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What influences the willingness of a lender? Availability of money in the general lending environment, sure, but surely there's a risk component there. The lo

What influences the willingness of a lender? Availability of money in the general lending environment, sure, but surely there's a risk component there. The low interest rates can only persist as long as a lender has a reasonable expectation that they'll be paid back (e.g. that rents remain high enough to sustain the mortgage over the term). The real world factors like 'how desirable a place is'/'are good jobs there' and so forth seem to be further back in the causation chain to me. This is probably why we see the sort of "non-linear growth" that we do. An environment with stable, increasing rents due to increased demand _directly_ increases the price of housing linearly, and then on top of that it's a less risky market as a result so you end up with lower interest rates which drive it even further. A mortgage at 3% is basically a risk-free rate. Lenders are saying "you can't lose by buying here so go wild".

bradleyjg 8y ago
The lender on a very percentage of loans made in the United States since 2008 is directly or indirectly the federal government. The federal government is not constrained by the reasonable expectation of being paid back or market discipline.
Spooky23 8y ago
A: Closing the deal. The only exposure your bank has in terms of losing money is losing the costs associated with starting up the loan when you apply — there is a strong incentive to approve. The government owns the risk on performance. This was a policy choice, because banks making subjective decisions usually looked a lot like redlining. Nobody would write a loan on a luxury condo in a rehabbed factory in the inner city because it’s a measurably higher risk. Bad schools, high crime, pollution, and risk of the condo board doing dumb things makes that a risk for the bank.
- commaone 8y ago
  I think it's also worth mentioning that these local banks are still bundling and selling mortgages as securities,therefore removing the risk of long term price and payment instability. I find it odd that no one has even mentioned this, given we have just been through the largest financial crisis in generations because of it.

bradleyjg 8y ago

The lender on a very percentage of loans made in the United States since 2008 is directly or indirectly the federal government. The federal government is not constrained by the reasonable expectation of being paid back or market discipline.

Spooky23 8y ago

A: Closing the deal. The only exposure your bank has in terms of losing money is losing the costs associated with starting up the loan when you apply — there is a strong incentive to approve. The government owns the risk on performance. This was a policy choice, because banks making subjective decisions usually looked a lot like redlining. Nobody would write a loan on a luxury condo in a rehabbed factory in the inner city because it’s a measurably higher risk. Bad schools, high crime, pollution, and risk of the condo board doing dumb things makes that a risk for the bank.

commaone 8y ago
I think it's also worth mentioning that these local banks are still bundling and selling mortgages as securities,therefore removing the risk of long term price and payment instability. I find it odd that no one has even mentioned this, given we have just been through the largest financial crisis in generations because of it.