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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

#381

Post by opportune »

littlestymaar wrote: post #372
opportune wrote: post #345

Earlier quoted context omitted.

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 immedi…

That's an interesting point, and easily challenged since my country (France) is actually doing what you suggest. And as a matter of fact, retirement here is part of the social security system ( La sécurité sociale ). I'll check if we see the same kind of slowdown of money during the past decades here. I have two personal pet theories (is that really a common idiom in english ? I like it !) on that topic. 1. since we…

One thing I'd worry about is that this kind of pension may only work in a closed system. People not living in France may still purchase French assets for investment, just as they continue to purchase international assets for investment, which will still drive an increase in demand. That could incentivize French people to continue investment, in the absence of strict capital controls.

And yes, it is somewhat common! I think your second point is definitely part of the problem. As to your first, I think that looking at inflation in these terms requires looking at interest rates as well. When both inflation and interest rates are low, hoarding cash is highly incentivized. If inflation is low and interest is high, there is a large opportunity cost to holding cash rather than collecting interest via a mechanism directly tied to the cash (e.g. a bond). If both inflation and interest are high, it would probably be optimal to invest in assets that won't have their underlying value erode as they do with bonds.

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

#382

Post by dredmorbius »

littlestymaar wrote: post #373
dredmorbius wrote: post #365

Earlier quoted context omitted.

And what prevents the arbitrary extension of credit? The present primary reliance on fractional reserve monetary is not a carved-in-stone requirement of financial systems, only the present norm. If you're interested in ideas and thoughts on money, I'd suggest William Stanley Jevons writing as a starting point for modern views. A. Mitchell Innis's "What is Money?" (1913) is not entirely mainstream, but strikes me as a…

> The present primary reliance on fractional reserve monetary is not a carved-in-stone requirement of financial systems, only the present norm. Their is no fractionnal reserve banking in the modern world anymore. And circa 2007, virtually nothing prevented the infinit expansion of credit, with the result we all know. If you want to learn more about these topics, the keen-krugman debate (more of a controversy than a c…

https://www.federalreserve.gov/pubs/feds/2010/201041/index.h...

The St. Louis Fed tends to have the largest set of articles on economic policy, generally.

Here are 632 results for "fractional reserve":

https://encrypted.google.com/search?hl=en&q=site%3Astlouisfe...

And limiting to 2010 and subesequently, 27. None declaring the concept dead.

https://encrypted.google.com/search?q=site%3Astlouisfed.org+...

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

#383

Post by autokad »

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…

this is short sighted. while its 'nice' to buy when the housing market is going down, essentially what you are saying is that a house should not appreciate in value. but in reality, there is virtually no good reason to own a home unless its an appreciating asset.

after owning a home, i have nightmares about water. that was before the city flooded my basement with 3 feet of water (destroyed my washer, dryer, furnace, water heater) and said they have an ordinance that they cant be sued by accidents they cause. you may not get it, but anything that breaks, YOU MUST FIX. it doesn't matter if you had a hard day at work or you have to take your kid to the doctor that day, it has to get done and you need to have money available to do it.

the fact that homes ARE appreciating assets is what makes them so good everyone (even if you rent)

I think the better question to ask is, when will certain people learn that a continually 'weak' housing market is bad for everyone. dips in the housing market give good opportunities for people to get a home cheap, but they are still bad overall for the economy. its also only an opportunity if the housing market turns around and goes back into its upward trajectory.

the city collects taxes on me even though my home is not on the market. when I bought my home, I spent at least 8000$ at home depot, IKEA, etc, plus another 3000$ on a new roof and water heater (because the existing water heater was from the 70s and super energy inefficient). see, even good for the green crowd. although i wish i hadnt, the city was about to destroy it a year later anyways. i digress.

and while you think a trashed housing market would be great at lowering your rent, you might be surprised to find out landlords would have no incentive to keep your facilities nice if it was not a profitable endeavor.

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

#384

Post by opportune »

dredmorbius wrote: post #355
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…

There's some indication that Adam Smith was aware of this: The plenty and cheapness of good land, it has already been observed, are the principal causes of the rapid prosperity of new colonies. The engrossing of land, in effect, destroys this plenty and cheapness. The engrossing of uncultivated land, besides, is the greatest obstruction to its improvement. But the labour that is employed in the improvement and cultiv…

Nice subreddit, I agree with a lot of what you write. In particular I wish more people were looser, as you seem to be, with the assumption that actors within an economy act rationally. It's impossible to act rationally given the huge amount of information asymmetry in the economy, and especially given that others' information asymmetry will cause the economy to not behave rationally regardless of whether you can make rational decisions on it.

It's also impossible to rationally determine whether an arbitrary law / policy change will pass at arbitrary point in the future. So with housing, because we aren't guaranteed that interest rates/zoning/taxes will behave predictably, we can't really rationally determine a "true" price for a house in a market where those may change

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

#385

Post by chaostheory »

Danihan wrote: post #261
chaostheory wrote: post #251

Earlier quoted context omitted.

> Why is expressing emotional reactions pointless, in your mind? Doing so gives everyone more information about the reactions they might expect to their concerns The problem is that the comment provides nothing else. You can do the same thing in a more civil and constructive way. Just look at your comments. You are providing logic and rationale for your argument. I don't agree with you, but you're adding to the discu…

I don't disagree that the comment is probably against the rules. I just believe the rules tend to stifle people from expressing how they truly feel about topics, and are therefore information limiting and generally a net loss. It's a fine line. Some people's feelings are toxic all the time and wrong-headed and truly add nothing of value. Other people, when they have a negative emotional reaction there is probably a l…

To stay on point, my argument is that the rules are clear and they make sense. There are emotional comments on HN that are fine. However they are different. The particular comment we're referring is toxic and adds nothing to the actual discussion; there's no wisdom to calling someone a 'baby'. The only thing it promotes is a flame war since it personally insults someone. It shuts down discussion because it needlessly attempts to piss off someone. There were plenty of other comments that were both critical, insightful, and civil.

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

#386

Post by mercutio2 »

simonbarker87 wrote: post #353
bzbarsky wrote: post #267

Earlier quoted context omitted.

> Would you be any more capable to sell? Quite possibly, yes. Let's plug in some plausible numbers. Say someone buys a 3-bedroom house for $300k (they have kids). At the same time, 1-bedroom houses sell for $200k. Time passes, the kids grow up and move out. Say house prices didn't change at all. You sell for $300k, buy for $200k, pay some agent fees, have $85k or so left over. Now say prices went up and the 3-bedroom…

I’m amazed that the US charge capital gains on primary residence sales - in the UK we have Private Residence Relief which means you pay no capital gains from the sale of your primary residence, so long as you meet some requirements that are very easy to meet and I would say 99% of owner occupiers meet.

99% of American home owners also qualify for full capital gains relief.

Gains greater than 500k are extremely rare outside of certain overly restrictively zoned areas.

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

#387

Post by s0rce »

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…

Also, at least in the US, there are enormous tax advantages to speculating/investing in your house instead of in other mediums (equities/bonds/etc). Capital gains tax on gains is basically 0 on your primary home and you can deduct the mortgage (already low) interest (compare to a margin position).

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

#388

Post by gsam »

maxxxxx wrote: post #25
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…

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 somewhat disagree. The opposite can also occur. Because everyone is gambling on the house market, the amount of productive places for investing diminishes as they are left to be forgotten. This can be obviously self-perpetuating but this is how I would characterize New Zealand.

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

#389

Post by secabeen »

patrickg_zill wrote: post #304
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…

My understanding was that you can avoid all capital gains taxes via "1031 like kind exchange": you sell your house, buy one elsewhere for about the same amount, and pay no capital gains taxes?

That only works for business property.

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

#390

Post by secabeen »

graedus wrote: post #246
gamblor956 wrote: post #233

Earlier quoted context omitted.

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…

It only becomes remotely intelligible if you include these extra constraints: - Assume all other houses in the area also appreciated the same amount as the poster's house (say 2x). - Assume the poster will only consider a move within the same area. Now if they want to make a "lateral" move, they are looking at $2m houses, not $1m houses, since all other houses they would consider - local to their area - also increase…

I don't think there are $1m houses in their area. My guess is that the value of a $2m house in that area is land $1.5m, structure $500k. Even if they downsize the house cost by half, and buy in a smaller lot, the minimum house cost is still $1.5m.

I think the one element that the OP is missing is that after the transaction, he is better off by about $130k in tax due to the increase in basis of his home. If he eventually sells and doesn't buy another home in that area, he will realize an additional $130k in profits on the second home that would be lost to tax if he had not sold the first house.

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