[cbayram]

Good. Home prices have been out of control.

Cheap money along with mortgage lenders have done nothing but push home prices to absurd levels. Local governments are complicit in this exploitation as property taxes rise/reset, giving them a skin in the game. The only suckers are the home owners, new and existing alike. They are being exploited by usury and repayment of an unreasonable debt on a home ,which without lender money would cost significantly less. Some long term residents are being priced out due to rising taxes. Remember, the home value gains aren’t realized until you sell whereas the interest payment and property taxes are each and every year. This dynamic is turbulent and bad for health and continuity of communities.

Car and student loans are similar. It’s not suprising that tuitions are out of control. Like with housing, the school administrators are complicit. Student loans are perhaps worse. One can’t default on a student loan but the rates are 6-7%+ nevertheless.

Securitization of debt in dwelling, education and transportation are just three examples of exploitation of the individual. The irony that some of this liquidity is your very own retirement funds is not lost on me. A self-feeding loop. One must work their entire life, often in misery to repay these absurd prices. For me this is enslavement. Ideals aside, this is reality. Such is the system and life. It’s survival. Having this perspective helps me refrain from being trapped and make sensible decisions.

What’s the justification for this premium on this debt? “Umm, we provide liquidity to the very asset bubbles we create. We assume the risk of default on the loan which in reality Uncle Sam insures is against. Oh and also, we can use that money in one of the other markets that exist for us to exploit.”

Tell me again, what risk are these institutions really taking?

END RANT

[some_account]

The system is set up to keep rich people being rich and in control, just like always. It's not at all random who is in control. Someone makes those decisions and it's not the public through elections :)

We never left the age of kings and peasants. We just have different names. The difference in income has only increased, and the gladiator arenas used to entertain the masses was replaced with sports and computer games.

We are more comfortable now though but so are the rich people.

[azag0]

There is some data for you:

https://ourworldindata.org/wp-content/uploads/2013/12/Pre-In...

https://en.wikipedia.org/wiki/Gini_coefficient#/media/File:2...

[stuaxo]

The rich have taken far more of the gains, and seem like they would prefer a feudal system at times.

[divbzero]

> The irony that some of this liquidity is your very own retirement funds is not lost on me. A self-feeding loop.

This “self-feeding loop” is actually completely expected and not at all ironic.

One of the core benefits of credit markets is the ability to shift your income across your lifetime: to support spikes in spending like buying a house, or fill periods of lower income like retirement.

[patio11]

Securitization of mortgage debt is why you can buy a house with a 30 year fixed rate mortgage at 4.5% (and a non-trivial reason why 30 year fixed is available at any price).

> What risk are these institutions really taking?

Default risk, interest risk, etc. I’m a 15 year shareholder of Bank of America; would you like a brief history of how riskless making loans to ordinary Americans is given that the federal government will bail you out of any losses?

[cbayram]

> Securitization of mortgage debt is why you can buy a house with a 30 year fixed rate mortgage at 4.5% (and a non-trivial reason why 30 year fixed is available at any price).

No, this is the reason why I can’t buy a house using my responsible savings after years of hard work. You are eroding the value of my savings. The massive increase of money supply chasing the finite asset is the reason why the ordinary American is forced to use your product in the first place.

You should consider yourself lucky that you have any BoA shares to hold onto after the subprime meltdown.

Let’s not kid ourselves, providing liquidity to these markets isn’t done out of good faith. All lenders are doing is hiding/shifting risk. This does not mean the risk goes away, but rather creating massive systemic risk much more catastrophic to society.

Interest risk is covered with interest rate swaps; floating vs fixed.

Is BoA a bank or investment bank? Should it take deposits in pay a fixed return, add its markup and lend it out what they have as responsible, vetted business loans?

Look, I’m not arguing the efficiencies of the status quo. I’m empathizing and voicing the risk and serfdom the ordinary individual and communities endure. When an individual defaults, lender isn’t the only one who suffers. Between the 4.5% interest plus 1-2% property tax realized every year, you hope that your property value rises by 5.5-6.5% every year before you break even. Should your primary dwelling be viewed as a financial instrument? How about profit sharing rather than usury upon sale of the house if you really want to assume the risk? Or partial settlement refund if the home never went up in value? It’s difficult to realistically consider these options as the foundation of our financial system is based on interest and inflation.

[JamesBarney]

> Between the 4.5% interest plus 1-2% property tax realized every year, you hope that your property value rises by 5.5-6.5% every year before you break even.

A house doesn't need to appreciate 6% to be a good purchasing decision. Not having to pay rent is most commonly the biggest advantage to buying a house.

[nwatson]

A recent "The Indicator from Planet Money" podcast episode "Rising Rates Vs. The Housing Market" explains how housing price declines don't necessarily follow from rising mortgage interest rates.

[cbayram]

Sure, I can see that. Without not knowing their argument, I can see the following pressures on sustaining current price levels:

1. Investor money swooping up property for rental purposes.

2. Home owners refraining from selling in a buyers’ market. As long as they are able to make payments on their leveraged debt.

But there is no denying that higher interest rates put a downward pressure on home prices due to debt being more expensive and investment money finding more promising returns elsewhere; i.e. bonds.

Some other downward pressures I could see impacting housing markets are:

1. Lack of wage increases

2.Baby boomers dumping homes on the market over the next decade

3. Insolvent municipal/state public pensions. Money on these IOUs gotta come from somewhere. Bonds and cuts are one way, raising taxes is another.

[steveax]

Yeah, there’s less of a relationship between those than one would think. Slightly related: it’s time to phase out the mortgage interest deduction and plow that revenue into affordable housing.

[ComputerGuru]

You’re the first person I’ve seen mention property taxes. They are getting out of hand around these parts,

[AnimalMuppet]

I find it odd that you complain about "cheap money" (meaning, I presume, low interest rates), and "usury" in the same rant.