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Total rubbish. 7% was the floor for 30-year mortgages from 1970 to the mid-2000's[0], and people were buying houses just fine. This is a submarine story trying to use the heartstring-pulling framing of "the American dream is dead!" to try and coax policymakers into any course of action other than the "build. more. friggin. housing." which is the only actual way out of this.

[0]: https://fred.stlouisfed.org/series/MORTGAGE30US




Right, but house prices have moved much faster than earnings, and if house prices fall, people will lose the savings embedded in those houses.


And others might be able to buy a house for the first time. The issue with houses being the main form of families to acquire wealth is that newcomers to the market have it much much harder to enter participate in it as time goes on and house values increase.

So people losing some "paper" savings is a price to pay so other people can also own.

But in reality, when homeowners struggle and sell their homes is mostly large real-estate funds that buy them. So it's possible that homes losing their value means owners lose savings but newcomers still can't enter the home ownership virtuous cycle.


The principle paid down on those repayment mortgage came from homeowner income and was diverted away from other savings and investments.

Punishing millions of people who just sought housing security because, for reasons beyond their control, the Fed decided to cut rates after the GFC and keep them low for 15 years is just not tenable.

Fortunately, in the UK at least, it looks like (nominal) house prices will remain stagnant until real earnings catch up with rates. A better all round solution.


The vast majority of the homeowners would not lose their principal. They would lose some of their paper profits.


At the sort of correction you're talking of you're talking about millions of people going in to negative equity.

In the US market this may be tolerable because you have full-term mortgages, so people can just stay put even if they're pushed in to negative equity.

In the UK it's death. Here mortgages typically last for 2-5 years. Homeowners would be pushed in to negative equity and be unable to remortgage.


Canada is similar to the UK. I don't see any way out other than productivity-driven growth and building more housing. Both seem extremely unlikely


> So it's possible that homes losing their value means owners lose savings but newcomers still can't enter the home ownership virtuous cycle.

if a house is cheap, but is still valuable (as new owners _want_ to buy because it's worth it while it's cheap), then this means it's a mis-pricing. And mis-pricing means that any investing entity will want to buy as well. In aggregate, this _should_ push the price back to the correct equilibrium.

Therefore, housing being expensive today is a reflection of how many people value it high. It might also indicate that the reason it was cheap before was a mispricing, and those who got in early was merely lucky.


I’d argue that there’s so many buyers waiting in the wings (not even counting hedge funds and Blackrock), that there’s an effective floor on home prices. 5% down swing will mean more buyers and in that kind of market a 20% drop just isn’t happening.


Median house price to median household income ratio was a lot lower back in the 70s. Data for the UK (similar in all developed economies):

https://www.schroders.com/en-gb/uk/individual/insights/what-...

4-6x from the 70s to the 90s, now 9x and growing rapidly.


House square footage was also lower back then though...

https://www.newser.com/story/225645/average-size-of-us-homes...


Yeah but homes were priced based on that historical trend. Now the high interest rates are pushing up against a decade plus of very low interest rates. There are willing sellers that can't actually sell because even with significant equity in their existing home a new purchase would result in a much higher payment. There are too many people locked in at low rates.


Yep, we're pretty much stuck. Not really complaining, at least I have a home bought at a much lower price and rate compared to homes now, so my mortgage payment is quite affordable, but I really wish we had followed through with moving when we were looking at homes just before the rates started jacking up.

We waited a bit and it quickly got to the point where our mortgage payment would double if we sold and bought an equivalent home to what we have today (and we'd ideally want to upgrade a bit, we bought this intending it to be an affordable starter home).


Precisely! I can’t sell because I cannot afford to buy if I moved. I’m lucky to have a house but I’m stuck in it for at least another decade or two.




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