6 ms·

> Rents are set by wages, prices by credit. NO. Prices are set by supply and demand. No one is being forced to take out a loan, and if they could buy a given h

by dlss 10y ago

> Rents are set by wages, prices by credit. NO. Prices are set by supply and demand. No one is being forced to take out a loan, and if they could buy a given home with a lower loan, they would. Hence the loan is only enabling demand. You could say the same thing about employment, or inheritance, or tax breaks. The only reason prices change is because supply or demand changes. You are basically saying that you'd like everyone to just accept their lot in life, and not compete with you for your current house. And in exchange you'll not compete with those in houses you'd prefer. And you're blaming the banks because they're helping those who don't agree that you deserve the hose more than they do. When supply is scarce, prices go up. The value of the good does not go up. What is that extra price doing? That's you bribing the owner of the good to sell to you, and not to some other guy. You're paying to make the price so high that the next guy in line would rather live somewhere else, share a room, or go homeless. > http://i.imgur.com/oWxV1po.jpg http://i.imgur.com/oWxV1po.jpg The image, though interesting looking, is missing context. What units is the Y-axis in, and why does the X-axis only go to (what I assume is) 2012? > People live in one home, whether we work 3 or 7 days. People aren't born with homes. If you lost yours, someone would move in. Where do you think this other person is currently living? Why do you deserve your home more than they do? How should homes be allocated if not by whoever is willing and able to pay the most? Who will make new homes in this new system of yours? (an especially worrying problem since I think you suggested all the construction workers only need to work 3 days per week, and housing is already scarce)

candiodari 10y ago
> Hence the loan is only enabling demand. > The only reason prices change is because supply or demand changes. We are living in year 16 of the era of government pushing loan prices lower than the market would set them. 8th year since they've been pushing the loan pricing down VERY hard (ie. essentially to the zero bound, where you're only paying for the (also artificially lowered) risk of the banks, admin (ie. people employed to check payment and tax and ...) and a small profit margin for the banks). While of course it is not really known how high the market would set loan prices, it seems the long term average is 4%. Since we've been below that for a while, let's call it 6%. Add the 3%-4% of risk, admin, tax and bank profit and mortgage rates should be somewhere between 8% and 10%, if you have really good credit. What would house prices be with 9% interest rates instead of 3% ? That's quite normal a rate for mortgages, long term. My back of the envelope calculation says that they'd be, with the same monthly payment, a bit more than double what they should be, in market prices. Prices should be 60% less, or put it another way houses are 120% overvalued. At a very optimistic 7% (the long term average), house prices would be about 45% less, or they're 75% overvalued. (example calculation: with 3% mortgage payment, a 4000$ monthly payment will get you 1.12 million dollars, at 9% it will get you 0.52 million dollars, or a little less than half. At 7% it will get you 0.8 million dollars, or 45% less) Hence I strongly disagree with your notion that house prices are determined by supply and demand. House princes are as high as the government can get them, and damn the consequences.
- dlss 10y ago
  I mean, in some sense you're right. The literal USD figure is determined that way. However, if you doubled the number of dollars in circulation, and so "doubled the cost" of every home... you've also changed nothing in terms of real cost to consumers. As you say, they're still working just as many hours on the job, still giving the same percentage of their labor to the lender, and they still end up with a house at the end of ~xx years. If the banks weren't giving the same risk adjusted rates to everyone, you can at least make the argument now that you've got two consumers (the bank is essentially donating money for the purchase to the buyer). But I don't see where that gets us here.
  - branchless 10y ago
    Nope. They change lending from 3 times primary income to way over 3 times household income. People are literally working longer for the same pile of bricks. The cost of carry remains associated with wages just as rent does because we have to pay more, however as the cost of other items falls (due to efficiency / progress) the bankers hoover up the rest. http://imgur.com/XS99m5v.jpg http://imgur.com/XS99m5v.jpg We work longer, we work harder, and the bankers kick back.
    - dlss 10y ago
      Banks don't get to decide what people will pay, people get to decide what people pay. People make this decision in terms of real cost, not in terms of USD (since real cost determines their access to USD). People are not making that decision because the banks are putting a gun to people's heads and forcing them to pay more. This is a separate point from real estate costs increasing historically -- that is caused by supply and demand. People are (as your graph nicely shows) choosing not to move as more people enter a given area, driving up the cost of real estate. This is to say that their demand is inelastic. Unless you are suggesting banking as an industry is engaged in trust like behavior, they're not able to set the terms of rates in a way that will change their risk-free profit from a given individual at a given market price. If the price rises due to a supply and demand imbalance, they may be able to charge more to offset the increased risk of the purchase they are financing.

by dlss 10y ago

candiodari 10y ago

> Hence the loan is only enabling demand. > The only reason prices change is because supply or demand changes. We are living in year 16 of the era of government pushing loan prices lower than the market would set them. 8th year since they've been pushing the loan pricing down VERY hard (ie. essentially to the zero bound, where you're only paying for the (also artificially lowered) risk of the banks, admin (ie. people employed to check payment and tax and ...) and a small profit margin for the banks). While of course it is not really known how high the market would set loan prices, it seems the long term average is 4%. Since we've been below that for a while, let's call it 6%. Add the 3%-4% of risk, admin, tax and bank profit and mortgage rates should be somewhere between 8% and 10%, if you have really good credit. What would house prices be with 9% interest rates instead of 3% ? That's quite normal a rate for mortgages, long term. My back of the envelope calculation says that they'd be, with the same monthly payment, a bit more than double what they should be, in market prices. Prices should be 60% less, or put it another way houses are 120% overvalued. At a very optimistic 7% (the long term average), house prices would be about 45% less, or they're 75% overvalued. (example calculation: with 3% mortgage payment, a 4000$ monthly payment will get you 1.12 million dollars, at 9% it will get you 0.52 million dollars, or a little less than half. At 7% it will get you 0.8 million dollars, or 45% less) Hence I strongly disagree with your notion that house prices are determined by supply and demand. House princes are as high as the government can get them, and damn the consequences.

dlss 10y ago
I mean, in some sense you're right. The literal USD figure is determined that way. However, if you doubled the number of dollars in circulation, and so "doubled the cost" of every home... you've also changed nothing in terms of real cost to consumers. As you say, they're still working just as many hours on the job, still giving the same percentage of their labor to the lender, and they still end up with a house at the end of ~xx years. If the banks weren't giving the same risk adjusted rates to everyone, you can at least make the argument now that you've got two consumers (the bank is essentially donating money for the purchase to the buyer). But I don't see where that gets us here.
- branchless 10y ago
  Nope. They change lending from 3 times primary income to way over 3 times household income. People are literally working longer for the same pile of bricks. The cost of carry remains associated with wages just as rent does because we have to pay more, however as the cost of other items falls (due to efficiency / progress) the bankers hoover up the rest. http://imgur.com/XS99m5v.jpg http://imgur.com/XS99m5v.jpg We work longer, we work harder, and the bankers kick back.
  - dlss 10y ago
    Banks don't get to decide what people will pay, people get to decide what people pay. People make this decision in terms of real cost, not in terms of USD (since real cost determines their access to USD). People are not making that decision because the banks are putting a gun to people's heads and forcing them to pay more. This is a separate point from real estate costs increasing historically -- that is caused by supply and demand. People are (as your graph nicely shows) choosing not to move as more people enter a given area, driving up the cost of real estate. This is to say that their demand is inelastic. Unless you are suggesting banking as an industry is engaged in trust like behavior, they're not able to set the terms of rates in a way that will change their risk-free profit from a given individual at a given market price. If the price rises due to a supply and demand imbalance, they may be able to charge more to offset the increased risk of the purchase they are financing.