
The housing market faces its next crisis as May rent and mortgages come due - jseliger
https://www.washingtonpost.com/business/2020/05/03/may-rent-mortgages-coronavirus/
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droffel
I saw a proposal recently that suggested the government mandate that existing
loans (mortgages and business loans primarily) add the deferred period to the
back of the loan, interest free. So if the lockdown is 3 months long, then
your 72 month loan becomes a 75 month loan with an internal interest free
3-month period. This feels like a reasonable compromise to just nullifying the
debts altogether, considering what an accounting nightmare that would be.

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nickff
I have been thinking about these issues since the beginning of the crisis, and
the two big questions I have are:

1) What do you do about bonds? A very large proportion of all debt is packaged
into bonds, and reducing their yield will have a substantial effect on many
pensions

2) Who is going to pay the wages of the people paid to administer these loans?
Are they going to accept a deferral of their wages?

I am not trying to dismiss your idea; I had many similar ones early on, but I
couldn't figure out how to square the circle.

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toomuchtodo
> 1) What do you do about bonds? A very large proportion of all debt is
> packaged into bonds, and reducing their yield will have a substantial effect
> on many pensions

US Treasury pays bondholders some, but not all, of the interest income due.
Shared haircut between bondholders and the taxpayers. This is a catastrophic
loss with a nation state providing what amounts to insurance, and incredibly
cheaper not only economically, but from the struggle and hardship many would
face from foreclosure and relocation.

> 2) Who is going to pay the wages of the people paid to administer these
> loans? Are they going to accept a deferral of their wages?

PPP loans (forgiven when used for payroll) for mortgage servicers. Those folks
are still going to be needed to account for bondholder payments, with the
Treasury picking up the tab instead of homeowners.

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nickff
A taxpayer bailout solves a bunch of problems, at the expense of non-mortgage
holders (AKA renters). It seems unjust to take from renters and give to
property-holders, given that the latter are generally more affluent, and
knowingly took a risk (by taking out a loan).

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toomuchtodo
> It seems unjust to take from renters and give to property-holders, given
> that the latter are generally more affluent, and knowingly took a risk (by
> taking out a loan).

Life isn't fair. Renters have landlords with mortgages also, and renters are
just as challenged as homeowners currently (30+ million unemployed, 1/5th of
the US working population). Broad policy decisions have some moral hazard to
be deprioritized.

The goal isn't fairness, it is to return to economical equilibrium as rapidly
as possible.

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cadlin
As a renter and voter, my preferred policy solution is to suspend rental
evictions, let the foreclosures go forward as mortgages are a risky asset,
then let the market sort it out at auction. That sounds like a more market-
oriented solution to me.

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toomuchtodo
Over 62.5 percent of American homeowners have a mortgage, worth collectively
over $10 trillion dollars (total equity is ~$18 trillion). You are entitled to
your opinion, but are in the minority.

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dllthomas
The percentage of homeowners who have a mortgage says nothing about how many
rent vs own. That said, the relevant number seems to actually be higher.

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toomuchtodo
64.2 percent of Americans are homeowners. Still a majority compared to
renters.

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dllthomas
> Still a majority compared to renters.

I'd noted it was higher so that would follow, yes. I left out the precise
number because I saw some variation in the across sources and couldn't be
bothered to dig into the details as it didn't make a difference anyway.

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JMTQp8lwXL
As a millennial renter, part of me wants to see lower home prices, but that
also means other people being underwater. It's a tough generational
predicament we've placed ourselves in. We want to encourage homeownership, but
millennials aren't buying. We want homeownership to be profitable, because for
most middle class families, the home is the largest financial asset. It's
impossible to make all of these promises to people. If a 2008 repeat occurs
again, it will only further reduce personal home ownership and increase
institutional ownership.

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kelnos
I really wish people would stop thinking of their primary home as an
investment. It's not. It's a liability. It requires maintenance and upkeep and
does not generate revenue.

Unfortunately, since -- as you point out -- a home is nearly always a family's
largest expense and often also largest store of value, people distort what it
means to them financially and expect their home to appreciate in value well
above and beyond inflation.

When you take out a mortgage to buy a home, you shouldn't have any
preconceived notions about whether or not you'll be "underwater" at some point
in the future. And really, it does not matter one bit if you're underwater.
Unless something has also happened to your income stream, you just keep paying
it, as you should. The borrowed money doesn't somehow magically become less
money just because conditions have changed and your home's market value has
dropped. The downside is, of course, that you may not be able to sell the
house and move away until you've paid off more of your mortgage. But that's a
risk you take when you sign that paperwork up front.

The home-as-investment thing is fairly uncommon in the world and seems to
mainly be a US thing. I wish it would die, as it should. It only serves to
distort the market, and fuels ever-increasing home prices, which makes it
continually harder for the average family to own their own home, further
increasing institutional ownership.

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JMTQp8lwXL
Home prices as a multiple of median income have increased in many cities
outside of the US: London, Paris, Berlin, Hong Kong, the financialization of
housing is likely driving a house-as-investment ethos beyond US borders. Some
nations, like Japan, are notable exceptions due to local preferences.

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twblalock
This is why I don't expect a "V" shaped recovery. Consumer spending will be
down because a lot of people will be spending their income on paying their
past-due bills.

Credit reporting is going to hurt a lot of people too, and that will also
decrease consumer spending because people will have less access to credit.

~~~
jlbnjmn
Also, many of the lost jobs are in consumption and service industries. I'm not
going to get extra haircuts, eat extra meals, or drive extra miles.

So business owners and workers in those industries aren't going to catch up.

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Shivetya
forbearance and tax relief will do wonders for those who own properties
however this does nothing for renters or cover the other considerations, food
and utilities.

the only solution is to replace lost income with a maximum cap of how much is
restored. As in, take the reported income filings or individuals across a set
period prior to the nationwide lockdown and use that to determine aid to go to
those people. No wholesale just because you are breathing you get money. No
bonus on top of it for children. Hence the number will likely need to be
larger than $1200 for one month and taxes at all levels need to be forgiven
for the air. I am betting on nearly $2000 per income earner up to their income
or that cap.

however you will have to accept you will have people who will waste this money
as well, you can easily find numerous cases where people treated the last
stimulus as a bonus

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rwmj
This is paywalled for me, an archive.is link:
[https://archive.is/TSF1O](https://archive.is/TSF1O)

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foota
Part of me has wondered... What if we just went through the motions of the
economy? I.e., average everyone's spending over the last year and require
everyone to make 1/12 those payments to their recipients per month. Obviously
we wouldn't be realizing the benefit of the things we mock buy, but it seems
to me like it would largely preserve the economy in the sense that no one
would have to face a deficit? Anything still possible to deliver (i.e., food,
rent, etc) would be delivered for the money and anything that couldn't would
just not be.

Obviously there are many practical issues with this, namely that it would
require way more and detailed data on purchases than anyone has and would be
completely politically infeasible.

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Udik
Different idea: just hibernate the economy. Completely. No money transfers.
Nobody pays rents or food or bills; nobody gets paid either salary or pensions
(but still has to show up for work if required/ possibile). This could help
preventing businesses or private individuals or families going broke during
the lockdown; when it's time, everything can be restarted at once. It might
work (or have worked) for a short period of time, though I imagine it's
practically inconceivable.

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JMTQp8lwXL
People need food to live. Are grocers expected to hand out food without
payment? If everything is priced at $0, I might not make it to the grocery
store fast enough before the crowd empties the place.

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Udik
True. But you could for example say that every citizen has a right to $50
worth of food (at normal prices) per week, and has to pay any excess. Grocers
might get partial refund from the government for the food already in stock;
new orders going down the supply chain are not paid at all. (Btw, I know this
is a crazy idea, but just for the sake of the argument).

