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Ugh! Absolutely. The 30 year mortgage as a product was born out of the Great Depression. Back then, home ownership was the main path to wealth, but there was no

Ugh! Absolutely. The 30 year mortgage as a product was born out of the Great Depression. Back then, home ownership was the main path to wealth, but there was no liquidity in the housing market and bullet loans were reamortized every 5 years, which worked, until capital markets froze and there were no loans available. At that point, people foreclosed because there were no mortgage choices at their term end. The 30 year mortgage was a direct response to that. A 30 year mortgage guarantees that you can get a loan at an affordable rate and not have to be exposed to market liquidity for mortgage re-issuance. In that sense, the 30 year fixed has allowed normal people to build wealth that they otherwise wouldn't have been able to!

graeme 8y ago
Why do you say homeowning was the path to wealth?
- toomuchtodo 8y ago
  Guaranteed appreciation of an asset you have to acquire (for shelter) along with forced savings (principal component of monthly payments).
  - jackvalentine 8y ago
    Guaranteed appreciation?
    - toomuchtodo 8y ago
      Probably a bit strong of a word, but speaking broadly it’s rare when real estate retreats in value. I say this as someone who walked away from an underwater property after the 2008 GFC. Yes, property sometimes loses value in black swan events or in specific regions, but on average at the macro level it keeps up with inflation.
      - taf2 8y ago
        Population is growing and the earth is still the same size. The number places you can build a new home is shrinking and more people want a home - so prices will tend to go up. So it’s usually a safe bet to say home prices will only go up.
        closeparen 8y ago
        Until buyers have no other spending or saving left to cut.
        iambateman 8y ago
        Multiply this principle by the “attraction to city amenities” and the “acceptable travel time”. The number of places to build a new home proximate to food and leisure is limited and creates this effect near cities. Drive into the country, and there are plenty of remaining 0.1 acre plots available for cheap. If self-driving cars substantially affect the cost of transportation time, we could see another epic flight further and further from cities, which would hold housing prices down for a long time.
      - wolco 8y ago
        In places with a raising population ideally with raising wealth
  - rictic 8y ago
    AIUI, investing in the stock market has a higher expected return with similar risk over a 30 year period. Owning a home is putting a large portion of your net worth into a single asset. From an investment perspective, that goes against the central principle of portfolio management: diversified risk.
    - toomuchtodo 8y ago
      Everyone needs a place to live, and most people aren’t going to move frequently enough where renting would be a superior option (excluding specific outlier markets like SF and parts of NYC). The mortgage interest deduction isn’t terribly generous, but property taxes usually provide for an exemption if you’re an owner versus renting. We subsidize home ownership heavily in the US. I’m not arguing you should treat your home as an investment primarily, but if you own or plan to, recognize it for what it is, another asset in your portfolio. Also, I have a comment in this thread where I point out that future market returns are expected to be on par with your mortgage rate; paying your mortgage down would be a better return than investing if those predictions hold true.
- JumpCrisscross 8y ago
  > Why do you say homeowning was the path to wealth? Americans are terrible savers. Mortgages force people to save. And while houses aren’t a great savings vehicle, they do—on average, in industrialised societies—appreciate alongside inflation [1]. Buying a house won’t make one wealthy. But it will force good habits that tend to make one wealthier. [1] https://www.amazon.com/Safe-Houses-Historical-Analysis-Property/dp/1907994017 https://www.amazon.com/Safe-Houses-Historical-Analysis-Prope...
njarboe 8y ago
This was before the home equity loan and rocket mortgage refi's. Now days, if you don't have spending discipline, owning a house does not make saving easier or a path to wealth. You can set up a line of credit against your home equity and spend it as easy as writing a check or doing a bank transfer. Many companies are advertising to you that this is a great idea. Most of the people I know in the Bay Area who have bought homes in the last 20 years have spent most of the huge amount of appreciation that has happened to their homes.

graeme 8y ago

Why do you say homeowning was the path to wealth?

toomuchtodo 8y ago
Guaranteed appreciation of an asset you have to acquire (for shelter) along with forced savings (principal component of monthly payments).
- jackvalentine 8y ago
  Guaranteed appreciation?
  - toomuchtodo 8y ago
    Probably a bit strong of a word, but speaking broadly it’s rare when real estate retreats in value. I say this as someone who walked away from an underwater property after the 2008 GFC. Yes, property sometimes loses value in black swan events or in specific regions, but on average at the macro level it keeps up with inflation.
    - taf2 8y ago
      Population is growing and the earth is still the same size. The number places you can build a new home is shrinking and more people want a home - so prices will tend to go up. So it’s usually a safe bet to say home prices will only go up.
      - closeparen 8y ago
        Until buyers have no other spending or saving left to cut.
      - iambateman 8y ago
        Multiply this principle by the “attraction to city amenities” and the “acceptable travel time”. The number of places to build a new home proximate to food and leisure is limited and creates this effect near cities. Drive into the country, and there are plenty of remaining 0.1 acre plots available for cheap. If self-driving cars substantially affect the cost of transportation time, we could see another epic flight further and further from cities, which would hold housing prices down for a long time.
    - wolco 8y ago
      In places with a raising population ideally with raising wealth
- rictic 8y ago
  AIUI, investing in the stock market has a higher expected return with similar risk over a 30 year period. Owning a home is putting a large portion of your net worth into a single asset. From an investment perspective, that goes against the central principle of portfolio management: diversified risk.
  - toomuchtodo 8y ago
    Everyone needs a place to live, and most people aren’t going to move frequently enough where renting would be a superior option (excluding specific outlier markets like SF and parts of NYC). The mortgage interest deduction isn’t terribly generous, but property taxes usually provide for an exemption if you’re an owner versus renting. We subsidize home ownership heavily in the US. I’m not arguing you should treat your home as an investment primarily, but if you own or plan to, recognize it for what it is, another asset in your portfolio. Also, I have a comment in this thread where I point out that future market returns are expected to be on par with your mortgage rate; paying your mortgage down would be a better return than investing if those predictions hold true.
JumpCrisscross 8y ago
> Why do you say homeowning was the path to wealth? Americans are terrible savers. Mortgages force people to save. And while houses aren’t a great savings vehicle, they do—on average, in industrialised societies—appreciate alongside inflation [1]. Buying a house won’t make one wealthy. But it will force good habits that tend to make one wealthier. [1] https://www.amazon.com/Safe-Houses-Historical-Analysis-Property/dp/1907994017 https://www.amazon.com/Safe-Houses-Historical-Analysis-Prope...

njarboe 8y ago

This was before the home equity loan and rocket mortgage refi's. Now days, if you don't have spending discipline, owning a house does not make saving easier or a path to wealth. You can set up a line of credit against your home equity and spend it as easy as writing a check or doing a bank transfer. Many companies are advertising to you that this is a great idea. Most of the people I know in the Bay Area who have bought homes in the last 20 years have spent most of the huge amount of appreciation that has happened to their homes.