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The Shock of Sweden's Housing Market Is Hitting the Country's Currency

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Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#291

Post by ng12 »

lisper wrote: post #155
mbesto wrote: post #136

Earlier quoted context omitted.

Fellow Northern California homeowner here. You can sell it and you will net a return. I'm not sure I understand your gripe. It sounds like you're annoyed about the hassle of moving , the associated fees, etc. But the parent's point is valid - the appreciation of value of your house is great for you. > 1. Capital gains tax Note - if it's your primary residence you get capital gains relief on the first $500k. > 2. Real…

> if it's your primary residence you get capital gains relief on the first $500k. Yes, I know. But our appreciation is substantially more than that. The higher it goes, the more expensive it becomes to make a move. > which is less impactful since you've already made a profit on it Only if we move to a less expensive area. If we make a local move, that "profit" just gets rolled in to the next house. There's no way to…

I feel like you're really making your own problem here -- you want to downsize while keeping a large portion of your equity.

The ratio of profit you make moving from a $2m house to a $1m house is the same as moving from a $200k house to a $100k house in a "stable" area.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#292

Post by bzbarsky »

mbesto wrote: post #206
lisper wrote: post #155

Earlier quoted context omitted.

> if it's your primary residence you get capital gains relief on the first $500k. Yes, I know. But our appreciation is substantially more than that. The higher it goes, the more expensive it becomes to make a move. > which is less impactful since you've already made a profit on it Only if we move to a less expensive area. If we make a local move, that "profit" just gets rolled in to the next house. There's no way to…

But you don't realize a net loss from moving to a smaller home in the same area. The only hinderance is paying a higher tax % (because of CA), but you'll likely net more positive cash (because of the transaction) + the absolute value of your new taxes will be less. I'm still not sure why exactly the issue is. You literally can afford to downsize and you'll make a ton of money doing so. > If we make a local move, that…

> 2017 - Buy new house for $1M (but smaller size)

Assuming there's anything on the market for $1M. The problems start when there isn't.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#293

Post by bzbarsky »

opportune wrote: post #192
lisper wrote: post #107

Earlier quoted context omitted.

> High housing prices are great for those who already owned houses Not really. Rising prices (not high prices) are great for people holding houses as investments . But for owner-occupied houses, rising prices are as bad for the owners as they are for everyone else. my wife and I own a house in Northern California, which we bought during the sub-prime crash. Since then it has nearly doubled in price. It is also too bi…

Capital gains is only applicable when you sell the house and it's not your primary residence, or if you made a ton of money on it. And it's only a tax on the appreciation of the house, not its market value. Real estate agent fees are only applicable on x% of the value of the house you sell. Higher property taxes do stink but are not applicable after you sell the house. I'm not sure why you can't afford to move. Have…

You can actually get screwed more by going from X to 4X than by going from X to 2X _if_ you want to buy your new house in the same market.

In the simplest case, consider that you want to move to a house of the same value (e.g. closer to work). That's a lot easier to do if there was no taxable appreciation in value than if there was.

But even when downsizing you could run into problems; see the example I give elsewhere in this thread: https://news.ycombinator.com/item?id=15706565

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#294

Post by styrophone »

Danihan wrote: post #249
darawk wrote: post #241

Earlier quoted context omitted.

> In any case, complaining about having to pay capital gains tax on gains OVER $500k really is the ultimate first world, privileged problem. Almost every complaint levied on this forum is a first world problem. Complaining about the ergonomics of a programming language is a first world problem. And secondly, he wasn't complaining , he was describing the economics of his choices. What is infinitely more toxic than 'co…

>What is infinitely more toxic than 'complaining' about first world problems That's just like, your opinion man. >Complaining about the ergonomics Look, complaining about work is a typical first world problem, sure. And of course we're all lucky to do the work we do and not live in [wherever.] Complaining about 20% taxes on $200k of a ~$700k windfall is truly more like a .00001% issue and is pretty obtuse by any meas…

It seems your comment is characterizing the OP as a complaint mostly in search of sympathy. That doesn’t strike me to be the purpose of the post at all.

The OP is using him or herself as an example of a real behavior in response to real economic incentives, no matter how unsympathetic you find their circumstance. The fact that this situation discourages moves that most other markets encourage is a worthwhile point to bring up. Among other things, it reduces supply which has a profound effect on new buyers.

Incentives influence actions much more than personal criticism does. The OP’s relatively fortunate outcome does not mean that they don’t have something relevant to share. In contrast, targeting them with pejorative shaming is totally unhelpful.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#295

Post by bzbarsky »

gamblor956 wrote: post #233
lisper wrote: post #212

Earlier quoted context omitted.

Suppose I bought my house for $1M and prices are stable. I can sell my $1M house and buy a different $1M house and the net cost to me is 6% agent fees. But if prices have doubled now the net cost to me is much higher. The agent fees are double what they were, and I have to pay cap gains on $500k. All that is money I have to come up with somehow in order to complete the transaction. I either have to write a check, or…

Not understanding your complaint. You would have to sell your house for more than $1.5M to have any taxable capital gains. You would have to sell your house for more than $2.5m to have an effective tax rate of more than 10% on the sale. (For example, if you sold your house for $2m, your effective tax rate on the sale would be 5%, ignoring AMT and assuming no other significant sources of income.) Boo hoo. On the secon…

> For example, if you sold your house for $2m, your effective tax rate on the sale would be 5%

The tax on capital gains in this case would be 20% federal, ~10% state (in California), 3.8% ACA investment tax. That's an ~34% rate, not the 20% you seem to think applies.

> the only cash you need to come up with is the down payment for the new house

Let's take the simple case where the old house was paid off, no mortgage. Are you suggesting that it's unreasonable to want to downsize and still not have a mortgage?

If you do have a significant mortgage, and are hence highly leveraged, an increase in property prices is pretty good. If your mortgage is more or less paid off, you can in fact end up in a situation where you can't buy any house at all in the same general market after selling your existing one and paying the property taxes. See a worked-out example at https://news.ycombinator.com/item?id=15706565

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#296

Post by ptaipale »

jazzyk wrote: post #288
ollebro wrote: post #142

Earlier quoted context omitted.

We don't have a property tax in sweden. Also no inheritance or gift tax. Very good place to live if you are wealthy and don't make money the peasant way of going to work.

Why did a lot of rich people (Bjorn Borg, Ingvar Kamprad (IKEA)) move out of Sweden, then?

They moved out earlier, when there were (quite high) property taxes. The tax was abolished in 2007.

Ingvar Kamprad moved to Switzerland in 1976; in 2014, when the abolition of 2007 had survived one election cycle, he moved back to Småland.

Björn Borg moved out of Sweden already in 1974 at age of 18, perhaps more because on 90% income tax than property taxes.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#297

Post by Someone »

AznHisoka wrote: post #61
opportune wrote: post #14

When will we learn that a "strong" housing market is not necessarily a good thing? High housing prices are great for those who already owned houses but terrible for everyone else (e.g. the entire generations born after prices became inflated). Not to mention people are greedy and will over leverage themselves when interest rates are good. No country should let the "landed gentry" hold them hostage over interest rates…

Shouldn't home prices rise the same rate as inflation? The % of salary people devote to housing shouldn't increase by a large amount each year. And people's salaries don't rise that much year to year either. It rises the same rate as inflation.

As you get richer, you have a choice as to what to spend your money on. You could buy more expensive food or eat out more, buy hand-made suits, go on expensive holidays, buy a huge car, etc, but most people seem to put higher utility on a better (size, location, whatever) house. Therefore, the distribution of your spending over the various categories can change as your income goes up.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#298

Post by lisper »

kgwgk wrote: post #287
lisper wrote: post #171

Earlier quoted context omitted.

Yes, exactly. The higher prices go, the more it costs to make a local move. We only "win" if we actually cash out and move to a different, less expensive area, but we don't want to do that. We like it here.

Do you mean “win” compared to the counterfactual where the house has appreciated and you don’t move to a similar one, or compared to the counterfactual where the house didn’t appreciate and you move to another one at the original price? If there had been no appreciation, your final wealth (cash + home equity) would be lower than in the case where the houses are more expensive, even after paying taxes, so it’s hard to…

> Do you mean “win” compared to the counterfactual where the house has appreciated and you don’t move to a similar one, or compared to the counterfactual where the house didn’t appreciate and you move to another one at the original price?

Either one.

We put a certain intrinsic value on a local lateral move. If the cost of moving is less than that intrinsic value, and we find a house we like, we'll move. If the cost of moving is more than that intrinsic value we'll stay regardless of whether we find a house we like. So the higher prices go, the less likely we are to move. So when prices go up, that removes liquidity from the market, which perversely drives prices up even further and makes the problem worse. So while we're sitting on a pile of equity, we can't actually use it unless we move out of the area, and that has a huge negative intrinsic value for us. We really like it here.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#299

Post by icebraining »

mnm2 wrote: post #166
teekert wrote: post #161

Earlier quoted context omitted.

High housing prices are also very nice for banks and benks control nations. Essentially all mortgage money is created as dept. Banks can simply say: Here you go ma'am/sir, here is your money, created out of thin air. Now, please sign here to pay for your house twice, 1 time to the original owner and 1 time to us, because we created this money for you out of thin air.

Yes and no: The bank wants 2% as interests, but inflation is 3% --> The Bank effectively loses money

Isn't that only true for fixed-rate mortgages? At least around here, almost all are variable-rate, so they rise with inflation.

I think banks only really lose money on defaults, and that's if the house lost value.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#300

Post by littlestymaar »

opportune wrote: post #40
maxxxxx wrote: post #25

Earlier quoted context omitted.

Totally agree. It seems one of the factors that helped the US until the 90s was that housing was affordable so people could move around easily. A "strong" housing market seems to indicate that there are no productive places for investing and no wage growth so people need to gamble on houses to rise instead.

I think a strong housing market may be the result of lack of productive capital, but I think it has more to do with supply and demand. Most average people pay for a house using a mortgage payment, so when buying a house, they'll be looking for a house that has an affordable mortgage payment. Let's say Joe wants to spend / can afford a $1000/month mortgage payment. If interest rates are 5% and the maximum mortgage per…

> Either politicians are stupid, or more likely, they know that "homeowner policy" like this can make them and their other rich buddies even richer.

It's not a malice vs idiocy situation, actually there is a third explaination : economy needs a growing money supply to work properly (and the money creation need to compensate the economic growth AND the reduction of money velocity[1]). But since the late seventies, money creation is only possible through the banking system via credit. That's why central banks reduces interest rates to stimulate economy, because you need to create money to enable economic growth. To get out of the rising housing prices trap, we need another money creation mechanism, but many people are affraid of the old ones (state-controlled monetary creation) and a lot of people (bankers, homeowners) have a lot to lose if we changed the system.

[1]: this is the failure of the monetarist view from the seventies, which predicted a constant money velocity, in fact we've had a declining one for the last four decades.

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