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> 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 a

by 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 Your data is out of date.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.
  - TulliusCicero 4y ago
    > 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. For people with existing home equity, sure. But how much does that actually benefit them? You can only actually make use of that money in a meaningful way if you either get a mortgage again, or if you leave and go somewhere cheaper (if it's more expensive than your current area, the current situation makes you even more screwed compared to the hypothetical). Anyway, I was talking about the eventual steady state of the system: as a general principle, low home values would not destroy wealth, any more than reverting back to sane car prices will "destroy the wealth" of car ownership. > We're clearly off trend at present and there's no reason to believe it won't revert It might revert, yes, but unlike the insane housing bubble before, the current situation doesn't appear to be caused by financial shenanigans. There's just a lot of demand chasing not many houses. And if it does revert, it'll almost certainly be because of long-term changes in demand or supply. For demand, that would mean a long period of stagnation or recession. > You're still thinking about extreme markets. And what we're seeing is that increasingly, even markets that we didn't think of as "hot" are getting expensive. Random places look increasingly like the bay area I grew up in in the 90's, when it was already quite expensive, but not insanely so like now.

by sp527 4y ago

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.
- TulliusCicero 4y ago
  > 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. For people with existing home equity, sure. But how much does that actually benefit them? You can only actually make use of that money in a meaningful way if you either get a mortgage again, or if you leave and go somewhere cheaper (if it's more expensive than your current area, the current situation makes you even more screwed compared to the hypothetical). Anyway, I was talking about the eventual steady state of the system: as a general principle, low home values would not destroy wealth, any more than reverting back to sane car prices will "destroy the wealth" of car ownership. > We're clearly off trend at present and there's no reason to believe it won't revert It might revert, yes, but unlike the insane housing bubble before, the current situation doesn't appear to be caused by financial shenanigans. There's just a lot of demand chasing not many houses. And if it does revert, it'll almost certainly be because of long-term changes in demand or supply. For demand, that would mean a long period of stagnation or recession. > You're still thinking about extreme markets. And what we're seeing is that increasingly, even markets that we didn't think of as "hot" are getting expensive. Random places look increasingly like the bay area I grew up in in the 90's, when it was already quite expensive, but not insanely so like now.