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>just means every first time buyer can now pay 15% more (approximately) for a house Wait, what? Wouldn't it mean that a pool of prospective buyers that couldn'

>just means every first time buyer can now pay 15% more (approximately) for a house Wait, what? Wouldn't it mean that a pool of prospective buyers that couldn't afford 20% but can afford 5% are now able to buy a house? That's a shift in the structure of the market rather than just a change being "priced in" for the same set of buyers. >In hot markets, the prices rise quickly to reflect that and everyone is in the same position as before. I would think this is the kind of question where we need data. I like to think I respect the exercise of thought experimenting more than your average person, but in this case, it seems to illustrate how thought experiments serve to answer questions by restating their core assumptions rather than exposing them to challenges in the way data would.

tialaramex 6y ago
> Wait, what? Wouldn't it mean that a pool of prospective buyers that couldn't afford 20% but can afford 5% are now able to buy a house? No. Real property doesn't work that way at all. The effect of most of this kind of government intervention in the housing market is to subsidise developers. In fact it's so bad that in the UK shareholders of such a developer are outraged because the uncapped bonus structure for executives at the developer means they get enormous (many times annual salary) bonuses essentially directly funded by central government which the shareholders of course think instead ought to all be profits assignable as dividends, not "bonus payments" for executives whose "performance" amounts to just sitting back and collecting free money from central government. Like there's not even doubt there about what this government money does, it goes to the house builders, it can't and doesn't magically produce more homes, the argument is about who gets to keep the loot. Government can intervene to actually build homes, and that would actually work, but NIMBYs hate it, so if a government doesn't actually care about housing people then a policy that can be headlined as support for home buyers but actually just puts money in the pockets of the wealthy is a good choice.
- gbasin 6y ago
  Developers can't get FHA loans
  - sokoloff 6y ago
    Things that give your buyer pool more money/more access helps your selling position, even if you can’t get the money straight from the tap.
  - tialaramex 6y ago
    That's correct. Developers sell homes. The FHA loan uses government money to allow people who buy homes to pay more money for the same home, this money goes to the developers.
    - toomuchtodo 6y ago
      Student loans situation, but for housing instead.
- glenstein 6y ago
  >No. Real property doesn't work that way at all. I carefully read through the rest of the comment after this sentence, waiting for the support for this claim, and feel as though I came away emptyhanded. I get that the shareholders anecdote is supposed to support it, but that came off as really fuzzy and unclear, and not something that directly engaged with my question. Are you saying there are no new buyers? Do you have any article that talks in more detail about the systematic relationship between shareholder expectation of dividends and their relationship to the switch from 20% to 5%? Or some elaboration on how the debate between shareholders vs executives relates systematically to the change in requirement for down payments in a way that clearly describes how it absorbs most of the gov funds? I gotta lay my cards on the table, here. I feel like if any of this were true, I would have received a really simple, one sentence reply of "sure, here's a link!" that links to an article deep in comprehensive macroeconomic data, and not a weird meandering anecdote about developers carried not by any evidence, but mostly by the gravitas of emphatic personal assurance that just declares that "this is how it really works".
  - tialaramex 6y ago
    The rest of the comment isn't support for the claim that real property isn't like this - instead it assumes you've been shaken awake by the realisation that oh, these aren't toasters or smartphones, they're homes, and thus real property, and so the usual free market hand waving doesn't apply at all. But if it wasn't clear I'll explain. The reason real property isn't like this ought to be entirely obvious at a very high level, the planet's surface area is independent of economic forces. If we've got twice as much money for smartphones, we can buy twice as many smartphones. But if we've got twice as much money for buying land in Ohio, there is still only the same amount of Ohio, and so the price just goes up. Does that help?
    - glenstein 6y ago
      You know, I actually thought you knew what you were talking about and were going to have something thoughtful to say. To answer directly: nope, this does not help at all. I was expecting something like a discussion of, I don't know, pertinent micro or macroeconomic forces, maybe something about elasticity as applied to housing, or citation of some article illustrating how a change in financing in one region had a measurable impact on prices and the number of buyers, or something of that nature. Instead you are condescendingly lecturing me about the shape of the earth, and telling me the rest of it is so obvious you can't bother explaining it. But even I know we haven't run up against absolute geographical limits, and to to the extent that the shape of the earth is an influence, it one among many, in a process that is also mediated by additional influences, as well: constraints of availability of housing already built, the rate of new construction, changes in financing, population growth, people's savings, changes in how many people choose to stay at home, etc. I was waiting for some economically literate discussion of those kinds of elements.
glofish 6y ago
Initially it does have the effect you state: > prospective buyers that couldn't afford 20% but can afford 5% are now able to buy a house? hence the measures are popular and very visible. Long term however (just as with subsidies and scolarships for education) all lead to pushing prices up. Perhaps the buyers in the market could pay 10% but now that they only have to pay 5% the remaining 5% slowly (say over a few years) gets factored into the purchase price so that the down payment is the same as it were for 10%.
- sokoloff 6y ago
  > Perhaps the buyers in the market could pay 10% but now that they only have to pay 5% the remaining 5% slowly (say over a few years) gets factored into the purchase price so that the down payment is the same as it were for 10%. Are you proposing that the effect is to nearly double house prices in a few years? If today’s price is $500K and buyers could pay $50K down, in a few years, that place would need to be $1M for the 5% down payment to be the same figure.
  - sethammons 6y ago
    I believe op is saying that a person could “afford” a $500k house at $100k down at 20% would happily instead put $25k down (or $28.75k, to keep numbers accurate at a 5% down) on a $575k house.
    - sokoloff 6y ago
      What I'm not sure I understand correctly is the second half of OP's content [how the change in downpayment requirement causes prices to rise such that a 5% downpayment is now the same as the prior 10% downpayment].
      - sethammons 6y ago
        If you consider that the $500k house in the example is the same house that goes for $575k, then housing prices just increased to absorb the eager buyer at a lower percent down. And when the neighbor goes to sell, they see a similar house as their own sold for a higher price, so they try to sell for a higher price.
fatnoah 6y ago
It's definitely an interesting question. Increasing the pool of people able to buy a house increases demand, so that probably has some impact on the price. Another factor is that people tend to think in terms of monthly payments, rather than overall price and interest rate. For example, I'm paying $1,500 in rent while saving $500/month for a mortgage. If the requirement for a down payment is removed, I may then think it makes more sense pay $2000/month for a house now with a low down payment than to keep trying to save a down payment while prices keep increasing. FWIW, this is exactly what happened (with different numbers) when I bought my first house.
- deleted 6y ago
  [deleted]

tialaramex 6y ago

> Wait, what? Wouldn't it mean that a pool of prospective buyers that couldn't afford 20% but can afford 5% are now able to buy a house? No. Real property doesn't work that way at all. The effect of most of this kind of government intervention in the housing market is to subsidise developers. In fact it's so bad that in the UK shareholders of such a developer are outraged because the uncapped bonus structure for executives at the developer means they get enormous (many times annual salary) bonuses essentially directly funded by central government which the shareholders of course think instead ought to all be profits assignable as dividends, not "bonus payments" for executives whose "performance" amounts to just sitting back and collecting free money from central government. Like there's not even doubt there about what this government money does, it goes to the house builders, it can't and doesn't magically produce more homes, the argument is about who gets to keep the loot. Government can intervene to actually build homes, and that would actually work, but NIMBYs hate it, so if a government doesn't actually care about housing people then a policy that can be headlined as support for home buyers but actually just puts money in the pockets of the wealthy is a good choice.

gbasin 6y ago
Developers can't get FHA loans
- sokoloff 6y ago
  Things that give your buyer pool more money/more access helps your selling position, even if you can’t get the money straight from the tap.
- tialaramex 6y ago
  That's correct. Developers sell homes. The FHA loan uses government money to allow people who buy homes to pay more money for the same home, this money goes to the developers.
  - toomuchtodo 6y ago
    Student loans situation, but for housing instead.
glenstein 6y ago
>No. Real property doesn't work that way at all. I carefully read through the rest of the comment after this sentence, waiting for the support for this claim, and feel as though I came away emptyhanded. I get that the shareholders anecdote is supposed to support it, but that came off as really fuzzy and unclear, and not something that directly engaged with my question. Are you saying there are no new buyers? Do you have any article that talks in more detail about the systematic relationship between shareholder expectation of dividends and their relationship to the switch from 20% to 5%? Or some elaboration on how the debate between shareholders vs executives relates systematically to the change in requirement for down payments in a way that clearly describes how it absorbs most of the gov funds? I gotta lay my cards on the table, here. I feel like if any of this were true, I would have received a really simple, one sentence reply of "sure, here's a link!" that links to an article deep in comprehensive macroeconomic data, and not a weird meandering anecdote about developers carried not by any evidence, but mostly by the gravitas of emphatic personal assurance that just declares that "this is how it really works".
- tialaramex 6y ago
  The rest of the comment isn't support for the claim that real property isn't like this - instead it assumes you've been shaken awake by the realisation that oh, these aren't toasters or smartphones, they're homes, and thus real property, and so the usual free market hand waving doesn't apply at all. But if it wasn't clear I'll explain. The reason real property isn't like this ought to be entirely obvious at a very high level, the planet's surface area is independent of economic forces. If we've got twice as much money for smartphones, we can buy twice as many smartphones. But if we've got twice as much money for buying land in Ohio, there is still only the same amount of Ohio, and so the price just goes up. Does that help?
  - glenstein 6y ago
    You know, I actually thought you knew what you were talking about and were going to have something thoughtful to say. To answer directly: nope, this does not help at all. I was expecting something like a discussion of, I don't know, pertinent micro or macroeconomic forces, maybe something about elasticity as applied to housing, or citation of some article illustrating how a change in financing in one region had a measurable impact on prices and the number of buyers, or something of that nature. Instead you are condescendingly lecturing me about the shape of the earth, and telling me the rest of it is so obvious you can't bother explaining it. But even I know we haven't run up against absolute geographical limits, and to to the extent that the shape of the earth is an influence, it one among many, in a process that is also mediated by additional influences, as well: constraints of availability of housing already built, the rate of new construction, changes in financing, population growth, people's savings, changes in how many people choose to stay at home, etc. I was waiting for some economically literate discussion of those kinds of elements.

glofish 6y ago

Initially it does have the effect you state: > prospective buyers that couldn't afford 20% but can afford 5% are now able to buy a house? hence the measures are popular and very visible. Long term however (just as with subsidies and scolarships for education) all lead to pushing prices up. Perhaps the buyers in the market could pay 10% but now that they only have to pay 5% the remaining 5% slowly (say over a few years) gets factored into the purchase price so that the down payment is the same as it were for 10%.

sokoloff 6y ago
> Perhaps the buyers in the market could pay 10% but now that they only have to pay 5% the remaining 5% slowly (say over a few years) gets factored into the purchase price so that the down payment is the same as it were for 10%. Are you proposing that the effect is to nearly double house prices in a few years? If today’s price is $500K and buyers could pay $50K down, in a few years, that place would need to be $1M for the 5% down payment to be the same figure.
- sethammons 6y ago
  I believe op is saying that a person could “afford” a $500k house at $100k down at 20% would happily instead put $25k down (or $28.75k, to keep numbers accurate at a 5% down) on a $575k house.
  - sokoloff 6y ago
    What I'm not sure I understand correctly is the second half of OP's content [how the change in downpayment requirement causes prices to rise such that a 5% downpayment is now the same as the prior 10% downpayment].
    - sethammons 6y ago
      If you consider that the $500k house in the example is the same house that goes for $575k, then housing prices just increased to absorb the eager buyer at a lower percent down. And when the neighbor goes to sell, they see a similar house as their own sold for a higher price, so they try to sell for a higher price.

fatnoah 6y ago

It's definitely an interesting question. Increasing the pool of people able to buy a house increases demand, so that probably has some impact on the price. Another factor is that people tend to think in terms of monthly payments, rather than overall price and interest rate. For example, I'm paying $1,500 in rent while saving $500/month for a mortgage. If the requirement for a down payment is removed, I may then think it makes more sense pay $2000/month for a house now with a low down payment than to keep trying to save a down payment while prices keep increasing. FWIW, this is exactly what happened (with different numbers) when I bought my first house.

deleted 6y ago
[deleted]