Valuethinker wrote: ↑Wed May 12, 2021 4:24 am
willthrill81 wrote: ↑Mon May 10, 2021 4:32 pm
brianH wrote: ↑Mon May 10, 2021 2:25 pm
New Providence wrote: ↑Mon May 10, 2021 10:17 am
30 yr mortgages make no sense. Housing prices would collapse if the maximum tenor was, say, 5 yrs.
Why don't 30y mortgages make sense?
If people couldn't get mortgages and had to pay cash for homes, would they be consuming as much housing as they do now?
Are consumers financially better off by consuming more or less housing?
BTW, the size of the median newly built home vs. the median household size has
doubled over the last 50 years (i.e., twice as much housing space in newly built homes compared to the number of people likely to occupy them).
We know what the world looks like when middle class people cannot get mortgages.
It looks like Britain up to about 1930. Everyone lives in rental properties - either rented from the state (social) or privately rented. The suburbs basically didn't exist.
It was the 1930s which saw the housing revolution in Britain. On a population 2/3rds size it is now, we built 50% more homes pa.
Similar period for the US before 1946 & Levittown etc. Go to the Tenement Museum on Lower East Side of NY -- a fascinating tour, when it reopens. Single family of 5-7 people (including grandmother) living in a 2-3 room apartment. You can see similar in Berlin.
Home ownership in the U.S. was around 44%, depending on which data is being used, before WW2. That increased to around 60% by 1960, and only small increases have been seen since (it's currently about 66% according to
Statista). In
this NBER article, Daniel Fetter examines this increase in home ownership between 1945-1960 and discusses various theories as to why it occurred. The increased availability of mortgages, especially VA mortgages, is one of the theoretical drivers, but there are others too (i.e., demographic changes, income, income tax, and others).
Further, the increased availability of mortgages, especially very long-term mortgages (e.g., 30 years), has likely been a contributing factor in the doubling of the median size of the newly built home relative to the median U.S. household size since 1972 and the increased COL of many areas. The same argument holds true with student loans in the U.S. (i.e., increased availability of student loans was at least partially responsible for increasing the cost of higher education).