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> 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

> 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.
- mikem170 4y ago
  I think I follow, but I'm not sure if you're capturing all the factors. For example, let's say you lived in Canada and bought a house 4 years ago for $300k with a 5 year 3% mortgage. You can't get a 30 year mortgage in Canada, the banks won't underwrite a loan that long. So you will have to enter a new loan next year, and lets say it will be at 6%. Your payments change, going up significantly. You might have to put the house on the market if you can't afford the new payments. In the U.S. that same person would have had the option for a 30 year fixed rate government backed mortgage at a 3% interest rate, with only 3-5% down. They don't have to refinance in 5 years=, like in other countries. If interest rates go up, and they had nowhere else to go, their mortgage will not increase. How could these government subsidies not be contributing some amount to an increase in housing costs? Doesn't that make it harder for people coming later to afford housing, since housing has increased in price so much faster than wages?
  - 4y ago

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.

mikem170 4y ago
I think I follow, but I'm not sure if you're capturing all the factors. For example, let's say you lived in Canada and bought a house 4 years ago for $300k with a 5 year 3% mortgage. You can't get a 30 year mortgage in Canada, the banks won't underwrite a loan that long. So you will have to enter a new loan next year, and lets say it will be at 6%. Your payments change, going up significantly. You might have to put the house on the market if you can't afford the new payments. In the U.S. that same person would have had the option for a 30 year fixed rate government backed mortgage at a 3% interest rate, with only 3-5% down. They don't have to refinance in 5 years=, like in other countries. If interest rates go up, and they had nowhere else to go, their mortgage will not increase. How could these government subsidies not be contributing some amount to an increase in housing costs? Doesn't that make it harder for people coming later to afford housing, since housing has increased in price so much faster than wages?
- 4y ago