6 ms·

> Its only the most expensive thing in most people's lives that has doubled in cost in about 10 years. Most people pay for housing by monthly payments, making

by xapata 5y ago

> Its only the most expensive thing in most people's lives that has doubled in cost in about 10 years. Most people pay for housing by monthly payments, making the nominal value of the house irrelevant if the monthly payment stays the same. Further, you should consider the home owner's "basket of goods" to include the hypothetical rent they'd be paying for an equivalent house. Their mortgage payments and home ownership are then more like taking a loan to buy a fixed-income asset that gets renegotiated annually. A home owner who lives in their home is both a landlord and a tenant. I'm not a home-owner, and I don't feel shafted. My stock market holdings have kept pace or done better than if I'd purchased a house.

adflux 5y ago
Non homeowners are paying way more whilst getting less in return. I really dont understand the logic of being OK with paying double for a house, just because the buyer can sell it for the same amount (or higher) afterwards. I could purchase a 150m2 house with my salary a decade ago. Now I could find a 75m2 house that would be too expensive for me. I dont care about being able to sell the house for more money afterwards, it doesn't matter, because I have to live somewhere anyways. So any profits gained will (probably) be factored into the purchase price of the next house I'm buying.
- em-bee 5y ago
  i am confused by your first sentence. what do non-homeowners sell?
  - adflux 5y ago
    Some people say "Well, you're paying more but you can also sell it for more afterwards". But non-homeowners are still paying more for less. That's the argument I am trying to make (poorly)
    - xapata 5y ago
      My rent doesn't change with interest rates.
      - JKCalhoun 5y ago
        That's true, rent keeps going up? A fixed loan doesn't change with interest rates either.
        xapata 5y ago
        Rent increases are a cause of inflation (as part of the basket of goods that defines inflation), which in turn causes interest rate increases, which then cause home price decreases. Homes are like fixed-income securities. When interest rates go up, the value of existing securities goes down.
      - sremani 5y ago
        So does my mortgage that is why it is called 15 year FIXED.
        xapata 5y ago
        Yes, as I said, you care about the monthly payment, not the lump sum price of the house.
      - matwood 5y ago
        Daily no. But higher interest rates and high inflation absolutely leads to higher rents each year when your lease renews (unless of course your in some rent controlled environment).
      - xwdv 5y ago
        No, but in 20 years you’ll be paying rent with expensive 2041 dollars while the 30 year fixed rate mortgage is still being paid in cheap 2021 dollars.
        5y ago
- xapata 5y ago
  > paying double for a house Are you talking about monthly payment or lump sum? When the lump sum doubles yet the monthly payment is the same, has the cost really changed? To me, no. I was never going to buy lump sum, so I only care about monthly payment.
  - basch 5y ago
    Presumably, owing money for 60 years instead of 30 years will cost you much more in the long run. And more baked in interest early in the loan means less recovered when you sell.
    - xapata 5y ago
      How the hell do you find a 60-year loan? Sign me up! Remember, leverage is what makes home ownership a good investment.
      - basch 5y ago
        The premise I replied to was the lump sum doubling and the monthly staying the same. The only way for that to happen is to extend the period.
        xapata 5y ago
        You forgot interest rates changing, which is the primary cause of the recent home price changes. Remember, the mortgage market has a set of standard terms, like a 30-year-fixed.
  - nicoburns 5y ago
    Your liability has. If the interest rates goes back up to late 20th rates, your monthly payment isn't going to stay the same.
    - foogazi 5y ago
      Only if its a variable rate loan
- foogazi 5y ago
  > I really dont understand the logic of being OK with paying double for a house Double what? The price someone paid years ago under totally different market conditions? In the future prices might be halved or double again - act accordingly
ItsMonkk 5y ago
Here's why this matters to you. When the Fed funds rate is at 10%, the mortgage rate is 13% or so. That says that the risk that you have is 3% above the risk free rate. When the Fed funds rate is 0%, your mortgage rate is 3%, that same difference in the Fed Funds rate. But wait, think of that like we think of absorption. If I have a capacity to absorb of 1L and can absorb 50% of a liquid, then I will break when 2L is poured. If I bring my absorption rate to 98%, then I now break at 50L. If the government can absorb at 99.99% rates and you absorb at 97% rates, they can absorb 10000L while you can only absorb 33L. If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates. Why is politics so contentious? Interest rates are dropping.
- xapata 5y ago
  > ... that same difference in the Fed Funds rate. The differential between mortgage rates and the federal funds rate is only driven in part by regulation. The rest is market forces and the perceived risk of rising inflation. If we had certainty on how inflation would change for the next 30 years, mortgage rates could be pushed to a negligible margin above the federal funds rate. > If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates. You haven't explained this assertion. I see it a different way. If we want consumer demand to decide how capital is invested, then we want more inflation. Inflation transfers wealth from creditors to debtors. Debtors spend their money, which indicates what's useful to produce. If we want a handful of bankers to make guesses (and often guess incorrectly) about what people will want to buy, then we want low inflation, transferring wealth from debtors to creditors. The problem with (excessively) low inflation and supply-side economics in general is that the suppliers must make their choices with a decreasing level of information on what will be demanded. It's only through consumer demand and its pressure on supply that reveals what's important through market forces. Otherwise we may as well go back to central planning. Note that I'm not advocating for fluctuating inflation. All parties benefit from stable inflation rates. Uncertainty is dead weight loss.
wallacoloo 5y ago
> Most people pay for housing by monthly payments, making the nominal value of the house irrelevant if the monthly payment stays the same. Except homeowners get price exposure to the value of their home on the market. If you purchase and then go through a downturn which devalues your house, now you’re in the hole: you can’t use the sale price of the home to pay off the loan, so you’re stuck in that home until its value climbs again or you earn enough to pay off the loss. Higher values means it takes longer for you to cover any % decline with wages, so you lose mobility for longer in a downturn. Irrelevant if you truly want to live in that place for 30 years, but not many people can actually make that commitment.
- xapata 5y ago
  > Except homeowners get price exposure ... you’re stuck in that home until its value climbs again or you earn enough to pay off the loss. > ... Higher values Higher values at the time of purchase or at the time of sale? The latter doesn't jive with the idea of being "underwater" on the loan, since you'd have benefited from the price exposure. Higher values at the time of purchase is relative to what the home was worth in the past, but our efficient market theory tells us that the price today can be considered neither high nor low (yes, Shiller might disagree). I guess you're pointing out that interest rates are near zero, so that there's really only one way for them to go. I'm not so sure, because in some ways it's a Zeno's Paradox situation. I don't always care about the number of basis points the interest rate has changed, but the percent change of the interest rate. I get more benefit from the rate going from 4% to 3% than I did when it went from 5% to 4%. We can always get closer to 0%, because there's an infinite number of subdivisions we can make.

by xapata 5y ago

adflux 5y ago

Non homeowners are paying way more whilst getting less in return. I really dont understand the logic of being OK with paying double for a house, just because the buyer can sell it for the same amount (or higher) afterwards. I could purchase a 150m2 house with my salary a decade ago. Now I could find a 75m2 house that would be too expensive for me. I dont care about being able to sell the house for more money afterwards, it doesn't matter, because I have to live somewhere anyways. So any profits gained will (probably) be factored into the purchase price of the next house I'm buying.

em-bee 5y ago
i am confused by your first sentence. what do non-homeowners sell?
- adflux 5y ago
  Some people say "Well, you're paying more but you can also sell it for more afterwards". But non-homeowners are still paying more for less. That's the argument I am trying to make (poorly)
  - xapata 5y ago
    My rent doesn't change with interest rates.
    - JKCalhoun 5y ago
      That's true, rent keeps going up? A fixed loan doesn't change with interest rates either.
      - xapata 5y ago
        Rent increases are a cause of inflation (as part of the basket of goods that defines inflation), which in turn causes interest rate increases, which then cause home price decreases. Homes are like fixed-income securities. When interest rates go up, the value of existing securities goes down.
    - sremani 5y ago
      So does my mortgage that is why it is called 15 year FIXED.
      - xapata 5y ago
        Yes, as I said, you care about the monthly payment, not the lump sum price of the house.
    - matwood 5y ago
      Daily no. But higher interest rates and high inflation absolutely leads to higher rents each year when your lease renews (unless of course your in some rent controlled environment).
    - xwdv 5y ago
      No, but in 20 years you’ll be paying rent with expensive 2041 dollars while the 30 year fixed rate mortgage is still being paid in cheap 2021 dollars.
      - 5y ago
xapata 5y ago
> paying double for a house Are you talking about monthly payment or lump sum? When the lump sum doubles yet the monthly payment is the same, has the cost really changed? To me, no. I was never going to buy lump sum, so I only care about monthly payment.
- basch 5y ago
  Presumably, owing money for 60 years instead of 30 years will cost you much more in the long run. And more baked in interest early in the loan means less recovered when you sell.
  - xapata 5y ago
    How the hell do you find a 60-year loan? Sign me up! Remember, leverage is what makes home ownership a good investment.
    - basch 5y ago
      The premise I replied to was the lump sum doubling and the monthly staying the same. The only way for that to happen is to extend the period.
      - xapata 5y ago
        You forgot interest rates changing, which is the primary cause of the recent home price changes. Remember, the mortgage market has a set of standard terms, like a 30-year-fixed.
- nicoburns 5y ago
  Your liability has. If the interest rates goes back up to late 20th rates, your monthly payment isn't going to stay the same.
  - foogazi 5y ago
    Only if its a variable rate loan
foogazi 5y ago
> I really dont understand the logic of being OK with paying double for a house Double what? The price someone paid years ago under totally different market conditions? In the future prices might be halved or double again - act accordingly

ItsMonkk 5y ago

Here's why this matters to you. When the Fed funds rate is at 10%, the mortgage rate is 13% or so. That says that the risk that you have is 3% above the risk free rate. When the Fed funds rate is 0%, your mortgage rate is 3%, that same difference in the Fed Funds rate. But wait, think of that like we think of absorption. If I have a capacity to absorb of 1L and can absorb 50% of a liquid, then I will break when 2L is poured. If I bring my absorption rate to 98%, then I now break at 50L. If the government can absorb at 99.99% rates and you absorb at 97% rates, they can absorb 10000L while you can only absorb 33L. If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates. Why is politics so contentious? Interest rates are dropping.

xapata 5y ago
> ... that same difference in the Fed Funds rate. The differential between mortgage rates and the federal funds rate is only driven in part by regulation. The rest is market forces and the perceived risk of rising inflation. If we had certainty on how inflation would change for the next 30 years, mortgage rates could be pushed to a negligible margin above the federal funds rate. > If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates. You haven't explained this assertion. I see it a different way. If we want consumer demand to decide how capital is invested, then we want more inflation. Inflation transfers wealth from creditors to debtors. Debtors spend their money, which indicates what's useful to produce. If we want a handful of bankers to make guesses (and often guess incorrectly) about what people will want to buy, then we want low inflation, transferring wealth from debtors to creditors. The problem with (excessively) low inflation and supply-side economics in general is that the suppliers must make their choices with a decreasing level of information on what will be demanded. It's only through consumer demand and its pressure on supply that reveals what's important through market forces. Otherwise we may as well go back to central planning. Note that I'm not advocating for fluctuating inflation. All parties benefit from stable inflation rates. Uncertainty is dead weight loss.

wallacoloo 5y ago

> Most people pay for housing by monthly payments, making the nominal value of the house irrelevant if the monthly payment stays the same. Except homeowners get price exposure to the value of their home on the market. If you purchase and then go through a downturn which devalues your house, now you’re in the hole: you can’t use the sale price of the home to pay off the loan, so you’re stuck in that home until its value climbs again or you earn enough to pay off the loss. Higher values means it takes longer for you to cover any % decline with wages, so you lose mobility for longer in a downturn. Irrelevant if you truly want to live in that place for 30 years, but not many people can actually make that commitment.

xapata 5y ago
> Except homeowners get price exposure ... you’re stuck in that home until its value climbs again or you earn enough to pay off the loss. > ... Higher values Higher values at the time of purchase or at the time of sale? The latter doesn't jive with the idea of being "underwater" on the loan, since you'd have benefited from the price exposure. Higher values at the time of purchase is relative to what the home was worth in the past, but our efficient market theory tells us that the price today can be considered neither high nor low (yes, Shiller might disagree). I guess you're pointing out that interest rates are near zero, so that there's really only one way for them to go. I'm not so sure, because in some ways it's a Zeno's Paradox situation. I don't always care about the number of basis points the interest rate has changed, but the percent change of the interest rate. I get more benefit from the rate going from 4% to 3% than I did when it went from 5% to 4%. We can always get closer to 0%, because there's an infinite number of subdivisions we can make.