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US housing market hit a ‘significant slowdown’ in recent weeks, Redfin CEO says (marketwatch.com)
172 points by xfour 7 days ago | hide | past | web | favorite | 173 comments





There are all sorts of reasons that house sales slow down, not the least of which are reduced tax benefits, higher interest rates, and a general market forces.

The interesting thing to watch for is the flipper sales. Which is to say if a significant chunk of the market in your area is actually being held by people who bought the house just to flip it, then when you get two or three months of flat to downward pressure on house prices they will all yell "Peak!" and run for the exits. Then you'll see a nice flurry of downward movement as these folks try to unwind their position before the market falls into a hole that loses them money. Pro tip, there aren't enough chairs and the music is no longer playing :-).

That could bring some welcome relief for home buyers who have struggled in the 'no contingency cash only' markets like parts of the Bay Area.


That's not really what happened in the last crash though. The people who bought, held. The only people who got hurt were home owners who go underwater and then lose a job. They can't afford to wait it out, they can't afford to make the payment, so they end up in foreclosure. Then the bank holds and it ends up as a zombie home.[1] The zombie falls to pieces, so the bank gets a bail out, the home is written off, and the market is just as tight as it ever was. All the flippers are going to do is rent the places out while they hold on for the next run up. At least, that's what I witnessed in the last crash.

https://newyork.cbslocal.com/2014/07/25/zombie-homes-without...


Flippers are like canaries in the mine. They are usually leveraged like crazy on short term loans, not flipping the house quickly can be fatal to them. Rental won’t let them pay off there loans when they come due in a couple of months.

Cant rental (ie, passive) income be used to secure additional funding?

I know that was the case when I considered buying property to rent back before the 2008 crash (I ended up not doing that, luckily).


Yes, 75% of rent can be used. It is called "market rent", according to Fannie Mae. Remaining 25% is used for Vacancies, etc.

In California markets, rental properties are not profitable, when you consider 20% downpayment, 75% rent, etc.

There are 4 kinds of buyers in this market:

1. First home buyers: renters becoming buyers. 2. Second home buyers: thanks to the appreciation of their primary residence, people have bought second homes for "retirement nest egg", "return on equity", etc. Borrow 80% at 4.5%, expect 15% return. 3. Moving Up: same like (2), but they sell primary residences. 4. Flippers

It is kind of hard of flippers to get conventional loans; they have to use portfolio banks, banks that keep loans on their books. A bank I know of, offers 6% fixed first year, variable rate for the next five years. Flippers get these deals, after putting 20 to 30% down.


Right, flippers aren’t taking conventional housing loans on the properties they are flipping. They are getting short term lines of credit instead because they don’t expect to have the house for more than a few months.

I'm not sure what kind of flippers you are referring, but usually there are no loans. Cash purchases - 100% for the entire value of the property. Source: my parents are prof. flippers.

This is pretty unusual for anyone doing it seriously. I've "flipped" (not exactly -- mostly major additions and teardowns that we hold for 6-12 months) the past 5 years and haven't met anyone who exclusively uses their own cash. We use some of our own cash, but you have to look at the opportunity cost.

The interesting part has been the interest rates. We started out borrowing hard money at 14% and are down to 7-8% now depending on the lender. Lots of cash out there chasing returns.


No disrespect to your parents but if you leverage you can flip more homes. Higher risk, higher return. If you have the credit rating for it, interest only loans are how folks do that around the Bay area. I personally stay way away from that sort of risk.

Aggressive flippers. If you have enough cash to fund N home flips, someone will lend you money and you can do N + X flips in the same time (if all goes well....)

How many properties at a time can you flip with just cash? You also need to consider the cost of renovating the property, even professional builders need financing for those kinds of things. I guess you could do it out of pocket if the scale was small enough.

Things I learned from Donald Trump:

In most markets, rental properties are not profitable. Almost all of the profit comes when you sell the building, from appreciation. If you're breaking even on a rental, you're actually ahead of the game.


Heck, it doesn't really even have to appreciate... If the rental is done right you are having someone paying off the mortgage. It's just deferred income. I'm stuck with a rental where I used to live. I am under by $70 / month with the rent I'm giving but that parlays into $550 being paid a month on my principal by the renter. $550 for $70 isn't bad return. I'm not selling it because it's 3 years from paid off and it's in a slow mover location (would be on the market for 6-8 months). So I'm just waiting until I'm making $550 a month instead of the bank. Or I could sell it and get the sale price out of it once it's paid off. Which would be 18 years to make $120k on 15k.

I probbably should have sold it long ago but $70/month is like internet.


Conventional financing isn't available to heavily leveraged flippers as the loans aren't profitable. They usually use non-conventional loans with higher interest rates.

Now, they could re-finance the property into a conventional rental property but none of them can afford to do it for all of their properties. Flippers tend to do 4-5 at a time, not just one.


Notwithstanding what others have said here - I think it depends on the market and the lender. When I looked to add a second property, the lender refused to consider the rent being earned from the first property, saying "Your tenant could move out at any moment, so we don't include that as part of a borrower's income in making our decision."

What I suspect happens is that once you reach some number of properties, you become a commercial borrower, and different rules apply. A former coworker owned most of a street of duplexes at one time, and he had no problems getting loans.


It’s depressing to see no one talk about mortgage backed securities. The Great Recession happened after large swaths of wealth were held in MBSes backed by ARM mortgages. As the ARMs came due people could no longer afford their homes. Normally the underwriting bank would default the loan and resell the property. But the initiating bank sold the mortgage off soon after minting the deal. The values of the MBSes and related goods and services were priced using a Gaussian copala (sp) function fitted to ever increasing property values from the 80s S&L boom. Ie their model had no conception of normal, average price growth. Society had calculated something like 72$ trillion in MBS capitalization and “realized” a much smaller fraction of that wealth.

Article: https://www.wired.com/2009/02/wp-quant/


All true, I was thinking about the 'home price recessions' that happen periodically as opposed to the mortgage crisis which was precipitated in part by synthetic CDOs masking poor lending processes.

Ah, understood. I remember shopping for houses after the crash, and it seemed everything was either a trash heap, or in foreclosure. The bank wouldn't take an offer, preferring to cash auction to investors at the starting price of the highest offer they had. No cash, no house, no matter how good the credit rating. The cheap house thing was basically a myth from my vantage point.

> Ah, understood. I remember shopping for houses after the crash, and it seemed everything was either a trash heap, or in foreclosure. The bank wouldn't take an offer, preferring to cash auction to investors at the starting price of the highest offer they had. No cash, no house, no matter how good the credit rating. The cheap house thing was basically a myth from my vantage point.

Yeah, the sort of unspoken ethos after 2008 was that people had to be saved from all the underwater mortgages. But the only way to do that is to not pop the bubble. So we got a slew of policies from the banks and the government designed to shore up housing prices, and now they've rebounded to above the pre-crash prices.

But those prices are bubble prices. We didn't pop the bubble which means we're still in it. All we did was kick the can down the road. The prices are still unsustainable and have to come down.

The best thing they did in the interim was to print a bunch of money. If you can't lower nominal housing costs because people can't have underwater mortgages then lower real housing costs by keeping nominal housing costs the same and causing sustained moderate inflation of everything else. Also very effective for devaluing other existing debt (student loans, credit cards, public debt). It's possible that we're now at the point of needing more of that.


I bought in Feb 2009. Almost everything we looked at was bank owned; some of them were pretty terrible, most were ok, the one we made an offer on was accepted the day after, but the bank did run our credit to confirm we were financiable.

I purchased a new home out of the area recently, it's a lot different looking at homes that aren't vacant, and dealing with the previous owner not getting all their stuff out on time.


> The only people who got hurt were home owners who go underwater and then lose a job.

Or those with Adjustable Rate Mortgages that popped and then got priced out of their homes.


> Or those with Adjustable Rate Mortgages that popped and then got priced out of their homes.

Or those with interest-only periods, same effect.


> Then the bank holds... gets a bail out, the home is written off, and the market is just as tight as it ever was.

This! I've been talking to people about this for years. Most don't believe me when I say it. In fact, I've only had one person, a banking official, acknowledge that this was standard practice, but he assured me that it was coming to an end (two years ago).

But yes, what you've written is totally the case. In fact, I just checked on a house that I know to have been abandoned by its "owners" in early 2011, but is still recorded as in their possession. Those folks sent the bank jingle mail, which the bank kindly sent back! (LOL)

[edit 1: I also don't think that many of the low- & no-money down portfolio sales that Fannie and Freddie did to clear their books helped matters.]

It's almost like Japan (from the little that I've read) was a blueprint for the U.S. etc., and the U.S., I suspect, will be an further example for other markets.

[edit 2: Book recommendation Chain of Title by David Dayen]


What exactly is the problem w/this post?

As someone already mentioned, "zombie houses," which as far as I'm concerned qualify as shadow inventory, have existed for some time.

The portfolio sales did not help the average person buy a house. They did provide the GSEs an out with respect to clearing their books. The terms of sale that I've seen for a few of those transactions were incredibly generous; basically "pay us if, and when, you can."

Please do correct me where I'm wrong.


In my area, the home prices dropped 50% from the peak in a matter of months.

Where is that?

50% is A LOT.


The upcoming changes in the tax code certainly did not help the housing market:

- The new SALT cap is extremely low, particularly if you own a home in the Bay Area. 10K! Mitigative solution: Stay put and keep current tax base, hampering both supply and demand (for a nicer home)

- The doubled standard deduction made owning with a mortgage less attractive (But a win overall once your loan is paid off enough).

- Mortgage interest deduction lowered from 1M to 750K (I believe it's 1/2 if you're buying alone). Houses are so expensive here this actually matters. On the supply side: More post-tax money + higher interest rates means those who locked into great rates won't want to sell, or want to buy a more expensive home. On the demand side: All of the above means everything just got even more expensive.

EDIT: Regardless of what your stance is on mortgage interest deductions, there's no doubt that the upcoming tax code changes threw cold water onto the housing market.

This wouldn't be such an issue if there was more supply in the first place, but here we are.


This is all true, but the mortgage interest deduction should be $0, particularly in the rich cities that refuse to let enough homes get built and fix things like zoning. It's an awful distortion that's a handout to the wealthy to the penalty of renters (generally less well off)

I'm a homeowner and I think it's an absolute crime my mortgage interest is tax deductible yet rent isn't. If we believe, at a philosophical level, that interest payments should be tax deductible, ok, then make ALL interest paid tax deductible - credit cards, personal loans, auto loans, payday loans, etc.

It's shameful.

That being said, with the new tax bill, 90+% of both owners and renters will be taking the standard deduction this year. It is my opinion that's a good thing, it's my opinion the standard deduction should truly be standard. However, moving all the middle and upper middle class into taking standard deduction makes the mortgage interest deduction basically exclusively for the very wealthy.


The entire (expressly stared) reason to make mortgage interest deductable was to encourage more home ownership.

You may disagree that that’s a desirable policy goal (and I might agree with you), but comparing it to some other payment that isn’t deductable misses the point entirely. Especially rent. Congress wanted to create an economic dis-incentive to being a renter and push people to own the homes they live in.


Except it just makes it more difficult for people to actually own their home. Instead, it raises home prices by forcing people who would otherwise be happy renting in modest apartments or {du,quad}plexes into buying detached single-family homes in order to reap the mortgage deduction. And it's not like most of these mortgage holders are taking the loan for convenience's sake, to avoid selling off some art they're rather attached to, or their other home in Monaco. These are ordinary people who decide, based on this distortionary government policy, to take out 30 year loans that they really will need 30 years to pay off, if they can at all.

> The entire (expressly stared) reason to make mortgage interest deductable was to encourage more home ownership.

IIRC it was actually to encourage more borrowing so that the banks could securitize and sell off the loans. Increased home "ownership" was/is the altruistic reason presented to the public so that they feel good about the whole thing. Not looking to start an argument here, but there are plenty of other ways to encourage "ownership" that don't require encouraging debt peonage and market inflation.

Also when credit cards were first becoming a mainstream thing, the interest on that was also tax deductible. I forget the specifics about why it was deemed acceptable to dispense w/that tax break.


Both that and the encourage home ownership theory seem unlikely when it comes to why it was deductible in the first place.

It became deductible in 1913, but simply because in 1913 all interest became deductible. The first $3k ($4k married) was excluded. Only the top 1% paid enough interest to take any deduction, and very little of that would have been mortgage interest because they usually bought their homes outright.

Wikipedia claims that the reason they made interest deductible on personal income taxes was that in a nation of small proprietors the line is fuzzy between personal and business expenses, and it was simpler to just make it all deductible instead of just trying to allow business interest to be deducted.

As for why credit card interest later became non-deductible, it is kind of the inverse of why mortgage interest is deductible. That is just as mortgage interest became deductible because all interest became deductible, credit card interest became non-deductible because almost all interest became non-deductible. The Reagan tax reforms took away almost all such deductions except the mortgage deduction.

As to why Congress decided to save the mortgage deduction when they were killing all the rest--I have no idea. That was in 1986, when a lot more than the top 1% were taking it, and most homes were bought using mortgages, so both the "encourage home ownership" theory and the "encourage more borrowing to please the banks" theories are plausible, at least.


I appreciate your digging into this. The 1913 tidbit is an interesting wrinkle.

I'd say, based on experience and conversations w/ elected officials, at the end of the day "encourage home ownership" is less likely to be a driver, but more so a selling point to the public.

I also seem to remember reading in a number of sources, one of Michael Lewis' books comes to mind, is that Lew Ranieri (and friends) is a probable reason for the deduction's survival if, as you suggest, there was any real discussion about cutting the MI deduction.

I can also tell you that NAR, for the more recent discussion about cutting the MI and SALT deductions would have been (and were) a significant factor in lobbying against changes that they would expect to slow sales.

Externally, lobbying is talked about as some sort of corrupting force to be excised. Internally, it's simply considered to be an integral part of the legislative process. IMHO, people should attribute less to altruism decisions that are likely linked to someone's lobbying efforts.

Thanks again.


If we believe, at a philosophical level, that interest payments should be tax deductible, ok, then make ALL interest paid tax deductible - credit card, personal loans, auto loans, etc.

Exactly. In fact all interest was deductible until the 1986 tax reform. Unfortunately the mortgage interest deduction survived due to lobbying from the real estate industry.

with the new tax bill, 90+% of both owners and renters will be taking the standard deduction this year. It is my opinion that's a good thing.

It's a very good thing for fairness, economic efficiency, and saving taxpayer time.


Some states do permit tax deductions for rent. Indiana, New Jersey, and possibly others.

Looked into this real quick.

The maximum rental deduction in Indiana is capped at $3,000 and the income tax rate is a flat 3.23%. So a renter in Indiana only pays $97 less in taxes.


California has a (very small) tax credit for renters.

I believe it's only for lower income renters.

I remember when credit card interest was federally deductible.

State and local taxes should also not reduce your federal taxable income at all.

High tax states can tax themselves all they want to, but that shouldn’t reduce their federal tax burden.


Why not? The high tax states are also paying more in Federal taxes than they receive. The low tax states are already subsidized by the federal government.

That might be accidentally true in some case, but not true in principle. There are states like Washington, which have zero income tax but which still contribute more in federal taxes (73.3B [1]) vs federal spending they receive (72.9B [2]). So it still doesn't make sense to deduct local taxes.

[1] https://en.wikipedia.org/wiki/Federal_tax_revenue_by_state

[2] https://en.wikipedia.org/wiki/Federal_taxation_and_spending_...


The high tax states drive the federal tax policy and spending. When California and New York push large federal programs and higher federal taxes and then are able to exclude themselves from the cost it's wrong.

How can the high tax states push policy when they mostly elect Democrats and the Republicans control Congress? The tax law that just passed was very unfriendly to blue states.

> How can the high tax states push policy when they mostly elect Democrats and the Republicans control Congress?

The Republicans don't always control Congress, and the Democrats generally favor program expansions when they do have control.

Moreover, even when they're not in the majority, they're still in Congress. Even though the vote was mostly along party lines, the deciding vote on the Medicare expansion under Bush was a Democratic Congressman from New York.

And have a look at the parties of the Representatives from California and New York. A majority of their Representatives are Democrats but they still elect more Republicans than most states have Representatives.


It also encourages debt and is effectively a subsidy to banks

> It also encourages debt and is effectively a subsidy to banks

I have no idea who is downvoting you. That's absolutely correct.

If they really wanted to subsidize ownership they would make it tax deductible to pay down principal. (And then give you zero tax basis so it's all taxable income when you sell, and cap the maximum sunk deduction per person at the median home value so rich people don't buy twelve houses to avoid their taxes.)


last years appreciation, the lost deductions, rising rates have really stretched the limits of demand. how many households are really out there who can afford a 10k/month mortgage or 300k down payment that you need for a house in upper middle class parts of Bay Area or Seattle.

Anecdote, but my wife and I dropped out of the market recently and rented instead. The rent was 30-40% cheaper than a mortgage would have been on a similar place (including taxes, insurance, etc...). So we figured we would just put the after-tax difference into a 401k (because 401k is pre-tax, for every dollar we 'saved' in housing cost, we are putting ~1.4 dollars into 401k). I figure that building equity in a house has similar investment timeline to the 401k, so it doesn't really bother me whether my net worth comes from one or the other, and unlike a house I can diversify the 401k via different index funds. In terms of ROI, the buy vs rent calculators are all starting to lean towards renting[1], so unless we are going to be in the same house for 12-15 years (unlikely) renting seems to win (and this assumes fairly good/neutral economic outlook, if you turn some of the knobs on the calculator to assume negative growth, oh boy...) .

Add to the fact that most folks don't really know how the new tax laws will impact them until they do the calculations early next year, and the fact the rising interests rates should put downward pressure on the market, and the rather volatile political situation (who really knows where this tariff thing is going to go, and how it will impact the economy), and it just made more sense to wait it out.

[1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...


My house in Seattle has been appreciating by about $100k/year over the past five years. In other words, I'm making $100k/year on a $50k investment. You wont find returns like that in a 401k. And my interest payments are less than rent would be. Last but not least, home appreciation is TAX FREE up to half a million bucks.

By all means, max out the $20k or so you are allowed to put into a 401k, but don't fool yourself into thinking it will outperform what is essentially a government-subsidized leveraged investment. You have to have exceptionally bad timing or move very frequently to lose in real estate.


You're talking about unrealised profits. In order for the profits to be realised you need to sell the house. So what happens then? Either you keep the profits and are left without a house, or you buy another house and are left without a profit. Because, you see, it's not only your particular house that has appreciated, all houses have.

Yep. I own where I live in Seattle and some of my younger-than-me friends and colleagues are routinely "you're so lucky, you're sitting on a gold mine!"

Maybe so, but the sizzling hot housing market means I can't ever move to another place I own because, like you said, I'd have to take all of that appreciation and plow it right back into another property. Never mind that anything north of the ship canal is still completely unaffordable by my standards (that is, $450k or less, which is still a staggering sum of money in my world).

I'd much rather do like the grandparent and have those gains as actual money in a 401k, not theoretical money in a house that I'd have to practically leave the time zone to realize.


What you say is true only if you never downsize and never leave a hot market. Realistically most people will book those profits when they no longer need to live next to a job center. When you don't need that downtown job anymore you can sell a million dollar house in a big city and buy a nicer house for half that elsewhere, pocketing the other half million as pure, tax-free profit.

"What you say is true only if you never downsize and never leave a hot market."

What you say is true only if you know exactly when to downsize and leave a hot market.

It can be the case that housing will always be more valuable in one place than another. But it can't be the case that the rate of increase will always be dramatically higher, because that will lead to a runaway differential. Therefore you have to expect a correction at a time that is uncertain.


No, that's simply incorrect. The rising tide of inflation will lift expensive house prices more than inexpensive house prices. And no matter where you live, there is always a cheaper place you can go to when you sell your home. It's called a cost of living arbitrage.

What you say requires "timing the market". It's possible to get lucky and decide to retire at JUST the right time, have kids leave for college at JUST the right time, etc. More likely, the "hot market' will drop before you capitalize.

ITs still a good result: you can sell the house and rent, or move to a place where house appreciation wasnt so pronounced.

Real-estate does give leveraged wins.


Dumping all my wealth into one leveraged asset sounds scary as shit.

Stocks have higher volatility that housing, for sure. What might be scary is the leverage.

It’s also quite difficult to go back in time and buy a house in Seattle 5 years ago.

Don’t fool yourself into thinking that buying into what would become a ridiculously hot market is much more than dumb luck.


I rent in a neighborhood in Seattle that has homes that sell from anywhere between 700k to tens of millions, and a lot of houses that I'm looking at aren't selling. The market is so saturated with people trying to sell their homes for more than they are worth, which is a notable change in what is an extremely hot housing market.

I agree with the others on this thread.

You can't cash out unless you move out of the area or you downsize. And I may be wrong on this, but unlike CA (prop 13), your property taxes are going up.

And regarding timing, 5 years ago was probably one of the best times to buy a house on the west coast in the last few decades. That moment has passed. The reason I bring up the rent calculator, is because in most markets, at most times, that calculator will tell you to buy. Its the reason that I started considering buying ~2 years ago. But things have changed. Rents have been flat for about 3 years (at least in the Bay Area), while prices kept creeping up. So the way I see it, right now may qualify as 'exceptionally bad timing'. If the price-to-rent ratio is this out of whack, at the very least rental investors are going to head for the exits. My hunch is others (myself included) will exit as well. And the nice thing about renting, is I am only in a 1 year lease, so if I am wrong, and if the fundamentals change, I can jump back it the market.


You'll only be able to take advantage of that downward pressure if you have a large downpayment (and finance as little as possible).

I get what you are saying, but I think interest rates have a broader impact beyond just monthly payments. Real estate investors will start getting squeezed for example, so demand will dry up there. Also, I think downward prices impact the psychology of the market. Even if those price drops are entirely due to the rate increases (such that the monthly payment is the same), I imagine people will start getting nervous about jumping into a highly leveraged investment with falling prices, I know I would.

Just today (in Austin) I saw a banner by the road outside a bank offering "100% financing" for homebuyers. If banks breathlessly pitching to lend buyers the entirety of a home's price is not a sign of an overheated debt-led housing market, I don't know what is.

I was in a bank yesterday, and saw the same thing. They had a person from their mortgage department approaching customers and informing them that they had 0 down loans available.

This I take to be a bad sign. We're in "this time it's different" territory.


"I was in a bank yesterday, and saw the same thing. They had a person from their mortgage department approaching customers and informing them that they had 0 down loans available."

Considering that home sales volume has dropped a lot as affordability has fallen (due to higher interest rates + higher prices), banks mortgage business is likely falling - not due to foreclosures but rather due to lower home sales volume. They may feel that, with lending standards now higher than 10 years ago, the risk of losing money in a potential foreclosure is now low enough that the risk is justified given the loss of business.


A stranger on LinkedIn sent a connection request to me within the last couple of days, and it was not a recruiter (the usual), but a real estate agent. First time that's happened. And I haven't been looking to buy a house, nor given anyone any indication that I'm interested, that I'm aware of. Probably nothing, but now I'm wondering if it's an indication people are getting hungrier.

For what it's worth, I saw the same in a hot market in Iowa. I was taken aback, because generally speaking we saw a much less bad 2008-era than other places across the country. We have particularly low unemployment, which could be leading things to get stupid.

Must be a new construction. Usually big builders offer that when they can't unload units quick.

It was an ad for a bank, not a housing development.


Is this the first you’re hearing of an interest only mortgage? They have been very popular in Southern California for a couple of decades. The theory is that it allows the speculator / owner to get a much more expensive home and just pay the interest for 3 to 10 years. Then sell and reap the massive appreciation. Except of course when the market goes the other way and you’re underwater and then whoops! the payment flips to fully amortized (interest and principal) and you can’t afford it.

Welcome to 2007! But don’t worry you’ll be unemployed in another year too!


There are also perfectly valid use cases for interest only mortgages. The classic case is for people with highly variable incomes, for instance people working on commission or people working in bonus driven industries. In lean years you pay just then interest and in healthy years you pay down some principle.

What the hell did I just read..?

“Adjustable-rate interest-only mortgage“ ... how is that even legal?

I don't know exactly how they work, but hasn't everybody heard about "NINJA" loans? "No Income, No Job, (no) Assets"

The Case-Shiller Index currently has home prices rising at 2-3x inflation: https://www.housingwire.com/articles/46307-case-shiller-home... That would certainly seem to be unsustainable.

I've never understood how stock market returns can exceed inflation in the long run either...it seems inescapable logically that if you can come up with an asset with a guaranteed return, people will flock to it until the real return equals approximately zero.

Time (aka risk) matters. The fact that certain assets only have a "guaranteed" return over periods of 30 years or longer significantly limits the kind of people that are willing to flock to them.

If that was the case, then couldn't someone simply establish a perpetual entity to invest and sell their average returns to people with shorter time horizons?

Like a corporation that sells annuities? It seems like a minor detail of financial engineering, just like figuring out how to profit from a perpetual motion machine.

It still seems obvious to me that any asset with perpetual outperformance must revert to the mean before or after it eats the world and people just have gotten very accustomed to denying this fact because the boom in the US stock market has outlived any human who doubted it.

Look at Moore's law - it became an article of faith, but things that can't go on forever the same way don't.


> If that was the case, then couldn't someone simply establish a perpetual entity to invest and sell their average returns to people with shorter time horizons?

> Like a corporation that sells annuities?

They exist, of course, but I think you'll find "simply" doesn't begin to describe how this works in reality, especially with the confounding factor of that corporation adding another layer of risk/opacity.

> any asset with perpetual outperformance

That's different from your initial premise, which was returns exceeding inflation. Outperformance is a different concept, which is about being better than the mean, but the "stock market" (at least in the US) is often considered that mean.

To consider inflation (i.e. zero, in real terms) to be the mean suggests zero economic growth and/or wealth creation and/or zero-sum activity, and I think it's safe to say it's obvious that's not what's happening.

It may certainly be that the stock market outperforms overall economic growth, but that premium can easily be explained by risk, so long as it's not huge. If S&P500 real returns are 6%, there's not much room for a huge premium to begin with, and I'd be surprised if it's as wide as a full percentage point.


  >> If that was the case, then couldn't someone simply
  >>establish a perpetual entity to invest and sell their 
  >>average returns to people with shorter time horizons?
  >> Like a corporation that sells annuities?
  >
  >They exist, of course, but I think you'll find "simply" 
  >doesn't begin to describe how this works in reality, 
  >especially with the confounding factor of that 
  >corporation adding another layer of risk/opacity.
My use of "simply" wasn't expressing the idea that the details of running such a business are trivial, but that it's an everyday thing that's been invented and not some speculative or impossible or unbelievable thing.

  >> any asset with perpetual outperformance
  >
  >That's different from your initial premise, which was 
  >returns exceeding inflation. Outperformance is a 
  >different concept, which is about being better than the 
  >mean, but the "stock market" (at least in the US) is 
  >often considered that mean.
No, it's not meant to be different. "Outperformance" can mean performance relative to a given benchmark - here, something like the CPI or PPI was the benchmark intended.

  >To consider inflation (i.e. zero, in real terms) to be 
  >the mean suggests zero economic growth and/or wealth 
  >creation and/or zero-sum activity, and I think it's 
  >safe to say it's obvious that's not what's happening.
Right now in the US, maybe it's not happening. But look at Japan and what's happened to investment returns and inflation in the last 30 years.

Essentially all my savings are in fact in the stock market. So I'm not promoting, say, gold, or bitcoin, or whatever alternative. I'm just nervous if I can't justify the direction of the herd in spite of the fact it would make me feel better if I was sure the market would keep going up.


> My use of "simply" wasn't expressing the idea that the details of running such a business are trivial, but that it's an everyday thing that's been invented and not some speculative or impossible or unbelievable thing.

Even so, what you propose doesn't quite exist, and my point was that this is because it isn't simple, or, if you will, that your use of "simply" was dismissive of the Devil that's in the details.

Annuities and even perpetuities exist, but even characterizing them as an "everyday thing" is borderline misleading. An annuity is a common instrument for retirement. Otherwise, not so much.

For your proposed use-case of turning long-term returns into short-term ones, for any investor that comes asking, they don't exist at all, AFAIK.

> No, it's not meant to be different. "Outperformance" can mean performance relative to a given benchmark

Fair enough. I was going off the understanding that the benchmark had to, itself, perform, which inflation does not (unlike, e.g., the S&P500, which describes actual performing assets).

> Right now in the US, maybe it's not happening.

Since the context is long-term, "right now" would need to be at least the past 3 decades, so that's an extraordinary "maybe" requiring extraordinary evidence.

> But look at Japan and what's happened to investment returns and inflation in the last 30 years

Japan's overall economic situation appears to be reflected in the Nikkei 225 returns (losses), so consistent with my thesis there, too.

> I'm not promoting, say, gold, or bitcoin, or whatever alternative.

And that's the crux of the issue. None of those examples have much opportunity to produce anything or create additional wealth, whereas companies do. More common alternatives are bonds, which are either another form of capturing the output of companies (including non-publically-traded ones) or of taxes (which, arguably, captures labor output, to the extent that it's income/payroll tax). True alternatives would need to be assets that could do the same, such as land (agriculture, mining).


We're still post-crash, and China is putting a lot of money into American real estate.

We aren't at post-crash anymore. House prices have fully recovered and now exceed the previous housing bubble peak.

Foreign buyers could be a catalyst that has inflated the home prices to new heights.


"is == were" from what I understand

I wonder if the trade hostilities are affecting foreign (particularly Chinese) real estate purchases in the US. I suspect this is the case, but it's probably not enough to significantly contribute to the slowdown (at least not more so than rising mortgage rates and overheated prices)

IMO, I think the foreign buyers will be a bigger factor than many think primarily because it was an external force not directly reliant on local wages to buy. In essence, the foreign buyers were able to prop up or increase prices much higher than the market equilibrium. If you take away those buyers then the whole thing quickly loses its foundation and falls in on itself. I think this will be the case. People think the foreign buyers are always going to be there but this is hardly the truth.

There are lots of factors at play, some are more significant that others in one area of a country than another. Take Brexit, 5th largest economy, if you look at UK car stats (SMMT website) businesses are in recession as far as car manufacturers are concerned. Another factor, the GBP has dropped, this makes investing in London attractive for overseas buyers who may have invested in the US market. Plus as London house prices have dropped this also becomes attractive to overseas buyers. In turn as London property is very expensive, this drags the average's up for the price of property in the rest of the country. These factors will be repeated in many countries around the world, but one thing the US has lots of which counts against the US housing market, is land. The UK is highly populated, England is densely populated, the demand for land in the UK is at a much higher premium than in other parts of the world like Europe or the US. In turn, the UK landowners benefit from this global demand ie stability to park money in UK assets due to the reputation of the UK on the global stage, ie no major revolutions in recent history, one of the oldest legal & financial systems in the world. All this stability to park money in the UK pumps up property prices, so with Trump getting into office, is he lowering your property prices considering his flip flopping around with what he says? I see Trumps election as a desperate attempt to consolidate the US position on the global stage as the rest of the world wants detach itself from the petrodollar. As the dollar declines much of your money has to now be spent on things to help you live instead of just going into property. Be prepared for inflation and hedge accordingly, property prices falling is good for the wider US economy, as high property prices where a great % of income is going on servicing the property is bad for the wider economy. Besides there are more Basel requirements coming in next year and many banks have not got themselves ready for that either.

One other thing, Brexit, 5th largest economy, if the EU doesnt allow the UK to stay in the single market, what sort of effect on the global economy will the UK market crashing out of the EU single market and going into major recession have on the global economy. Brexit in a way has the global economy by the balls and the EU led by Germany will be seen as the bad guys for not budging on their philosophy.


I can put some perspective on this. We got priced out of the market in Feb. According to the bank, we can't get a mortgage where the overall cost of the payments on all our debt can't exceed 41% of our pre-tax income. Given that our student loans eat about 20% of our pre-tax income, that means we only have 20% of our income left for housing. Rising interest rates means that more of our house payment goes to interest which means less of it is left for principal, so we cannot afford the same home we could last Oct. The tax incentives used to mean that we could deduct a good chunk of our housing costs from our taxes and use some of that money to live, bringing it inline with what we would pay for rent. However, that changed and made renting easier on us financially.

High student loan payments and high mortgage rates means that the only thing left to give is the price of the home. Or the bank can be cool with us leveraging ourselves to 50+% income.


if youre paying 20% of your income to student loans, buying a house isnt exactly the best play. Student loan interest is a scam. Dig deep and pay that jam off as quickly as a you can.

Best advice in this thread, IMO.

With a tight budget like that, imagine you had bought the house and then the tax code changes and now the math doesn't work anymore.

Why would you want to? Is a house really worth it?

Housing is only an 'investment' because of how expensive it inherently is.

However, my opinion has been that housing /has been/ in a bubble since at least the mid 2000s (pre recession); and it didn't actually deflate (at least in the area I live in) /during/ that recession.

It would really be nice if some way of fixing this bubble chasing nonsense happened. Maybe if healthcare and retirement were fully socialized this would be less of an issue.


Cars are expensive but aren't investments; they're depreciating assets. In Tokyo, housing is a depreciating asset too.

In the US, housing is an appreciating investment because we've made that a political axiom, and because homeowners hold political power that let them fight any policy that would make housing cheaper.


> Cars are expensive but aren't investments; they're depreciating assets.

There's a case to be made that the two aren't mutually exclusive.

Sure, by the traditional definition of "investment", a profit or gain is required, but a broader understanding includes considerations such as risk and loss avoidance (i.e. hedging).

Even under the traditional/strict definition, a car could be considered an investment if the loss from depreciation is less than the loss from not having it available (e.g. having to pay more for rideshare services).

That said, with housing, it's important to remember there are two components, the depreciating part (the structure) and the land (location). The latter both doesn't depreciate and is usually the part people are investing in, at least in high-cost areas.


Cars are a depreciating asset because you can always manufacture more of them

Housing appreciates because land supply is limited in big cities. You can't manufacture more land


How simplistic. America has enough land. Vast swaths of it are empty.

What we don't have enough of is density in the places where people actually want to be, and that's not a natural limit. You could make more density, if it weren't illegal in all of these desirable places.

And I just mentioned Tokyo, which actually does have serious land constraints but does zoning and transit well. (And where they are making more land.) Ordinary people can afford homes there and almost nobody is homeless.

"They're not making any more land" isn't a relevant thing about urbanism, it's just a cliche that a realtor says to convince you to buy.


It's not as simple as merely lifting regulations to support high density housing. The underlying infrastructure has to be able to support that density as well.

Most cities would fail to function if they all had the same density as New York or Tokyo

To solve the infrastructure problem, you have to, again, invest billions.


There’s more to it than that. You can build more houses just as easily as building more cars. Houses also appreciate in areas where undeveloped land is in abundance. The disparity comes from the lifespan and relative ongoing maintenance for each.

A car depreciates because it has high long-term maintenance costs due to wear and tear. A 10 year-old car more expensive to maintain than a 2 year-old car. Almost everything in a car eventually needs to be replaced. The exception is at the high-end where some cars become collectors items after 30+ years and will then appreciate due to rarity (as per your original argument).

Houses properly built will literally last centuries. My old house in Baltimore is over 100 years old.


> It would really be nice if some way of fixing this bubble chasing nonsense happened.

Penalize corporations (banks) for holding inventory, rather than the other way around. Vacant residences should have a higher tax rate.


Well, Prop 13 in California particularly incentivizes housing bubble chasing.

Doesn’t Prop 13 incentivize buy and hold? That’s the only way to keep your low property tax basis. Or am I misunderstanding your comment?

It encourages treating property as an investment, rather than something you own so you can live in it. This results in, for example, people buying second homes or investment properties, as well as people holding on to houses that they would have otherwise sold off (to move to a more suitable locaiton as a retiree, for example).

The effect on the market is to make the market even less liquid than it would be since sales cost such huge benefits.

Plus insulating existing homeowners from the rising market value of land is a tax on literally everyone that does NOT live there.


Thanks for clarifying — I didn't realize what you meant by bubble chasing. I agree that Prop 13 can reduce available inventory and drive prices up.

Though note that at age 55, you can move into a less-expensive home and keep your old property tax basis (if you meet certain restrictions). This provides somewhat of an escape valve that allows empty-nesters to downsize and new families to move in.


Someone from CA or who's more familiar with the actual Prop 13 should clarify, however from what I recall reading in prior threads...

I believe the benefits can also be passed in some non-sale transfers of the property; IE passing it on to loved ones. So if something stays within the family those benefits are locked in at the old rate instead of hitting the new rate. Which while it sounds nice for handing off a property among married couples creates an entirely new class (literally) of people as land ownership flows through family generations.


Transferring prop13 taxes when moving if someone is older than 55yo is very limited - should be within the same county and number of counties allowing it is 10 or 8 or something like that in CA. I may not remember exact details on that.

Prop13 was expanded to allow transfer taxes between parents & children and grandparents & grandchildren.

Also, commercial property is covered by prop13 too.

Also, prop 13 is not limited to the primary residences.

Also in many places schools are funded from property taxes, so all those complaints about horribly underfunded non-performing Californian schools have big "FU, got mine" from homeowners behind them.


Regarding property taxes being used to pay for schools, this is actually not as unfair as it might seem. That is, I pay much more than my next door neighbors, who have lived here for 30+ years. But I have school-aged kids, so I’m receiving more of a benefit from the local schools than they are.

And in case if your other next-door neighbours have school-aged kids and have property taxes based on 30yo assessment?

And in case if you don't have kids but pay way much more than your next door neighbours?

Or in case if the majority of your neighbours pay almost nothing in taxes? Then your taxes alone will not cover the expenses of that local school for you to benefit from.

Why have public schools then?

Actually what I want to say is that there is nothing fair in Prop13.


No one has 30-year old property tax assessments and kids in school. This would require inheriting from 80-year old grandparents and having your parents pre-decease your grandparents.

prop13 taxes can be passed to grandchildren

"In 1986 and 1996 respectively, California voters passed Propositions 58 and 193, which extended Prop 13 to exclude from reassessment property transfers between parents and children (58) and grandparents and grandchildren (193). As a result, when you inherit a home in California, you inherit its tax assessment as well"


It can only be passed to grandchildren when the children (the parents of the grandchildren, and all of their siblings) are all dead already. This rarely happens, which is why property tax inheritance almost never ends up going to someone with young children.

https://www.avvo.com/legal-guides/ugc/prop-13-transfers-to-g...


Thanks, I didn't know that.

But back to taxes in general - if we want to have schools funded only by current parents contributions those are private schools.


I’m from California and am also a (former) tax lawyer. There is a limited ability to inherit property tax basis. It only applies to children (or grandchildren, if all children are deceased at the time of the grandparent’s death).

It can’t be used to pass off property whenever you wish — only when you die. Given how long people generally live, this means that the people inheriting properties are usually already homeowners themselves, and in many cases already senior citizens.



I closed on a condo in Seattle literally this morning. Did I buy at the exact worst possible time?

It depends why you were buying it. Were you buying to flip it as a short term investment, or a place to live in for the next 5-10-20+ years?

the market price only matters if you're forced to sell or forced to buy. if you dont need to sell or dont need to buy, you can ignore it


A few downsides from my perspective

- I plan to rent out the second bedroom, and rents are dropping. And I plan to rent out the whole place within a few years

- I miss out on cheaper rent in nicer buildings (also because rents are dropping) or on buying a cheaper or nicer condo

I'm fortunate enough that I can am more or less comfortable paying for it as long as I have my job but if I can't find a renter at a decent price, I'm going to be hurting a little bit.


I bought my last place in 2006, intending to live there at least 5-10 years.

I ended up living there for 11 years, with the majority of the time being there with it some $120k underwater. It was terrible and I wished I had waited a year or two - not only did I pay more to service a more expensive mortgage, I walked away with considerably less equity than I would have if I just waited.

I don't know how anyone could possibly be thinking about purchasing a place right now. It's been 12 years since the last crash started and real estate is traditionally on a 10 year boom/bust cycle. Even if you think you want to live in your place for decades, things happen. As always, if you can help it, buy low, sell high, don't pander to emotion on what is one of the biggest purchases you can make.


> As always, if you can help it, buy low, sell high

I agree. If housing is overvalued, and renting is a cheaper alternative that is feasible, rent & plug the saved money into some other form of investment.

I guess it's a bit tricky with housing as well, as buying into housing tends to involve borrowing a large amount of money, which then exposes you to risk of potentially being forced to sell if the market or your circumstances change significantly.


> I don't know how anyone could possibly be thinking about purchasing a place right now.

Well people need a roof over their heads. In a lot of areas (more rural for example) rental properties aren’t very common and they’re often smaller places so if you have a family and want somewhere to sleep at night you’ll need to buy.


Right, but those aren’t the places we’re talking about that have huge swings due to the national boom/bust cycle... ie. cities and suburbs of those cities.

Basic rule of thumb - if you can rent a like property for less than you can purchase, you should rent, esp. when things are toward the top of the market. The irrational fear that one will be priced out of a market leads to bad decisions. The idea that renting is throwing money away/giving it to a landlord leads to bad decisions.


Usually, lots of people buy homes in a hot market. Definitely, not worst, if you plan to live in that condo and if your commute is 15 minutes.

Only if you're concerned about external validation of your purchase -- i.e., you might be moving and the market tanks.

At some point you hit the cap of what people can possibly spend.

Depressed earnings in all but a tiny sector, and incredibly inflated house prices.

Perpetual growth is unsustainable in this manner, but is expected by investors.

I hope the market corrects. Not for my sake (I live in Sweden and have no US desires) but for those who hope to have a life and family near their ancestral home.

I am not preaching to the choir of HN, people on this site generally have it a lot better than the people who also live in the places that are huge tech hubs.


Pretty sure my ancestral home is somewhere on Mayfair. I demand access to an affordable London flat thereabouts!

Also if you're talking about the Bay Area, much of the real estate pricing there is driven by the anti-development tendencies of the owners of ancestral homes, either lining their own pockets or pushing some misguided political wheelbarrow (especially in SF). In that sense it's largely self inflicted. In other places even uneven economic growth tends to create bigger cities as the wealth spreads through the economy via construction and services and the like. It's when you try to fight the market that you get unintended consequences.


> Pretty sure my ancestral home is somewhere on Mayfair. I demand access to an affordable London flat thereabouts!

We’d better get around to ceding Manhattan back to the Lenape, too.


Maybe I chose poor words. Ancestral meaning “where my mother/father and grandparents, nieces, nefews etc live.

I come from a city in England called Coventry. Family ties are what keep most of the population in place- perhaps “familial” is a better word.

The idea of not being able to live close to family is distressing to many of my fellow city dwellers.

You can argue the semantics of how valuable such a thing is. You can even argue that the entire family unit should probably move somewhere cheaper, or that commuting to see your mum isn’t all that bad. But honestly; it would take a lot for me to revisit the idea that I am not able to live amongst my family. Even if I personally did not choose to.


> At some point you hit the cap of what people can possibly spend.

Local population can be priced out if external buyers (ie, foreign cash) can pick up the slack / drive up demand.

Foreign investment is likely why case-shiller is so high since mid-2000s.


Meh... even in super hot markets like Vancouver, foreign purchases were 10% of transactions. And a lot of it was in the very expensive houses. It’s locals who are driving most of the price appreciations (and flippers).

10% of the expensive houses sitting unoccupied also drives up prices. People are flipping moderately-priced houses because they have a chance of becoming the new expensive ones.

There aren't two different housing markets.


A lot of these same folks are abusing the primary residence exemption on capital gains by pretending to live in an income property. (The gains on your primary residence are not taxed at all in Canada)

They get their mail delivered there while renting it out to help bolster their residency claims.

So they are getting a nice tax shelter while pricing legit home buyers out of the market.

Nobody wants to actually do anything about it, so we pass laws that are easy to work around. Like a foreign buyers tax that is easily circumvented by using a shell corporation.


10% more overall transaction volume is huge, especially for something as illiquid as real estate.

Foreigners have been buying property in Vancouver for a long time. Problem is, the volume was never measured so we don’t know what the increase was.

I don't know how the housing market doesn't affect you - Stockholm is one of the most expensive real estate markets in the world. Much move expensive than most US cities.

Who said I live in Stockholm? I live in Malmö. The housing market is pretty dire in most of the westernised-European capitals.

Not sure why you’re being downvoted. Nothing you said is controversial.

Agree that incomes put an upper limit on housing prices...they can’t go up forever at the same rate as the past 5 years.


If they were assuming that because I turned 30 this decade I'd suddenly become interested in owning a home, they were wrong! If the financial pundits believed all the articles the culture pundits were writing about millennials they could have known.

About time it slowed down. My house is over 2x what I paid for it 6 years ago. I pay $10k/yr in taxes just to live in it, WTF.

Teachers have to live somewhere too.

I agree. But I don't see how it has any bearing on the situation: they are affected by the extremely high housing prices as well, to a much greater extent, and real estate taxes, while high, represent only a small fraction of state revenue. Sales and business taxes dominate there. Then there's the issue of the explosion of administrative personnel. As a parent, I'm not even sure what most of those folks do. I'm sure they "have to live somewhere", but I'd rather spend the money on teachers, schools, and supplies, TBH.

Seattle has significantly slowed.


Misleading label from HN - article is amp from Market Watch, not actually google.com.

Ideally, HN would point at the original.

Personally, my phone Adblock prevents google from spying on my traffic in general, but these cached amp links get tracked by google.


This is one of the reasons AMP is terrible.

Yes. Url changed from https://www.google.com/amp/s/www.marketwatch.com/amp/story/g....

Submitters: please don't post those! It's important that readers see what domain a story is coming from.


dang, Why doesn't HN simply warn submitters to not use AMP urls or reject them outright?

Different sites encode them differently, making it complicated to detect in code.


Why does this link say Google?

From the url it looks like marketwatch.com site is using google's AMP thing to implement a lightweight site, then google is mirroring it / distributing it through some AMP CDN hosted from a google domain.

(this explanation is perhaps only 60% right, someone who actually knows about AMP may like to weigh in and correct me)


The article title needs punctuation.

We changed the title from "Housing hit unexpected slowdown Shares of Redfin drop 20%".

Submitters: please don't rewrite titles like that. If an article title is neither misleading nor linkbait, the site guidelines ask you not to change it.

https://news.ycombinator.com/newsguidelines.html


Thanks dang. Perhaps modify it to 'US Housing market ...'

Sure.

[flagged]


Jeez what do you expect? This is interesting news and comments are pretty thoughtful as well.

Redfin didn't exactly do anything interesting or unique. It was literally yet another real estate app/website. It's not surprising.

To be fair, Redfin is a technology focused MLS member and agency, not just a listings aggregation app. You're entitled to your opinion if you don't think that is interesting or unique, but their offering is far more than just a website and app. Interesting data on their agent stats and comp here: https://www.redfin.com/blog/2018/01/how-much-do-redfin-agent...

I worked in that industry. It really is a pretty "meh" company.

Also there is no MLS, there are a lot of them.


Though the MLS is pretty distrubuted, these days you can consider it as a single entity for the most part, though the shenanigans from the early 2000s still happen every day.

You absolutely cannot consider it as a single entity. It is not distributed, it is fractured. There is zero consistency. I got out of that industry a while back and I still have the local MLS phone number memorized.

It's a complete shit show as of 2013. Basically anything that is on any MLS I've seen is probably incorrect.


Yeah it was pretty bad 5-10 years ago, but working with it as recently as Tuesday, I can say that the major benefit of sites like Zillow and Redfin is that MLS companies have had to adapt fast to stay competitive. The realtor I'm working with has changed MLS platforms three times in the last year alone.

When I was selling my condo last year I asked for it to be kept off of Zillow. That site is incredibly innacurate for integrating data. Their cute name for pricing is always way off in my experience.

Shenanigans from the early 2000s?

There's windows that you have to put a property up in (e.g. 72 hours), but if your company can act as both buyer and seller you can double(ish) your commission, so you either:

1. Try and get an offer before that window is up.

or

2. Put the listing up with enough wrong information that you get 2-3 more days to try and sell the property.

Apart from that, there's a lot of minor lying when it comes to these listings. Maybe the lot was 2 acres before it was subdivided, so you say on the listing that it's 2 acres. Maybe you jiggle the handle on the listing for the first week or so so it shows up as new/updated every day. Maybe you say that the listing has "central window unit AC" to try and confuse people into showing up.

It's mostly a lot of light treason against buyers and sellers. Real estate is a bit of a dogfight and much of it falls into the "technically illegal but not worth suing" bucket.


They seek to decrease the realtor fee for homes by employing rather than commissioning realtors, as well as decreasing the information search costs to buy and sell homes. It's a solid approach if they play the details right -- become a platform for home sales.

Actually, they're very different from most others, in that they're a vertically integrated brokerage rather than just connecting you to random brokers who advertise through them a la Zillow.

I worked in the technology side of real estate for a decade, they really are nothing special. It's marketing buzz and same old thing.

What did you work on, specifically? I was the founder/CEO of one of the real estate apps that you claim they're not too different from, and I disagree.

I know there's not much that's sexy from a technical perspective about running what is effectively a tech-heavy discount brokerage at scale, but it allows them to offer a fundamentally better UX than Zulia or any of the pure leadgen sites can. And there's a huge amount of code involved in running the ops on an organization like that, which a pure search app doesn't have to write/maintain.

It's really selling them short to say their only difference is marketing.




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