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Anyone have an idea what happens to home prices as rates rise. Prices going down is a simple answer but with people leveraged to the hilt to buy expensive singl

Anyone have an idea what happens to home prices as rates rise. Prices going down is a simple answer but with people leveraged to the hilt to buy expensive single family homes, it seems more complicated. Underwater mortgages get complicated quickly as we saw in 2008.

charlesdm 8y ago
What will happen? Defaults, prices drop, some investors come bottom fishing for deals, the cycle repeats once again.
timr 8y ago
My answer is always this: if you live in it, it isn't an investment. Stop worrying about price appreciation, and focus on cost/benefit. It doesn't matter how underwater your mortgage is unless you need to sell out of it. If you don't think you're going to live somewhere for 10+ years, or if it's more expensive to buy then rent on your preferred timescale, then don't get a mortgage.
georgeecollins 8y ago
Markets will get sticky as people are reluctant to sell for a loss and fewer people can buy as interest rates go up. In markets like LA, NY, SF the high end will still probably be propped up by foreign "investors".
troydavis 8y ago
We’re missing 3 ingredients from 2008: adjustable-rate mortgages, high risk mortgages (0 down, interest-only, no doc, etc.), and unemployment. Most mortgages written in the last 5 years - that is, the ones which might be underwater - are fixed rate and have meaningful down payments. Even if unemployment rises[1], as long as homeowners still have the same monthly payments, and have a meaningful down payment, they’d stay in their homes as long as possible. In cities where appreciation has been strong, I think the likely outcome is a small (5-15%) decline over a few years, then flat appreciation (ie, a decline in real dollars) for a few more years, and relatively few sales because most folks would stay rather than sell while underwater. This may decrease geographic mobility. Basically, when rates rise closer to historical norms, 5 years of appreciation is already priced in and anyone who doesn’t need to move doesn’t move. As with most assets, don’t put yourself in a position where you absolutely need to sell. [1] If mortgage rates go up significantly, employment is still probably relatively low or the Federal Reserve would loosen its monetary policy and that would affect the mortgage market. I’m ignoring the wildcard case where the Fed’s monetary policy moves no longer have any impact.

charlesdm 8y ago

What will happen? Defaults, prices drop, some investors come bottom fishing for deals, the cycle repeats once again.

timr 8y ago

My answer is always this: if you live in it, it isn't an investment. Stop worrying about price appreciation, and focus on cost/benefit. It doesn't matter how underwater your mortgage is unless you need to sell out of it. If you don't think you're going to live somewhere for 10+ years, or if it's more expensive to buy then rent on your preferred timescale, then don't get a mortgage.

georgeecollins 8y ago

Markets will get sticky as people are reluctant to sell for a loss and fewer people can buy as interest rates go up. In markets like LA, NY, SF the high end will still probably be propped up by foreign "investors".

troydavis 8y ago

We’re missing 3 ingredients from 2008: adjustable-rate mortgages, high risk mortgages (0 down, interest-only, no doc, etc.), and unemployment. Most mortgages written in the last 5 years - that is, the ones which might be underwater - are fixed rate and have meaningful down payments. Even if unemployment rises[1], as long as homeowners still have the same monthly payments, and have a meaningful down payment, they’d stay in their homes as long as possible. In cities where appreciation has been strong, I think the likely outcome is a small (5-15%) decline over a few years, then flat appreciation (ie, a decline in real dollars) for a few more years, and relatively few sales because most folks would stay rather than sell while underwater. This may decrease geographic mobility. Basically, when rates rise closer to historical norms, 5 years of appreciation is already priced in and anyone who doesn’t need to move doesn’t move. As with most assets, don’t put yourself in a position where you absolutely need to sell. [1] If mortgage rates go up significantly, employment is still probably relatively low or the Federal Reserve would loosen its monetary policy and that would affect the mortgage market. I’m ignoring the wildcard case where the Fed’s monetary policy moves no longer have any impact.