Ok, so we are talking about 50 yr mortgages?! There is a great Thomas Sowell quote: “In this world there are no solutions, only trade-offs.” So let’s look at it from that perspective.
The first thing that comes to mind is “So, we are out of ideas huh?”
Let’s state the obvious
- Housing affordability is a huge problem
- Housing is a huge part of the macro stats that politicians use to justify their existence.
Saying “just extend the term” is such a lame and easy cop out. To me, it screams “We are out of ideas.”
A 50 yr mortgage makes sense in the same way that “lowering rates” is a good thing. Stay with me here. Most people think that “lowering rates” is a good thing. And it is….kinda………sometimes……….for some people.
For now, let’s ignore the 10’s of billions of dollars (that we don’t have) that “lowering rates” actually costs. When the Fed “lowers rates” it’s widely held as a good thing. Because it makes things more affordable. Which seems like a good thing.
Until you look at human nature. Which they know! Realistically, most people are just going to use this affordability to buy more stuff! People love buying new stuff! Clothes, dinners, concert tickets, trips, etc. We are addicted to buying more stuff.
I said many years ago that the new American dream is “The most shit I can buy on the minimum monthly payment.” Which is how people have been living. For a long time. Let’s get real, this point saying “lower interest rates” is saying “households need more debt”.
Some will say “Yeah, I have to live like that because inflation is so bad.” Which is a valid point. Except, it’s you buying all that stuff that causes the inflation!
Let’s say that again: You need to use debt to buy stuff, because inflation is so high. Inflation is so high because people are buying stuff on debt. And now you need to have lower rates on your debt, to afford the stuff you already bought, and buy new stuff.
Which will cause inflation. And now we are setting new records for the most credit card debt – EVER – every single day. Then buying down these interest rates have added like $9,000,000,000,000 to the governments credit card. Which means that, now, something like 24% of the government’s budget is paying the old debt.
BUT HERE’S THE SCAM: They need you to buy more stuff!! If you don’t buy more stuff, the stock market will go down. Which the politicians’ opponents will use against them. If you don’t buy more stuff, the Percentage increase in our GDP might be lower than the Percentage Increase in China’s GDP!!! For the love of God, do you know what would happen then??!!
I’m literally asking. I don’t know. My guess is, other than political talking heads whooping things up, probably nothing.
I mean, what really happens if our economy (as a macro statistic) doesn’t grow as fast, for a little while? If it makes life more affordable for a majority of people???!!!
The 50 yr mortgage is the way of the government saying: We need the stats of you buying a house. We are out of other ideas to make living more affordable. Because all of those idea might create a stat that makes US look bad. So we are going to do THIS.
Plus, it probably won’t work. To write these mortgages, someone has go buy it. The difference between a 10-year mortgage and a 30-year mortgage is 65bps, the gap between the 30-year and 50-year mortgage will also be sizable. Absent a deep secondary market for 50-year mortgages, investors will be reluctant lenders. We have had 40 yr mortgage for a long time (just not in Fannie/Freddie). Typically the buy-up is about .35% to rate.
Let’s math this out:
$400,000 on a 30 yr mortgage at 6.5% is $2528
$400,000 on a 40 yr mortgage at 6.85% is $2442
Let’s say the 50 yr term is a .55% add to the 30 yr: $400,000 on a 50 yr mortgage at 7.05% is $2422
Not….much……different.
And, if you need a 50 yr loan to qualify, are going to be stable enough to handle the shocks of insurance and taxes going up. Which they have been, tremendously.
People are pointing out that you won’t build equity as fast. Which is true and nobody cares about principal paydown anymore.
People are pointing out the median age of first-time buyers 40, borrowers would likely never pay off their mortgage. Which few people actually care about right now.
The other point is, if this brings more buyers to the market > it will run up the prices of the homes > more inflation and less affordability.
But also: I work in the mortgage business. So, if it gets us more business, then I guess WHATEVER. Let’s go!!