Here is my uninformed, emotionally loaded take: so the mortgage industry not only makes houses unaffordable to so many people, but also is about to bring down the financial system with it, again?
The mortgage industry isn't really to blame for high prices.
A 400k house might instead be a 200k house, but you will never have 200k in cash compared to 20k for a down payment on a mortgage.
I manage a fund in Canada that does exactly that. We have a pool of investors, and lend out on mortgages only. Primarily in markets larger institutions won’t touch.
30-year fixed-rate mortgages for middle earners are a policy creation, not a natural market creature.
Centrally controlled interest rates are basically price controls. The govt controls the price of money. Even a 5 year old knows price controls don't work, but we can't expect that from the govt.
What rate would you feel comfortable loaning money to friends or colleagues at?
The question is more, how do you introduce money to the money supply (which you must do if for no other reason than physical wear/destruction of currency) without a central issuer who sets an interest rate on that issuance?
It's hard to imagine commodities being substantially cheaper if we didn't have 30-year mortgages.
Home builder margins aren't impressive.
The cost of a new home is pretty much the cost of the lot, plus the cost to build it, plus a 10-20% margin.
That margin isn't going down a lot, even if you don't have 30-year mortgages. All that's happening is that the size of US homes would be much, much smaller.
And you might have some pressure for smaller lot sizes in places like SoCal and NorCal and Seattle.
1. Many modern couples actually have less income available for savings and housing despite having two earners say compared to single earning couples in the 50’s and 60’s when gas station attendants could afford to buy a home for a wife and several kids 2. Extremely low Interest rates have caused a much higher impact on available funds to buy homes than increases in available funds for housing from wages 3. No kid couples require smaller, cheaper houses without regard to school districts, family friendly environments, etc.
If you are unhappy with the general shape of residential lending in the US blame falls squarely on the federal government. Not just as regulators but as far far away the largest direct participant.
Lords of East Money by Christopher Leonard
It literally does the opposite.
Also first time home buyers qualify for very low down payments, like 5%, fwiw.
No, they wouldn't. as evidenced anywhere this is tried
In two extremes: Imagine a market with 20% interest rates. You could just save money instead of holding the loan for 5 years, and then pay cash. Fewer people would have mortgages.
Imagine 0.1% fixed, interest-only loans. Financing a house with that would cost about 1/200th as much as in the 20% environment, so prices would increase by something like 200x.
We are coming out of ~2% rates. That means houses should cost a bit under 10x more than they would at 20%. If you put 20% down, you could probably have purchased outright in the other environment.
(This ignores the possibility of new construction, since I live in California, and that’s more realistic than saying people will be allowed to build housing to take advantage of low mortgage rate arbitrage).
Edit: Think of the 0.1% case from a home builders perspective. They build a house for $500K (say), so a rational homebuilder wouldn’t pay more than about that to buy a house for themselves (in the absence of market distortions).
However, the buyer could take their $500K, and put it into investments that yield a few percent a year. Say they are conservative, and assume a minimum 1% annual yield. Now, they can pay the builder $4,999,999 for the house, giving the builder ~$4.5M of disposable income. The builder then spends the money, driving up prices for everyone else. (Of course, they would be wise if they used some of the money to build 5 or 6 more houses, since that leads to exponential income growth for them over time.)
Because even when interest rates were high, people were not generally buying their homes in cash.
That's like saying instead of renting for years you could just save that rent money and buy a house after a few years.
And with low rates, no one was buying a house with just a 5 year mortgage either.
The only reason you are seeing a lot of cash buyers right now is that you have lots of people who have sold their homes at inflated prices after buying years ago at near nothing and now that prices are falling, they have the cash to buy. But that won't last and it will soon be back to only the small group of people with very big incomes or family money and investment firms that are buying in cash.
Owner financing is a very different instrument from a traditional mortgage. Most importantly, the terms are completely negotiable, meaning that buyers can obtain low interest owner financing even when general interest rates are high, especially when owners are desperate to sell. Owner finance instruments can also be obtained by less qualified borrowers, are not backed by government agencies, servicing costs are negligible, and many do not report to credit bureaus, which has significant implications to borrowers.
If anything, the 2008 financial crisis should have taught us that lending more money to people than they can responsibly bear is not a wise idea, neither for the lenders but also not for the borrowers.
Ex: In SF there were a lot of good big tech jobs paying $200k-$1m / yr. A vast majority of those wage increases accrued into the hands of landlords. Mortgages allow buyers to borrow against projected future earnings, allowing each buyer an affordable price compared to one who doesn't mortgage, but when everyone does it the benefits get nullified.
This is the desired outcome.
Constructing a house is rather expensive, here’s just a random link from google:
https://www.ramseysolutions.com/real-estate/how-much-does-it...
Another random link claims 30-50% of the cost is labor: