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

https://www.youtube.com/watch?v=TpCb3xjh-Kk#t=04m05s

In all but the smallest cities you have options for a different job. They might not be as good, but there is an option. If you lose your job you can find a different job close enough to your current house that you don't have to move.

Remember this is NOT an rational economic problem. There are good reasons to live near by the same neighbors that you know well for years. There are good reasons to live near your family. When you own a house you can make modifications to support your hobbies which in turn make your house a better place for your to live than anyone else. These all mean there are good reasons to accept a job that pays less than you could earn elsewhere and thus stay in the same house. With inflation you can probably afford the house on a lesser paying job after a few years.

I bought as much as I could afford, but my budget included savings and a cushion. The bank would have loaned me plenty more than what my budget could afford. And my budget included repairs and maintenance. I also included in my budget a 4 bedroom house costs more than a 900 sqft town house to heat and cool. The big thing was I wasn't willing to give up maxing out our retirement accounts.

But in practice, "as good as you can afford" really means "buy the lead paint, lead water, asbestos ridden, foundation broken 'cheap' house? Or buy the no-lead, no asbestos, no mold 'expensive' house? "As good as you can afford" actually translates to the "least shitty" option, for most people.

Buying an 8 bedroom house just because the bank will technically let you, is a fun TV sitcom joke. Not a real thing most people are ever able to actually do.

There's a lot of evidence that shows that for every dollar of loans made available to students, the price of education rises, and that's a system without supply/demand dynamics since admissions aren't (supposed to be) based on a bidding process. It seems only reasonable to conclude that the availability of mortgages has similarly increased the price of housing. It's a hidden cost of our housing market that banks (and a few others) profit by. The banks loan fictional money, created out of thin air thanks to fractional lending requirements, and collect a percentage of that back every year on a house that only costs what it does because of that loan. Without mortgages, people would be forced to save up and the price of housing would be governed more by the cost of actually constructing houses and the amount that people were able to save before buying rather than a percentage of their income over the next 30 years.

Think, for example, if banks decided to change the standard loan time from 30 years to 40 years. What would happen to housing prices in areas with somewhat constrained supply? Homebuyers would still look at monthly payments and buy as much house as they could afford. So housing prices would increase accordingly and instead of mortgaging 30 years of our futures, we'd be mortgaging 40. We'd be buying the same houses and banks would be making more money. Change 30 years to 20 years and you'd get a similar drop in housing prices.

More than any other thing that we spend money on these days, housing prices have been decoupled from their cost of production and banks are largely the ones skimming that difference between what housing should cost and what it actually costs.

The most recent part of the increase has come from the slashing of interest rates to rock bottom following the global financial crisis and quantative easing, neither of which is the responsibility of the government.

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 among the more insightful enquiries I've read:

https://www.community-exchange.org/docs/what%20is%20money.ht...

I'd stumbled across that here: http://neweconomicperspectives.org/2013/09/money-created-ove...

I have two personal pet theories (is that really a common idiom in english ? I like it !) on that topic.

1. since we now focus on low inflation, people have little incentive to spend/invest their money, they can just hoard cash for a long time with no risk of losing money.

2. The low imposition rate since Reagan accelerate the concentration of capital, and rich people buy assets with their money, not consuption goods.

There is no such thing as fractionnal reserve credit in 2017, bank don't need reserve to lend, they need reserve to hold bank accounts for their customers.

High housing costs are an incredibly unproductive use of capital unless it leads to building new supply and is therefore effectively a temporary incentive for developers to build more. Landlords on the other hand want there to be an undersupply, and don’t fully align with developer interests.

Prices for consumer goods have decreased for quite a while and people still buy.

And even when computers were improving significantly every year and prices went down people on average still increased their buying of new computers.

I don't even think people have a grasp of the effects on inflation/deflation in practice anyway, let alone suddenly make strategic decisions upon it.

Technology hasn't stopped in agriculture. For example, there are automatic milking machines [1], and there's a well-funded startup that wants to grow lettuce in warehouses built near distribution centers [2].

I wouldn't expect the price of milk to change much in the short term. In the long run, who knows? Maybe biotech improvements will mean we don't need cows?

[1] https://www.nytimes.com/2014/04/23/nyregion/with-farm-roboti... [2] https://www.bloomberg.com/news/features/2017-09-06/this-high...

https://sv.wikipedia.org/wiki/Arbetsgivaravgifter_i_Sverige

Homeownership, for most, is a leveraged play on a politically-sensitive asset. Consider two companies. One goes all in—-with borrowed money—-on a deal that does well if the cards fall right but results in default if e.g. property taxes or zoning laws change. The other has higher fixed costs but diversifies its investments. It’s apparent which one is riskier.

If you buy once you factor in taxes, insurance, upgrades, maintenance, repairs, commission, closing costs, opportunity costs compared to other investments, interest, PMI, etc., assuming you were in a good financial position to buy in the first place so you don't default, you probably will come out ahead compared to renting if you live in your house for more than 5 or so years.

But! That's only if the cards fall just right. So if the neighborhood is still desirable, tax policy/political landscape doesn't change, your neighbors keep up with their maintenance, your HoA doesn't go into bankruptcy, a major employer doesn't leave town, tastes in housing doesn't change, the housing market doesn't crash, too many of your neighbors don't foreclose, nearby amenities don't leave, a major highway isn't built through your neighborhood, interest rates haven't soared, political housing incentives/programs haven't gone away, too many black people don't move in(1), etc., etc. You're taking on a very large risk if your buying vs renting, sure it has the ability to work in your favor (extreme example - buying in San Francisco in the 90s) or not in your favor (extreme example - buying in Detroit in the 50s).

I've seen people lose out terribly financially buying a house, and not just in 2008 recession, my parents house was bought in 1995 and hasn't even kept up with inflation. That doesn't mean it was the wrong choice for them to buy though, houses are really good at providing shelter.

You also have to have the ability and wherewithal to take care of a house - and tons of people don't.

I'm a homeowner, I'm not against home ownership.

(1) I'm not trying to be racist, but white flight does exist.

It is.

> yes it costs money but assuming you want to down size that should hardly be an issue.

Why? A loss is a loss. What difference does it make if it comes out of your checking account or your home equity?

So if your house is 1m and 10 years later stays at 1m, then you can swap for any other house in the neighborhood.

If your house was 1m but in 10 years becomes 2m, and all the other houses in the neighborhood are now 2m... you would hypothetically not be able to swap for another home. You now have 1.75m to buy with. A good problem to have, no doubt.

This gets even worse if you want to buy a larger house (if appreciation is percentage based).

Of course it does. A loss is a loss. It doesn't matter whether it comes out of your checking account or your home equity.

> What they would have preferred is that their property appreciated and the properties they wanted to move to did not.

That's generally not an option if you want to move locally.

Nope! This is all speculative until you need to "sell & move". If you want to move to another place in the same area, guess what, you've probably made nothing. With all the taxes and fees that you have to pay on the sale price you can't buy the equivalent of your house. You can only capitalize on that appreciation if you move somewhere considerably cheaper.

Not only that, the owner faces higher (in some cases much higher) property taxes due to increasing house prices, which is totally out of their control.

I'm not suggesting that they're in a bad spot. It's just not the "jackpot" that your post is suggesting.

Since a rising tide lifts all boats, the new purchase is about even with the old sale- but they also owe taxes. So within this window, they are objectively worse off than your average Joe who can move across town without owning those taxes.

Anyone trading up is also impacted as well. Suppose you bought a condo at 100k, and SFH was 200k. In five years you want to trade up, but the market went up 100%. Your condo sells for 200k, but the SFH costs 400k. Despite the lovely appreciation on your condo, you'd probably prefer if the market hadn't moved.

Sure, there's people who have it worse. Owning any home at all puts them in better shape than most of the world. But it's still not enviable to be unable to move within your community.

When a suit or Talbots customer argues over a price at Wal-Mart you should hear the similar type of tone the cashier takes after they leave. Especially if they argue for a buck or two.

This is real world

https://news.ycombinator.com/newsguidelines.html

Assuming there's anything on the market for $1M. The problems start when there isn't.

We put a certain positive intrinsic value on a local move (and a very high negative intrinsic value on a remote move), because we like the area but the house we're in is not ideal. If the cost of a local move is less than this intrinsic value, we'll move, otherwise we won't. The higher prices go, the higher the actual cost of moving goes, and the less likely we are to move.

But CA Prop 60 allows Californians over 55 to downsize their house and maintain the same tax basis they had before the exchange, which very well might apply here, although IIRC it has weird county by county restrictions.

[1] http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm

For secondary properties most people are just going to move in for 2 years to meet the requirement.

- 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 increased in value.

I feel like they should just get a $1m house (yes, a "downgrade") if that's the case and have fun with their near-$1m profits, but what do I know.

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. Are you suggesting that it's unreasonable to want to downsize and still not have a mortgage?

If you do have a significant mortgage, and are hence highly leveraged, an increase in property prices is pretty good. If your mortgage is more or less paid off, you can in fact end up in a situation where you can't buy any house at all in the same general market after selling your existing one and paying the property taxes. See a worked-out example at https://news.ycombinator.com/item?id=15706565

SEK going down will push the costs of imports up. It will also make Swedish exports more competitive. Imports being more costly will cause Swedish consumers to substitute imported goods with local alternatives.

The net will be that wages will go up and unemployment will go down. This is good. But the price of goods will become dear to the Swedish consumer and this is bad. And there's a possibility of a wage/price spiral driving up inflation.

And stop putting words into my mouth. I wrote that I believe immigration is the main cause of the most extreme increases not the main cause of rising housing prices in general.

The difference is that the number of people Sweden has recieved is so much larger 2013-2016 so basically every system we had failed and all municipalities was forced to buy apartments.

If you have stable immigration that are predictable it's easy to plan ahead and adjust the society for it but when it comes like 160k people in one year to such a small country as Sweden everything fails. Of course this will have economic effects such as in the housing market.

Which sane person who is good with money does that? That sets you up for a life of misery (and not unrealistically, an underwater house during your lifetime).

In a lot of places you can (or used to) get free water. Literally other peoples work for free.

Almost all the structural parts of modern society are built on providing people with services for free that come from the tax pool. You can even, depending on country, get free housing through poverty programs!

But in general, modern states exist in part to forcibly take from some to give to others by the whims of the majority. They all do it. "Public" housing is just another proposition in that spectrum of policies.

But specifically:

> according to who?

Currently them, but if it were according to most in most democracies that would mean it would eventually become law.

> What entity is coercing the 'should' in that sentence?

States, as with all other legal uses of force.

> What law of nature says that housing should be free?

No law of nature says property rights exist (especially intellectual property), but we make those up to establish civilization.

You can definitely be ideologically opposed to those ideas! But their existence shouldn't be a surprise, humans have been establishing radically different rules of society for millennia from one another, and seeing someone on the Internet propose something you find far out should be expected!