401(k) Hardship Withdrawals Tick Up as Inflation Stays High | Hacker News Reader

401(k) Hardship Withdrawals Tick Up as Inflation Stays High

nytimes.com

73 pointsmooreds140 comments

> an information technology worker in New York City, has taken money out of retirement accounts three times since the 2008 recession. He withdrew more than $50,000 to pay credit card debts, tuition for his six children to attend a religious school and, most recently, an overdue mortgage. “It was really a choice of saving the present versus securing the future,” he said. “My situation wasn’t someone who’s frivolous. Expenses were just more than I was making.”

Raiding retirement accounts to pay for private school seems like a terrible idea. Credit card debt and overdue mortgage payments might be somewhat more understandable as reflecting a pinch of mandatory expenses growing faster than income, but I'm pretty sure that NYC public schools would provide an adequate enough education to not be worth the risk of having insufficient savings for retirement.

If you can't pay your mortgage and credit cards, I'd consider private school to be an extravagant luxury that you literally can't afford at this time.

Having six kids does not help your finances living in a Tier 1 city (assuming you need at least a three bedroom for that sized family). Each one costs $250k-$300k to raise 0-18 (per Brookings) without accounting for daycare, private school, or college. Hard to have sympathy for the financially irresponsible.

https://www.brookings.edu/blog/up-front/2022/08/30/its-getti... (2022)

https://www.usda.gov/media/blog/2017/01/13/cost-raising-chil... (2017)

https://gothamist.com/news/it-could-cost-you-500k-to-raise-a... (2014)

https://news.ycombinator.com/item?id=33991744 (additional citations from a previous comment)

Not trying to dispute anything here, as I don't think anyone sane would suggest it isn't expensive to have kids, but the Brookings article in particular is kind of hard to parse. $310k for kid #2 born in 2015 to a middle-income family. What's middle-income in this case? How does that change for higher income which would be more representative of HN readers? How does that change if it's kid #1 instead of 2? They also say "adjusted for higher expected future inflation" but don't say what numbers they're using. Elsewhere they say that inflation is increasing the cost by about $26k overall. Over 18 years that's $120/mo which for a $300k expense is pretty insignificant overall. And in general, I don't think people take cost into account for children this granularly. Who is looking at $290k over 18 years and thinks "yeah let's do it" then balks at $310k? Nobody.

> And in general, I don't think people take cost into account for children this granularly. Who is looking at $290k over 18 years and thinks "yeah let's do it" then balks at $310k? Nobody.

40% of pregnancies annually are unintended in the US [1]. Poverty is the fourth leading cause of death [2]. Between 9 and 12 million children are exposed to chronic hungry (fluctuates year to year) [3]. High level, the citations and data strongly suggest that no one (or very few people) does the math, and then they're all surprised pikchu when US socioeconomics comes for them.

You'd laugh at someone when they buy a Lambo and can't afford the gas for it, but no one batts an eye when people do the same with kids.

[1] https://www.guttmacher.org/fact-sheet/unintended-pregnancy-u...

[2] https://news.ucr.edu/articles/2023/04/17/poverty-4th-greates...

[3] https://www.feedingamerica.org/hunger-in-america/child-hunge...

The feeding America statistics are grossly inflated.

It is based on survey data with set questions. Answering yes to any of the following can categorize you as food insecure

A parent lost weight (for any reason)

Adult(s) cut size or skipped meals in 3 or more months of the year

Relied on few kinds of low-cost food to feed child(ren)

If Elon Musk skips breakfast to lose weight and succeeds, his family qualifies as food insecure.

This is why you see very different summary statistics. 1 in 5 children suffer food insecurity versus 0.9% of children have gone hungry at lest once in the last year.

https://news.ycombinator.com/item?id=31277978

I have other citations if that one is not to your liking.

https://www.cbpp.org/research/food-assistance/snap-works-for...

> The Supplemental Nutrition Assistance Program (SNAP) delivers more nutrition assistance to low-income children than any other federal program, making it the nation’s largest child nutrition program. In 2016, SNAP will help about 20 million children each month — about one in four U.S. children — while providing about $30 billion in nutrition benefits for children over the course of the year.[2] (See Figure 1.) While SNAP provides only a modest benefit — just $1.35 on average per person per meal for households with children — it forms a critical foundation for the health and well-being of America’s children, lifting millions of families and their children out of poverty and improving food security. Research shows that its support can have surprisingly important long-lasting effects.

That indicates that there are important programs in place, which makes sense.

That is a very different claim than 10 million children are going hungry despite this program.

You are just wrong. I don't know if you are intentionally wrong or mistaken. But going by the link in your other response you linked to (love the self-quotes), is the survey that the government uses to generate its results. Question 8 (which refers to parents losing weight on the survey) asks:

> In the last 12 months, did you lose weight because there wasn't enough money for food

(Emphasis added)

All the other questions also specify that underlying causes should be money or resource based.

>40% of pregnancies annually are unintended in the US

Note that 61% of unintended pregnancies are aborted.(1) So it would be mistaken to think that 40% of children born are unintended.

(1)https://www.guttmacher.org/fact-sheet/induced-abortion-world...

> 40% of pregnancies annually are unintended in the US [1].

Misleading - what is important is what % of children are unintended.

Given the sea change in recent laws, I expect those numbers to come closer to parity in the next few years.

Doubt it will to a substantial degree, they will not prevent large majority of abortions.

Most people are willing to drive to a legal state for something as important as an abortion.

e: Not that 6% [0] potentially isn't absolutely massive, and that is before Florida.

[0]: https://archive.is/IZWQi

Correction, most people who can afford to do so (both financially and with respect to risk, e.g. of losing their job) would be willing to. The jury is out on what percentage of people wouldn't be able to but it's certainly quite a bit above 0.

Sorry, which part of my statement is your "correction" correcting?

I made my statement about 'most' people and 'large majority' precisely because they do not cover all people.

He's correcting your statement because the population "most" and "large majority" are drawn from is different. "Most people own a yacht" and "A large majority of billionaires own a yacht" are different statements, but not because of the semantic difference between "most" and "large majority".

Or, to put it another way, he's saying a lot of people (maybe even most people who accidentally get pregnant) cannot afford the monetary/time/etc costs to go to another state to get an abortion.

1. Large majority of abortions will be unaffected: Unless we consider large majority 95%+, this is true.

2. Most people can afford to travel to another state: Trivially true.

Sure, the population of the statements are different (abortions vs. people), but they are both true and do not need to be corrected. Moreover, they would still be true even if you switched which population the 'most' was for and which one the 'large majority' was for.

Your first point is just reiterating your assertion that we're disputing. Your second point is not "clearly true" or "true at all". The average cost to travel for an abortion is in the thousands, given the need to stay multiple days and the fact that insurance may not cover it. Most Americans cannot afford an unexpected multi-thousand dollar expense. Half cannot afford a surprise $400 bill[1].

The majority of people in America are unable to cross state lines to get an abortion, financially or in the time off work.

[1] https://www.bloomberg.com/news/articles/2023-05-04/most-amer...

If they can't afford $2K for an abortion and related travel, having the child obviously isn't exactly a cost-free alternative.

Of course it's not a cost free alternative. They probably know that it costs substantially more and that's why they want an abortion. But, it's the only alternative they can actually pay for because it's the only one that doesn't demand thousands of dollars up front (and $2k would be below average.)

When I said they couldn't afford it, I mean it was something they would have to convince someone to loan them money to do. They likely don't have a credit card with that limit, and payday loans usually top out below $1,000 (according to Google).

And all that is without addressing the fact that they need to suddenly take several days off work (because most states have waiting periods) and not get fired.

Can't squeeze blood from a stone. Not having the money today frequently means you have to make sub-optimal future decisions as well.

> Each one costs $250k-$300k to raise 0-18 (per Brookings) without accounting for daycare, private school, or college.

$250k / 18 years / 12 months a year = $1,150/mo on average to feed + clothe a child, take it on vacation, put it in sports, buy it school supplies, and take it to the doctor, deal with a broken arm, birthday presents, tutoring, etc.

About $265/week. Breakfast, lunch, dinner, snacks. Call it 3 meals a day. $37.95/day to raise a kid. $12.65/meal 3 times a day for 18 years. (that's 100% of the budget for food, obviously unrealistic). 80% of the budget is $10/meal 7 days a week before inflation.

Eaten at home, I cannot imagine a breakfast approaching $10. School lunches (the majority of lunches in any given year) average $4.33.

There's a lot of variability in those costs. A third of the estimate is just housing. It's not quite as simple as saying that each kid will cost you another $1400 out of pocket each month.

They easily will for the first six years of their lives in NYC, assuming both parents work.

On what, though? Well over a thousand bucks a month per kid? The dollar figure specifically excluded daycare.

For a religious family with six children that is probably not the case.

Further the financial stress almost always passes to the children in one form or the other. The kids through no choice of their own may get stuck with a big bag of guilt, anger, apathy, insecurity, and more.

This is why public institutions are so important. This is why studying the real impact of socio-economic disparities on an individuals pursuit of happiness is so important.

> “My situation wasn’t someone who’s frivolous.“

Sending 6 kids to a private religious school sounds extremely frivolous to me.

I'd say it depends on the quality relative to the other options. In some areas near me, people will choose a Catholic school even when they aren't Catholic. My own experience with a public vs religious elementary school was much better at the public school.

I went to an inner city urban high school and anyone suggesting that you must withdraw from your 401k to send your kids to private school if you live in NYC is out of touch.

Frivolous would suggest the decision is not weighty. Religious schooling is considered very important to many people. It may not be the choice you or I would make, but I have a hard time imagining it as a casual choice.

>someone who is good at the economy please help budget this. my family is dying[0]

[0]https://dril.fandom.com/wiki/Candles

I think we have different ideas of "extremely frivolous."

Perhaps "unnecessary."

What do you think money is for?

Wow, what poor financial decision making. It's literally the dril candles joke but with religious private school instead of candles.

I love how everyone assumes that man left $0 in retirement savings:

"Now working in the public sector and paying into a pension..."

The words immediately following your ellipsis are: "...Mr. Scharf, 55, calculates that if he retires at 70, he can draw 40 percent of his former salary."

Working until 70 and even at that having only 40% of his former salary sounds like a pretty bad financial planning outcome, especially if you voluntarily put yourself into that situation.

He paid penalty on 401k withdrawals. I made no assumption that he left $0, but it is a stupid decision to pay 401k penalty in almost all situations.

Getting a gauge on private schools in my experience is difficult because each family's situation is different. There are the typical non-denom prep schools which cost a car payment every year. And then there the private religious schools which are more of a sliding scale. Prices go down further if you have scholarships, being a member of their church, parent volunteer, etc.

I've seen $15k up to ~$50k /yr (non-boarding—I've seen boarding as high as $70k)

The ~$15k ones tend to be Catholic or otherwise religious, and quality varies from "worse than the local public schools, actually" up to "notably better than the local public schools, though not as good as a really good private school".

Some cheap secular schools are only a little more expensive than the bottom end of the religious ones, but they don't tend to be much better than average public-school quality (nb. that may still be a lot better than some particular public school district)

Always take the opportunity to note that public schools cannot refuse anyone. Private schools can kick out low performers if it could help raise the average student performance on standardized tests.

Yes, of course, they benefit hugely from the ability to select students. They're also less answerable to parents or the public than public schools, in many way, which can free them up to ignore stupid demands from parents (they select families, as much as they select students)—or free them up to maintain stupid policies or approaches that could never fly in public schools, which is sometimes exactly what their customers want (as in the case of e.g. fundamentalist religious schools). They're more answerable to the set of expectations they've created for their families, than to the particular whims or desires of any given family, or any constituency present in the broader public.

... which doesn't necessarily mean preferring a better school that's only better due to selection bias (and knock-on effects from being able to remove very-disruptive or low performing students) is a bad way to go, at the individual level, if one has that option. The observation's more relevant to policy-making, than to the relative merits of those options to any given family.

They also don't have to cater to special education students (although some private non-profit schools do, for sure), and they don't have to subsidize special education funding with normal student funding.

One of the consequences of our state (Washington) going to a state-wide student funding model is that public schools really don't want to lose their non-special education students, because they get a fixed amount of money per student and if they lose too many of the students to private that don't need (and don't get) extra resources, they don't have enough funding to provide programs to the rest.

> They also don't have to cater to special education students (although some private non-profit schools do, for sure), and they don't have to subsidize special education funding with normal student funding.

Yep, absolutely, and that part of their ability to select their students is a major factor in the "look, private schools can educate kids for less than public schools spend, with similar or better outcomes!" sort of stats that get passed around.

If your social support depends on your membership in that community, which depends on your kids attending a similar school, you’ll dig deep to preserve it.

Uh, no - there is no way paying for an urban day school through 401k withdrawals makes any financial sense.

Right I think they're saying that someone's social/family/community life is more complex than a financial calculation. It's not about making this "make sense" in terms of endorsing it as an outsider, but about understanding what circumstances would lead to someone feeling like this makes sense for them.

I don't disagree that the person feels that this makes sense for them, but I am not confusing how this person feels with what they ought to be doing.

At the limit case (and withdrawing from your 401k to support your 6 children going to private school is definitely a limit case), you can absolutely reason about what 'makes sense' and this simply is not it.

If it leads to your kids into an upper echelon college like Harvard, which then sets up their trajectory for a very lucrative career, it seems entirely sane to me. The lifetime earning potential of a Harvard grad and chance of being the President is so much higher than someone who dropped out and maybe managed to get a GED later on in lift that it's not even funny.

Not only is that a ridiculous long-tail reason to send your kids to private school, it is not actually clear that (once you account for selection effects) it is easier to get into Harvard from some private school than public school.

Your kid can go to an inner city public school, complete with going through a metal detector and x-ray every day, and go to Harvard. It's not likely, but it wasn't likely in the other school either.

> The lifetime earning potential of a Harvard grad and chance of being the President is so much higher

You've misunderstood the cause/effect here. The kinds of people who go to Harvard (i.e., rich and/or smart young people) are indeed more likely to make more money and be elected president. But Harvard itself isn't what made it happen. It was being rich and/or smart.

Millions of families make this reasoning and spend $30k or more per year and per kid from age 2. Very few of these kids make it to Harvard or other top 4 colleges, maybe 1 will become president.

Sane Western countries have free and decent public education; and parents can't withdraw their future retirement early to fund dreams.

The thing is money runs out, eternal damnation is forever.

A well-funded movement tells people they will go to hell if they send kids to public school.

Agreed. I would add that he probably shouldn't be budgeting to have that money go into his 401k in the first place. He's paying more in tax + penalty to do this.

Religion, huh?

Inflation is staying high because we're not taming housing costs:

https://www.marketplace.org/2023/03/14/housing-costs-are-a-m...

Higher borrowing costs have slowed the meteoric rise of a bunch of markets, there's some sign of sale prices dropping, but monthly costs stayed the same or increased with mortgage rates; they're apparently not a tool that can pop that side of the bubble.

This is usually where the chorus of "just let people build" comes in, and decreasing barriers to adding new stock is a good start, but I've come to believe it's simply unlikely that market incentives will ever make housing more affordable. As far as I can tell, housing costs do not drop unless demand significantly drops. And even theoretically from a pure incentives POV you can see why developers would prefer to chase markets with rising prices and watch production/building to avoid the point of diminishing marginal returns and maximize income.

I don't know exactly what the solution is. Maybe it's something like Singapore Housing and Development Board (probably untenable in the US). Maybe it's using an array of higher taxes against supply-constricting or price-inflating behavior (vacancy taxes, short-term rental taxes, property taxes that increase with regional ownership volume or rental prices above standard deviation) to fund development grants. Maybe it's something else. But the market is not going to lead the way out alone.

If the government wanted to set off some fireworks they could tax homeowners with <4% mortgages such that it makes their "effective mortgage" somewhere around 4% (2019 rates).

This would effectively undue the "gift" of the magical 2% mortgage and crush those who chased the low rates during 2021.

If they really wanted to rub salt in the wound, they could use the proceeds to fund a home builder subsidy program, giving home builders access to special low interest loans.

And if they went full masochist, they could use eminent domain to seize vacant commercial proprieties and build high density housing on it, regardless of local zoning.

All this would never happen though. So rest easy homeowner. Just a mental exercise in how the government could use the tools it has to unstick the housing market.

The "easy" way to do this would be to drop the mortgage interest tax deduction for mortgages under a certain % rate. It'll never happen, though, the US has been artificially incentivizing single family home ownership since the 1910s. A better, and equally unpopular, way would be a land value tax at a rate high enough to discourage single family home ownership in high COL areas.

Your proposal around taxing people because they got a lower interest rate will undermine interest rate price discovery & the future effectiveness of interest rate policy.

Every policy action you take impacts peoples expectations. Taxing people with low rates will not "unstick the housing market."

Oh it would, because many people would lose their home.

And price discovery is already completely fucked, banks would never give out 30 year fixed rate loans if the fed wasn't buying them all up.

If we had all ARM loans then the problem would be unfucking itself right now as the fed raised rates. Instead past mortgages are insulated from the market....unless the market is in the mortgagee's favor, in which they refinance.

This is why things are so bad right now. Especially when you factor in the rise of remote work for white collar workers (read: homeowners). There is no reason for them to ever give up their 2% rate. Hence inventory is in the dirt.

Generally the philosophy I think works best is to tax activity you might well allow but want less of to close incentive gaps for things you want more of.

So, I'm pretty interested in vacancy taxes, because that's something we definitely want less of.

I can't think of how that would apply to people who got <4% mortgage rates. If you want fewer low-interest mortgages, you can just raise mortgage rates, which has happened. And I can't think of any behavior associated with past low-interest mortgages that is a problem that wouldn't be better addressed directly, especially without hitting people who are just living in their home they were lucky enough to get a good rate on.

Punitive and unfocused stuff like that probably would never happen. But I think vacancy taxes are politically viable, along with things like property taxes that increase with regional volume of ownership or rent prices above a standard deviation from median.

I would absolutely be in favor of a vacancy tax where we are redirecting the money to some sort of building subsidy, but a vacancy tax on its own penalizes development.

SF, for instance, just imposed a vacancy tax that exclusively targets apartment buildings rather than SFH (ie. excluding most of the actual housing stock but targeting new construction housing stock). I voted for it, but I don't think targeting new development in this way is productive.

> a vacancy tax on its own penalizes development.

I'm not sure I understand the dynamic you have in mind. Maybe the idea that developers are scared away from construction where vacancy taxes might be among their liabilities? I guess I could see that if they think they're leading demand by a fair ways (and you could probably fix that by waiving them for buildings under say ~3 years and grading them with time) but I'm not sure how it'd discourage development otherwise.

> SF, for instance, just imposed a vacancy tax that exclusively targets apartment buildings rather than SFH (ie. excluding most of the actual housing stock but targeting new construction housing stock)

So it doesn't make a lot of sense to me to leave out existing housing stock, but I can kinda see why people would apply it to new construction: if my experience in LA is any indication, new high profile development skews "luxury" and it's not hard to find examples of situations where new units come onto the market at rents over a standard deviation about market average and you see them wait to fill spots rather than lower the price to clear more quickly.

Not sure that justifies them hitting new development harder than the rest of the market, but I can see people observing this dynamic and thinking "why are we going to the effort of trying to accommodate new building sometimes even waiving regulations that do an important job if all we're going to get is units that sit empty while most people are priced out?"

> I guess I could see that if they think they're leading demand by a fair ways

It's marginal - there is no substantial regime change from 'leading demand' to not in terms of the incentives applied to building. If you impose a cost, builders will build less - even if they are already behind on demand. I guess you are saying that they will easily fill the units because demand is ahead so the vacancy tax doesn't matter, but it still matters here because the buyers (who might want to become landlords) will price lower if they know there is a vacancy tax in anticipation of future vacancies.

> if my experience in LA is any indication, new high profile development skews "luxury" and it's not hard to find examples of situations where new units come onto the market at rents over a standard deviation about market average

Most new units come above market average. This is not a new trend, this was also true of the market average rates for old housing stock when it was new. It turns out that newer stock is more expensive, you have cause & effect backwards.

Moreover, even if it were true that developers are only building permanent luxury/new stock, that would still be key to shifting the price down because the people inhabiting those luxury units would have otherwise been using their substantial bidding power to spend on other, less luxury homes.

Finally, I promise you that none of the individual units being built by apartment developers are more luxury than owning your own SFH in San Francisco, which is worth probably upwards of $1.5-2 million. Many, many more of those homes sit empty as second homes than units in apartment buildings.

> buyers (who might want to become landlords) will price lower if they know there is a vacancy tax in anticipation of future vacancies

Prices will... lower, you say? Sounds like the policy working as intended.

> It turns out that newer stock is more expensive

Not news to me, and in fact this is one of the first dynamics I considered years ago when trying to figure out why new supply doesn't drive costs down. Especially combined with price feedback (landlords looking at how others are setting prices) I still expect it plays a role.

> you have cause & effect backwards.

Cause for what? Overrepresentation of "luxury" units in new buildings? Building costs are nearly orthogonal to the question of which economic strata new units get aimed at, except to the degree that they're gently sloped across markets enough that they encourage chasing higher margins at the higher end.

> even if it were true that developers are only building permanent luxury/new stock, that would still be key to shifting the price down

I'm just barely not skeptical about this. I've seen at least two studies that suggest it, although I have questions about how well they controlled for how much of the downmarket pressure was relieved by people leaving, but it's plausible.

What's also plausible is that which price points new stock comes on to the market at what volume affects how the rising cost curve bends. You can dump an extra 5% of stock priced above the top of the market, and you'll have nearly all the potential occupants priced out, and even those with disposable income they could use for that will have to decide the new units have more utility to the point that overcomes the costs in time/money/stress of moving, which makes some things sticky indeed, so the filtering "up" the market will be slow. What might accelerate the disposable income crowd out? Rent increases... but those aren't going to speed the motion of the downmarket into the units they leave behind. It'll filter through eventually, but it will be glacial. Especially compared to what could happen if you dumped the extra 5% of stock in at price points that can work for the average regional income.

Those are extremes, in reality I'd expect that developers distribute which income they're targeting a little more carefully, but they illustrate some impact dynamics that probably mean building at the high end doesn't provide cost relief as quickly.

> none of the individual units being built by apartment developers are more luxury than owning your own SFH in San Francisco... many more of those homes sit empty as second homes than units in apartment buildings.

Oh I'm sure that's a greater luxury, and I see no reason why they should receive any exception to vacancy taxes. In fact, I could see a reason for having them weighted by vacant area.

Taxing debt, the opposite of income, for sure is "innovative".

It's still taxing an income. The income is the difference between the markets debt price and the mortgage holders debt price. This difference is artificial and is only possible because of the feds money printer.

If you consider paying less an income, then all of our consumption culture would be income, as its all artificially boosted with cheap money.

>I've come to believe it's simply unlikely that market incentives will ever make housing more affordable

It isn't market incentives here, it's lack of market incentives.

The issue here is that much of this new housing will be turned into rental units. The ideas is to change the paradigm so that people know full well that we will never stop building. So much so that a rental unit will likely not be profitable because so much more housing will come online in future years that income will likely decline over the life of the mortgage.

We don't do this because that really makes existing stakeholders scared for their current property values (and they should be), and try and stop that type of legislation at every corner. This creates an effective cartel of stakeholders (property owners), which maintain it's control over housing availability because people who don't live in a city can't vote there.

This is coming to a tipping point now in CA (where I live) because home-ownership has dropped so precipitously in the last 20 years, that homeowners will soon be a minority demographic, and the ability to control land use on a political level as starting to crumble.

Californians are not living through a housing re-balancing. We are living through the beginning of a housing cascade. As more housing comes online, more people supporting more housing will move to the area. The reason why it doesn't look like market incentives are working is that much of America is on a demographic tipping point. When Prop 13 in CA has already started to crack in elections, you know something serious is happening.

> We don't do this because that really makes existing stakeholders scared for their current property values

As far as I can tell, opposition that comes from concern for housing values tends to be hyperlocal rather than systemic -- most people don't oppose building substantial volumes of housing somewhere, it's mostly when it's not somewhere else.

But the other thing is that the market doesn't like building housing above certain volumes either. Developers have limited capital and capacity and for any given outlay they'd like the highest return possible. Overproduce and you get diminishing marginal returns or maybe even unpurchased/unleased housing stock. Lagging demand some amount is probably the easiest way to optimize this.

>Lagging demand some amount is probably the easiest way to optimize this.

I actually agree with this to some extent. The point is that we aren't lagging demand from $300K/unit to $400K/unit in dense areas. We've been lagging urban demand for literally 40 years (hell, "developers" were literally a popular villain archetype in media in the 80s-90s), so that we're at $1.5M/unit in some areas with $300K in construction cost and labor.

Because of this, at this point, the profit incentive is so high, that we have local governments trying to extract significant amounts of these profits. This means instead of providing the financial resources to ramp up production capacity, we're actually just disincentivizing production in general.

You're right. Housing costs can never really drop steeply because you depend on sellers. Most don't need to sell so they will just sit it out and wait for better times. The second effect is as you say, builders simply stop building in unfavorable conditions. There will not ever be adequate supply.

> I've come to believe it's simply unlikely that market incentives will ever make housing more affordable. As far as I can tell, housing costs do not drop unless demand significantly drops

Just based on vibes yeah? Because the evidence, theory, and practice all suggest otherwise - Southern cities are building more and growing rent at much lower rates, numerous studies have confirmed the impact on rents from building new housing, and of course - there's just basic microeconomics.

> property taxes that increase with regional ownership volume or rental prices above standard deviation

These policies just raise rents.

> Just based on vibes yeah?

Not even remotely.

> Because the evidence

I've looked at evidence on and off for over 20 years. I've asked for disconfirming evidence. I've never seen it. Housing costs do not fall from market-driven buildouts. They may rise more slowly but even the evidence there is inconsistent (no surprise given supply is never the only factor). They don't fall except with at least regional macroeconomic changes of fortune. If you believe you're in possession of evidence to the contrary, by all means, surprise me. If you merely expect the evidence to be there because supply-and-demand, by all means, attempt to surprise me.

> theory

You may want to re-read my comment and note that I articulated a basis in economic theory regarding why market incentives alone don't cause housing costs to fall. Feel free to criticize that specifically if you're sure my position isn't substantiated theoretically.

> Southern cities are building more and growing rent at much lower rates

Yes, if you have substantial underutilized and geographically convenient land due to historical timing and HVAC advances, it turns out additional supply is cheap enough to build out (out being a key word) that developers aren't as strongly incentivized to maximize returns by chasing the higher end (and if they try, they face more competition from individuals or smaller hungrier teams).

Once you've left easy mode where building out is difficult (or has diminishing returns of its own) and are left with building up & redevelopment and regional demand is still sustained, the incentives change and so does how/what developers build & price.

> These policies just raise rents.

Even if they did raise rents, they would certainly not just do that, they'd provide a revenue stream and reshape incentives.

But I'm not sure they do. Explain how diversified vs consolidated ownership changes rent prices and why the latter might leave rents lower. Or hey, don't, and ask why I'd think the reverse is true.

High-rent taxes might get passed on to the market, but the owner keeps less and depending on how you construct them may also make the point of diminishing marginal returns lower, making increasing unit count on a property a better strategy.

Every time you see one of these articles it's like "but taking money out is a bad idea that can be bad for your retirement" It's so patronizing, if you are eligible for a hardship withdraw you are about to miss a house payment or something, they're not doing it for funsies.

Or to pay for their six private schools tuition.

"Fidelity found that 2.4 percent of 22 million people with retirement accounts in its system took hardship withdrawals in the final quarter of 2022"

That's a lot... over half a million people dipping into the account in a single quarter. :-/

I cannot read the article, but what is base rate? Is that double the typical? Same? What about non-hardship withdrawals (first time home buyer) - are those down?

How many normally take hardship withdrawals?

Compared to prior year same period, it's 28-33% jump for both Fidelity and Vanguard.

Percentage changes of a percent are not a very good signal. If a 33% increase in the percent of hardship withdrawals means the proportion of people doing hardship withdrawals went from 1.8% to 2.4% of people doing a hardship withdrawal, an increase of 0.6%, then I do not know if that is significant enough to be newsworthy.

What is the volatility or standard deviation? Are these just normal fluctuations?

I am just trying to figure out if this is clickbait or not. Frequently, sources of data will withhold data regarding the distribution to obfuscate the fact that there has not been a material change.

The trend has been going on for couple years. It's not a clickbait.

Hardship withdrawal is up by 3x fold looking at 20 year chart.

https://image.cnbcfm.com/api/v1/image/107162765-167043620853...

In 2019, new rules took effect which greatly expanded what constitutes a hardship withdrawal.

So it's not really an apples-to-apples to look at data pre-2018. We would expect an uptick no matter what (which we see in 2019). So this is a matter of how much of this is attributed to economic conditions vs. people taking advantage of new laws.

Very good point.

https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pa...

Specifically:

>Under the rules currently in place, plan administrators must take into account "all relevant facts and circumstances" to determine if a hardship withdrawal is necessary. The new rule requires only that a distribution not exceed what an employee needs and that employees certify that they lack enough cash to meet their financial needs. Plan administrators can rely on that certification unless they have knowledge to the contrary. Plans are required to apply this standard starting in 2020.

It might still be interesting to track changes in hardship withdrawals, but I am not sure if it is for the reason people might assume without the knowledge that the rules greatly changed.

I suspect the year before was a jump up from the prior year as well.

https://archive.is/pYTXo

Congress has been increasing the number of ways which you can qualify for a hardship withdrawal. The Bipartisan Budget Act of 2018 made a lot of changes to the rules around hardship withdrawals making it easier than ever to use them as savings accounts instead.

This is why self-funded retirement is bad. It really only benefits wealthy people (who don't need the money), since regular people are going to see that balance and get the urge to spend it.

Am I missing something? None of the example is about inflation. Even with low inflation, I don't see how sending 6 kids to religious school or borrowing from 401k to renovate the house is considered financially prudent.

The implications of this will be felt in 20 years when all those who faced hardships will be unable to retire. Living off social security alone is not enough for the vast majority of Americans.

dreading having to support 2 pairs of retirees on my income in a few years. my wife's and my parents. Neither of them have any savings and are counting on their only child to come through. I've been maxing out my 401k last decade but we don't own any assets rent our home ( We entered our 40s :/ ).

Theres a terrible damn mess coming in a few years. It's easy to crap on millennials but what's going to happen when those kids retire WHILE their parents are still on life support? Those same millennials who spent their whole lives without saving? Those same millennials who never produced the children needed to keep this whole enterprise going?

Those same millennials that were preyed upon by poor financial programs pushed by their parents generation. The same millennials who suffered financial setback after financial setback all while the X’ers and Boomers got richer. Yeah, it’s going to be a bitch.

My Mom: Why aren't you making me any grandkids?!

Me: Because you voted for Ronald Reagan.

We live in a Hispanic neighborhood in Chicago ( we are hispanic) . All the families here have 3 kids each and i see pregnant ladies all around me. I feel a surge of anxiety that window is closing for me and that i might be overthinking this.

Good thing they’ll have a bunch of well educated and religious kids to help them.

1. Remember all the cries for $15 fast food workers, back when $15 meant a lot more? 2. Recall who exactly it was that was saying inflation was 'transitory'.

This matters because those who forget history are doomed to repeat it.

I recently raided my retirement accounts because we are at the end of a long term debt cycle and I do not believe in the future of the United States (government), the West or the dollar.

I own gold, a farm and I raided the retirement accounts to buy a home.

The only way out of 130% debt to GDP is default through inflation, high taxes, and bail ins.

Higher taxes is not a default: it's what balancing the budget means

It is impossible to balance a budget with 130% debt to GDP. We crossed the event horizon, every country that has ever crossed this (save Japan which is doing horrible now) has defaulted through very high inflation or out of control deflation [1].

https://static.seekingalpha.com/uploads/sa_presentations/470...

Are you aware that debt is a cumulative metric, and GDP is an annual metric? If you want to compare apples-to-apples, our budget deficit (an annual metric, which measures the delta in debt) was $1.4 trillion in 2022, which is 5.5% of GDP.

It's not impossible to balance a budget with 130% debt to GDP.

Not impossible, but it might as well be. Politically, I see it as virtually impossible for 'both sides' to compromise on higher taxes and lower spending. I wish we could do that, but it seems hopeless.

Beyond the "both sides" problem, no State's representation (House and Senate) has any incentive to tangibly reduce spending. Federal money will always be seen as something to maximize for your constituents because it is primarily funded by the rest of the country. Even if you managed to elect some severely stingy representatives, they can only really manage to reduce spending to their own districts. That void would be filled by greedier and less fiscally concerned representatives from other states. Politicians that unilaterally cut spending to their own constituency run the risk of losing the next election to a candidate who has no qualms with bringing in the pork.

If we did it we would be the first country in history to do so [1]

1. https://static.seekingalpha.com/uploads/sa_presentations/470...

Do you have any source to this claim?

The letter that you linked doesn't cite any sources, and doesn't come from a reputable fund (based on a quick SEC search, Hirschmann Capital seems to only managing ~$20m AUM, meaning it's likely a one-man operation)

We are a country of firsts! USA USA!

Sure it is, especially with long-term (30+years debt) paid at under the rate of inflation. Plus, a lot of that "government debt" is also "government savings" (social security excess must buy t-bonds). The Treasury provides the extremely useful service of being a bank for entities with massive deposits.

It turns out that having a balanced budget is kind of dumb when you're the US government. If people are willing to essentially pay you to give you money (when rates - inflation is negative), you should take that deal.

The persistent debt-ceiling debates are really the only serious risk to the country.

>I raided the retirement accounts to buy a home.

Buying home at the current prices does not sound wise to me. Even if you expect for printing press to go brrr again, it's likely that before that we will see substantial decline in asset prices.

> it's likely that before that we will see substantial decline in asset prices.

Amount of ppl waiting for this to pounce is astronomical . And for that reason this will never happen. FOMO is at all time high atm partly due to peer perssure and social media

Could happen. Could not happen. I don't have a crystal ball.

I need a place to live man. I can't wait forever for prices to come down, I've owned a home before, and even though rates suck, now is a better time for sure. It feels like I can shop.

Build your own home. Just do something simple like a gable roof 20x50 or something small to start you can always add to it.

In the meantime pickup an RV and live on the land. Used RV's should be cheaper right now.

My grandpa built his home and it was a nightmare. Contractors kept going cheap, he had to watch over them, cost overruns, delays, etc. He probably has a better home than one could ever buy, but I don't have that kind of time or money.

When people say "buy a home", the majority of people are far more concerned with affording the land underneath (or share of a condo building) than the structure itself.

sorry for asking the obvious question because i am in the same dilemma. Why not continue renting ?

I just can't tolerate apartment life any longer. I have 2 dogs. They won't live forever, they need a yard. I need stability. Also a home is not an investment, its a liability. I also want a place I own, that I can have paid off. Its a long term decision.

I'm also willing to admit I can miss the bottom price. I could save 15% and wait a year?

Curious how you see this playing out internationally and how you maintain this opinion in the face of Japan (double our debt raio, biggest issue is population decline). Globally, the US debt to GDP ratio is roughly in line with a good chunk of Europe [1]. It seems like for a collapse to happen, the US would have to be worse-positioned than competing countries. Otherwise everyone declines together, which doesn't make much sense.

[1] https://worldpopulationreview.com/country-rankings/debt-to-g...

Are you planning on working (your farm) into your 80s?

> Are you planning on working (your farm) into your 80s?

If you're so pessimistic that you literally sell your conventional assets to buy a farm, your retirement plan must involve children or some community inheriting it and taking care of you in your old age.

But even if it doesn't, you're still probably ahead in your pessimistic scenario (e.g. surviving relatively comfortably until retirement age, instead of dying earlier in some kind of collapse).

>your retirement plan must involve children or some community inheriting it and taking care of you in your old age.

My farmland pays a rent dividend on the order of 2-4%/yr and I don't even have to be there or even show up to collect it.

I bought my farmland because I consider it doing my part to preserve the planet. I'm a big believer in the future of locally produced food and more local communities in reducing emissions and _corporate wastefulness_. As a side benefit it will preserve my standard of living. I thoroughly enjoy steak and so do a lot of other people. Livestock, land, and gold have preserved wealth since ancient times.

If your farmland continues to yield 2-4% when shit hits the fan, I will dump my inflated money into an ETF that holds farmland.

Not a bad time to buy a farm. Prices are coming down; my yield is a little bit different 1/3 of it is wooded/water - but its probably close to 2% plus tax benefits.

That's what the kids are for.

Assuming your kids enjoy living this exact lifestyle, and don't end up leaving, big assumption.

The way things are going, its possible that the farmstead lifestyle will be one of the highest standards of living available to the common man.

The alternative might be living in 800sf apartments in a 15 minute city eating whatever food is on offer. Living through screens all day. Perhaps their kids will enjoy that way of life more than the sun on their face on a May afternoon with birds chirping in a field of grass wet with dew petting their livestock.

I omitted the '/s'.

In all seriousness, I could see the value of that in some idyllic context of a family farm but the days of having children for the sake of cheap labor are over (in the US at least).

I have gold, you have casino chips in a failing empire.

If things get that bad, the only currency will be canned food and ammunition.

You have a yellow metal that's too soft to even make useful tools to tend to your farm. My casino chips are a stake in the future of the world. If they become worthless, I will take your farm by force because no one will be around to stop me.

> I will take your farm by force because no one will be around to stop me.

Ah, you hit on it. That is the attitude! Problem is everyone has that entitlement. Trillions and trillions of claims.

Someone "claims" their share of equities by selling but someone else buys. Today I'm buying to invest in my future, someone that's in retirement is selling to fund their remaining years. Are you suggesting we won't have new generations that buy?

betting on the collapse of the social order is a bad bet. sure, it may happen eventually, but it is unlikely to happen within an average person's lifetime.

I've always thought that the people most vocal about preparing for societal collapse seem to be the people least likely to thrive in anarchy. When there is no law and order, we will be ruled by gangs and warlords, not by bootstrapping libertarians hanging on to gold coins and grandpa's shotgun. Nobody is going to care that you have a deed that shows you "own" a farm or that you put a little fence around it.

I have a few acquaintances who consider themselves "peppers". When social distancing and travel restrictions started at the beginning of COVID, they were pretty much the first ones to crack and start complaining on social media about how unfair it was that they couldn't go shopping for khakis. So much for rugged self-reliance!

Just cool yourself out for a minute bro. We are all friends here.

:thumbs up:

if the empire fails, what are you gonna do with gold?

D'oh!