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A fixed 30 yr mortgage is insane. Insanely good if you have a home and a low rate (or refi into one) Insanely bad if you don't have a home. It's not a natura

A fixed 30 yr mortgage is insane. Insanely good if you have a home and a low rate (or refi into one) Insanely bad if you don't have a home. It's not a natural construct, it's an artificial loan that only exists because the fed is the counter party. In an natural economy, mortgages would all be variable rate, or fixed rate but much higher than what is available today. This would also mean that the housing rush of 2021 would have been crushed by rate increases in 2022/23. In fact there probably wouldn't have been much of a rush at all.

Ekaros 3y ago
Fixed rate is reasonable product. But there should be cost involved in paying it back in higher interest rate environment. So if you payback early you would need to pay the delta between current fixed rate and one you have.
- Workaccount2 3y ago
  It's a reasonable product when it is priced correctly. It's not priced correctly when the one taking on the risk is also the one who can pull money out of thin air.
JumpCrisscross 3y ago
> it's an artificial loan that only exists because the fed is the counter party The Fed doesn't originate mortgages. (And it's increasingly getting out of even holding them.)
- Workaccount2 3y ago
  No, it buys them from the banks and the banks know this going into the loans.
  - JumpCrisscross 3y ago
    > it buys them from the banks and the banks know this going into the loans This isn't how the mortgage market works. Qualifying mortgages are guaranteed by Fannie and Freddie. The Fed's participation in the mortgage market has been for liquidity, not credit, purposes. Kill Fannie & Freddie and the 30-year mortgage goes away. Ban the Fed from buying mortgage securities and rates go up a bit.
    - pandaman 3y ago
      >Kill Fannie & Freddie and the 30-year mortgage goes away. If this had been true, then 30 year jumbo loans would not exist (F&F cannot buy non-conforming mortgages).
      - JumpCrisscross 3y ago
        > then 30 year jumbo loans would not exist (F&F cannot buy non-conforming mortgages) Fair enough, the 30-year mortgage wouldn't exist for the average American. I don't believe the Fed buys mortgage securities containing them either.
        pandaman 3y ago
        I don't follow. Jumbo loans exist now even without support from F&F, why can't smaller loans exist without F&F? F&F are not some charities, they make profit on their mortgage business. If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? I mean, there are plenty non-conforming loans, which are not jumbo, written right now. It's just hard to compete with the F&F on the conforming loan market so nobody does that otherwise there is nothing magical about conforming loans.
        JumpCrisscross 3y ago
        > If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? It doesn’t work without the implicit guarantee. If you run a neutral pricing model, you’d get a rate roughly double where they’re priced now. The only solution is to let the rate periodically reset.
pcthrowaway 3y ago
> In an natural economy, mortgages would all be variable rate, or fixed rate but much higher than what is available today. > This would also mean that the housing rush of 2021 would have been crushed by rate increases in 2022/23. In fact there probably wouldn't have been much of a rush at all. Interestingly, you described almost exactly how mortgages work in Canada: you pay more for a fixed rate, and even then, you can only get a fixed rate for a term of up to 10 years. And the average term is more like 5 years. People's mortgages have been going up now that interest rates are up. This was not impossible to predict. And that certainly didn't stop the housing rush of the last 15 years.
- bryanlarsen 3y ago
  Canadian house prices are up 40% in the last 15 years. That's less than inflation. Yes, they are super expensive, but they were even more super expensive 15 years ago. Canada didn't get the 2008 crash that the US did.
  - office_drone 3y ago
    That can't be right. GTA and Vancouver home prices are 3 times what they were in 2009.
    - bryanlarsen 3y ago
      Vancouver average detached was $1.2M in 2008, it's $1.8M now. That's not 3X.
      - office_drone 3y ago
        According to a realtor association site [0] the 'Residential - All Types' price for 'Greater Vancouver' went from $466,500 in March 2009 to $1,196,800 in March 2024. That is a 2.57x multiple. [0] https://www.gvrealtors.ca/market-watch/MLS-HPI-home-price-comparison.hpi.all.all.all.2024-3-1.html https://www.gvrealtors.ca/market-watch/MLS-HPI-home-price-co...

Ekaros 3y ago

Fixed rate is reasonable product. But there should be cost involved in paying it back in higher interest rate environment. So if you payback early you would need to pay the delta between current fixed rate and one you have.

Workaccount2 3y ago
It's a reasonable product when it is priced correctly. It's not priced correctly when the one taking on the risk is also the one who can pull money out of thin air.

JumpCrisscross 3y ago

> it's an artificial loan that only exists because the fed is the counter party The Fed doesn't originate mortgages. (And it's increasingly getting out of even holding them.)

Workaccount2 3y ago
No, it buys them from the banks and the banks know this going into the loans.
- JumpCrisscross 3y ago
  > it buys them from the banks and the banks know this going into the loans This isn't how the mortgage market works. Qualifying mortgages are guaranteed by Fannie and Freddie. The Fed's participation in the mortgage market has been for liquidity, not credit, purposes. Kill Fannie & Freddie and the 30-year mortgage goes away. Ban the Fed from buying mortgage securities and rates go up a bit.
  - pandaman 3y ago
    >Kill Fannie & Freddie and the 30-year mortgage goes away. If this had been true, then 30 year jumbo loans would not exist (F&F cannot buy non-conforming mortgages).
    - JumpCrisscross 3y ago
      > then 30 year jumbo loans would not exist (F&F cannot buy non-conforming mortgages) Fair enough, the 30-year mortgage wouldn't exist for the average American. I don't believe the Fed buys mortgage securities containing them either.
      - pandaman 3y ago
        I don't follow. Jumbo loans exist now even without support from F&F, why can't smaller loans exist without F&F? F&F are not some charities, they make profit on their mortgage business. If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? I mean, there are plenty non-conforming loans, which are not jumbo, written right now. It's just hard to compete with the F&F on the conforming loan market so nobody does that otherwise there is nothing magical about conforming loans.
        JumpCrisscross 3y ago
        > If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? It doesn’t work without the implicit guarantee. If you run a neutral pricing model, you’d get a rate roughly double where they’re priced now. The only solution is to let the rate periodically reset.

pcthrowaway 3y ago

> In an natural economy, mortgages would all be variable rate, or fixed rate but much higher than what is available today. > This would also mean that the housing rush of 2021 would have been crushed by rate increases in 2022/23. In fact there probably wouldn't have been much of a rush at all. Interestingly, you described almost exactly how mortgages work in Canada: you pay more for a fixed rate, and even then, you can only get a fixed rate for a term of up to 10 years. And the average term is more like 5 years. People's mortgages have been going up now that interest rates are up. This was not impossible to predict. And that certainly didn't stop the housing rush of the last 15 years.

bryanlarsen 3y ago
Canadian house prices are up 40% in the last 15 years. That's less than inflation. Yes, they are super expensive, but they were even more super expensive 15 years ago. Canada didn't get the 2008 crash that the US did.
- office_drone 3y ago
  That can't be right. GTA and Vancouver home prices are 3 times what they were in 2009.
  - bryanlarsen 3y ago
    Vancouver average detached was $1.2M in 2008, it's $1.8M now. That's not 3X.
    - office_drone 3y ago
      According to a realtor association site [0] the 'Residential - All Types' price for 'Greater Vancouver' went from $466,500 in March 2009 to $1,196,800 in March 2024. That is a 2.57x multiple. [0] https://www.gvrealtors.ca/market-watch/MLS-HPI-home-price-comparison.hpi.all.all.all.2024-3-1.html https://www.gvrealtors.ca/market-watch/MLS-HPI-home-price-co...