temporaryreality

I got THE most interesting piece of junk mail the other day. You’re not alone if you thought “interesting junk mail” was an oxymoron. I was surprised that when I started thinking about the fake check for $120,000 that accompanied an offer “almost too good to be true” I realized there was an interesting series of conclusions to be drawn and questions to be asked. Some of these conclusions and questions have to do with the wording of the offer and others are related to a general set of suppositions that are revealed by the fact that this thing showed up in my mailbox at all. This came from a company that’s been around awhile and I imagine others have come to the same conclusions.

The offer was notification of pre-approval for a “Homeowner Program” that allows a corporation called Unison to - as they say it, “invest in your home—with you.” Now, I live in my home; it doesn’t generate a profit. I do work from home, but it’s not the home that’s generating my income. (I could just as easily work at a cafe or a library. Now and again I’ve toted my computer along and worked in my car while waiting to pick a kid up from an activity.) The home itself is therefore NOT “investable” unless we’re talking speculative buying and selling. It may appreciate or depreciate, but fundamentally it’s not an investment because it is not producing value outside of its function as a shelter for me and my family members. See https://www.moneyunder30.com/why-your-house-is-not-an-investment.

Also, in spite of my gardening efforts, when I calculate my costs for seeds and supplies, for the fruit trees I’m putting in or my chicken feed, not to mention the basic costs of using electricity, water, and gas, and replacing the HVAC or the roof, it’s a bad investment. I put in more than I get out in terms of monetarily-defined profits - and that’s factoring in that the farmhand (yours truly) doesn’t get paid except in whatever produce the winter-migrating birds decided to leave alone or the summer heat didn’t wilt beyond recognition. True, there are eggs, but… it’s not possible to run a profit-driven chicken farm in the middle of suburbia and keep good neighborly relations.

Well, anyway, I read this mailer. Set it down for a while, picked it up, and read it again. Here’s some of the eye-catching language and the thoughts that accompanied it. 

• “Unlike a home equity loan or home equity lines of credit, you’ll pay no interest with Unison.”

• “No monthly payments”

• “Unison can provide the funds you need without the burden of additional debt.”

• “Annual APR: 0%”

Now, I’m not a math person at all, so I just left it at that. But then I thought this was such a great example of the ways we pile more on top of an already precariously balanced and complex system, that it encouraged me to poke around online. I found this blogger has done the math: http://moneymetagame.com/fi/unison-homeowner-equity-access-is-probably-a-terrible-idea/comment-page-2/

Here are the numbers he got:

Let’s use an example where you pulled 10% of your equity out of your house in cash in exchange for giving Unison a 40% share in the appreciation. That means Unison would be entitled to 40% of the average 3.73% growth each year or 1.49% of your total home’s value annually. As the loan was for 10% of the home’s value and Unison will make an average of 1.49% of the home’s value each year, that makes the effective interest rate 15% !

That page is worth looking at if you’re interested in a breakdown of Unison’s terms.

Anyway, since a corporation’s loyalties are to its stockholders, my junk mail indicates a couple of things:

• Unison expects my region’s home prices to increase (they’re selective about where they invest and I’m certain they have people tracking real estate in “hot” markets).

Quite telling is this quote from Unison’s press page https://www.unison.com/press (taken from the Wall Street Journal, emphasis mine):

“Startups backed by deep-pocketed investors are looking at a new way to profit from rising home prices.”

• It’s in Unison’s (and any other such fintech thingamabob including REITs and whatnot) to keep housing prices up, up, up. What people are willing to pay (including with subsidies), the market will provide. Perhaps we can expect Unison, among others, to be very much against policies that even-out rents (rent control or ?), for instance, and to back efforts (with those subsidies) to keep hot markets hot.

Why would it not be a good thing to let the currently overinflated real estate bubble (in certain areas) deflate naturally? That’s only allowed to be a rhetorical question in this society. But I don’t mean it rhetorically. I actually wonder if it wouldn’t be a better thing to have only very gradual increases in home value* reflected in market prices rather than having so much out of the reach of so many just because … I don’t know… tech-bubble-heaven-on-the-bay. And if prices decline, they decline. Not everything gets to stay “up” permanently. There are limits and change is a given.

By the way, if you bought a house at an unrealistic price, I’m sorry. I’m also sorry that I probably did too (living in the nether-reaches just outside of tech-bubble-heaven-on-the-bay as I do). But we’ve all gone in knowing what’s going on.

• This mailer indicates to me that this current and ongoing real estate bubble is still a source of fleece-able “marks," people who need cash now and are willing to sell some part of the future for it. (See that comment thread on the moneymetagame page for LOTS of cases of that).

Some unknown number of people helped Unison make a lot of money last year. A quote from the San Francisco Business Times (https://www.bizjournals.com/sanfrancisco/news/2019/02/12/residential-real-estate-unison-san-francisco-rbc.html) indicates the degree of profit:

“The company said its year-over-year revenue grew 370 percent in 2018…”

In one round of stock offerings it apparently also raked in $40 million in investment funding (https://www.crunchbase.com/organization/unison-home-ownership-investors).

• In case it wasn’t apparent, this is yet more evidence that a fair portion of our economy is based simply on monetary movement and not on producing real things of value. This is a very serious problem that I’d be interested to talk about at some point.

• Another thing that made little alarm bells ring in my head is the fact that with this kind of endeavor, we could see corporations having a major stake in a large proportion of housing stock.

Flip that around a bit in your mind to see how it sounds, taking this into account (also from the bizjournal.com article):

“Unison’s other achievements in 2018 included adding nine more states to its footprint, bringing the total to 22 states and Washington, D.C. Together they represent more than 70 percent of the nation’s single-family housing market.”

(Not that Unison represents the 70%, but that those states where Unison wants to make inroads do.)
And then, just for fun, flip the idea around to see how it would sound if Unison were a governmental agency. Fascinating thought experiment, no?

All in all, this is definitely food for thought (and evidence of the utter strangeness that is economics).
Oh, and one thing that made me laugh? This, in the text: “San Francisco-based Unison is…” and all I could think was that bubbles straight from the bubble factory are not particularly confidence boosting.

*As an aside,the terminology says houses will “increase in value” but frankly, they’re just going up in price. If value is defined by how much something costs, then yes, they’re going up in value. If value is defined by what something provides, then no, my house will continue to be a house and unless we fit more people in, it’ll still be a house for just our family. (I know, I’m shouting into a tornado here by refusing to play the “increase in VALUUUE!!!” game. Whatever.)