A student-debt bubble fueled a housing bubble | Hacker News Reader

A student-debt bubble fueled a housing bubble

wsj.com

66 pointslxm127 comments

Ah classic wsj opinion pieces. Where their opinion columnists also said inflation would be transitory and we need more inflation. not less. They don’t realize the housing market in Netherlands, Canada, Australia are far worse. How come?

They forget much like their “expert Economists” like those scumbag Fed governors and Nobel laureate Paul Krugman - they had loose monetary policy for over a decade. The right time to raise rates were 2012 when asset bubbles were still not so bad, not after 2021 when finally wages started to catch up just for once. But oh no, wages can’t rise, we need to finally raise the rates now. INFLATION they screamed finally. All along ignoring asset inflation. Ever wondered why house prices aren’t part of their “hedonic inflation measure” whatever that is?

https://www.bloomberg.com/news/articles/2019-03-21/powell-ai...

It's also worse in Norway, and not just that but even remote places in Norway. It's going to be everywhere, isn't it? Where exactly is housing cheap now?

Very very remote places in Canada in terms of absolute price

You can find fairly cheap housing in East Germany (not Berlin of course). But that’s mostly because people don’t want to live there, there is way less economic activity.

Places with few jobs and a low quality-of-life. I live in a place like that now, a car-reliant northern England town where there's no transit service, it's not safe after 7pm and the locals will threaten to fight you if you look funny. Luckily I have a job, it's not as well paid as the same job in other areas but I'm employed and don't pay a huge housing cost. But I'm miserable, it's a horrible place to live (especially as a childless 30-something single person) and I'm looking to move somewhere that's nicer.

I'm really struggling to do that, because trading up in areas is difficult, I'm looking at a doubling of housing costs (plus all the other costs of moving) in exchange for ~20-30% more pay in a more affluent area. There are a lot of people like me, trapped in crappy areas with low housing costs and unable to trade up despite being full-time employed. I feel like I just exist here, weekends are my escape but I need to escape forever.

Sweden is pretty crazy too.

Finland isn't too bad outside the capital region.

Some dead or dying places are so cheap that you can not even get loans to fix properties. Which itself is an different issue.

Some reasonably growing areas have quite affordable old housing.

Plenty of places in the US.

I have family in Michigan. I checked home prices and you can still buy a house (not a condo), in a nice town with very good schools for $200,000. With property tax, insurance and mortgage your total home expense would be ~$1,000/month, even at today's interest rates.

Plenty of jobs that pay $60,000 there, that's $7,000 per month take home if you're married with two wages earners, leaving $6,000 left over each month, or $60,000 per year.

You don’t even have to be in the sticks - you can find $200k-ish places within commuting distance of lots of “kind of dying but still big” cities if you will.

You will often have weather to deal with.

And if you’re young and willing, buying a fixer upper is still a workable strategy - and youtube makes this actually much more workable than even 20 years ago. Sweat equity works wonders.

Part of the trick is that lots of jobs are not actually IN the city - they will be to one side, so live on the side that your job is.

> You don’t even have to be in the sticks - you can find $200k-ish places within commuting distance of lots of “kind of dying but still big” cities if you will.

This is why a few cities, like Pittsburg, have seen a resurgence -- cheap housing and the benefits of an actual city.

The world is running out of young people to build houses. The TFR for the entire would will be below replacement rate by 2034. Simultaneously, the world is getting stuffed with old people who do not want new houses constructed to inflate their own house's value.

Why build new houses in Western countries when they're mostly below replacement rates anyway?

Easy to fix instead of ranting about what the 1% thinks.

People should pick a month and just stop paying their credit bills as a protest. Suddenly overnight there will be a debt jubilee announced.

"Oh why won't someone think of the poor house prices!" - wsj

As a homeowner I don't mind if house prices fall, that means more people will be able to afford to live in their own house. I still get to live in a house. It's a win win, until I try and sell my house and small amount of that imagined house value is gone, but maybe living in a farer society makes up for that.

Unfortunately though you seem to be in the minority. There is ganging up on the "boomer" generation in Irepand for example because they buy up all the properties they can specifically to rent out for exorbitant prices.

This is encouraged. So when there is legislation or regulations that would reduce the price inflation of properties they are the first to complain. They usually have more political influence too by way of being regular voters etc. And so instead of the mentality you share, they don't see owning properties other than a means of "semi passive" income.

Do you have a source for your assertions about the Irish property market? Like, as a landlord in Ireland you'll pay 52% tax on your rental income, and while you can claim tax relief on the interest, it doesn't make a lot of financial sense to borrow relatively expensive money for rentals.

It made a lot more sense 10 years ago, but the data would seem to suggest that it's not a massive driver of sales right now.

Like the Irish property market is insane right now, but I suspect that much more of the rental purchases are driven by small investment companies as that makes much, much more sense from a tax and overall expense purposes.

The rental market in the USA for sure is greatly distorted by the people who think there is “guaranteed easy money” to be made. They’re the type who say “mortgage $1500, rent $1600, it’s free real estate.”

Sadly for them, eventually they learn why professional landlords want to see debt service be 50% or less of revenues. And it’s not because they get to pocket 50%.

It’s been covered up because appreciation has been so high as to cover the bad accounting, but a few years of increased rates and near zero appreciation will put the hurt on them - and then watch out!

If you're a landlord you're most likely not borrowing large amounts on the properties you're renting out. Its more common that those properties were bought years before when prices were achievable.

There are some good statistics here in the CSO (Central Statistic Office) for Ireland.

https://www.cso.ie/en/releasesandpublications/ep/p-cp1hii/cp...

A bit further down you can find the age gaps between "Outright ownership"

"Figure 3.5 Tenure status by age of householder, 2016" Particularly glaring.

> I suspect that much more of the rental purchases are driven by small investment companies

On this topic, yes for new builds, pretty much investment companies will come in and buy them up prior to being built. This has always been a thing, but is not helping the situation for normal people just looking to buy somewhere to live.

Edit : Another infuriating thing they did was for the 2022 Census, the obfoscuated so much of the data, made a presentation in powerpoint and after easily 20 mins of searching : https://www.cso.ie/en/releasesandpublications/ep/p-cpp2/cens...

They managed to take a master class is bad Chart/Informatics design. For the age variations, I swear they changes the green RGB but 1.

Speculation on housing is really the super-heater I think. Housing prices in major cities seem to be based on a different market to demand for housing as a place to live.

It sucks how homeownership is supposed to serve this dual role of "having a place to live" and "having an infinitely appreciating asset" when the two are fundamentally at odds with each other.

I'm with you, though—as long as I can afford to live here, the value of my house doesn't matter so much because I like it and don't want to sell it. But part of me knows (and hates) that this house is also the biggest slice of my net worth, and its value heavily impacts any future financial leverage...

having an infinitely appreciating asset

It wasn't always viewed that way in the US until the past few decades. And in many places, it's not viewed that way at all, more of a "store of wealth", rather than a "good investment".

At best housing should roughly keep pace with inflation itself (and this is what it did for decades, perhaps even centuries depending on how you account for things) and therefor should kind of be “money losing” if you count depreciation and repair (and ignore the value of having a place to live).

And until quite recently, in most of the country, this basically help, once you factored out size increase (modern housing stock is much larger on average than housing stock from the 50s or even 70s even as families are smaller) and also factor out mechanical improvements - modern houses are built better in many ways that do cost more.

I wish more of the indicies that track this stuff did more to track the land and the improvements separately.

Because most of the increase in valuation of land comes from the old farmhouse now being inside the city boundaries.

At best housing should roughly keep pace with inflation itself

That's Robert Shiller's claim when you look at average home prices across the entire country over a long enough period.

Contrary to popular belief, there has been no continuous uptrend in home prices in the US and the home prices show a strong tendency to return to their 1890 level in real terms. Moreover, he illustrates how the pattern of changes in home prices bears no relation to changes in construction costs, interest rates or population

But this doesn't seem to have been the case since I bought my first house 25 years ago. Prices have constantly been going up. I'm living in a west coast tech city, but it looks to me like all the tech cities have seen very steady home prices on a few years moving average, more than inflation. My house is 4x over those 25 years. A 3% annual increase would be about 2x over 20 years.

Am I missing something in my inflation calculation, have we divided into areas with steady growth and increasing incomes vs say non tech cities without rising incomes and people moving there or is it something else? Because there are lots of cities, like stereo-typically mid-west cities that have struggled to maintain their population after major manufacturers leave.

You're missing across the entire country and long enough period.

Of course, at that zoomed out view it becomes "houses are more expensive where people want to live" which is kind of tautological.

Of course, at that zoomed out view it becomes "houses are more expensive where people want to live" which is kind of tautological.

The conclusion goes beyond that. The argument is that local areas may see price inflation, but over time they trend towards the mean (you can't have the average be inflation otherwise).

So basically people may enjoy an increase worth of their property, but it's not a long term trend but rather something that happens in distinct periods, usually followed by a price drop or stagnation that pulls the average back towards the mean.

And that is a necessity or you quickly reach absolutely insane conclusions, such as the average house costing 500x the average salary, and 200x the average income to rent.

It's simply impossible on a long term over a long area.

And, as HN commentators, we have been accustomed to appreciation in "our areas" for nearly 40 years now - and that has covered many "mistakes" that may not be covered in the future.

I think the point is that telling people that real estate, over the long term, appreciates barely more than inflation is something most people don't realize.

It's worse than that, they refuse to believe it - no matter how much data you pour on them, or point out, etc, the myth that real estate is the easy path to perpetual riches is ingrained in (US) society.

I disagree that desirable places aka tech cities are decreasing to the mean on price increases over the last 25 years. But I really need evidence instead of my opinion.

I think that in the expensive tech cities (for lack of a better description), like seattle, austin, SF/bay area, prices have generally increased over time much faster than inflation, and they aren't losing that lead. It's actually true that people can hardly afford to live in those places because hourly wages of $20+/hour is just not enough to pay for housing. Using a multiple of avg salary seems wrong because where does the average come from, because avg in that area?

It's simply too expensive for most regular workers, teachers, police, but also that person working at a coffee shop can't afford to live there. It's not a good thing. I recognize we need to build more housing and I'm part of the problem because I bought a house in mine a long time ago.

You can't both see housing as an investment and expect it to never fall. Investing carries risk

I wonder how the American student debt explains how the same thing is happening to housing in Denmark. Now, I’m not arguing against the article, having high student debt is certainly going to impact your ability to own a home, but it’s certainly not the only factor which is at play.

Our sister company develops housing for renting. Which was a very lucrative business back when interest rates weren’t evil. What they really do, however, isn’t to rent out homes, it’s making investors money. Keeping rent high is a bigger part of that journey than actually renting out homes, because ultimately the end goal isn’t to own the building, it’s to either sell it or use it as leverage in other projects that makes our investors money. In the city I live in, we have 10.000 empty dental right now, which is quite a high number in a city of a quarter of a million people, but the rent isn’t going down. It’s not going down, because it’s hard to increase if once you lower it, and since the goal isn’t really to rent out these homes but rather to make investors returns, it’s better to ride a decade of empty rentals than to lower the rent. It’s better because the finance data looks better when the potential profits are higher, and as long as that is more important than actually realising that profit then rent isn’t going to come down. Now, obviously there is some competition in the rental market, but every investment bank developer is sort of in our shoes and while it’s obviously a little bit of a game of chicken, it’s not really, because there is still a housing shortage in popular towns. But because we’re playing chicken, the smaller sized rental companies don’t actually need to compete that hard on pricing because we won’t lower ours, and there is enough of a demand that they can get a way with just being in our slipstream.

I’m not sure if that’s a thing in America, and there is a lot more to it than this. Here in Denmark we have the same urbanisation and population decline as many other places, so housing is very uneven with urban areas increasing prices while rural areas see theirs plummeting to the point that some homes are frankly unsellable. But it’s mainly due to general debt, and how we let people borrow too much money, which student debt is part of, but not the single contributor to.

How do the 10,000 landlords collude to not rent out their apartments? In Sydney it is way more free-market like. Rents tanked during covid and rocketed after (relative to their covid low). I feel like there are 2 types of owner. Ones that rent them out, and one's that don't. Not ones that rent them out, then let them be empty when rents threaten to fall.

You don't need 10k landlords, you need property management firms which all happen to use the same software which effectively creates a cartel even though it is not a coordinated one [1].

[1] https://www.propublica.org/article/yieldstar-rent-increase-r...

Didn’t a similar thing happen with car prices on auto trader?

Software doesn't mean that landlord's are still at the whim of market forces. If rent goes down but the software says to charge more, then the unit stays empty.

As you can read in other comments in this thread; that is preferable as there is higher potential even though said gains may never be realised.

Meh.. while corporate landlord's may be more willing to leave a place empty, it doesn't take long for that to be a losing proposition.

With the exception of a few US cities with rent control so strict you practically can't increase rent by more than a very small amount (San Francisco), most cities, even those with rent control allow for single digit percentage increases that can allow you to adjust rent over a relatively short period.

If you refuse to drop rent by 5%, all it takes is 1 month of an empty unit to exceed the loss from taking a 5% lower rent for one and a half years.

Add on top that nobody can predict the future including when rents will go back up, leaving units empty is a terrible financial decision.

That said, it places with ridiculous rent control where evicting a tenant is almost impossible except the most extreme circumstances, I could see where it makes more sense, especially if a landlord is looking to sell as empty units are worth a substantial amount more than occupied units.

They don't even need this software, they just need their mortgages underwritten by the same small handful of banks.

The banks aren't willing to put the write downs on their balance sheets. They can lose money for years due to vacancy but those losses only matter when everyone realizes the rating on that bundle of mortgages isn't AAA.

Lowering the rent would force them to reprice the asset right now.

The parent is arguing against corporate landlords who own 10000 units, albeit a bit ramblingly.

Parent's theory is that due to renter protection laws, which make it hard to evict a renter and raise the rent, large institutional landlords prefer to leave an apartment empty for a couple of years and then rent it out at a lower rent.

There is some truth to that theory. The solution should thus be state-funded competition for apartments, driving institutionals out of the low/mid end of the market. This doesn't necessarily mean the state needs to build themselves. There could be proper tax/investment incentive regimes. But designing and managing those is difficult.

My theory is that such enterprises managed by political institutions fail because short feedback loops are antithetical to their operation. The policy is set for 3-4 years and then executed no matter what.

I believe that there is merit to the theory. If you bought a house 5-7 years ago, the interest and taxes is half of what it cost to rent a smaller house in the same neighbourhood. The high rent is not driven by demand, nor by cost. It's for profit or pretty numbers that mean higher sales value.

There is already a form of renting companies that is supported by law, preventing this. They are called "Almenyttig boliger" and is required to be a non-profit company. They are more akin to what americans know as a credit union, just for housing instead of financial activities. About a quarter of all homes are of this kind.

Still we have seen investment conglomerates buy large properties and "renovate" them and then raising the rent significantly. I say renovate in quotes, because it's the bare minimum to live up to the law allowing them to raise the rent. The raise is always significantly higher than the value of the renovation, to the point where the politicians had to make new laws trying to get it to stop.

We have some laws that enforce that at least part of a rental complex is meant to be for the general public, but you can legally set the rent higher than the welfare payment people receive when they are out of jobs. The laws are from the 70ies, and they worked well until about the 00’s, but these days they might as well not be there.

> institutional landlords prefer to leave an apartment empty for a couple of years and then rent it out at a lower rent.

Not exactly. They don’t plan on ever lowering the rent. They’ll even let you live rent free for 3 months if you move into some of the apartments no strings attached. The point is to keep the prospect earnings as high as possible, because that’s what they’re selling to investors. There is more than enough income from other areas to cover for the empty rentals. Ideally you don’t want that, but for some projects it’s even tied directly into the project loans, meaning it would actually be more expensive to rent out apartments at lower rates than having them sit empty.

> state-funded competition for apartments

The state is too busy selling off it’s real estate and land to make that happen. I don’t necessarily disagree with you, but as long as people keep voting for politicians who are also our investors, well… I wouldn’t hold my breath.

Isn’t there a tax on empty apartments?

If not, why not? If yes, why is it so low that people still do not rent? Make any property owner to actually use the property (as is the case for agricultural properties) and the prices will fall.

This realestate game is evil, not banks raising interest rates in insanely rich countries.

There is an old saying "When America sneezes, the world catches a cold"

An economy as big as the US pumping that much liquidity and free money into its economy will eventually overspill to other economies. Even if the spillage is tiny relative to the size of the US economy it will probably be huge relative to many other economies and in turn will cause significant overspill there.

Nordics in particular, due to strong property rights, building regulations and transparent RE market, were probably high on the list of any wall street banker looking elsewhere to invest in RE after having exhausted yields in the US.

See also what wall street indirectly did to Iceland during the great financial crisis.

> Which was a very lucrative business back when interest rates weren’t evil.

I don't know how far back you're referring to, but I can't believe that you would call a single digit interest rate "evil." If there was ever a bad thing, it's the incredibly loose market for debt we had up until recently, where central banks suppressed rates with ZIRP or NIRP. A huge amount of the very mess we're in is because of grossly overaccomodative monetary policy which has distorted the price of everything, and has surprisingly far-reaching effects. It's very much a good thing that the era of free and easy money is (hopefully) over.

Still the old myth of a 'Housing Bubbble'. I guess that one won't die?

There was a housing slump, but no housing bubble.

See eg https://www.econlib.org/kevin-erdmann-was-right/ and https://www.econlib.org/archives/2018/06/kevin_erdmann_o_1.h... and follow the link to eg https://www.mercatus.org/system/files/erdmann_-_mop_-_housin...

You can also see https://www.bloomberg.com/opinion/articles/2022-01-10/there-... but it's behind a paywall.

This seems like the minority opinion.

It might be right, but it's far from damning evidence that the housing bubbles are myths.

It's certainly not proof that it's a myth, and certainly not a commonly held view

> It might be right, but it's far from damning evidence that the housing bubbles are myths.

Kevin Erdmann's book 'Shut out' https://www.mercatus.org/research/books/shut-out has a lot more evidence piled up.

https://kevinerdmann.substack.com/p/interest-rates-arent-the... has some interesting recent observations about the topic of housing, finance and interest rates.

Here is a book review on that first book. I wanted to dig deeper because the Amazon page only has a handful of reviews, including one stating the book had no index and was not proofread.

"Many factors influenced the Great Recession. Erdmann's ideas provide a valuable new perspective, but he goes a bit overboard about dismissing the standard narratives."

https://www.lesswrong.com/posts/v9i9XjK266PntDWTp/book-revie...

These are interesting opinions, but far from absolute compelling evidence of what your original comment stated

The book review looks fairly solid.

Btw, keep in mind that eg Australia had similarly inflated housing in the run-up to 2008, but their 'bubble' never burst. Mostly because their central bank did not engineer a slump, nor did they tighten access to credit like the Americans did.

Similar, Israel also did not partake in the Great Recession.

Btw, you can follow some links from the review you mention to find another in-depth review in the ACX Book review contest: https://docs.google.com/document/d/1M1m8o1HInGYJR3cEMYZ6TQgN...

Speak for your own country, not mine. It's very obvious that in NZ, due to various factors (the most obvious being very favourable taxation or a lack thereof, but also our own wee sharemarket mania and crash in the 80s) money available in the market for investment poured into residential property instead of productive investment.

Just because the bubble hasn't burst yet, doesn't mean it's not a bubble.

https://www.rnz.co.nz/news/business/437107/housing-affordabi...

How do you define 'bubble'?

How do you?

Wikipedia opens with 'An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify.'

I would add that for a definition of 'bubble' to make sense, it should be identifiable to a contemporary observer, and should reliably predict a coming drop in asset prices in that observers future. Reliably enough to (theoretically) trade on it.

The last part is important: a bubble call doesn't need to be 100% accurate; just needs to be right often enough to turn a profit.

But also: a predictable drop in asset prices by themselves does not indicate a bubble. For a simple counter example, have a look at far out-of-the-money call options. Most of them expire worthless in the future, but that doesn't mean that their proper price is 0. (Or for a more down to earth example: most of the time no accidents happen, but insurance is still worth more than zero a priori, even if it's worthless most of the time a posteriori. Insurance is not a bubble.)

Financial markets, especially financial markets that allow easy short selling, are almost never in a 'bubble'.

Related, but; "speculation" is defined as the expectation that the residual price of an asset will be higher than the cost of buying it.

Bubble can be defined as when the general price level in a market is decided mainly by speculation.

> Related, but; "speculation" is defined as the expectation that the residual price of an asset will be higher than the cost of buying it.

That's a very impoverished definition. It leaves out speculating on falling prices by short-selling. Or speculating on (or against) volatility, instead of a specific price move.

Or speculating that certain correlations will stay relevant (or will cease being relevant).

> Bubble can be defined as when the general price level in a market is decided mainly by speculation.

Speculators try to guess at future conditions and benefit from anticipating them today. If they anticipate a lower price in the future, they might short sell. If they anticipate a higher price they might buy. Acting on the expectation tends to bring the anticipated future price into the present.

But there's no reason it should be particularly high or particularly low.

Financial markets are all about this kind of anticipation. Eg you buy a zero coupon bond, because you expect it to be more valuable in the future than today. That doesn't mean zero coupon bonds are always in some kind of bubble.

See also https://ms.mcmaster.ca/~grasselli/Garber89.pdf for an investigation into how the old story of the prototypical bubble, the Dutch Tulip Mania, doesn't hold up to scrutiny.

You should owe the money to the school. Will align incentives. If graduates don’t make enough to pay back the debt then the school could become insolvent. As it should.

Alignment of incentives is fine. But if the school goes insolvent on older debt someone else will take over repayment and current students will suffer even if new curriculum is better

This is brilliant.

Schools don't need to be burdened with credit management, nor do they have the capability. When you take out a loan for a business, you don't take out loans directly from each of your suppliers and employees, you go to a bank who should know a thing or two about credit risk.

You should just owe money to banks -- and banks should be allowed to fail.

Right now, the only people on the hook are the taxpayers who bail the banks out.

> Schools don't need to be burdened with credit management, nor do they have the capability.

Universities, with their huge endowments and large staffs to manage investments, have already become financial institutions.

Considering how they manage various scholarships too, would loans be that much to add? They already deal with money in multitude of ways including things like grants. So there shouldn't be that much difference.

Yeah these are good points.

Let schools act as creditors or not, depending on their business model. What's important is that government shouldn't be acting as a misaligned lending institution.

Wouldn’t this just incentivise universities to be job training centres?

Another fix is taxing companies more proportionate to the fire/layoff sizes. Laying off employees to raise bottom line profits also denies the Government from collecting taxable income which most people can't tax evade like larger businesses do.

It also ensures SS is contributed toward because the longer there are pauses in the contribution of SS the harder it is to establish a sustainable in system. The rich folk have always been trying to remove the SS system because they don't want to pay more taxes. We pay taxes to support the infrastructure that can keep wealthy comfortable. Reason things cost so much was because of greed and a lack of common sense dressed up as sympathy. Certainly makes the number climb in terms of profits but if the profit's value is dilluted then do the numbers really mean anything?

Would that actually be a bad thing? I see no reason why higher education should not be job training too. World is even more complex place so increased training for some jobs has reached level were university level is needed.

Also, if we talk purely about research, shouldn't that actually be a trained job? Trained things would be far away from your average factory job, but are still trained so graduate students can do their job.

> Would that actually be a bad thing? I see no reason why higher education should not be job training too. World is even more complex place so increased training for some jobs has reached level were university level is needed.

I think that's the point, jobs and their required skills change rapidly and university should be providing something higher-level than just training for a job. A degree should provide you with the necessary skills to teach yourself whatever you'll need to during your career.

Yes.

And if the university thinks underwater basket weaving is really important and should definitely be studied, they should fund it themselves, not the taxpayer, to align incentives. "It's important if I don't have to pay for it" gives me some information.

Or we could start to prioritize funding education over the military.

Agreed. Also places like Harvard can put their money where there mouth is and fund people's education from their endowment. They have enough to pay for all Harvard students tuition indefinitely.

you should owe the money to the federal government. far more stable persistent lender, infinitely more able to absorb risk, and makes it a very straightforward proposition to forgive student debt.

The Securitization of mortgages in the unregulated banking sector is around 15 times larger than the entire GDP of North America. This means whenever a market correction occurs, the inflationary control policies of government have minimal effect on the market.

Accordingly, "The Noorseekee (нурсики) scam is a multiple-round variant of the gold brick scam" ( https://en.wikipedia.org/wiki/List_of_confidence_tricks#Noor... )

In general, when the dust settles on the con it is the taxpayer wondering how the false equity evaporated. 2008 rewarded the gamblers, and tossed 6 million American families on the street... often forced to rent the same homes the banks extorted from other people to sell to a fund.

If you think anyone actually fixed the core problem, than you are a true optimist =)

Money makes some people irrational.

The Securitization of mortgages in the unregulated banking sector is around 15 times larger than the entire GDP of North America.

That's an odd metric to compare total value of mortgages, backed by housing assets, to the annual GDP.

Total value of all US residential homes is $44T and google tells me mortgage back securities have an outstanding debt of $24T, so about 50% of what the underlying asset is worth.

Seems reasonable?

> Total value of all US residential homes is $44T and google tells me mortgage back securities have an outstanding debt of $24T, so about 50% of what the underlying asset is worth.

Sorry for being pedantic, it's 45.45%, but the real issue is that 38% of people have paid off their mortgage. If you take 62% of $44T, you end up with $27.28T, and if you have an outstanding debt of $24T, that looks really fucking bad.

In Canada, 97% of taxed property is mortgaged, and 15% to 30% of these are now in negative amortization. The 15:1 ratio is a conservative estimate of international unregulated leverage in local markets, and cross checked with the asset tax assessments compared to recent GDP (excluding military pay and allowances.)

The numbers are so huge it is hard to get a accurate answer out of anyone federally. Yet one can glean sample data from the tightly coupled markets.

My popcorn is ready =)

I agree 100% Canada is screwed. They never had a housing correction in 2008, even though they had a massive run up just like the US. Then had another massive run up in prices after that. Average home price is 2x that of the US despite lower wages, higher taxes, and no 30 year fixed mortgages.

It's going to get ugly.

A good portion of why Canada has most taxed property being mortgaged is because of the short terms of the mortgages. You can get a 5-year loan, but that isn't going to be enough to pay off the mortgage. You just end up getting another loan at the end to pay off the balloon payment at the end, and so you end up with a new mortgage. This does tend to make the market more reactive to interest changes, but it's hard to say whether that's a good thing.

My point was the chartered banks and federal interest rates do not control the speculation boom/bust cycle to the degree people assume. Nor do internal crown debts like student loans.

I do agree interest rates help push low-income/high-risk asset holders out of the market, but it does not mitigate the underlying issue.

Folks may delay all they want. but by my estimate the interest rates will need to hit 9.4% for 2 years to bring the circus under control... its politically awful for anyone at the top, and a tragedy for those at the bottom.

Easier to blame students debts that acknowledge the general practice of land lording is the problem.

Exactly, see the Harvard endowment, they have enough money to pay the tuition of everyone going there, but don't

Whether it's tip-flation, shrink-flation, student loan payments, credit card payments, surging insurance premiums, healthcare, or just good ol' CPI inflation, Americans are getting squeezed left and right.

This has been the case for about two decades now. I genuinely don't know how people who make a median income are surviving in the country.

I'd love to know if only in America is the interest rate on your home loan a 10 or 20 year decision. Here in Australia, and from my own experience in the UK you could secure 5 year fixed, and pay a premium interest rate to do it compared to current market variable.

The idea that for the life of <that> loan its 2% but sorry, for you its 4% forever, is totally unlike the experience in the UK and Australia.

How about elsewhere?

Home loans in the US are usually fixed for 15 or 30 year terms. The positive end to it is that you are free to refinance at a lower rate should one come available to you. I personally missed out on 2.5% because I had bought the home too close to the time when the rate was available.

In Italy you can fix for 15,20,30 years (same as other southern european countries?). Notably access to credit here is harder due to to the debt crisis we had after 2008.

In the nordics like Sweden is like Australia, you can fix for a few years at most.

What are the interest rates on those terms? That’s the interesting part

I had a 20y fixed at 1.2% last year

That’s incredible

In Denmark, all lenders must be able to take a 30 year fixed interest mortgage. If they can do that, and still have additional room in their finances, they can be allowed to take home a more risky loan, all the way down to interest adjust every 3 months.

My understanding is that fixed, 20 or 30 year mortgages are limited to countries like the US, Denmark, and a few others.

In other countries you can get longer fixed terms, but the increase in interest rates make it quite unattractive.

In Denmark, the difference in interest is 1.5-2.5% between a fixed interest loan and a variable one. Historically it has always been a good idea with a variable interest loan, but that changed after covid.

In US there is both fixed and variable rate. Most people go with fixed rate mortgage which is typically 15 or 30 years. And you can refinance it later if you find better rates. There are fees for the new loan but if the rates improved a lot it might be worth it.

Here in Norway it's been common to have floating rate, though you could get 3, 5 or 10 year fixed if you want.

Of course a lot of those with floating rate loans are now feeling the squeeze, even though the banks are supposed to ensure you can handle a 5%-point increase in rate at the time you apply.

I'll excuse those who were kids in 2008, but the rest should have recalled how 5-6% sounded like a great rate for a loan.

AFAICT rates are fixed in France for up to the maximum of 25 years. I think banks aren't allowed to loan you money for a longer time than that.

If your rate was high, but the usual rates went down, you can usually renegotiate to bring it lower.

edit: [0] shows the evolution of rates for several terms. The legend is red: max, yellow: average, blue: min. You can change the term with the middle dropdown, an = year. The left drop-down allows choosing a region. For Paris, pick Île-de-France.

https://www.empruntis.com/financement/actualites/barometres_...

I'm curious what people think a fix to this would be. My suggestion would be to have regulations on who is allowed to take on a loan. The ultimate decision can be done by the bank but some basic requirements can be enforced via policy.

the fix is the market adjusts itself with lower prices for homes, tuition, etc.

A market cannot exist if the central government is guaranteeing loans (i.e. ensuring there are no survival incentives for lenders).

Remove the guarantees, and market will correct itself.

Isn’t this what happened with the credit default swaps? Banks found ways to lend money and pass the rush between them, causing failure for everyone. Yet here we are again with a new version of the same issue.

Even dumber. Because this time it's not the banks outsmarting regulators with opaque products, it's the regulators themselves saying "lend all you want, we'll back the loan!"

I don't think housing is actually a bubble - a bubble is a situation that only exists due to widespread belief, but the current situation is fueled by real chronic problems. Namely: zoning laws that prohibit dense housing, and a widespread homeowner voting-base who vote to keep the laws as such.

The market can't adjust itself because it's not broken; everyone buys houses because it lets them avoid future rent hikes, and basically everyone needs to buy/rent a house near their job if they don't want to go broke, so there's a huge captive market.

Better answer: just stop central government guarantees on loans. State guarantees are what allow FM&FM to lend money without regard for actual risk management, because they know they will be bailed out.

Remove the guarantees, and banks will actually have to do their due diligence on credit risk. No need for clunky regulation, when this is what the credit market is for.

Why not allow defaults on federal loans?

Sure. Or why have federal loans at all?

Precisely; tertiary education should be free as it’s a matter of natsec.

What effect would this have on the type of people would got to go to college?

1. It would lower price of education, because you no longer have a source of infinite credit.

2. More people would "get to" go to college, because 1.

3. Those who do get loans, would get loans proportional to the value the education will generate.

4. Unprofitable majors will become cheaper to take.

Also, this isn't just about student loans, it's an even bigger problem for mortgages.

From an Australian perspective, US loans are in an unfortunate middle ground where they're not dischargeable in bankruptcy and are protected by your government, but are owed to private companies and must be paid off regardless of your income.

Making them dischargeable from the start would have stopped a lot of problems from forming, since borrowers could just default, thus lowering the average education fees due to downward pressure on loan amounts, and tightening lending requirements. Nationalising loans and only requiring repayment at high incomes would make them easier to deal with - the repayments just out of your tax, are only added at high tax brackets, and lower your borrowing capacity. Sitting in the middle of the two sides is the problem.

Loose credit fuels bubbles, who'd have thought?

State backed credit guarantees are a conditional obligation, meaning they don't affect the state balance sheet (until they do, all at once). It's like crack for central governments.

when those guarantees are executed? When person dies or flees the country?..

When we get another 2008. When enough people default on their debt, the government (i.e. the taxpayers) is now on the hook to guarantee these loans (i.e. bail out the banks).

you can not default on student debt, if default means filing for bankruptcy.

Not paying means that some people will just track income and it will be garnished.

Ok, call it delinquency. You can't legally default on student debt, but functionally, those who have not and will never make their repayments have defaulted, you're just not calling it that.

some collection agency will go after them and collect payments through court order from their wages.

Yes, and? If the underwriting on the loan is bad (which it is), they won't recover enough.

The root problem is those making the loans don't actually have skin in the game because of government guarantees.

I imagine also applies when a person declares bankruptcy. Bank will repossess the home, resell it, if it incurred any damages after charging hefty interest it will get the money from taxpayers (ie from the government).

bankruptcy discharges eligible debts (student loan is not eligible).

My country (the UK) still hasn't recovered it's GDP per capita of 2007, 16 years and counting. It didn't help that our banks were heavily exposed to those financial instruments that covered US housing and the subsequent crash.

>Here’s out it works: Mortgage lenders have typically preferred that buyers have a total debt-to-income ratio less than 36%—meaning that monthly debt payments shouldn’t exceed 36% of one’s income.

Surely there could be a hard upper limit, though IIRC it's pretty normal for people in the London and South East area to be paying 40-50% of their income on housing.

Wait is that in nominal or real terms?!

Nominal, though in USD (we are a net importer in any event)

https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?location...

This is content-free nonsense - it's easy to do the math, but those who are eligible for significant "credit boost" from Obama-era whatever plans are non-factors when it comes to influencing home prices in the bay area housing market for obvious reasons.

You have to be almost economically illiterate to believe any of this - it's sad how ideology shapes thought and transparent garbage like this gets published everyday.

The statement: “Fannie and Freddie ignore much of what borrowers owe, allowing them to qualify for huge mortgages.” I honestly don’t see anything wrong in that per se. If you have a large and sufficient source of income to service both debts why wouldn’t they?

I can see that point but I think in general the average American will not have a large and sufficient source of income. The article mentions how these firms are slowly raising the debt-to-income ratio to >50%. That's not because they're being nice - it's because they can trap more people into taking out enormous loans.

And of course the politicians responsible for this horrendous policy will not be held responsible, they will be given a free pass by the media who will point to some boogeyman and then blame climate change.

TLDR: government backed mortgage entity decides to take on increasing risk by allowing borrowers to take on more risk, as result home prices are inflated.

I've heard this story before!

https://archive.ph/SAeFR

It's overcorrections all the way down.

Well done

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