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If government banned long term debt would the real estate market disappear, or would home and auto prices eventually level out at a much smaller amount reducing

If government banned long term debt would the real estate market disappear, or would home and auto prices eventually level out at a much smaller amount reducing overall inflation, or would ownership just be for the wealthy and the rest would live in pottersville?

inglor_cz 5y ago
I guess home values would go down, but investment (improvements, remodeling etc.) would go down as well, so the old houses would be pretty shabby when sold. Newly built homes would be either substandard (what the Chinese derogatorily call "tofu quality", where walls aren't really that solid), or available to the wealthy only. It is surprisingly expensive to build a (brick and mortar) house to 2021 security, energy-saving and quality standards, at least in Central Europe. We have a lot of cheaper housing from the 1960s-1980s, both block of flats and detached houses, but no way would such buildings in their original form be approved today.
- CalRobert 5y ago
  Interestingly, I had a modern house built in eastern Europe (Latvia), and shipped to western Europe, very affordably. I had the foundation, roof and windows done locally but the frame, with insulation, was under 40k, for a ~140 sqm house.
  - sbierwagen 5y ago
    For the curious: in 2019 the average house in the US was 213 square meters: https://www.rocketmortgage.com/learn/average-square-footage-of-a-house https://www.rocketmortgage.com/learn/average-square-footage-...
  - inglor_cz 5y ago
    A wooden house can be very affordable, but also tricky. The wood should be well dried. There was a wave of interest in wooden houses in 2015-6 AFAIK, which resulted in vendors shipping not-yet-very-dry wooden constructions to their customers.
vkk8 5y ago
This would transfer the real estate from the people to huge rental companies that can buy real estate without 30 year loans. Probably it would also lower the prices a lot, though.
- jjav 5y ago
  I'd speculate that in a world where a few huge real estate conglomerates own all the housing, lowering prices will not be what they will be doing.
nybble41 5y ago
If you only allow short-term debt (say, five years max) then to finance a modern house—even if you could buy it "at cost"—you would need to take out a series of "balloon" mortgages. Every five years you apply for a new loan and use it to pay off the old one. However, this is risky for the borrower since it assumes interest rates won't increase too much (vs. a 30-year fixed mortgage which you can refinance at any time if the rate improve) and that you will be approved for a new mortgage when it's time to pay off the current one. Or you can save up $1000/mo. for 15+ years so you can pay for the house without taking out a loan… while also paying rent on top of that.

inglor_cz 5y ago

I guess home values would go down, but investment (improvements, remodeling etc.) would go down as well, so the old houses would be pretty shabby when sold. Newly built homes would be either substandard (what the Chinese derogatorily call "tofu quality", where walls aren't really that solid), or available to the wealthy only. It is surprisingly expensive to build a (brick and mortar) house to 2021 security, energy-saving and quality standards, at least in Central Europe. We have a lot of cheaper housing from the 1960s-1980s, both block of flats and detached houses, but no way would such buildings in their original form be approved today.

CalRobert 5y ago
Interestingly, I had a modern house built in eastern Europe (Latvia), and shipped to western Europe, very affordably. I had the foundation, roof and windows done locally but the frame, with insulation, was under 40k, for a ~140 sqm house.
- sbierwagen 5y ago
  For the curious: in 2019 the average house in the US was 213 square meters: https://www.rocketmortgage.com/learn/average-square-footage-of-a-house https://www.rocketmortgage.com/learn/average-square-footage-...
- inglor_cz 5y ago
  A wooden house can be very affordable, but also tricky. The wood should be well dried. There was a wave of interest in wooden houses in 2015-6 AFAIK, which resulted in vendors shipping not-yet-very-dry wooden constructions to their customers.

vkk8 5y ago

This would transfer the real estate from the people to huge rental companies that can buy real estate without 30 year loans. Probably it would also lower the prices a lot, though.

jjav 5y ago
I'd speculate that in a world where a few huge real estate conglomerates own all the housing, lowering prices will not be what they will be doing.

nybble41 5y ago

If you only allow short-term debt (say, five years max) then to finance a modern house—even if you could buy it "at cost"—you would need to take out a series of "balloon" mortgages. Every five years you apply for a new loan and use it to pay off the old one. However, this is risky for the borrower since it assumes interest rates won't increase too much (vs. a 30-year fixed mortgage which you can refinance at any time if the rate improve) and that you will be approved for a new mortgage when it's time to pay off the current one. Or you can save up $1000/mo. for 15+ years so you can pay for the house without taking out a loan… while also paying rent on top of that.