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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

#441

Post by kgwgk »

alexasmyths wrote: post #439
kgwgk wrote: post #438

Earlier quoted context omitted.

Have you seen the balance sheet of a bank? They don't lend out more than they have in deposits.

Banks definitely lend out more than they have in deposits. [1] It's why you've heard the term 'reserve ratios' etc.. [1] https://www.investopedia.com/articles/investing/022416/why-b...

The link you sent doesn't say that they lend out more than they have in deposits (it says loans create deposits... so they will always have more deposits than there are loans).

And the following passage doesn't make much sense: "When a bank makes a loan, there are two corresponding entries that are made on its balance sheet, one on the assets side and one on the liabilities side."

If you take a loan to buy a house, it will not be a new deposit at your bank. It will be a new deposit at the seller's bank. And against that new deposit, that bank can extend new loans. Etc. http://thenextturn.com/wp-content/uploads/2015/04/Fractional...

Of course when you are just getting the loan it will appear as a deposit at your bank. But this is not to balance the loan. The loan is coming from a reduction in reserves. This temporary deposit (on the liabilities side) will increase the reserves temporarily (on the assets side), but only until you take the money out to do whatever you asked the money for.

Definitely banks do not lend out more than they have in deposits (ignoring other forms of financing for banks, of course).

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

#442

Post by gamblor956 »

bzbarsky wrote: post #295
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…

> 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.…

The 3.8% net investment income tax doesn't apply to real property, it applies to investment property. The NIIT specifically excludes gains from the sale of primary residences. The IRS provides a helpful FAQ on this: https://www.irs.gov/newsroom/net-investment-income-tax-faqs.

Second, the 25% rate is an approximate rate that combines the federal and state rates while taking into account the deduction for state and local taxes. 25% is a nice round number. I'm not going to prepare a detailed tax model for an anonymous internet comment.

My point stands either way: he's whining about having to pay an effective tax rate of 10-15% on his profits from selling his million dollar house while people in other parts of the country are struggling to even afford rent. He's acting like an entitled child and quivering about the exact tax rate he pays doesn't change that.

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

#443

Post by astura »

ZeroGravitas wrote: post #224
astura wrote: post #208

Earlier quoted context omitted.

Except you can really only "cash out" in a meaningful way if you sell and relocate to a cheaper area/somewhere without a housing bubble, which is extremely disruptive to your life.

There are financial instruments that will allow you to cash out if you own property while continuing to live in it for as long as you want to e.g. https://en.wikipedia.org/wiki/Reverse_mortgage

I said "in a meaningful way."

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

#444

Post by mbesto »

bzbarsky wrote: post #437
mbesto wrote: post #429

Earlier quoted context omitted.

If you sell it after 2 years and it's your principal residence you do actually have $400k in cash... https://ttlc.intuit.com/questions/3229450-sold-primary-house...

No, you do not. If you buy a house for $1M, sell for $2M, you pay taxes on $500k. Those taxes are ~34% if you're in California, so you pay about $150k in taxes. You buy a house for $1.6M, you have $250k left, not $400k.

This is not correct according to the 2 CA tax accountants I just spoke in the last 2 weeks. I literally am researching this exact situation right now.

https://www.irs.gov/taxtopics/tc701

Where's your source?

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

#445

Post by alexasmyths »

kgwgk wrote: post #441
alexasmyths wrote: post #439

Earlier quoted context omitted.

Banks definitely lend out more than they have in deposits. [1] It's why you've heard the term 'reserve ratios' etc.. [1] https://www.investopedia.com/articles/investing/022416/why-b...

The link you sent doesn't say that they lend out more than they have in deposits (it says loans create deposits... so they will always have more deposits than there are loans). And the following passage doesn't make much sense: "When a bank makes a loan, there are two corresponding entries that are made on its balance sheet, one on the assets side and one on the liabilities side." If you take a loan to buy a house, i…

I see what you are saying, I agree, we are just arguing over words.

Technically, you are correct - they don't lend out more than what is deposited, but what is deposited is 'created' (or at least deposited and lent money against those deposits are both considered 'in circulation') by they or other banks, ergo, banks end up lending out considerably more money than is created from the central bank.

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

#446

Post by bzbarsky »

gamblor956 wrote: post #442
bzbarsky wrote: post #295

Earlier quoted context omitted.

> 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.…

The 3.8% net investment income tax doesn't apply to real property, it applies to investment property. The NIIT specifically excludes gains from the sale of primary residences. The IRS provides a helpful FAQ on this: https://www.irs.gov/newsroom/net-investment-income-tax-faqs . Second, the 25% rate is an approximate rate that combines the federal and state rates while taking into account the deduction for state and lo…

> The 3.8% net investment income tax doesn't apply to real property

Ah, I didn't realize that, thank you!

> he's whining about having to pay an effective tax rate of 10-15% on his profits

No, the key part of the complaint is that the combination of price rise and tax structure mean that a lateral move requires liquidity he does not have.

It's a first-world problem for sure, but it's still a problem caused by the fact that we have various fairly dumb tax policies.

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

#447

Post by bzbarsky »

mbesto wrote: post #444
bzbarsky wrote: post #437

Earlier quoted context omitted.

No, you do not. If you buy a house for $1M, sell for $2M, you pay taxes on $500k. Those taxes are ~34% if you're in California, so you pay about $150k in taxes. You buy a house for $1.6M, you have $250k left, not $400k.

This is not correct according to the 2 CA tax accountants I just spoke in the last 2 weeks. I literally am researching this exact situation right now. https://www.irs.gov/taxtopics/tc701 Where's your source?

I'm looking at the exact same source you are. What part of what I said is not correct, exactly? The capital gains are $1 million. $500k of it is excluded (assuming you're married filing jointly). The rest gets taxed.

If you think that's incorrect, what do _you_ think happens with taxes when selling a home for $2 million that was bought for $1 million?

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

#448

Post by kgwgk »

alexasmyths wrote: post #445
kgwgk wrote: post #441

Earlier quoted context omitted.

The link you sent doesn't say that they lend out more than they have in deposits (it says loans create deposits... so they will always have more deposits than there are loans). And the following passage doesn't make much sense: "When a bank makes a loan, there are two corresponding entries that are made on its balance sheet, one on the assets side and one on the liabilities side." If you take a loan to buy a house, i…

I see what you are saying, I agree, we are just arguing over words. Technically, you are correct - they don't lend out more than what is deposited, but what is deposited is 'created' (or at least deposited and lent money against those deposits are both considered 'in circulation') by they or other banks, ergo, banks end up lending out considerably more money than is created from the central bank.

We agree, then. Simplifying a bit, M0 (physical cash) is lower than M1 (M0 + checking accounts) and M2 (M1 + savings accounts) which are the usual measures for money in circulation. Note that there are also broader definitions of money, including as well long-term deposits and other money-like instruments.

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

#449

Post by wjnc »

SiempreViernes wrote: post #117
staticelf wrote: post #47

Earlier quoted context omitted.

Well, if you are increasing the population a lot, all of those people are going to need somewhere to live. It isn't really hard to figure that out but most people don't seem to make that connection. Don't understand how it could even be remotely racist or popular. The statistics of housing prices correlates very well with increases in immigration. Of course, correlation does not imply causation but in this case I'm p…

In 92 there was a five times jump in asylum applications from the previous year (to 69 000 people), can you guess what inflation adjusted house prices index did at that time, and some time on? It takes great effort to see a correlation between yearly applications (between 2000 and 2008 an average of 25 k persons varying with at most 30%, 7 years below that average and 3 above) and house price index (steadily up 62 %…

Do you have any data on the supply of housing for the corresponding time periods and perhaps the mix of rental v ownership?

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

#450

Post by geezerjay »

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…

> To get out of the rising housing prices trap, we need another money creation mechanism,

...or simply a way to deflate the housing market, such as public housing and urban renewal projects.

I don't understand why a small issue that's easily solved and a very basic strategy all over the world is somehow interpreted as a insurmountable problem that means the entire economical system is broken.

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