Tag Archives: real estate

How much it costs to live in the cheaper suburbs or expensive New York City

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Opponents of sprawl argue that while many prospective buyers move further away from work in order to buy bigger yet cheaper homes, there is a cost. One website argues that the each mile closer to work is $15,900 that could be spent on a house:

We all know that driving to and from work every day is costly, but exactly howmuch of a toll does each mile of commuting take on your finances? This True Cost of Commuting graphic breaks it down.

Taking stats and calculations previously mentioned by Mr. Money Mustache, the infographic illustrates just how expensive commuting is. Each mile you live from work costs $795 in commuting expenses per year (assuming a driving cost of 34 cents per mile and factoring time lost with a salary of $25 per hour). $795 a year for just one mile! You could buy a house worth $15,900 more with that, as Mr. Money Mustache pointed out in his article, since $795 would cover the interest on a 5% mortgage rate.

If you don’t want to calculate in the time-is-money factor, each mile (one way) of commuting will cost you $170 a year. It’s a compelling reason to move as close to work if you can (or bike to work or telecommute).

See the large infographic here. I don’t know about Mr. Money Mustache’s calculations but this is a sizable number.

At the same time, there were reports this week that the Occupy Wall Street protestors tend to live in pricier homes. As Megan McArdle notes, this is a consumption choice where people decide to spend more of their income on a home in a great city:

My initial reaction was the same as many people I’ve seen in comments sections: the protest is in New York, which is expensive.  This is hardly surprising.

But on second thought, I don’t think that’s quite right.  At least some of the houses identified by the Daily Caller are in places like Texas and Wisconsin.  But more importantly, I’m not sure we should “discount” these home values for location.  The fact is that living in an expensive city is a consumption choice.
You hear this argument all the time from people in New York.  “Rich?  Hah!  We’ve got four people in 1600 square feet, and our school bills are going to put us into bankruptcy.”  Many New Yorkers believe that they should be given some sort of income tax abatement because of the expense of living there (with the lost revenue being made up from “really rich” people, natch).  Slightly less affluent New Yorkers frequently believe that landlords should be forced to offer them “reasonably sized” apartments at a modest fraction of their income, because after all, otherwise they couldn’t afford to live in New York…
Living in a blue state is a choice.  If coming to New York meant that you had to put four people in a three bedroom apartment that’s uncomfortably far from a subway line, instead of buying a nice little condo in Omaha, this does not mean that you are not “really” better off than your counterpart in Omaha; it means that you have chosen to consume your extra wealth in the form of “living in New York” rather than in the form of spacious real estate, cheap groceries, and an easy commute.

So what people in the Midwestern suburbs might spend on a daily 20 mile each way commute in a SUV translates into a more expensive apartment in New York City.

Both stories cited above suggest consumption is a choice. But is it truly an unfettered choice? What would lead some people to aim for the bigger yet cheaper house in the suburbs and others to spend more money on a smaller place in a cosmopolitan paradise? Perhaps this information would help both sides engage in conversation rather than talk past each other and try to force the other side to follow their logic…

Of course, we could look at the broader trend of American political and cultural discourse on this subject. On the whole, government policies have promoted suburban living while a few big cities, such as New York City, have successful dense, mass-transit oriented living. Cultural discourse, even if it is shifting toward the younger generation’s increased interest in denser living, still privileges the suburban American Dream.

High housing prices in Vancouver due in part to increase in Chinese homeowners

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Vancouver may be known as one of the most liveable cities in the world but the housing prices are also quite high. This is in part due to an increase in Chinese homebuyers:

Buyers from mainland China are leading a wave of Asian investment in Vancouver real estate as China tries to damp property speculation at home. Good schools, a marine climate and the large, established Asian community as a result of Canada’s liberal immigration policy make Vancouver attractive, said Cathy Gong, who moved from Shanghai to the Shaughnessy neighborhood on Vancouver’s Westside about three years ago.

China, where home prices rose 28 percent in Beijing and 26 percent in Shanghai last year, according to the country’s biggest real estate website owner SouFun Holdings Ltd., has taken steps to curb property speculation within its borders. Chinese home prices gained for 19 straight months through December and climbed in almost all 70 cities tracked by the government during the first quarter. Premier Wen Jiabao placed curbs on mortgage lending, boosted down-payment requirements and limited the number of purchases.

“As the Chinese get more and more prosperous, they are diversifying their assets out of China,” said Jim Rogers, an American investor who moved to Singapore from New York four years ago so his daughters could learn Chinese. “Vancouver is very high on the list.”…

The current group of Chinese homebuyers in Vancouver is the third “wave” from Asia since 1990, following Taiwanese and Hong Kong immigration, said Manyee Lui, a veteran Vancouver realtor. “People from mainland China are the new immigrants,” Lui said.

This is a reminder that real estate truly is a leading industry in the global economy as people from different countries seek out desirable properties. In escaping a real estate bubble in China and increased regulation but with money to spend, Chinese homebuyers are now looking at Vancouver. (Vancouver may not be the only place: I also recently wrote about a story of Chinese residents building “monster homes” in New Zealand.)

It is interesting to note the reactions of Vancouver residents: the influx of Chinese homebuyers has raised housing values, perhaps pricing others out of the market, and the schools now have a large number of non-native English speakers. At the same time, I assume Vancouver residents take pride in the cosmopolitan nature of their city. One resident mentioned the possibility of the government restricting foreign homeownership – is this really the route to go? Will this end up turning into a debate between local and global interests?

“Shunning the McMansion”

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Earlier this week, US News & World Report ran a story titled “Why We’re Shunning the McMansion.” Here seems to be the main data in this article:

Only 9 percent of consumers surveyed said they wanted a home 3,200 square feet or larger, according to a recent study by the NAR, while the majority of house hunters—about 55 percent—preferred homes in the 1,400 to 2,600 square-foot range. Builders also plan to scale back new home sizes as well, with 9 out of 10 builders expecting to build smaller, lower-priced homes in the coming years, according to a study by the NAHB.

Despite the drop in desired median home square footage, Melman says it’s not so much a matter of downsizing as “right-sizing”—forgoing larger homes with unused space for smaller, more efficient and well-laid-out homes. Americans are reconsidering the notion of financially stretching themselves to the limit to purchase a large home. “The trend here is shelter value,” he says. “Affordability is driving the decisions. If you buy a home that’s a little bit smaller, that’s one way to get some control over energy costs and the overall costs of the home.”

The article goes on to say more about how affordability is the primary driver of this trend, particularly due to increased difficulties in obtaining mortgages.

Several things strike me in this summary:

1. What is the percentage of Americans surveyed who said they wanted a home between 2,600 and 3,200 square feet? If we knew this percentage, we could add this to the 9 percent who want a home bigger than 3,200 square feet. Why not say what percentage of Americans want a home bigger than the average new house size of roughly 2,450 square feet? Also, to better make this point, it would be helpful to compare this data to earlier surveys about what size homes Americans want.

2. I still would be interested in seeing some data about how much cheaper these smaller homes are. If one wants a smaller home but wants a lot of features, that still might cost quite a bit. And might we see some of the design trends of bigger homes, such as stucco exteriors or always-on gas lamps, trickle down to these smaller homes?

3. The article seems to set the size of McMansions at 3,200 feet and above. So all homes with this square-footage or above are automatically a McMansion?

Using Groupon to sell real estate

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With the real estate market in the doldrums (and no end in sight), there are reports about a new strategy that would leverage the popular site Groupon:

In the Dream Town deal, the brokerage will pay out $1,000 in cash at closing to home buyers or sellers that spend $25 for the Groupon. The voucher is good for one year from the date of purchase. The offer launches on Friday and will run for a week. On Monday, it will be the featured deal for Chicago subscribers.

The Dream Town deal tips with 50 vouchers purchased, said co-founder and president Yuval Degani. The coupons apply to both traditional and distressed properties, and buyers can be owner-occupiers or investors. The transaction must be at least $150,000 to qualify for the deal, and there is a limit of one Groupon per customer. There is no cap on the total number of Groupons that can be sold.

“Our big picture is we’re really an emerging company,” Degani said, noting that Dream Town has focused on its Web presence and search engine optimization, which helps its site appear higher on search results. “What we’re trying to do is acquire new customers. We’re not really looking at (the Groupon deal) as a reduced commission. We’re looking at it as getting customers for life.”

Degani said Dream Town has four locations and 165 agents in the area.

I wonder how many people will take this offer and then use it within a year. Typical Groupon deals are for smaller or more immediate purchases while this asks buyers to consider a bigger and more important purchase. But if you are already looking to buy (though there are a limited number of these people), $1,000 in cash could sound pretty good.

The article also mentions some other innovative offers that have recently popped up on Groupon. Seeing this story reminds me that the outgoing Mayor Daley spoke at length in a speech on campus (here, here, and here) about the success story of Groupon. But a city like Chicago will need a number of companies like Groupon to develop and thrive in order to gain population.

Posting good online pictures of homes for sale

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Having moved in the last two years and as someone who studies housing, I have recently seen a lot of online pictures of homes for sale. The pictures should help a potential buyer make a decision about a home: does it have the features one wants? But often, one finds pictures that are completely unhelpful: they are taken at a bad angle, highlight some of the worst things about a home, or really don’t offer much information at all. Here is one example of a picture I found on Redfin.com for a home for sale in Downers Grove, Illinois:

Perhaps the back door couldn’t be opened because the home is a foreclosure. But really, can’t the photographer open the screen door and take a picture of the back yard (which has a nice deck and swimming pool – though it does back right up to a set of townhouses) that actually shows its good features?

This is not just an isolated shot. While there is a picture of the living room, kitchen, one part of the bathroom, and the basement, one of the seven pictures total also features the laundry room:

Of all the shots I could have in order to assess whether I might want to purchase what looks like a nice house, seeing the laundry room doesn’t help much. And it appears the seal of the door into the room is coming off.

I don’t mean to pick on this particular house; this is a problem for many houses listed online. I have heard of realtors using photographers to get the best shots – I bet this makes a difference in the long run. Since much of homebuying seems to be about impressions (at least in the initial whittling-down phase online), these kinds of bad pictures don’t help.

(A side note: I would be interested to hear from realtors on whether these online pictures make their job easier or harder. On one hand, it limits their corner on information – now the average consumer can do some of the searching themselves while the information available to the average homebuyer was more limited before. On the other hand, perhaps this is a more efficient use of realtor’s time as homebuyers already have whittled down their list of options before asking the realtor to show them homes. This could be an interesting research project.)

Places that might be deserted due to a lack of homebuyers

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The issue (amongst many) in the ongoing economic malaise is a lack of homebuyers. To have a hot housing market, such as happened in much of the 1990s and some of the 2000s, you need both sellers and buyers. What happens if this temporary trend of a lack of buyers turns into something less than temporary?

One suggestion is that certain areas will be deserted:

Many economists argue that the housing market may take four or five years to recover. Even if that’s proven to be true, the all-time highs of 2006 may never be reached again.

The devastation in some regions will never be repaired. Parts of Oregon, Georgia and Arizona have become progressively more deserted. Since jobless rates may never recover, there is little reason to hope that the populations in these areas will ever rebound. Some homes will be torn down in these pockets of high foreclosures in the hopes that reducing supplies will boost prices. Whether that idea will work in hard-hit areas such as Flint, Mich., and Yuma, Ariz., remains to be seen.

If this comes to pass, this would be an interesting period in American history. Yes, we do have some instances of population loss: the “ghost towns” of the Old West come to mind as people poured into a region and then seemed to leave just as suddenly. Rust Belt cities like Detroit and Buffalo and Pittsburgh have been experiencing a slow but steady population drain over the last few decades. And I have tried to find evidence of “lost suburbs” – places that would go against the typical narrative of American suburbs continuing to grow in population and sprawl further out from cities.

But this prediction suggests that certain metropolitan regions might not have any hope of recovery. While some of these are Rust Belt places that already had issues (like Flint), others are newer, particularly locations Nevada, Arizona, and California. As a matter of public policy, what should be done? Should we prop up locations with government aid? Should we write certain areas off and let them slowly lose population until the critical population mass is gone? Is contraction worthwhile (something that has been debated now for several years regarding Detroit) or is simply losing a city or region a better option?

In the long run, the only possible solution seems to be to convince people that these areas are desirable places to live. One selling point, and this seems to come up a lot on the front page of Yahoo, is that these places have affordable housing. This may be the case but that won’t be enough to attract people – these areas need jobs, economic engines that will bring stability and profits to hard-hit regions. And which companies might be willing to step up?

Interestingly, Illinois ranks #5 on this list. It looks like this analysis says the main factors are a limited population growth and a severe loss in manufacturing jobs over the recent decades. Certain areas of the Chicago region seem more immune to this than others. DuPage County is populous and wealthy, partly due to the influx of higher-end, technology-related jobs that have entered the county since the 1960s. Because of this, DuPage County has an unemployment rate always multiple points below the national average.

Free land is available – if you want to move to certain places

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Americans like real estate. And you can even have free real estate – if you are willing to move to certain places: The full list of these communities: Marne, Iowa, New Richland, Minnesota, a number of rural communities in Kansas, Beatrice, Nebraska, Muskegon, Michigan, Curtis, Nebraska, and Camden, Maine.

These sound like some interesting opportunities  in communities that need new residents or businesses. The possible success of these plans seem dependent on having people or companies that are quite mobile, people who have the resources or who don’t care about being in places like rural Nebraska.

The ultimate question: do these sorts of incentives actually attract residents or businesses?

Making big money in real estate in the online world

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A number of stories in recent years have highlighted the increasing amount of real money changing hands in online games or environments. A recent example comes from the Entropia Universe where a gamer sold his property for over $600,000:

Take, for instance, what just went down on Planet Calypso, where one of Entropia’s wealthier players has sold off his interests in a “resort asteroid” for an eye-popping $635,000.

The seller is Jon Jacobs, also known as the character ‘Neverdie’. He originally purchased the asteroid in 2005 — eventually converting it into the extravagant resort ‘Club Neverdie’ — for the then-record price of $100,000. For those keeping score, that’s a gain of over $500,000 in just five years. In nerdier terms, that’s an ROI of 535%. Match that, Citibank.

And we’re not talking about Monopoly money here. Launched by Swedish developer MindArk in 2003, Entropia Universe features a real-world, fixed-rate currency exchange that works just like chips at a casino: players trade real cash for in-game funds called PEDs (Project Entropia Dollars), which can at any point be redeemed back for real, spendable cash — minus a transaction fee, of course.

Jacobs was making money from the get-go, however, having earned back his initial hundred-grand investment in just eight months. How? By selling rights to hunt and mine on the asteroid, as well as selling off bits of real estate. He worked it much like any real world landlord, really, but with a lot less red tape and a lot more graphics.

With that kind of a return on investment, will more people flock to these realms to make money? How many people in the world make a steady income based on online gaming?

There has to be a good sociological study being done out there about these types of transactions…

The zip codes with the most expensive real estate

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Forbes put together a list of the American zip codes with the most expensive real estate. Of the top 10, 9 out of 10 are in California or New York City. (The lone outlier is a New Jersey zip code.)

A home may no longer be a profitable investment

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The housing crisis in America has prompted a number of commentators to again examine what it means to own a home. A number of sources I have read recently have suggested there was a large shift regarding American homes toward the end of the 20th century: people saw homes less as places to live and have a good life and instead viewed a home as an important investment from which they could continuously generate profits.

A New York Times article makes this argument as well, saying “many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.”

If this is true, it could have profound impacts on community life. Perhaps owners will stay in homes longer, spending more money on their current homes while also maintaining local social relationships for longer periods. Perhaps the housing sector of the economy (everything from manufacturers to developers to real estate agents) will decline in importance to other sectors.

h/t Instapundit