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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

#341

Post by rileyphone »

hackerguy99 wrote: post #334
littlestymaar wrote: post #300

Earlier quoted context omitted.

> 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, mon…

How else can money be created except through credit?

Via being backed to some tangible good, eg gold.

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

#342

Post by nrhk »

hackerguy99 wrote: post #334
littlestymaar wrote: post #300

Earlier quoted context omitted.

> 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, mon…

How else can money be created except through credit?

It can be created backed up by assets instead of reputation though.

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

#343

Post by alkonaut »

marvin wrote: post #327
alkonaut wrote: post #173

Earlier quoted context omitted.

Yes, many homeowners have all or a large part of the mortgage at a rate adjusted several times per year. Right now these variable rates are around 2%. So a lot of people will see their interest rate expenses double if (when) rates normalize at say 4%. I have my mortgage split between 5year fixed, 2 year fixed and the 3month rate, in order to limit my exposure to variations somewhat. The general consensus is long fixe…

Of course, most people who borrow 80+% can't _really_ afford the risk of an adjustable-rate mortgage, but they think they can because rates are always low and will never go back up ;)

Banks do stress tests at 7% interest rate which was a reasonable "high" interest rate 10 years ago, but now it seems almost unimaginably high.

So I think people (and banks) have calculated with higher rates, but there is always illness, divorce, unemployment...

Lots and lots of people would have a pretty miserable economy if interest rates go over 6% (i.e triple) - spending most of their money on mortgages.

So this creates the risk that rates will be self sustaining at a low level because even a 2% increase will reduce consumption and halt inflation pretty quickly.

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

#344

Post by lisper »

Retric wrote: post #323
lisper wrote: post #284

Earlier quoted context omitted.

> if house 1 gained 2 million and house 2 gained 2 million your better off than if house 1 gained 4 million. No, that's not true because the $500k cap gains exemption is per-transaction.

> cap gains exemption is per transaction. Reread what I said? That's why 2 houses with 2 mill gains is better than 1 house with a 4 million gain. Selling 1 house with a 4 million gain is one transaction with a 500k cap so you pay taxes on 3.5 million. But selling one house with a 2 million gain then another house with another 2 million gain is 2 transactions so you pay capital gains on 3 million and get an extra 500k…

You're right, sorry, I misread it. I'm losing the battle of trying to keep up with all the branches of this thread.

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

#345

Post by opportune »

littlestymaar wrote: post #300
opportune wrote: post #40

Earlier quoted context omitted.

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, mon…

Very good point. My pet theory is that the emphasis on asset-ownership as a means of retirement is what is decreasing the velocity of money. For example, let's say we had a system where instead of purchasing a home/stocks/bonds to save for retirement, you could instead pay the government $X which essentially goes toward an annuity with payout determined by the age at which you retire. The government could just immediately spend that money - perhaps on other retirements - and your actual annuity is just an accounting entry. So this is similar to social security, except you can pay more if you want to.

The emphasis on assets for retirement locks a lot of money up in an unproductive musical-chairs of asset transfership. For example let's say I have a pay-day and want to spend $100 on buying stock. When I buy that stock I'm purchasing it directly from someone else who now has $100 instead of the stock. They can spend that money on goods and services, but in my opinion there is a far greater chance that they will reinvest that money in some other asset. If the actual assets in the market don't change, I think you can say that my investment increased the total sum of costs of all assets. I'm not 100% sure this is solid logic but it's some rough reasoning.

The problem is that at any given time more people are buying new assets instead of selling them off. This is because you can make money on purchased assets through rentiership (dividends, renting, or collateral for a leveraged investment that pays dividends/can be rented), and also because people are cautious and save more than they need, since asset prices are unstable.

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

#346

Post by badestrand »

littlestymaar wrote: post #340
hackerguy99 wrote: post #334

Earlier quoted context omitted.

How else can money be created except through credit?

Direct reserve emission by the central bank. In practice, the central bank can just give some reserve to the governement account.

..or they can give it directly to people. There is an initiative for Europe that wants exactly that, Quantitive Easing for People. I love the idea and am sure it would do more for the economy than just pushing banks to lend more money.

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

#347

Post by lisper »

ng12 wrote: post #330
lisper wrote: post #326

Earlier quoted context omitted.

> you've still are earning more money in liquidity during the transaction. So? How does that benefit us in any way? We don't need to sell to have liquidity. We have a HELOC so we can turn our equity into cash on demand. > your conflating transactional costs (expenses, fees, etc) with wealth No, I'm not. I'm just saying that transactional costs decrease your wealth, which is simply a fact. > The cost isn't prohibitive…

I think the core contention here is that, at the end of the day, you are better off because of rising housing prices. You're complaining about transnational prices on your massive amount of equity while brushing aside the fact that you have such a massive amount of equity because of the real estate market.

I don't deny that. But right now I'm worse off relative to my goals at the moment than I would be if house prices were more stable. I'm not saying that rising prices are not good for some home owners, only that they are not good for all home owners in all circumstances.

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

#348

Post by mbesto »

lisper wrote: post #326
mbesto wrote: post #322

Earlier quoted context omitted.

> The higher prices go, the higher the actual cost of moving goes Sans CA taxes, this is relative to the increase of wealth you've accumulated. So yes in the absolute it's higher, but relatively speaking you've still are earning more money in liquidity during the transaction. > This has to do with the actual cost of a move, that is, the difference in your net worth at the end of the day once all the dust settles. I t…

> you've still are earning more money in liquidity during the transaction. So? How does that benefit us in any way? We don't need to sell to have liquidity. We have a HELOC so we can turn our equity into cash on demand. > your conflating transactional costs (expenses, fees, etc) with wealth No, I'm not. I'm just saying that transactional costs decrease your wealth, which is simply a fact. > The cost isn't prohibitive…

> We have a HELOC so we can turn our equity into cash on demand.

But that HELOC has financing terms associated with it. Getting cash out from your HELOC does impact your overall "wealth" because you have to pay a fee (financing terms) to actual turn that credit line into cash. You could in turn take that cash that you borrowed at 3% interest and put it into assets that net you 4% return and effectively increase your wealth. You may take a short term hit to your income (the 3% interest fee) but you net out in the end.

> I'm just saying that transactional costs decrease your wealth, which is simply a fact.

That's not true in real terms. Your talking about a decrease of your perceived wealth. If the only asset I own is $1,000 in public traded stocks (i.e. I look at the stock market this second and they're worth $1,000), you could say your wealth is $1,000, but only for that second. However in practice your real wealth is the amount someone is willing to pay for your assets (when you put a sell order out) minus the transaction fees associated with making the transaction. That's the actual process ("in real terms") you would go through to realize your wealth.

This is effectively what people say when someone is "paper rich" E.g. a startup founder who has 30% of a business that is worth $300M, now has wealth valued at $90M...if he/she were actually liquidate to a seller at $300M, his/her wealth would probably be more like $40M-ish after taxes, transaction fees, etc.

> What exactly is the difference between "cost" and "negative impact on your wealth"? Those two seem like the same thing to me.

I should have probably said income instead instead of "cost". From wikipedia:[0]

Economic terminology distinguishes between wealth and income. Wealth or savings is a stock variable, that is, measurable at a date in time, for example the value of an orchard on December 31 minus debt owed on the orchard. For a given amount of wealth, say at the beginning of the year, income from that wealth, as measurable over say a year is a flow variable. What marks the income as a flow is its measurement per unit of time, such as the value of apples yielded from the orchard per year.

In other words, your wealth is measurable at a moment in time and can't realize a true negative impact on it unless it actually gets liquidated. Otherwise the measurement of it today is simply theoretical.

[0] - https://en.wikipedia.org/wiki/Wealth

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

#349

Post by briandear »

lisper wrote: post #170
gohardorgohome wrote: post #148

Earlier quoted context omitted.

Why not rent this one out and then rent a smaller place yourselves? Anyways, this is a good problem to have. I don't think 1.) and 2.) justify wanting prices to come down since they only affect a % of your appreciation.

Because we don't want to be landlords. And yes, it's a nice problem to have, but it's still a problem.

You get a property manager. The net cash flow is going to be much higher than the mortgage payment and the tenants pay the mortgage. Or, if it’s paid for, you do the same thing except cash out equity, let the tenants pay the equity loan, use that loan to buy the house you want to live in, take a deduction on the interest and you end up with two houses — both paid for by someone else and with a property manager you don’t have to fix toilets. Since you aren’t selling anything, you have no cap gains AND you can deduct depreciation from the rental income which means you end up paying no taxes on the rental income. With Valley housing in short supply you probably have at most an average on 1 month per year of vacancy — if that.

Then if you ultimately sell both houses, you can do a 1031 exchange and invest all of the proceeds into a new house — and defer the cap gains until you sell that.

These problems aren’t that hard unless you look at them from a single direction.

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

#350

Post by cylinder »

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…

Many healthy countries have been held hostage by others doing ZIRP so they had to cut rates due to their currency being too strong.
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