Honestly as a Dutch man with a family but only one income (the norm about 40 years ago), we are are also really at the edge. And I have a relatively decent income (1.5-2 times modal as we call it). And where does all that money go? Well, more than 25% goes to interest on our mortgage. We get some of that back but from tax money so it's a cigar from our own box.
Whatever we earn more as a family is taken away by the banks by allowing us to loan more, which increases housing prices, which increases the interest they receive. Our economy is very much rigged to keep everybody working near full time to be able to live.
Do you have an opinion about what caused this situation where people are in a constant chase to keep up with their expenses, especially in Netherlands? I have my opinions but I am really curious what is the perception of a middle class western person. Thanks!
I think it is housing prices. Banks sign money into existence as your debt. And then you work to pay it off plus interest. We bought our house from a single old lady for about 195.000 euros (plus 40.000 for restructuring and then some for taxes), this woman bought this house in the sixties for 19.500 guilders (8.850 euros), she got about 186.000 euros just for living there for 50 years.
Meanwhile we pay the bank 4.85% of 245.000 yearly for 30 years (ok, it's less now for sure) but that 4.85% would amount to 349.000 euro's for the banking system, just for signing my debt into existence. In this way they constantly squeeze society.
If you do the math you see that you pay over 300 a month to decrease the debt while paying about 1000 in interest. If housing prices rise more than wages at some point both parents have to work full time and can afford less and less luxury items. Then we are at "maximum squeeze".
Can you imaging that my parents once payed 12% mortgage interest! of course houses were cheaper then (this was early 80's) but still.
People with 2 incomes by the way can save a full income (although I know some people that really can't afford to have one parent at home), they really don't feel anything, but banks are eating away are our wealth people, wake up. And when the banks fall because they took to much risk, they require our money again, to be saved!
> Can you imaging that my parents once payed 12% mortgage interest!
Yeah, it got up to around 17% in the US back in the 80s. It sounds crazy, but I've actually been told that it doesn't matter too much because the house prices would be lower to compensate for it (because people don't magically have more money to buy stuff, so if the rate goes up the house prices have to go down).
I've actually read that it's better to get a high percentage mortgage, especially if you know that mortgage rates are about to go on a downturn, because you can buy a house at a much cheaper sticker price than you would normally, and then you can refinance your mortgage once the percent goes down and get the lower mortgage rate on top of that!
It's actually supposed to be a lot worse to get a house with a low mortgage rate when they're about to start shooting up (which is right when we bought a house, four months ago, yay), because a) you won't want to refinance to a higher mortgage rate, and b) if you do decide to sell in a higher mortgage rate market, then the sticker price of your house is going to have to go down quite a bit to reflect that in order for the house to sell, so you might end up losing money on your house, or at least see much more reduced gains.
My real estate philosophy is "how much more can the next person borrow"? I think that once you adjust for inflation and borrowing power of interest rate changes, housing is a lot less attractive as an investment.
Yeah I don't personally see houses as investments, myself. We bought the house to live in, although I don't know if this house will last us for 30+ years (we've done a pretty good job filling it up already and we don't even have kids yet). So it would be nice if it at least kept its value for when we do end up selling it.
It seems like the cheaper money is leading to other classes of assets like housing and stocks to go up. It's a value transfer between these classes of assets and a great play for those that own houses and stocks, but the younger generation is getting screwed. I know this is simplified view but it rings true to me; reminds me of the French Revolution.
And we will screw the new youngsters again because we are going to want the maximum the bank can loan the youngster to pay for our house. Part will go to my kids but again... there comes the rent.
Loosening of regulation and cheap influx of money, on the whim printing of money by the Fed. Case in point, the current situation with student loans.
It's politically beneficial to make slogans about housing for all, education for all, etc. and then institute policy to distribute cheap money. Least time we did that, you know what happened (2008).
Whatever we earn more as a family is taken away by the banks by allowing us to loan more, which increases housing prices, which increases the interest they receive. Our economy is very much rigged to keep everybody working near full time to be able to live.