banks were leveraged 40 to 1 and the value of their collateralized bonds fell a few percentage points, that's it. Yes, that is what our entire society is based around, the assurance that this doesn't happen.
I am more interested to see what happens to commercial real estate. I have a feeling that hotels are kind of unhappy about their real estate holdings right now. The question is whether they can get rid of it (and if someone can turn a hotel into apartments successfully, which sounds like a challenge to me). Ultimately, I think the status quo will prevail and nothing will change. The cost of change is too high.
yeah and that remains true when real estate is exchanged for the amount of cash people have on hand, instead of how much cash they could theoretically produce in 30 years.
the game is trying to figure out how much of that intrinsic value is relevant right now, or how close is the current price to that 'intrinsic value' since they can be far far far away from each other. its just a commodity no matter how married you are to the asset class: if there is a glut of supply because people can't afford the mortgages or property taxes then prices go down. The banks and states don't care, they already earned what they wanted from the mortgage/property owner and are derisked. when you default they will get the property off their book as fast as possible.
It can be done, but I've more often seen apartments built over ground scraped clean than retrofitting an existing building. Honestly, hotels are probably the closest kind of building design that one could get that might be worth converting into apartments.
There are two buildings near downtown in my city. One was converted into studios, the other now bills itself as "student housing".
The inefficient pricing and the slowly updating pricing allows for the HIGHEST amount of leverage to work for people.
In any other market, unsophisticated investors would have been margin called overnight. Instead they get to sit for years on slowly moving prices, and use those years to continue boosting their collateral as if nothing happened.
So you can't expect a significant drop in home prices just yet. But definitely pay attention to foreclosure auctions. The court houses are not even processing these yet until the economy turns back on in the local municipality. You're too early, but wait for it.
For now we are all trying to quantify just how leveraged people were. Many people don't think there were that many AirBnB speculators to affect the housing market. So every article to the contrary just helps form the picture.
For the 2008 great financial crisis, it only took 7% of mortgage holders defaulting to cause the market convulsions (as in there really weren't that many "bad" borrowers, people overwhelmingly played by the expected rules to the best of their ability). Expect that the % necessary to cause distress to banks to be bit a higher these days, due to some marginal reforms, but also watch to see how many are going to default because that could also be a much higher percent its interesting because so many more people already won't be able to pay their mortgages because the unemployment already happened first.