Tag Archives: homeownership

Want a home with extra amenities? Just buy a condo with hotel services

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Developers are building more condos with hotel amenities:

Developers across the U.S. are reviving a concept that collapsed with the real estate crash in 2008: combining condominiums and hotels. In cities including Miami, New York and Los Angeles, a rebounding hospitality market is joining with rising demand for luxury homes, spurring developers to construct new full-service hotels and ask premium prices for residential units associated with a high-end brand…

“I love the amenities the building will have — a restaurant that can provide room service, a concierge, maintenance, a person that can clean your place, valet parking,” said Viete, 25, who works for his family’s real estate company in Caracas. The $250 million project, scheduled to break ground in August, is already 85 percent sold…

Condo developments with a hotel can be structured in several ways. In some cases, residences may be connected to the lodging segment only so that owners can take advantage of the hotel’s amenities and benefit from the brand’s prestige. That tends to put a premium on unit prices.

In other developments, known as condo-hotels, a portion of the condos are made available to the hotel when owners aren’t using them, producing revenue for residents.

Sounds nice if you have some extra money lying around. On one hand, the story doesn’t say how much extra such units would cost over and above condos available elsewhere but on the other hand, if you have to ask, this isn’t the market for you…

Thinking about these units, they are an interesting contrast to a common American narrative about homeownership that goes something like this: you work hard to put together enough to purchase a home, you work hard to maintain it, you are more likely to participate in local community life, and it is a long-term investment and place for sentimental moments. Yet, the housing options available to those with more money goes against these principles. Instead of putting sweat equity into maintaining the home, you can pay someone else. Instead of getting deeply involved with neighbors and local issues, the wealthy can travel from house to house in exciting locations. Instead of holding onto a home because of family life and memories, housing becomes just another commodity to be bought and sold. In other words, condos with hotel features are far beyond normal American conceptions of homeownership.

Bill Gates could buy every home in Boston and still have $1 billion left

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Redfin suggests Bill Gates could purchase all the homes in Boston but not Seattle :

If Bill Gates took every dollar of his net worth (most of which comes from Cascade Investment, his investment firm, as well as Microsoft), he could afford to buy every home in Boston — and still be worth more than a billion dollars, according to a new report from the online real estate site Redfin.

For the report, Redfin calculated the combined cost of every single-family home, condo and townhouse in a city by looking at home sales between April 1, 2013, and April 1, 2014. These sales were used as a representative sample of all homes in a city. The combined costs were then lined up next to the net worth of billionaires on this Forbes list. (You can find more about the methodology here.)

So for Seattle, Redfin calculated that 241,450 homes in the city are worth a combined $111.5 billion dollars. Bill Gates could afford each of the 114,212 homes they included in the Boston calculation (total cost: $76.6 billion), but he couldn’t buy every home in Seattle. The Walton family that founded Wal-Mart could afford every home in Seattle, but only if they teamed up. They could also afford every home in a lot of other cities, including Miami, Dallas and Washington.

Using the combined home prices on this list, some billionaires could settle for purchasing a few smaller cities rather than picking up one of the pricier options. Mark Zuckerberg, who reportedly spend more than $30 million last year buying up homes near his Palo Alto house, could take his Facebook money ($28.2 billion) and buy every home in nearby Berkeley ($25.9 billion, according to Redfin). Or he could decide to buy up a few Zucker-bergs (sorry) across the country, purchasing Corvallis, Ore. ($9 billion), Punta Gorda, Fla. ($10.1 billion) and Oak Park, Ill. ($7.6 billion) with $1.5 billion left over.

See the full list of billionaires and cities they could buy here. The primary purpose Redfin gives for putting this together?

Given that the average American struggles to afford a home, we wanted to illustrate just how many homes the wealthiest among us could buy.

Certainly a stark comparison between the buying power of the typical American versus the wealthiest. So is Redfin pushing hard here to criticize the .01%? It doesn’t appear that way. There is no indication how the differences between Gates, the Waltons, and others might be evened out to provide homeownership opportunities for more Americans. Or, is this more about page-clicks and driving traffic to their website? This is a relatively easy way to leverage their data capabilities and capitalize on recent talk about inequality.

Fewer Americans see homeownership as path to financial success

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As more Americans are discouraged about the American Dream, fewer see homeownership as a means for reaching financial stability:

Nearly two-thirds of Americans, or 64%, believe they are less likely to build wealth by buying a home today than they were 20 or 30 years ago, according to a survey sponsored by non-profit MacArthur Foundation. And nearly 43% said buying a home is no longer a good long-term investment…

A majority of respondents said they believe renting is more appealing than buying — and that renters are just as likely to be successful financially as someone who owns a home…

Historically, owning a home has been considered an essential part of achieving the American Dream.

However, the housing bust, with its explosion of foreclosures, changed all that.

The key may just be in the second paragraph cited above. It is one thing to have economic hiccups where homeownership is a less viable option for many because of financial troubles. In this sort of scenario, the economy would improve and people would just right back into owning a home. It is another thing to fundamentally rethink perceptions of renters. For decades, many suburbanites and others have suggested that renters – often in apartments but also in houses – are not as committed to their communities and tend to be lower class. Renters couldn’t be trusted as much, didn’t care much about property values, and were generally less desirable than owners who would invest more in their homes and neighborhoods. But, if more people across a broader range of classes and places become renters, perhaps this will all change.

Buying or renting smaller spaces related to less consumer spending

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If Americans turn away from McMansions and toward smaller homes or renting, they may also spend less on other items:

The apartment/renting moves have two implication for consumer spending. First, less space means less stuff. Second, rental units typically aren’t fitted with high-end appliances and finishes.

Looking at real spending for certain home goods, the data show annual increases in spending on items like appliances, furniture and window treatments are averaging less than they did during the boom years. That means that, like home construction, demand for home goods isn’t supplying the boost to economic growth that it did before the recession.

The Demand Institute, a joint initiative of The Conference Board and Nielsen, looked into the shift’s impact on consumer spending in a 2012 study. The DI analysis expected demand for home goods to pick up as housing recovers, but “value-oriented brands are likely to see the greatest growth,” the report said, a short-run trend “driven by landlords and renters who want to spend less on fixtures and furnishings than homeowners [do].”

Renting households also tend to own fewer vehicles, said the DI report, in part because their finances are worse than homeowners but also because parkingspots are limited. That shift will limit future car sales

All together, this links spending in one large area – housing – to spending in other sectors. Take owning a large suburban house. Such a home tends to support a more robust housing industry including construction and real estate. Such homes are often built in more sprawling suburban neighborhoods, leading to more cars and more road construction. Bigger homes require more furnishings, landscaping, and opportunities for improvements and repairs, supporting more suburban big box stores and other retailers.

I do wonder how much this is a case of spurious correlation versus indicating broader shifts: is this all linked to people having less disposable income? If they feel they have less money, they might make different choices about housing as well as consumer goods. Or, due to the economic crisis and relatively stagnant income for many Americans, consumers might be shifting their preferences in a number of ways that could upset traditionally important economic sectors. It could be a move away from expensive and more durable goods (houses, cars) toward electronics (like smartphones) and entertainment (the creative class).

More Americans again view owning a home as a good investment

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The burst housing bubble reduced the value of many homes yet more Americans are again seeing a home as one of their best investments:

According to a recent Gallup poll, real estate beats out stocks, bonds, savings accounts and even the Great Recession’s investment darling, gold, as the favored form of long-term investment. A full 30 percent of Americans see real estate as the best investment—up from just 19 percent in 2011.

A new survey by the Pulte Group echoes such sentiments: 35 percent of Americans reported that they would like to buy a home soon in part because they see it as a smart financial investment, said Valerie Dolenga, spokesperson of Michigan-based home builder, Pulte Homes.

This kind of growing confidence should make us all wonder, though: Haven’t we learned anything from the housing crash? One of the big takeaways from the crash was to avoid this exact line of thinking…

Now that the market is recovering, and home prices are growing again—in fact home prices are at an all-time high in nearly 1,000 cities across the country, according to Zillow—the siren song of seeing your home as an investment is becoming tempting once again.

Then four tips are offered to help ensure your home can be a decent investment: location matters, buy a home that needs some work so you can increase its value, “don’t buy the best house on the block,” and expect to stay in the home a while to allow the value to increase. In other words, a house is not automatically a good investment yet good planning can go a long ways.

At the same time, sentiment about seeing homes as good investments is not necessarily related to making bad choices about buying houses. In other words, we need to see how these beliefs become translated into actions. For example, more Americans may want to buy homes but if other pieces are not in place, such as good inventory or readily available mortgage credit, then this may not lead to another housing bubble. The bigger issue may come when everyone involved from buyers to lenders to the media gets caught up in a housing rush and it takes on an inertia of action that goes far beyond consumer sentiment.

Finally, views on homeowership as a good investment are tied to other factors:

Upper-income Americans are much more likely to say real estate and stocks are the best investment, possibly because of their experience with these types of investments. Upper-income Americans are most likely to say they own their home, at 87%, followed by middle (66%) and lower-income Americans (36%). Gallup found that homeowners (33%) are slightly more likely than renters (24%) to say real estate is the best choice for long-term investments.

Social class and wealth matter when determining what are viewed as good investments.

Federal move toward making more credit available for homeownership

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New actions announced this week are intended to help more Americans own homes:

On Tuesday, Mel Watt, the newly installed overseer of Fannie Mae and Freddie Mac, said the mortgage giants should direct their focus toward making more credit available to homeowners, a U-turn from previous directives to pull back from the mortgage market.

In coming weeks, six agencies, including Mr. Watt’s, are expected to finalize new rules for mortgages that are packaged into securities by private investors. Those rules largely abandon earlier proposals requiring larger down payments on mortgages in certain types of mortgage-backed securities.

The steps mark a sharp shift from just a few years ago, when Washington, scarred by the 2008 crisis, pushed to restrict the flow of easy money that fueled the housing bubble and its subsequent bust. Critics of the move to loosen the reins now, including some economists and lenders, worry that regulators could be opening the way for another boom and bust.

For the past year, top policy makers at the White House and at Federal Reserve have expressed worries that the housing sector, traditionally a key engine of an economic recovery, is struggling to shift into higher gear as mortgage- dependent borrowers remain on the sidelines.

Both Treasury Secretary Jacob Lew and Federal Reserve Chairwoman Janet Yellen last week noted the housing market as a factor holding back the economic recovery.

Two thoughts:

1. It is not surprising that the federal government would want to support homeownership: pretty much every President since the 1920s has extolled the virtues of owning a home. Additionally, since the late 1800s homeownership has been a key marker of the American Dream.

2. The comments made earlier this week make it sound like the government sees housing as a sector that should help lead the economy. In other words, housing is an industry with a wide impact from developers to the construction industry to real estate agents to individuals looking for a home. Housing doesn’t necessarily have to be viewed this way; the article also hints that housing is lagging behind other parts of the economy. Put differently, housing improves after other parts of the economy improve.

Unclear how much student debt is holding back the housing market

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The sluggish housing market is likely not helped by the amount of student debt held by young adults:

[T]he Federal Reserve Bank of New York reports today that in 2013, student debtors between the ages of 27 and 30 were less likely to own a home—or, specifically, to have a mortgage—than their peers who were student-debt free. Homeownership rates have fallen fast among all young adults since the recession. But, as shown below, they’ve dropped most precipitously among those who borrowed for school.

6a01348793456c970c01a511b13bd1970c450wi_1Federal Reserve Bank of New York

There’s one key detail this graph leaves out, however, which the Fed shared in a separate report from early last year (and which I’ve written on before). It turns out that, at the end of 2012, borrowers who were current on their student loan payments were actually more likely to take out a mortgage than other young adults. Borrowers who were delinquent on their student loans, however, took out barely any mortgages at all. In other words, young people who already couldn’t handle their debt simply weren’t in the market for houses.

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Federal Reserve Bank of New York

A key point: having college debt doesn’t completely stop mortgage originations. So, reducing college debt (and look at the median, not the average) could help free up the housing market but it isn’t the only problem.

I wonder if there isn’t another way to think about this: more young Americans are willing to trade a college degree for homeownership before they are 30. This could be due to a variety of reasons including earning potential due to a college degree but also a decreased interest in owning a home as opposed to accomplishing other goals like living in an exciting place or establishing themselves in a career. In other words, this issue may not really be about college debt holding people back but rather about the relative interest young adults have in owning a house.

Wealthy Chinese seeking out McMansions

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The Financial Times suggests there is one primary reason more Chinese homebuyers are choosing McMansions: they are status symbols. One note: the McMansions hinted at in this article sound opulent beyond the average American McMansion.

Critics of McMansions would often argue a similar process is at work in the United States: McMansion owners want to impress others with their large house. While the price is not so much of an issue (much smaller pieces of real estate in desirable locations can cost much more), the homes show off through an impressive/ostentatious front, plenty of interior space, nice furnishings, and lots of stuff. On the other hand, I suspect a good number of owners purchased such homes because they say they need the space or got a good deal or liked the amenities of the home and neighborhood.

I’m not sure these are mutually exclusive arguments. Homebuyers can want a suburban experience and want to do it in a home that broadcasts their success. After all, the suburban single-family home represents middle- or upper-class success as well as expressions of individualism.

Better to own or rent? Cost not the only factor

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As we live in the aftermath of the burst housing bubble, is it better to own or rent? While individual circumstances differ, some experts advise owning is cheaper:

One year ago, Trulia’s Rent vs. Buy Report, released by online real estate aggregator Trulia, found it was 44% cheaper to buy a house than to rent. Today, the gap has narrowed, due in part to rising interest rates and home prices. The newest edition of the report finds that buying a home is now 38% cheaper than renting. The report compares costs for a seven-year period using five calculations…

Peggy Jennings, a Broker/Realtor with Prudential Great Smokys Realty in Sylva, North Carolina, cites favorable interest rates, good inventory and relaxed loan requirements as good reasons to buy now. “Interest rates are still good. The inventory is improving as more people are deciding it’s time to sell. There’s going to be a lot of good inventory coming up, especially since the foreclosures from a couple years ago are now rehabbed and ready to sell,” says Jennings…

Even though it is a buyer’s market in many areas, homeownership is not the right choice for everyone. A primary consideration is how long you plan on being in an area. “I tell people if they are planning on living in an area for at least three to five years, then it makes sense to buy versus rent,” says Jennings. “When you go to buy,” Jennings says, “you have to pay quite a bit of closing costs. For a typical sale of $150,000 or $200,000, you’re looking at somewhere between $3,500 to $5,000 in closing costs. So it doesn’t necessarily make sense to buy a house and then within two years try to sell it, unless it’s a really awesome market and you think you’ll be able to sell at a good price.”…

Low interest rates, better inventory and relaxed lending standards make now a good time buy a home. In many markets, it is considerably cheaper to buy than rent. Although the Trulia report finds it is 38% cheaper to buy than rent nationwide, it’s important to note that individual markets can vary greatly. For instance, it’s 66% cheaper to buy in still-struggling Detroit versus only 5% cheaper in Honolulu. Even though the numbers show it is generally better to buy than rent, you should always consider the individual market and your own situation and preferences when making the decision to buy or rent.

This analysis is primarily about economic costs of owning versus renting. While this is certainly a large factor in housing decisions, it is not only the only factor. I would think that as long as homeownership continues to have some financial benefit over renting (though it would be curious to know what happens when this gap really narrows – or if it even reverses for some period of time), Americans also have a societal preference for owning a home. Renting is viewed in many places as temporary, housing for transient people who can’t get their act together. Ownership, in contrast, connotes stability, sound financial footing, and taking responsibility for your own property. These assumptions aren’t necessarily fair but this is the American milieu behind the bare economic costs of renting versus owning that also influences how many owner or rental units are constructed in the first place.

Argument: trends suggest younger Americans won’t experience the dream of homeownership

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Dr. Housing Bubble argues young Americans may not be able to achieve the American ideal of owning a home:

Many young Americans will be accustomed to paying their student debt and rents on a monthly basis while these income streams go into banks, many that own their property.  Not a bad situation if the market wasn’t rigged by banks where preference is given to large money and low rates matter little when the Fed has set a fuse to Wall Street to buy out large portions of real estate in the market.  Of course many will try to pretend that this is some sort of free market.  The housing market is fully subsidized and juiced to the gills and while this is going on, a younger generation gets older and their dreams of homeownership move further and further away.  At least they can bunk with mom and dad and enjoy stories of those beautiful golden real estate handcuffs.

There are several interesting assumptions going on here:

1. Homeownership is the better long-term option for the country and for individuals over renting or living with family. This is tied to ideas about independence and achieving the American Dream as opposed to renters or those who live with family who can’t be self-reliant and don’t care as much about their property.

2. Younger Americans should aspire to homeownership. They may not as much in the future as owning home creates a significant financial obligation, may prevent the mobility needed to chase jobs or other opportunities, and may not be as exciting as other consumer options (new technologies, entertainment/cultural/travel options, etc.).

3. The difficult economy where a majority of Americans can’t make significant financial progress will necessarily continue and limit the number of people who can buy homes (and the number of new homes that are built). We’ll have to wait and see how this turns out. If anything, this all reinforces how big the housing bubble was in the mid-2000s.