As long as you are occupying a residence, it would not effect nationwide or region-wide supply and demand, right? You selling would be offset by you buying.
Deaths, divorces, immigration, births, and of course, new construction is what would shift supply and demand curves, on average.
Also, if lots of people are buying and selling, even if aggregate demand is the same, it's a more liquid market. If I'm a first-time homebuyer, I'd rather play in a market of musical chairs then try to buy in a theater where only the dead and divorced get up from their seats.
If a family that would normally have sold their older two bedroom and moved to a four bedroom instead chooses to remain in the two bedroom longer, that two bedroom doesn't appear on the market, a four bedroom languishes.
And if nobody is building two bedroom houses, that can have ripple effects.
I've watched a lot of friends go through this thought process recently. Locally, the thought process grinds to a halt when they see the exorbitant prices that property management firms are charging for new customers these days. Apparently there's a huge spike in the number of people trying to become landlords because they don't want to give up their low mortgage rates, like you. Property management firms are taking advantage of this.
I also see a lot of people changing their minds when they do the math on the size of down payment they'd need and the monthly cost of a 7% mortgage on the types of houses they want to move to. There's a reason people talk about starter homes and trading up as opposed to accumulating additional properties every time they move to a nicer house.
OTOH, I know a number of well compensated software engineers who were trying to pour their money into real estate investments. All of them are very firmly paused on buying new properties at the moment.
All of that goes away for a percentage.
Some people get lucky with golden tenants who never cause trouble, pay on time, and even fix little things on their own.
Others get unlucky and have to deal with a neverending stream of issues, from dealing with payment issues to having to leave work in the middle of the day to handle the issue of the week.
The laws around being a landlord are also more complex than you'd expect. In many locations, you can't show up and fix things on a rental by yourself unless you're a licensed contractor. A lot of landlords ignore that and do it anyway, but if anything goes wrong then you have a target on your back as soon as the tenant engages with a lawyer. Hiring a property management company is a way to pay someone else to handle all of that and take a significant legal liability off of your shoulders.
I remember early in my career I worked with a guy who thought he was going to manage a couple rentals on the side while doing his SWE job. He ended up getting PIPed because he was missing so many meetings and had to disappear all the time to deal with the latest issues at one of his locations, or even just to try to find new tenants after the constant turnover.
On the other hand I watched my wife tell a male owner that she would not accept a rent increase and he backed down.
Overall if you only have one property, have the right skill set and personality I would say you are better off doing it yourself. If you cannot say no to a young woman then you had better let someone else take care of it for you.
You’re probably better off finding a good tenant and paying the tenant to manage themselves, paradoxically.
Rental management for the most perfect possible tenants (parents) is still a moderate annoyance and more expensive than expected. Without appreciation I’d be below zero, and even with it I’d have to do some serious work to figure out how much I’ve “made”.
i made the shift because i was tired of having to deal with every minor crisis myself, take time away from work to (for example) meet prospective tenants, get a new AC installed, handle the make-ready process, etc. i had a good long stretch with one tenant that was low-maintenance but they moved out suddenly with very little notice (add managing the lease agreement to the list of stuff i don’t like doing as a landlord) and a lot of work i had to do to clean up after them.
all things considered, i’m happy to fork over 5% each month to someone else to deal with those headaches.
Insurance can only do so much to protect against that, but the worst case scenarios are thankfully relatively rare.
I do so for a fee reasons: first, I have no idea what my obligations are as a landlord and they do; second, they have a list of local tradespeople whereas I live in a different country; and thirdly, the property is an apartment and the common areas and exterior were already being managed by them.
If it doesn’t happen, it goes into a maintenance backlog that will make your head spin later, and possibly your wallet implode.
If you live there, it’s usually straightforward enough to fit it in with everything else, but can be exhausting on it’s own.
Through something major in (roof leak? AC breakage?), add it being in an area you don’t live in anymore, and gets harder.
Then, you can have tenants that aren’t absolutely perfect, and it gets even harder and more tiring. Late payments? Property damage? Neighbor complaints?
If you pick good tenants each time and nothing goes wrong, it can be great. It only takes one case of it not for things to get really unpleasant and overwhelming however.
Also, add in the Covid eviction moratoriums, which opened a whole additional can of worms for landlords - if something happens like that again, which precedent has now been set - you could spend years paying a mortgage and upkeep on a place with zero income from it.
Personally, I never rent out a place unless I know how to do an eviction in the local jurisdiction. I hope I never would have to, but not knowing how is a good recipe to lose your shirt and possibly any future gains you could ever hope to have.
I’ve known folks that had renters who seemed perfectly fine (solid full time professional jobs, etc), but left a complete trash house (literally, multiple dumpsters worth - trash to chest high), and disappeared suddenly without paying last months rent.
The underlying truth is that it takes work and management expertise + energy to maintain a house in livable condition, let alone want-to-live-in-it-condition, and that has value. Also, not everyone can, or wants to do that.
I know how to do an eviction in my local market and did one in my former life as a landlord. That is precisely why I will never be a landlord again.
Paperwork grind and cost? Nastiness/emotional side? Something else?
The eviction process in my state
- first you have to give them your own personal notice.
- if they don’t pay in 7 days. Then you go to court and file paperwork with the court
- then once the tenant gets served they have a certain amount of time to reply to the notice
- then they can make up any reason to dispute it
- then you have to wait on a court date after you win. They still have a certain amount of time to pay. If they don’t…
- then the Marshall again serves a notice
- then you have to schedule a time for the marshal to oversee the eviction.
- then you have two hours to remove everything from the house on the street while the marshal is supervising. You must have a crew of 5.
- while all this is going on, you can’t enter the house or harass the tenants in any way.
- then you have to clean the place up and fix any damage.
- then you have to find and screen new tenants.
There is a reason standard underwriting only gives you credit for 75% occupancy. The effort is not worth the money. I spent years grinding out rental property between 2002-2010 and even if the housing market hadn’t crashed, I would have been better off focusing on my career.
From 2010-2020, by concentrating on my career I tripled my compensation without having to relocate. Not bragging, it’s about that of a mid level software engineer at any BigTech company in the US (I work remotely at BigTech in the cloud consulting department). Even now if I cared to, I could put in 6 months to a year worth of practicing coding interviews and probably increase it by another $100K.
Residential real estate is not “passive income” by any stretch. I am better off just investing my income from my 9-5 in REITS if I wanted exposure to real estate.
Years ago my dad took an ARM at 18% because the anti-usury laws limited the maximum it could go to 20% and it turned out to drop each adjustment period after that (80s wheeee)
What does this mean? Are there usually early repayment penalties for home mortgages in Germany, or is it simply not allowed?
In the US, I have never read about not being able to pay or a penalty for paying the entire mortgage at anytime.
And yes, the prepay penalty is generally based on the interest they would lose or a few month's interest, whichever is better for the bank at the time of payment.
But also note that if you paid the extra for a 10-year, Canadian federal law says you can prepay 100% at any time after 5 years with no penalty (or virtually no penalty?). Which is part of why longer-term mortgages are markedly more expensive.
https://www.loan.com/home-loans/how-non-recourse-loan-laws-v...
My parents (we're all American) were always very careful to check that early repayment didn't come with a penalty, on mortgages and all other loans, so I assume it used to be a thing. I've always asked (following their example) and not once had the answer be "yes, there's an early-repayment fee" so maybe it's a whole lot less common than it used to be.
https://www.ecb.europa.eu/pub/financial-stability/fsr/focus/...
"The prevalence and handling of prepayment risk differs in two respects between Europe and the US. First, while in the US prepayment costs may be priced into the interest rate, in many European countries lump-sum prepayment penalties are induced by statutory requirements. Often banks impose charges on homeowners for early repayment. These fees force households to bear part of the prepayment risk and, if the fees are sufficiently high, may deter homeowners from prepayment, thereby nullifying the prepayment risk faced by banks. An exception to this is the Danish mortgage market, where long-term fixed-rate mortgage loans with an embedded option of a penalty-free prepayment are typically offered, as in the US."
Our 80/20 loan back in the countrywide heyday had a prepayment penalty on the 20 which also had a balloon. We structured our refinance to avoid the penalty.
Personally I take advantage of it and think it's not necessarily a bad thing, but wish it was more direct about what it's trying to do.
The long term fixed rate mortgage is where no wealth gets redistributed today, but rather from future taxpayers or users of the currency.
Secondary step would be to make landlord-ing less attractive by giving tenants a lot of rights, naking them hard to evict, thank kind of thing.
This would make houses less atractive as an investment asset.
Lastly you could increase property taxes, again driving down atteactivenes of hiuses to investment.
Beinging down price of houses is easy. The question is what do you do with all the people who bought a house for 500k and now its worth 250k and they are stuck
For example,
https://www.mortgagenewsdaily.com/
Reports 30 year fixed is about 7.32% and 5 year ARM is about 6.75%. A 10 year would be somewhere between that, but if I was choosing with less than a 52 basis point difference, I would go with 30 year fixed due to less downside risk of my mortgage blowing up.
At 30 year mortgages of 2% to 4%, no brainer to just go with 30 year even though you might pay a $1k more in interest every year. But you might not, and you definitely will not pay more than a $1k extra in interest since it is locked in.
If the 10/1 ARM was 5% and 30 year was 7%+, I would think about the 10/1 ARM.
Part of the problem for communities starts when not all participants live in the community - if the grocers and workers and police are “imports” from the suburbs or other areas you start to get divergent goals and WGASA starts to take hold.
1) raising rates and otherwise making money more expensive encourages capital to do something else with their money than speculate on real estate cheaply, which was a pretty appealing option over the last 5-6 years (let alone the last 2).
2) it's a mistake to rely on interest rates alone to address issues here. There's a whole raft of policy issues that should be brought into play here: progressive taxation by ownership volume and vacation-rental usage, better interest breaks for first-time homebuyers, encourage owner restoration and discourage investor-flippers. BUT every other way of addressing the policy is actually harder politically, since one party sees inequality as feature-not-bug and will actively fight attempts to address it (especially if it represents a win for their opposition), and the other has both a tenuous hold on power and a coalition that may not be all on board.
This means your mortgage repayments aren't the only thing that has increased, so has absolutely everything else in your life. Look at Australia for example, they're predicting the already ridiculously high food prices to go even higher, up to 7-10% due to major flooding events this year.
So your analysis kind of works, but it's not factoring in whether people feel ok about paying > $200k (AUD) or more for a house which isn't worth that much anymore (prices are going down already, many many people bought at the height of a bubble, due to FOMO), then having absolutely no money to do anything with their house to improve it (building costs are astronomical) and having no money for leisure or holidays, then you have high energy and school fees to add to all of that.
In my opinion, this is what will start to drive more people to sell. It's not just the house prices, but it's the burden of being tied to such huge debt.
Also money isn't so cheap right now, so it will slow down property speculation. Many people also bought houses thinking that if they don't like being so heavily leveraged they will just sell their property at a net gain. Not at a loss, this I think is starting to scare people.
I'd say we'll see a lot of people at least consider downsizing in the near future.
Australian here, $200k would be a dream! You're off by a factor of ~4.6: https://www.abs.gov.au/statistics/economy/price-indexes-and-....
Over the past few years the appreciation on housing has meant that for many people their shelter, and entirely non-productive asset, has outpaced their own earnings. For anyone not on that rocket ship, good luck.
So the majority of recent buyers are servicing loans much larger than their current house is worth, and paying more interest on top of that.
I’m sure it will “go back up again”, but it doesn’t seem like there are any events in the near future which are likely to kick off another massive boom, all signals are pointing towards a property slump.
Says someone who probably has never been a landlord. I would rather poke both of my eyes out while getting a rectal exam than ever be a landlord again.
On one hand, this means that prices need to come down to get houses into peoples' price ranges. On the other hand, if the market is down, there's no way in hell that I'm selling my house. A loan at 2.875% is almost like having free money, so even if I need to move, I'd prefer to rent out my house than sell it.
It's unclear if we will see low prices, but fewer sellers, or high prices, but fewer buyers. What's clear though is that this is going to be a low liquidity housing market without a lot of transactions.