It’s pretty unusual that we have people approach residential real estate in this hyper-financialized way. It’s a weird 1930s way to inject liquidity, and we have better tools now.
An individual is fucked if something happens to crater the price of their house. Nobody hedges, really. It’s a toxic system.
It’s weird that the insurance industry hasn’t capitalized on this. Make people pay for covering the risk that their house will drop in value, and make money on the fact that the vast majority of houses will rise in value.
in 2007-2009 home prices in the US declined by $6T, plus commercial real estate declined $2t. Insurance companies simply don't have that kind of money. AIG tried to insure only very tiny percentage of that market, and lost.
Almost everywhere in the world, yes. There may be some localized falls, but those are temporary and as long as there's people having to live in a place, prices will keep going up, the whole system is built for making that happen.
Not really. If new suppy growth outpaces demand then prices will drop. Recent advances in robotics may make construction much less labor intensive, crashing prices in many areas.
Where is there a place where prices have gone down (and stayed down) in practice for a long time? I've been waiting for 20 years to get a "bargain" and except for a small area in the US and some very short lived downs elsewhere, that just never happens.
> An individual is fucked if something happens to crater the price of their house.
If they've already paid off the house and they want to sell it without buying another house, sure.
If they have a mortgage on the house, someone gets screwed, and that someone is the bank that issued the mortgage. The mortgage is secured by the house. You can just let them take it.
> If they have a mortgage on the house, someone gets screwed, and that someone is the bank that issued the mortgage. The mortgage is secured by the house. You can just let them take it.
If you have 25% equity in the house, and something happens that knocks down the value by 30%... the person getting screwed is you.
OK, you have a $750,000 mortgage on a $1,000,000 house, plus $250,000 in equity.
Then the price declines and you have a $750,000 mortgage on a $700,000 house, plus $175,000 in meaningless equity.
You can sell the house and pay the bank $50,000, screwing the bank, or you can deliver the house to the bank and pay them $0, screwing the bank much harder.
Meanwhile, you've lost... the opportunity to take out a second mortgage against the equity you had in your house? What was the equity doing for you?
That equity was only useful to you if you had the option to sell your house. If it was your only house, the equity concept wasn't all that meaningful, as applied to you, to begin with.
Try changing the numbers. You have 100% equity in your house and the price falls by 120%. (What happened?) Are you getting screwed? How?
You have 70% equity in your house and the price falls by 100%. Are you getting screwed?
> You can sell the house and pay the bank $50,000, screwing the bank
Prepayment doesn't really screw the bank.
> or you can deliver the house to the bank and pay them $0, screwing the bank much harder.
And wreck your credit in the process-- and perhaps even owe the money, depending on whether your mortgage is non-recourse.
> Meanwhile, you've lost... the opportunity to take out a second mortgage against the equity you had in your house? What was the equity doing for you?
Meanwhile you've lost your entire down payment and your ability to purchase another house now. You either have to take a credit hit walking away and forfeit the down payment, or just stay stuck where you are now overpaying for a house vs. current values.
The hedge is that everybody is in this predicament and that is what makes it too big to fail, that the state will always support the bank's to prevent a total collapse. It's a collective hedge.
that's good old fashioned predujice, short-termism, close-mindedness.
they just don't want to live next to anything (which I get), they don't like change (sure, I get that too, buy that's how you get historical landromats) then they realize they can't get that (as you would have to buy the land to keep it from being used), so the next best thing is to make it as similar to theirs as possible... (which ironically makes their house worth a bit less, because of increased low-quality supply leads to slightly lower price locally)
increasing density leads to having higher-quality services around, which would increase value
An individual is fucked if something happens to crater the price of their house. Nobody hedges, really. It’s a toxic system.