(Obligatory disclosure I guess: I work in the financial industry, though not in a way related to mortgages or housing. Anything I write here is my opinion and not that of my employer.)
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Imagine a world where, as well as their regular business selling groceries, grocery stores sell tokens that entitle you to a perpetual stream of groceries. Rather than spending $200/week on groceries, you spend...let’s say (200*52/0.05)=$208,000 to buy a Grocery Token.
Of course many people cannot afford $200k up front to buy a Grocery Token. Happily, if you save up $40k as a down payment, banks will lend you the remaining $160k. This is considered a normal thing to do.
Economists track Grocery Token Ownership Percentage as a key indicator of economic health. Left-wing politicians complain that young people can’t afford Grocery Tokens today because of evil corporations. Right-wing politicians complain that young people these days aren’t buying Grocery Tokens because they’re lazy, or because they’re spending all their money on Starbucks and avocado toast.
Yes, you could not have a token, and just buy groceries from a store. But think of the insecurity! You’re going to need food next year, and the year after, and the year after! Imagine if the price of food rose hugely and you starved! Clearly the only responsible thing to do is to save up and buy a Grocery Token.
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More seriously, home ownership is a very weird thing to focus on, and I don’t know why so much housing discourse fixates on it.
If a financial advisor told a client ‘you should invest your entire net worth in one undiversified asset’, they would get fired. If a financial advisor told a client ‘you should lever yourself upto invest 5x your net worth in one undiversified asset’, they would end up in jail they would plausibly end up in legal trouble.
Homeownership is a plausible hedge if you are certain that you intend to live in your current location forever, even if it gets vastly more expensive, and want to hedge your future self against that risk. But this is not reasonably true of everyone! If you live and work around an expensive city, you should plausibly respond to ‘housing costs in this city triple while wages stay the same’ by moving somewhere else. Only if that is not an option for you is homeownership an obviously correct policy.
Probably generally not true, you’re right. Even if they are prosecuted, ‘fined’ or ‘barred from the securities industry’ are more likely. I do think legal trouble would be at least very plausible. I’ll edit the parent comment.
(Obligatory disclosure I guess: I work in the financial industry, though not in a way related to mortgages or housing. Anything I write here is my opinion and not that of my employer.)
______________________________________________
Imagine a world where, as well as their regular business selling groceries, grocery stores sell tokens that entitle you to a perpetual stream of groceries. Rather than spending $200/week on groceries, you spend...let’s say (200*52/0.05)=$208,000 to buy a Grocery Token.
Of course many people cannot afford $200k up front to buy a Grocery Token. Happily, if you save up $40k as a down payment, banks will lend you the remaining $160k. This is considered a normal thing to do.
Economists track Grocery Token Ownership Percentage as a key indicator of economic health. Left-wing politicians complain that young people can’t afford Grocery Tokens today because of evil corporations. Right-wing politicians complain that young people these days aren’t buying Grocery Tokens because they’re lazy, or because they’re spending all their money on Starbucks and avocado toast.
Yes, you could not have a token, and just buy groceries from a store. But think of the insecurity! You’re going to need food next year, and the year after, and the year after! Imagine if the price of food rose hugely and you starved! Clearly the only responsible thing to do is to save up and buy a Grocery Token.
_____________________________________________
More seriously, home ownership is a very weird thing to focus on, and I don’t know why so much housing discourse fixates on it.
If a financial advisor told a client ‘you should invest your entire net worth in one undiversified asset’, they would get fired. If a financial advisor told a client ‘you should lever yourself up to invest 5x your net worth in one undiversified asset’,
they would end up in jailthey would plausibly end up in legal trouble.Homeownership is a plausible hedge if you are certain that you intend to live in your current location forever, even if it gets vastly more expensive, and want to hedge your future self against that risk. But this is not reasonably true of everyone! If you live and work around an expensive city, you should plausibly respond to ‘housing costs in this city triple while wages stay the same’ by moving somewhere else. Only if that is not an option for you is homeownership an obviously correct policy.
Really? We jail financial advisors for giving unreasonably aggressive financial advice?
Probably generally not true, you’re right. Even if they are prosecuted, ‘fined’ or ‘barred from the securities industry’ are more likely. I do think legal trouble would be at least very plausible. I’ll edit the parent comment.