[dmpk2k]

As an aside: are mortgages even a good thing? They seem to create their own market.

I.e. if there are no mortgages, people buy what they can afford and housing prices remain low. If there are mortgages, suddenly house prices skyrocket since buyers can afford vastly higher prices, making mortgages a requirement for owning a home.

A good position to be in if you're a bank; now you get a big slice of all action.

[thaumaturgy]

I'm undecided on that one. The theory of course is that it makes it possible for a family which can't quite make the up-front cost for a home to still buy a home, which consequently helps keep rents reasonable, which helps poorer classes get by.

But there are also the unintended consequences: people buy things they can't actually afford, like you said, and people begin to qualify for buying homes as investment vehicles, which really screws with things.

So I'm not smart enough to figure that one out.

[dmpk2k]

> it makes it possible for a family which can't quite make the up-front cost for a home to still buy a home

But does it actually have that effect? Once everyone is using mortgages, everyone is back in the same place as before mortgages.

To put it more concretely: before mortgages, houses might average around $100K because the average person simply cannot afford any higher. Once mortgages arrive, houses might spike to $300K, because your average person can afford that mortgage. So while the example family might not have been able to afford the $100K house because they had $80K, a mortgage won't help because now houses are around $300K.

So I don't quite grasp how this would affect rents. That seems to be an orthogonal issue.