Somewhat OT - Real Estate

Would be curious what others are seeing. Berkshire has the Realty business and other businesses that benefit when people buy and outfit homes.

Seems like in the US, demand is softening.

Would be curious what others are seeing. Berkshire has the Realty business and other businesses that benefit when people buy and outfit homes.
Seems like in the US, demand is softening.

I think the best way to think about that business is that it’s a perpetual toll booth.
On average, over the decades, there will be real estate transactions.
The likely expectation is that some large fraction of those will always go through salespeople working at agencies.
If you own a lot of those agencies, you will get a certain slice of all future real estate transactions, forever.
So…slowdowns don’t really matter, especially as fixed costs are relatively low compared to many other businesses.
Consequently I haven’t even bothered to form an opinion about whether there will be a real estate slowdown coming soon.

It’s a somewhat bigger deal in the businesses reliant on construction, since their profits frequently entirely evaporate and go into losses in slowdowns.
Carpet, paint, drywall, bricks, etc.
Sill, as long as they don’t go bust and maintain market share long run, and make money in the average year, they are likely to get some modest slice of future construction budgets.

Jim

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Nice toll both analogy and glad we have a sizable chunk of the broker business. I see BH signs everywhere! Here in Atlanta, there is continued pretty high demand than supply on mid- upper homes and prices are remaining elevated, but there seem to be less number of folks making over full price offers. I have several friends who have simply been outbid recently on offers beyond asking price. I think Charlotte is quite similar. It appears we are not seeing any real noticeable slowdown.

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Would be curious what others are seeing. Berkshire has the Realty business and other businesses that benefit when people buy and outfit homes.

Seems like in the US, demand is softening.

Is it? Or is it supply that is decreasing? You can’t buy that which is not for sale.

Higher mortgage rates are encouraging homeowners to hold on to their existing property with it’s existing low rate mortgage, rather than sell it and move up to a new home when that choice is discretionary. Costs for homes are so high, that even if you sell at a high price, you will have to buy at a high price, AND there is little on the market to chose from for the move. Very little availability for seniors wanting to move out of their home into a continuing care residence, coupled with Covid slaughter in CCRs being fresh in their memory, contributes to seniors wanting to age in place rather than plunk down insanely high prices for the higher risk of the CCR. This keeps traditional annual inventory increases off the market. Meanwhile new construction is not really coming on line, in part due to supply chain constraints holding up windows or garage doors, and lack of workers due in part to decreased emigration. Recently tried to get a plumber to fix a water heater, finally googling potential fixes and doing it ourselves with YouTube as our guide when calls to 3 plumbers, two with whom we have a relationship, went unanswered. It’s almost impossible to get someone involved in home repair/construction to return your calls, or bother to give you a quote if you somehow manage to get them to show up to look at the job.

When supply does come on line, it has been snapped up by corporations looking to add to their rental properties. Their favorite way to do that is to go straight to the owner and ask if they want to sell. We have received many texts, phones calls and letters asking if we want to sell. That not only takes down inventory, but it is a go around that avoids the Realtors. Frankly, I don’t understand how the industry has held on this long, though the real business Realtors are in is managing the emotions of the buyers and sellers to hold together a transaction. It’s not really about putting the buyer and seller together. Zillow works fine for that and settlement companies/lawyers can do most of the rest. We recently sold our rental and even though I have been a realtor in another state, used an agent to list the property. The deal would not have gone through if we had not done so.

It’s all about an imbalance between supply and demand, IMO. Increase immigration for construction workers, fix Covid impacts on supply constraints, wait for painful Covid hangover memories to recede, implement changes to taxes to favor primary residences over rentals or vacation homes, like higher tax rates for property taxes and elimination of tax benefits for those with more than 4 rentals (to protect the small Mom and Pop landlord,) will be a start to improve the inventory available for people looking to buy and stop renting.

IP

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“Seems like in the US, demand is softening.”

Is it? Or is it supply that is decreasing? You can’t buy that which is not for sale.

In my town, Asheville, a popular tourist destination in the southern Appalachians and an attractive place to move to from many places in the US, especially with remote work a more common option now, I’ve seen no let up in sales prices or demand. I assume there must be some incremental loss of demand from increasing mortgage rates, but it’s not showing up yet in the marketplace because supply is so tight, as inparadise mentions.

Any decently priced house in a decent location is still drawing multiple offers over asking price.

From a recent article, Atlanta and Charlotte are the top two cities for corporate purchase of single family homes for rentals. Neighborhoods in Charlotte have taken to putting deed restrictions on rentals within the first year of ownership, as they see their friendly family neighborhoods get turned into a corporate rental area. Rents have gone through the roof, and ability of individuals to get a property has fallen fast.

IP,
with a kid in each city

Is it? Or is it supply that is decreasing?

Actually other ways. Lots of home owners don’t want to miss the red-hot housing market and they are putting their houses for sale. Inventory is now increasing.

The inventory drops as price increase (people get greedy and hold on) and when the price has dropped to a significant level (when they are scared of the losses or price anchor).

… as they see their friendly family neighborhoods get turned into a corporate rental area.

There is a certain circularity here. (not in your comment, but within the effect you’re describing, which I don’t doubt)

Renting one’s home is considered déclassé in the US because so few do it.
If you can afford to buy it’s expected, so, if you don’t, it’s expected that you couldn’t, so you’re assumed to be a loser of one sort or another.
It’s not exactly a surprise that so few rent since the government has been pushing home ownership hard, on dodgy reasoning and economics, for many decades.

However, that attitude isn’t necessarily cast in stone.
If/as more people rent, that biased view fades.
In some cities and countries (not just age groups) renting a house is a totally normal and respectable thing for normal, respectable, neighbourhood-type people.
In Berlin, if you own your residence you’re among the weird 15%.
New York and Ottawa are also traditional rental markets.

Jim

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We’re in the planning stage of attempting a move a couple of hours away.

Inventory here is practically non-existent, at least in comparable homes to ours.
County-wide there are something like 200 homes listed on Realtor.com.
Restricting it to 3+ bed, 2+ bath, cuts it to around 90.
Something between $200k and $500k with a garage? Now we’re down to around 25 places in the entire county. Maybe 3 in our school district. Nothing in our neighborhood.

We’re currently getting a few repairs done and sprucing the place up. The place really needs some new flooring and some cement work, but given the market, the buyer may be willing to take care of that. I’m not even sure we need to do what we are doing to sell the place at a nice price, but I’d like it to look reasonably good for showing and it makes me feel better. We’ll probably talk to a realtor (The local BH Realty sent us a postcard looking for homes to sell) before too long and see what they recommend. We’re not in a hurry, but might as well take advantage of a seller’s market while we have the opportunity.

Where we are looking at places, most attractive homes seem to be under contract within a week of listing. Condos seem to be moving a little slower, as are quirky homes. But there are new listings every week to consider. We might even consider putting a bunch of our stuff in storage and rent a place for a while to see if the real estate market settles down a bit.

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… The local BH Realty sent us a postcard looking for homes to sell… We’re not in a hurry, but might as well take advantage of a seller’s market while we have the opportunity…
We might even consider putting a bunch of our stuff in storage and rent a place for a while to see if the real estate market settles down a bit.

Just a thought–if there is that much demand, you might find there is someone–likely a company–
willing to buy your house and rent it to you month to month till you want to move.
It saves a move, and a lot of hassle.

A lesson from a real estate investment course I took once:
“For every 1000 initiatives, you’ll get one amazing coincidence”

Hey, I was just looking for a short term rental, long term real estate investment in your area!

Jim

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Random story – my 55yo buddy who is single owns a nice 2/2 skyrise beachfront condo down in Naples, FL which he purchased back in 2005. He was not particularly interested in selling, however prices have appreciated so much over the last 2 years that he is now going to sell for three times what he paid. He plans on just renting going forward and cashing in the chips while the market is hot and is thinking of retirement over the next 2-3 years-I cannot blame him. He says the growth in Gulf Coast Florida has just been enormous since COVID.

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Costs for homes are so high, that even if you sell at a high price, you will have to buy at a high price

That’s the trouble with real estate booms. Most of the homeowners don’t get any benefit.

So many California homeowners are fabulously wealthy on paper. However, only a very tiny percentage will get a windfall, because that would require packing up and moving to a different location that wasn’t affected by the real estate boom. Not very many California homeowners are interested in moving to Michigan, Indiana, Ohio, Oklahoma, Kansas, or other places known for cheap housing.

So many California homeowners are fabulously wealthy on paper. However, only a very tiny percentage will get a windfall, because that would require packing up and moving to a different location that wasn’t affected by the real estate boom. Not very many California homeowners are interested in moving to Michigan, Indiana, Ohio, Oklahoma, Kansas, or other places known for cheap housing.

I have some friends doing just that. They grew up in Indiana, and can sell their small house in trendy but overpriced and crowded western mountain town, and buy an entire farm with a nice house, woods, water etc. in Indiana.

Actually other ways. Lots of home owners don’t want to miss the red-hot housing market and they are putting their houses for sale. Inventory is now increasing.

The inventory drops as price increase (people get greedy and hold on) and when the price has dropped to a significant level (when they are scared of the losses or price anchor).

Not descriptive of our area at all. Real estate is local and difficult to extrapolate to a larger area.

I’ve heard plenty of people say they would love to put their house on the market to take advantage of these high prices, but where would they go?

IP

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In some cities and countries (not just age groups) renting a house is a totally normal and respectable thing for normal, respectable, neighbourhood-type people.

I can’t comment on Berlin, but here an owner occupied home will have a tendency to be better maintained with the occupants interested in forging a community. They have equity in the property and are vested in their community prospering, given it is hard to walk away, unlike for a tenant whose lease is up. This is viewed so strongly to be the case that if you live in a condo or townhouse development, and too few of the properties are owner occupied, it is viewed by the mortgage companies as higher risk and you won’t get a mortgage.

Additionally, as the SFHs get bought up in volume by large corporations, they increase rents astronomically, making it harder and harder for people to afford buying. It’s a huge problem right now in Charlotte. And because corporations get their funding by bonds, not mortgages, it makes it near impossible to buy a house unless you have cash, since sellers understandably prefer a cash offer. We will likely have to provide a private mortgage to our son for him to be able to compete in the market. He is much luckier than his friends since we can do that.

IP

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That is why i sold my crib in Sarasota. Insane

Where we are looking at places, most attractive homes seem to be under contract within a week of listing.

In our area, many properties were put up on the MLS for comp purposes only, having already sold. Finally figured out that you have to have a Realtor send you the “coming soon” listings, which only are seen by MLS professionals and do not show up on Realtor.com or Zillow until 3 days later when they are officially for sale, so we were always late to the game. It may be the same way in your area. It’s one of the ways around here that the Realtors are protecting their sales turf.

IP

… one of the ways around here that the Realtors are protecting their sales turf.

Speaking of which, it’s interesting that you use the word “realtor”, which is a registered
trademark of the American National Association of Realtors. (lovely bit of circularity there).

They’ve got such a monopoly they’ve taken over your language with their made up word!
They are GOOD at protecting their turf.
In the rest of the English speaking world they’re mostly known as real estate agents, or estate agents.
Or, as my mom was, a real estate salesman. (not person).

Jim

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but where would they go?

Don’t know, don’t care. Just reading the data. Folks don’t have to go elsewhere move 20 or 30 miles, downsize, etc.

I assume one of the reasons owning your own home is so desired, besides the breaks you get for mortgage interest deductions, is because it somewhat freezes your monthly nut. Sure, property taxes will inevitably rise – and in the Northeast they can be a serious burden when looking to upgrade (20K+ a year? Yikes!)-- but your monthly mortgage payment freezes with a fixed-rate mortgage and eventually disappears if you either own it longer than the mortgage timespan or pay it off early. If you rent that home, you will never freeze that part of your monthly costs. Instead, it will go up and mostly up and up as the corporation that bought your home will charge you enough to cover the property tax many times over.

Unless you are someone who likes the idea of moving all over the country to find the cheapest rental option that is still in an area with the amenities you require, you will do better buying a home in your desired area and staying put. Who wants to think about moving excessively between ages 50 and 100? I can’t speak for anyone else, but I have too much stuff that I enjoy playing with to keep relocating every four years.

SD

(This is likely the most obvious post on the subject. I’m sure we all think of this. But I don’t see it being address in our discussions, so I mention it.)

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