Re:The 30-Year Mortgage Is an Intrinsically Toxic Product (2...
by pjc50 on Saturday July 22, 2023 @03:26AM
(#36824158)
> Any mortgage at almost any fixed interest rate, assuming a market amenable to the local prevailing median income, will always beat renting
Yes. One of the smartest finance guys I know says the simple model of taking the landlord's (imputed) mortgage yield and adding four percent nearly always predicts the rental level.
> even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places.
But the causality of this is surprising: that's because interest rates have come down. So the repayment monthly cost has remained constant, but the deposit and salary ratio have shot up.
Now that rates are on the way back up one of two things has to happen to maintain the ratio:
- house prices drop
- inflation increases nominal-income rapidly past house prices
The use of 30-year mortgages hugely slows down those effects, though.
Yes. One of the smartest finance guys I know says the simple model of taking the landlord's (imputed) mortgage yield and adding four percent nearly always predicts the rental level.
> even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places.
But the causality of this is surprising: that's because interest rates have come down. So the repayment monthly cost has remained constant, but the deposit and salary ratio have shot up.
Now that rates are on the way back up one of two things has to happen to maintain the ratio:
- house prices drop
- inflation increases nominal-income rapidly past house prices
The use of 30-year mortgages hugely slows down those effects, though.