5 ms·

This is not quite correct. In high inflation credit markets disappear. 80%+ of housing is bought on mortgages. If 80% of housing demand disappears you get a 200

This is not quite correct. In high inflation credit markets disappear. 80%+ of housing is bought on mortgages. If 80% of housing demand disappears you get a 2008.

toomuchtodo 5y ago
The 2008 global financial crisis was due to a compete failure of risk management in originating mortgages and packaging them as mortgage backed securities. In short, the industry was scraping the barrel and shoveling shit to investors. “If they can fog a mirror, fund the loan” was a phrase common at Countrywide. Lending standards are comparatively tight now, no NINJA loans [1]. The credit market will tighten, but housing demand won’t evaporate, and investors are starved for yield. In high inflation environments, you want to lever up with debt to fund investments because your debt will be inflated away over time while you capture cash flow or asset appreciation. High yield debt (“junk bonds”) are also a great play for such a macro environment. [1] https://en.wikipedia.org/wiki/No_income,_no_asset https://en.wikipedia.org/wiki/No_income,_no_asset (not investing advice, family members were involved with regulators and cleaning up doing put backs for deficient notes)
- throw123123123 5y ago
  Your debt gets inflated away gradually while your asset crashes today. If housing went down 30%, virtually all debt in housing sold in the last few years would be underwater, which tends to increase delinquency ("they can take the house back"), which then makes the bank eat that loss and having toxic assets. The core issue is that debt is always risky.
  - toomuchtodo 5y ago
    It doesn’t matter if it’s underwater as long as the debt can be serviced. That’s the difference between a margin loan and a mortgage; there is no margin call on a mortgage. It can lose 99% of its value and as long as you still make payments (or your tenants so), you continue to own/control the asset.
    - throw123123123 5y ago
      Would you pay 1 mill dollars of debt on a 500k house?
      - toomuchtodo 5y ago
        In certain circumstances, absolutely (if rent payments would be higher than the mortgage payments over the holding period, or if the value of the property would accelerate past the mortgage balance during the holding period).
        throw123123123 5y ago
        You are only locking yourself with a loss here, and the price is 500k. Just look at default rates of underwater properties to see how the masses react.
        deleted 5y ago
        [deleted]
brutus1213 5y ago
Interesting counterpoint .. you are right .. why would I lend you a dollar if I expect it to be worth a lot less in the future. Any data to go with this assertion? In Canada, average mortgages are just for 5 years - this is very different than the US. I suspect banks are taking very little risk in such a scheme. In the US, I believe banks sell mortgages off/get insurance via govt. schemes.
- throw123123123 5y ago
  high inflation countries have low credit. Argentina hasn't had private mortgages in decades (minus a little summer).

This is not quite correct. In high inflation credit markets disappear. 80%+ of housing is bought on mortgages. If 80% of housing demand disappears you get a 2008.

toomuchtodo 5y ago

The 2008 global financial crisis was due to a compete failure of risk management in originating mortgages and packaging them as mortgage backed securities. In short, the industry was scraping the barrel and shoveling shit to investors. “If they can fog a mirror, fund the loan” was a phrase common at Countrywide. Lending standards are comparatively tight now, no NINJA loans [1]. The credit market will tighten, but housing demand won’t evaporate, and investors are starved for yield. In high inflation environments, you want to lever up with debt to fund investments because your debt will be inflated away over time while you capture cash flow or asset appreciation. High yield debt (“junk bonds”) are also a great play for such a macro environment. [1] https://en.wikipedia.org/wiki/No_income,_no_asset https://en.wikipedia.org/wiki/No_income,_no_asset (not investing advice, family members were involved with regulators and cleaning up doing put backs for deficient notes)

throw123123123 5y ago
Your debt gets inflated away gradually while your asset crashes today. If housing went down 30%, virtually all debt in housing sold in the last few years would be underwater, which tends to increase delinquency ("they can take the house back"), which then makes the bank eat that loss and having toxic assets. The core issue is that debt is always risky.
- toomuchtodo 5y ago
  It doesn’t matter if it’s underwater as long as the debt can be serviced. That’s the difference between a margin loan and a mortgage; there is no margin call on a mortgage. It can lose 99% of its value and as long as you still make payments (or your tenants so), you continue to own/control the asset.
  - throw123123123 5y ago
    Would you pay 1 mill dollars of debt on a 500k house?
    - toomuchtodo 5y ago
      In certain circumstances, absolutely (if rent payments would be higher than the mortgage payments over the holding period, or if the value of the property would accelerate past the mortgage balance during the holding period).
      - throw123123123 5y ago
        You are only locking yourself with a loss here, and the price is 500k. Just look at default rates of underwater properties to see how the masses react.
        deleted 5y ago
        [deleted]

brutus1213 5y ago

Interesting counterpoint .. you are right .. why would I lend you a dollar if I expect it to be worth a lot less in the future. Any data to go with this assertion? In Canada, average mortgages are just for 5 years - this is very different than the US. I suspect banks are taking very little risk in such a scheme. In the US, I believe banks sell mortgages off/get insurance via govt. schemes.

throw123123123 5y ago
high inflation countries have low credit. Argentina hasn't had private mortgages in decades (minus a little summer).