4 ms·

> eviscerate the wealth of a lot of older Americans who are on the verge or in the midst of retirement? Using rising home values as a retirement account is ess

> eviscerate the wealth of a lot of older Americans who are on the verge or in the midst of retirement? Using rising home values as a retirement account is essentially just a pyramid scheme. Like, just think about how this has to work. It only functions if home values drastically increase between purchase and retirement, right? Let's say they have to double, for it to be significant for retirement savings: that means that each generation, houses are getting twice as expensive for the next set of buyers. Literally exponential growth in housing prices. This can only happen a few times in a market before only people with a lot of wealth already -- intergenerational or otherwise -- can still afford the homes; just look at the bay area for an example. I grew up in the south bay, and hardly anyone from my childhood still lives there: they can't really afford it. To buy a house there, you usually need two people in tech with high salaries (and even then it can be stretching things a bit). Is that what you want? The current situation in places that have had incredible growth in property prices is that people are funding their retirements, not from saving during their work years, but off the backs of their kids and grandkids, because they got lucky in where they chose to settle down. It's unearned wealth, plain and simple. The ideal price of housing is zero*. * okay yes obviously there's caveats there, but the fact that unlike other consumer goods where inflation is obviously held to be bad, people treat increasingly unaffordable housing as a good thing is insane.

sp527 4y ago
> Using rising home values as a retirement account is essentially just a pyramid scheme. Paying down a mortgage builds equity in the home. It's because homes are relatively illiquid and most people choose to own instead of rent that housing works rather well as a de facto retirement account. I see no issue with that personally. > Like, just think about how this has to work. It only functions if home values drastically increase between purchase and retirement, right? No it doesn't, for the same reason as stated above: accrued equity as a mortgage is paid down. Also, average home appreciation in the US roughly tracks inflation (which makes sense). > just look at the bay area for an example Why would you look at the most extreme real estate market in the country to draw any important conclusions? > It's unearned wealth, plain and simple. No it was just an investment whose return variance is principally explained by randomness. And of course not representative of the larger set. Almost everyone who has money in housing loses out after accounting for opportunity cost and things like maintenance + repair + property taxes.
- TulliusCicero 4y ago
  > Paying down a mortgage builds equity in the home. It's because homes are relatively illiquid and most people choose to own instead of rent that housing works rather well as a de facto retirement account. I see no issue with that personally. Irrelevant. Mere equity in a home with a flat value is essentially unaffected by lowered property values overall: you'll not be forced to 'save' as much, but the point of saving was to not have a mortgage payment anymore. If you don't need to 'save' as much to reach the same outcome, if anything that's a net good. The only real downside here is if you were counting on moving to somewhere not affected by lower property values, AND you didn't invest the money elsewhere that would've gone into more expensive housing. But for most people, it's a good thing. > Also, average home appreciation in the US roughly tracks inflation (which makes sense). Your data is out of date. It used to hover around 200k current dollars on average, but now it's far higher. The increasingly terrible zoning and other building regulations finally caught up to us: https://dqydj.com/historical-home-prices/ https://dqydj.com/historical-home-prices/ And note that it tends to be particularly bad anywhere the economy is good. Of course, some of that is expected, but the effect is just more drastic than it should be. > No it was just an investment whose return variance is principally explained by randomness. No, it's just luck compounded by regulations that favor handing out wealth to the elderly over the keeping costs reasonable for younger people.
  - sp527 4y ago
    > Mere equity in a home with a flat value is essentially unaffected by lowered property values overall: you'll not be forced to 'save' as much, but the point of saving was to not have a mortgage payment anymore. If you don't need to 'save' as much to reach the same outcome, if anything that's a net good. Some of this is hilariously false and the rest is incoherent. There is simply no way to argue that lowered property values won't result in a net destruction of wealth for people holding mortgages or paid off homes. > Your data is out of date. It used to hover around 200k current dollars on average, but now it's far higher. The increasingly terrible zoning and other building regulations finally caught up to us: https://dqydj.com/historical-home-prices/ https://dqydj.com/historical-home-prices/ You can't measure from a point of extreme dislocation. We're clearly off trend at present and there's no reason to believe it won't revert, as is being widely discussed right now. Somewhat obviously, monthly mortgage payment inflation cannot greatly exceed wage inflation, on average. > No, it's just luck compounded by regulations that favor handing out wealth to the elderly over the keeping costs reasonable for younger people. You're still thinking about extreme markets. And in those markets regulation is only part of the answer. The truly salient determinant of prices is how quickly demand for housing in a region increases, which is fundamentally unpredictable.

sp527 4y ago

> Using rising home values as a retirement account is essentially just a pyramid scheme. Paying down a mortgage builds equity in the home. It's because homes are relatively illiquid and most people choose to own instead of rent that housing works rather well as a de facto retirement account. I see no issue with that personally. > Like, just think about how this has to work. It only functions if home values drastically increase between purchase and retirement, right? No it doesn't, for the same reason as stated above: accrued equity as a mortgage is paid down. Also, average home appreciation in the US roughly tracks inflation (which makes sense). > just look at the bay area for an example Why would you look at the most extreme real estate market in the country to draw any important conclusions? > It's unearned wealth, plain and simple. No it was just an investment whose return variance is principally explained by randomness. And of course not representative of the larger set. Almost everyone who has money in housing loses out after accounting for opportunity cost and things like maintenance + repair + property taxes.

TulliusCicero 4y ago
> Paying down a mortgage builds equity in the home. It's because homes are relatively illiquid and most people choose to own instead of rent that housing works rather well as a de facto retirement account. I see no issue with that personally. Irrelevant. Mere equity in a home with a flat value is essentially unaffected by lowered property values overall: you'll not be forced to 'save' as much, but the point of saving was to not have a mortgage payment anymore. If you don't need to 'save' as much to reach the same outcome, if anything that's a net good. The only real downside here is if you were counting on moving to somewhere not affected by lower property values, AND you didn't invest the money elsewhere that would've gone into more expensive housing. But for most people, it's a good thing. > Also, average home appreciation in the US roughly tracks inflation (which makes sense). Your data is out of date. It used to hover around 200k current dollars on average, but now it's far higher. The increasingly terrible zoning and other building regulations finally caught up to us: https://dqydj.com/historical-home-prices/ https://dqydj.com/historical-home-prices/ And note that it tends to be particularly bad anywhere the economy is good. Of course, some of that is expected, but the effect is just more drastic than it should be. > No it was just an investment whose return variance is principally explained by randomness. No, it's just luck compounded by regulations that favor handing out wealth to the elderly over the keeping costs reasonable for younger people.
- sp527 4y ago
  > Mere equity in a home with a flat value is essentially unaffected by lowered property values overall: you'll not be forced to 'save' as much, but the point of saving was to not have a mortgage payment anymore. If you don't need to 'save' as much to reach the same outcome, if anything that's a net good. Some of this is hilariously false and the rest is incoherent. There is simply no way to argue that lowered property values won't result in a net destruction of wealth for people holding mortgages or paid off homes. > Your data is out of date. It used to hover around 200k current dollars on average, but now it's far higher. The increasingly terrible zoning and other building regulations finally caught up to us: https://dqydj.com/historical-home-prices/ https://dqydj.com/historical-home-prices/ You can't measure from a point of extreme dislocation. We're clearly off trend at present and there's no reason to believe it won't revert, as is being widely discussed right now. Somewhat obviously, monthly mortgage payment inflation cannot greatly exceed wage inflation, on average. > No, it's just luck compounded by regulations that favor handing out wealth to the elderly over the keeping costs reasonable for younger people. You're still thinking about extreme markets. And in those markets regulation is only part of the answer. The truly salient determinant of prices is how quickly demand for housing in a region increases, which is fundamentally unpredictable.