6 ms·

Also, nobody bragging about their mortgage mentions their down payment. I’d never be able to afford 20% down anywhere on the west coast.

toomuchtodo 4y ago
Most of the US is not the west coast, and an FHA mortgage only requires 3-5% down and a credit score of someone with a pulse. That mortgage principal and interest is fixed for the life of the loan. Rent always goes up. Real estate builds wealth because it’s one of the most accessible ways to acquire an asset that historically beats inflation with easily accessible leverage. You can even rent it out after only a year of occupancy (although one can only have one FHA mortgage outstanding at a time). There is always risk with any asset, but you have to live somewhere; might as well borrow to capture the upside if you’re going to stick around for a bit. If you’re renting, hopefully you’re still allocating cashflow to investments to offset the real estate exposure you’re not getting through ownership.
- mikem170 4y ago
  > an FHA mortgage only requires 3-5% down and a credit score of someone with a pulse Those kinds of loans are a huge government subsisdy, contributing quite a bit to the unaffordability of housing. So many mortgages today are backed by the government. These came about in the 1930s with the New Deal. Without government guarantees it would not make sense for banks to take on the risk of underwriting fixed rate low interest 30 year loans. Many other countries, like Canada and the UK for example, have mortgages that must be rolled over to new interest rates every 5 years. Would you wanted to underwrite a 30 year loan for 500k a couple years ago at 3%, knowing that rate could only go higher? It's not fair. These government loan guarantees skew the price of housing, negatively impacting people who need a roof over their head and don't have the money to compete with investors who can bid up the aritificially limited supply of housing to make passive income collecting rents.
  - toomuchtodo 4y ago
    (Disclosure: I fully support all reasonable measures to make housing more affordable) On the contrary, government backed mortgages provide an opportunity for buyers to become homeowners competing against institutional investors and cash buyers. They are a subsidy, but that’s not a bad thing if desired policy is to encourage home ownership. I would very much like to see your data that these mortgages are what cause unaffordable housing, versus lack of supply, institutional investors buying up residential real estate, restrictive zoning, and most recently, a real estate asset bubble due to Federal Reserve zero interest rate monetary policy (which caused real estate prices to skyrocket when money is cheap). > Would you wanted to underwrite a 30 year loan for 500k a couple years ago at 3%, knowing that rate could only go higher? Tangentially, the bond market seems to be a peace with 30 year mortgage terms, probably because the life of a 30 year fixed term mortgage is typically under a decade (while being amortized over said 30 years).
    - mikem170 4y ago
      On the one hand, if the government helps to lower mortgage interest rates, which they have, then they are acting to increase the price of housing some amount, given the laws of supply and demand. In Canada and the UK people will have to refinance every few years in this rising interest rate environment, which will put downward pressure on housing prices. On the other hand I agree with what you said about institutional investors being difficult to compete with. This is the downside of housing being prioritized as an investment. Investors know that supply is constricted, so they are taking advantage. I would address this by taxing investors and making it easier to increase supply, not subsidies that inflating the price for everyone trying to put a roof over their head. > the bond market seems to be a peace with 30 year mortgage terms I'd be pretty easy-going about a government backed loan, too. That's a lot less risk. That means the interest rates are lower than they would be if the government was not guaranteeing them.
  - robocat 4y ago
    > Those kinds of loans are a huge government subsisdy, contributing quite a bit to the unaffordability of housing. Not really. Everyone bids as much as they can afford to pay on interest payments, which means that if you earn less, you miss out to those that can pay more than you. The interest rates and some other factors are mostly irrelevant to affordability. Change the interest rates, house prices move accordingly to just be affordable to those that bid, because people bid as much as they can to get a home. Things work a little differently in the US compared to New Zealand, but the gross mechanics are the same. The mechanics of the bidding process, means there is a minimum price wall for most of the housing market in New Zealand (almost independent of the “worth” of the property) because there might be 30% of the population who can’t afford the mortgage payments at that price, so there is a lot of unmet demand below the minimum house price. I also suspect houses are the engine of middle class working hours: buy something you can only just afford, work your butt off, upgrade to something more expensive if you have more money. Paying the principal is also enforced savings. Without those dynamics I am not sure how many people would retire in any form of comfort, or how the economy could get younger people to work so hard to support the number of retirees we have.
- cammikebrown 4y ago
  3% of 350k is still over $10,000, which is a big chunk of change for the vast majority of Americans.
  - grogenaut 4y ago
    $2,450 is the monthly payment, that's 4 months of payments to hit $10k.
Aeolun 4y ago
Because if you’re rich enough, you don’t need any.

toomuchtodo 4y ago

Most of the US is not the west coast, and an FHA mortgage only requires 3-5% down and a credit score of someone with a pulse. That mortgage principal and interest is fixed for the life of the loan. Rent always goes up. Real estate builds wealth because it’s one of the most accessible ways to acquire an asset that historically beats inflation with easily accessible leverage. You can even rent it out after only a year of occupancy (although one can only have one FHA mortgage outstanding at a time). There is always risk with any asset, but you have to live somewhere; might as well borrow to capture the upside if you’re going to stick around for a bit. If you’re renting, hopefully you’re still allocating cashflow to investments to offset the real estate exposure you’re not getting through ownership.

mikem170 4y ago
> an FHA mortgage only requires 3-5% down and a credit score of someone with a pulse Those kinds of loans are a huge government subsisdy, contributing quite a bit to the unaffordability of housing. So many mortgages today are backed by the government. These came about in the 1930s with the New Deal. Without government guarantees it would not make sense for banks to take on the risk of underwriting fixed rate low interest 30 year loans. Many other countries, like Canada and the UK for example, have mortgages that must be rolled over to new interest rates every 5 years. Would you wanted to underwrite a 30 year loan for 500k a couple years ago at 3%, knowing that rate could only go higher? It's not fair. These government loan guarantees skew the price of housing, negatively impacting people who need a roof over their head and don't have the money to compete with investors who can bid up the aritificially limited supply of housing to make passive income collecting rents.
- toomuchtodo 4y ago
  (Disclosure: I fully support all reasonable measures to make housing more affordable) On the contrary, government backed mortgages provide an opportunity for buyers to become homeowners competing against institutional investors and cash buyers. They are a subsidy, but that’s not a bad thing if desired policy is to encourage home ownership. I would very much like to see your data that these mortgages are what cause unaffordable housing, versus lack of supply, institutional investors buying up residential real estate, restrictive zoning, and most recently, a real estate asset bubble due to Federal Reserve zero interest rate monetary policy (which caused real estate prices to skyrocket when money is cheap). > Would you wanted to underwrite a 30 year loan for 500k a couple years ago at 3%, knowing that rate could only go higher? Tangentially, the bond market seems to be a peace with 30 year mortgage terms, probably because the life of a 30 year fixed term mortgage is typically under a decade (while being amortized over said 30 years).
  - mikem170 4y ago
    On the one hand, if the government helps to lower mortgage interest rates, which they have, then they are acting to increase the price of housing some amount, given the laws of supply and demand. In Canada and the UK people will have to refinance every few years in this rising interest rate environment, which will put downward pressure on housing prices. On the other hand I agree with what you said about institutional investors being difficult to compete with. This is the downside of housing being prioritized as an investment. Investors know that supply is constricted, so they are taking advantage. I would address this by taxing investors and making it easier to increase supply, not subsidies that inflating the price for everyone trying to put a roof over their head. > the bond market seems to be a peace with 30 year mortgage terms I'd be pretty easy-going about a government backed loan, too. That's a lot less risk. That means the interest rates are lower than they would be if the government was not guaranteeing them.
- robocat 4y ago
  > Those kinds of loans are a huge government subsisdy, contributing quite a bit to the unaffordability of housing. Not really. Everyone bids as much as they can afford to pay on interest payments, which means that if you earn less, you miss out to those that can pay more than you. The interest rates and some other factors are mostly irrelevant to affordability. Change the interest rates, house prices move accordingly to just be affordable to those that bid, because people bid as much as they can to get a home. Things work a little differently in the US compared to New Zealand, but the gross mechanics are the same. The mechanics of the bidding process, means there is a minimum price wall for most of the housing market in New Zealand (almost independent of the “worth” of the property) because there might be 30% of the population who can’t afford the mortgage payments at that price, so there is a lot of unmet demand below the minimum house price. I also suspect houses are the engine of middle class working hours: buy something you can only just afford, work your butt off, upgrade to something more expensive if you have more money. Paying the principal is also enforced savings. Without those dynamics I am not sure how many people would retire in any form of comfort, or how the economy could get younger people to work so hard to support the number of retirees we have.
cammikebrown 4y ago
3% of 350k is still over $10,000, which is a big chunk of change for the vast majority of Americans.
- grogenaut 4y ago
  $2,450 is the monthly payment, that's 4 months of payments to hit $10k.

Aeolun 4y ago

Because if you’re rich enough, you don’t need any.