Should You Ever Get a 50 Year Mortgage? — with Dr. Karsten Jeske

27:17And then the lender too, right? So the lender gets less revenue, gets less interest income over 30 years, and then gets more interest income for the next 20 years. So what kind of investment return do I want over this horizon? And it turns out that very, very small spreads can create some huge internal rates of return. So, for example, if you plug in something like a 75 or 100 basis point premium, it would create an infinite internal rate of return. So, obviously, lenders would like that. And here's the reason why lenders would like that. If you apply a term premium high enough, it's actually the 50-year mortgage would have a higher monthly payment than even the 30-year mortgage, right?

28:00And then nobody would want that. Of course, the lender would love this. You get more for 30 years, and then you get even more for years 31 to 50. That's not going to happen. Every time you have to do these net present value calculations and internal rate of returns, you have to have some positive and some negative cash flows. If everything is positive, then there's no internal rate of return. The internal rate of return would have to be infinity to press everything down to zero. So here again, right? So this kind of math over 15 years, 15-year mortgage versus 30-year mortgage. So you need much bigger term premiums to bring these differential payments into balance.

28:39And whereas over a very long horizon, it's just a tiny term premium could create some fantastic profit opportunities for the lender and potentially would create some terrible hurdle rates for the borrower. So that was my point. And by the way, the bond market gives us some guidance here, right? So I looked up a few bonds of some corporations. I took the same corporation, but I looked at different expiration dates for their bonds, right? So at least I would have corporations where, you know, they have, obviously, it has the same credit rating. Just the maturity of that corporate bond is 20 years apart, and they have very, very tiny term premium.

29:15And the corporate bonds are even much more extreme than mortgages, for example, right? Because in a corporate bond, you get only the interest payment, and then at the end, you get the big lump sum payment, right? So delaying that by 20 years from a finance math point of view, that's a much bigger deal than spreading out your mortgage amortization for 30 versus 50 years. This is where I came up with that rough estimate. Yeah, probably somewhere between 20 and 25 basis points would be a fair term premium for that longer mortgage. if you're really sure that you hold the mortgage that long, right?

29:52And so, for example, if it's paid back early, the lender gains, right? You get more interest and it's paid back so you don't have to stretch it out. Of course, I mean, there could be obviously some lenders who say, no, no, but I wanted this, right? Because I'm a pension fund. I like to hedge the payment over the next 30, 40, 50 years because this is how long I expect my retirees to live. But again, I mean, you say if I were a private lender and I did a mortgage and somebody paid me something like 25 basis points more for the 50-year mortgage, I would love to get those 25 basis points extra because I'm sure that this person is going to move after 10 years and pay back the mortgage.

30:30And I pocketed the 25 basis points extra and I'm not even going to go that far. So this 25 basis point term premium was only calibrated for something where you don't have any prepayment risk. If you have a prepayment risk, That would make it even more important that, well, we can't have something like a 50 basis point or even 75 basis point term premium. So it would be, nobody would go for that on the borrower side, at least nobody rational, even though obviously lenders would probably make a lot of money if they offered that. But with the prepayment risk, that was exactly what I was about to ask about next.

31:10With prepayment risk, as a lender, you're in a situation in which if rates fall, then the borrower can refinance. But if rates rise, then the borrower holds, which that seems like asymmetric risk from the lender's perspective, right? Because the lender suffers from duration risk if rates rise and then loses out if rates fall. Right. And by the way, this risk is even worse in the corporate bond market, right? Because most, maybe not most, but many, many corporate bonds also are callable, right? So there might be a little bit of hurdles, right? I don't think they can be called right away. There's probably some schedule after which you can call the bonds.

31:57It might be a little bit more complicated than for the average mortgage borrower, but most corporate bonds are also callable. And then on top of that, it's this issue, right? You have only interest. These are interest-only loans, and then you get the big payment of the principal back at the end of the mortgage. And the borrower has this fantastic heads I win, tails you lose, right? So if interest rates go up, that's great. I'm going to keep this. and because interest rates are higher probably inflation is really high inflation is going to chip away the mortgage balance especially as a corporation right there's never the risk of kind of moving right so they can keep the bond for as long as they want there's no there's no issue if you ever move your headquarters to a different state that you have to pay back all of your corporate bonds you can keep them and then if interest rates go down by enough then you just refinance.

32:51And by the way, they face the same fixed costs. So they have some cost of issuing a bond. Well, you have to pay some big financial institution to rally the investor masses to buy up your bond. And there's some cost, just like a mortgage borrower. Any refi is going to be costly. You might have an inspection and a credit check and some legal fees. You take that, You just multiply that by maybe a thousand or so, and then you get the costs that some of the corporate borrowers face. Yes, but yeah, there's this asymmetry, and it's basically the lenders are on the hook for the risk. But then again, they also want to be compensated for that.

33:31It's basically called the convexity risk. The convexity means that there is this non-linearity in the mortgage pricing. So you lose if interest rates go up, but you should gain if interest rates go down. But you don't gain as much as you hope. because the thing could be prepaid, which, by the way, you don't have in treasuries, right? So treasury bonds, at least to my knowledge, they're not called. That's why if interest rates go down and you have this very, you have a 5 % treasury and interest go down to 1%, you made a ton of profit along the way. At the same time, it's priced into the bond, and lenders will know this, and they want to be compensated for that.

34:12And corporations could potentially get better rates if they didn't have that prepayment option. So in an efficient market, it's obviously nobody's being taken advantage of here, right? I mean, there's on both sides, on the lender and borrower side, these are very sophisticated actors, so they know what they're doing. The attractiveness or unattractiveness of a 50-year mortgage, much of this is going to come down to what is that term premium? Because if that term premium is a quarter point, it's a very different conversation than if it's 75 basis points. But it strikes me that with a 50-year mortgage, there's more time for rates to move against investors.

34:53There's more time for the convexity problem to rear its ugly head from a lender's perspective. And so it stands to reason that a lender would want to be compensated well for that. Right. And to alleviate some of these fears, right? So I did the calculations. For example, you can calculate something, what's called a duration, right? So bonds have a duration, and they have a maturity, which is when they're paid off. The duration is this mathematical concept, right, where you calculate, and they had the duration for the bond pricing. The duration has at least two interpretations, right? One is the duration is over what period, on average, is the loan paid off?

35:30So you look at all the payments, not just the final payment. And the other very intriguing interpretation is that the duration is something like it measures the interest rate sensitivity of the present value of the loan. And that means that if interest rates go up, right, so you discount at a higher rate, so that means the loan value goes down. So it measures how risky this investment is if you have fluctuations in interest rates. Just to throw out some numbers there, so even some of these bonds that I looked at, right, So there are bonds that have maturity 20 years and 40 years. Their duration was really only 12 and 16, right?

36:11Because, I mean, there are some payments are flowing already early on. And so on average, the loan is roughly paid after much less than the whole 20 or 40 years. And then if you do the same thing with the mortgage, you have even surprisingly low duration. So I think I calculated something like somewhere between 11 and 14. So 11 would be the duration for a 30-year mortgage and 14, so only three years longer, would be for the 50-year mortgage. So if you calculate the interest sensitivity of the price of that loan, yeah, I mean, you go from 11 to 14. I think it was 10.7 versus 13.7. So it obviously has to be higher because it's a longer maturity loan if you increase the mortgage.

36:56But it doesn't mean that a 50-year mortgage, the price risk due to interest rate fluctuations doesn't have to be 50 over 30. That doesn't have to be 67 % higher risk. It's actually only 25 % more risk from interest rate fluctuations. So these are risks and people would want to be compensated for that. But most people buy bonds because they tend to be a good diversifier of your equity risk. And then, by the way, each individual mortgage, of course, also has some credit risk built. So imagine we take this big pool of mortgages. It's not just one borrower. So you diversify away a little bit of this idiosyncratic risk, right, where somebody loses a job and can't pay the mortgage.

37:45And then they get angry and they pour concrete down the pipe and make sure that the bank doesn't get the house at full value either. So let's assume that is already all averaged out and we make this basically almost like a relatively safe government bond minus a little bit, maybe a 1%, 1.5 % or 2 % chance of maybe some mortgage delinquencies along the way. Lots of people like these kinds of fixed income investments because they behave in a way that has some nice correlations with your other risky assets, right? So the bond risk seems to be at least uncorrelated, sometimes even negatively correlated with your equity risk.

38:27Obviously, there is risk and there is duration risk and interest rate risk. Many times, the interest rate risk is actually a good risk to take on. And there might be even some people who say, well, I love the interest rate risk so much. How can I get more of this? And of course, whereas in isolation, obviously, everything's more risk should deserve a bigger premium. So in the big scheme, just having more interest rate risk doesn't necessarily mean that you get terribly penalized for that because it's a risk that people actually seek to hedge other risks. So either, say, imagine you're a private investor and you have your equity portfolio out.

39:04Maybe you want to have only 75 % equities and 25 % bonds because if equities go down in a recession, bonds have some potential to go up and hedge some of that risk. or say you are a pension fund or any kind of an institutional investor where you want to hedge some nominal or sometimes real future cash flows, then you would also like bonds. And you wouldn't really care too much about the interest rate risk because if interest rates go up, yes, interest rates go up, that means your portfolio goes down. But if interest rates go up, then the future discounted cash flows that you owe, they might also go down.

39:40So you actually like that kind of risk. So it's a risk that is a good risk to take for a lot of actors.

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44:07I want to return back to the attractiveness of a 50-year loan for the average owner-occupant. And one of the main points that gets brought up, particularly in mainstream media, when we read about the 50-year mortgage, is the massive differential in interest that the average owner-occupant would pay if they were to hold this to maturity. You make the point in your argument that paying interest isn't bad. Elaborate. Right. So at least if you read between the lines, you sometimes see that people get offended that over time, the longer the mortgage is, the more of your payment goes towards the interest and not paying down the principal.

44:55I'm not offended by that because you can't just take the sum of your payments. And it's because the sum of your payments, you're comparing apples and oranges, right? Because a payment of, say,$3 ,000 for your mortgage today is very different from a payment $3 ,000 20 years into the future. There's a time value of money. Everything needs to be discounted back into today's dollars. And if I take all of these payments and I discount every one of these payments back at the mortgage rate and I sum them all up, by definition, I get the mortgage principle. So every mortgage has, you pay exactly the principle and then everything that you pay in nominal dollars in addition is interest.

45:40But yeah, I mean, if I discount it down, there's nothing offensive or abusive about paying more in interest. For example, example, at today's interest rates, even the 30-year mortgage, right, at something like 6 % or a little over 6 % in some cases, over 30 years, you would pay more in interest than principal. And then with the 50-year mortgage, I think it's probably something like a two to one. So out of every dollar, you probably pay only 33 cents of principal and 60, 66 or 67 cent of interest. I don't think there's any magic line that you cross, you know, where if you go from more interest than principle, then I don't know, the universe blows up or something like that.

46:22For example, going back to that one bond that I described, there was a hundred year bond. It pays an interest of 4.1%. The principle is paid after 100 years. And through that time, right? 4.1 times 100, you paid for every$100 loan, you paid$410 in interest and only$100. That's what the principal pay down is at the end. So it's actually 4.1 to 1. So more than 20 % of your payment goes towards the interest in that corporate bond. And I'm sure that the company that did that is actually quite happy because they locked in a 4.1 rate on a corporate bond 100 years into the future in 2021 when interest rates were really low.

47:03So this is in no way abusive. The discussion reminds me a little bit of this discussion. And I'm sure you have talked about this. When people do the crossover points of social security and where they say well i'm looking at the total number of payments that i get and i do this up to my life expectancy and if i claim it 62 versus 67 versus 70 and here are the crossover points and a little bit of my soul dies every time when i see that and by the way is a very mainstream people publish this i've seen this on the web pages of Fidelity and maybe Vanguard, too, where basically commit these crimes against mathematics.

47:43It's not the total number. You have to do discounted sums. You have to, an actuarial analysis would actually do the survival probability weighted cash flows and then also discounted at just the right discount. It shouldn't be an equity market expected return. It shouldn't be a cash return. It probably should be somewhere in between. So that is the proper way to do it. There's a net present value analysis. And if we do a net present value analysis of any kind of mortgage, you never pay any interest because the discounted value of all the payments always comes back to be the principal. So I'm not particularly bothered.

48:22But definitely it's a very effective and cheap shot at the 50-year mortgage. If you say, oh, my goodness, you pay so much in interest over the years. But for people like us, it's not very convincing that if that's your only point, then I think that I want the argument in that case. All right. What do you make of the argument that, you know, right now, the average age of the first time homebuyer nationwide is 40. Right. Hit 40 for the first time. If we take, and of course, most people don't hold one singular mortgage for their entire life. But if you were to buy a home at the age of 40 and hold it for 50 years, you'd be 90 when that mortgage is paid off.

49:05That creates a best case scenario, assuming no early payments or prepayments. It creates a best case scenario, assuming you never move and only hold one mortgage, of having that home paid off at the age of 90. and then for the average person who tends to move every seven to 10 years and who sells their home, cashes out the equity, uses it to buy the next home, and then restarts the amortization clock, they would necessarily be restarting with very little equity and then restarting the amortization clock over and over and over to such an extent that ultimately they would, at the end of their life, have built very little equity and maybe have a huge debt that they would pass on to their heirs.

49:46Right. So again, my same point applies again. So we have to take into account not just the nominal, but also the real mortgage balance. So your property hopefully has increased a little bit. You build some equity there. I view this also with a bit of worry that people get mortgages when, even today, right? Forget about the 50-year mortgage, right? If you are close to retirement, there are some people that are still getting a new mortgage at age 50 or 55 or 60. And it's again, a 30 year mortgage. So in some way, even today, with today's financial technology, there are some retirees that while they are homeowners on paper, but they are really renters, and they are renting a house from the bank.

50:29And in some cases, it may make sense, right? So for example, you could be a retired government employee, and you get pretty reliable cash flows. and you just say, well, I'm not going to pay down my mortgage, right? I just budget for what I pay for my mortgage in retirement. And I keep paying that down and then be done with it. Because, you know, whether my kids get, so I'm talking from the perspective of other people. So I have one daughter and by the way, I don't have a mortgage. Imagine I were in that situation and I say, well, you know, if my daughter gets the house free and clear when I die versus my daughter gets the house and there's still a little bit of a mortgage on it.

51:11Chances are she's not going to stay in this house anyways. It will be sold at the closing table. We take the mortgage balance off. It's still pretty neat. Home equity left after that. Imagine if I had invested the incremental payments. So not having a mortgage, I would have to sell more of my assets. And if I have the mortgage, maybe my assets actually appreciate faster than the mortgage interest rate. So there's some chance that your kids will still get something. And it's not even clear whether the mortgage versus no mortgage inheritance is bigger because whatever your mortgage does, or whether you have a mortgage or do have a mortgage, might also have an impact on your financial risk.

51:53I mean, sometimes people do these calculations. So one person has a mortgage and the other one doesn't have a mortgage. And then you look at what happens after 20 years. Well, that's not the issue. The question is, if I'm close to retirement, should I liquidate some of my assets and get rid of the mortgage and then be mortgage-free in retirement? And that would lower my financial assets. So to do a fair comparison, it's not 100 % clear that with the mortgage or without the mortgage is better for the heirs. I personally don't have a mortgage. How do I not have a mortgage when I retired when just five years before retirement, I just did my last refinance.

52:31There was another nice interest rate trough in late 2012. I don't know if you remember. So I locked it in there and I did the paperwork in early January 2013, almost exactly five years before I retired and sold my place. And five years later, I have no mortgage. So did I pay down my mortgage over five years? Did I have a five-year mortgage if there is even such a thing? And of course I don't, right? So basically what I did was I lived in a very expensive area. I lived in San Francisco, right middle of downtown. I sold the place. Of course, I had some home equity. Then the mortgage office was paid down a little bit.

53:10But then again, the big impact on my equity came not from the mortgage paydown. It came from the property appreciation, which wasn't insane. It wasn't insane. I think I had something like maybe five and a half percent annual property appreciation. So it's more than inflation. and it was a good time to own property in San Francisco. If I had bought a little bit later, I could have bought a little bit more at the trough. Then I could have probably done something like double digit annual return on the property price. But when I bought, it was not the ideal time, but I still made a lot. What year did you buy?

53:44I bought in 2008, which was a bad year to buy in San Francisco. And I could have waited maybe until the rock bottom prices in early 2010. that way I would have had better pricing. So bought in 2008, sold in 2018. And I walked away with enough equity. And then I bought a place in a much cheaper area in Washington state, not in Seattle, which is also quite expensive and not in Portland, Oregon either, but across the river from Portland. Oh, Vancouver, Washington? Is that where you are? Vancouver, Washington is just a little bit away from where I live, which has nothing to do with the Canadian border, right?

54:20We are at the southern corner of Washington state. And it's actually named after Fort Vancouver, right? Vancouver was some, I think, lieutenant or somebody who explored this area. Yeah, it's actually the Washington Vancouver was founded before the Canadian Vancouver. But of course, Canadian Vancouver is much bigger now. So I bought a place here and now have no mortgage. Not everybody was as lucky as I got when I retired. But you can definitely extrapolate that to other retirees, right? So you retire, you move, you're living very close to the city, maybe you move a little bit away. You don't have to clog up the freeways in the big metro areas, maybe move out to where it's a little bit quieter, and then buy a cheaper place.

55:05And that is probably the much better way of going from mortgage to no mortgage, from working to retirement, than diligently paying down your mortgage. Because I don't know anybody anymore who has a mortgage from 29 years ago, and they're just about to make their last payment of their 30-year mortgage. I mean, that's totally unheard of because of refinances and job moves and other reasons to move, especially right before retirement. Yeah, I think the best way to go mortgage-free is to just scale down your house or to move to a smaller place, cheaper place. That's much more reliable nowadays. Although scaling down your house is sometimes difficult So in an environment in which home prices are appreciating rapidly and the premise behind this question, I guess the unknowable is at what rate will home prices continue to appreciate?

55:56But I can certainly tell you from my own parents' experience, attempting to move, or they did move, but moving in their 80s to a home that was more mobility-friendly, nothing fancy, but just a home that's more mobility -friendly, one-story rather than two-story so they don't have to use the stairs. because home prices had appreciated so much, even moving to a further out location, a quote unquote worse location, even despite doing that, they still actually ended up paying a premium. That exact issue also crossed my mind because I looked around in our area. And so we live closer to Portland in a very good school district.

56:42And once our daughter is done with school, Why don't we move to a cheaper place further out? Well, I wouldn't call it countryside, but somewhere less desirable. And I mean, you'll be surprised that if you move further out, less urban and it's kind of not even suburban, more ex-urban, prices really don't go down because, well, you also have more land and then the houses are much bigger than ours. Yeah. That can be a challenge. And in the era of remote work, you know, you've got higher demand in those areas. at least from knowledge workers. Yeah. So it may not work for everybody. It definitely worked for me moving from San Francisco to Washington state.

57:24It's not going to work moving from St. Louis to Kansas City. I mean, you probably have the same prices or potentially higher prices. Right. And so that goes back to then the common criticism of the 50-year mortgage, which is you could spend your whole life never building much equity and ultimately end up saddling your heirs with debt? Oh, no. I mean, first of all, that would require that your home, also the home value goes down to zero, which I hope it doesn't. So there's still a home value behind the mortgage. And it's not about settling your heirs with debt. It just means that you have a little bit less equity.

58:02I think it's still, for example, we have the stepper basis for heirs. So they can inherit property and basically the capital gains are forgiven. There's still a lot of attractiveness, not just home ownership, but home ownership as an estate planning tool. And if you have a little bit of a mortgage, I think most of the time the heirs will just sell the home and pay off the mortgage. And I mean, if I had the choice, do I rather want to inherit a house with the mortgage or without a mortgage? Of course, I want a house without the mortgage. But for most people, we have to do a real horse race or the side-by-side comparison, right?

58:40Do I want to inherit a house with a mortgage plus a big equity portfolio, which by the way, also gets a nice step-up basis, or maybe the people that gave you the money pay down the mortgage and have a much smaller equity portfolio. So it's really depends on what's the path of equity returns over the next few years. I think if we do a real fair comparison, some of this discussion is a bit fear-mongering, right? I mean, you're going to leave debt to your heirs. And even with the 30-year mortgage, lots of people are still going to get brand new mortgages when they move in retirement. So I think just having a little bit of a leveraged life, that's just the lifestyle we have here in the United States.

59:24And so I grew up in Germany, and it would be totally unthinkable for 50-year-olds still to get a new mortgage. You settle down, you build a house, you pay down the mortgage, you stay there pretty much. forever. And that's it. So it's a lot less leverage, a lot less money and liquidity sloshing around there. But I mean, it's just the way Americans roll, I think. Right. And in part, that's the price that we pay for mobility. Right. And that leads to another objection to the 50-year mortgage. And this is actually one of the main objections that I have on a societal level. Could this mortgage contribute to rapidly inflating home prices by virtue of getting more people, unqualified borrowers into the market, who then consume supply, which further curtails the supply issue.

1:00:16It's a demand side solution, essentially. Yes. And if we deal only with the demand and we make it easier for buyers to afford stuff without doing anything on the supply side, yes, I absolutely think that is a huge concern. Oh, we're in agreement. Especially in the big metro areas, right? There's constraints. You can't just invent new land around San Francisco or New York City or Seattle, right? You have some constraints on how far you can build. I mean, Manhattan is literally an island. Yes, that's right. And so these are just geographic and physical constraints. But I think they're also man-made constraints.

1:00:54So there are rent control, right? I remember some tweets just a week or so ago that had to do with that. And that hampers supplying new homes. And by the way, why does rental market have to do anything with owner-occupied? Obviously, if more people could afford to rent and if more landlords built nicer and bigger and cheaper homes for renters, it would take off a little bit of the pressure of people trying to look around and buy houses. So it's really from almost every direction, we are constraining the housing market to work properly. We have a rental control and then it's any kind of building codes, right?

1:01:35The building codes become more involved every year because politicians say, oh, wouldn't it be better if we build houses that have all of these additional features and they're all really nice, but they're making new construction a lot more expensive. I don't know if people ever think that way, but they should also take into account some of the building codes and zoning and the delays during construction. The permitting process, yeah. I think it's just from identifying a lot of land to the people actually moving into the subdivision there. I think it probably takes five years or so. It takes a very long time.

1:02:12And yeah, there's setback requirements, there's density limitations. It gets very rural after a while. So we have some areas where the lots have to be five acres minimum. So it's not 0.5, but five acres minimum. And it's just because the people that live there, they don't want multifamily. They don't want a subdivision where people live door to door and window to window. And you look out your bedroom window and then six feet away is somebody else's bedroom window. There are some areas where it's intentional. we don't want this very high density living here. And yeah, so everything contributes to that.

1:02:51And then because we have these constraints, now if you make it cheaper to get the mortgage, and by the way, it's not cheaper, it only relaxes your cash flow and you bring in more potential buyers, because the constraint and the concern would be that, well, you're just driving up the price, because everybody is just lining up. They say, okay, well, I was able to get a $600 ,000 mortgage if it's 30 years. Now I can get, I don't know, I'm just making up the number, a$650 ,000 mortgage because it's a 50-year mortgage. So I'm just going to bid up the price to 600. But then everybody else does the same thing.

1:03:27And you are not building more. Only one person can get that new house. The people that benefit from that are the existing homes. So for example, you are renting, right? But you have rental property. So in some sense, you are a net landlord. And I am a net landlord in the sense that I own this place and then I have some real estate rental investments. So for us, it's actually good if we bring in more people and just drive up prices because you're basically taking away from poor people and giving it to rich people that already own real estate. The average person who gets into the housing market, I don't know if it's really beneficial to them to tie that 50-year mortgage to your leg.

1:04:09Yes, I absolutely agree that we shouldn't only do the 50-year mortgage. And for example, I think that the 50-year mortgage, for me to be a big fan of it, there should probably be some underwriting constraints. You should be able to qualify for the 30-year mortgage. And then you can also have the 50 as an option. If you can't afford the 30 and you only get the 50, it would contribute to just driving up prices. And so I think that is a valid concern. But then again, I also say that just because one method doesn't solve the problem entirely and it's just a small improvement doesn't mean that we shouldn't consider it.

1:04:50This is a bit concerning that this could have zero effect on building more stuff. I mean, for example, it could have the effect that if we make this 50-year mortgage more available to the commercial side, right? So if you're a landlord and we push more landlords into the 50-year mortgage and they pick this up and maybe they are the first ones to implement it and the early adapters, maybe it would have an impact on the supply side where landlords say, okay, now it's more attractive for me to build homes and I have a long horizon and I'd rather have a 50-year horizon than a 30-year horizon. and that means I can build my next property faster because the cash flow is a little bit lower for me.

1:05:31That is the one chance I see. But without solving the supply side, that is working only on the demand, I mean, it is doomed to fail, just like any other policy that only looks at the demand. Like rental control. Oh yeah, let's control rent and then everything is going to work out. And of course it's not, right? We all know why if we studied economics. Right. Yeah. And that's exactly a major piece of my objection to it as well. It is a demand-side solution to a supply-side problem. That will likely have the net effect of only driving prices up. Yeah. I agree with that. All right. We have found a couple of points of agreement.

1:06:11Yes, for sure. Well, thank you for having this discussion, Karsten. You bet. I'm glad I could come on the program. Or this debate, I should say. Thank you for this debate. Yeah, either way, it's always my pleasure. Karsten, where can people find you if they would like to learn more from you? I have a blog, earlyretirementnow.com, and I write about retirement-related topics. But of course, anything finance-related, I sometimes weigh into. And just like this one, try to play devil's advocate there a little bit. I'm on Twitter too. But if you go to my blog, you can find the ways, different routes to contact me.

1:06:50Well, thank you for joining the debate with Karsten over the 50-year mortgage. It was intended as a debate. It actually really turned more into an interview-style episode. You know, that's what happens when I talk to Karsten. He is one of my favorite people to talk about economics with. So thank you for being part of this community. I hope that you enjoyed this discussion slash debate. If you enjoyed today's episode, please do three things. First, share this with friends, family, neighbors, colleagues. Share it with the people in your life because that's how you spread the message of F-I-I-R-E.

1:07:21Second, subscribe to our newsletter, affordanything.com slash newsletter. And finally, hang out with the community, affordanything.com slash community. It's where you can find like-minded folks who share your fascination with all things finance. Thank you again for being part of the Afford Anything community. I'm Paula Pamp. This is the Afford Anything podcast. and I'll meet you in the next episode.

1:07:48Oh, is there any Fed gossip? Oh, no, I mean, I'm not connected anymore, but the gossip is that they will pause and makes me a little bit nervous. I mean, this is basically why the market is a little bit jittery right now. So there may be a pause in the rate cuts in December, which makes me wonder why would they pause? Well, we don't have the data, but out of caution, if the reason why you did the rate cuts at the beginning is because you're worried about a slowdown and now we have less data, so probably still do the rate cuts. What difference does it make if you reach the, say, the 3 % or whatever the landing point is supposed to be?

1:08:33If you reach the landing point by one or two meetings early, if there is a slowdown and then we lose the data and we don't observe the data for a while and say, oh, no, we should stop lowering rates now. That's a really dumb thing to do, right? So you take the foot off the gas, right? Oh, and now we are literally driving in a car, right? You take the foot off the gas. You want to slow down because you're worried about something bad happening. And now you get into the fog. They said, OK, no, I'm no longer taking the foot off the gas. I'm going to keep the foot on the gas because there's fog. I don't even know what's going on.

1:09:06And no, I mean, you should still take the foot off the gas if you have less information now. So it's really, really weird stuff going on at the Fed. And so I think this is going to have some, it reminds me of 2018. Remember that, 2018, where it was a Fed meeting in December? Everybody said, okay, it's kind of, we got this in the bag. And then Jerome Powell comes out swinging and is sounding really hawkish and then sends the market off into the Christmas break with everybody with total confusion and people are scared that the Fed is going to be way too hawkish. And it was basically a total meltdown, right?

1:09:45The days before Christmas 2018 was very bad in the stock market. I'm concerned that something like that is going to happen again. Wow. They're going to say, oh, yeah, I mean, we're not really sure about the slowdown anymore. Well, so you're afraid about inflation now again? Very, very strange what's going on.