The housing market is about to take a hit as student loan payments restart | Hacker News Reader

The housing market is about to take a hit as student loan payments restart

markets.businessinsider.com

41 pointspaulpauper69 comments

> 58% of economists polled in a recent survey say the resumption of payments will have a significant impact on mortgage affordability.

A coin-flip of soft-scientists polled in a recent survey say...

As if what's going to happen depends on the ensemble average of predictors.

Tell me why the lone economist predicts that there will be (and there will) an economic crash not how many

Polling an ensemble of experts is much better than asking a single one, and there are some that vote 'not sure' or similar in those polls so it's hardly a coin flip.

Economists aren't really experts, though, as demostrated by the very fact that there's a 42-58 split.

You wouldn't see that in any field where there's genuine expertise (e.g., mathematics, engineering, medicine...)

No. A only a reasoned argument counts for anything, no matter how many. Everything else is auguring.

Cherry picking student loan payments is a heck of a random factor to usher this “hit”… of the available indicators: credit derating of the US, higher interest rates, historic strikes, inflation, etc. But we are talking about student loans because it goes into the Obama era affordability calculations in the post-2008 crisis. This, in my opinion, is short sighted and has little to nothing to add to the risk profile of a 30year loan.

IMO borrowing rates are high and going higher, for no other reason than the US has no effective legislative actors to write the checks or govern. Also insurance agencies not covering certain areas of the country is going to torpedo large markets, and states that underwrite them, like CA are essentially trying to underwrite climate change without making the premiums unaffordable… what a pending mess.

It’s so ridiculous that economists, policymakers and even the fed is so out of touch with the reality of the market. The housing market highs are a result of less supply and not high demand. 90% of mortgages are locked in under 3% rates which ensures the lack of supply will continue in this high interest market, and in some sense even make it worse. A very low percentage of people will be so stretched with student payments that they’d give up on homes. If anything all sectors except housing market will take a bigger hit as housing takes priority over everything else.

It only takes a small nudge in the economy to force a lot of real estate back on to the market. A small uptick in unemployment could force the number of homes on the market to double or triple in certain areas.

90% of mortgages may be locked in under 3%, but no one who has payed off their home is going to sell that and wind up financing another house with interest rates where they are at.

Interest rates are not that high currently. Sheesh you give people a taste of 2.5% and they act like 7% is usury.

That’s a ridiculous statement. It’s not the rates that matter but the monthly payment. A 800K mortgage (which is a very reasonable number in most cities), would be a 3K/month payment @2.5% but 5.6K/month @7.5%.

So excuse me if I complain about having to pay almost twice the amount.

People like to give the example of high interest rates in the past and how that was fine, but often forget to account for the fact that home prices were low, home ownership numbers were high (thus stable supply/demand), income to cost of living and income to cost of housing ratios were much more reasonable than today. So yeah, high interest rates work in different conditions but not in the distopia that exists today.

Right but in that case the housing price and not the interest rate is the problem, isn’t it?

Housing prices: record high

Interest rate: pretty moderate

Problem: the pretty moderate thing?

The solution to either of these problems is different. Answer to high housing prices: build more. Answer to high interest: lower interest, which then inflates housing prices, which without more building means just more people priced out.

The issue is prices which is an issue with supply.

I agree but with a caveat. My original comment (the parent on this thread) was about supply. Ideally moderate interest rates are not a problem, but when you get there by aggressively hiking the rates after a decade of low rates, it becomes a problem. Mostly because anyone who didn’t benefit from the environment (90+% of the population), will have a hard time catching up even with moderate rates.

I can’t tell if you’re being sarcastic or not but the jump from 2.5% to today’s 8% doubles the monthly payment, so I can see why people complain about it.

It’s literally usury.

What do you think usury is?

Lending money out at unreasonably high interest rates.

Which makes 7% usury.

Mortgage interest rates have been far, far higher than 7% in the past.

In 1981, the average mortgage rate hit 16.63%. The rates were higher than 7% all through the '70s, '80s, and most of the '90s, not dropping below 7% until 1998.

I know, I was there.

My first job back then paid $4.75 an hour, and I bought my first home for $37,500.

So go on, keep fucking telling me things were harder back then.

Nobody is saying things were harder they’re saying interest rates aren’t the problem. Note the principal on your first home.

It’s definitely the interest rates in combination with incessant printing into inflation.

How do you think the principal got higher, magic?

By not building homes at anywhere close to the rate of population growth. It's so obvious by looking at the data you'd be gobsmacked anyone is talking about anything else before simply building more houses. Eliminate most zoning, bring in labor from outside the country, train up domestic labor, create incentives for construction and construction tech, so on and so forth.

There simply aren't houses.

Inflation doesn't help, but housing prices have risen way faster than the rate of inflation. So again: find the actual problem and solve it.

Why do you think neighborhoods with single family homes that have insanely high appreciation don’t want new houses built?

Because it’s their only high growth asset, and their largest.

How did it get that way?

You can go step by step through this process of root cause analysis and see that it is because our money is weak.

7% is not unreasonable by any stretch of the imagination.

Do the math and tell us the income you'd need for a $1,000,000 house at prime.

It's unreasonable. Pay a loan to term one of these days and you'll see why.

Don't buy the $1,000,000 house if you think it's too expensive.

It's only (over)priced that way because rates were low and prices haven't adjusted to current rates yet.

I don't think those are the only reasons house prices are high now.

Why don't you try telling the whole truth.

House prices are high because governments are printing money like mad.

You're right I shouldn't have said "only", but in my opinion it's the main reason. And of course there are several reasons rates move.

When rates were around 3% not so long ago, the monthly payment on a $1M loan was around $4k. Now at current rates the monthly payment is closer to $7k. As a buyer, that's pretty hard to shrug off. It ends up eliminating entire classes of buyers just like it added them when rates were going down.

Just like 7% inflation isn’t that bad because it could be a whole lot worse?

I mean it could be worse, the government could declare the old currency is deprecated and that we can only convert $2000 USD into the new currency.

Look, a 10% interest rate isn't that much on a $10,000 personal loan. But that doesn't even buy you a new car today and for a measly apartment in a major city you gotta be prepared to spit in the vicinity of $1,000,000. This insanity has to stop, hence the high interest rates.

The prices are high. Not the interest rate. And yes the distinction is important because the solutions to each problem is different.

Not sure high interest will result in any meaningful decrease in real estates prices. Best case they might stay stagnant for a few years which would allow wages to catching up a bit.

True, but people who paid off their homes can often move and buy their next home for cash, especially if they're downsizing.

that only works if you can sell your home for what you paid for it. Demand contracts when interest rates rise.

Here in Norway, a big issue in the smaller districts and towns have been that people are moving to the bigger cities[1].

The result is a lot of empty houses.

Still, it can be difficult to find a home in these places for those who go against the flow, because those who leave (or inherit) often keep the house as a vacation home[2][3].

On a related note, since so few move to these places, the prices are quite low, so building a new house results in a significant loss from the get-go[4]. This means it can be difficult to get a sufficient loan to start building.

[1]: https://www.nrk.no/vestland/byene-vokser-_-distriktene-blor-...

[2]: https://www.nrk.no/nordland/tross-mange-tomme-hus-er-det-bol...

[3]: https://www.nrk.no/nordland/boligmangel-i-distriktet-far-tra...

[4]: https://www.nrk.no/nordland/verdien-pa-hus-i-distriktene-hal...

Eliminate the portion of demand from investor ownership of homes, by outlawing it?

34% of Americans rent. Virtually all of them from investors. What will happen to them if you disallow investor ownership?

What is the investor fraction and how does it compare to other countries and the past?

Without these basic stats, suggestions like this are dangerous and verging on Mao’s bird genocide.

If the problem is, as you say, "less supply" that means that it's mostly a local problem requiring primarily local fixes. "economists, policymakers and even the fed" aren't local actors.

Can you make some money with that bet?

housing is NOT a market.

Could you give an example of something that is a market, unlike housing? And why?

Is a super market a market? Or a stock market ?

Of course it is. Anything that is bought and sold is a market.

You're right, it's an essential service and a human right.

Everyone should have access to reasonably well maintained, warm / cool, shelter they can call their own.

Its not an ideal market, but no real markets are.

There are 2 paths for the upcoming generation to afford houses - as the prices are unsustainable. Let's see which group politicians choose to screw over:

- Older homeowners, who statistically have a majority of their wealth in their home

- Upcoming generations, whom if home prices do not drop - must have their wages inflated artificially significantly to afford the homes. Which then causes more inflation

You missed one important point.

Hedge funds and Private equity have billions of dollars waiting to buy up houses and condos. In their eyes every condo bought a family is a lost opportunity to create another renter who had no control over the rent that the funds dictate.

They will never let house prices drop far enough so that regular people can afford homes anymore.

They will choose to screw the upcoming generations. Because they are themselves homeowners and younger ones don’t want to vote at all, at least more often than the older. Also the older generation is larger than the young ones in most western countries.

Good! House prices are too high, and people should pay back their loans! It's a win-win!

(And I say this as a homeowner.)

The fundamentals of housing I think are still a ways away from a crash. There might be selective markets that cool off or drop. I'd also say Canada is closer to a crash than the US is.

But I wanted to mention 2 hacks for legally avoiding crippling student loan debt repayments, possibly forever.

1. Move overseas permanently. This requires you to be on an IDR (Income Driven Repayments) plan, which you have to apply for. I'm not an expert in this but I believe that public student debt will allow this but private student debt may not. Side note: never refinance your debt privately with the likes of SoFi. You lose a lot of the protections you might otherwise have.

How does this work? Through the Foreign Income Tax Credit ("FITC"). US citizens living overseas still have to file annual US tax returns, something only the citizens of the US and Eretria have to do. The FITC, if you claim it, exempts the first ~$110K of income from US taxes. Why does this matter? Because if your income is below that, your Adjusted Gross Income ("AGI") goes to $0 and your IDR payments also go to $0.

After living overseas for 20-25 years you can get your debt forgiven. This creates a taxable event for your loan balance but inflation will reduce the real value of that and you have 20-25 years to prepare by, for example, putting money away every month since you're not paying student loan interest over that entire period.

If you are a college graduate (which is likely given you have student loan debt but you may not have graduated) then you will be able to either get a work visa and eventual residency/citizenship in many other countries or you can apply directly for skilled migration.

For most developed countries you'll avoid the crippling cost of health insurance that plagues the US too; and

2. The less extreme option is to find the cheapest online community college in your state and enroll in enough credit hours in anything to qualify as a half-time student. This will probably cost you less than $1000/year. That's not nothing but it will pause repayments and stop interest accruing, so it's cheaper. Keep doing this forever.

This should not be downvoted. It is a gaping loophole that ought to be closed, but downvoting it won't fix the problem.

Also, it is the "Foreign Earned Income Tax Credit (FEITC)", not FITC. It covers only wages/salary, not dividends+interest. And it is $120k/yr currently, not $110k:

https://www.irs.gov/individuals/international-taxpayers/fore...

However there are even worse loopholes in the FEITC. Due to a bungled tax treaty, US persons at the Pine Gap facility in Australia who are not US government employees pay no tax to any government at all on that first $120k:

https://www.irs.gov/individuals/international-taxpayers/fore...

>The less extreme option is to find the cheapest online community college in your state

If you start your education with 2 years of community college, it works even better to manage debt.

No it won’t. Any dip in price that occurs won’t be big enough to be a “hit”, and it certainly won’t be because of student loans of all things. It’s just the ebb and flow of the market.

People paying off student loans probably can’t afford houses anyway different demographics.

There are many doctors, lawyers, therapists, etc who are juggling mortgages or wanting to buy a house, and loan payments. Your point isn’t mute though

There are probably a few doctors that get hit pretty hard by that. Most collage grads even with 100k incomes can’t buy a house because any place that pays new hires 100k likely has house prices starting in the 600-1m range

Or moot.

Haha yes, thanks for pointing that out

but what about the college wage premium?

When normalized for talent, the premium is quickly diminishing and is closed for many fields of study.

I always took it to be a quality of life premium with better hours and work conditions but wages are quickly leveling off

Source?

The college costs ate it.

This headline could easily be anything: dog shelters brace for flood of new dogs as student loan payments resume. Oh wait it was a headline: https://www.usatoday.com/story/news/nation/2023/09/16/animal...

There are so many downstream issues from this that I honestly think that promising it and then not delivering will be a huge hurtle for the Biden campaign to win over this demographic again.

As some one in the demographic that would have benefited, I saw he promised it, followed through implementing it (although in a wishy-washy kind of way that should have been bigger), and then had it snatched away from me for political reasons from the other party. It's exactly how I have come to view political issues when it comes to race, gender, etc.

Better to have the Democrats over promise and sometimes kind of follow through than be targeted (either myself or family members/friends) for negative actions for a slightly lower tax coming out of my paycheck.

Why do people borrow so much money to go to school? I don't understand why kids do this shit, are they just stupid? I'm not special but family was poor and when I graduated HS, I went to work for 2 years to earn enough to go to a local State School. It cost approx 5k a semester. I did live at home but continued to work part time. I managed to graduate in 4 years without owing a single penny to anyone.

> Why do people borrow so much money to go to school? I don’t understand why kids do this shit, are they just stupid?

No, quite the opposite. See: https://www.everycrsreport.com/files/20190723_R45090_4000d00...

And particularly, Table 2, Figure 4, and Figure 5.

There’s a popular observation that real wages have been largely flat over the long term from ~1980. And that’s true, in aggregate. But the premium for bachelor’s (and even more so, higher) degrees has increased in that time period, with real wages for the degree-holding group going up, and for the non-degree group going down.

> I did live at home

Even if there is a public university campus close enough to allow that (and that’s not always the case), the student load is generally high enough that (other than the kind of people who are also likely to qualify for academic scholarships anyway) there’s no guarantee of a qualified individual getting in to their first choice school.

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