If everyone could afford to buy their homes outright, how would the economy be affected?
If mortgages were eliminated, would the economy of the country be affected? If so, how?
Answers:
Such a program would only work in a cashless society where accumulation of wealth is no longer important. That is the society that was presented in the TV show STNG. I rather doubt that would be possible any time in the near future under the current old system. So, let's consider the option of a new system.
It is the beliefs of JWs that after Armageddon, we will have everlasting life, spending 1000 years rebuilding the earth back into a Paradise. This would be a cashless society, where if you want a home, you and perhaps some friends would simply build one. You would do everything, from cutting down the trees, milling the wood, and assembling the house. Much like it is done now with the Mennonites. You may use other materials, depending on the climate where you are living, such as adobe. I did that as a class project when I was in high school. We collected the raw clay from fields, mixed it, created and bricks, dried them, and built the house.
Of course, you would also grow your own food, make your own clothes, etc. All of which would be possible, since as perfect human beings, you would also have 100% use of your mental capabilities.
There would be no greed, so none of my house has to be bigger than yours. As we filled this planet, we would begin to do the same thing on other planets in the universe.
In a very positive way, because this would mean that there are plenty of rich people, who the govt. can tax.
I wish mortgages were eliminated, Im fed up off mine and Ive still got another 19yrs left on it! To hell with economy!
Those are two different questions. 1) The only way to allow everyone in, let's say, the U.S., even the homeless, to own their home is to make homes that are ridiculously cheap--so cheap that only the homeless would consider the offer. Like, a cardboard box beneath an underpass. 2) How would the mortgages be eliminated? Just by fiat? If so, you'd be screwing the banks out of their primary assets, forcing them to close. The government would have to bail them out (because they're all insured), and the taxpayers would have to bail out the government. In short, nothing is free.
I"m lucky enough to own my own home outright, and by doing so I have much more disposable income which I take great pleasure in spreading around the local pubs. How do you think the poor old Bankers would survive if they were unable to lend someone £150,000 and expect them to pay back £250,000. No annual bonuses etc.etc. I think they might all jump off high buildings, mind you that's not a bad idea.
For this to be feasible then all th ehomes would have to be more or less on a par with each other (no further personal desires to borrow more money to upgrade). Therefore the moving market will cease to exist except for moves taking place because people cvhange workplaces, and the value of houses will become 'real' in that the cost of materials will be the only value in that commodity. So a house going for £300,000 today would have a 'new' value of something in the region of £76,000 or thereabouts.
We would have sanity in the housing market and none living off the earnings of others!. Hooray !!!!
if everyone can buy his home outright, there will be temporary cash flood. Mortgages will die a natural death. Savings will lower. Real estate market may dip down. Land prices will nose dive. The macro economy may be distorted.
In fact, there will be an unreal world.
if everyone could afford the current price for houses, the market price would rise dramatically. unless there is an unimaginable increase in the number of houses built, it will never be the case that everyone can afford to buy their home, due to house price inflation
There would be nothing left to spend on consumables. Then people would have to take out equity release schemes. House prices would probably fall because people wouldn't have to take out ridiculously large mortgages to fuel house price inflation.
Most of the money currently borrowed to buy houses comes from Far East savers. Without it, there wouldn't be anything like enough savers in this country to provide the mortgage funds to drive up house prices to these ludicrous levels. And yet people still borrow. They have lost their sense of value completely.
It is an impossible scenario, particularly in this country, because people don't know how to save. People would be buying their first house when they were about sixty, having rented to date.
Great question.
Banks would have less money.
Banks would invest less money.
Businesses would have less money.
People would make less money.
I'm going to rephrase your question. If there had been no such thing as mortgages in the first place, what would be the effect on housing costs? The answer: Housing prices would be about 1/5 th as much as now. But then wages would be lower because there would not be the need to have them raised to meet inflation. So in essence it might seem like it should be different, but in the long-haul it has no effect whatsoever because relatively speaking the housing cost would remain the same relative to the average wage.
But as you asked, if mortgages were eliminated, there would be a crash in housing that would make the 1929 Stock Market Crash and ensuing Depression look like nothing at all. Literally there would be rioting in the street and a wholesale freeze of the global economy that might result in revolutions and murder on a large scale.
Most likely the economy would flourish, But only If the people would still mortgaged their homes. See If I have 300,000 and buy a 300,000 dollar home, I put down 75,000 and mortgage the rest at 6.5%. I invest the remaining 225,000 and as long as I can earn 7%+. Then any wages earned could be placed in other investments and used on other luxury items.
That's just my thought.
I'm too busy working out how it would be possible to be able to see all the implications. For one thing, housing prices would have to be far lower than they are now. If even poor people could buy rather than rent, the incentive to invest in real estate for rental purposes would drop to essentially nothing. It would all just be "optional rent," rather than because they don't have the money to buy. That's too small a percentage of the population compared to today's situation, so people would sell their rental properties.
Maybe that's how it would work. Of course, it would mean multiple unit rentals would be converted to condos or co-ops, so there would still be plenty of work for building management and agents of that sort to make a living, although not so many as before.
This would be a dramatically different economy than the one we have now. The buying and selling as people moved from their minimum start-up home (the disabled, the veterans and retired seniors; the people with the minimum condo or trailer) to something a little nicer when it became available, would not replace the current real estate market. We would have a significantly less mobile population, because homeowners cannot move as easily as renters can.
As to how it would be done, I can't think of anything short of government intervention, which would mean it's not so much that affordable housing would be more available, but that government intervened to pay for housing for a substantial body of the public, as they do with renter's assistance now. However, since they would be gaining a permanent asset, presumably all government involvement would be much more stringent and complicated.
This is one of the things I have wondered about with the Habitat program. The concept of sweat equity is perfectly valid, and presumably could be transferable from volunteers for those who cannot do the physical labor normally involved in "sweat equity." But to find that many volunteers so that literally everyone could be a homeowner is hard to imagine.
Or were you including significantly sub-standard housing as one of the ways to achieve this miracle? Owning a hovel that's about to fall down may not be preferable to renting a more stable home.
Much to ponder here.
There would be more houses to be build, meaning more jobs (consnstruction sector), payment of taxes (real estate taxes, etc.), permits (building and constructions), production and imports of materials required for the constructions will increase because of the demands.
Where I live the houses are averaging close to 1 million. So that would mean a lot of money flowing into the area.
i;d buy one
I WOULD LOSE MY JOB BECUSE I WORK FOR A BANK IN THE MORTAGE DEPARTMENT SO I WOULD NOT LIKE IT.
People buy vacations, weddings, and Fruit Loops on credit. Buying a house without credit is next to impossable in a modern society. First the housing would have to be smaller and simpler. People are not forced into buying a house asap, nor forced into buying more than the other guy. To buy sans mortgage the price would have to be saved so buying a house would typically be around age 40 perhaps. Until then people would live with parents and less would be spent on restaurants, entertainment, and other discretionary items. Our economy is somewhere around 11 trillion a year now. With this basic change it might be 4 to 6. That is not neccesarily bad though. We would likely be a more civil society. Use public transportation a lot more. Not all would be good to come out of this. We would be less advanced technologically. Perhaps similar to the early 1960's now. Life span would be lower with less health knowledge. In short we would be not a third world country buut a second rate one.
there would be no homeless people, unless they pawned it for drugs!
pj m is right on the money. If there was a sudden increase in the amount of income of people such that everyone could afford a home, inflation will raise the price of said homes until people would have to mortgage again, barring a huge increase in the supply of houses.
yes, in a big way.a drop in revenue - a huge drop
Girl! Are you some kind of economist? After reading all the answers you got so far, I am still left with this one question.WHO KNOWS ALL THIS STUFF AND WHY?
I used to own a home with my deceased ex. Long story, but I can tell you that I could NEVER afford to buy a home again. And, apparently, according to all those intelligent people answering your question, I NEVER WILL BE ABLE TO!
But I want to tell you this.. You have asked the most interesting question I have ever seen (next to mine) on this site.
I am gonna give you 1,000,000 points! And if each pt was worth a dollar, you could buy a home near me!!
Veritas is sooooooooooooo smart!
The financial health of the country would be in shambles. Inflation would go uncheced because of eratic interest rates. Very stupid question.
Economy department would no longer have to exist, wars over oil and most robberies would end.
People would actually have greater priorities and a healthier , happier world would surface. IF
Well the banking industry would be hurt. But the housing industry and construction would be booming!
pipe dream.
Price of taxes..where ever you live will 'rise'..because of everone can buy a house,that mean everyone is rich.Imagine that...
Well, one thing for sure, the lending institutions would find other ways to make money. There will be cars, boats, RVs and home remodeling to finance just to name a few.
In my opinion it will help improve the economy.
Similar to Habitat (mentioned by auntb93), in the Philippines there is also another well known non-profit org. called Gawad Kalinga (GK777) which is also spreading thru out the US and the rest of the world. They are building up houses for people with out creating mortgages - sweat equity.
I believe a lot of people can afford to buy a decent house. or even a decent piece of lot. The problem we have in general is that we always want to have the better end. Even if we have enough cash on hand to purchase a big house that can accommodate 5 people even if you are only 3, we still want to end up getting a house that can accommodate 10 people and still only 3 people will only live in it.
I’m not sure if every one will agree but for me if more people had their own homes, with out mortgages to be paid all through out their lives – there will be lesser crime in the society which also affects the economy of an area.
Economy will be healthy, only banks and loan sharks loose their interest..
Economy would definitely suffer in a way somehow as rate of bad debts increases.
It is human's nature to take things for granted, especially when there is nothing to take concern during money-related transactions. Such cases could be seen in simple scenario such as young kids spending away hard-earned money of parents. They didn't earn them and most importantly,they are well aware that they could just reach out to their parents again when they run out of cash and expect no liability at all.
Loans could be issued out to bank clients whom have hit a certain financial criteria but still,they would expect no penalty if they exceed their pay-up dateline,thus dragging their repayment.
When banks suffer,cashflow in the industry/market will hit a bottleneck,investments will decrease or become more cautious and selective.
Although other parts of the economy still runs and this issue is just a fraction of the entire system,but it takes a hairline crack to slowly tumble a big structure.
Hope I prove my point.. :P
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Answers:
Such a program would only work in a cashless society where accumulation of wealth is no longer important. That is the society that was presented in the TV show STNG. I rather doubt that would be possible any time in the near future under the current old system. So, let's consider the option of a new system.
It is the beliefs of JWs that after Armageddon, we will have everlasting life, spending 1000 years rebuilding the earth back into a Paradise. This would be a cashless society, where if you want a home, you and perhaps some friends would simply build one. You would do everything, from cutting down the trees, milling the wood, and assembling the house. Much like it is done now with the Mennonites. You may use other materials, depending on the climate where you are living, such as adobe. I did that as a class project when I was in high school. We collected the raw clay from fields, mixed it, created and bricks, dried them, and built the house.
Of course, you would also grow your own food, make your own clothes, etc. All of which would be possible, since as perfect human beings, you would also have 100% use of your mental capabilities.
There would be no greed, so none of my house has to be bigger than yours. As we filled this planet, we would begin to do the same thing on other planets in the universe.
In a very positive way, because this would mean that there are plenty of rich people, who the govt. can tax.
I wish mortgages were eliminated, Im fed up off mine and Ive still got another 19yrs left on it! To hell with economy!
Those are two different questions. 1) The only way to allow everyone in, let's say, the U.S., even the homeless, to own their home is to make homes that are ridiculously cheap--so cheap that only the homeless would consider the offer. Like, a cardboard box beneath an underpass. 2) How would the mortgages be eliminated? Just by fiat? If so, you'd be screwing the banks out of their primary assets, forcing them to close. The government would have to bail them out (because they're all insured), and the taxpayers would have to bail out the government. In short, nothing is free.
I"m lucky enough to own my own home outright, and by doing so I have much more disposable income which I take great pleasure in spreading around the local pubs. How do you think the poor old Bankers would survive if they were unable to lend someone £150,000 and expect them to pay back £250,000. No annual bonuses etc.etc. I think they might all jump off high buildings, mind you that's not a bad idea.
For this to be feasible then all th ehomes would have to be more or less on a par with each other (no further personal desires to borrow more money to upgrade). Therefore the moving market will cease to exist except for moves taking place because people cvhange workplaces, and the value of houses will become 'real' in that the cost of materials will be the only value in that commodity. So a house going for £300,000 today would have a 'new' value of something in the region of £76,000 or thereabouts.
We would have sanity in the housing market and none living off the earnings of others!. Hooray !!!!
if everyone can buy his home outright, there will be temporary cash flood. Mortgages will die a natural death. Savings will lower. Real estate market may dip down. Land prices will nose dive. The macro economy may be distorted.
In fact, there will be an unreal world.
if everyone could afford the current price for houses, the market price would rise dramatically. unless there is an unimaginable increase in the number of houses built, it will never be the case that everyone can afford to buy their home, due to house price inflation
There would be nothing left to spend on consumables. Then people would have to take out equity release schemes. House prices would probably fall because people wouldn't have to take out ridiculously large mortgages to fuel house price inflation.
Most of the money currently borrowed to buy houses comes from Far East savers. Without it, there wouldn't be anything like enough savers in this country to provide the mortgage funds to drive up house prices to these ludicrous levels. And yet people still borrow. They have lost their sense of value completely.
It is an impossible scenario, particularly in this country, because people don't know how to save. People would be buying their first house when they were about sixty, having rented to date.
Great question.
Banks would have less money.
Banks would invest less money.
Businesses would have less money.
People would make less money.
I'm going to rephrase your question. If there had been no such thing as mortgages in the first place, what would be the effect on housing costs? The answer: Housing prices would be about 1/5 th as much as now. But then wages would be lower because there would not be the need to have them raised to meet inflation. So in essence it might seem like it should be different, but in the long-haul it has no effect whatsoever because relatively speaking the housing cost would remain the same relative to the average wage.
But as you asked, if mortgages were eliminated, there would be a crash in housing that would make the 1929 Stock Market Crash and ensuing Depression look like nothing at all. Literally there would be rioting in the street and a wholesale freeze of the global economy that might result in revolutions and murder on a large scale.
Most likely the economy would flourish, But only If the people would still mortgaged their homes. See If I have 300,000 and buy a 300,000 dollar home, I put down 75,000 and mortgage the rest at 6.5%. I invest the remaining 225,000 and as long as I can earn 7%+. Then any wages earned could be placed in other investments and used on other luxury items.
That's just my thought.
I'm too busy working out how it would be possible to be able to see all the implications. For one thing, housing prices would have to be far lower than they are now. If even poor people could buy rather than rent, the incentive to invest in real estate for rental purposes would drop to essentially nothing. It would all just be "optional rent," rather than because they don't have the money to buy. That's too small a percentage of the population compared to today's situation, so people would sell their rental properties.
Maybe that's how it would work. Of course, it would mean multiple unit rentals would be converted to condos or co-ops, so there would still be plenty of work for building management and agents of that sort to make a living, although not so many as before.
This would be a dramatically different economy than the one we have now. The buying and selling as people moved from their minimum start-up home (the disabled, the veterans and retired seniors; the people with the minimum condo or trailer) to something a little nicer when it became available, would not replace the current real estate market. We would have a significantly less mobile population, because homeowners cannot move as easily as renters can.
As to how it would be done, I can't think of anything short of government intervention, which would mean it's not so much that affordable housing would be more available, but that government intervened to pay for housing for a substantial body of the public, as they do with renter's assistance now. However, since they would be gaining a permanent asset, presumably all government involvement would be much more stringent and complicated.
This is one of the things I have wondered about with the Habitat program. The concept of sweat equity is perfectly valid, and presumably could be transferable from volunteers for those who cannot do the physical labor normally involved in "sweat equity." But to find that many volunteers so that literally everyone could be a homeowner is hard to imagine.
Or were you including significantly sub-standard housing as one of the ways to achieve this miracle? Owning a hovel that's about to fall down may not be preferable to renting a more stable home.
Much to ponder here.
There would be more houses to be build, meaning more jobs (consnstruction sector), payment of taxes (real estate taxes, etc.), permits (building and constructions), production and imports of materials required for the constructions will increase because of the demands.
Where I live the houses are averaging close to 1 million. So that would mean a lot of money flowing into the area.
i;d buy one
I WOULD LOSE MY JOB BECUSE I WORK FOR A BANK IN THE MORTAGE DEPARTMENT SO I WOULD NOT LIKE IT.
People buy vacations, weddings, and Fruit Loops on credit. Buying a house without credit is next to impossable in a modern society. First the housing would have to be smaller and simpler. People are not forced into buying a house asap, nor forced into buying more than the other guy. To buy sans mortgage the price would have to be saved so buying a house would typically be around age 40 perhaps. Until then people would live with parents and less would be spent on restaurants, entertainment, and other discretionary items. Our economy is somewhere around 11 trillion a year now. With this basic change it might be 4 to 6. That is not neccesarily bad though. We would likely be a more civil society. Use public transportation a lot more. Not all would be good to come out of this. We would be less advanced technologically. Perhaps similar to the early 1960's now. Life span would be lower with less health knowledge. In short we would be not a third world country buut a second rate one.
there would be no homeless people, unless they pawned it for drugs!
pj m is right on the money. If there was a sudden increase in the amount of income of people such that everyone could afford a home, inflation will raise the price of said homes until people would have to mortgage again, barring a huge increase in the supply of houses.
yes, in a big way.a drop in revenue - a huge drop
Girl! Are you some kind of economist? After reading all the answers you got so far, I am still left with this one question.WHO KNOWS ALL THIS STUFF AND WHY?
I used to own a home with my deceased ex. Long story, but I can tell you that I could NEVER afford to buy a home again. And, apparently, according to all those intelligent people answering your question, I NEVER WILL BE ABLE TO!
But I want to tell you this.. You have asked the most interesting question I have ever seen (next to mine) on this site.
I am gonna give you 1,000,000 points! And if each pt was worth a dollar, you could buy a home near me!!
Veritas is sooooooooooooo smart!
The financial health of the country would be in shambles. Inflation would go uncheced because of eratic interest rates. Very stupid question.
Economy department would no longer have to exist, wars over oil and most robberies would end.
People would actually have greater priorities and a healthier , happier world would surface. IF
Well the banking industry would be hurt. But the housing industry and construction would be booming!
pipe dream.
Price of taxes..where ever you live will 'rise'..because of everone can buy a house,that mean everyone is rich.Imagine that...
Well, one thing for sure, the lending institutions would find other ways to make money. There will be cars, boats, RVs and home remodeling to finance just to name a few.
In my opinion it will help improve the economy.
Similar to Habitat (mentioned by auntb93), in the Philippines there is also another well known non-profit org. called Gawad Kalinga (GK777) which is also spreading thru out the US and the rest of the world. They are building up houses for people with out creating mortgages - sweat equity.
I believe a lot of people can afford to buy a decent house. or even a decent piece of lot. The problem we have in general is that we always want to have the better end. Even if we have enough cash on hand to purchase a big house that can accommodate 5 people even if you are only 3, we still want to end up getting a house that can accommodate 10 people and still only 3 people will only live in it.
I’m not sure if every one will agree but for me if more people had their own homes, with out mortgages to be paid all through out their lives – there will be lesser crime in the society which also affects the economy of an area.
Economy will be healthy, only banks and loan sharks loose their interest..
Economy would definitely suffer in a way somehow as rate of bad debts increases.
It is human's nature to take things for granted, especially when there is nothing to take concern during money-related transactions. Such cases could be seen in simple scenario such as young kids spending away hard-earned money of parents. They didn't earn them and most importantly,they are well aware that they could just reach out to their parents again when they run out of cash and expect no liability at all.
Loans could be issued out to bank clients whom have hit a certain financial criteria but still,they would expect no penalty if they exceed their pay-up dateline,thus dragging their repayment.
When banks suffer,cashflow in the industry/market will hit a bottleneck,investments will decrease or become more cautious and selective.
Although other parts of the economy still runs and this issue is just a fraction of the entire system,but it takes a hairline crack to slowly tumble a big structure.
Hope I prove my point.. :P
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