Why blame the Fed? The low interest rates that made it easy to buy homes (driving up the price) also should have made it cheap to build homes which would have driven down the price. It was local regulations that prevented building homes.
Only because the younger renters aren't as involved in local politics as the older homeowners. SF, for example, is mostly renters and they could easily overturn NIMBY homeowners to make housing cheap and plentiful. Alas, they don't turn out and push politicians the way homeowners do, so here we are.
It takes under 8 months to get permits and build homes end-to-end in parts of the US. It taking years is a local problem. As long as demand runs much higher than supply, prices will keep growing.
Usually places with no regulation look a lot like Houston TX.
Do you know the situation depicted from the movie "Up" where there's a house surrounded by parking lots of malls and stuff? That's what low regulation building gets you. I'm not talking about NIMBYs, I'm talking about lax zoning laws.
Among other things, I think interest only mortgages are a completely degenerate financial product that shouldn't exist, the only purpose is so someone can leverage themselves to the tits on housing
Disagree. A mortgage is responsible debt, if you plan to live in the house for 30 years why not pay for it over that timeframe? And the house itself will usually appreciate if you take reasonably good care of it.
Zero-down, no-income-no-credit-check mortgages, OK yeah those were a problem.
Credit cards are the degenerate financial product that shouldn't exist, if anything is.
I'm in the negative for my opinion but I'll still bite.
People don't live in houses on interest only mortgages, they use them as leveraged investment vehicles to speculate, rent out, and then roll them into even more leverage as time goes on.
I have nothing against classic mortgages where you pay the principle off, I have one myself, but I will maintain my opinion that interest only mortgages shouldn't exist despite the unpopularity.
OK should have read your original comment more closely. I missed "interest only" on the first read.
But even on a traditional mortgage, in the early years the vast majority of the payment is interest. How much lower is the monthly payment on an interest-only loan? Are they easier to qualify for? Are the rates the same, or higher than, a traditional mortgage?
I'm not sure I'd want to ban types of financing for types of properties, that seems heavy-handed.
This depends on where you live, in some countries I believe they don't even exist, but I can speak for the UK where interest only mortgages are meant for landlords, you basically get a mortgage with a minimum of 25% deposit, none of the principle is paid off at any point, you rent out the property and collect the difference between your interest payment and the premium the tenant is paying.
They are normally inaccessible to people who don't already own their own property, even more so by the nature of the higher than usual deposit required, so it's an investment vehicle for already well off people to leverage more money into property and extract money from tenants
It puts upwards pressure on housing prices because you don't just get the family that wants to own a home or the occasional landlord who wants to own and rent out a second holiday house, it's a purely synthetic financial product that lets you take a house out of the market and arbitrage on the difference between your interest payments and the tenant's rent
It is not uncommon for people like this to own tens or hundreds of properties in their portfolio this way, and these are the people crying first and loudest when interest rates go up because their rental yields can no longer cover the interest only payments on the houses they "own". Whatever happened to being on the hook for bad investment decisions? They think they should get special treatment because they're providing a so called service to the tenants
Increasingly leveraged mortgages are "responsible" to own, but they are terribly irresponsible as policy. It's good to get in early on a ponzi scheme, but ponzi schemes are overall bad things to base an economy on.
Using the word "responsible" to describe something that is good for an individual but bad for society is... a choice.
I remember this one landlady complaining how her variable rate interest-only loan had rates going up so she had to increase the rent to cover it, and wasn't entirely possible...
Like why that sort of insanity was possible in first place. There should be something going towards principle. As not doing it means that increasing rates can be destruction.
Increasing available leverage provides an immediate windfall to asset-holders. This is why our economy errs so heavily on the side of encouraging too much leverage: the world is run by asset-holders, for asset-holders.
The most obscene part of this is when asset-holders try to blame the problem on their victims (the people who must pay higher prices for the pumped assets). The leverage is not generosity, it is a curse.
They become asset holders on worse terms. Now they must maintain their predecessor's degeneracy to simply not lose money. If they want to gain money, they must figure out how to impose even more degenerate terms on those beneath them. Ratchet goes click.
Eventually it implodes. People who got in early on the ponzi walk away with windfalls but the last generation is the largest generation and it gets to hold the bags.
> the last generation is the largest generation and it gets to hold the bags
You're describing a housing-price decline as if it didn't happen less than two decades ago. It's painful, because of the leverage. But a lot of Americans are uniquely equity rich in their homes right now. The missing pieces in your equation are (a) default, which wipes out the debt and (b) real economic growth. It's a tragedy that so much of (b) gets funnelled into real estate prices, but that's a policy choice and far from unsustainable in general. (Versus at specific price points.)
2008 was not a reversal in the secular decline in interest rates and increase in leverage. Quite the opposite, it just ushered in the next leg. While you are correct that (a)+(b) can keep the party going under all conditions we have seen for the last 40 years and likely for the next 10, the trouble is that if you hit the (a) default button too much people eventually get tired of the inflation and force you to deleverage and reduce prices (in real terms). This is the actual bust.
Or maybe replacing our workforce with robots is actually deflationary enough to make it different this time. Who knows.
