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One factor of the Great Recession was strategic default - when a home's market value fell markedly below its mortgage, some people did a strategic default.
Nowadays, I don't know anyone with a high end home that actually still has a mortgage.
Strange, I have a high end vacation home, and I have gone out of my way to find creative ways to monetize the equity as it skyrocketed over the years. I didn’t go nuts or anything, but about 50% of it. It seemed foolish to me to allow so much cheap money to just sit there doing nothing. Then I just kept refinancing as rates kept getting lower and lower. I managed to make a lot of money with the money I took out of that home. A lot more than the measly 3.0% I’m paying on it now, so, no regrets.
No it isn't. You have interior designers for that.
During the design stage of any custom home, you have engineers who perform detailed heating and cooling calculations to comply with energy efficiency regulations, and also to size your HVAC systems correctly.
My wintertime gas bill is only about $1,000 per month, much of which is to heat my 150 foot driveway to melt the snow (we get about 400+ inches of snow per year). But this is just my vacation house, and I wasn't the original owner, so I didn't influence some of the energy tradeoffs in the design.
In my main house in Las Vegas, I went overboard on energy conservation. The exterior paint is actually a very high ceramic content coating that reflects infrared energy so as to reduce thermal heat gain in the summer (and it is wicked expensive). I have specially coated windows that do the same. I have 6 separate HVAC systems (7 if you count the garage) that operate 10 separate zones (11 if you count the garage) so I can dial in the temperature of the house by zone. Add in the 12kw of photovoltaic panels and my summertime cooling bill is under $100/month.
What can I say, I am cheap. haha. I would never pay someone to clean windows or design my place for me. But who am I kidding, I don't have that kind of money anyway. I think, even if I did, I wouldn't spend it on a big house. I tend to like small and cozy. I've resigned to the fact that after I sell, I am going to have to buy land and build my own house eventually because I found the floorplans and pictures and my "dream home" is a 1285 square feet, 2 bedroom, 2 bath "French country style" cottage with a one car garage.
Strange, I have a high end vacation home, and I have gone out of my way to find creative ways to monetize the equity as it skyrocketed over the years. I didn’t go nuts or anything, but about 50% of it. It seemed foolish to me to allow so much cheap money to just sit there doing nothing. Then I just kept refinancing as rates kept getting lower and lower. I managed to make a lot of money with the money I took out of that home. A lot more than the measly 3.0% I’m paying on it now, so, no regrets.
I guess that depends on what you use the leverage for. I used most of mine buying up rental properties, all of which are worth more than I paid for them. Some of them, multiple times what I paid for them. Meanwhile I have had cap rates in the 6-10% range, and rents keep going up while interest rates have kept goin down, so I kept refinancing to new fixed rates. All of this, while the renters have been paying off my buildings. There was a small hiccup with COVID, but it wasn't so bad around here because most people in this area have jobs where they can work from home.
I actually have a couple of the more inflated properties up for sale now. I want to have cash on hand 2 years from now in case interest rates are high, and housing prices are down, so I can buy some undervalued properties with cash.
I also used the equity in house to collateralize a letter of credit to overfund a universal life policy, which has been extremely lucrative over the last 10 years. At this point it is self funding and I no longer have the letter of credit to service. I can borrow from that policy tax free in retirement, and then the policy can pay it back after I die. Pretty clever, right? With the market being what it is now, you may have missed the boat on that one.
Pre Covid - housing market steadily climbing, but only steadily. Things look balanced.
Covid/Post Covid - housing market on fire. 50 offers on one open house. Headlines all over the news about millenials reaching prime homebuying age. They said construction lagged for over a decade, thus the shortage of homes we have now.
I don't get it. If we had a shortage of houses in 2021, didn't we also have a shortage in 2019? Two years shouldn't make THAT big of a difference. And this seems to be nationwide, not just a handful of metros.
It a lot of investors trying to get loans on the cheap to devalue those loans over the time and high inflation. Inflation is much higher than rates, especially past rates, and the Fed is not hiking the rates because they're not interested in fighting inflation and want to preserve this asset bubble.
It's common knowledge two of the primary drivers of this crazy market are low inventory and low interest rates. The former is exacerbated by investors crowding out potential homebuyers.
What happens when a major economic event leads to a fire sale of investors dumping properties? These folks are in it to make money riding the highs and nothing else. Compare that to your typical homebuyer who purchases real estate to serve as a primary dwelling, and likely has much more appetite for riding out the lows.
While what happened with Zillow dumping properties might be a bad comparison, I can't help but think these investors will skip town at the first sign of real trouble. Especially the ones who have already made handsome profits. Is that where the "bubble" finally bursts? I'm not convinced things will just settle down. I think a substantial correction is in the cards, and investors will play a prominent roll.
Also, builders would have to build a steady 2 million homes per year for 10 years straight to meet the current demand. Due to the extreme labor shortage (and the current material shortage), there is no way they will meet this demand for years to come. Too many skilled workers are retiring and their is simply not enough younger workers to take their place. Add to that, there is not enough young workers willing to get their hands dirty in the skilled trades as it is, so you've got a double whammy there.
Why was this not an issue prior to 2020? Housing prices doubled, and it happened overnight. It's far outpaced inflation.
It a lot of investors trying to get loans on the cheap to devalue those loans over the time and high inflation. Inflation is much higher than rates, especially past rates, and the Fed is not hiking the rates because they're not interested in fighting inflation and want to preserve this asset bubble.
If this is true, then there's no massive shortage of housing that everyone talks about, at least not in the sense that the housing isn't physically there, but there's a shortage because the housing is bought up by investors.
If this is true, then there's no massive shortage of housing that everyone talks about, at least not in the sense that the housing isn't physically there, but there's a shortage because the housing is bought up by investors.
The amount of homes being built is significantly less than 15 years ago.
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The amount of homes being built is significantly less than 15 years ago.
Pretty sure that’s not true. Housing starts have been steadily rising every year. They haven’t been keeping up with population but then not all the population can afford a home either way. The “low supply” does not justify the insane increase in housing prices the last 18 months. Once demand starts to dry up investors will unload properties, people will sit on the sidelines and wait, mortgages are now 5%… theres a bubble… the fact so many people are blind to it makes me believe even more that it could pop at any moment. Again, it doesn’t have to look like 2008, it can be a different type of bubble that pops for a different type of reason.
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I think, even if I did, I wouldn't spend it on a big house. I tend to like small and cozy. I've resigned to the fact that after I sell, I am going to have to buy land and build my own house eventually because I found the floorplans and pictures and my "dream home" is a 1285 square feet, 2 bedroom, 2 bath "French country style" cottage with a one car garage.
