Greetings Bitcoiners!
Thanks to those who came out for our hike and wings event last weekend! It was an awesome day for it, and we hiked even further than intended, reaching the Peters Mountain Shelter. Total distance ended up being about six miles. Bravo!
We've got two more events on the books for 2025, both bitcoin & coffee events. We're going to be planning on having a coffee event on the fourth Sunday of each month, and our goal is to alternate locations month by month. In two weeks, on Sun, Nov 23rd, we'll be meeting at Elementary Coffee in Harrisburg (flyer attached). Then, for December, we'll be at Denim in Mechanicsburg. Hope you can make it!
Last week, the current executive administration, as confirmed by the FHFA (Federal Housing Finance Agency), is working on a plan to make 50 year mortgages a thing in the US. Why would they want to do this? Because home ownership is becoming increasingly out of reach for the majority of the country, and longer loan terms make for lower monthly payments. Fun fact...15 and 30 year fixed rate mortgages are not naturally existing products. As Americans, it seems like they are, since they've been around and available to us for our entire lives, however they don't really exist outside of the US. In most of the world, if you want to get a mortgage with greater than a 10 year term, ARM's (adjustable rate mortgages) are your only option.
A little real estate finance 101 lesson: as opposed to a fixed rate mortgage, whose interest rate stays the same for the entire duration of the loan, the interest rate of an ARM adjusts on certain intervals to come more in line with current rates. For example, a 5/1 ARM means that the advertised rate will hold for the first 5 years of the term, and then adjust every 1 year thereafter, to a rate that's more in line with current rates. This can mean that your mortgage payment can potentially increase substantially on a given year...anyone who signed up for an ARM prior to 2020 can attest to that.
ARM's are lower risk for the lender, since they periodically sync up closer to current rates, which is what banks are paying interest on. So why are long term fixed rate mortgages a thing in the US? Who's on the other side of the deal with all of these people who have them? If you guessed Uncle Sam, you're right. The US government creates the required demand for long term mortgage paper, buying them through government sponsored enterprises such as Fannie Mae and Freddie Mac. It's a great deal for banks...they can sign people up for long term fixed rate mortgages, collect all the fees and closing costs incurred, then sell them to Uncle Sam. This creates (artificial) demand for 30 year paper, which allows certain Americans to finance home purchases on longer fixed rate terms than naturally exists through supply and demand forces. Why is Fannie Mae and Freddie Mac willing to step in and buy this paper? It's another way of money printing, and it keeps the music playing in our game of economic musical chairs. Because of constant dollar debasement, people use real estate as a store of value. This makes home prices vastly exceed their utility value.
In 1970, it took 2.4 years of median US income to purchase a median US house. Said another way, if the average US worker wanted to pay cash for a house, they'd have to save their whole income for 2.4 years to buy it. How about now? The trend is definitely intact...that figure is now 9.1 years, over 3x the 1970 levels. If it were 2x, that means that the home that could be purchased by a single income household now takes a dual income household to purchase. Even with dual incomes, we can afford less home today than we could with a single earner family in 1970.
A 50 year mortgage would make for slightly lower monthly payments for a home compared to a 30 year loan. However, that it's even being brought up is symptomatic of how distorted our economy is in the US. A tale of two economies...2024 marked two new highs for Americans: more Americans than ever before vacationed internationally, and more Americans than ever before visited a food bank. Financial machinations such as the 50 year mortgage will perpetuate this bifurcation.
Keep stacking sats, keep stacking skills!
Bitcoin in the Burg
1. Provide value to others
2. Spend less than you earn
3. Save in a money that can't be printed by someone else for free