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vertigo · 07-06-2022, 05:05 PM

@Irace86.2.0

Your analysis is very nice, but I think it might be incomplete. Your analysis looks at the US housing market as a closed system. But this isn't the first law of thermodynamics. The US real estate market is an open system, with constant input from foreign sources, which is what drives much of what we see as "crazy" trends in the market. Afterall, US consumer interest in home ownership has hardly changed much for 100 years. The American dream hasn't budged much, and the dream has always been below the 50% mark, with fluctuations coming in response to what is perceived as being achievable.

Somewhere in the mid-90s, the US real estate market really opened to foreign investors and govt entities, which changed the entire landscape of, well, everything.

Back then and through the 2000s you could hear people talk about the wealthy middle easterners inputting large money into the NY, specifically Manhattan real estate market. More recently, if you talk to Californians you hear all about wealthy Chinese buying homes in cash (and to a lesser extend Russian).

But you have to get very granular to get a better perspective on this, as all investment is not the same.

In the 90s-2000, the mid east investors perspective was fairly predictable and traditional. The idea was to buy distressed marquee properties, improve the property to ultimately improve their investment and wealth.
This was generally considered very good and healthy for the market. They end up buoying the NY real estate market and to many peoples surprise, actually had secondary and tertiary effects and was part of a general uplifting of all of the NY (and later entire NE seaboard). Their relatively small investment helped us significantly grow, far outpacing their investment, and if they benefited in the process, thats fine. It became a generally unexpected win-win. Many of those properties have been sold or retained, almost all have been significantly improved and in many cases are landmark properties in NY.

The trend more recently has been the complete opposite. The new wave of investors (mainly from China, but also from other places), see the US real estate market as a monetary shelter against their own inflation or other socio-political factors that might affect their wealth. In contradistinction to the 90s-2000s market, their focus has been on single family homes and smaller more discreet purchases. Many of these homes are purchased and subsequently left vacant or rented. With only basic maintenance, but no effort at all to improve the home or surrounding area.

This is essentially a safe deposit box, one which has the effect of draining the surrounding area.

Why should it be considered a drain on the surrounding area? Because this type of investing takes a SFH off the market, reducing supply. Assuming demand remains constant, then prices of the remaining homes inflate, generally reducing buying power of americans. But actually accruing more relative wealth for the foreign investor. So the investors wins at the expense of the people who live in the town or city. This is not a win-win, it is a win-loss 0 sum game. A very different game indeed.

Again, to reiterate its a safe deposit that drains the surrounding economy. Lets not even consider the heart broken people who can't afford a home, and the dramatic societal effects (nope, none of that happening right now...)

Now our current policy is to counteract this by increasing interest rates. Of course that has and will continue to have the opposite effect, by locking more Americans out of homes, because do not forget, the foreign investors are not at all bound by interest rates.

That keeps more people renting, which actually further benefits the speculative buyers. A win-lose situation, exacerbated.

This type of investment is the primary driver of what we are seeing now, and should be considered the single primary threat to our "way of life". But mass distraction is looking at a different direction while this happens. To be fair, we are a relatively market based economy, so its hard to counteract this type of speculative investing other then by theoretically making some strict laws on foreign investment in SFH, which would undoubtedly be labelled as anti-foreigner or possibly even racist and would likely collapse many markets beyond real estate, who are also heavily dependent on foreign investment. Its to crazy of a strategy, for now.

So far the softball approach is being taken to reign things in, but I for one see that it will fail, forcing us into a more extreme position. 5% interest will be considered cheap for some time.

07-06-2022, 05:05 PM	#96
vertigo Member Join Date: Jul 2022 Drives: Posts: 23 Thanks: 0 Thanked 1 Time in 1 Post Mentioned: 1 Post(s) Tagged: 0 Thread(s)	@Irace86.2.0 Your analysis is very nice, but I think it might be incomplete. Your analysis looks at the US housing market as a closed system. But this isn't the first law of thermodynamics. The US real estate market is an open system, with constant input from foreign sources, which is what drives much of what we see as "crazy" trends in the market. Afterall, US consumer interest in home ownership has hardly changed much for 100 years. The American dream hasn't budged much, and the dream has always been below the 50% mark, with fluctuations coming in response to what is perceived as being achievable. Somewhere in the mid-90s, the US real estate market really opened to foreign investors and govt entities, which changed the entire landscape of, well, everything. Back then and through the 2000s you could hear people talk about the wealthy middle easterners inputting large money into the NY, specifically Manhattan real estate market. More recently, if you talk to Californians you hear all about wealthy Chinese buying homes in cash (and to a lesser extend Russian). But you have to get very granular to get a better perspective on this, as all investment is not the same. In the 90s-2000, the mid east investors perspective was fairly predictable and traditional. The idea was to buy distressed marquee properties, improve the property to ultimately improve their investment and wealth. This was generally considered very good and healthy for the market. They end up buoying the NY real estate market and to many peoples surprise, actually had secondary and tertiary effects and was part of a general uplifting of all of the NY (and later entire NE seaboard). Their relatively small investment helped us significantly grow, far outpacing their investment, and if they benefited in the process, thats fine. It became a generally unexpected win-win. Many of those properties have been sold or retained, almost all have been significantly improved and in many cases are landmark properties in NY. The trend more recently has been the complete opposite. The new wave of investors (mainly from China, but also from other places), see the US real estate market as a monetary shelter against their own inflation or other socio-political factors that might affect their wealth. In contradistinction to the 90s-2000s market, their focus has been on single family homes and smaller more discreet purchases. Many of these homes are purchased and subsequently left vacant or rented. With only basic maintenance, but no effort at all to improve the home or surrounding area. This is essentially a safe deposit box, one which has the effect of draining the surrounding area. Why should it be considered a drain on the surrounding area? Because this type of investing takes a SFH off the market, reducing supply. Assuming demand remains constant, then prices of the remaining homes inflate, generally reducing buying power of americans. But actually accruing more relative wealth for the foreign investor. So the investors wins at the expense of the people who live in the town or city. This is not a win-win, it is a win-loss 0 sum game. A very different game indeed. Again, to reiterate its a safe deposit that drains the surrounding economy. Lets not even consider the heart broken people who can't afford a home, and the dramatic societal effects (nope, none of that happening right now...) Now our current policy is to counteract this by increasing interest rates. Of course that has and will continue to have the opposite effect, by locking more Americans out of homes, because do not forget, the foreign investors are not at all bound by interest rates. That keeps more people renting, which actually further benefits the speculative buyers. A win-lose situation, exacerbated. This type of investment is the primary driver of what we are seeing now, and should be considered the single primary threat to our "way of life". But mass distraction is looking at a different direction while this happens. To be fair, we are a relatively market based economy, so its hard to counteract this type of speculative investing other then by theoretically making some strict laws on foreign investment in SFH, which would undoubtedly be labelled as anti-foreigner or possibly even racist and would likely collapse many markets beyond real estate, who are also heavily dependent on foreign investment. Its to crazy of a strategy, for now. So far the softball approach is being taken to reign things in, but I for one see that it will fail, forcing us into a more extreme position. 5% interest will be considered cheap for some time.