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Comment by est31 | Hacker News Reader

There is a third outcome, which is that mortgages continue increasing with rents not following suit, making buying homes unaffordable for increasing numbers of people. Currently there is a "mortgages must be cheaper" rule enforced by many landlords who refuse to rent out their properties for less than the mortgage. But if new landlords, say wall st, show up, who buy houses in cash, then it might cause an increase in purchase prices without an increase in rents.

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I'd prefer a fourth (unrealistic) option where we go to legislative war against house ownership by any entity that isn't going to live there. Land area is a finite natural resource and owning more than you can use is as perverse as selling off acres of the ocean or cubic miles of the atmosphere.

I think there should be a tax structure that disincentivizes the behavior.

> I'd prefer a fourth (unrealistic) option

no need to be unrealistic - there’s plenty of cheap land (at least in the US) - there’s people that live in Alaska or North Dakota or upstate NY (or whatever inhospitable climate you can choose)

We don’t need more rules

Just here in the Bay Area, prices have doubled while rents have gone up maybe 5% in desirable areas post pandemic and are still way down in SF.

Just moved into a bigger place with a pool for $100/m more than my last rent (Marin county).

We want to buy, but our monthly cost would literally double to own the house we are in now.

House prices may have doubled (even that sounds high), but in a lot of places condo prices are down to where they were 5 years ago, with listing prices often being reduced from the initial price. This is the opposite of what you hear about houses where they are being sold above list price.

In any discussion about housing prices in the Bay Area it's important to distinguish between condos and houses. The markets are very different because lots of new condos are being built while the supply of houses is (mostly) fixed.

Single family homes in Marin, yes. Our last rental was sold in 2022 for 1.57, in 2017 in the exact same condition for 1.05m, in 2010 pre remodel .57m.

Not sure about rental data but it was already crazy expensive to rent in Marin in 2014. I’ve seen no noticeable increase while prices have more than doubled.

This is essentially Toronto. There is a fairly big delta between mortgage payments (with a reasonable downpayment) and rent. If you only care about monthly cash flow, renting is a far better option. For the last decade the wisdom has been that buying a place is a good idea, despite the cash flow delta, due to appreciation. If people no longer believe this to be true, there could be a sharp shift in the housing market. Perhaps we’re seeing the beginning of that.

Institutional investor purchases of residential real estate may be largely all cash offers, but the money that funds those purchases come from a mix of debt, rental earnings and invested capital.

I think it’s worth pointing that out because they are more susceptible to interest rates moving because their debt is short term. We may see institutional investors start to divest their real estate holdings if interest rates rise and their margins get squeezed.

What asset classes do you think they will move into as they exit RE? Why not just de-leverage a bit and stay in RE, which is more inflation-proof than many other investments?

> Currently there is a "mortgages must be cheaper" rule enforced by many landlords who refuse to rent out their properties for less than the mortgage.

That is traditionally how houses were priced — pre-mini depression that is.

People wrote whole articles and books trying to explain how this isn’t the case anymore, how you can lose money every month by subsiding your tenants and still come out ahead because housing prices always go up. It wasn’t even a question anymore and you were guaranteed to come out ahead because the fundamentals of the market had changed. Seriously, no way you could possibly lose money by investing in real estate.

I think we all know how that new economic theory turned out…

In a durably desirable area, I would feel comfortable taking a mortgage in the same range as projected inflation. If you think inflation will stay at 7%, a 5.5% mortgage interest rate is no barrier at all to buying for an investor.

That’s an interesting point: higher interest rates offer increasing advantage to those who already have cash on hand.

Yes, to put it in the bank

While the drive towards lower interest rates has made that money come out of savings accounts and drive up all asset prices

Yes. The Fed's low interest rate policy has been a huge tax on those prudent investors who held safer assets like cash and T-bills. At the same time, they maximally rewarded extreme gambling in the markets. That's why we live in world that somewhat resembles the 80s TV show "20 minutes into the future" -- all just crazy schemes and advertising plastered everywhere. Who knows what comes next.

This is basically how Manhattan has been operating for decades.

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