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When 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 l
by jpetso 8y ago
When 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.