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The Fed now owns nearly 1/3 of all U.S. mortgages

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Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#321

Post by jeffreyrogers »

qeternity wrote: post #296
jeffreyrogers wrote: post #187

Earlier quoted context omitted.

It's not like the market is doing a good job distributing scarce resources either, particularly in the case of housing.

Capitalism is like democracy: it's the worst form of economics, except for all the others. The fact that it has flaws does not make other systems superior. Also, this thread is literally about how the housing market isn't a true market...it's a government run welfare program backed by the Fed. You're proving my point.

I'm not anti-capitalism, but markets aren't a naturally regulating thing. They need to be managed.[0] And the government plays a role in shaping to what ends those markets are managed for. E.g. if your market is allowing wealthy foreigners to buy property that then goes unused it's not a well-functioning market, regardless of how much it is aligned with "capitalism".[1]

[0]: And they are always managed. Even "free"-markets are managed, since free-markets are not a natural state, at least not for long.

[1]: Capitalism itself is a vague word that can be used to describe any number of only superficially related systems. E.g., 1800s Britain was capitalist, and had working conditions so appalling that they made Marx's ideas attractive. Modern Nordic capitalism is quite different from that, but would also still be described as capitalism (except by Democratic Socialists who know nothing about Scandinavia and are trying to convince people that those countries are actually socialist).

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#322

Post by RestlessMind »

JMTQp8lwXL wrote: post #309
bfrog wrote: post #255

Earlier quoted context omitted.

Maybe, but the fed exit strategy will be inflation not default would be my bet. Defaulting or causing people to default on debt is how we truely get another great depression. Inflating our way out, if controlled, might be ok. Maybe. It'll ruin the dollar as the world reserve though would be my thinking and many others. Not my idea here, just makes sense to me.

If interest rates can't go any lower (and there isn't much room, unless we think negative yield mortgages are possible), and the Fed chooses to inflate the currency (which I concur, would be a most likely response, as the alternatives have far worse consequences), then the real value of homes will decline-- though the nominal dollar value could stay the same.

> and there isn't much room, unless we think negative yield mortgages are possible

Negative mortgage rates are of course possible - they happened in Denmark, for example: https://www.cnbc.com/2019/08/12/danish-bank-is-offering-10-y...

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#323

Post by CincinnatiMan »

jeffreyrogers wrote: post #170
wahern wrote: post #108

Earlier quoted context omitted.

Perhaps the better chart is on page 21 (Figure 16), where as compared to all the other countries surveyed the U.S. is at the far low end of housing price inflation. In fact, unless I'm missing something it comes in dead last among all 14 countries at the end of the sample period, 2012.

The US as a whole has low housing prices. But that is including all the homes in Nebraska and other places most HN readers don't want to live in. The home prices in the ~10 cities people on HN actually want to live in are much higher and not affordable for most people. And the good jobs are only in the expensive places, unless you're a doctor or something like that.

Not everybody wants to live on the coast. Come join us in the midwest!

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#324

Post by olliej »

Nbox9 wrote: post #196
olliej wrote: post #82

Earlier quoted context omitted.

... um, taxpayers are the fed. So any time the fed takes on a debt made by a business at anything other than a discount the fed is bailing out bad business decisions, and that means the taxpayer is paying for it. If the fed just “prints money” to cover those debts the real value of the USD collapses, and that hurts individual taxpayers more than the big businesses being bailed out.

The Fed provides stability around the USD market. It deploys a wide variety of polices that attempt to manage inflation, deflation, liquidity, and overall confidence in the USD. Without this stability the USD would be significantly less valuable as a medium of trade, a store of value, and as a tool for reconciling debts.

yes, but that's why it doesn't just "print money". the fed is never going to simply print money to pay off debt because that would necessarily clobber inflation and dollar value policy. I'm not sure why people are downvoting this :-/

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#325

Post by glenstein »

tialaramex wrote: post #126
glenstein wrote: post #119

Earlier quoted context omitted.

>just means every first time buyer can now pay 15% more (approximately) for a house Wait, what? Wouldn't it mean that a pool of prospective buyers that couldn't afford 20% but can afford 5% are now able to buy a house? That's a shift in the structure of the market rather than just a change being "priced in" for the same set of buyers. >In hot markets, the prices rise quickly to reflect that and everyone is in the sam…

> Wait, what? Wouldn't it mean that a pool of prospective buyers that couldn't afford 20% but can afford 5% are now able to buy a house? No. Real property doesn't work that way at all. The effect of most of this kind of government intervention in the housing market is to subsidise developers. In fact it's so bad that in the UK shareholders of such a developer are outraged because the uncapped bonus structure for exec…

>No. Real property doesn't work that way at all.

I carefully read through the rest of the comment after this sentence, waiting for the support for this claim, and feel as though I came away emptyhanded. I get that the shareholders anecdote is supposed to support it, but that came off as really fuzzy and unclear, and not something that directly engaged with my question. Are you saying there are no new buyers? Do you have any article that talks in more detail about the systematic relationship between shareholder expectation of dividends and their relationship to the switch from 20% to 5%? Or some elaboration on how the debate between shareholders vs executives relates systematically to the change in requirement for down payments in a way that clearly describes how it absorbs most of the gov funds?

I gotta lay my cards on the table, here. I feel like if any of this were true, I would have received a really simple, one sentence reply of "sure, here's a link!" that links to an article deep in comprehensive macroeconomic data, and not a weird meandering anecdote about developers carried not by any evidence, but mostly by the gravitas of emphatic personal assurance that just declares that "this is how it really works".

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#326

Post by [deleted] »

fatnoah wrote: post #231
glenstein wrote: post #119

Earlier quoted context omitted.

>just means every first time buyer can now pay 15% more (approximately) for a house Wait, what? Wouldn't it mean that a pool of prospective buyers that couldn't afford 20% but can afford 5% are now able to buy a house? That's a shift in the structure of the market rather than just a change being "priced in" for the same set of buyers. >In hot markets, the prices rise quickly to reflect that and everyone is in the sam…

It's definitely an interesting question. Increasing the pool of people able to buy a house increases demand, so that probably has some impact on the price. Another factor is that people tend to think in terms of monthly payments, rather than overall price and interest rate. For example, I'm paying $1,500 in rent while saving $500/month for a mortgage. If the requirement for a down payment is removed, I may then think…

[deleted]

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#327

Post by the_gastropod »

_zalz wrote: post #254
the_gastropod wrote: post #144

Earlier quoted context omitted.

Not all capital generates the same returns. Index funds have virtually no gatekeeper—you can open a brokerage account, toss in $10, and be an honest-to-god capitalist. And stocks tend to outperform real estate by a hefty margin. So catching up is possible.

I honestly don't think "tossing in 10$ to an index fund", i.e literally pocket change, makes anyone a /capitalist/. This is not an argument in good faith relative to the reality of capitalism we live in.

It was in good faith, I promise. I think there are multiple definitions of capitalist that are broadly used. I meant it in the “investor in a business” sense. Also, it may be important to reiterate: the idea isn’t to just invest $10 and be good to go. It was just meant to highlight the low barrier to entry, which is very different from buying a home.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#328

Post by OldHand2018 »

charlesu wrote: post #319
OldHand2018 wrote: post #251

Earlier quoted context omitted.

"desirable neighborhoods" in Chicago is code for living in a bubble (should be very firmly noted that this is NOT race-related). Yes, you pay a lot more for that. There are neighborhoods in the city that have lower crime, faster access to downtown, higher median incomes, better-rated schools and lower house prices than many of the "desirable neighborhoods". The Near South Side is an obvious example. However, you can…

The Near South Side is a desirable neighborhood and the situation there is as I described. It's small condos with exorbitant HOAs. Do you mean Bronzeville?

I'm glad you think so; many northsiders do not! But you know that, for example, the Near North Side has an average price per sq foot that is $50-100 higher than the Near South Side.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#329

Post by glenstein »

sethammons wrote: post #285
sokoloff wrote: post #273

Earlier quoted context omitted.

"so the downpayment is the same [for 5%] as it [was] for 10%" That's what I'm not understanding. In your example, the downpayment is wildly lower.

Right, at first. But do this over a few years and the housing market continues to expand and grow. The housing prices continue to go up and the required down payment continues to proportionally rise back to the point of market pressure pushing back. I don't think that half a down payment equals double the house cost (even in the long term), but it is just one more example of supply and demand. If you lower the upfron…

> If you lower the upfront or monthly costs for something, then demand should go up which will push prices back up.

Guh... I don't feel like I'm the expert here, but even on this little quest of mine to get a straight answer I feel like I'm finding one obvious conflation after another after another, as is the case here. Why would we assume that increase in demand pushes prices back up? It might, instead, reveal that lower prices are more optimal because they bring in more new buyers and more revenue overall. It may be that lower prices result in a larger total pool of buyers willing to spend a larger total amount of dollars at the lower price, which turns out to be a more optimal price, which is also econ 101.

It's better to sell big macs for $3.99 to billions of people than to than to sell them for $9.99 to millions of people.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#330

Post by tnel77 »

gwd wrote: post #278
daed wrote: post #244

Earlier quoted context omitted.

What if the cost of the monthly interest on your mortgage for that $500k house was less than your rent?

If it's an interest-only mortgage, and you are sure the value isn't going to go down, then fine. But if you're putting in capital, you have to factor in the cost of money. There are far better things to do with $500k than to park it in an asset that doesn't appreciate. And of course, you have to factor in the risk that the price will actually drop. Risk isn't free either: it doesn't make sense to take a risk that you…

You say “to get a good interest rate, you need 75% LTV.” Not true. I have a 30 year 3.25% fixed and that was at 95% LTV. Rates are damn good right now.
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