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> 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 ge

> 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.

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.