The current limit is 10 houses per owner... there's absolutely no reason the gov should be subsidizing real estate investors like that.
This should really just be limited to 1 (or maybe 2) houses per owner at one time.
That would create a subsidy for people to own their house (middle class rent control), allow people to move from one to another, and stop wasting tax money on subsidizing investors.
There is a higher fee for second homes [1], though I can't tell if that scales beyond two. Nevertheless, totally agree, there shouldn't be subsidies for multiple homeowners.
Do you have a source? Does this mean one could get up to $10mm in housing guarantees? Or does it mean you can buy ten $100k properties with conforming mortgages?
It means you can have 10mm in guarantees. Your debt to income has to continue to conform as the mortgages stack up.
But, if you can use a lease against the house as proof of income that could offset the mortgage.
That’s basically the secret sauce to “get rich with real estate” content.
Edit: it has no effect on savvy individuals because they can always put each new home inside an llc, continually keeping their count low. This is what you would do after 10 mortgages today, though most people would have put the homes in llcs by 10 anyway for other reasons.
Isn't allowing LLCs to own single-family homes a big part of the problem? I have no problems with an LLC or other Corp owning apartment complexes, and I probably don't really have a problem with there being some sort of government subsidies for that - we need them, so they should probably be incentivized.
There's zero reason for an LLC for own a SFH other than as some sort of tax scheme like you mention. Require that any mortgage on a SFH or owner-occupied multiplex be held by an individual. If you want an LLC to own a SFH/OOM, buy it in cash.
There’s an issue in that as well. It’s not uncommon for a family trust to own property in lieu of individual ownership by a natural person. The way trusts are structured can differ between states.
In my state a trust can be an LLC, but it doesn’t have to be. My family trust isn’t, but others are.
As others commented, to give regular people some degree of mobility. Sometimes you need to buy before you sell to move and grab a job opportunity or get out of a place you're miserable in, so you'd need to have two mortgages at once for hopefully a short time.
I'm personally not a fan of such a situation but it's a reasonable one in today's world.
> you need to buy before you sell to move and grab a job opportunity or get out of a place you're miserable in, so you'd need to have two mortgages at once for hopefully a short time
The FHFA assesses up-front fees on second homes [1]. One could simply delay this assessment, for a fee, and not assess it if e.g. a year down the line the borrower only has one mortgage. (That said, it seems simpler to reduce the threshold to two from ten.)
> I'm personally not a fan of such a situation but it's a reasonable one in today's world.
Not a fan even in today's world. Example:
The house next to mine sold for $300k 2y ago. Those owners put about $50k into renovations and sold 1y later for $450k. The current owner did nothing (didn't even mow the lawn!) and 6m later decided to pack up and move across country for a job. He put the house on the market for $650k. It's beyond insulting. That house is going to sit on the market for a long time unless he is willing to make no money or even lose money on the overall transaction.
Or (like everybody else without the first owned house) sell the house, rent while buying another, then move from rented to owned house. A friend even had to spend a few weeks in a hotel (of a kind) with the family, while waiting for the house.
> it shouldn’t be subsidized (at least until there homeless population is 0)
Mortgage subsidies don't meaningfully affect homelessness. Someone putting down a deposit with a developer for a fifth property to rent actually expands housing supply. That tweaks only rent-versus-own ratios.
What does skew home supply is vacancy. Whether due to offshore holders treating New York apartment as poker chips, seasonal vacationers, delusional landlords asking above market, or NIMBYs blocking development, vacancy decreases housing supply and thus increases housing costs for renters and owners alike.
I think that's fair, and I was probably a little narrowly focused on summer/winter housing (which, I would assume would contribute to vacancy, unless used as short term rentals).
If you have a taste for the interior, there are gorgeous places where five figures buys a home, or less than $10k down and $1k/month. That's something more that just the rich can afford, particularly if the first home is in a similarly-affordable place.
there are gorgeous places where five figures buys a home, or less than $10k down and $1k/month
.....such as?
Prices have gone up everywhere.
Tawas City, MI is hours from the nearest medium-sized town. There are no jobs, no social activities besides bars, very few restaurants, and no five figure homes for sale ($150K will get you 1450 square feet).
Mesick, MI. Literally nothing but forest, and 1.2 empty acres is $125K.
Clarion, IA. There is nothing beautiful about anywhere in Iowa. You can, however, get a nearly-falling down 1100 square foot house for $85K (everything else on the market, and there's a bunch, is 6 figures).
Where are these gorgeous places where rich people haven't already bought all the homes?
I'd like to know too. Full disclosure, I live in IA (DSM). I've seen my neighborhood go up 30-40%. Houses that were ~180k are now pushing 300k.
Now, I think the market will normalize a bit but still. There is no such thing as a starter house unless you're willing to give up a good education for your kids, live in bumfuck nowhere (and that's coming from someone who lives in Des Moines, IA-- which many people would consider nowhere).
Move rural? Good luck. Small towns are drying up for any/all services. Amazon and co are pushing out anything local for shopping. Cost of living for stuff not related to housing is just as high or HIGHER due to lack of infrastructure, plus the lack of meaningful choices (small town stores have higher prices due to lack of purchasing power and limited suppliers).
I'm not saying it's impossible, live off the grid and have your own farm. But doing that with a family, while working 60+ hours a week just to pay your rent, unless you're an SWE. The crunch is REAL for most people.
> five figures buys a home, or less than $10k down and $1k/month
I'm not sure why someone would assert this unrealistic calculation, except one might graciously interpret it to be describing multiple situations...despite that being completely useless information.
When interest rates were bottomed out, this statement in total wasn't true (at least the $1k/mo part for a 500k loan). I happened to end up in a home that was $490 with 7k down and 2.5% and the payment is naturally above $2k/mo. Finding this situation today is impossible, ofc.
I think this is a case of the path to hell being paved with good intentions.
Limiting it to 1 or 2 would have zero impact on either corporate money or savvy individuals and, would likely reduce upward mobility, as navigation of these subsidized markets is one of the most reliable paths to go from low to medium net worth.
Once someone has 8 figure net worth, these subsidies are noise. I really get the feeling the baddies are using much more egregious subsidies than this one.
What are the interest rates for primary vs 2+ homes cause I bought a second home back in March and as I recall, a Fannie Mae/Freddie Mac change made in February had second properties be a 1.25% higher interest rate than a primary for 30 year fixed.
FM/FM charge additional fees (up-front) for additional properties, but there is no "higher interest rate" for subsequent mortgages. You qualify for whatever you qualify for.
Now if you're buying it as an investment property, depending on your down payment, that may increase your interest rate.
ya know how practically unlimited student loans made it so colleges could charge much higher prices? the same thing is happening with home prices. government, through the treasuries massive holdings of mortgage-backed securities, is subsidizing the real estate market, keeping homes unaffordable for recent generations. the fed purchased more MBS during covid for ‘price support’. literally keeping home prices high instead of letting them naturally fall. our housing market is going to be fucked until the fed decides to actually start selling off the MBS. and senators try to tell you that your rent is actually high because of ‘greedy landlords’.
> our housing market is going to be fucked until the fed decides to actually start selling off the MBS
Agency MBS are being run off at about $20bn per month [1], with the Fed signaling it's due to increase that rate. While that's 11 years against their $2.7tn of holdings, they're currently in a neutral position. They aren't influencing the housing market. (Selling would influence it by jacking up rates.)
sure, and we see the effect of that because house prices are slowly going down now, yet just like mbs holdings, not nearly fast enough to put a meaningful dent in the covid gains. and yes, rates will go up, but a return to the free market is what we need long-term, instead of prices being artificially propped up by the government.
there's not going to be a radically free-er market in housing.
zoning regulations and the whole path dependence of the last centuries restrict choices to very few ones.
as long as the network effect of cities, the macro effects of the global economy (the dollar propped up, suppressing exports, which wreaks havoc on everything that's not finance) and various other factors (school districts, car dependence) have so oversized influence on where people can live.
and for the foreseeable future there are going to be very high-level coordination problems which keep the market in a pathological state.
-> The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will rise to $1,089,300 next year in high-cost markets, such as parts of California and New York, from $970,800 this year, the Federal Housing Finance Agency said Tuesday.
-> For most parts of the country, loan limits will rise to $726,200 from a 2022 maximum of $647,200, said FHFA, which oversees mortgage-finance giants Fannie Mae and Freddie Mac. By law, loan limits are calculated annually using a formula that factors in average housing prices.
So, this isn't a large increase from year previous
Just like health care and tuition costs, government backed insurance and loans are the root cause for prices spiraling out of control.
"The mortgage finance market has leaned heavily on government support over the past few years. More than 90 percent of mortgages originated in 2011 were securitized by government entities using taxpayer funds to guarantee investors against default risk. This support cannot continue forever. The status quo perpetuates many of the policies that contributed to the housing bubble and consequently promotes an unstable mortgage market. In order to avoid another crisis, the government must exit mortgage finance and private capital must shoulder mortgage default risk. "
A useful test — which shows this isn't true — is to compare similar goods/services that have dissimilar amounts of regulation.
For example — healthcare is heavily regulated, but veterinary care is lightly regulated. Both have experienced similar amounts of inflation over the past decade.
Or, to give an example from the article — houses that are eligible for government guarantees (those below $750K-$1M) have appreciated similar amounts in the past decade to those that's aren't eligible.
> For example — healthcare is heavily regulated, but veterinary care is lightly regulated. Both have experienced similar amounts of inflation over the past decade.
You forget indirect regulation. Veterinary drugs, veterinary education, and similar are quite regulated and expensive. So much so, that the average cost of vet school for in-state residents is over $200,000. Out-of-state, make it closer to $300K. The average cost of acquiring FDA approval of a new animal drug is $100 million and takes seven years.
If you call that "lightly regulated" I don't know what "heavy regulation" is. So, to be honest, I don't believe your comparison is accurate.
EDIT: This does depend on the estimate used (my first one was from https://www.veterinarypracticenews.com/efficacy-vs-cost/). Others say it is closer to $30 million for livestock and 9 years, but costs crossed $62 million in some cases (https://ahi.org/approval-and-regulation-of-animal-medicines/). It seems to depend on how broadly "animal" is defined and the type of drug in question, but it's all under FDA purview. Regardless of how it is defined, it doesn't fall in my view as being nearly as "lightly regulated" as implied.
I think this is completely irrelevant given the much more pertinent example given:
> Or, to give an example from the article — houses that are eligible for government guarantees (those below $750K-$1M) have appreciated similar amounts in the past decade to those that's aren't eligible.
Maybe, but what's the mechanism for government guarantees below a certain range increasing demand above that range? Someone who can only qualify for a mortgage because it's guaranteed by the government isn't going to be able to make the jump into a non-guaranteed mortgage easily.
Veterinary spending has increased (as a result of higher disposable incomes leading to higher consumption), but it's not true that the cost of veterinary healthcare has increased.
> The researchers track a “basket” of the most commonly-utilized procedures to see how the typical veterinary visit has changed in price over time. According to their research, these ordinary expenses declined by 6 percent from January 2009 to December 2017 after adjusting for inflation.
The monopoly sovereign currency issuer, in this case the US Congress[1], absolutely has upward pricing power for prices denominated in the currency it issues. By upward I mean they can set prices in anything as high as they like, but not necessarily as low as they like. Imagine if Congress passed a First Time Homebuyer act that would allow any first time buyer to have the government write a check on their behalf for up to a million dollars. All of the marginally desirable housing stock would instantly be priced up to a million dollars. Using loans instead of outright spending money into existence adds hysteresis, but the transmission mechanism remains intact.
Edit: Incidentally that's why I oppose every proposed form of Universal Basic Income I've heard of. I like the idea of creating a demand backstop[2], but really it's just going to cause rents to increase by the amount of the subsidy.
[1] Both the Federal Reserve and the Department of the Treasury are creatures of Congress and use delegated authority.
[2] Well, I like it in an economy with strong productivity. If production can't stay ahead of the increased demand, you'll just get inflation until the UBI is more or less cancelled out in inflation adjusted terms.
This isn't about 'regulation', this is about industry using the government as a money piñata.
Once cheap money starts flowing into a system, it spreads and makes everything else more expensive.
Think of the flood of cash from the Corona Stimulus Bill, $8 trillion dollars rained down on the economy which eventually worked it's way through the system resulting in a massive flood of unprecedented inflation affecting all sectors.
Is the impact different when different mechanisms are used? E.g., Covid stimulus correlates with recent inflation, but quantitative easing more than a decade prior seemed to have little impact.
yes. QE was through the banks, they filter loan applications.
stimulus was direct.
but the important thing is that the supply chain issues were already in full force. COVID shifted consumption from services to products, put a lot of logistics people out of work in an already stressed sector, plus China's zero covid plus their financial problems decimated products supply.
then demand shifted back. wages started to rise
millions are missing from the labor force (died, early retirement, low immigration numbers)
and this all combined with the fucking war (which led to an energy market shock, which absolutely rocked everything)
..
well, it's just not the same game at this point. 2008 recovery was too little both fiscal (ARRA) and monetary (QE was new)
this was okay, then Trump wanted one more check... and it was not means-tested.
I think everything you said made sense. But just to balance it out, there was a recent Planet Money podcast that explained that wage inflation is not the primary cause and that 55% of inflation is attributed to increased profit margin. The rebuttal from another Econ is this is just temporary anomaly and we’ll see wages rise to erode those profits.
it's not unprecedented, and don't forget the supply side issues.
inflation started to really blow up when the energy prices did
arguably the effects of the stimulus were masked by the big unemployment due to COVID, and when it decreased enough for the wage rises to start to get felt the spiral started, and the Fed acted late (because in the post 2008 recovery they acted too fast)
> Or, to give an example from the article — houses that are eligible for government guarantees (those below $750K-$1M) have appreciated similar amounts in the past decade to those that's aren't eligible.
To be fair, they target a very different market. When you buy at 1M, you usually have assets and are required to put 15-20% down and have significant reserves.
> When you buy at 1M, you usually have assets and are required to put 15-20% down and have significant reserves.
I don't think it's that different. The banks are still mainly concerned with the income-to-debt ratio, just like with conventional loans. The difference is that often people applying for jumbo mortgage loans will use assets and reserves to try to get the bank to worry less about the income-to-debt ratio.
Also 20% down is the standard for a primary-home mortgage loan, regardless of amount. Sometimes that goes to 30% for non-primary-home investment properties, especially if the buyer is not a citizen or green card holder. Lower than 20% is possible, though more difficult to get since 2008, and you usually have to do unfortunate, costly things like obtain mortgage insurance.
(We're talking US market here, since this article is about the US. Other markets presumably differ.)
They have experienced inflation from a different base price but both have experienced enormous inflation. My guess is that pet surgery will soon reach the point where a lot of people aren't willing to pay the price whereas for human surgery they will accept higher prices.
"For example — healthcare is heavily regulated, but veterinary care is lightly regulated. Both have experienced similar amounts of inflation over the past decade."
The US has a lot of regulation in some areas but there is no regulation as far as pricing goes. Most (all?) countries with universal healthcare regulate pricing. There is simply no way around that. That's why my vote is for Medicare for All.
My understanding is that veterinary care has pretty much been taken over by private equity in the last 10 years or so. They saw that it wasn't experiencing the same amount of inflation as other health care fields, they considered that to be an exploitable bug in the marketplace, and they've been investing accordingly.
So it may not be the best basis for illustrating your larger point.
Especially places like Florida, Louisiana and Texas that continue to lose to hurricanes and continue to get bailed out despite being rebuilt in high risk neighborhoods.
Florida is going to get interesting when the state won’t be able to purchase reinsurance for their state ran insurance company. Insurance companies have been running at a loss even during non hurricanes years and Ian will make them all pull out.
If you want to live in a Hurricane-prone area you should build to hurricane-resistant standards.
Yet what does every single new home in Florida have? A composite shingle roof, no built-in 100mph+ storm shutters, etc. No requirement for built-in backup power.
This is one instance where insurance should be free to properly price risk. Make classifications of storm resistance and price each home based on what standard it meets.
Frankly California has the same problem with earthquake insurance even though it's all sold by the state created (but supposedly not backed) authority. The rates mostly don't reflect any earthquake-proofing nor what standard the home was built to. If you retrofit a 1930s home to the best modern standard you still pay the same rate as your neighbor who did not.
There are composite shingles rated for hurricane winds. Although for that rating nail placement is critical. Sadly the most common screwed up thing on roof installs is nail placement. This can lead to leaks in 5+ years generally. However, in the case high winds if the nail is not on the common bond the nail can pop through the shingle. Also most manufactures require a ring shanked nail for the hurricane rating. Again most roofers use only a smooth electro-galvanized nail because it's cheap.
And once one shingle pops loose suddenly it's much easier for the wind to get under the other shingles near by and the failure can cascade like dominoes in a hurricane situation. Going from a simple repair to replacement of a section or to a whole roof replacement.
Also an other aspect is double checking the shingles are properly placed otherwise the seal strip won't adhere in the correct spot on the shingle below making it easier for the adhesive to come loose and again same problem.
The thing is if you have seen how fast most roofing companies put a roof on a house do you think they are going to do this right?
Also sadly if the roof fails during a hurricane it just means more work for them in the future which means more money paid by insurance. So their incentives are not there. Like there are some roofing companies that will go door to door after a major storm looking for houses basically that have storm damage and get the homeowner to file claim. Looking for things like an out of production shingle so instead of a repair insurance has to buy a whole new roof since replacement shingles don't exist. It's really scummy. The sad thing is this scummy behavior had lead to insurance companies way more likely to deny claims that are valid. I remember seeing a video of roofer with an insurance adjuster acting like what the roofer said was not true or not comment or document it. It was kinda insane and sad at the same time.
Last note:
Although shingles without a hurricane rating in my opinion should not be installed in places like Florida.
i bet they will vote in someone to pass federal legislation with which they receive subsidies that gets spent on making insurance companies whole (aka, take on the losses). Then they will perpetuate the situation, until the coast line sinks.
I’d be curious to quantify the subsidy from hurricanes to the higher mortgage subsidies from higher mortgage limits in states that choose to make housing expensive.
One reason why people talk about “hurricane insurance subsidies” in the first place is that it is hard to quantify, so it’s hard to call people on their bullshit.
This is similar to introducing arcane metrics like for example “federal dependency” (https://sipanews.fiu.edu/2021/03/24/2021s-most-least-federal...) with nonobvious methodology, and then pretending that the states that are high in “federal dependency” ranking are actually more meaningfully “dependent” on federal government, which doesn’t actually pass muster if you look at the methodology (for example, according to their methodology, a state that collects $1k in taxes per capita, and gets $4k from federal government, while spending $5k per capita, is more dependent on federal government than a state that collects $10k in taxes, gets $10k from feds and spends $20k, which is absurd).
Basically, there is a lot of attempts at hoodwinking audience by giving impression that there is some deep quantitative analysis behind the claims, when in fact it’s all just partisan shenanigans.
Yeah. Maryland and Virginia are never at the top of these lists, even though though their economies are totally built around adjacency to the federal government.
These methodologies always seem to count a retiree drawing social security in Florida as federal dependency, but don’t count the northern Virginia employees of a DC lobbying firm as federal dependency.
You mean "NY, NJ, CT, and MA". They are the states that provide the vast majority of the surplus in federal taxes paid by its people versus expenditures to them and their states.[1] Four other states also have substantial surpluses, of which two voted for Clinton and Biden, and two voted for Trump both times. Every other state either breaks even (CA among them) or receives more than their people pay in taxes. Of the ten states that get back the most, five and a half (of Maine) voted for Clinton/Biden and four and a half voted for Trump/Trump. Source: Rockefeller Institute's annual studies on the subject.
[1] Yes, they are all Democratic states today, but this was exactly the same a century ago, when MA and CT were solidly Republican and NJ and NY were swing states.
Remember, risk is most often measured across the dimensions of probability and severity. So even if probability is the same, total risk can be higher is severity increases.
current data don't seem to be available, but pre-pandemic, texas had a housing shortage of over 300k units, the shortage having nearly tripled in less than a decade. that's likely to be worse now. it sure feels worse
a good many of the people immigrating from coastal cities are in a group privileged to remote into coastal jobs. experience corroborates that as well
or did it make it more malleable for customers who wanted sub 12month leases? (And not absurdly priced like some apartment companies who will charge 3x the monthly rent for 1 month leases)
When i Moved to the US AirBnb was my best option to get a 2 week home while I hunted for where I would lease for 12 months. A hotel would have easily cost me double because i got a good week or 2 week rate (i forget which) .
Yes, AirBnB brought down the cost of short term rentals by removing stock from the long term rental market. I think this is a net-negative for society and consumers. It's great that you saved money for a 2 week rental. That was more than made up by someone else who has had to pay more for housing for years.
If AirBnb truly made the market prices go up, then beyond short term shocks it's more of city hall's (and NIMBYism) fault that new supply couldn't come to market (such as rezoning) .
America has a massive zoning issue that is causing all kinds of pain and suffering to lower middle class and below.
AirBnBs are way more expensive that "traditional" long-term housing. They compete in the same market as Hotels and BnBs, not rentals you would live in for 1+ year.
So yes, they're on the market. A different market than long term rentals.
yea but that’s immaterial in the broader scheme. How do you transport someone who is incapable of transporting themselves to lifesaving treatment? Who pays for chemo? Etc.
Of course paying for bandaids or ibuprofen is on the table but that isn’t what we are talking about mostly.
2011 was just after the GFC where MBS caused a global financial meltdown. It's unsurprising that non-government MBS were having a hard time finding a market. And ultimately, government guarantees for MBS is just a symptom of a larger problem. Government support, both in Fed market operations and policies like guaranteeing MBS, artificially lowers the cost of capital for home buyers, which drives up prices.
How do we explain away data that doesn’t fit this model?
For example, post-WW2 saw a massive influx of govt subsidized education in the form of the GI Bill. But the massive rise in education costs is a much more recent phenomenon.
It's funny how you bring up a great example to further my point.
"After the GI Bill was instituted in the 1940s, a number of 'fly-by-night' vocational schools were created. Some of these for-profit colleges still target veterans, who are excluded from the 90-10 rule for federal funding. This loophole encourages for-profit colleges to target and aggressively recruit veterans and their families. Legislative efforts to close the 90-10 loophole have failed.
According to the GI Bill Comparison Tool, the largest recipients of GI Bill Funds are
Does this explain the fact that this pattern didn’t show up in the not-for-profit schools until much later?
I’m not against the idea that govt subsidies raise prices, but it seems like cherry picking to fit a shaky model.[1] If it’s a primary factor, wouldn’t we see that across all schools? Perhaps there’s a different, more foundational cause and we’re being fooled by spurious correlation. If it isn’t applicable elsewhere I fail to see how it can be labeled a root cause.
[1]For example, UofPhoenix was not founded until the late 1970s. This also corresponds to a handful of other societal factors can can be argued contributed to educational costs. If the GI Bill was primarily driving these costs, we should see it in the way the benefits were implemented. Like a high spike post WW2, to waning post Vietnam, to slightly higher with the Montgomery GI bill, to another spike with the post 9/11 GI Bill. But college tuition costs seem to be a fairly steady march higher, including not-for-profit non-vocational schools.
Government backed loans aren't the problem. The US has the 5th lowest housing price to income ratio [0].
Perceptions are just massively skewed by wealthy areas with geographical constraints and strict zoning laws which restrict local supply against demand and everyone complaining focuses on those areas.
Tight supply and government backed mortgages can both be contributors.
I can't imagine taking out the loan I supposedly qualify for. Meanwhile, people calculate affordability based on a percentage of their income rather than sweating the overall longterm value of a particular property.
It's a travesty that the federal reserve and the government choose to make winners and losers with fickle unpredictability as they see fit, often for political gain.
> Mortgage bankers and real-estate agents say the new limits are needed to reflect higher home prices.
Before we do this, how about we outlaw non-resident ownership of 1-3-family homes? Won't that mean prices will go/slow down, and more people will be able to afford to be homeowners? Without the government stuffing more taxpayer money into the pockets of bankers and Realtors.
> how about we outlaw non-resident ownership of 1-3-family homes?
In countries that do this, you wind up with every daughter, cousin and nephew of the wealthy owning title to property. As this shifts the "true" ownership level to a customary, versus legal, plane, extrajudicial dispute resolution becomes commonplace.
This is still better. The house is not in one persons name. Of course if someone puts their house in your name they’re hoping they have full control over it, but they do not and it’s up to the owner to do with it what they want.
I don't think we can safely assume that everyone who is renting a single-family home can afford to buy one, even if prices were to crash somewhat due to a policy like this being enacted.
You might say "oh well, that's a shame, but they can move into an apartment", and, well, yes, that is indeed strictly true, but I don't think that's particularly fair.
Now, if we can solve the problem where anyone who can afford to rent the home they live in could also afford to buy it, then sure, let's do this. Not sure that's a tractable problem at this time, though.
I mean, if corporate landlords legally were not allowed to own them, then supply would absolutely skyrocket as homes flood the market. Potentially to the point where they worth pennies on the dollar, as otherwise wealthy individuals would also be reaching the 2-3 home cap (with home prices so low, why not!)
Of course, this would also decimate the entire sector as a store of wealth, which, while some may consider that good (and I am partial to the view that a home is first a place to live than an investment), in the short term it would definitely have the effect of wiping out most middle class wealth, which is tied up in the primary/only home.
Then there’s also the problem you would likely see absolutely no units built in high demand areas, since the math wouldn’t pencil out until some sort of equilibrium was found.
Potentially to the point where they worth pennies on the dollar
People have to live somewhere. If you're renting and this insane policy gets enacted, you now need to buy something or you'll be out on the street. So supply increases, but demand increases by the same amount.
No one is arguing the policy isn’t insane, I’ll be the first to admit it is. It has a million other problems to it, but it would absolutely cause dramatic price reductions:
if everyone was limited to 1-2 units nationally (let’s say 1 home/unit in high demand cities), then there would absolutely be more supply than demand.
A 400 unit apartment building where the landlord legally must sell 399 units (or all 400 assuming they have other properties), repeated en masse throughout the city, would truly see there being more units on the market than buyers, because
a) investors and high net-worth individuals would not be able to buy, as they would be having to sell off to get under the legal cap
b) the only available buyers would thus be those who are under the limit of the housing cap, i.e. renters, which are mostly those who could not afford a home at the previous prices in the area
Considering the legal onus would be on the previous owners to sell per this insane law, sellers would rather make $100k>$10k>$1k than $0 and so there would be a rush to sell, exherting immediate downward prices on homes.
In San Francisco, which is a city where >66% rent where they live (and thus <33% of the city owns the whole housing stock), you would see a giant flood of homes hit the market that the existing landed gentry would be unable to snap up, equalizing around a 100% live-own rate (because, again, once you buy one unit you can’t buy another, no matter how cheap it is)
It could be phased in over time. Start by halting new acquisitions, then gradually undo the very recent boost due to institutional and foreign investors. But don't drag it out so long that billion-dollar conspirators have more chances to buy a reversal of legislation.
a clause for immediate reclamation of non-resident-owned properties through eminent domain would all but guarantee a ruling that the legislation is unconstitutional. current landlords would certainly be grandfathered in and, if we're lucky, maybe new leases would be banned and existing tenants would be guaranteed right to purchase units at appraisal. it'd be a similar story for non-resident investors without tenants, except in their case they'd be entitled to hold indefinitely.
There are too few houses available. You can't redistribute your way out of a supply shortage. The solution is to build more homes, not change who can own them.
better yet, we could free housing from market dynamics (nearly) altogether by outlawing non-resident ownership of any residential property to force widespread adoption of cooperatively-tenant-owned CLTs, and requiring that residential construction be done by unionized co-ops. neither of us are suggesting realistic goals for legislation though
This statement from the article matches my experience:
>However, for much of the postcrisis period, jumbo loans have been priced better than conforming loans partly because banks see them as valuable for attracting wealthy customers who they can do other business with, industry officials say.
My mortgage is in the ballpark where I could choose whether to get a conforming or jumbo loan. Whenever I’ve shopped for a mortgage, I never was offered a lower rate for a conforming loan. In other words, private funders are willing to finance mortgages more cheaply than the government-backed agencies. For that reason, some of the language in the article criticizing the change doesn’t make a lot of sense to me, eg:
>Critics of Fannie and Freddie’s large role say borrowers who can afford million-dollar mortgages should be able to finance a home without government-backed financing.
This rule change is presumably meaningful to bond traders because it will change the characteristics of bonds that come on the market and who can buy them. Maybe that has some downstream effect on the interest rates offered to consumers?
Just going to point out that there are very real cases where one may want a mortgage larger than they want at least temporarily.
For example, buying a home and selling another. If you want to minimize risk, easier to sell the old one, take a mortgage on the new one, and then clean things up once the dust settles.
At least for cities like Seattle, that’s been basically the only way to sell a home and buy a new one without assuming a ton of risk.
In a hot market that's how you get your offer rejected. It's also how you are stuck in limbo for 6 months because you unknowingly got into a massive, stacked transaction.
Not sure whether you've looked at average prices in most tech areas lately, they're getting pretty steep. You can always move an extra 30 minutes away from work to cut your costs but then you're spending time and money on a longer commute, even if you can "afford" that lower mortgage.
We’ve ignored the increase in nominal home values as part of inflation. Eventually you trip over limits like this one. Most major metros in the US see at least the 75th percentile of homes at above 1 million.
I'm struggling to find a definition of what "backing mortgages by the government" means in practice? Does it mean private entities who buy the mortgage always get paid? If someone stops paying their mortgage, they get to keep their house?
It means that if the would-be home owner is unable to make payments on their mortgage then the government will pay the lender. The intent is the lender is more likely to lend and lower their rates.
Thanks for the reply. Wouldn't that cause the rates to be really close to the federal funds rate then? Why are mortgages hitting 7%? If the funds rate top is 4%, wouldn't even 5% - if guaranteed - still be better?
The article is about Fannae Mae and Freddie Mac which buys loans from lenders and turns them into mortgage backed securities.
The lender is not in the business of issuing a loan and then collecting the cash for 30 years. The lender is in the business of issuing the loan and selling it to Fannae Mae.
I don't know what determines the interest rate in this scenario, but Fannae Mae needs to account for mortgage default risk when they operate the program. It is not run as a charity and the possibility of mortgage default means it is not risk free to Fannae Mae.
There are government guaranteed loans not covered by this article like FHA and VA loans which have mortgage insurance, but I don't think they are cost free to the lender if the loan defaults. I believe the lender needs to comply with regulatory requirements and has costs related to making an insurance claim and proving eligibility for an insurance claim when they get compensated.
Thanks, so circling back, what does it mean for the US government to back/backstop these mortgages? Especially given your statements above that there is still risk of default for the lender.
For FHA it appears all costs resulting from foreclosure are reimbursed except perhaps these, by forclosure expenses I think they mean legal fees, not the mortgage itself:
"The FHA reimburses only about two thirds of foreclosure expenses, interest is not reimbursed for the first two missed payments, and interest is reimbursed at the HUD debenture rate for subsequent missed payments."
Mortgage rates are essentially set nationally, and lenders are competing based on pricing for the list of allowed rates. Servicing companies also get a slice of the interest rate so that isn't the actual return a buyer would see.
