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Comment by bfeynman | Hacker News Reader

I think at this point that would be catastrophic, the average persons most valuable asset usually is their home (for better or for worse). A all encompassing reversal would economically cataclysmic.

I would think we need better incentives for new market entrants (first time home buyers) and penalties for n-private home owners who rent out.

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The only thing people use that valuable asset is to then sell it and buy a bigger house. If all houses go down in value then that bigger house is also cheaper now.

I never understood this mantra of why house prices _NEED_ to go up. They don't, the only people that benefit are investors and landlords, not people who actually want to live somewhere.

> The only thing people use that valuable asset is to then sell it and buy a bigger house.

No? They sell that valuable asset and move into a smaller house, netting them a huge chunk of cash and rent-free living. Its called "downsizing".

This enables retirement for people who otherwise would not be able to.

This also works if all houses are 50% cheaper... you pay 50% less to buy it, sell it for 50% less, buy a cheaper house at 50% less, and since you paid less for the initial buy, you have money leftover still.

But if you don't own a house now, you're basically fucked with the current housing prices.

> also works if all houses are 50% cheaper... you pay 50% less to buy it, sell it for 50% less, buy a cheaper house at 50% less

If you’ve paid off your mortgage.

But the cash you get out is also decreased by 50%.

Instead of selling at 400k and buying at 200k, netting 200k, you sell at 200k and buy at 100k, netting 100k.

Obviously housing prices need to come down in the long term. But OP has a point - we need to account for the fact that doing so will destroy any sort of wealth the current middle class has managed to build.

Policy makers often need to consider whether something is a 'net good' or 'net bad'. I would find it hard to believe that the current run-up of housing is a 'net good' in anything other than the extremely short term.

There are always anecdotes and dreamed up scenarios that enter the argument, and while those are interesting on a personal level, shouldn't really be the basis of policy.

Sure, and I said as much in my comment. Housing prices need to fall. But policy makers concerned with the "net good" would make a bare minimum effort to account for the millions of people they would harm with their policy.

Something like allowing people to deduct their home's depreciation on their taxes would go a long way in actually getting policy support and passed.

Try to allow for a little nuance sometimes.

Yes, but initial buying price is lower too, so since you've bought at eg. 200k instead of 400k, you have 200k left over that you didn't spend on buying the first house, so in the end, you're 300k up. (if you saved that money of course, if not, that's your problem).

You're missing the point: people who currently own a house get fucked. An entire generation or two of people will be locked out of retirement if housing prices significantly fall.

This needs to be accounted for. A majority of Americans own a home, so you're not going to get meaningful change in this area if it hurts most people.

> This also works if all houses are 50% cheaper...

Not for people who already bought houses it doesn’t.

> But if you don't own a house now, you're basically fucked with the current housing prices.

No, if you do own a house now, you are fucked with a 50% drop in value, and 65.9% of American households do. (OTOH, if you are currently a renter, you aren’t “fucked” if you keep renting.)

If you own it, you still have a place to live, and you'll probably need a place to live until you die, so on paper, you have less, but a house is not really a liquid asset.

On the other hand, if you want to buy instead of rent, you're currently basically fucked.

Housing should not be an investment.

> If you own it, you still have a place to live, and you'll probably need a place to live until you die

If you bought it recently, you'll probably be massively underwater (and, since your plan isn't just a one-time cut to let people on the ride, but also attacking the dynamics driving value increases) permanently so, and fucked if you ever need to move, or to get other credit.

If you are close to selling and downsizing, and its your main asset as it almost invariably is, your life savings was just deliberately cut in half.

> Housing should not be an investment.

Maybe in some idealized vision; in the real world that exists right now it is, and its heavily relied on by the middle to top, by income, end of the proletariat and maybe the bottom end of the petit bourgeoisie, which as targets for class warfare go is a pretty odd choice. And trying to attack this (regardless of arguable steady-state merits) while handwaving the transition issues is simply that—class warfare against that group.

Exactly, I never said it was a good thing that housing is an investment, only that that is the current state of affairs, and to alter that would have ramifications that would cause huge problems. Best thing we can do is stabilize what we currently have and figure a way forward that doesn't worsen the problem, but we cannot go back.

Many people have mortgages on their home, being underwater on a mortgage (i.e. the LTV spikes because you are now borrowing more than the home is worth) would set off a bank/debt crisis, that is what I meant by catastrophic.

I also get annoyed with the requirement of 'solidarity' in pumping housing prices up.

However, in case you want to understand one motivation of the mentality, consider that people not only roll equity into another house. Many (questionably) use their homes increased value as collateral to borrow money to prop up their lifestyle. Those who leverage their home equity this way can be in deep trouble if housing values go down in a significant way. The bank could call the loan (forcing early repayment, or sale of the home if they cannot).

But what value does that asset (as an asset) for normal people (=with one home) actually have?

For "investors".. sure.. buy 50 houses, treat them as investments, with limited new construction, the price goes up higher than inflation, you can rent them out, etc.

For normal people? Price going up or down doesn't help them, because they still need a place to live. Can't rent it out, since they need a place to live. Can't really sell it, because then they have to pay monthly for the same thing, sometimes even more than before. Sure, some pensioners without kids might sell their house, ove into a rental for their last few years, and spend the difference on cocaine.. but that's not really a game changer for anyone.

The only problem are the banks, where lower prices mean a shitstorm of revaluating, recalculating morgages, refinancing etc. But for someone with a paid off house, that they live in, if the "global" price of housing goes up or down 50%, it wouldn't matter that much.

The biggest value for a single home owner is that their relative cost compared to rent goes down every year because of inflation. It's the regular person's largest hedge against inflation.

Well sure, because they own that house. If housing prices went down 50%, and they still owned that house and still didn't have to pay rent, they'd be in the same situation as before.

You're talking about a paid off situation which happens to few people until the end.

What you mentioned prices what you're really talking about is inflation. Inflation is great for anyone with a large leveraged asset with a fixed payment rate. As long as inflation continues to go up, even slowly, the person with a 30 fixed mortgage wins every year.

A concrete example is that my mortgage is 10 years old. When I bought it was a little tight each month and now I don't even think about it. The house next door rents for 2.5x what I pay.

In a deflationary situation (possibly even depression) which you're describing, the fixed rate person loses. Rents will drop, salaries will go down, etc... Everyone loses, but those holding leveraged assets will lose the most.

Everyone worries about falling home prices devastating the average retirement plan, but if you don't sell your home when you retire all that high valuation is going to do is add to your property tax expenses. And if the people nearing retirement with high value houses are all planning on selling their homes to downsize, well I think that is going to cause a lot of chaos and pain in the market anyway.

Make homes cheap and cheerful again and provide anti-poverty support for people that show losses in their home asset.

Penalizing landlords doesn't solve the problem that there are M people who want homes, N homes in places with decent job markets, and M > N.

Better transportation, more efficient use of scarce land, and more home building is needed. Converting rentals to non-rentals won't add a meaningful number of homes to the market.

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