I doubt it’d fix the housing crisis here, but it would certainly help. I’m not sure how many people would warm up to it, though. A large part of our problem is that there isn’t any affordable housing. The fact the average house cost in 2023 was around $450,000 is insane, especially given the median income in the US was roughly $75,000 in 2022.
So yes, being able to buy back our mortgage’s bonds at their market value may be a boon, but the fact that the Dane’s require at least 20% down for their system to work would be a nonstarter for so many people. Roughly 65% of Americans are living paycheck to paycheck. A small minority of people are going to have the ~$80,000 to required to put down on a $450,000 house. Ultimately, turning housing into such a profitable investment option has led us to this situation, as having fewer houses means the existing houses are worth more and will only increase in value, making it a much more attractive investment than building new housing en masse.
require at least 20% down for their system to work would be a nonstarter for so many people.
That’s not really how it works, though. You actually only have a to put down 5 percent or more in Denmark. Much like the US.
The difference is that, in Denmark, the mortgage (the loan with the covered bond) can only finance 80 percent of the value, the rest can be financed by a regular bank loan. So 80 percent mortgage and 15 percent bank loan.
I was going off of the article, which stated that 20% is required in Denmark. Seems that they didn’t specify that well, so I apologize for the ignorance.
No worries. The article isn’t clear on that.
The point of requiring 20% is to suppress demand, pushing prices down toward affordability.
A much bigger impact would have tearing down all the stupid parking spaces and changing zoning regulations to build higher density housing. The urban sprawl is unsustainable long term.
Housing was out of reach for many Americans before interest rates went up. I don’t think allowing an escape to mortgage rate lock-in is a bad idea, but state and municipal funding and financing and zoning reform would make more of a difference in the housing market.
Or probably just do both.
Yes please!
Oh actually, it’s not working. Idk
Rad, thanks
Thanks
We don’t have enough homes we are millions of homes short. There is no solution until building goes into over drive.
The number of empty houses in North America is absurd. Zoning and regulatory structure are as much an issue as construction.
You’re right but that’s not the problem attempting to be addressed with Denmark’s system.
This sounds good, but I don’t fully grasp the covered loan aspect. So the bank is required to sell a matching bond on the open market. What’s the difference between the rate on mortgage and the rate on the on bond? Is it also matched or just the principal? Does that make the interest a wash for the bank, so that their primary motivator is fee collection?
Here’s an in-depth comparison between the US and Danish mortgage models. It’s a PDF from the NY Fed:
