4 ms·

I'm not sure household debt is a great indicator. Someone that has a mortgage will have much more household debt than a renter, but also not have to pay rent.

by hx8 1y ago

I'm not sure household debt is a great indicator. Someone that has a mortgage will have much more household debt than a renter, but also not have to pay rent. This would need data to contextualize.

elzbardico 1y ago
Don't matter. You still have the debt. If you lose your job in a depression, odds are no much other people will be in the market to buy your home.
- hx8 1y ago
  The amount of equity you have in your home matters. Most recessions do not take 20% off home values, so people with conventional loans are pretty safe. Even the Great Depression just cut valuations about 35%. If you lose your job in a depression there will be plenty of people willing to buy assets at a discount. If you have equity in your home then your position will be net positive. About half of all mortgages have an outstanding balance less than 50% of the home's value.
  - dmoy 1y ago
    That kinda works in the abstract, but it's pretty risky for any individual house. If your house was somehow a representative slice of all US housing, sure maybe it won't drop 35%. But if you owned a house in Detroit from 2003-2010 it might have dropped 70-80%. Or, more on point for many on HN, if you own a house in the Bay Area worth $2-$3M with 25% equity, and the tech job market collapses, then you might get completely wiped out.
- const_cast 1y ago
  I think debt is good, actually, for most middle class households, and they're actively trying to increase their debt because that results in greater cash-flow, more savings, and more security in terms of retirement. That's why buying a home is Goal #1 for most Americans.
  - brewdad 1y ago
    Home mortgage debt is mostly "good" debt for middle class households. Pretty much any other type of debt is a net negative in financial terms. There are less tangible benefits to owning a newer, more reliable car for example, so it can be a bit murky. General consumption debt is a bad bet for pretty much anyone.
- spixy 1y ago
  What if I use debt to invest or to buy assets that increase productivity of my company? Or for some loan you need to pay monthly 5% of your income (for iphone or car), and other loan need you to pay 50% of your income (mortgages). You cannot count them in the same way...
- spixy 1y ago
  What if I use debt to invest? Or for some loan you need to pay monthly 5% of your income (for iphone or car), and other loan need you to pay 50% of your income (mortgages). You cannot count them in the same way. And mortgage can have 1% interest rate or 6%...
frontfor 1y ago
You could argue household debt is just another form of rent, where you “rent” capital from the wealthy in exchange for paying interest on a monthly basis. Just because you don’t pay a rent directly named as such doesn’t change the substance of it.
- hx8 1y ago
  Exactly my point. Rent and mortgage debt is functionally very similar and total household debt wouldn't capture rent obligations.
- ghaff 1y ago
  Debt, within reason, is just a tool. It provides leverage and it lets you buy things for which you don't have cash-in-hand--houses in particular. It can also encourage overspending (something that car dealers capitalize on) but that's another story.
- tshaddox 1y ago
  It's a very different form of rent though, namely because the mortgage borrower has a lot of collateralized debt and the mortgage borrower owns the appreciation (or depreciation) of the property (proportional to their equity).
  - kevin_thibedeau 1y ago
    A home dweller is paying "rent" to the government as property taxes, possibly indirectly through a mortgage.
  - hx8 1y ago
    I don't think it is proportional to their equity. The borrower owns all appreciation and depreciation.
robertlagrant 1y ago
Similarly debt that got you a medical degree is different to debt on a shiny new car. A subsistence farmer in the DRC might have less debt than a college graduate, but that doesn't matter if the college graduate's earning prospects are excellent. (No comment on the current reality of medical debt, of course. Just a general principle.)

by hx8 1y ago

I'm not sure household debt is a great indicator. Someone that has a mortgage will have much more household debt than a renter, but also not have to pay rent. This would need data to contextualize.

elzbardico 1y ago

Don't matter. You still have the debt. If you lose your job in a depression, odds are no much other people will be in the market to buy your home.

hx8 1y ago
The amount of equity you have in your home matters. Most recessions do not take 20% off home values, so people with conventional loans are pretty safe. Even the Great Depression just cut valuations about 35%. If you lose your job in a depression there will be plenty of people willing to buy assets at a discount. If you have equity in your home then your position will be net positive. About half of all mortgages have an outstanding balance less than 50% of the home's value.
- dmoy 1y ago
  That kinda works in the abstract, but it's pretty risky for any individual house. If your house was somehow a representative slice of all US housing, sure maybe it won't drop 35%. But if you owned a house in Detroit from 2003-2010 it might have dropped 70-80%. Or, more on point for many on HN, if you own a house in the Bay Area worth $2-$3M with 25% equity, and the tech job market collapses, then you might get completely wiped out.
const_cast 1y ago
I think debt is good, actually, for most middle class households, and they're actively trying to increase their debt because that results in greater cash-flow, more savings, and more security in terms of retirement. That's why buying a home is Goal #1 for most Americans.
- brewdad 1y ago
  Home mortgage debt is mostly "good" debt for middle class households. Pretty much any other type of debt is a net negative in financial terms. There are less tangible benefits to owning a newer, more reliable car for example, so it can be a bit murky. General consumption debt is a bad bet for pretty much anyone.
spixy 1y ago
What if I use debt to invest or to buy assets that increase productivity of my company? Or for some loan you need to pay monthly 5% of your income (for iphone or car), and other loan need you to pay 50% of your income (mortgages). You cannot count them in the same way...
spixy 1y ago
What if I use debt to invest? Or for some loan you need to pay monthly 5% of your income (for iphone or car), and other loan need you to pay 50% of your income (mortgages). You cannot count them in the same way. And mortgage can have 1% interest rate or 6%...

frontfor 1y ago

You could argue household debt is just another form of rent, where you “rent” capital from the wealthy in exchange for paying interest on a monthly basis. Just because you don’t pay a rent directly named as such doesn’t change the substance of it.

hx8 1y ago
Exactly my point. Rent and mortgage debt is functionally very similar and total household debt wouldn't capture rent obligations.
ghaff 1y ago
Debt, within reason, is just a tool. It provides leverage and it lets you buy things for which you don't have cash-in-hand--houses in particular. It can also encourage overspending (something that car dealers capitalize on) but that's another story.
tshaddox 1y ago
It's a very different form of rent though, namely because the mortgage borrower has a lot of collateralized debt and the mortgage borrower owns the appreciation (or depreciation) of the property (proportional to their equity).
- kevin_thibedeau 1y ago
  A home dweller is paying "rent" to the government as property taxes, possibly indirectly through a mortgage.
- hx8 1y ago
  I don't think it is proportional to their equity. The borrower owns all appreciation and depreciation.

robertlagrant 1y ago

Similarly debt that got you a medical degree is different to debt on a shiny new car. A subsistence farmer in the DRC might have less debt than a college graduate, but that doesn't matter if the college graduate's earning prospects are excellent. (No comment on the current reality of medical debt, of course. Just a general principle.)