5 ms·
There's no question that it's a major factor. Even well-heeled individuals/couples don't take out mortgages on the order of $800,000 if they don't get minuscule
by brandur 10y ago
There's no question that it's a major factor. Even well-heeled individuals/couples don't take out mortgages on the order of $800,000 if they don't get minuscule rates on the order of ~3%. Banks wouldn't be able to hand out those rates for spans of ~30 years unless the government gives them access to cheap money and guarantees the loan.
- refurb 10y agoAgree entirely. Once interest rates rise, you'll see a direct impact on SF housing prices. People who can afford an $800,000 mortgage at 3%, can't borrow anywhere near that amount when rates are 6% (closer to the historical average).
- ChuckMcM 10y agoYeah, it goes down to $563,000 if its 6%, a 30% drop in affordable home price.
- ryandrake 10y agoIt's funny, as someone who was still a kid back in the 80s, the idea of a 6% mortgage sounds ridiculous to me. How on Earth could someone afford to pay all that interest? Yet, mortgage rates were at times in the past over 15% (!!!)
- rco8786 10y agoIt's not so bad when the actual price of the home is 30% lower.
- ChuckMcM 10y agoThe interest rate on my first house in Sunnyvale was 13% and it adjusted every 6 months. Of course the house cost $153,000. Still it took both my wife and I working (she is also an engineer) to make the payments and we didn't have kids yet. At the same time my Vanguard money market account was paying 15% annual interest. That was pretty awesome.
- tonfa 10y agoBecause inflation? I assume the "real interest rate" was much lower.
- WaylonKenning 10y agoIn New Zealand, interest rates were around 8% when I was growing up, and were around 20% when my parents bought a house. Would have been cheaper to put it on your credit card...
- distances 10y agoNot being from US, are most mortgages there fixed for their lifetimes or tied to fluctuating interest rates?
- brandur 10y agoMany are fixed for the entire duration of the mortgage's length (e.g. 25 years). You can find variable rates as well though. Being from Canada, I couldn't believe that this was possible when I first came down here because it seems to defy belief that any bank would take on the risk to extend a loan at such low-interest over that kind of time frame. It turns out that it's possible because the banks aren't taking any risk; instead it's all outsourced to US taxpayers ;)
- gozur88 10y agoThat's very recent, though. We had thirty year mortgages long before the government started holding most of the paper. Banks have been selling loans for ages - when I bought my first house in the '90s the bank which originated the loan sold it to a life insurance company four days after escrow closed. After a few years that insurance company sold it to someone else. Life insurance is a good fit for mortgages. Insurance companies need a safe investment to pay out when people die, and usually the payout isn't inflation adjusted. Besides, if you have to invest money for the long term but can't (by statute or temperament) handle much risk, what are you going to invest in? Twenty year T-Bills are at 2.30%.
- JumpCrisscross 10y ago> Twenty year T-Bills are at 2.30% FYI, T-bills have maturities of one year or less, T-notes two to ten years, and T-bonds 10 to 30 years. The term "Treasuries" helpfully covers all three.
- distances 10y agoSelling the loans forward sounds a bit weird system. In Finland it's usually the other way around -- customers may take their loans with them to another bank. This happens every now and then when competing banks offer better margins on the loans, or if customer isn't happy with the bank's service.