4 ms·

Is building more really the solution? (sure it's one solution) I think the main issue is the one you formulated so succinctly, the question why people are able

Is building more really the solution? (sure it's one solution) I think the main issue is the one you formulated so succinctly, the question why people are able to access such huge amounts of credit so cheaply. Why are interest rates for house buyers so low?

pjc50 2y ago
Interest rates everywhere have been low for a long time; the US whacked them up to 5.5% to combat inflation, but that's expected to decline. In general the rates for house buying are so good because the loan is secured on the house, whose value is very stable.
- bombcar 2y ago
  The loan is secured by the house, but it is against your income (try to get anything but a reverse mortgage on a owned outright home when you have no income). What is strange about the US is that the government takes on the interest rate risk for 30 year fixed uncallable loans since the Great Depression. This is an intentional subsidy of housing (prices or availability, whichever you want to allocate it to) because US policy for decades has been that home ownership by citizens is a good to be worked toward. In counties where this doesn't exist, you should expect to see the housing market warm back up (and prices drop) when the ARMs start resetting, and that's really all they have. Interest Rate Risk basically comes about from the pricing changes when rates change, a $100k bond paying at 2% becomes worth less than $100k when rates rise, because people won't buy it when new bonds are paying 5%, so you have to make the effective yield become 5%. Holding to maturity can partially but not completely offset it. https://www.fdic.gov/regulations/resources/director/technical/irr/irr-2.pdf https://www.fdic.gov/regulations/resources/director/technica... has some examples of how it can affect banks, especially with "mark to market" laws.
- geysersam 2y ago
  The house prices are not stable, they're increasing.

pjc50 2y ago

Interest rates everywhere have been low for a long time; the US whacked them up to 5.5% to combat inflation, but that's expected to decline. In general the rates for house buying are so good because the loan is secured on the house, whose value is very stable.

bombcar 2y ago
The loan is secured by the house, but it is against your income (try to get anything but a reverse mortgage on a owned outright home when you have no income). What is strange about the US is that the government takes on the interest rate risk for 30 year fixed uncallable loans since the Great Depression. This is an intentional subsidy of housing (prices or availability, whichever you want to allocate it to) because US policy for decades has been that home ownership by citizens is a good to be worked toward. In counties where this doesn't exist, you should expect to see the housing market warm back up (and prices drop) when the ARMs start resetting, and that's really all they have. Interest Rate Risk basically comes about from the pricing changes when rates change, a $100k bond paying at 2% becomes worth less than $100k when rates rise, because people won't buy it when new bonds are paying 5%, so you have to make the effective yield become 5%. Holding to maturity can partially but not completely offset it. https://www.fdic.gov/regulations/resources/director/technical/irr/irr-2.pdf https://www.fdic.gov/regulations/resources/director/technica... has some examples of how it can affect banks, especially with "mark to market" laws.
geysersam 2y ago
The house prices are not stable, they're increasing.