5 ms·

It's difficult to accurately predict something that has never happened. Prime ARM delinquencies shot up to 10% in 2008 and eventually to nearly 20%. Subprime AR

by bko 7y ago

It's difficult to accurately predict something that has never happened. Prime ARM delinquencies shot up to 10% in 2008 and eventually to nearly 20%. Subprime ARMs shot up to over 40% at their peak. Prior to that subprime ARMS delinquencies peaked at just over 10% at their worse. The borrowers were different so there was really no precedent, but just a cursory review of historical data would make what we experienced highly unlikely. [0] https://en.wikipedia.org/wiki/Subprime_mortgage_crisis#/media/File:Mortgage_delinquencies_by_loan_type_-_1998-2010.GIF https://en.wikipedia.org/wiki/Subprime_mortgage_crisis#/medi...

statusquoantefa 7y ago
well, it's difficult to predict on the one hand. on the other hand, it is easy to predict that: when the average joe holds "home ownership" up as the sterling example of "making it"; then the average politician will determine that the best way to make voters happy is to increase home ownership by lowering barriers, and exempting home ownership from risk, taxes, estates, bankruptcy, medical expenses, etc. all in the name of "obvious" fairness; then [it's easy to predict that]: mortgages and mortgage backed institutions will become unsound. TL;DR a crisis like this is going to happen again, and it happened before, see previous "savings and loan" crisis. bonus lesson in finance/accounting: if the problem is framed and worded properly, it's easy to see that money paid for rent is not actually "wasted money down the drain", and that it is a fallacy that it is better to put the money toward a mortgage. Let's say out of college you live in your old room at mom's while you save money to get your own place. Your job turns out well and you're making good money, but instead of renting your own apt, you stay at mom's to save for a down payment on a first house. You save up, and you buy a place. OK so far? Now owning your own place, do you move into it? Well, think about it, you could stay at mom's and rent this new place you own out to somebody else and let them "waste the rent" while you collect all this fingerquotes "free money". Id est, i.e., if you move into your new place, you are essentially depriving yourself of the rent that you are entitled to earn from it; you effectively pay rent to live in your owned home. You are the one "wasting the rent money". And the extra details actually work against you: mortgage interest expense is tax deductible, right? Well, if you rent the place out, ALL expenses are tax deductible, that's more deductions than if you live in a place. As an additional point, is rent "such a waste of money to the tenant" that wealthy people (let's use Bill Gates as an example) buy lots and lots of houses and apartments to rent out to the rental suckers? no, they don't. TL;DR purely financially, owning is not better than renting; rent is not wasted money, at least not more than the fingerquotes rent you spend when you live in your own place.
- gizmo686 7y ago
  Renting has a lot of overhead. You are not only paying the landlord's profit (~100/month excluding equity is the figure I hear thrown around), you are also paying for the time your unit is vacant, and for some of the costs assosiated with bad tenents. Put another way, as a landlord you are the best tenent you will ever have.
- pjc50 7y ago
  The one case where ownership has really shone over the past decades is that it's the only form of leveraged investment that's readily available to the public. In many places an "average" house has "earned" more in appreciation than an average salary every year.
  - tathougies 7y ago
    Thats often due to ridiculous accredited investor laws designed to make sure the rate of return on capital is greater for the rich than the poor, who are only given government approved and thus lower returning options.
    - pjc50 7y ago
      Those are designed to prevent people from getting scammed, after numerous incidents. Because the absolute best "mark" is someone who thinks he's a sophisticated investor because he's watched some videos on youtube. People like to cite "higher returns" but only after conveniently ignoring all the ones that didn't pan out. Also, leverage: if you're borrowing money to make an unsecured investment in a scheme, disaster awaits.
      - tathougies 7y ago
        > People like to cite "higher returns" but only after conveniently ignoring all the ones that didn't pan out. The United States allows 'microfinancing' via kickstarter, where poor people are allowed to give money to new ventures without any expectation of return on the given capital. Meanwhile, the rich get the opportunity to invest for actual returns on capital. Do you think an accredited investor is going to give money on kickstarter when they could offer cash as an investment? So why is giving money allowed, but spending the same money on acquiring shares not? The answer that 'some people got scammed' does not excuse the fact that people are still allowed to spend the same money today, without consumer protections, while not receiving any benefit. In other words, we have created yet another way to privatize the benefits of new ventures (by only allowing rich people to profit off of them) while socializing the costs (the people asked to contribute to new ventures without any ownership interests via microfinancing platforms). The response that this is for consumer protection is crap, and anyone not blinded by legal confirmation bias can see that Maximal investment limits based on income are perhaps appropriate, but wholesale banning is morally reprehensible, and a direct contributor to income inequality.

by bko 7y ago

statusquoantefa 7y ago

well, it's difficult to predict on the one hand. on the other hand, it is easy to predict that: when the average joe holds "home ownership" up as the sterling example of "making it"; then the average politician will determine that the best way to make voters happy is to increase home ownership by lowering barriers, and exempting home ownership from risk, taxes, estates, bankruptcy, medical expenses, etc. all in the name of "obvious" fairness; then [it's easy to predict that]: mortgages and mortgage backed institutions will become unsound. TL;DR a crisis like this is going to happen again, and it happened before, see previous "savings and loan" crisis. bonus lesson in finance/accounting: if the problem is framed and worded properly, it's easy to see that money paid for rent is not actually "wasted money down the drain", and that it is a fallacy that it is better to put the money toward a mortgage. Let's say out of college you live in your old room at mom's while you save money to get your own place. Your job turns out well and you're making good money, but instead of renting your own apt, you stay at mom's to save for a down payment on a first house. You save up, and you buy a place. OK so far? Now owning your own place, do you move into it? Well, think about it, you could stay at mom's and rent this new place you own out to somebody else and let them "waste the rent" while you collect all this fingerquotes "free money". Id est, i.e., if you move into your new place, you are essentially depriving yourself of the rent that you are entitled to earn from it; you effectively pay rent to live in your owned home. You are the one "wasting the rent money". And the extra details actually work against you: mortgage interest expense is tax deductible, right? Well, if you rent the place out, ALL expenses are tax deductible, that's more deductions than if you live in a place. As an additional point, is rent "such a waste of money to the tenant" that wealthy people (let's use Bill Gates as an example) buy lots and lots of houses and apartments to rent out to the rental suckers? no, they don't. TL;DR purely financially, owning is not better than renting; rent is not wasted money, at least not more than the fingerquotes rent you spend when you live in your own place.

gizmo686 7y ago
Renting has a lot of overhead. You are not only paying the landlord's profit (~100/month excluding equity is the figure I hear thrown around), you are also paying for the time your unit is vacant, and for some of the costs assosiated with bad tenents. Put another way, as a landlord you are the best tenent you will ever have.
pjc50 7y ago
The one case where ownership has really shone over the past decades is that it's the only form of leveraged investment that's readily available to the public. In many places an "average" house has "earned" more in appreciation than an average salary every year.
- tathougies 7y ago
  Thats often due to ridiculous accredited investor laws designed to make sure the rate of return on capital is greater for the rich than the poor, who are only given government approved and thus lower returning options.
  - pjc50 7y ago
    Those are designed to prevent people from getting scammed, after numerous incidents. Because the absolute best "mark" is someone who thinks he's a sophisticated investor because he's watched some videos on youtube. People like to cite "higher returns" but only after conveniently ignoring all the ones that didn't pan out. Also, leverage: if you're borrowing money to make an unsecured investment in a scheme, disaster awaits.
    - tathougies 7y ago
      > People like to cite "higher returns" but only after conveniently ignoring all the ones that didn't pan out. The United States allows 'microfinancing' via kickstarter, where poor people are allowed to give money to new ventures without any expectation of return on the given capital. Meanwhile, the rich get the opportunity to invest for actual returns on capital. Do you think an accredited investor is going to give money on kickstarter when they could offer cash as an investment? So why is giving money allowed, but spending the same money on acquiring shares not? The answer that 'some people got scammed' does not excuse the fact that people are still allowed to spend the same money today, without consumer protections, while not receiving any benefit. In other words, we have created yet another way to privatize the benefits of new ventures (by only allowing rich people to profit off of them) while socializing the costs (the people asked to contribute to new ventures without any ownership interests via microfinancing platforms). The response that this is for consumer protection is crap, and anyone not blinded by legal confirmation bias can see that Maximal investment limits based on income are perhaps appropriate, but wholesale banning is morally reprehensible, and a direct contributor to income inequality.