Comment by frobozz | Hacker News Reader

Comment by frobozz | Hacker News Reader

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> find enough voters that would take a X% haircut

Or enact laws that don't have a negative effect on most voters - e.g. block non-resident ownership like in NZ and give owner-occupiers the same tax breaks as landlords.

I would gladly see the value of my house drop by 60%, if it meant that all the bigger/nicer houses in the area also dropped by 60%.

For most homeowners, the absolute value of their house is broadly irrelevant. What matters most is the difference between their current house and the next one they want to move to.

People looking to stay put for the foreseeable future are unaffected by changes in house prices.

Empty nest downshifters benefit from prices remaining high and rising, as do flippers, landlords, and those with a very high LTV who wish to move.

People looking to move to a bigger/better house would benefit (e.g. renters saving up to buy, a young family currently outgrowing the house that was perfect when the parents were just a couple).

Is it not the case where you are / in most countries as it is in the US that most homeowners have loans out for most of the value of their property (sometimes even more!)? In which case, surely the value of the current home matters quite a lot?

Maybe you mean to say that what matters is the difference between the price of the desired future home and the amount of salable equity that they have in their current home?

Where I live, 100% LTV mortgages are not common, and prices have been rising for years.

Someone who took out a 100% LTV mortgage ten years ago and only paid the interest would now own about 30% of the equity.

> What matters most is the difference between their current house and the next one they want to move to.

Thank you!! Exactly this

I feel that's a bit naive: many people do not own their homes outright and are leveraged as a result of their mortgage loans.

Say I own 50% of the equity in a home valued at $1M today, and I want to move into a new home valued at $1.5M.

I sell my current home, and I realize enough cash ($0.5M) to cover a 33% down-payment on the new home. Assuming I have the cash flow to satisfy the lender I can pay the mortgage, I can make the move.

But assume all property decreases in value by half. Now when I come to sell my home I only get back enough to repay the mortgage and I have nothing to fund a down-payment on the new home.

Even though the difference in price between the homes halved, I can no longer afford the move.

That's a good point ... the original argument only holds water when the mortgage isn't underwater ;)

Yes, this. Also if I’m in a low value area where “dropping by 60%” means going from $150k to 60k it has a totally different impact than $1.5m to $600k.

Only if you want to downshift to an even lower value area (or smaller place in the same area), or if the higher value properties maintain their value better than yours.

If you were trying to move from a 150K place to a 200K place, you are now moving from a 60K place to an 80K place.

You never had that 90K that you just "lost". Your net worth didn't really drop from 150K+savings to 60K+savings, it was always 1house+savings.

That's not how net worth works. Substitute "12 shares of GOOG" for "$150K house", and your statement remains remains true-but-unhelpful.

If you limit yourself solely to the utility value of the home (i.e. you can live in it), you could perhaps convince yourself of that, but for most people their home is the largest investment they'll ever make.

I know a lot of people (including myself) have "sell home, move to a lower cost-of-living area, roll excess cash into retirement funds" as part of their retirement plan.

> I know a lot of people (including myself) have "sell home, move to a lower cost-of-living area, roll excess cash into retirement funds" as part of their retirement plan.

Which is why almost any talk of trying to actually make systemic, long-term fixes to the housing market--to move it back towards something that provides housing for actual people instead of an investment vehicle for those (shrinking few) who are lucky enough to get on the property ladder--feels doomed to failure. That this situation sustains means that people who have spent many years in a place that is a high cost-of-living area will not be able to retire there unless, again, they got lucky on the property ladder.

On a macro level, people will say that they want fixes and that people should be able to find housing near jobs and all of that. But, at the individual level, rising housing prices that stay high over the long term are beneficial to so many people in a way that, were it to change, would fundamentally crash their post-work prospects. So everyone who owns property is scared to death of that being undermined, to the point that it is, intentional or not, an "I got mine don't touch it" situation.

I know that's a bluntly unfair way to put it because people are simply playing the game as it exists, but that it's unfair doesn't mean it's not also true.

If you need to either own or rent 12 shares of a tech company so you have somewhere to sleep, and if the value of each tech company stock rises and falls roughly in line with that of other tech companies in the region, then the comparison is fair.

It isn't about limiting yourself solely to the utility value, but about the difficulty in separating the utility from the investment.

You can sell your shares for market value at any time, and use the proceeds for whatever you want.

If you sell your only home, you usually then need to spend money on replacing it, whether in the form of rent, mortgage, or using the proceeds to buy outright.

Sort of. These things all have limits. People with negative equity cannot easily sell up. People close to negative equity will have a bit of a hard time.

Say I owe $400K on a $1M home, and I want a $1.5M home. I sell my home to make a 600K downpayment and have to borrow 900K in order to buy that new place.

Let's say all property decreases by half. My home is now 500K, the one I want is now 750K.

I sell up and have a 100K (13%) downpayment and have to borrow 650K to cover the rest.

My LTV has risen considerably, and if the market continues to fall, I might be stuck with negative equity, but I still owe less than I would at the higher prices.

Lenders might be less likely to lend in that scenario, but there will be a sweet spot somewhere where the price drop corresponds to something sufficiently below the majority of movers' LTVs to be beneficial for homebuyers in general.

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