4 ms·

100 year mortgages? Why is this? Because prices are too high for average folks to purchase otherwise, or because people prefer "owning" (renting from a bank) in

100 year mortgages? Why is this? Because prices are too high for average folks to purchase otherwise, or because people prefer "owning" (renting from a bank) instead of renting from a landlord?

alkonaut 9y ago
> Because prices are too high for average folks to purchase otherwise Yes. In a sell to the highest bidder, you aren't going to win with the amount you can borrow over 30 years, if the people bidding against you borrow on 50 or 100 years. Simple as that. So without any caps, people will request long mortgages simply to be able to win these auctions. Should be noted that this is now developing backwars again, and "peak insanity" was early 2000's. What we are seeing now is to a large extent the effect of common sense on the prices. The attempts to stop the insanity over the last 5-10 years (e.g. down payments went from 5, to 10, to 15 to 20 % etc) unfortunately coincided with negative interest rates, meaning people could still push prices up. Now we are finally seeing the effect. > or because people prefer "owning" (renting from a bank) instead of renting from a landlord? Yes, there is effectively zero renting of 1-family homes. If you rent, it's a flat. And there are very few flats to rent. A LOT of the people having to buy these expensive homes would rather rent, but there is nothing to rent.
- charlesdm 9y ago
  Makes sense. So, if you don't mind me asking, how much are people paying for an average home? How much is an average salary?
  - alkonaut 9y ago
    Varies, of course. Average house is basically $100 to $350k but the average in Stockholm is probably around $1M depending on what areas you count. Not sure what the average salary is, but loan caps now are ~5 times the household (gross) salary. which sets the equation somewhat. So a couple buying a stockholm home at $1M today (which isnt an uncommon price) would be borrowing say 75-80% of that, so making at least $1Mx0.8/5 as a couple or $1Mx0.8/5/2 each, or $80k/year. That's a good salary, but more commonly this couple would be selling something they made a nice profit on, and borrow less, lowering the income requirement. This equation could be cut in 2 for a more average (4MSEK house, not 8MSEK) city or cut in 3 for more rural areas. Salaries fall off slower than house prices do, so rural areas spend less on housing than city dwellers.
    - charlesdm 9y ago
      I'm assuming that $80k/year is gross? Given Sweden has high income taxes, borrowing say $800k on a $40k net salary (for a house!) seems like extremely bad financial management. Which sane person who is good with money does that? That sets you up for a life of misery (and not unrealistically, an underwater house during your lifetime).
      - alkonaut 9y ago
        Yes gross. $80k gross is around $53k net (depends on where you live but roughly). Now, remember that reason we are in this mess is because interest rates are so low. We still have pretty low living costs. Our $1M house at 80% is pretty cheap, due to low interest rates. Now, everyone knows interest rates can and will be higher in the future, but people have to buy on the current market regardless (And everyone seems to accept to have less spending money when interest rates double or triple). The calculation now for our couple with $100k household net income isn't all that bad. The monthly "rent" for the house is between $2k and $3k of which $1.2k is down payment ($24k-36k year). Double the interest rates from 2% to 4% and it's $3k to $4k/month. I think spending over 50% your net income on living costs is proabably a limit to look out for - and that will certainly happen to these people should interest rates go north of 5% or there about. We also need to remember that in Sweden people generally don't save up for a rainy day. I'm not saving for retirement, kids edication, risk of being ill etc. So in a nanny state the equation is slightly different than in say the US. > Which sane person who is good with money does that? It doesn't matter so long as it is at least one person in the auction for each house does it. If there are no homes to rent and nothing is built, there will be competition for the existing homes on the market. > not unrealistically, an underwater house during your lifetime This is definitely a risk. And banks are now lending less and less. With a 25% down payment the bank will know the hose can take a 25% correction and still be over water. But the scary bit is of course that if there is a 20% correction, no one can move, and no one will consume anything for a very long time, which will lead to pretty significant economic fallout.
        xbzbanna 9y ago
        You're talking about these interest rates as though they can just move around - are these adjustable-rate mortgages? In the US, the standard mortgage has a fixed rate. So people with those mortgages would benefit from increased interest rates and/or inflation in the wider economy.
rayiner 9y ago
Seems like renting from instead of renting from a landlord is a good way to get around rent controls.
fulafel 9y ago
In most places it's rational[1] to max out the loan. It's the cheapest kind of financing you can get privately, it makes more sense to put your money in other vehicles than mortgage payments. Of course you may think there's intrinsic value in being mortgage free. [1] in the econ/ferengi "maximize profit" meaning

100 year mortgages? Why is this? Because prices are too high for average folks to purchase otherwise, or because people prefer "owning" (renting from a bank) instead of renting from a landlord?

alkonaut 9y ago

> Because prices are too high for average folks to purchase otherwise Yes. In a sell to the highest bidder, you aren't going to win with the amount you can borrow over 30 years, if the people bidding against you borrow on 50 or 100 years. Simple as that. So without any caps, people will request long mortgages simply to be able to win these auctions. Should be noted that this is now developing backwars again, and "peak insanity" was early 2000's. What we are seeing now is to a large extent the effect of common sense on the prices. The attempts to stop the insanity over the last 5-10 years (e.g. down payments went from 5, to 10, to 15 to 20 % etc) unfortunately coincided with negative interest rates, meaning people could still push prices up. Now we are finally seeing the effect. > or because people prefer "owning" (renting from a bank) instead of renting from a landlord? Yes, there is effectively zero renting of 1-family homes. If you rent, it's a flat. And there are very few flats to rent. A LOT of the people having to buy these expensive homes would rather rent, but there is nothing to rent.

charlesdm 9y ago
Makes sense. So, if you don't mind me asking, how much are people paying for an average home? How much is an average salary?
- alkonaut 9y ago
  Varies, of course. Average house is basically $100 to $350k but the average in Stockholm is probably around $1M depending on what areas you count. Not sure what the average salary is, but loan caps now are ~5 times the household (gross) salary. which sets the equation somewhat. So a couple buying a stockholm home at $1M today (which isnt an uncommon price) would be borrowing say 75-80% of that, so making at least $1Mx0.8/5 as a couple or $1Mx0.8/5/2 each, or $80k/year. That's a good salary, but more commonly this couple would be selling something they made a nice profit on, and borrow less, lowering the income requirement. This equation could be cut in 2 for a more average (4MSEK house, not 8MSEK) city or cut in 3 for more rural areas. Salaries fall off slower than house prices do, so rural areas spend less on housing than city dwellers.
  - charlesdm 9y ago
    I'm assuming that $80k/year is gross? Given Sweden has high income taxes, borrowing say $800k on a $40k net salary (for a house!) seems like extremely bad financial management. Which sane person who is good with money does that? That sets you up for a life of misery (and not unrealistically, an underwater house during your lifetime).
    - alkonaut 9y ago
      Yes gross. $80k gross is around $53k net (depends on where you live but roughly). Now, remember that reason we are in this mess is because interest rates are so low. We still have pretty low living costs. Our $1M house at 80% is pretty cheap, due to low interest rates. Now, everyone knows interest rates can and will be higher in the future, but people have to buy on the current market regardless (And everyone seems to accept to have less spending money when interest rates double or triple). The calculation now for our couple with $100k household net income isn't all that bad. The monthly "rent" for the house is between $2k and $3k of which $1.2k is down payment ($24k-36k year). Double the interest rates from 2% to 4% and it's $3k to $4k/month. I think spending over 50% your net income on living costs is proabably a limit to look out for - and that will certainly happen to these people should interest rates go north of 5% or there about. We also need to remember that in Sweden people generally don't save up for a rainy day. I'm not saving for retirement, kids edication, risk of being ill etc. So in a nanny state the equation is slightly different than in say the US. > Which sane person who is good with money does that? It doesn't matter so long as it is at least one person in the auction for each house does it. If there are no homes to rent and nothing is built, there will be competition for the existing homes on the market. > not unrealistically, an underwater house during your lifetime This is definitely a risk. And banks are now lending less and less. With a 25% down payment the bank will know the hose can take a 25% correction and still be over water. But the scary bit is of course that if there is a 20% correction, no one can move, and no one will consume anything for a very long time, which will lead to pretty significant economic fallout.
      - xbzbanna 9y ago
        You're talking about these interest rates as though they can just move around - are these adjustable-rate mortgages? In the US, the standard mortgage has a fixed rate. So people with those mortgages would benefit from increased interest rates and/or inflation in the wider economy.

rayiner 9y ago

Seems like renting from instead of renting from a landlord is a good way to get around rent controls.

fulafel 9y ago

In most places it's rational[1] to max out the loan. It's the cheapest kind of financing you can get privately, it makes more sense to put your money in other vehicles than mortgage payments. Of course you may think there's intrinsic value in being mortgage free. [1] in the econ/ferengi "maximize profit" meaning