The Fed now owns nearly 1/3 of all U.S. mortgages • Hacker News Board

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

#331

Post by ryandrake » Thu, Sep 10, 2020, 4:32 AM UTC

sethammons wrote: post #191

sokoloff wrote: post #167

Earlier quoted context omitted.

> Perhaps the buyers in the market could pay 10% but now that they only have to pay 5% the remaining 5% slowly (say over a few years) gets factored into the purchase price so that the down payment is the same as it were for 10%. Are you proposing that the effect is to nearly double house prices in a few years? If today’s price is $500K and buyers could pay $50K down, in a few years, that place would need to be $1M fo…

I believe op is saying that a person could “afford” a $500k house at $100k down at 20% would happily instead put $25k down (or $28.75k, to keep numbers accurate at a 5% down) on a $575k house.

Just because you can afford a down payment doesn’t mean you can afford the mortgage. I could probably cobble together 5% of a $1M house for a down payment but I could not afford payments on that mortgage. But if I could magically put 75% down, I probably could make the payments on the remaining $250k mortgage.

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

#332

Post by JMTQp8lwXL » Thu, Sep 10, 2020, 4:53 AM UTC

RestlessMind wrote: post #322

JMTQp8lwXL wrote: post #309

Earlier quoted context omitted.

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...

To clarify, negative after fees. The Danish mortgages are not negative after fees. The question is, could we cross that line? Then the bank wouldn't be making any money on the loan.

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

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Post by tialaramex » Thu, Sep 10, 2020, 7:29 AM UTC

glenstein wrote: post #325

tialaramex wrote: post #126

Earlier quoted context omitted.

> 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 h…

The rest of the comment isn't support for the claim that real property isn't like this - instead it assumes you've been shaken awake by the realisation that oh, these aren't toasters or smartphones, they're homes, and thus real property, and so the usual free market hand waving doesn't apply at all.

But if it wasn't clear I'll explain. The reason real property isn't like this ought to be entirely obvious at a very high level, the planet's surface area is independent of economic forces. If we've got twice as much money for smartphones, we can buy twice as many smartphones. But if we've got twice as much money for buying land in Ohio, there is still only the same amount of Ohio, and so the price just goes up.

Does that help?

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

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Post by epicureanideal » Thu, Sep 10, 2020, 7:36 AM UTC

jokethrowaway wrote: post #223

markvdb wrote: post #92

Earlier quoted context omitted.

More difficult than the baby boomer generation most certainly, but not impossible. You could take the arbitrage further by increasing upfront and post move earnings and decreasing future expenses: - Save up "no thanks" money at the high cost of living place. Not "f * y " money, but a significant sum. - Ideally, find a remote job at the hight cost of living place. - Relocate to a low cost of living place with decent s…

Nice and safe places in the EU are expensive and there is not much space. The ex USSR countries are cheaper but I wouldn't recommend moving there. In western europe: Real estate is more expensive than the US, public health care is a bad joke at the expense of the taxpayers and whenever you need something more than "I have a stomach ache", you go private. The main difference with the US is that our government doesn't…

It would be great if people would make more videos about this and spread them around so Americans (I'm one, this is not a put-down) would know more about how life actually is in the rest of the world. (I don't know that much about the rest of the world either and would watch.)

I mean, actual honest comparisons of health care systems, police, judicial system, politics, and so on.

For example, most Americans who don't have friends from other countries might not be aware how absolutely insane the prices for cars are in some countries.

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

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Post by cableshaft » Thu, Sep 10, 2020, 8:17 AM UTC

charlesu wrote: post #228

mrep wrote: post #118

Earlier quoted context omitted.

What data are you looking at? Median home price for Chicago (where I live incidentally) is 229,000, for Dallas is 225,000, for Houston is 197,000 according to this source [0] and those are the 3rd, 4th, and 5th largest metropolitan statistical areas in the United States and Dallas and Houston have both grown a whopping 19% in the past decade [1]. Trick is, they all still have plenty of land to build new homes on to k…

The median home price doesn't mean much in Chicago. Most homes in the desirable neighborhoods are 1BR and 2BR condos and well over $300k or include outrageously high HOAs ($400 - $1K). There are thousands of sub $200k homes in the city but they're located in dangerous under resourced neighborhoods to the south and far west. In either case, you will pay 2% property taxes, which means comes out to $400 a month in prope…

I bought a 1700sq foot house that was ready to move in, in a pretty quiet and safe neighborhood, with decent (but not amazing) schools, in a suburb of Chicago for $230k with no HOA fees just 2 years ago. There are neighborhoods here that are really expensive, but others that are more affordable.

If I worked in the city I would have at least an hour commute each day, though, but it only takes me 30 minutes to get to the city outside of normal commuting hours.

Property taxes are kind of high around here though. I think I'm paying about what you're saying, and some of the homes I looked at (but decided against) were over $6000 a year in property taxes. Those were in areas with really good schools though.

Also Illinois as a whole as a state has one of the highest overall tax burdens in the country, because the state is pretty much broke, so that might be enough to stay out of Illinois.

You could actually find a place just over the border in Indiana, though, and have the same commute to downtown Chicago as I would have (about an hour) but suddenly have a much lower tax burden. I've worked with several coworkers in the past that commuted to the suburbs of Chicago for work every day from Indiana, it's doable.

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

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Post by losvedir » Thu, Sep 10, 2020, 1:56 PM UTC

charlesu wrote: post #230

losvedir wrote: post #158

Earlier quoted context omitted.

If you're considering Chicago unaffordable, I'm really curious what you think is affordable! When I moved here, I was blown away that house prices where I live, about 30 minutes from downtown, are on average $150k, or less than 3x median yearly income here. This isn't actually drastically different from a semi-rural Missouri town I lived in for a bit.

Do you live in Indiana? Did you move ten years ago? I can't think of a single safe neighborhood in Chicago or its surrounding suburbs that are $150k today.

Yeah, Indiana, as of two years ago.

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

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Post by bglusman » Thu, Sep 10, 2020, 2:11 PM UTC

gwd wrote: post #214

tnel77 wrote: post #206

Earlier quoted context omitted.

You don’t treat a couple hundred thousand dollars as an investment? Sounds privileged.

I think you've got it backwards. If new cars all cost $200k, would you buy one as an investment? No -- you'd either not buy one (unprivileged) or buy one anyway realizing it's a cost (privileged). I might spend $100k on a house that I was going to live in for 20-30 years, even if I knew that at the end of that time it was going to be worthless. But I certainly wouldn't spend $500k+ on a house unless I knew I'd be abl…

Japan is a really interesting case study here... I don't quite understand how it got that way but apparently it's lead to an interesting/good market for really custom designed architecture where people get their exact dream home best they can afford because it's not going to have much value when they leave it anyway? https://www.rethinktokyo.com/2018/06/06/depreciate-limited-l...

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

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Post by cosmie » Thu, Sep 10, 2020, 2:31 PM UTC

glenstein wrote: post #329

sethammons wrote: post #285

Earlier quoted context omitted.

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…

Using a naive supply/demand optimization, that's true. But housing is a hyper-local market, and you have to apply that at a local level instead of a macro level.

Areas with more supply than demand already have easy access to home ownership. If someone's goal is just to "own a home", then they can already get one for 0% down by moving to a rural area[1] or an impoverished metro[2]. Even with no capital requirements at all, these areas struggle to attract interested buyers.

Areas with more demand than supply are already building as much additional supply as feasible within the the localized constraints (which could be geographical/physical, or could be governmental/zoning). Decreasing upfront capital requirements from 20% to 5% increases the size of the demand pool, but the supply was constrained even before those new entrants. So the increased competition will just result in pricing appreciation, as the existing demand can use that 15% spread in additional capital they have to out-compete the new entrants to the market. While some constraints are artificial (such as zoning) and could be removed to increase the available supply, those empowered to do this are the existing residents of the area who are enriched by this price appreciation. So they're perversely incentivized to reinforce this imbalance in supply/demand, rather than to take action to correct it.

There are likely some localized markets with more supply than demand (or the ability to increase supply in the face of increased demand). And these would react as you expect, with lower pricing available to maximize that demand. But this situation is transient in nature, as the more developed an area becomes the more likely they'll run into natural supply constraints (or have artificial ones introduced). So it'll eventually lead to one of the above situations: they have too much supply and have to essentially beg people to move there, or too little supply and pricing appreciates in response to the new demand.

[1] https://eligibility.sc.egov.usda.gov/eligibility/welcomeActi...

[2] https://detroitmi.gov/Portals/0/docs/HousingAndRev/2018/Resi...

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

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Post by proverbialbunny » Thu, Sep 10, 2020, 6:12 PM UTC

_dps wrote: post #298

proverbialbunny wrote: post #292

Earlier quoted context omitted.

It used to be that buying a car was an investment. It's one of the reasons the US got so car happy.

It was (and remains) an investment in the sense that it allowed you to live in a nicer place farther from work, or to commute to a job you otherwise couldn't take. But was it ever an investment as an appreciating asset per se? I'm not aware of such a situation but I'd be interested to learn otherwise.

Yes, buying a car was an investment as in you can buy it and then later sell it used for a higher price than you bought it.

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

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Post by motorcycleman9 » Thu, Sep 10, 2020, 10:29 PM UTC

charlesu wrote: post #272

crisdux wrote: post #250

Earlier quoted context omitted.

You are making a logical fallacy and I don't think it's worth my time to actually attempt to discuss this with you.

There's nothing to discuss because you don't really have much of an argument. "Look around. Things are better than what they were" doesn't negate the fact that market forces are bad at distributing resources. You can look at the COVID-19 crisis as well. "Market forces" led to distribution channels with no redundancy, leaving the United States with a shortage of something super basic: PPE.

You continue to state that market forces are bad, while not paying any attention to the counterargument that they are pretty good compared to the alternatives. Making an honest comparison would be a much tedious discussion.