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When I factor in taxes, I'd prefer a 150K home with 20% interest rates. Making 200K and 1.5 million houses (with me paying a 50% marginal tax rate), I feel life

by tostitos1979 11y ago

When I factor in taxes, I'd prefer a 150K home with 20% interest rates. Making 200K and 1.5 million houses (with me paying a 50% marginal tax rate), I feel life is impossible.

gozur88 11y ago
Which would you rather be selling after 30 years - a $1.5m house, or a $150k house? Also, house prices do not necessarily go down when interest rates go up. If interest rates are rising because of inflation people rush into the housing market looking for an asset that will hold its value. You may end up with the worst of both worlds - $1.5m houses (in constant dollars) and 12% interest rates. Just because all you can afford is a $150k house doesn't mean one will be available at that price.
- tostitos1979 11y ago
  Canada has another weirdness, which is most mortgages are 5 years (amortized over 25 years). I agree with your argument that housing may not fall precipitously when interest rates rise. I am REALLY worried what will happen to us in 5 years when we have to refinance the home loan. I guess if things get bad, we'll just have to sell the house (assuming that prices didn't fall). The whole thing makes me feel uneasy.
  - iofj 11y ago
    That's not the worst of it. Currently interest rates do not cover the risk of non-payment. If you calculate out, at the standard default rate, plus risk-free interest rates, plus a certain amount to do all the admin work on a mortgage. It just doesn't make sense for the banks to do mortgages at the moment. They're losing money on it. A little bit at the moment, but if the default rate were to go up by even 1%, God help us. Banks would be dropping like flies. That's of course what bubbles do : they make the system more unstable. But that's what everybody's denying as well, despite the fact that a trivial excel sheet will tell you the obvious. A tiny problem will crash the system at the moment. Especially in Europe.
    - tostitos1979 11y ago
      In Canada, we have something called "CHMC". Basically, the govt will insure mortgages. The banks have little risk IMHO ... majority of the risk is assumed by the taxpayer and the borrower.
      - ZoeZoeBee 11y ago
        The US basically did the same when it took over Fannie and Freddie in 2008, it's not something which is spoke of often in the US but for all intents and purposes the US govt and Federal Reserve own most of the mortgages in the US. The US nationalized Fannie and Freddie, under the false premise they would be re-privatized after paying back the government. Instead they paid back the government in full years ago and now the interest from mortgage payments goes right to the treasury. They also for all intents and purposes Nationalized Student Loans with Obamacare and the "Health Care and Education Reconciliation Act of 2010" https://en.wikipedia.org/wiki/Health_Care_and_Education_Reconciliation_Act_of_2010 https://en.wikipedia.org/wiki/Health_Care_and_Education_Reco..., where by all of the Interest Rates made off of student loans helps pay for Obamacare. As it stands the US Treasury is profiting to the tune of over $100 Billion a year, though its hardly mentioned, I'd venture to bet 90% of the general population is completely unaware. http://www.wsj.com/articles/fannie-and-freddie-forever-1451520683 http://www.wsj.com/articles/fannie-and-freddie-forever-14515...
        iofj 11y ago
        But all that is even worse. It doesn't help for the fundamental problem : mortgages are losing money slowly and (I just checked) corporate loans and bonds are losing money a bit faster. If the government owns those loans, once their losses accelerate ... well ... we know how they "fixed" that problem for student loans. http://www.forbes.com/sites/stephendash/2015/10/25/why-student-loans-are-so-difficult-to-discharge-in-bankruptcy/#779b10f11430 http://www.forbes.com/sites/stephendash/2015/10/25/why-stude... http://www.bankrate.com/finance/student-loans/student-loan-horror-stories-1.aspx http://www.bankrate.com/finance/student-loans/student-loan-h...

When I factor in taxes, I'd prefer a 150K home with 20% interest rates. Making 200K and 1.5 million houses (with me paying a 50% marginal tax rate), I feel life is impossible.

gozur88 11y ago

Which would you rather be selling after 30 years - a $1.5m house, or a $150k house? Also, house prices do not necessarily go down when interest rates go up. If interest rates are rising because of inflation people rush into the housing market looking for an asset that will hold its value. You may end up with the worst of both worlds - $1.5m houses (in constant dollars) and 12% interest rates. Just because all you can afford is a $150k house doesn't mean one will be available at that price.

tostitos1979 11y ago
Canada has another weirdness, which is most mortgages are 5 years (amortized over 25 years). I agree with your argument that housing may not fall precipitously when interest rates rise. I am REALLY worried what will happen to us in 5 years when we have to refinance the home loan. I guess if things get bad, we'll just have to sell the house (assuming that prices didn't fall). The whole thing makes me feel uneasy.
- iofj 11y ago
  That's not the worst of it. Currently interest rates do not cover the risk of non-payment. If you calculate out, at the standard default rate, plus risk-free interest rates, plus a certain amount to do all the admin work on a mortgage. It just doesn't make sense for the banks to do mortgages at the moment. They're losing money on it. A little bit at the moment, but if the default rate were to go up by even 1%, God help us. Banks would be dropping like flies. That's of course what bubbles do : they make the system more unstable. But that's what everybody's denying as well, despite the fact that a trivial excel sheet will tell you the obvious. A tiny problem will crash the system at the moment. Especially in Europe.
  - tostitos1979 11y ago
    In Canada, we have something called "CHMC". Basically, the govt will insure mortgages. The banks have little risk IMHO ... majority of the risk is assumed by the taxpayer and the borrower.
    - ZoeZoeBee 11y ago
      The US basically did the same when it took over Fannie and Freddie in 2008, it's not something which is spoke of often in the US but for all intents and purposes the US govt and Federal Reserve own most of the mortgages in the US. The US nationalized Fannie and Freddie, under the false premise they would be re-privatized after paying back the government. Instead they paid back the government in full years ago and now the interest from mortgage payments goes right to the treasury. They also for all intents and purposes Nationalized Student Loans with Obamacare and the "Health Care and Education Reconciliation Act of 2010" https://en.wikipedia.org/wiki/Health_Care_and_Education_Reconciliation_Act_of_2010 https://en.wikipedia.org/wiki/Health_Care_and_Education_Reco..., where by all of the Interest Rates made off of student loans helps pay for Obamacare. As it stands the US Treasury is profiting to the tune of over $100 Billion a year, though its hardly mentioned, I'd venture to bet 90% of the general population is completely unaware. http://www.wsj.com/articles/fannie-and-freddie-forever-1451520683 http://www.wsj.com/articles/fannie-and-freddie-forever-14515...
      - iofj 11y ago
        But all that is even worse. It doesn't help for the fundamental problem : mortgages are losing money slowly and (I just checked) corporate loans and bonds are losing money a bit faster. If the government owns those loans, once their losses accelerate ... well ... we know how they "fixed" that problem for student loans. http://www.forbes.com/sites/stephendash/2015/10/25/why-student-loans-are-so-difficult-to-discharge-in-bankruptcy/#779b10f11430 http://www.forbes.com/sites/stephendash/2015/10/25/why-stude... http://www.bankrate.com/finance/student-loans/student-loan-horror-stories-1.aspx http://www.bankrate.com/finance/student-loans/student-loan-h...