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And yet you would discover that most people couldn't assemble the necessary funds at once, certainly not near the beginning of their careers.

admissionsguy 4y ago
Nor can they save for the downpayments, which are not far from where the prices used to be before the explosion that I attribute to cheap loans.
- bagacrap 4y ago
  If no one can afford even a down payment it's because supply is too low. It's not like there are tons of empty houses that mortgages are preventing buyers from acquiring. Also first time home buyers qualify for very low down payments, like 5%, fwiw.
  - CuriouslyC 4y ago
    Supply isn't too low, supply has being diverted to investors who often don't reside in the home, or who short term rent it. If there was a big tax on non-owner-occupied single family homes that made it unprofitable to buy and hold or vacation rent, housing prices for single family homes would drop hard.
    - easytiger 4y ago
      > housing prices for single family homes would drop hard. No, they wouldn't. as evidenced anywhere this is tried
      - CuriouslyC 4y ago
        I'm going to need you to back that up with a fair amount of data, because this seems like an easy place for someone with an agenda to strawman.
- yucky 4y ago
  First time homebuyers can get a FHA mortgage for 3% down. I think most people thinking about buying a house could put together $7,500 on a quarter million dollar home. And if you're looking to spend more than a quarter million on your first home, well then maybe that's the issue. Starter homes exist in all but a handful of cities.
hedora 4y ago
Low interest rates make it harder to pay cash. So, the mortgage industry has been in this weird loop where you have to use it, even if you could have afforded a house without it. In two extremes: Imagine a market with 20% interest rates. You could just save money instead of holding the loan for 5 years, and then pay cash. Fewer people would have mortgages. Imagine 0.1% fixed, interest-only loans. Financing a house with that would cost about 1/200th as much as in the 20% environment, so prices would increase by something like 200x. We are coming out of ~2% rates. That means houses should cost a bit under 10x more than they would at 20%. If you put 20% down, you could probably have purchased outright in the other environment. (This ignores the possibility of new construction, since I live in California, and that’s more realistic than saying people will be allowed to build housing to take advantage of low mortgage rate arbitrage).
- s1artibartfast 4y ago
  What does inflation look like in your hypothetical with 20% interest? Do house prices not inflate?
  - hedora 4y ago
    Higher interest rates (for subsidized loans) should lead to lower inflation, since it is analogous to the government printing less money. Edit: Think of the 0.1% case from a home builders perspective. They build a house for $500K (say), so a rational homebuilder wouldn’t pay more than about that to buy a house for themselves (in the absence of market distortions). However, the buyer could take their $500K, and put it into investments that yield a few percent a year. Say they are conservative, and assume a minimum 1% annual yield. Now, they can pay the builder $4,999,999 for the house, giving the builder ~$4.5M of disposable income. The builder then spends the money, driving up prices for everyone else. (Of course, they would be wise if they used some of the money to build 5 or 6 more houses, since that leads to exponential income growth for them over time.)
- jjeaff 4y ago
  Instead of a 5 year loan you just save up to buy a house? I suppose this is just a hypothetical? Because even when interest rates were high, people were not generally buying their homes in cash. That's like saying instead of renting for years you could just save that rent money and buy a house after a few years. And with low rates, no one was buying a house with just a 5 year mortgage either. The only reason you are seeing a lot of cash buyers right now is that you have lots of people who have sold their homes at inflated prices after buying years ago at near nothing and now that prices are falling, they have the cash to buy. But that won't last and it will soon be back to only the small group of people with very big incomes or family money and investment firms that are buying in cash.

admissionsguy 4y ago

Nor can they save for the downpayments, which are not far from where the prices used to be before the explosion that I attribute to cheap loans.

bagacrap 4y ago
If no one can afford even a down payment it's because supply is too low. It's not like there are tons of empty houses that mortgages are preventing buyers from acquiring. Also first time home buyers qualify for very low down payments, like 5%, fwiw.
- CuriouslyC 4y ago
  Supply isn't too low, supply has being diverted to investors who often don't reside in the home, or who short term rent it. If there was a big tax on non-owner-occupied single family homes that made it unprofitable to buy and hold or vacation rent, housing prices for single family homes would drop hard.
  - easytiger 4y ago
    > housing prices for single family homes would drop hard. No, they wouldn't. as evidenced anywhere this is tried
    - CuriouslyC 4y ago
      I'm going to need you to back that up with a fair amount of data, because this seems like an easy place for someone with an agenda to strawman.
yucky 4y ago
First time homebuyers can get a FHA mortgage for 3% down. I think most people thinking about buying a house could put together $7,500 on a quarter million dollar home. And if you're looking to spend more than a quarter million on your first home, well then maybe that's the issue. Starter homes exist in all but a handful of cities.

hedora 4y ago

Low interest rates make it harder to pay cash. So, the mortgage industry has been in this weird loop where you have to use it, even if you could have afforded a house without it. In two extremes: Imagine a market with 20% interest rates. You could just save money instead of holding the loan for 5 years, and then pay cash. Fewer people would have mortgages. Imagine 0.1% fixed, interest-only loans. Financing a house with that would cost about 1/200th as much as in the 20% environment, so prices would increase by something like 200x. We are coming out of ~2% rates. That means houses should cost a bit under 10x more than they would at 20%. If you put 20% down, you could probably have purchased outright in the other environment. (This ignores the possibility of new construction, since I live in California, and that’s more realistic than saying people will be allowed to build housing to take advantage of low mortgage rate arbitrage).

s1artibartfast 4y ago
What does inflation look like in your hypothetical with 20% interest? Do house prices not inflate?
- hedora 4y ago
  Higher interest rates (for subsidized loans) should lead to lower inflation, since it is analogous to the government printing less money. Edit: Think of the 0.1% case from a home builders perspective. They build a house for $500K (say), so a rational homebuilder wouldn’t pay more than about that to buy a house for themselves (in the absence of market distortions). However, the buyer could take their $500K, and put it into investments that yield a few percent a year. Say they are conservative, and assume a minimum 1% annual yield. Now, they can pay the builder $4,999,999 for the house, giving the builder ~$4.5M of disposable income. The builder then spends the money, driving up prices for everyone else. (Of course, they would be wise if they used some of the money to build 5 or 6 more houses, since that leads to exponential income growth for them over time.)
jjeaff 4y ago
Instead of a 5 year loan you just save up to buy a house? I suppose this is just a hypothetical? Because even when interest rates were high, people were not generally buying their homes in cash. That's like saying instead of renting for years you could just save that rent money and buy a house after a few years. And with low rates, no one was buying a house with just a 5 year mortgage either. The only reason you are seeing a lot of cash buyers right now is that you have lots of people who have sold their homes at inflated prices after buying years ago at near nothing and now that prices are falling, they have the cash to buy. But that won't last and it will soon be back to only the small group of people with very big incomes or family money and investment firms that are buying in cash.