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2021-06-09 09:00 by Karl Denninger
in Housing , 313 references Ignore this thread
Housing Inflation? Buy Half A House
[Comments enabled]

I thought I'd seen stupid but no, they keep coming up with better and better idiots.

A coalition of seven Democratic senators formally announced the “California Dream for All” program last week as part of a larger budget proposal they want Gov. Gavin Newsom to consider.

The state would serve as a “silent partner” to first-time owners, in exchange for up to 45% ownership of a house. By their calculation, that means someone eyeing a $400,000 home could buy it for “a more affordable price” of $220,000, with the state picking up the other $180,000.

Note the terms; yes, you put up 55% but you only own 55% of the house.

The rest is owned by the "coalition", and that will be packaged up and sold off to investors.

This is said to "promote affordability."  Well, no.  The investors can only make money if the price goes up further which means that the only way investors make money is for the next person to get further screwed with even higher prices.

What's worse is that of course while you own 55% of the house the entirety of the tax and operating expense is yours.  So you're paying taxes on something you use but don't entirely own.  Exactly why would you do that?  Well, the argument is always that if you rent the taxes are in your rent but remember that real estate taxes are a suppressing factor in valuation because they must be paid annually.  While many people think this doesn't clamp valuations eventually you're wrong; I've seen it more than once, including in my own family.

Indeed my former house in Deerfield, which I've watched with bemusement for quite some time, sold in September of last year right into the middle of the rampjob.  It's property taxes have doubled from when I owned it and thus despite a white-hot real estate market the appreciation from that time has not been very good at all -- and that's before "like kind" adjustments.  From the recent sale I can see what's been done to the property since I owned it.

The owners in the interim had finished off the entire basement (and not cheaply either); when I owned it the basement was unfinished.  They also completely replaced the cabinet fronts from the original darker wood to a "whitewashed" color (which I personally hate, and would have never bought in the first place) and, it appears, replaced the front door along with doing a fair bit of addition to the back yard (trellis work, a deck, etc.)  Some very nice wood flooring was put in where I used to have carpeting in the media/family room and living room; IMHO while that looks nicer it's a mistake in a media room for acoustic reasons, but heh, aesthetics.  Take the cost of all of that back out and the property has actually gone down in value -- without adjusting for inflation!

Why?  Simple: Property tax changes over the last 20 years.

So beware, Californians.  There is no such thing as a free lunch and odds are you're going to get it up the ass if you buy into this stupidity.

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Vernonb
Posts: 2578
Incept: 2009-06-03

East of Sheol
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So what will the "gooberment" do with their 45%? Provide rent free housing to illegals or open up the place to diversity/income programs or criminal/ drug abuser halfway houses? Not the kind of thing I'd want to subject my family too.

Look how fast section 8 housing falls into disrepair because the occupants have NOTHING invested in the outcome.

Say goodbye to your homes and "safe" neighborhoods.

Yeah. This is a fool's bargain.

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Spaceace
Posts: 61
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At least Deerfield is in Lake County. I am sure there isn't much difference in the tax rates. I grew up in Park Ridge (Cook). Mom and Dad bought the house in 1969 for 36K. the place is now going for 1.1 mil. The taxes are crazy, as you know. A relative of ours in Garden Grove, CA died recently. There tract home they bought new in 61 was sold for 800K to settle the trust. Absolutely absurd. A plumber friend of mine from LA told me that there will probably be 5 to 6 jobs needed to keep the bills paid to afford the thing. What the heck is the point of living there?
Bodhi
Posts: 3782
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Online
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Quote:
Note the terms; yes, you put up 55% but you only own 55% of the house.

The rest is owned by the "coalition", and that will be packaged up and sold off to investors.


So they'll create new securities, rate them AAA, and sell them to investors, which I assume will be the usual suspects. If the state dumps these securities at a small profit it sounds like a good deal for the state, but not so good for the "homeowner" who is now stuck with a mortgage, all the property taxes, and all the maintenance.

I presume that if you fall behind on the mortgage, or stop paying the taxes, the silent partners will be quick to swoop in and eject you from your dream nightmare house.

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Nobody can be saved from anything, unless they save themselves.
It is hopeless doing things for people, it is often very dangerous
indeed to do things at all, and the only thing worth doing for
the race is to increase its stock of ideas. ~T.H. White
Tdurden
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If it were only just the *******s running the Peoples Republic of California. Hedge-****s are buying up entire neighborhoods one house at a time as the houses go up for sale.

https://www.wsj.com/articles/if-you-sell....


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"I'd like to live just long enough to be there when they cut off your head and stick it on a pike as a warning to the next 10 generations that some favors come with too high of a price." -Vir Cotto Babylon 5
Quantum
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I suspect they won't be a silent partner and innumerable strings will be attached (probably vaguely described in the ownership agreement). As suggested, it'll also drive up prices for everyone else due to increases in demand.
Spaceace
Posts: 61
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I'm curious to see what rights the "investors" will have. To what degree will they enforce upkeep on the house to protect their investment. Will they foreclose due to the owner/tenant not performing the upkeep. Also, will there be a MERS-like tracking system put in place for the investor's bonds? That'll be a crap show, to say the least.
Dissenter
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Incept: 2021-05-30

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Property taxes. Now there is a whole pandoras box of a thread in itself. Another immoral tax based on absolute despotism designed to reduce us to slaves who own nothing because the taxes are forever even if your income isnt.

Bought that home (or built it youself like I did)? Then have banks throw money at deadbeats who ramp these markets to the moon which the politicians love because they can now raise taxes on the "value", so that when you retire they can raise it until you are forced out of your ownership at which point you lose your house and its value while they take their back taxes out of it.

Another problem that needs to be dealt with severely.
Winesorbet
Posts: 104
Incept: 2010-08-23

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Inflation is everywhere/everyone sees it and yet the 10 year is at historic lows. These two observations do not make sense. Where are the bond vigilantes if they are so sure inflation is here and roaring?
Abelardlindsey
Posts: 219
Incept: 2021-03-26

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Quote:
The rest is owned by the "coalition", and that will be packaged up and sold off to investors.


Sub-prime rides again! What could possibly go wrong?
Pete01234
Posts: 18
Incept: 2019-09-23

somewhere
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Truly is amazing the new games they'll invent to keep the charade going.
Mannfm11
Posts: 7013
Incept: 2009-02-28

DFW, Tx
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The mother****ers are confiscating property. There are using our money to buy our property, then charging us for it. It is bad enough you have to buy your house back from these jackasses here every 45 years or so.

This is going on everywhere. The Japanese central bank has bought so much of the economy, it will own the country. People are under the delusion they and the state are the same people. I see people make mistakes, but I have yet to see them force themselves to give up their property. Nowhere on Earth is the slice take by the state, ever enough. Once the compound equation gains root, the side at a disadvantage is slowly, then suddenly destroyed.

Going back to property, I can grant most cities present some necessary services. Some are a decent bargain, some are political money pits. All are part of an extortion scheme. Education is the steam roller, a money pit. Why is it a modern, high cost system, doesn't work any better than a cheap 3 room schoolhouse? In spite, of this, the current system never has enough money. It always gets under the tent and explodes. Here, we have a College system, to boot. It started as a little fee and grows exponentially.

Then, look at the Feds, using our money, to destroy us. The Germany NAZI's couldn't have mounted a more devastating attack on the American people, as we are seeing in DC, today. What they can't et directly, they get through the back door, using the Fed to buy the country.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Oberon67
Posts: 10
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North Carolina
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So now instead of just enabling the real estate bubble by having the Fed buy up mortgage-backed securities, the state of California is actively PARTICIPATING in the bubble by subsidizing the original purchase!

Big Short much? [shakes head]

Reason: misspoke
Dissenter
Posts: 15
Incept: 2021-05-30

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@Tdurden

If it were only just the *******s running the Peoples Republic of California. Hedge-****s are buying up entire neighborhoods one house at a time as the houses go up for sale.

That link is ****ed up. Yet another force raising our home prices in colusion with the tax man to force us out. So much for the American dream of owning your own home.

Still seems like a total boycott of housing owned by "investors" would put an end to that kind of stupid fast.
Lazydaizy316
Posts: 80
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Vernonb....That was EXACTLY my thought when I was reading the article. What better way to provide housing for all of the "fine members of society" who just need a little help.
The sad thing is, there are plenty of stupid sheeple in californication that will look at this as a golden opportunity to own a piece of the American Dream.
After all, the gubment is here to help! So, again, what could possibly go wrong?

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Memeticdefense
Posts: 34
Incept: 2018-03-26

Las Vegas
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Quote:
Inflation is everywhere/everyone sees it and yet the 10 year is at historic lows. These two observations do not make sense.

Inflation can be thought of as too much money in the system and price going up as a result. 10 year treasury bonds go up in price, too, just like everything else, so it's logically consistent. Since the government has a printing press, the probability of default is not 0.1%, but 0.0%. Saying bonds are risk-free is like saying bonds are good as cash, and if there are too few buyers, the Fed steps in. Once bond vigilantes figure this out, the long-term yields will flat-line near 0%. It's my belief that this is the safest bet in the market today. Just time the entry points, so you're buying after a spike in yields. 10 year yields have been yo-yoing between 1.7% and 1.5% for three months now.
Edwardteach
Posts: 52
Incept: 2021-05-01

Here be dragons
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...and the next logical progression from this will be along the lines of that scene in Dr Zhivago, when Zhivago comes home from the war and finds a bunch of strangers living in his house and a couple of low level officials scolding him for wrongthink.


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Tdurden
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@Dissenter
Quote:
Still seems like a total boycott of housing owned by "investors" would put an end to that kind of stupid fast.


It would but it will never happen. Who would take part in this strike or boycott? The feckless Trump voters? They had an election stolen from them, the thieves bragged about it and ALL of the big tech and media companies laughed at them while it happened. If they (or any appreciable percentage of the 70+ million of them) won't stop buying iphones, disconnect their cable TeeVee, close their twitter/facebook/amazon/google accounts, don't count on any boycotts. 99% of "The Right" put a much higher value on convenience and entertainment than they do on the birthright of their children. I'd like to be proven wrong, but it's not looking that's going to happen.

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"I'd like to live just long enough to be there when they cut off your head and stick it on a pike as a warning to the next 10 generations that some favors come with too high of a price." -Vir Cotto Babylon 5
Jpg
Posts: 498
Incept: 2009-03-23

MI
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Sounds a lot like an idea called the "Shared Appreciation Mortgage" that popped-up briefly about 40 years ago when mortgage rates were running 18%.
Late_to_the_party
Posts: 469
Incept: 2007-08-14

Nor Cal
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Any word on the Prop 13 implications of the joint ownership scheme from the OP?

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Asimov
Posts: 126848
Incept: 2007-08-26

East Tennessee
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Can I buy one of these with a 50 or 100 year loan too?

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It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Superdude
Posts: 391
Incept: 2009-06-16

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Dumb Question to yall'

Are we living in hyperinflation now?

1. The house I live in, I could not buy with my salary now.
2. The interest rate in my savings account is severely outpaced by living wage rate.
3. I am forced to buy stocks and goods to help ease saved money lost to inflation.
4. People who cannot negotiate wages are NOT working.
5. Women are whoring themselves on OnlyFans.
6. Massive lines for Free Food giveaways.
7. Riots
8. Broken Morale by the people
9. Rising prices on everything

Whossane
Posts: 156
Incept: 2018-01-25

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One of the reasons to own a home is the opportunity it provides to earn some "sweat equity" by adding a deck, finishing the basement or other such upgrades.
In addition, in a normal market price appreciation depends not just on maintenance but also on replacing dated or worn finishes like flooring or paint or even cabinets and tops.

Hard to imagine anyone spending their time and money on the above if the investors get 45% of the cut.

I'll bet the "homeowners" will be required to purchase insurance to replace major appliances and HVAC in addition to the regular insurance.
Eleua
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N 47.72/ W 122.55
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@Superdude,

Is that a list of things in Berlin during the 1920s?

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Until bullets fly and people die, nothing is going to change.
Once you see what the problem is, you can't unsee it.
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Cmoledor
Posts: 59
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Akron Ohio
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@Superdude. Id have to agree that we are in the hyperinflation first steps now. But Im not educated in any of that though.

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The whole world is one big ****ing scam
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