Articles from School and Elsewhere

Biden’s proposals for first-time home buyers and sellers of starter homes meet lukewarm reception

By Melissa Schiller

WASHINGTON, DC – Reddit’s r/FirstTimeHomeBuyer community, a forum dedicated to the joys and woes of purchasing one’s first home, buzzed with commentary in recent months regarding the rising mortgage interest rates. User pantryessentials complained about their 7% interest rate: “I have perfect credit, shopped around for rates, tried to be patient with the market, and all it’s gotten me is a rate higher than anyone else I know that has bought in the last year or so,” they said. 

“If it makes you feel better I got quoted 8.75 the other day and I told them to pound sand,” user Heterochromatix replied. 

The Biden administration took notice of home buyers’ frustrations. In his State of the Union address in February, President Biden proposed a plan to help Americans afford housing. One point of this plan is to offer a $10,000.00 tax credit to certain buyers and sellers. According to the White House’s press, this mortgage relief credit “would provide middle-class first-time homebuyers with an annual tax credit of $5,000 a year for two years.” This tax credit “is the equivalent of reducing the mortgage rate by more than 1.5 percentage points for two years on the median home”. 

Additionally, Biden proposed a similar credit for those selling their starter homes, who otherwise resist moving due to the low mortgage rate they locked in with their starter purchase. Biden also proposed downpayment assistance of $25,000.00 for individuals who did not benefit from generational wealth.

Industry professionals such as realtors and mortgage brokers remain lukewarm about the proposals. They cited the complexities surrounding the housing crisis and felt that the plan failed to address core issues. 

Don Snow is a Realtor in Athens, Alabama. Athens is adjacent to Huntsville, named by Kiplinger as one of the 25 cheapest places to live (U. S. cities edition). Not only does the area offer a low cost of living in terms of prices, but Snow said many people move to Athens because of the low property taxes. 

Snow believes a tax credit would “certainly help,” but the interest rates still remain too high for the credit to have a major impact. In his area, a starter home can cost between $150,000.00 and $250,000, but with the skyrocketing interest rates, the mortgage payment on a $250,000.00 home recently rose from about $1,200.00 a month to $2,000.00 a month. Over the lifetime of a mortgage, this increase would far exceed a tax break of $10,000.00 in the first two years. 

Snow does believe the downpayment assistance absolutely “would be helpful” but hopes that inflation will come down. “People don’t realize how big of a difference interest rates make,” he said.

Derek J Kats, a Realtor with Keller Williams in Lincoln, NE, doesn’t think Lincoln homebuyers will jump at a $10K tax credit nor be greatly affected by the President’s downpayment assistance offer. He estimated the average home in Lincoln to be $500K (Realtor.com estimates the average listing home price at $379K), and there are local programs that will help homebuyers cover the down payment of at least $15,000. 

Additionally, Kats does not see the efficacy of a flat dollar amount for the tax credit. “When it’s based on dollar amount, not percentage, nothing works out,” he said. “It’s not fair to other ends of the spectrum.” 

Alex Masket sells real estate for Compass in Beverly Hills. Although he sells in a very high-income neighborhood, he cited issues that affect a wide range of buyers. 

“In LA and most major cities…a $10,000.00 tax credit isn’t going to cut it,” Masket said, citing the average closing costs alone costing $12,000.00. 

Although Masket stands neutral on Biden’s proposal, he voiced concerns about whether a tax credit would ease the crisis. 

“It’s interesting that it’s a tax credit,” he said. “You still have to have the funds to afford the home, closing, [and] insurance,” he said. “You still have to be making really good money.” 

Masket thinks affordability is not the only factor in the housing crisis. He cited lack of availability as a major problem. “We are at a major deficit of available homes,” he said. He notices the same prospective buyers showing up at each open house, vying for a limited supply of properties. 

Simply building new homes isn’t enough, either. He said the low- and middle-income earners struggle the most with housing. “You need vacancies on existing inventory,” he said. 

The Mortgage Bankers Association echoes similar concerns about policy affecting supply. According to the Association’s official statement on Biden’s proposal, the Association has “urged the Administration to take meaningful action” to reduce regulations on housing development in hopes that such reduction will increase supply.  Already, the Biden Administration released a statement on July 27, 2023, announcing actions to reduce supply-limiting regulations, such as restrictive zoning laws. The Administration offered incentives to communities who committed to re-zoning to allow multifamily dwellings and commercial-to-residential conversions to increase supply.

The Association also expressed concern about Biden’s proposal to reduce closing costs, another part of his housing plan. Reducing closing costs could edge out smaller lenders and reduce competition in the mortgage industry, ultimately raising homebuyer costs. 

Individual mortgage bankers could not comment due to their banks’ compliance rules.

Howard Gleckman, a senior fellow at the Urban Institute and Brookings Institution Tax Policy Center, voiced concerns about which taxpayers will see the tax credit at all. 

Most American taxpayers qualify for some type of deduction on their personal taxes: they can take a standard deduction or itemize their deductions. According to the IRS, the 2024 standard deduction is $14,600 for single filers and $29,200 for joint filers. If the taxpayer can itemize enough deductions to surpass the amount of the standard deduction, they can forfeit the standard deduction in favor of itemization. 

Gleckman said the home buyer tax credit is useless if the home buyer doesn’t itemize their deductions, and most people don’t spend enough money to do so. “And since the Standard Deduction is $29,200 for joint filers this year, only about 8 percent of all US households claim the [credit],” Gleckman wrote.

Regarding whether the tax credit will motivate current homeowners to move out of their starter homes, Jessica Cruz, a realtor in Orange County, NY, doesn’t think so. “I don’t see people who got their homes at a lower [rate] selling just because of a ‘tax credit, she said.

Despite the generally cool reception to the proposal, some see potential. 

National Association of Realtors President Kevin Sears said in a statement, “Tax incentives can help close the affordable housing gap, and we are especially grateful for the President’s willingness to explore new tax measures.” 

As Biden’s plan awaits Congressional approval, Americans need homes, and many grudgingly accept the current interest rates. In the r/FirstTimeHomeBuyer forum, user drew2222222 offered consolation: “Inflation came in hot and messed things up,” they said.  “You will be able to refinance in a few years down to a lower rate, so just hang in there until then.”

By Melissa Schiller

Elizabeth Walker is a landlord in Georgia who has two rental properties. When she searched for another rental property to add to her portfolio, she quickly became frustrated by the rising home prices. “For a mom-and-pop investor, it takes years (or decades) for a property to get to the ‘break-even point for rent…which often isn’t tenable for small-time property owners. 

Meanwhile, hedge fund folks bought up properties then jacked up the rent tremendously for their properties.” Walker said via a Messenger interview. 

Many Americans share Walker’s frustration, feeling that institutional investors such as hedge funds, private equity firms, and institutional bankers are driving home prices to unreasonable levels by buying homes in bulk and reducing what is available on the market. Many Americans believe that these bulk purchases increase both home prices and rents. Online Athens reported on Prosperity Capital, a Florida-based fund that “bought more than 500 apartments and condos throughout Athens” and increased the rent dramatically. The fund’s dealings left many residents on the brink of homelessness as they scrambled to afford the exorbitant increases.

Homebuyers also feel the crushing impact of the rising prices often attributed to institutional investors.  Jess Gisler found her 2021 condo purchase an unexpected challenge.“I live in a midsize city, and there was barely anything available for under [$]300,000,” Gisler said in a Messenger interview. “It was incredibly disheartening seeing the houses I put in offers for go on the rental market a few months later - at double what the mortgage would have been.”

Democratic lawmakers recently introduced a bill called the End Hedge Fund Control of American Homes Act. According to Spectrum News NY1, “The End Hedge Fund Control of American Homes Act would mandate that hedge funds, defined as corporations, partnerships or REITs that manage pooled funds for investors, to sell off all single-family homes over a ten-year-period, and eventually prevent them from holding those properties completely.”

However, not everybody blames institutional investors for the housing crisis.  David Ball, the Dallas-based host of the House Rich YouTube channel, emphatically disagrees with those who think institutional investors are hurting the housing market. 

“It’s kind of like if you read ‘Unicorn Eats Dinosaur at Christmas Holiday Party,’” Ball said in his show of a recent headline that stated, “44% of all Single-Family Home Purchase were by Private Equity Firms in 2023”. 

A Realtor, investor, and former mortgage loan officer who consistently monitors the real estate industry, his observations contradicted the headline. “Let’s break down the facts from the fiction,” Ball continued. “Institutional investors…make up a whole three percent of the market,” Ball said as he cited a graph from X’s @sfr_investor. Ball also pointed out that an entity must own 1,000 or more single-family residences to be considered an institutional investor. According to his data, 80% of single-family homes were owned by mom-and-pop investors (entities that owned 1-9 single-family residences.) 

Dorian Klein, a professor of Economics at Harvard University and a Director at Harvest Capital investment firm, offered clarity on the role of institutional investors in housing. He doesn’t believe they are limiting supply through buying and holding homes.

“For a private equity fund or even a hedge fund…they have a limited life,” Klein said. They have to make investments in the first five years, and they have to make divestments in the next five years...they’re not long-term investors.”

Additionally, Klein questions Washington’s role in regulating institutional investors. “You have to look at two dimensions. One is whether it’s local or national…and two, whether it’s ownership or rental,” Klein said.

“On a local level, [institutional investing] can be huge,” Klein said, noting that institutional investors focus on local communities rather than the nation.  “I don’t think [there are] many funds that will want to have a collection of houses all over the country because it would be too hard to manage. So, I think they’re going to focus on specific cities, specific neighborhoods…I’m surprised that this is a law in Congress [since Congress is] very national, very federal. I think this should be a local ordinance type of situation…I don’t think this will pass…[There are many] legal issues with that.” Klein noted the illegality of forcing institutions to sell their assets. 

Also key is the fluctuation of demand for rentals. Sometimes, converting single-family homes into rentals can save the economy. Klein pointed out the positive role of institutional investors following the 2008 housing crisis: “The funds actually did a very good job for the economy because they bought up a lot of these houses that nobody was buying,” he said, noting that there were roughly 5-8 million unmarketable houses in America that hedge funds purchased, fixed up, rented during a crucial time. 

The problem of affordable housing has always existed. “It’s not new, it’s not caused by the hedge funds,” Klein said. “Affordable housing is difficult. Either you have a real government program where you try to create that, or you’re going to leave it to the market, and the market is going to take as much profit as it can.”

Although representatives from institutional funds could not be reached for comment, Blackstone addressed the public via their website. The firm denies that Blackstone’s investments are pricing individuals out, saying: “Housing prices are rising due to a significant supply and demand imbalance that has persisted for over a decade.”

If institutional investors are not the cause of the housing crisis, then what is?John Komlos, an American economic historian and economics professor at Harvard University, dedicated years to studying economic inequality and discussed many issues in his book Foundations of Real-World Economics: What Every Economics Student Needs to Know.

In an email, Komlos recognized that between 2007 and 2022, housing prices increased by 62% while incomes only increased by 9%, saying that “a crisis designation is justifiable.” He looked to the disappearing middle class as a major part of the housing problem, saying that the U.S. is a “dual economy. There is a very big group of people who are not earning enough for a middle-class life.” 

In his book, he elaborated on the widening wage gap. Housing would be much more affordable if wages increased at the same rate as housing prices. Komlos refers to the period between 1947 and 1970 as the “post-World War II golden age of labor.” In this time, the wage growth, 97.3 percent, was “practically identical to the growth in productivity.”  

“The well-to-do can easily drive up the price of housing,” Komlos said. “So any policy that can increase incomes like supporting unions, increasing the minimum wage, child credit, etc. will be helpful.”

Until then, some individuals found a solution in moving overseas. Anja Mannzen is an expat who moved from California to Norway. She told me that when she bought her Norwegian apartment, she had to “sign a declaration that I owned no more than one other property in the municipality.” Maybe America could look to Norway for solutions.   

This is not Financial Advice explores greed, opportunity, and our relationship with money

by Melissa Schiller

If you grew up with holes in your zapatos, you’d celebrate the minute you was havin’ dough!  -Jay-Z, “99 Problems”

Pro is not selling.  

Despite losing over a million dollars nearly overnight, the world’s most famous Dogecoin investor is committed to buying and holding a crypto stock with no intrinsic value. 

Pro's moments of commitment to his fellow investing soldiers make director Chris Temple want to stop the camera and talk some sense into Pro, but his duty to document the cryptocurrency movement in its pure unfettered form dictates he stays silent.  

This is Not Financial Advice is a documentary that follows four investors through the stock market’s wild, wild Pandemic-era ride.  Pro (Glauber Contessoto) is the famous Dogecoin Millionaire (@prothedoge on Instagram).  Kayla Kilbride (@kaykilbride) is an influencer based in Seal Beach, CA, who teaches her followers financial advice as she learns along with them.  Rayz Rayl displays a fearless front as he is willing to bet the proceeds from the sale of his house on Decentraland (MANA).  And Senay Kenfe (@senaykenfe), an Oracle of Long Beach, builds wealth the Buffettian way – slowly and against the hype.

Temple was originally drawn to investing by feelings of FOMO (Fear of Missing Out).  “In early 2021…it seemed like every stock and crypto was going up, and every social media post or group text that I got was about some other person who seemed to be making infinite amounts of money not working very hard, and it was triggering all my FOMO.”  What followed was the realization that he should be filming about this movement, and exploring his (and others’) relationship with money.  

Pro is a soldier who marches to an internal percussion of bars from Eminem’s “‘Till I Collapse”.  Fueled by initial success, he is living by an all-in investment credo that would start murmurs at a country club.  He never diversified in a world that never gave him much to diversify.

The child of an immigrant who struggled to establish herself in the U.S., Pro’s philosophy is “you may never get it again” in terms of opportunities, and his strategy is to grab while it’s hot and not let go. 

“The film was really about the psychology of money and all these triggers we run into,” Temple says.  His film points out how the life events of each character shape their ability to see what opportunities are available to them, even if reality shows a more positive picture.  A scarcity complex combined with the greed of a windfall may compel one to make snap decisions against their highest good. 

“NOT FUCKING SELLING!” Pro yells to the camera, calling to mind Jordan Belfort from The Wolf of Wall Street's famous monologue.

But not everyone approaches money like Pro.  Senay is an investor and businessman based in Long Beach with a self-described “boring” but effective approach to investing.  He believes that slow and steady investing moves ultimately build prosperity.  “I want to see more people, in this city especially, changing their trajectory.”  He is more inspired by the brands of cereal on his shelf than the current trends when it comes to selecting investments.  People will always need to buy food.  His philosophy works, as he is able to acquire property with his earnings in blue-chip stocks and change the neighborhood he grew up in for the better.  

Rayz Rayl is a MANA investor based in Indiana who discovered early on that he made more money gambling than teaching.  He is not afraid to go all in, even betting his proceeds from the sale of his house.  Oh yes, his wife left him.  He assures the viewer that it has nothing to do with his investing habits. 

Kayla is taking advantage of the bourgeoning app TikTok to teach financial advice.  Motivated by the lack of financial education growing up, she wants to help others get a head start.  She is learning along with them.  Her past acting and improv experience help her deliver the message in a fun way.  “Delivering and teaching people stuff in a fun, funny way, helps them to retain the information,” she explains.  Kayla represents a bourgeoning subsect of the investing craze, those who ask “Why did we not know these things sooner?”  Rather than becoming a crypto millionaire (although she does manifest through affirmations on camera), her primary focus is overall financial literacy. 

This film shows how people hook their hopes and dreams onto their concept of wealth.  “Those who have the least in our society are the ones who are willing to take the biggest financial risks,” Temple says.  He compared it to the attractiveness of the lottery system and how those who buy into it the most are the ones who feel least in control of their financial futures.  

Furthermore, the documentary reveals that money’s importance lives in what it can do for a person, the money’s value can diminish if the acquisition of it causes a loss of status.  In Pro’s case, selling his shares of Dogecoin would have painted a sell-out image to his followers, and the status became more important than the profit.  What started out as financial security led to security in society.

Temple hopes to use the film to help in his next goal of bringing financial education into high schools as a mainstay.  “Only 22 percent of high school students have had a personal finance class by the time they graduate,” he says.  A national campaign to make these classes a reality is underway.  Even for those out of school, “I hope that people, after watching this film, choose very carefully the people they are following…because some might be getting paid to tell you to buy a certain thing.”

Temple doesn’t see the crypto coin craze ending soon, pointing out the mania of Pepecoin last month.  But Temple has taken a lesson from the school of Senay: “Maybe boring could be better.”