Mike Buchanan
Sep 9, 2018 · 1 min read

I think you’re maybe thinking about mortgages the wrong way. A mortgage is a leveraged investment. You pay ~4.5% interest, but the investment itself appreciates in value (likely at more than 5% annually around here). If you assume real estate prices appreciate faster than your interest rate, the only real cost to a mortgage is the opportunity cost of what else you could do with the down payment. But we’re postulating that real estate is a good investment, so that opportunity cost is not high.

This sort of thinking assumes that the developer can tolerate the illiquidity of real estate as an asset, which is not a good assumption for your average homeowner. But for companies (and many rich techies), it’s pretty reasonable. Of course, the assumption that real estate is always a great investment is what lead to the Great Recession — but on the other hand if housing prices do fall that would directly cause there to be more affordable housing.

    Mike Buchanan

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