Housing Market/Economics - General Topics

[min-chi-cbus]

I am not doing that much with my money or lack of it to soften the blow of any impending economic collapse.

Should I? Just wanna be confident about the Kool-Aid we're drinking.

I look at it like climate change (but lacking the scientific consensus). Even if we're not sure there will be an economic disaster, the benefits of planning for it are good in and of themselves. I mean, people seriously argue that we shouldn't clean up our polluting act because climate change (in their minds) might not be real. Seriously? It's damn good to clean up pollution no matter what! Same with getting finances in order to ride through the inevitable downturns, job losses, etc.

Agree with you there.

[trigonalmayhem]

We are all connected but my Minneapolis property taxes don't pay for services in Eden Prairie and all the other suburbs, at least not to the degree which they pay for their services. If a suburb can't meet its financial obligations and is forced to raise taxes to the point where it drives people out, yeah, that place will die. The point is that the car dominated sprawl is not financially sustainable forever.

We are all connected but in many arbitrary ways we are all separate.

One of my pet peeves is that suburbanites come to the central city and utilize its resources and services far more often than the reverse case. So the center city always bears higher costs but a huge chunk of those who cause those costs zip off to another municipality to escape the costs. Then they get to have much healthier budgets for their own needs there (helped by the massive subsidies for decentralized infrastructure). People in St Louis park or Eden prairie aren't paying to keep up our parks but they sure will come enjoy them.

[Anondson]

On the tangent of park use, isn't there a regional spiderweb of park systems under the umbrella of the Met Council, of which the Minneapolis Grand Rounds is considered part of? Doesn't the regional funding chip in partly for the Grand Rounds?

[mamundsen]

I've been reading along and would love to know how to approach this with my friends in a better way. Here is a summary:
- I live in the Como Park neighborhood. I use transit for work (sometimes) and often for sporting events. I love it and want to over-invest in my current house with projects, additions, etc because I love the LOCATION.
- my best friend lives in Mayer. (And has for about 7-8 yrs) He drives to Bloomington to work. It boggles my mind everytime I drive out to visit him. I try to convince him to move all the time. I think he'll always be way out there.
- I have other close friends that live in Ramsey (they commute to DT Mpls and Eden Prairie), St Michael, Rosemount (x3), and more are headed outward.
- I have many friends buying/selling right now.
--one just bought a townhome in Savage! I can't imagine going that far to be in a townhome!
--another just bought a townhome in Chaska. What?!?
--my sister in law is building in Lake Elmo
--another close friend is planning to commit to building in Shakopee

How do I convince my friends that they are ALL absolutely crazy and doomed with the next downturn?

[Rich]

How do I convince my friends that they are ALL absolutely crazy and doomed with the next downturn?

But isn’t your degree of exposure related moreso to your mortgage size vs. your home equity? How is a townhome in Chaska (which is booming) more dangerous than “over-investing” in Como Park?

[David Greene]

How do I convince my friends that they are ALL absolutely crazy and doomed with the next downturn?

It takes a long conversation, spanning years. The documentary "The Sprawling of America" produced by Michigan Public Television is what really opened my eyes. Unfortunately, I don't think it's available on DVD. If you can somehow find it somewhere, it's worth pointing people to.

Start with values. Which values do you and your friends share? Environmental stewardship? Healthy lifestlyes and communities? Racial and economic justice? Each of these inevitably leads to changing how we do things today. Talk about what you care about and how development patterns enhance or detract from it.

Anecdote: I once gave a public speech about transit with several thousand people, including some legislators, in the room. I talked about how my grandma could get around town when she lived in the city. I then explained that I'm not sure how some other members of my family will get around and participate in the community when they have to give up the car keys. Some years later, one of those legislators spoke at another event about how she didn't understand transit as a social justice issue until some guy talked about what his family members would do when they got too old to drive.

Also bear in mind that sprawl is really more about inefficient development than ocation. It's perfectly fine in my mind for someone to live "way out" if their work is close by and they can get most places without a car. I mean, Duluth is "way out" from Minneapolis but if you live and work in the right place, it's perfectly efficient. Similarly, I don't consider my present situation in Minneapolis to be ideal since I use a car to commute. It's something I'm working on fixing but I'm going to need better transit infrastructure to make it work.

Several people on here have talked about decoupling "suburb" as geographical location and "suburb" as built form. That's an important distinction.

The most important thing is not to cast blame. Just talk about what you want for our shared future. After a while of that rattling around in their heads, some will start to rethink things.

[David Greene]

But isn’t your degree of exposure related moreso to your mortgage size vs. your home equity? How is a townhome in Chaska (which is booming) more dangerous than “over-investing” in Como Park?

It's related to future expectations, of course. Depending on where the townhome in Chaska is, it may be just fine. Chaska has a quite urban and walkable area along the river that many people would enjoy.

The question is, what's the future value of a place? Not a house but a place. Location, location, location as they say. I'm pretty sure that in the future, people are going to value short/carless commutes much more than they do now. Likewise, they'll value walkability much more (that is already happening).

Another way to look at it is the market share of a place. Of all the potential real estate buyers, what percentage of those is your place going to attract? A far-flung place on a lake not near any jobs or walkable amenities is going to have a small piece of the market: those with boats who don't care about long commutes. I believe my location has a much larger share of the market:: those who love walking/biking/jogging along lakes, those who like to be able to walk to practically everything, those who want decent transit access, those who want to live near work, those who enjoy a mix of people and so on. Current real estate prices bear that out and I'm betting that will be true for a good long while.

[acs]

I've been reading along and would love to know how to approach this with my friends in a better way. Here is a summary:
- I live in the Como Park neighborhood. I use transit for work (sometimes) and often for sporting events. I love it and want to over-invest in my current house with projects, additions, etc because I love the LOCATION.
- my best friend lives in Mayer. (And has for about 7-8 yrs) He drives to Bloomington to work. It boggles my mind everytime I drive out to visit him. I try to convince him to move all the time. I think he'll always be way out there.
- I have other close friends that live in Ramsey (they commute to DT Mpls and Eden Prairie), St Michael, Rosemount (x3), and more are headed outward.
- I have many friends buying/selling right now.
--one just bought a townhome in Savage! I can't imagine going that far to be in a townhome!
--another just bought a townhome in Chaska. What?!?
--my sister in law is building in Lake Elmo
--another close friend is planning to commit to building in Shakopee

How do I convince my friends that they are ALL absolutely crazy and doomed with the next downturn?

Just don't be a fearmonger, it rarely achieves the desired result and will just further isolate you and the position you're taking.

[mamundsen]

Thanks for the feedback. To expand on my thinking... I am along the lines that Como Park while not necessarily walkable, I do have good access to transit, only blocks to the 3 or 61 or 65. Which go to either downtown and connect to Green Line and soon the A Line. Also as David said, there is a larger pool of buyers looking to be in my neighborhood than in a townhome a ways out. Also when I say over-invest part of that is because I am feeling the crunch of higher construction costs. I'm not quite a DIYer yet.

David, thanks for the documentary suggestion. I'll have to find it.

I also see some of my friends over expanding because they can afford it now with low rates. My friends definitely still have a short sighted view. What if 15 year mortgages became the standard. The other day I put some info into a calculator. 325k house, 10% down, 30yr vs 15yr. The overall cost difference was amazing. If/when I move I am definitely planning on buying what I can afford on a 15yr loan.

[min-chi-cbus]

I've been reading along and would love to know how to approach this with my friends in a better way. Here is a summary:
- I live in the Como Park neighborhood. I use transit for work (sometimes) and often for sporting events. I love it and want to over-invest in my current house with projects, additions, etc because I love the LOCATION.
- my best friend lives in Mayer. (And has for about 7-8 yrs) He drives to Bloomington to work. It boggles my mind everytime I drive out to visit him. I try to convince him to move all the time. I think he'll always be way out there.
- I have other close friends that live in Ramsey (they commute to DT Mpls and Eden Prairie), St Michael, Rosemount (x3), and more are headed outward.
- I have many friends buying/selling right now.
--one just bought a townhome in Savage! I can't imagine going that far to be in a townhome!
--another just bought a townhome in Chaska. What?!?
--my sister in law is building in Lake Elmo
--another close friend is planning to commit to building in Shakopee

How do I convince my friends that they are ALL absolutely crazy and doomed with the next downturn?

They're probably buying where they are because it's much much much more affordable to do so far away from the core. If we were in the market for a new home (crosses fingers that this happens sooner than later, and hopefully in MSP!) it would be hard to ignore a major price/SF difference between the suburbs and the core, although me being a stubborn urbanist, I'm pretty sure we'd end up closer to the core anyways. The point is though, that I can see a reason they may be doing so, thinking that it's cheaper to buy big at a lower cost in the suburbs than to buy small at higher costs in the core.

[mattaudio]

Show them "The Illusion of Wealth."
https://www.youtube.com/watch?v=sD47xo3 ... e=youtu.be
"This is why cities, who have done everything 'right' for two generations, are now looking at bankruptcy. Because as we all intuitively understand, if you lose money on every transaction, you don't make it up on volume."

[min-chi-cbus]

Thanks for the feedback. To expand on my thinking... I am along the lines that Como Park while not necessarily walkable, I do have good access to transit, only blocks to the 3 or 61 or 65. Which go to either downtown and connect to Green Line and soon the A Line. Also as David said, there is a larger pool of buyers looking to be in my neighborhood than in a townhome a ways out. Also when I say over-invest part of that is because I am feeling the crunch of higher construction costs. I'm not quite a DIYer yet.

David, thanks for the documentary suggestion. I'll have to find it.

I also see some of my friends over expanding because they can afford it now with low rates. My friends definitely still have a short sighted view. What if 15 year mortgages became the standard. The other day I put some info into a calculator. 325k house, 10% down, 30yr vs 15yr. The overall cost difference was amazing. If/when I move I am definitely planning on buying what I can afford on a 15yr loan.

May I offer a potentially better option?

Instead of being stuck with a 15 yr loan that will have much higher monthly payments than a 30 year loan, why not get the 30 year loan and pay it off in 15 years? You still end up paying the lion's share of the loan interest, but it gives you flexibility in the event that you can't afford your monthly payment, lose a job, etc. When you're stuck with a high-cost loan you don't have the flexibility to pay less, only more. Also, another thing you could do, depending on your comfort level with investing, is get the 30 year loan and invest the monthly difference between the cost of the 30 yr and 15 yr loan so that your money is working for you, and at the same time you still have the flexibility to pull back on your monthly cash outflow if/when the situation calls for that.

This is something my father brought up to me once when I had the same notion to get a 10 or 15 yr mortgage instead of 30, and it makes a lot of sense IFF you have the discipline to pay an amount other than what's listed on the mortgage.

[mattaudio]

^this.

[min-chi-cbus]

Show them "The Illusion of Wealth."
https://www.youtube.com/watch?v=sD47xo3 ... e=youtu.be
"This is why cities, who have done everything 'right' for two generations, are now looking at bankruptcy. Because as we all intuitively understand, if you lose money on every transaction, you don't make it up on volume."

I like that video.....it encompasses in what I believe in as a prospective future developer/planner. I immediately forwarded it to my wife!

[David Greene]

The overall cost difference was amazing. If/when I move I am definitely planning on buying what I can afford on a 15yr loan.

Yes, a 15yr makes a HUGE difference. Time value of money.

[David Greene]

Instead of being stuck with a 15 yr loan that will have much higher monthly payments than a 30 year loan, why not get the 30 year loan and pay it off in 15 years?

That's another good option. Even better if you make two payments a month rather than one. That goes for any mortgage, not just the ones you pay off early.

In our case, the 15yr had a significantly lower interest rate than a refinanced 30 and as a result our monthly payment didn't rise a bit when we refinanced from 30 to 15. We could have paid a refinanced 30 in 15 years but we'd spend more money due to the higher interest rate.

[David Greene]

Now to affordability, we're (society) already subsidizing this with low gas prices, the mortgage interest tax deduction, and even imputed rent.

I'd like to explore the idea of imputed rent because it's a new concept to me. The argument is that homeowners should pay an income tax equivalent to what they would if they rented out their house to someone else and got monthly payments. In effect, the homeowner pays rent to him/herself and pays income tax on that rent.

It's an interesting concept but it immediately breaks down logically. Why is housing special in this regard? Why wouldn't *everything* we own be subject to the same tax? Isn't it the same deal if I own a car vs. lease it? Or what if I rented my clothes rather than buying them? Do I new pay taxes on the "rent" for all the items I own?

This train of thought inevitably leads to an asset tax, which I would 100% support. Calculate your net worth and then pay a tax on it. It could be a flat or progressive tax (I'd prefer progressive, obviously).

Do an asset tax and now not only do you have a more stable funding source, you're covering both sides of disparity, income and wealth. You're encouraging a lot more charity donations and generally pushing people away from our hoarding mentality.

Perhaps the first X% of wealth in savings/retirement programs should be exempt, to encourage people to plan for the future.

I'm sure a lot has been written about a scheme like this.

Thoughts?

[mister.shoes]

We refinanced from a 30 to a 15 a year and a half ago. We knocked 2 percentage points off the interest rate, but our payments went up a bit because we financed an extra $30k to finish our basement. We're still nowhere near stretched financially, but that's entirely because we made a conscious decision not to be. When I bought the house 6.5 years ago, I was single and making slightly more than half as much as I do now. And yet, the bank approved me for a loan amount I wasn't even remotely comfortable committing to. Even now that I'm married and making a lot more money, our new loan is significantly less than my theoretical max from 2008. People who buy at the borrowing limit are the ones who are going to feel the crunch, no matter where they live.

[acs]

The problem with asset taxes is liquidity. You can't sell 5% of your house every year and in any case the IRS is a cash only bar. You can get some of that affect by charging sale and income taxes when the entire house is sold or at death, but the problem is the government needs money continuously. Before the progressive era we used to fund almost all the government with property taxes and excise taxes (on booze mostly). This worked ok then because we were trying to levy taxes indirectly on the income people made from their property. That however broke down when society transitioned from being mostly farmers to wage workers, where your income is in no way tied to the property you own. Hence, the modern income tax.

[mattaudio]

Scrap it all and move to a progressive consumption tax.... Easy...