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Much higher mortgage payments. Run the math on a mortgage with 4% interest vs 8%.
by mathattack 8y ago
Much higher mortgage payments. Run the math on a mortgage with 4% interest vs 8%.
- toasterlovin 8y agoMy intuitive sense is that it should destroy the real estate market. Anything that I'm missing in that analysis?
- matwood 8y agoDepends on how fast it rises, and if wages can keep up. Obviously the slower the better. But yeah, the optimal time to buy RE is when rates are high and then refi when they drop.
- mhewett 8y agoHistory. In the late 1970s you could get 17% return on your savings account and mortgage rates were well above 10%. People still bought houses.
- toasterlovin 8y agoI'm not talking about a steady state. I'm talking about the transition from a low interest rate regime to a high interest rate regime.
- kazinator 8y agoIf someone barely qualified for a mortgage in a 2% environment, and now suddenly is faced with 10%, that's a bit of a shakedown.
- djrogers 8y agoNobody, anywhere, ever, in the history of this topic, has suggested the fed would raise rates such that rates would 'suddenly' jump to 10%. That's the straw-iest of straw-men.
- jpetso 8y agoWhen interest rates rise, prices fall. New buyers have a certain amount of money they're willing to pay each month and the market adjusts to that, so it makes little difference there. Existing owners would be the ones getting hit by rising interest rates, just as they were bagging outsized profits when rates were falling.
- toasterlovin 8y agoYeah, I guess I meant that house prices would crater. Obviously some people benefit from that and some don't. My intuition is that it would also precipitate an economic downturn. Many households will see a drastic deterioration of their balance sheets, which should act as a damper on consumer spending. Which would, in theory, have 2nd order effects on the real estate market...
- kurthr 8y agoPeople won't be able to borrow against their lost wealth either (or only at very high rates). Builders/Flippers will stop spending and so the construction trades will suffer a lot... ditto RE sales people and their 6% commissions. I don't think inflation would be high for long.
- BenoitEssiambre 8y agoExisting owners wouldn't really be affected if they plan to live in their house as it's just paper wealth that they can't access until they sell anyways. Those that downsize just after interest rates rise in order to spend the value locked in their house might lose a bit depending on whether any of the money is reinvested in something else after they sell. People who will lose the most are house builders. Their revenue is directly tied to house prices. However, for a rate rise to be sustainable there has to be other good ways to make money out there otherwise rates will likely quickly go down again.
- voisin 8y agoHigh rates and inflation tends to reflect an overheated, strong economy. This usually signifies higher demand for real estate and lower cap rates (higher valuations). Nothing happens in a vacuum so it depends on relative opportunities elsewhere too.
- Theodores 8y agoHowever during the years when the baby boomers were buying that house and paying 15%+ interest, that house sold at a 1/4 of today's prices, adjusting for inflation. There were mortgage tax relief schemes so it wasn't that hard to buy a house for that generation. They cheerfully tell their younger children to save up for a deposit like how they did.