IT COSTS MORE MONEY TO EXIT THE BUILDINGWHEN IT IS ON FIRE
as home buyers. A whole generation has been raised on home remodeling reality shows. This could be a jolt — a jolt to housing, a jolt to the markets through construction and other industries that will follow. Uber and Lyft drivers will become mortgage brokers and Realtors again. The service economy will roar even louder, fueled in part by some form of a student loan modification program. For instance, in August 2019, President Trump started the first domino of student loan forgiveness by forgiving the debt of U.S. veterans with disabilities. In principle, this could affect multifamily, as it may compel a whole generation of millennials with less debt to then vacate apartments and shared living arrangements and purchase homes instead. This unexpected jolt may bring some instability to the apartment market that some observers think has peaked. You’re not hearing much of it yet. I don’t know what this looks like other than a trial balloon that started first with the most disadvantaged: permanently disabled U.S. veterans. This will give Trump the time he needs to structure a meaningful trade deal with China and insulate the U.S. from any shocks that may occur during a protracted, perhaps decadelong, trade stabilization effort with China, a country that desperately wants to play the long game but can’t afford to currently. An easy solution is this: Extend the duration of student loans to 50 or 100 years. Increasing a debt’s duration is not the same as reducing it, but it gives the perception that leverage is lower as this debt is less burdensome to service over 100 years than, say, 20. Again, duration is a developer’s best friend.
flushed Quikrete down all the toilets in your rental property. Now you understand risk a little differently, perhaps? Why did I mention this? Because in a world where there are few conventional investment opportunities left, speculation becomes much more appealing, acceptable, and socially encouraged. Other drivers, besides conventional economics, move asset prices and can cause jolts. From 2005–2008, even the most marginal buyers could purchase homes with no money down because of low interest rates and loose lending terms. People two months out of incarceration were able to buy new construction spec homes in Phoenix. Almost all of these home builders would offer free televisions, cash-out refinancing at closing, and anything else you could think of — even a Mustang. Those home builders also made an incredible amount of money by acting as private label mortgage originators, too. For example, you couldn’t buy a new construction house from D.R. Horton without using their mortgage banker.
Risks today are more asymmetric than they appear. But what is risk? Here’s how I explain it. Let’s pretend that you purchase a single-family home as a rental property. You’re getting a 10% return. That’s great — until your tenant loses their job tomorrow and moves out. Now you have a vacant house you need to pay to clear out and lease up, and you’re not going to have a positive cash flow for a while. You can’t sell it fast, and you paid retail for this turnkey property, so there’s not enough equity to pay the Realtor to sell it. You have leverage on it, and you have debt payments coming in soon, too. Your tenants are now harassing you on social media and embarrassing you in front of everyone from those who you went to preschool with to your coworkers on LinkedIn. And now both an eviction and new toilets are needed after your tenant
If you can materially improve the credit quality of the average entry- level homeowner, then you make the dream of homeownership that much more of a reality.
If you offer an entire generation of people — who are ostensibly financially incentivized to do so, via special
mortgage and down payment assistance programs implicitly backstopped by
the government — the chance to become
homeowners, you will see marginal borrowers coming into the market again disguised
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