5 ms·

Neither deflation nor inflation are a problem. Instead it is the speed at which they occur. Having prices move to their natural supply/demand equilibrium is a

by ruang 16y ago

Neither deflation nor inflation are a problem. Instead it is the speed at which they occur. Having prices move to their natural supply/demand equilibrium is a good thing. The problem is if they move too slowly. For example, if I believe a house is worth $100,000 instead of $200,000, I will wait until it reaches $100k before buying. Now whether this happens in 1 day or in 1 decade is the problem. If it happens in 1 day, everyone will start spending again in a matter of months, if not days. If it happens in 1 decade (aka Japan), then people will hold their money until price reaches the natural equilibrium. Thus, the US should stop trying to artificially prop up housing prices. It only delays the inevitable.

gte910h 16y ago
The US should allow bankruptcy judges to partially invalidate mortgages, gently reducing the value of homes. As it is now, foreclosures vs overvalued real homes means we have a hideous home buying landscape out there now.
- grandalf 16y ago
  What will happen to mortgage interest rates if the contract can be easily invalidated by a judge? That luxury (to the borrower) is not free, and will be borne by all other borrowers. Lenders resort to foreclosure b/c they realize that if they give an inch, they will absorb all of the losses. If you invest in something, even if you borrow money to do so, you typically agree to suffer the losses and to profit from the gains.
  - gte910h 16y ago
    Mortgage interest rates are at historic lows.... Even that being the case, that means markets in which risk is low, will have lower interest rates than in markets in which risk is high. So people buying in overheated markets will have another dampening effect on them (ie, interest rates go up when the market get's risky). >If you invest in something, even if you borrow money to do so, you typically agree to suffer the losses and to profit from the gains. Yes, like the people investing in mortgages. Remember, the people lending the money are making an investment. The people buying a house may just be buying a place to live. I actually see what will happen to interest rates with this change being a nice dampening effect on house price speculation, flipping and overheated property markets.
    - grandalf 16y ago
      What difference does it make if mortgage rates are at historic lows? Are you claiming that the low rates are evidence of low risk? Who buys a place to live? These days the main reason people buy houses is naked, ugly greed. Renting is more financially prudent, preserves mobility (in case one loses his/her job it's easy to move to a different city), and exposes the renter to no investment risk. Most people who buy do so b/c they deludedly think that prices always go up or because some sort of government tax incentive or rebate makes buying look cheaper than it is (and causes them to greedily ignore the risk they are undertaking) Since WW2 real estate prices 1% relative to inflation. Real estate is a remarkably poor investment but is lauded b/c of the social engineering notions of planners who think people will be more obedient and docile if they own property. Ask anyone buying today what he/she expect the real estate market to do... i.e. how much he/she thinks his/her new place will appreciate each year over the next 15 years. You'll find that they are greedily expecting 5-7% returns annually.
      - gte910h 16y ago
        >What difference does it make if mortgage rates are at historic lows? Are you claiming that the low rates are evidence of low risk? No, but interest rates would be tied to risk if principle adjustments were on the table in court proceedings That's why it's important they're currently at historic lows, as it would mean rates in risky areas would go up. As banks are better than random people at assessing risk, this would also push people towards safer investment. >Ask anyone buying today what he/she expect the real estate market to do... i.e. how much he/she thinks his/her new place will appreciate each year over the next 15 years. You'll find that they are greedily expecting 5-7% returns annually. As are the banks and those who buy mortgages. Everyone is taking risk, lenders and buyers, just they're not doing it in the most sensical way. You can't malign one party without hitting the other.

by ruang 16y ago

gte910h 16y ago

The US should allow bankruptcy judges to partially invalidate mortgages, gently reducing the value of homes. As it is now, foreclosures vs overvalued real homes means we have a hideous home buying landscape out there now.

grandalf 16y ago
What will happen to mortgage interest rates if the contract can be easily invalidated by a judge? That luxury (to the borrower) is not free, and will be borne by all other borrowers. Lenders resort to foreclosure b/c they realize that if they give an inch, they will absorb all of the losses. If you invest in something, even if you borrow money to do so, you typically agree to suffer the losses and to profit from the gains.
- gte910h 16y ago
  Mortgage interest rates are at historic lows.... Even that being the case, that means markets in which risk is low, will have lower interest rates than in markets in which risk is high. So people buying in overheated markets will have another dampening effect on them (ie, interest rates go up when the market get's risky). >If you invest in something, even if you borrow money to do so, you typically agree to suffer the losses and to profit from the gains. Yes, like the people investing in mortgages. Remember, the people lending the money are making an investment. The people buying a house may just be buying a place to live. I actually see what will happen to interest rates with this change being a nice dampening effect on house price speculation, flipping and overheated property markets.
  - grandalf 16y ago
    What difference does it make if mortgage rates are at historic lows? Are you claiming that the low rates are evidence of low risk? Who buys a place to live? These days the main reason people buy houses is naked, ugly greed. Renting is more financially prudent, preserves mobility (in case one loses his/her job it's easy to move to a different city), and exposes the renter to no investment risk. Most people who buy do so b/c they deludedly think that prices always go up or because some sort of government tax incentive or rebate makes buying look cheaper than it is (and causes them to greedily ignore the risk they are undertaking) Since WW2 real estate prices 1% relative to inflation. Real estate is a remarkably poor investment but is lauded b/c of the social engineering notions of planners who think people will be more obedient and docile if they own property. Ask anyone buying today what he/she expect the real estate market to do... i.e. how much he/she thinks his/her new place will appreciate each year over the next 15 years. You'll find that they are greedily expecting 5-7% returns annually.
    - gte910h 16y ago
      >What difference does it make if mortgage rates are at historic lows? Are you claiming that the low rates are evidence of low risk? No, but interest rates would be tied to risk if principle adjustments were on the table in court proceedings That's why it's important they're currently at historic lows, as it would mean rates in risky areas would go up. As banks are better than random people at assessing risk, this would also push people towards safer investment. >Ask anyone buying today what he/she expect the real estate market to do... i.e. how much he/she thinks his/her new place will appreciate each year over the next 15 years. You'll find that they are greedily expecting 5-7% returns annually. As are the banks and those who buy mortgages. Everyone is taking risk, lenders and buyers, just they're not doing it in the most sensical way. You can't malign one party without hitting the other.